January 18, 2017 collateral.
16 In response, Land Bank maintains that the CA and RTC did not err
G.R. No. 192602
SPOUSES MAY S. VILLALUZ and JOHNNY VILLALUZ, JR., Petitioners
vs.
LAND BANK OF THE PHILIPPINES and the REGISTER OF DEEDS FOR DAVAO CITY,
Respondents
DECISION
JARDELEZA, J.:
The Civil Code sets the default rule that an agent may appoint a substitute if
the principal has not prohibited him from doing so. The issue in this petition
for review on certiorari, 1 which seeks to set aside the Decision2 dated
September 22, 2009 and Resolution3 dated May 26, 2010 of the Court of
Appeals (CA) in CA-G.R. CV No. 01307, is whether the mortgage contract
executed by the substitute is valid and binding upon the principal.
I All acts of the substitute appointed against the prohibition of the principal
Sometime in 1996, Paula Agbisit (Agbisit), mother of petitioner May S. Villaluz
(May), requested the latter to provide her with collateral for a loan. At the
time, Agbisit was the chairperson of Milflores Cooperative and she needed
₱600,000 to ₱650,000 for the expansion of her backyard cut flowers
business.4 May convinced her husband, Johnny Villaluz (collectively, the
Spouses Villaluz), to allow Agbisit to use their land, located in Calinan, Davao
City and covered by Transfer Certificate of Title (TCT) No. T-202276, as
collateral. 5 On March 25, 1996, the Spouses Villaluz executed a Special Power
of Attorney6 in favor of Agbisit authorizing her to, among others, "negotiate
for the sale mortgage, or other forms of disposition a parcel of land covered
by Transfer Certificate of Title No. T-202276" and "sign in our behalf all
documents relating to the sale, loan or mortgage, or other disposition of the
aforementioned property. "7 The one-page power of attorney neither
specified the conditions under which the special powers may be exercised nor
stated the amounts for which the subject land may be sold or mortgaged.
On June 19, 1996, Agbisit executed her own Special Power of
Attorney, 8 appointing Milflores Cooperative as attorney-in-fact in obtaining a
loan from and executing a real mortgage in favor of Land Bank of the
Philippines (Land Bank). On June 21, 1996, Milflores Cooperative, in a
representative capacity, executed a Real Estate Mortgage9 in favor of Land
Bank in consideration of the ₱3,000,000 loan to be extended by the latter. On
June 24, 1996, Milflores Cooperative also executed a Deed of Assignment of
the Produce/Inventory 10 as additional collateral for the loan. Land Bank
partially released one-third of the total loan amount, or ₱995,500, to Milflores
Cooperative on June 25, 1996. On the same day, Agbisit borrowed the amount
of ₱604,750 from Milflores Cooperative. Land Bank released the remaining
loan amount of ₱2,000,500 to Milflores Cooperative on October 4, 1996. 11
Unfortunately, Milflorcs Cooperative was unable to pay its obligations to Land
Bank. Thus, Land Bank filed a petition for extra-judicial foreclosure sale with
the Office of the Clerk of Court of Davao City. Sometime in August, 2003, the
Spouses Villaluz learned that an auction sale covering their land had been set
for October 2, 2003. Land Bank won the auction sale as the sole bidder. 12
The Spouses Villaluz filed a complaint with the Regional Trial Court (RTC) of
Davao City seeking the annulment of the foreclosure sale. The sole question
presented before the RTC was whether Agbisit could have validly delegated
her authority as attorney-in-fact to Milflores Cooperative. Citing Article 1892
of the Civil Code, the RTC held that the delegation was valid since the Special
Power of Attorney executed by the Spouses Villaluz had no specific prohibition
against Agbisit appointing a substitute. Accordingly, the RTC dismissed the
complaint. 13
On appeal, the CA affirmed the RTC Decision. In its Decision14 dated
September 22, 2009, the CA similarly found Article 1892 to be squarely
applicable. According to the CA, the rule is that an agent is allowed to appoint
a sub-agent in the absence of an express agreement to the contrary and that
"a scrutiny of the Special Power of Attorney dated March 25, 1996 executed
by appellants in favor of [Agbisit] contained no prohibition for the latter to
appoint a sub-agent." 15 Therefore, Agbisit was allowed to appoint Milflores
Cooperative as her sub-agent.
After the CA denied their motion for reconsideration, the Spouses Villaluz filed
this petition for review. They argue that the Real Estate Mortgage was void
because there was no loan yet when the mortgage contract was executed and
that the Special Power of Attorney was extinguished when Milflores
Cooperative assigned its produce and inventory to Land Bank as additional
in applying Article 1892, that the Real Estate Mortgage can only be
extinguished after the amount of the secured loan has been paid, and that the
additional collateral was executed because the deed of assignment was meant
to cover any deficiency in the Real Estate Mortgage. 17
II
Articles 1892 and 1893 of the Civil Code provide the rules regarding the
appointment of a substitute by an agent:
Pag
e|
Art. 1892. The agent may appoint a substitute if the principal has not 84
prohibited him from doing so; but he shall be responsible for the acts of the
substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the person, and
the person appointed was notoriously incompetent or insolvent.
shall be void.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the
principal may furthermore bring an action against the substitute with respect
to the obligations which the latter has contracted under the substitution.
The law creates a presumption that an agent has the power to appoint a
substitute. The consequence of the presumption is that, upon valid
appointment of a substitute by the agent, there ipso jure arises an agency
relationship between the principal and the substitute, i.e., the substitute
becomes the agent of the principal. As a result, the principal is bound by the
acts of the substitute as if these acts had been performed by the principal's
appointed agent. Concomitantly, the substitute assumes an agent's
obligations to act within the scope of authority, 18 to act in accordance with
the principal's instructions, 19 and to carry out the agency, 20 among others. In
order to make the presumption inoperative and relieve himself from its
effects, it is incumbent upon the principal to prohibit the agent from
appointing a substitute.
Although the law presumes that the agent is authorized to appoint a
substitute, it also imposes an obligation upon the agent to exercise this power
conscientiously. To protect the principal, Article 1892 allocates responsibility
to the agent for the acts of the substitute when the agent was not expressly
authorized by the principal to appoint a substitute; and, if so authorized but a
specific person is not designated, the agent appoints a substitute who is
notoriously incompetent or insolvent. In these instances, the principal has a
right of action against both the agent and the substitute if the latter commits
acts prejudicial to the principal.
The case of Escueta v. Lim21illustrates the prevailing rule. In that case, the
father, through a special power of attorney, appointed his daughter as his
attorney-in-fact for the purpose of selling real properties. The daughter then
appointed a substitute or sub-agent to sell the properties. After the properties
were sold, the father sought to nullify the sale effected by the subagent on the
ground that he did not authorize his daughter to appoint a subagent. We
refused to nullify the sale because it is clear from the special power of
attorney executed by the father that the daughter is not prohibited from
appointing a substitute. Applying Article 1892, we held that the daughter
"merely acted within the limits of the authority given by her father, but she
will have to be 'responsible for the acts of the sub-agent,' among which is
precisely the sale of the subject properties in favor of respondent."22
In the present case, the Special Power of Attorney executed by the Spouses
Villaluz contains no restrictive language indicative of an intention to prohibit
Agbisit from appointing a substitute or sub-agent. Thus, we agree with the
findings of the CA and the RTC that Agbisit's appointment of Milflores
Cooperative was valid.
III
Perhaps recognizing the correctness of the CA and the RTC's legal position, the
Spouses Villaluz float a new theory in their petition before us. They now seek
to invalidate the Real Estate Mortgage for want of consideration. Citing Article
1409(3), which provides that obligations "whose cause or object did not exist
at the time of the transaction" are void ab initio, the Spouses Villaluz posit that
the mortgage was void because the loan was not yet existent when the
mortgage was executed on June 21, 1996. Since the loan was released only on
June 25, 1996, the mortgage executed four days earlier was without valuable
consideration.
Article 1347 provides that "[a]ll things which are not outside the commerce of
men, including future things, may be the object of a contract." Under Articles
1461 and 1462, things having a potential existence and "future
goods," i.e., those that are yet to be manufactured, raised, or acquired, may
be the objects of contracts of sale.1âwphi1 The narrow interpretation
advocated by the Spouses Villaluz would create a dissonance between Articles
1347, 1461, and 1462, on the one hand, and Article 1409(3), on the other. A
literal interpretation of the phrase "did not exist at the time of the
transaction" in Article 1409(3) would essentially defeat the clear intent and
purpose of Articles 1347, 1461, and 1462 to allow future things to be the
objects of contracts. To resolve this apparent conflict, Justice J.B.L. Reyes
commented that the phrase "did not exist" should be interpreted as "could
not come into existence" because the object may legally be a future
thing.23 We adopt this interpretation.
One of the basic rules in statutory interpretation is that all parts of a statute
are to be harmonized and reconciled so that effect may be given to each and
every part thereof, and that conflicting intentions in the same statute are
never to be supposed or so regarded.24 Thus, in order to give effect to Articles
134 7, 1461, and 1462, Article 1409(3) must be interpreted as referring to
contracts whose cause or object is impossible of existing at the time of the
transaction. 25
The cause of the disputed Real Estate Mortgage is the loan to be obtained by
Milflores Cooperative. This is clear from the terms of the mortgage document,
which expressly provides that it is being executed in "consideration of certain
loans, advances, credit lines, and other credit facilities or accommodations
obtained from [Land Bank by Milflores Cooperative] x x x in the principal
amount of [₱3,000,000]."26 The consideration is certainly not an impossible
one because Land Bank was capable of granting the ₱3,000,000 loan, as it in
fact released one-third of the loan a couple of days later. Although the validity
of the Real Estate Mortgage is dependent upon the validity of the loan,27 what
is essential is that the loan contract intended to be secured is actually
perfected,28 not at the time of the execution of the mortgage contract vis-a-
vis the loan contract. In loan transactions, it is customary for the lender to
require the borrower to execute the security contracts prior to initial
drawdown. This is understandable since a prudent lender would not want to
release its funds without the security agreements in place. On the other hand,
the borrower would not be prejudiced by mere execution of the security
contract, because unless the loan proceeds are delivered, the obligations
under the security contract will not arise.29 In other words, the security
contract-in this case, the Real Estate Mortgage-is conditioned upon the
release of the loan amount. This suspensive condition was satisfied when Land
Bank released the first tranche of the ₱3,000,000 loan to Milflores
Cooperative on June 25, 1996, which consequently gave rise to the Spouses
Villaluz's obligations under the Real Estate Mortgage.1awp++i1
IV
The Spouses Villaluz claim that the Special Power of Attorney they issued was
mooted by the execution of the Deed of Assignment of the Produce/Inventory
by Milflores Cooperative in favor of Land Bank. Their theory is that the
additional security on the same loan extinguished the agency because the
Deed of Assignment "served as payment of the loan of the [Milflores]
Cooperative."30
The assignment was for the express purpose of "securing the payment of the
Line/Loan, interest and charges thereon."31 Nowhere in the deed can it be
reasonably deduced that the collaterals assigned by Milflores Cooperative
were intended to substitute the payment of sum of money under the loan. It
was an accessory obligation to secure the principal loan obligation.
The assignment, being intended to be a mere security rather than a
satisfaction of indebtedness, is not a elation in payment under Article
124532 and did not extinguish the loan obligation. 33 "Dation in payment
extinguishes the obligation to the extent of the value of the thing delivered,
either as agreed upon by the parties or as may be proved, unless the parties
by agreement-express or implied, or by their silence-consider the thing as
equivalent to the obligation, in which case the obligation is totally
extinguished."34 As stated in the second condition of the Deed of Assignment,
the "Assignment shall in no way release the ASSIGNOR from liability to pay the
Line/Loan and other obligations, except only up to the extent of any amount
actually collected and paid to ASSIGNEE by virtue of or under this
Assignment."35 Clearly, the assignment was not intended to substitute the
payment of sums of money. It is the delivery of cash proceeds, not the
execution of the Deed of Assignment, that is considered as payment. Absent
any proof of delivery of such proceeds to Land Bank, the Spouses Villaluz' s
claim of payment is without basis.
Neither could the assignment have constituted payment by cession under
Article 125536 for the plain and simple reason that there was only one
creditor, Land Bank. Article 1255 contemplates the existence of two or more
creditors and involves the assignment of all the debtor's property. 37
The Spouses Villaluz understandably feel shorthanded because their property
was foreclosed by reason of another person's inability to pay. However, they
were not coerced to grant a special power of attorney in favor of Agbisit. Nor
were they prohibited from prescribing conditions on how such power may be
exercised. Absent such express limitations, the law recognizes Land Bank's
right to rely on the terms of the power of attorney as written.38 "Courts
cannot follow one every step of his life and extricate him from bad bargains, Pag
protect him from unwise investments, relieve him from one-sided contracts,
e|
or annul the effects of [unwise] acts."39 The remedy afforded by the Civil Code
to the Spouses Villaluz is to proceed against the agent and the substitute in 85
accordance with A1iicles 1892 and 1893.
WHEREFORE, the petition is DENIED. The Decision dated September 22, 2009
and Resolution dated May 26, 2010 of the Court of Appeals in CA-G.R. CV No.
01307 are AFFIRMED.
SO ORDERED.
G.R. No. 156846 February 23, 2004
TEDDY G. PABUGAIS, petitioner
vs.
DAVE P. SAHIJWANI, respondent.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the January 16, 2003
Amended Decision1 of the Court of Appeals2 in CA-G.R. CV No. 55740 which
set aside the November 29, 1996 Decision3 of the Regional Trial Court of
Makati, Branch 64, in Civil Case No. 94-2363.
Pursuant to an "Agreement And Undertaking"4 dated December 3, 1993,
petitioner Teddy G. Pabugais, in consideration of the amount of Fifteen Million
Four Hundred Eighty Seven Thousand Five Hundred Pesos (P15,487,500.00),
agreed to sell to respondent Dave P. Sahijwani a lot containing 1,239 square
meters located at Jacaranda Street, North Forbes Park, Makati, Metro Manila.
Respondent paid petitioner the amount of P600,000.00 as option/reservation
fee and the balance of P14,887,500.00 to be paid within 60 days from the
execution of the contract, simultaneous with delivery of the owner’s duplicate
Transfer Certificate of Title in respondent’s name the Deed of Absolute Sale;
the Certificate of Non-Tax Delinquency on real estate taxes and Clearance on
Payment of Association Dues. The parties further agreed that failure on the
part of respondent to pay the balance of the purchase price entitles petitioner
to forfeit the P600,000.00 option/reservation fee; while non-delivery by the
latter of the necessary documents obliges him to return to respondent the
said option/reservation fee with interest at 18% per annum, thus –
5. DEFAULT – In case the FIRST PARTY [herein respondent] fails to pay the
balance of the purchase price within the stipulated due date, the sum of
P600,000.00 shall be deemed forfeited, on the other hand, should the
SECOND PARTY [herein petitioner] fail to deliver within the stipulated period
the documents hereby undertaken, the SECOND PARTY shall return the sum of
P600,000.00 with interest at 18% per annum.5
Petitioner failed to deliver the required documents. In compliance with their
agreement, he returned to respondent the latter’s P600,000.00
option/reservation fee by way of Far East Bank & Trust Company Check No.
25AO54252P, which was, however, dishonored.
What transpired thereafter is disputed by both parties. Petitioner claimed that
he twice tendered to respondent, through his counsel, the amount of
P672,900.00 (representing the P600,000.00 option/reservation fee plus 18%
interest per annum computed from December 3, 1993 to August 3, 1994) in
the form of Far East Bank & Trust Company Manager’s Check No. 088498,
dated August 3, 1994, but said counsel refused to accept the same. His first
attempt to tender payment was allegedly made on August 3, 1994 through his
messenger;6 while the second one was on August 8, 1994,7 when he sent via
DHL Worldwide Services, the manager’s check attached to a letter dated
August 5, 1994.8 On August 11, 1994, petitioner wrote a letter to respondent
saying that he is consigning the amount tendered with the Regional Trial Court
of Makati City.9 On August 15, 1994, petitioner filed a complaint for
consignation.10
Respondent’s counsel, on the other hand, admitted that his office received
petitioner’s letter dated August 5, 1994, but claimed that no check was
appended thereto.11 He averred that there was no valid tender of payment
because no check was tendered and the computation of the amount to be
tendered was insufficient,12 because petitioner verbally promised to pay 3%
monthly interest and 25% attorney’s fees as penalty for default, in addition to
the interest of 18% per annum on the P600,000.00 option/reservation fee.13
On November 29, 1996, the trial court rendered a decision declaring the
consignation invalid for failure to prove that petitioner tendered payment to
respondent and that the latter refused to receive the same. It further held
that even assuming that respondent refused the tender, the same is justified
because the manager’s check allegedly offered by petitioner was not legal
tender, hence, there was no valid tender of payment. The trial court ordered
petitioner to pay respondent the amount of P600,000.00 with interest of 18%
per annum from December 3, 1993 until fully paid, plus moral damages and
attorney’s fees.14
Petitioner appealed the decision to the Court of Appeals. Meanwhile, his
counsel, Atty. Wilhelmina V. Joven, died and she was substituted by Atty.
Salvador P. De Guzman, Jr.15 On December 20, 2001, petitioner executed a
"Deed of Assignment"16 assigning in favor of Atty. De Guzman, Jr., part of the
P672,900.00 consigned with the trial court as partial payment of the latter’s
attorney’s fees.17 Thereafter, on January 7, 2002, petitioner filed an Ex Parte
Motion to Withdraw Consigned Money.18 This was followed by a "Motion to
Intervene" filed by Atty. De Guzman, Jr., praying that the amount consigned
be released to him by virtue of the Deed of Assignment.19
Petitioner’s motion to withdraw the amount consigned was denied by the
Court of Appeals and the decision of the trial court was affirmed with
modification as to the amount of moral damages and attorney’s fees.20
On a motion for reconsideration, the Court of Appeals declared the
consignation as valid in an Amended Decision dated January 16, 2003. It held
that the validity of the consignation had the effect of extinguishing petitioner’s
obligation to return the option/reservation fee to respondent. Hence,
petitioner can no longer withdraw the same. The decretal portion of the
Amended Decision states:
WHEREFORE, premises considered, our decision dated April 26, 2002 is
RECONSIDERED. The trial court’s decision is hereby REVERSED and SET ASIDE,
and a new one is entered (1) DECLARING as valid the consignation by the
plaintiff-appellant in favor of defendant-appellee of the amount of
P672,900.00 with the Makati City RTC Clerk of Court and deposited under
Official Receipt No. 379061 dated 15 August 1994 and (2) DECLARING as
extinguished appellant’s obligation in favor of appellee under paragraph 5 of
the parties’ "AGREEMENT AND UNDERTAKING". Neither party shall recover
costs from the other.
SO ORDERED.21
Unfazed, petitioner filed the instant petition for review contending, inter alia,
that he can withdraw the amount deposited with the trial court as a matter of
right because at the time he moved for the withdrawal thereof, the Court of
Appeals has yet to rule on the consignation’s validity and the respondent had
not yet accepted the same.
The resolution of the case at bar hinges on the following issues: (1) Was there
a valid consignation? and (2) Can petitioner withdraw the amount consigned
as a matter of right?
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment
and it generally requires a prior tender of payment.22 In order that
consignation may be effective, the debtor must show that: (1) there was a
debt due; (2) the consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it, or
because he was absent or incapacitated, or because several persons claimed
to be entitled to receive the amount due or because the title to the obligation
has been lost; (3) previous notice of the consignation had been given to the
person interested in the performance of the obligation; (4) the amount due
was placed at the disposal of the court; and (5) after the consignation had
been made the person interested was notified thereof. Failure in any of these
requirements is enough ground to render a consignation ineffective.23
The issues to be resolved in the instant case concerns one of the important
requisites of consignation, i.e, the existence of a valid tender of payment. As
testified by the counsel for respondent, the reasons why his client did not
accept petitioner’s tender of payment were – (1) the check mentioned in the
August 5, 1994 letter of petitioner manifesting that he is settling the
obligation was not attached to the said letter; and (2) the amount tendered
was insufficient to cover the obligation. It is obvious that the reason for
respondent’s non-acceptance of the tender of payment was the alleged
insufficiency thereof – and not because the said check was not tendered to
respondent, or because it was in the form of manager’s check. While it is true
that in general, a manager’s check is not legal tender, the creditor has the
option of refusing or accepting it.24 Payment in check by the debtor may be
acceptable as valid, if no prompt objection to said payment is
made.25 Consequently, petitioner’s tender of payment in the form of
manager’s check is valid.
Anent the sufficiency of the amount tendered, it appears that only the interest
of 18% per annum on the P600,000.00 option/reservation fee stated in the Pag
default clause of the "Agreement And Undertaking" was agreed upon by the e|
parties, thus –
86
5. DEFAULT – In case the FIRST PARTY [herein respondent] fails to pay the
balance of the purchase price within the stipulated due date, the sum of
P600,000.00 shall be deemed forfeited, on the other hand, should the
SECOND PARTY [herein petitioner] fail to deliver within the stipulated period
the documents hereby undertaken, the SECOND PARTY shall return the sum of
P600,000.00 with interest at 18% per annum.26
The manager’s check in the amount of P672,900.00 (representing the
P600,000.00 option/reservation fee plus 18% interest per annum computed
from December 3, 1993 to August 3, 1994) which was tendered but refused
by respondent, and thereafter consigned with the court, was enough to satisfy
the obligation.
There being a valid tender of payment in an amount sufficient to extinguish
the obligation, the consignation is valid.
As regards petitioner’s right to withdraw the amount consigned, reliance on
Article 1260 of the Civil Code is misplaced. The said Article provides –
Art. 1260. Once the consignation has been duly made, the debtor may ask the
judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial
confirmation that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in
force.
The amount consigned with the trial court can no longer be withdrawn by
petitioner because respondent’s prayer in his answer that the amount
consigned be awarded to him is equivalent to an acceptance of the
consignation, which has the effect of extinguishing petitioner’s obligation.
Moreover, petitioner failed to manifest his intention to comply with the
"Agreement And Undertaking" by delivering the necessary documents and the
lot subject of the sale to respondent in exchange for the amount deposited.
Withdrawal of the money consigned would enrich petitioner and unjustly
prejudice respondent.
The withdrawal of the amount deposited in order to pay attorney’s fees to
petitioner’s counsel, Atty. De Guzman, Jr., violates Article 1491 of the Civil
Code which forbids lawyers from acquiring by assignment, property and rights
which are the object of any litigation in which they may take part by virtue of
their profession.27 Furthermore, Rule 10 of the Canons of Professional Ethics
provides that "the lawyer should not purchase any interest in the subject
matter of the litigation which he is conducting." The assailed transaction falls
within the prohibition because the Deed assigning the amount of P672,900.00
to Atty. De Guzman, Jr., as part of his attorney’s fees was executed during the
pendency of this case with the Court of Appeals. In his Motion to Intervene,
Atty. De Guzman, Jr., not only asserted ownership over said amount, but
likewise prayed that the same be released to him. That petitioner knowingly
and voluntarily assigned the subject amount to his counsel did not remove
their agreement within the ambit of the prohibitory provisions.28 To grant the
withdrawal would be to sanction a void contract.29
WHEREFORE, in view of all the foregoing, the instant petition for review is
DENIED. The January 16, 2003 Amended Decision of the Court of Appeals in
CA-G.R. CV No. 55740, which declared the consignation by the petitioner in
favor of respondent of the amount of P672,900.00 with the Clerk of Court of
the Regional Trial Court of Makati City valid, and which declared petitioner’s
obligation to respondent under paragraph 5 of the "Agreement And
Undertaking" as having been extinguished, is AFFIRMED. No costs.
SO ORDERED.
G.R. No. 172259 December 5, 2006
SPS. JAIME BENOS and MARINA BENOS, petitioners,
vs.
SPS. GREGORIO LAWILAO and JANICE GAIL LAWILAO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review under Rule 45 of the Rules of Court assails the
December 5, 2005 Decision1 of the Court of Appeals in CA-G.R. SP No. 78845,
affirming the Judgment2 dated July 1, 2003 of the Regional Trial Court of
Bontoc, Mountain Province, Branch 35, in Civil Case No. 1091. The Regional
Trial Court reversed the Decision3 dated November 14, 2002 of the Municipal
Circuit Trial Court of Bauko, Mountain Province in Civil Case No. 314, and
ordered the consolidation of ownership of subject property in the name of
respondent-spouses Gregorio and Janice Gail Lawilao. Also assailed is the
March 17, 2006 Resolution4 denying petitioners’ motion for reconsideration.
The antecedent facts are as follows:
On February 11, 1999, petitioner-spouses Jaime and Marina Benos ("the
Benos spouses") and respondent-spouses Gregorio and Janice Gail Lawilao
("the Lawilao spouses") executed a Pacto de Retro Sale5 where the Benos
spouses sold their lot covered by Tax Declaration No. 25300 and the building
erected thereon for P300,000.00, one half of which was to be paid in cash to
the Benos spouses and the other half to be paid to the bank to pay off the
loan of the Benos spouses which was secured by the same lot and building.
Under the contract, the Benos spouses could redeem the property within 18
months from date of execution by returning the contract price, otherwise, the
sale would become irrevocable without necessity of a final deed to
consolidate ownership over the property in the name of the Lawilao spouses.
After paying the P150,000.00, the Lawilao spouses immediately took
possession of the property and leased out the building thereon. However,
instead of paying the loan to the bank, Janice Lawilao restructured it twice.
Eventually, the loan became due and demandable.
On August 14, 2000, a son of the Benos spouses paid the bank P159,000.00
representing the principal and interest. On the same day, the Lawilao spouses
also went to the bank and offered to pay the loan, but the bank refused to
accept the payment. The Lawilao spouses then filed with the Municipal Circuit
Trial Court a petition6 docketed as Civil Case No. 310 for consignation against
the bank and simultaneously deposited the amount of P159,000.00. Upon the
bank’s motion, the court dismissed the petition for lack of cause of action.
Subsequently, the Lawilao spouses filed with the Municipal Circuit Trial Court
a complaint docketed as Civil Case No. 314, for consolidation of ownership.
This complaint is the precursor of the instant petition. The Benos spouses
moved to dismiss on grounds of lack of jurisdiction and lack of cause of action
but it was denied and the parties went to trial.
On November 14, 2002, the Municipal Circuit Trial Court rendered judgment
in favor of the Benos spouses, the dispositive portion of which states:
IN THE LIGHT of all the foregoing considerations, for lack of legal
and factual basis to demand consolidation of ownership over the
subject property, the above-entitled case is hereby ordered
dismissed.
No pronouncement as to damages on the ground that no premium
should be assessed on the right to litigate.
No costs.
SO ORDERED.7
The Lawilao spouses appealed before the Regional Trial Court which reversed
the Municipal Circuit Trial Court and declared the ownership of the subject
property consolidated in favor of the Lawilao spouses.8
The Benos spouses appealed to the Court of Appeals which affirmed the
Regional Trial Court on December 5, 2005. The dispositive portion of the
Decision reads:
WHEREFORE, the petition for review is DISMISSED for lack of
sufficient merit. The decision rendered by the Regional Trial Court,
Branch 35, Bontoc, Mountain Province in Civil Case No. 1091 on 1
July 2003, reversing the decision of the Municipal Circuit Trial Court
of Bauko-Sabangan, Mountain Province in (Civil Case No.) 314, is
AFFIRMED. Pag
e|
SO ORDERED.9 87
The appellate court denied petitioners’ motion for reconsideration, hence, the
instant petition on the following assignment of errors:
4.0. It was error for the Regional Trial Court and, subsequently, the
Court of Appeals to rule that respondents can consolidate
ownership over the subject property.
4.1. It was likewise error for said lower courts not to have ruled that
the contract between the parties is actually an equitable
mortgage.10
The Benos spouses argue that consolidation is not proper because the Lawilao
spouses violated the terms of the contract by not paying the bank loan; that
having breached the terms of the contract, the Lawilao spouses cannot insist
on the performance thereof by the Benos spouses; that the contract was
actually an equitable mortgage as shown by the inadequacy of the
consideration for the subject property; and that respondent-spouses’ remedy
should have been for recovery of the loan or foreclosure of mortgage.
The Lawilao spouses, on the other hand, assert that the Pacto de Retro Sale
reflected the parties’ true agreement; that the Benos spouses cannot vary its
terms and conditions because they did not put in issue in their pleadings its
ambiguity, mistake or imperfection as well as its failure to express the parties’
true intention; that the Benos spouses admitted its genuineness and due
execution; and that the delivery of the property to the Lawilao spouses after
the execution of the contract shows that the agreement was a sale with a
right of repurchase and not an equitable mortgage.
The Lawilao spouses also claim that they complied with their obligation when
they offered to pay the loan to the bank and filed a petition for consignation;
and that because of the failure of the Benos spouses to redeem the property,
the title and ownership thereof immediately vested in them (Lawilao spouses).
The issue for resolution is whether the Lawilao spouses can consolidate
ownership over the subject property.
The petition is impressed with merit.
In ruling for respondents, the Court of Appeals held that: (1) the pacto de
retro sale was perfected because the parties voluntarily agreed upon the
object thereof and the price; (2) the Lawilao spouses acquired possession over
the property immediately after execution of the pacto de retro sale; (3) the
pacto de retro sale does not provide for automatic rescission in case the
Lawilao spouses fail to pay the full price; (4) the Benos spouses did not rescind
the contract after the Lawilao spouses failed to pay the P150,000.00 loan; (5)
Janice Lawilao offered to pay the loan and deposited P150,000.00 to the bank
although the period for payment had expired thus, complying with Article
1592 of the Civil Code allowing payment even after expiration of the period as
long as no demand for rescission of the contract had been made either
judicially or by a notarial act; (6) the title and ownership of the Lawilao
spouses became absolute when the Benos spouses failed to repurchase the
lot within the redemption period; and (7) the payment by the Benos spouses’
son of P159,000.00 to the bank does not amount to a repurchase as it violates
Article 1616 of the Civil Code requiring the vendor to return to the vendee the
price of the sale, the expenses of the contract and other necessary and useful
expenses.11
Contrary to the aforesaid findings, the evidence shows that the Lawilao
spouses did not make a valid tender of payment and consignation of the
balance of the contract price. As correctly found by the Regional Trial Court:
As matters stand, no valid tender of payment and/or consignation
of the P150,000.00 which the Appellant (Lawilaos) still owes the
Appellee (Benos) has been effected by the former. The amount of
P159,000.00 deposited with the MCTC is in relation to Civil Case No.
310 earlier dismissed by said court, and not to the instant action.
Hence, this Court cannot automatically apply such sum in
 satisfaction of the aforesaid debt of the Appellant and order the
Appellee creditor to accept the same.12 (Emphasis supplied)
The Lawilao spouses did not appeal said finding, and it has become final and
binding on them. Although they had repeatedly alleged in their pleadings that
the amount of P159,000.00 was still with the trial court which the Benos
spouses could withdraw anytime, they never made any step to withdraw the
amount and thereafter consign it. Compliance with the requirements of
tender and consignation to have the effect of payment are mandatory. Thus –
Tender of payment is the manifestation by debtors of their desire
to comply with or to pay their obligation. If the creditor refuses the
tender of payment without just cause, the debtors are discharged
from the obligation by the consignation of the sum due.
Consignation is made by depositing the proper amount to the
judicial authority, before whom the tender of payment and the
announcement of the consignation shall be proved. All interested
parties are to be notified of the consignation. Compliance with
these requisites is mandatory.13 (Emphasis supplied)
In the instant case, records show that the Lawilao spouses filed the petition
for consignation against the bank in Civil Case No. 310 without notifying the
Benos spouses. The petition was dismissed for lack of cause of action against
the bank. Hence, the Lawilao spouses failed to prove their offer to pay the
balance of the purchase price and consignation. In fact, even before the filing
of the consignation case, the Lawilao spouses never notified the Benos
spouses of their offer to pay.
Thus, as far as the Benos are concerned, there was no full and complete
payment of the contract price, which gives them the right to rescind the
contract pursuant to Articles 1191 in relation to Article 1592 of the Civil Code,
which provide:
Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles
1385 and 1388 of the Mortgage Law.
Art. 1592. In the sale of immovable property, even though it may
have been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been made upon
him either judicially or by a notarial act. After the demand, the
court may not grant him a new term.
In the instant case, while the Benos spouses did not rescind the Pacto de
Retro Sale through a notarial act, they nevertheless rescinded the same in
their Answer with Counterclaim where they stated that:
14. Plaintiffs did not perform their obligation as spelled out in the
Pacto de Retro Sale (ANNEX "A"), particularly the assumption of the
obligation of defendants to the Rural Bank of Bontoc. Defendants
were the ones who paid their loan through their son, ZALDY BENOS.
As a result, ANNEX "A" is rendered null and of no effect. Therefore,
the VENDEE a retro who is one of plaintiffs herein cannot
consolidate her ownership over the property subject of the null and
ineffective instrument.
15. Since plaintiffs did not perform their corresponding obligation
under ANNEX "A", defendants have been all too willing to return
the amount of ON[E] HUNDRED FIFTY THOUSAND PESOS
(P150,000.00) and reasonable interest thereon to plaintiffs. But
plaintiffs refused to accept the same.
With the filing of this answer, defendants pray that this serves as a
notice of tender of payment, and they shall consign the amount
with the proper court as soon as it is legally feasible.14
They also prayed that the Municipal Circuit Trial Court render judgment
"[d]eclaring the Pacto de Retro Sale rescinded or ineffective or void for lack of,
or insufficient consideration."15
In Iringan v. Court of Appeals,16 we ruled that "even a crossclaim found in the
Answer could constitute a judicial demand for rescission that satisfies the
requirement of the law." Similarly, the counterclaim of the Benos spouses in
their answer satisfied the requisites for the judicial rescission of the subject
Pacto de Retro Sale.
Pag
The Municipal Circuit Trial Court thus correctly dismissed the complaint for e|
consolidation of ownership filed by the Lawilao spouses for their failure to 88
comply with the conditions of the Pacto de Retro Sale. Nevertheless, it refused
to declare the rescission of the Pacto de Retro Sale as prayed for in the
counterclaim of the Benos spouses, stating that:
How about the other obligations and/or rights owing to either party
by virtue of the Pacto de Retro Sale? This, the court opines that it
can not delve into without overstepping the limits of his functions
there being appropriate remedies. It is hornbook in our
jurisprudence that a right in law may be enforced and a wrong way
be remedied but always through the appropriate action.17
The issue of rescission having been put in issue in the answer and the same
having been litigated upon without objections by the Lawilao spouses on
grounds of jurisdiction, the Municipal Circuit Trial Court should have ruled on
the same and wrote finis to the controversy.
Thus, as a necessary consequence of its ruling that the Lawilao spouses
breached the terms of the Pacto de Retro Sale, the Municipal Circuit Trial
Court should have rescinded the Pacto de Retro Sale and directed the Benos
spouses to return P150,000.00 to the Lawilao spouses, pursuant to our ruling
in Cannu v. Galang,18 to wit:
Petitioners maintain that inasmuch as respondents-spouses Galang
were not granted the right to unilaterally rescind the sale under the
Deed of Sale with Assumption of Mortgage, they should have first
asked the court for the rescission thereof before they fully paid the
outstanding balance of the mortgage loan with the NHMFC. They
claim that such payment is a unilateral act of rescission which
violates existing jurisprudence.
In Tan v. Court of Appeals, this court said:
. . . [T]he power to rescind obligations is implied in
reciprocal ones in case one of the obligors should not
comply with what is incumbent upon him is clear from a
reading of the Civil Code provisions. However, it is
equally settled that, in the absence of a stipulation to the
contrary, this power must be invoked judicially; it cannot
be exercised solely on a party’s own judgment that the
other has committed a breach of the obligation. Where
there is nothing in the contract empowering the
petitioner to rescind it without resort to the courts, the
petitioner’s action in unilaterally terminating the contract
in this case is unjustified.
It is evident that the contract under consideration does not contain
a provision authorizing its extrajudicial rescission in case one of the
parties fails to comply with what is incumbent upon him. This being
the case, respondents-spouses should have asked for judicial
intervention to obtain a judicial declaration of rescission. Be that as
it may, and considering that respondents-spouses’ Answer (with
affirmative defenses) with Counterclaim seeks for the rescission of
the Deed of Sale with Assumption of Mortgage, it behooves the
court to settle the matter once and for all than to have the case re-
litigated again on an issue already heard on the merits and which
this court has already taken cognizance of. Having found that
petitioners seriously breached the contract, we, therefore, declare
the same is rescinded in favor of respondents-spouses.
As a consequence of the rescission or, more accurately, resolution
of the Deed of Sale with Assumption of Mortgage, it is the duty of
the court to require the parties to surrender whatever they may
have received from the other. The parties should be restored to
their original situation.
The record shows petitioners paid respondents-spouses the
amount of P75,000.00 out of the P120,000.00 agreed upon. They
also made payments to NHMFC amounting to P55,312.47. As to the
 petitioners’ alleged payment to CERF Realty of P46,616.70, except
for petitioner Leticia Cannu’s bare allegation, we find the same not
to be supported by competent evidence. As a general rule, one who
pleads payment has the burden of proving it. However, since it has
been admitted in respondents-spouses’ Answer that petitioners
shall assume the second mortgage with CERF Realty in the amount
of P35,000.00, and that Adelina Timbang, respondents-spouses’
very own witness, testified that same has been paid, it is but proper
to return this amount to petitioners. The three amounts total
P165,312.47 -- the sum to be returned to petitioners.
WHEREFORE, the petition is GRANTED. The Decision dated December 5, 2005
and Resolution dated March 17, 2006 of the Court of Appeals in CA-G.R. SP
No. 78845, affirming the Judgment dated July 1, 2003 of the Regional Trial
Court of Bontoc, Mountain Province, Branch 35, in Civil Case No. 1091, are
REVERSED and SET ASIDE. The Decision dated November 14, 2002 of the
Municipal Circuit Trial Court of Bauko, Mountain Province in Civil Case No. No.
314 dismissing respondents’ complaint for consolidation of ownership and
damages is REINSTATED WITH THE MODIFICATION that the Pacto de Retro
Sale dated February 11, 1999 is declared rescinded and petitioners are
ordered to return the amount of P150,000.00 to respondents. No costs.
SO ORDERED.
G.R. No. 171298 April 15, 2013
SPOUSES OSCAR and THELMA CACAYORIN, Petitioners,
vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION,
INC., Respondent.
DECISION
DEL CASTILLO, J.:
Consignation is necessarily judicial. Article 1258 of the Civil Code specifically
provides that consignation shall be made by depositing the thing or things due
at the disposal of judicial authority. The said provision clearly precludes
consignation in venues other than the courts.
Assailed in this Petition for Review on Certiorari1 are the September 29, 2005
Decision2 of the Court of Appeals (CA) which granted the Petition for Certiorari
in CA-G.R. SP No. 84446 and its January 12, 2006 Resolution3 denying
petitioners' Motion for Reconsideration.4
Factual Antecedents
Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces
and Police Mutual Benefit Association, Inc. (AFPMBAI), a mutual benefit
association duly organized and existing under Philippine laws and engaged in
the business of developing low-cost housing projects for personnel of the
Armed Forces of the Philippines, Philippine National Police, Bureau of Fire
Protection, Bureau of Jail Management and Penology, and Philippine Coast
Guard. He filed an application with AFPMBAI to purchase a piece of property
which the latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan Mutual
Homes, San Pedro, Puerto Princesa City (the property), through a loan facility.
On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one
hand, and the Rural Bank of San Teodoro (the Rural Bank) on the other,
executed a Loan and Mortgage Agreement5 with the former as borrowers and
the Rural Bank as lender, under the auspices of Pag-IBIG or Home
Development Mutual Fund’s Home Financing Program.
The Rural Bank issued an August 22, 1994 letter of guaranty6 informing
AFPMBAI that the proceeds of petitioners’ approved loan in the amount of
₱77,418.00 shall be released to AFPMBAI after title to the property is
transferred in petitioners’ name and after the registration and annotation of
the parties’ mortgage agreement.
On the basis of the Rural Bank’s letter of guaranty, AFPMBAI executed in
petitioners’ favor a Deed of Absolute Sale,7 and a new title – Transfer
Certificate of Title No. 370178 (TCT No. 37017) – was issued in their name,
with the corresponding annotation of their mortgage agreement with the
Rural Bank, under Entry No. 3364.9
Unfortunately, the Pag-IBIG loan facility did not push through and the Rural
Bank closed and was placed under receivership by the Philippine Deposit
Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to
take possession of petitioners’ loan documents and TCT No. 37017, while
petitioners were unable to pay the loan/consideration for the property.
AFPMBAI made oral and written demands for petitioners to pay the loan/
consideration for the property.10
In July 2003, petitioners filed a Complaint11 for consignation of loan payment,
recovery of title and cancellation of mortgage annotation against AFPMBAI,
PDIC and the Register of Deeds of Puerto Princesa City. The case was docketed
as Civil Case No. 3812 and raffled to Branch 47 of the Regional Trial Court
Pag
(RTC) of Puerto Princesa City (Puerto Princesa RTC). Petitioners alleged in their e|
Complaint that as a result of the Rural Bank’s closure and PDIC’s claim that
89
their loan papers could not be located, they were left in a quandary as to
where they should tender full payment of the loan and how to secure
cancellation of the mortgage annotation on TCT No. 37017. Petitioners
prayed, thus:
a. That after the filing of this complaint an order be made allowing
the consignation x x x of Php77,418.00.
b. For the court to compute and declare the amount of interest to
be paid by the plaintiffs and thereafter to allow the consignation of
the interest payments in order to give way for the full discharge of
the loan.
c. To order the AFPMBAI to turn over to the custody of the court
the loan records and title (T.C.T. No. 37017) of the plaintiffs if the
same are in their possession.
d. To declare the full payment of the principal loan and interest and
ordering the full discharge from mortgage of the property covered
by T.C.T. No. 37017.
e. To order the Register of Deeds of Puerto Princesa City to cancel
the annotation of real estate mortgage under Entry No. 3364 at the
back of T.C.T. No. 37017.
f. Thereafter, to turn over to the plaintiffs their title free from the
aforesaid mortgage loan.12
AFPMBAI filed a Motion to Dismiss13 claiming that petitioners’ Complaint falls
within the jurisdiction of the Housing and Land Use Regulatory Board (HLURB)
and not the Puerto Princesa RTC, as it was filed by petitioners in their capacity
as buyers of a subdivision lot and it prays for specific performance of
contractual and legal obligations decreed under Presidential Decree No.
95714 (PD 957). It added that since no prior valid tender of payment was made
by petitioners, the consignation case was fatally defective and susceptible to
dismissal.
Ruling of the Regional Trial Court
In an October 16, 2003 Order,15 the trial court denied AFPMBAI’s Motion to
Dismiss, declaring that since title has been transferred in the name of
petitioners and the action involves consignation of loan payments, it
possessed jurisdiction to continue with the case. It further held that the only
remaining unsettled transaction is between petitioners and PDIC as the
appointed receiver of the Rural Bank.
AFPMBAI filed a Motion for Reconsideration,16 which the trial court denied in
its March 19, 2004 Order.17
Ruling of the Court of Appeals
AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a Petition for
Certiorari18 raising the issue of jurisdiction. On September 29, 2005, the CA
rendered the assailed Decision decreeing as follows:
WHEREFORE, premises considered, this Petition is GRANTED. The Assailed 16
October 2003 and 19 March 2004 Orders of the public respondent judge are
hereby ordered VACATED and SET ASIDE.
SO ORDERED.19
The CA held that Civil Case No. 3812 is a case for specific performance of
AFPMBAI’s contractual and statutory obligations as owner/developer of
Kalikasan Mutual Homes, which makes PD 957 applicable and thus places the
case within the jurisdiction of the HLURB. It said that since one of the
remedies prayed for is the delivery to petitioners of TCT No. 37017, the case is
cognizable exclusively by the HLURB.
Petitioners moved for reconsideration which was denied by the CA in its
January 12, 2006 Resolution.
Hence, the instant Petition.
Issue
The sole issue that must be resolved in this Petition is: Does the Complaint in
Civil Case No. 3812 fall within the exclusive jurisdiction of the HLURB?
Petitioners’ Arguments
Petitioners assert that the elements which make up a valid case for
consignation are present in their Complaint. They add that since a deed of
absolute sale has been issued in their favor, and possession of the property
has been surrendered to them, not to mention that title has been placed in
their name, the HLURB lost jurisdiction over their case. And for this same
reason, petitioners argue that their case may not be said to be one for specific
performance of contractual and legal obligations under PD 957 as nothing
more was left to be done in order to perfect or consolidate their title.
Petitioners thus pray that the herein assailed Decision and Resolution of the
CA be set aside, and that the trial court be ordered to continue with the
proceedings in Civil Case No. 3812.
Respondent's Arguments
Respondent, on the other hand, insists in its Comment20 that jurisdiction over
petitioners’ case lies with the HLURB, as it springs from their contractual
relation as seller and buyer, respectively, of a subdivision lot. The prayer in
petitioners’ Complaint involves the surrender or delivery of the title after full
payment of the purchase price, which respondent claims are reciprocal
obligations in a sale transaction covered by PD 957. Respondent adds that in
effect, petitioners are exacting specific performance from it, which places
their case within the jurisdiction of the HLURB.
Our Ruling
The Court grants the Petition.
The Complaint makes out a case for consignation.
The settled principle is that "the allegations of the Complaint determine the
nature of the action and consequently the jurisdiction of the courts. This rule
applies whether or not the plaintiff is entitled to recover upon all or some of
the claims asserted therein as this is a matter that can be resolved only after
and as a result of the trial."21
Does the Complaint in Civil Case No. 3812 make out a case for consignation? It
alleges that:
6.0 – Not long after however, RBST22 closed shop and defendant
Philippine Deposit Insurance Corporation (PDIC) was appointed as
its receiver. The plaintiffs, through a representative, made a verbal
inquiry to the PDIC regarding the payment of their loan but were
told that it has no information or record of the said loan. This made
[sic] the plaintiffs in quandary as to where or whom they will pay
their loan, which they intend to pay in full, so as to cancel the
annotation of mortgage in their title.
7.0 – It was discovered that the loan papers of the plaintiffs,
including the duplicate original of their title, were in the possession
of defendant AFPMBAI. It was unclear though why the said
documents including the title were in the possession of AFPMBAI.
These papers should have been in RBST’s possession and given to
PDIC after its closure in the latter’s capacity as receiver.
8.0 – Plaintiffs are now intending to pay in full their real estate loan
but could not decide where to pay the same because of RBST [sic]
closure and PDIC’s failure to locate the loan records and title. This
court’s intervention is now needed in order to determine to [sic]
where or whom the loan should be paid.
9.0 – Plaintiffs hereby respectfully prays [sic] for this court to allow
the deposit of the amount of Php77,418.00 as full payment of their
principal loan, excluding interest, pursuant to the Loan and
Mortgage Agreement on 4 July 1994.23
From the above allegations, it appears that the petitioners’ debt is
outstanding; that the Rural Bank’s receiver, PDIC, informed petitioners that it
has no record of their loan even as it took over the affairs of the Rural Bank,
which on record is the petitioners’ creditor as per the July 4, 1994 Loan and
Mortgage Agreement; that one way or another, AFPMBAI came into
possession of the loan documents as well as TCT No. 37017; that petitioners
are ready to pay the loan in full; however, under the circumstances, they do Pag
not know which of the two – the Rural Bank or AFPMBAI – should receive full e|
payment of the purchase price, or to whom tender of payment must validly be
made. 90
Under Article 1256 of the Civil Code,24 the debtor shall be released from
responsibility by the consignation of the thing or sum due, without need of
prior tender of payment, when the creditor is absent or unknown, or when he
is incapacitated to receive the payment at the time it is due, or when two or
more persons claim the same right to collect, or when the title to the
obligation has been lost. Applying Article 1256 to the petitioners’ case as
shaped by the allegations in their Complaint, the Court finds that a case for
consignation has been made out, as it now appears that there are two entities
which petitioners must deal with in order to fully secure their title to the
property: 1) the Rural Bank (through PDIC), which is the apparent creditor
under the July 4, 1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which
is currently in possession of the loan documents and the certificate of title,
and the one making demands upon petitioners to pay. Clearly, the allegations
in the Complaint present a situation where the creditor is unknown, or that
two or more entities appear to possess the same right to collect from
petitioners. Whatever transpired between the Rural Bank or PDIC and
AFPMBAI in respect of petitioners’ loan account, if any, such that AFPMBAI
came into possession of the loan documents and TCT No. 37017, it appears
that petitioners were not informed thereof, nor made privy thereto.
Indeed, the instant case presents a unique situation where the buyer, through
no fault of his own, was able to obtain title to real property in his name even
before he could pay the purchase price in full. There appears to be no vitiated
consent, nor is there any other impediment to the consummation of their
agreement, just as it appears that it would be to the best interests of all
parties to the sale that it be once and for all completed and terminated. For
this reason, Civil Case No. 3812 should at this juncture be allowed to proceed.
Moreover, petitioners’ position is buttressed by AFPMBAI’s own admission in
its Comment25 that it made oral and written demands upon the former, which
naturally aggravated their confusion as to who was their rightful creditor to
whom payment should be made – the Rural Bank or AFPMBAI. Its subsequent
filing of the Motion to Dismiss runs counter to its demands to pay. If it wanted
to be paid with alacrity, then it should not have moved to dismiss Civil Case
No. 3812, which was brought precisely by the petitioners in order to be able
to finally settle their obligation in full.
Finally, the lack of prior tender of payment by the petitioners is not fatal to
their consignation case. They filed the case for the exact reason that they
were at a loss as to which between the two – the Rural Bank or AFPMBAI –
was entitled to such a tender of payment. Besides, as earlier stated, Article
1256 authorizes consignation alone, without need of prior tender of payment,
where the ground for consignation is that the creditor is unknown, or does not
appear at the place of payment; or is incapacitated to receive the payment at
the time it is due; or when, without just cause, he refuses to give a receipt; or
when two or more persons claim the same right to collect; or when the title of
the obligation has been lost.
Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not
with the HLURB.
On the question of jurisdiction, petitioners’ case should be tried in the Puerto
Princesa RTC, and not the HLURB. Consignation is necessarily judicial,26 as the
Civil Code itself provides that consignation shall be made by depositing the
thing or things due at the disposal of judicial authority, thus:
Art. 1258. Consignation shall be made by depositing the things due at the
disposal of judicial authority, before whom the tender of payment shall be
proved, in a proper case, and the announcement of the consignation in other
cases.
The consignation having been made, the interested parties shall also be
notified thereof. (Emphasis and underscoring supplied)
The above provision clearly precludes consignation in venues other than the
courts.1âwphi1 Elsewhere, what may be made is a valid tender of payment,
but not consignation. The two, however, are to be distinguished.
Tender of payment must be distinguished from consignation. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of payment
may be extrajudicial, while consignation is necessarily judicial, and the priority
of the first is the attempt to make a private settlement before proceeding to
the solemnities of consignation. (8 Manresa 325).27
While it may be true that petitioners’ claim relates to the terms and
conditions of the sale of AFPMBAI’s subdivision lot, this is overshadowed by
the fact that since the Complaint in Civil Case No. 3812 pleads a case for
consignation, the HLURB is without jurisdiction to try it, as such case may only
be tried by the regular courts.
WHEREFORE, premises considered, the Petition is GRANTED. The September
29, 2005 Decision and January 12, 2006 Resolution of the Court of Appeals in
CA-G.R. SP No. 84446 are ANNULLED and SET ASIDE. The October 16, 2003
and March 19, 2004 Orders of the Regional Trial Court of Puerto Princesa City,
Branch 47, are REINSTATED, and the case is REMANDED to the said court for
continuation of the proceedings.
SO ORDERED.
March 13, 2017
G.R. No. 206037
PHILIPPINE NATIONAL BANK, Petitioner
vs
LILIBETH S. CHAN, Respondent
DECISION
DEL CASTILLO, J.:
We resolve the Petition for Review on Certiorari under Rule 45 of the Rules of
Court, assailing the May 28, 2012 Decision1 and the February 21, 2013
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 98112.
The Antecedent Facts
Respondent Lilibeth S. Chan owns a three-story commercial building located
along A. Linao Street, Paco, Manila covered by Transfer Certificate of Title
(TCT) No. 208782.3 On May 10, 2000, she leased said commercial building to
petitioner Philippine National Bank (PNB) for a period of five years from
December 15, 1999 to December 14, 2004, with a monthly rental of
₱76,160.00.4 When the lease expired, PNB continued to occupy the property
on a month-to-month basis with a monthly rental of ₱116,788.44. PNB
vacated the premises on March 23, 2006.5
Meanwhile, on January 22, 2002, respondent obtained a ₱l,500,000.00 loan
from PNB which was secured by a Real Estate Mortgage constituted over the
leased property.6 In addition, respondent executed a Deed of
Assignment7 over the rental payments in favor of PNB.
The amount of the respondent's loan was subsequently increased to
₱7,500,000.00. Consequently, PNB and the respondent executed an
"Amendment to the Real Estate Mortgage by Substitution of Collateral" on
March 31, 2004, where the mortgage over the leased property was released
and substituted by a mortgage over a parcel of land located in Paco, Manila,
covered by TCT No. 209631.8
On August 26, 2005, respondent filed a Complaint for Unlawful Detainer
before the Metropolitan Trial Court (MeTC), Branch 7, Manila against PNB,
alleging that the latter failed to pay its monthly rentals from October 2004
until August 2005:9
In its defense, PNB claimed that it applied the rental proceeds from October
2004 to January 15, 2005 as payment for respondent's outstanding loan which
became due and demandable in October 2004.10 As for the monthly rentals
from January 16, 2005 to February 2006, PNB explained that it received a
demand letter11 from a certain Lamberto Chua (Chua) who claimed to be the
new owner of the leased property and requested that the rentals be paid
directly to him, reckoned from January 15, 2005 until PNB decides to vacate
the premises or a new lease contract with Chua is executed. PNB thus
deposited the rentals in a separate non-drawing savings account for the
benefit of the rightful party.12
The MeTC held a hearing on April 25, 2006 where the parties agreed to apply
the rental proceeds from October 2004 to January 15, 2005 to the
respondent's outstanding loan.13 PNB, too, consigned the amount of
₱l,348,643.92, representing ti1ie rentals due from January 16, 2005 to
February 2006, with the court on May 31, 2006.14
Ruling of the Metropolitan Trial Court
In its August 9, 2006 Decision,15 the MeTC ordered PNB to pay respondent
accrued rentals in the amount of ₱l,348,643.92,16 with interest at 6% per
Pag
annum from January 16, 2005 up to March 23, 2006, when PNB finally vacated e|
the leased propeity.17 The MeTC likewise directed PNB to pay attorney's fees
91
in the amount of ₱20,000.00 and the cost of suit.
PNB appealed the August 9, 2006 MeTC Decision to the Regional Trial Court
(RTC), Branch 14, Manila, insisting that respondent is not entitled to the
disputed rental proceeds amounting to ₱l,348,643.92. According to PNB, the
money should be applied to offset respondent's outstanding loan pursuant to
the
Deed of Assignment the latter executed in its favor. PNB also argued that it is
not liable to pay any interest on the lease rentals since it did not incur any
delay in the payment of rent.18
While the appeal was pending before the RTC, PNB initiated foreclosure
proceedings on the mortgaged property covered by TCT No. 209631.19 The
property was sold on October 31, 2006 for ₱l5,311,000.00 to PNB as the
highest bidder. Notably, the Certificate of Sale provides that respondent's
indebtedness amounted to ₱ll,211,283.53 as of May 15, 2005, "exclusive of
penalties, expenses, charges and the ten (10) percent attorney's fees, plus
sheriff fees and other lawful expenses of foreclosure and sale."20
In light of this development, respondent filed a Memorandum21 before the
RTC, claiming that PNB had no right to retain foe ₱l,348,643.92 consigned with
the court. She insisted that her loan was fully paid when PNB bought the
mortgaged property at ₱15,3ll,000.00.22
PNB filed a Rejoinder23 and argued that respondent's outstanding obligation
as of October 31, 2006 was ₱18,016,300.71 while the bid price was only
₱l5,31l,000.00. Thus, PNB claimed that it is entitled to a deficiency claim
amounting to ₱2,705,300.71 to which the rental proceeds of ₱l,348,643.92
can be applied.24
Ruling of the Regional Trial Court
The RTC affirmed the MeTC ruling in its December 7, 2006 Decision.25 It found
that respondent's obligation to PNB "has already been paid, notwithstanding
the belated claim of [the latter] that there remains a deficiency."26 The RTC
noted that the ₱11,211,283.53 amount of indebtedness stated in the Notice
of Extra-Judicial Sale27 dated August 9, 2006 as of May 15, 2006 plus penalties,
expenses, charges, attorney's fees and expenses could have been easily
covered by the ₱l5,31l,000.00 bid price.28
In addition, the RTC held that PNB incurred delay "when despite demand, it
refused to pay and vacate the premises.29 " As such, the RTC ruled that the
respondent is entitled to legal interest at 6% per annum and attorney's fees
for having been compelled to litigate to protect her interests.30
The respondent then moved for the issuance of a Writ of Execution which was
granted by the HTC in its December 18, 2006 Order.31 According to the
Sheriff's Report of Execution32 dated January 2, 2007, the amount of
₱l,348,643.92, representing the monthly rentals from January 16, 2005 up to
March 23, 2006, was turned over to the respondent on December 20, 2006.33
PNB filed a motion for reconsideration of the December 7, 2006 Decision and
for the quashal of the Writ of Execution, but the RTC denied the motion in its
Order dated February 6, 2007.34 Following the denial, PNB filed a Petition for
Review under Rule 42 of the Rules of Court before the CA, challenging the
RTC's December 7, 2006 Decision and February 6, 2007 Order.
Ruling of the Court of Appeals
The CA pointed out that PNB' s entitlement to the rental proceeds in the
amount of ₱1,348,643.92 is dependent on whether there is a deficiency in
payment after the foreclosure sale.35 It, however, found no sufficient evidence
on record that the amount of respondent's liability as of October 31, 2006 is
indeed ₱18,016,300.71, as PNB claims.36 Consequently, the CA remanded the
case the MeTC for the proper reception of evidence and determination, if any,
of the deficiency on the foreclosure sale with the following guidelines:37
(1) From October 2004 to January 15, 2005: Principal+ Interest+ Penalties -
Monthly Rentals (from October 2004 to January 15, 2005 by virtue of the
Deed of Assignment) =New Principal
(2) From January 16, 2005 to October 31, 2006: New Principal + Interest +
Penalties - Interest Earned by PN'B from the Savings Account = Outstanding
Obligation as of October 31, 2006
(3) Outstanding Obligation as of October 31, 2006 – ₱15,311,000.00 =
Deficiency38
As regards the payment of legal interest, the CA noted that PNB merely
opened a non-drawing savings account wherein it deposited the monthly
rentals from January 16, 2005 to February 2006. Such deposit of the rentals in
a savings account, however, is not the consignation contemplated by law.
Thus, the CA found PNB liable to pay the 6% legal interest rate prescribed
under Article 2209 of the Civil Code for having defaulted in the payment of its
monthly rentals to the respondent.39
Finally, the CA deleted the award of atton1ey's fees, pursuant to the general
rule that attorney's fees cannot be recovered as part of damages because of
the public policy that no premium should be placed on the right to litigate.40
PNB filed a partial Motion for Reconsideration, but the CA denied the motion
in its Resolution dated February 21, 2013. As a consequence, PNB filed the
present Petition for Review on Certiorari before the Court, assailing the CA's
May 28, 2012 Decision and February 21, 2013 Resolution.
Issues
In the present Petition, PNB raises the following issues for the Court's
resolution: first, whether PNB properly consigned the disputed rental
payments in the amount of ₱l,348,643.92 with the Office of the Clerk of Court
of the MeTC of Manila;41 second, whether PNB incurred delay in the payment
of rentals to the respondent, making it liable to pay legal interest to the
latter;42 and third, whether PNB is entitled to the disputed rental proceeds in
order to cover the alleged deficiency in payment of the respondent's liability
after the foreclosure proceedings.43
The Court's Ruling
We DENY the Petition for Review on Certiorari as we find no reversible error
committed by the CA in issuing its assailed Decision and Resolution.
"Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept
payment. [ I]t generally requires a prior tender of payment."44
Under Article 1256 of the Civil Code, consignation alone is sufficient even
without a prior tender of payment a) when the creditor is absent or unknown
or does not appear at the place of payment; b) when he is incapacitated to
receive the payment at the time it is due; c) when, without just cause, he
refuses to give a receipt; d) when two or more persons claim the same right to
collect; and e) when the title of the obligation has been lost.
For consignation to be valid, the debtor must comply with the following
requirements under the law:
1) there was a debt due;
2) valid prior tender of payment, unless the consignation was made because of
some legal cause provided in Article 1256;
3) previous notice of the consignation has been given to the persons
interested in the performance of the obligation;
4) the amount or thing due was placed at the disposal of the court; and,
5) after the consignation had been made, the persons interested were notified
thereof:45
"Failure in any of the requirements is enough ground to render a consignation
ineffective."46
In the present case, the records show that: first, PNB had the obligation to pay
respondent a monthly rental of ₱l16,788.44, amounting to ₱l,348,643.92,
from January 16, 2005 to March 23, 2006;47 second, PNB had the option to
pay the monthly rentals to respondent or to apply the same as payment for
respondent's loan with the bank, but PNB did neither;48 third, PNB instead
opened a non-drawing savings account at its Paco Branch under Account No.
202- 565327-3, where it deposited the subject monthly rentals, due to the
claim of Chua of the same right to collect the rent;49 and fourth, PNB
consigned the amount of Pl,348,643.92 with the Office of the Clerk of Court of
the MeTC of Manila on
May 31, 2006.50
Note that PNB's deposit of the subject monthly rentals in a non-drawing
Pag
savings account is not the consignation contemplated by law, precisely e|
because it does not place the same at the disposal of the court.51 Consignation 92
is necessarily judicial; it is not allowed in venues other than the
courts.52 Consequently, PNB's obligation to pay rent for the period of January
16, 2005 up to March 23, 2006 remained subsisting, as the deposit of the
rentals cannot be considered to have the effect of payment.
It is important to point out that PNB's obligation to pay the subject monthly
rentals had already fallen due and demandable before PNB consigned the
rental proceeds with the MeTC on May 31, 2006. Although it is true that
consignment has a retroactive effect, such payment is deemed to have been
made only at the time of the deposit of the thing in court or when it was
placed at the disposal of the judicial authority.53 Based on these premises,
PNB's payment of the monthly rentals can only be considered to have been
made not earlier than May 31, 2006.
Given its belated consignment of the rental proceeds in court, PNB clearly
defaulted in the payment of monthly rentals to the respondent for the period
January 16, 2005 up to March 23, 2006, when it finally vacated the leased
property, As such, it is liable to pay interest in accordance with Article 2209 of
the Civil Code.1âwphi1
Article 2209 provides that if the debtor incurs delay in the performance of an
obligation consisting of the payment of a sum of money, he shall be liable to
pay the interest agreed upon, and in the absence of stipulation, the legal
interest at 6% per annum. There being no stipulated interest in this case, PNB
is liable to pay legal interest at 6% per annum, from January 16, 2005 up to
May 30, 2006
As for the issue on PNB' s entitlement to the subject rental proceeds to cover
the deficiency in payment after the foreclosure sale of the mortgaged
property, we agree with the CA's finding that there is no sufficient evidence on
record to show that such a deficiency exists.54 Unfortunately, the Statement of
Account55 submitted by PNB is not enough to prove this claim, considering
that it is unsupported by any corroborating evidence. Besides, the copy of the
document in our records, both in the CA rollo and the Supreme
Court rollo,56 consists of illegible pages.
We likewise agree with the CA's conclusion that the RTC seriously erred when
it categorically stated that the loan was folly paid by virtue of the foreclosure
sale without determining the extent of the respondent's liability as of October
1, 2006, the date of the foreclosure sale.57 Specifically, the RTC held that:
x x x In this regard, the amount of the indebtedness was clearly stated in the
Notice of Extra-Judicial Sale dated August 9, 2006 as ₱l1,211,283.53, as of May
15, [2006], exclusive of penalties, expenses, charges, attorney's fees and
expenses. And since the property was sold to the bank as the winning bidder
at ₱15,311,000,00, obviously, the difference could have easily covered the
said penalties, etc."58
This is clearly an error. It is settled that a mortgagee has the light to recover
the deficiency resulting from the difference between the amount obtained in
the sale at public auction and the outstanding obligation of the mortgagor at
the time of the foreclosure proceedings.59 The RTC failed to consider that the
amount of indebtedness indicated in the Notice of Extra-Judicial Sale60 dated
August 9, 2006 was computed by PNB as of May 15, 2006. Surely, the
respondent's liability would have significantly increased by the time the
foreclosure sale was held on October 31, 2006.
It also appears that the RTC merely assumed that the bid price would cover
the deficiency in payment, without actually making a determination of
whether such a deficiency exists and how much it really is.
In these lights, we uphold the CA's ruling remanding the case to the MeTC for
the proper reception of evidence and computation of respondent's total
indebtedness as of October 31, 2006, in order to determine whether there
exists a deficiency in payment as PNB insists.
WHEREFORE, we DENY the Petition for Review on Certiorari and AFFIRM the
Decision dated May 28, 2012 and the Resolution dated February 21, 2013 of
the Court of Appeals in CA-G.R. SP No. 98112.
SO ORDERED.
G.R. No. 116896 May 5, 1997
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,
vs.
COURT OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S. RAYMUNDO,
ANTONIO S. RAYMUNDO, RENE S. RAYMUNDO, and AMADOR S.
RAYMUNDO, respondents.
DAVIDE, JR., J.:
This petition for review on certiorari has its roots in Civil Case No. 53444,
which was sparked by petitioner's refusal to pay the rentals as stipulated in
the contract of lease 1 on an undivided portion of 30,000 square meters of a
parcel of land owned by private respondents.
The lease contract, executed on 18 November 1985, reads in part as follows:
1. TERM OF LEASE — This lease shall be for a period of
five (5) years, commencing on the date of issuance of the
industrial clearance by the Ministry of Human
Settlements, renewable for a like or other period at the
option of the LESSEE under the same terms and
conditions.
2. RATE OF RENT — LESSEE shall pay to the LESSOR rent
at the monthly rate of TWENTY THOUSAND PESOS
(P20,000.00), Philippine Currency, in the manner set
forth in Paragraph 3 below. This rate shall be increased
yearly by Five Percent (5%) based on the agreed monthly
rate of P20,000.00 as follows:
Monthly Rate Period Applicable
P21,000.00 Starting on the 2nd year
P22,000.00 Starting on the 3rd year
P23,000.00 Starting on the 4th year
P24,000.00 Starting on the 5th year
3. TERMS OF PAYMENT — The rent stipulated in
Paragraph 2 above shall be paid yearly in advance by the
LESSEE. The first annual rent in the amount of TWO
HUNDRED FORTY THOUSAND PESOS (P240,000.00),
Philippine currency, shall be due and payable upon the
execution of this Agreement and the succeeding annual
rents shall be payable every twelve (12) months
thereafter during the effectivity of this Agreement.
4. USE OF LEASED PROPERTY — It is understood that the
Property shall be used by the LESSEE as the site, grounds
and premises of a rock crushing plant and field office,
sleeping quarters and canteen/mess hall. The LESSORS
hereby grant to the LESSEE the right to erect on the
Leased Property such structure(s) and/or
improvement(s) necessary for or incidental to the
LESSEE's purposes.
xxx xxx xxx
11. TERMINATION OF LEASE — This Agreement may be
terminated by mutual agreement of the parties. Upon
the termination or expiration of the period of lease
without the same being renewed, the LESSEE shall vacate
the Leased Property at its expense.
On 7 January 1986, petitioner obtained from the Ministry of Human
Settlements a Temporary Use Permit 2 for the proposed rock crushing project.
The permit was to be valid for two years unless sooner revoked by the
Ministry.
On 16 January 1986, private respondents wrote petitioner requesting
payment of the first annual rental in the amount of P240,000 which was due
and payable upon the execution of the contract. They also assured the latter
that they had already stopped considering the proposals of other aggregates
plants to lease the property because of the existing contract with petitioner. 3
In its reply-letter, petitioner argued that under paragraph 1 of the lease
Pag
contract, payment of rental would commence on the date of the issuance of e|
an industrial clearance by the Ministry of Human Settlements, and not from 93
the date of signing of the contract. It then expressed its intention to terminate
the contract, as it had decided to cancel or discontinue with the rock crushing
project "due to financial, as well as technical, difficulties." 4
Private respondents refused to accede to petitioner's request for the
pretermination of the lease contract. They insisted on the performance of
petitioner's obligation and reiterated their demand for the payment of the
first annual rental. 5
Petitioner objected to private respondents' claim and argued that it was "only
obligated to pay . . . the amount of P20,000.00 as rental payments for the one-
month period of lease, counted from 07 January 1986 when the Industrial
Permit was issued by the Ministry of Human Settlements up to 07 February
1986 when the Notice of Termination was served" 6 on private respondents.
On 19 May 1986, private respondents instituted with the Regional Trial Court
of Pasig an action against petitioner for Specific Performance with
Damages. 7 The case was docketed as Civil Case No. 53444 at Branch 160 of
the said court. After the filing by petitioner of its Answer with Counterclaim,
the case was set for trial on the merits.
What transpired next was summarized by the trial court in this wise:
Plaintiffs rested their case on September 7, 1987 (p. 87
rec.). Defendant asked for postponement of the
reception of its evidence scheduled on August 10, 1988
and as prayed for, was reset to August 25, 1988 (p. 91
rec.) Counsel for defendant again asked for
postponement, through representative, as he was
presently indisposed. The case was reset, intransferable
to September 15 and 26, 1988 (p. 94 rec.) On September
2, 1988, the office of the Government Corporate Counsel
entered its appearance for defendant (p. 95, rec.) and
the original counsel later withdrew his appearance. On
September 15, 1988 the Government Corporate Counsel
asked for postponement, represented by Atty. Elpidio de
Vega, and with his conformity in open court, the hearing
was reset, intransferable to September 26 and October
17, 1988, (p. 98, rec.) On September 26, 1988 during the
hearing, defendant's counsel filed a motion for
postponement (urgent) as he had "sore eyes", a medical
certificate attached.
Counsel for plaintiffs objected to the postponement and
the court considered the evidence of the government
terminated or waived. The case was deemed submitted
for decision upon the filing of the memorandum.
Plaintiffs filed their memorandum on October 26, 1988.
(p. 111, rec.).
On October 18, 1988 in the meantime, the defendant
filed a motion for reconsideration of the order of the
court on September 26, 1988 (p. 107, rec.) The motion
was not asked to be set for hearing (p. 110 rec.) There
was also no proof of notice and service to counsel for
plaintiff . The court in the interest of justice set the
hearing on the motion on November 29, 1988. (p. 120,
rec.) but despite notice, again defendant's counsel was
absent (p. 120-A, dorsal side, rec.) without reason. The
court reset the motion to December 16, 1988, in the
interest of justice. The motion for reconsideration was
denied by the court. A second motion for reconsideration
was filed and counsel set for hearing the motion on
January 19, 1989. During the hearing, counsel for the
government was absent. The motion was deemed
abandoned but the court at any rate, after a review of
the incidents and the grounds relied upon in the earlier
motion of defendant, found no reason to disturb its
previous order. 8
On 12 April 1989, the trial court rendered a decision ordering petitioner to pay
private respondents the amount of P492,000 which represented the rentals
for two years, with legal interest from 7 January 1986 until the amount was
fully paid, plus attorney's fees in the amount of P20,000 and costs. 9
Petitioner then appealed to the Court of Appeals alleging that the trial court
erred in ordering it to pay private respondent the amount of P492,000 and in
denying it the right to be heard.
Upon the affirmance of the trial court's decision 10 and the denial of its motion
for reconsideration, petitioner came to this Court ascribing to respondent
Court of Appeals the same alleged errors and reiterating their arguments.
First. Petitioner invites the attention of this Court to paragraph 1 of the lease
contract, which reads: "This lease shall be for a period of five (5) years,
commencing on the date of issuance of the industrial clearance by the
Ministry of Human Settlements. . . ." It then submits that the issuance of an
industrial clearance is a suspensive condition without which the rights under
the contract would not be acquired. The Temporary Use Permit is not the
industrial clearance referred to in the contract; for the said permit requires
that a clearance from the National Production Control Commission be first
secured, and besides, there is a finding in the permit that the proposed
project does not conform to the Zoning Ordinance of Rodriguez, (formerly
Montalban), Rizal, where the leased property is located. Without the industrial
clearance the lease contract could not become effective and petitioner could
not be compelled to perform its obligation under the contract.
Petitioner is now estopped from claiming that the Temporary Use Permit was
not the industrial clearance contemplated in the contract. In its letter dated
24 April 1986, petitioner states:
We wish to reiterate PNCC Management's previous stand
that it is only obligated to pay your clients the amount of
P20,000.00 as rental payments for the one-month period
of the lease, counted from 07 January 1986 when the
Industrial Permit was issued by the Ministry of Human
Settlements up to 07 February 1986 when the Notice of
Termination was served on your clients. 11 (Emphasis
Supplied).
The "Industrial Permit" mentioned in the said letter could only refer
to the Temporary Use Permit issued by the Ministry of Human
Settlements on 7 January 1986. And it can be gleaned from this
letter that petitioner has considered the permit as industrial
clearance; otherwise, petitioner could have simply told private
respondents that its obligation to pay rentals has not yet arisen
because the Temporary Use Permit is not the industrial clearance
contemplated by them. Instead, petitioner recognized its obligation
to pay rentals counted from the date the permit was issued.
Also worth noting is petitioner's earlier letter, thus:
[P]lease be advised of PNCC Management's decision to
cancel or discontinue with the rock crushing project due
to financial as well as technical difficulties. In view
thereof, we would like to terminate our Lease Contract
dated 18 November, 1985. Should you agree to the
mutual termination of our Lease Contract, kindly indicate
your conformity hereto by affixing your signature on the
space provided below. May we likewise request Messrs.
Rene, Jose and Antonio, all surnamed Raymundo and
Mrs. Socorro A. Raymundo as Attorney-in-Fact of
Amador S. Raymundo to sign on the spaces indicated
below. 12
It can be deduced from this letter that the suspensive condition — issuance of
industrial clearance — has already been fulfilled and that the lease contract
has become operative. Otherwise, petitioner did not have to solicit the
conformity of private respondents to the termination of the contract for the
simple reason that no juridical relation was created because of the non-
fulfillment of the condition.
Moreover, the reason of petitioner in discontinuing with its project and in
consequently cancelling the lease contract was "financial as well as technical
difficulties," not the alleged insufficiency of the Temporary Use Permit.
Second. Invoking Article 1266 and the principle of rebus sic stantibus,
petitioner asserts that it should be released from the obligatory force of the
contract of lease because the purpose of the contract did not materialize due
to unforeseen events and causes beyond its control, i.e., due to the abrupt
change in political climate after the EDSA Revolution and financial difficulties.
It is a fundamental rule that contracts, once perfected, bind both contracting
parties, and obligations arising therefrom have the force of law between the
parties and should be complied with in good faith. 13 But the law recognizes
exceptions to the principle of the obligatory force of contracts. One exception
is laid down in Article 1266 of the Civil Code, which reads: "The debtor in
obligations to do shall also be released when the prestation becomes legally
or physically impossible without the fault of the obligor." Pag
e|
Petitioner cannot, however, successfully take refuge in the said article, since it 94
is applicable only to obligations "to do," and not to obligations "to give." 14 An
obligation "to do" includes all kinds of work or service; while an obligation "to
give" is a prestation which consists in the delivery of a movable or an
immovable thing in order to create a real right, or for the use of the recipient,
or for its simple possession, or in order to return it to its owner. 15
The obligation to pay rentals 16 or deliver the thing in a contract of
lease 17 falls within the prestation "to give"; hence, it is not covered within the
scope of Article 1266. At any rate, the unforeseen event and causes
mentioned by petitioner are not the legal or physical impossibilities
contemplated in the said article. Besides, petitioner failed to state specifically
the circumstances brought about by "the abrupt change in the political
climate in the country" except the alleged prevailing uncertainties in
government policies on infrastructure projects.
The principle of rebus sic stantibus 18 neither fits in with the facts of the case.
Under this theory, the parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to exist, the contract also ceases
to exist. 19 This theory is said to be the basis of Article 1267 of the Civil Code,
which provides:
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.
This article, which enunciates the doctrine of unforeseen events, is not,
however, an absolute application of the principle of rebus sic stantibus, which
would endanger the security of contractual relations. The parties to the
contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional changes of
circumstances that equity demands assistance for the debtor. 20
In this case, petitioner wants this Court to believe that the abrupt change in
the political climate of the country after the EDSA Revolution and its poor
financial condition "rendered the performance of the lease contract
impractical and inimical to the corporate survival of the petitioner."
This Court cannot subscribe to this argument. As pointed out by private
respondents: 21
It is a matter of record that petitioner PNCC entered into
a contract with private respondents on November 18,
1985. Prior thereto, it is of judicial notice that after the
assassination of Senator Aquino on August 21, 1983, the
country has experienced political upheavals, turmoils,
almost daily mass demonstrations, unprecedented,
inflation, peace and order deterioration, the Aquino trial
and many other things that brought about the hatred of
people even against crony corporations. On November 3,
1985, Pres. Marcos, being interviewed live on U.S.
television announced that there would be a snap election
scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the
above, petitioner PNCC entered into the contract of lease
with private respondents with open eyes of the
deteriorating conditions of the country.
Anent petitioner's alleged poor financial condition, the same will neither
release petitioner from the binding effect of the contract of lease. As held
in Central Bank v. Court of Appeals, 22 cited by private respondents, mere
pecuniary inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense to an action for specific
performance.
With regard to the non-materialization of petitioner's particular purpose in
entering into the contract of lease, i.e., to use the leased premises as a site of
a rock crushing plant, the same will not invalidate the contract. The cause or
essential purpose in a contract of lease is the use or enjoyment of a
thing. 23 As a general principle, the motive or particular purpose of a party in
entering into a contract does not affect the validity nor existence of the
contract; an exception is when the realization of such motive or particular
purpose has been made a condition upon which the contract is made to
depend. 24 The exception does not apply here.
Third. According to petitioner, the award of P492,000.00 representing the rent
for two years is excessive, considering that it did not benefit from the
property. Besides, the temporary permit, conformably with the express
provision therein, was deemed automatically revoked for failure of petitioner
to use the same within one year from the issuance thereof. Hence, the rent
payable should only be for one year.
Petitioner cannot be heard to complain that the award is excessive. The
temporary permit was valid for two years but was automatically revoked
because of its non-use within one year from its issuance. The non-use of the
permit and the non-entry into the property subject of the lease contract were
both imputable to petitioner and cannot, therefore, be taken advantage of in
order to evade or lessen petitioner's monetary obligation. The damage or
prejudice to private respondents is beyond dispute. They unquestionably
suffered pecuniary losses because of their inability to use the leased premises.
Thus, in accordance with Article 1659 of the Civil Code, 25 they are entitled to
indemnification for damages; and the award of P492,000.00 is fair and just
under the circumstances of the case.
Finally, petitioner submits that the trial court gravely abused its discretion in
denying petitioner the right to be heard.
We disagree. The trial court was in fact liberal in granting several
postponements 26 to petitioner before it deemed terminated and waived the
presentation of evidence in petitioner's behalf.
It must be recalled that private respondents rested their case on 7 September
1987 yet. 27 Almost a year after, or on 10 August 1988 when it was petitioner's
turn to present evidence, petitioner's counsel asked for postponement of the
hearing to 25 August 1988 due to conflict of schedules, 28 and this was
granted. 29 At the rescheduled hearing, petitioner's counsel, through a
representative, moved anew for postponement, as he was allegedly
indisposed. 30 The case was then reset "intransferable" to September 15 and
26, 1988. 31 On 2 September 1988, the Office of the Government Corporate
Counsel, through Atty. Elpidio J. Vega, entered its appearance for the
petitioner, 32 and later the original counsel withdrew his appearance. 33 On 15
September 1988, Atty. Vega requested for postponement to enable him to go
over the records of the case. 34 With his conformity, the hearing was reset
"intransferable" to September 26 and October 17, 1988. 35 In the morning of
26 September 1988, the court received Atty. Vega's Urgent Motion for
Postponement on the ground that he was afflicted with conjunctivitis or sore
eyes. 36 This time, private respondents objected; and upon their motion, the
court deemed terminated and waived the presentation of evidence for the
petitioner. 37 Nevertheless, before the court considered the case submitted
for decision, it required the parties to submit their respective memoranda
within thirty days. 38 But petitioner failed to comply.
Likewise, the court was liberal with respect to petitioner's motion for
reconsideration. Notwithstanding the lack of request for hearing and proof of
notice and service to private respondents, the court set the hearing of the said
motion on 29 November 1988. 39 Upon the denial of the said motion for lack
of merit, 40 petitioner filed a second motion for reconsideration. But during
the hearing of the motion on a date selected by him, Atty. Vega was absent
for no reason at all, despite due notice. 41
From the foregoing narration of procedural antecedents, it cannot be said that
petitioner was deprived of its day in court. The essence of due process is
simply an opportunity to he heard. 42 To be heard does not only mean oral
arguments in court; one may be heard also through pleadings. Where
opportunity to be heard, either through oral arguments or pleadings, is
accorded, there is no denial of procedural due process. 43
WHEREFORE, the instant petition is DENIED and the challenge decision of the
Court of Appeals is AFFIRMED in toto.
No pronouncements as to costs.
SO ORDERED.
G.R. No. 124221 August 4, 2000
VICTORINO MAGAT, JR. substituted by heirs, OLIVIA D. MAGAT, and minors MA.
DULCE MAGAT, MA. MAGNOLIA MAGAT, RONALD MAGAT and DENNIS
MAGAT, petitioners,
vs.
COURT OF APPEALS and SANTIAGO A. GUERRERO, respondents.
PARDO, J.:
The case is an appeal1 from the decision of the Court of Appeals2 reversing the
decision of the Regional Trial Court of Makati, Metro Manila,3 ruling in favor of
Pag
respondent Santiago A. Guerrero and dismissing petitioners' complaint. e|
95
First, the facts.
Private respondent Santiago A. Guerrero (hereinafter referred to as
"Guerrero") was President and Chairman of4 "Guerrero Transport Services", a
single proprietorship.5
Sometime in 1972, Guerrero Transport Services won a bid for the operation of
a fleet of taxicabs within the Subic Naval Base, in Olongapo. As highest bidder,
Guerrero was to "provide radio-controlled taxi service within the U.S. Naval
Base, Subic Bay, utilizing as demand requires . . . 160 operational taxis
consisting of four wheel, four-door, four passenger, radio controlled, meter
controlled, sedans, not more than one year . . . "6
On September 22, 1972, with the advent of martial law, President Ferdinand
E. Marcos issued Letter of Instruction No. 1 (hereinafter referred to as "the
LOI"). We reproduce the text, as follows:
"Letter of Instruction No. 1
"SUBJECT: SEIZURE AND CONTROL OF ALL PRIVATELY OWNED
NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION FACILITIES AND
ALL OTHER MEDIA OF COMMUNICATION.
"To: 1. The Press Secretary Office of the President
Manila
"2. The Secretary Department of National
Defense
Camp E. Aguinaldo, Q.C.
"In view of the present national emergency which has been brought
about by the activities of those who are actively engaged in a
criminal conspiracy to seize political and state power in the
Philippines and to take over the Government by force and violence
the extent of which has now assumed the proportion of an actual
war against our people and their legitimate Government, and
pursuant to Proclamation No. 1081 dated September 21, 1972, and
in my capacity as commander in chief of all the armed forces of the
Philippines and in order to prevent the use of privately owned
newspapers, magazines, radio and television facilities and all other
media of communications, for propaganda purposes against the
government and its duly constituted authorities or for any purpose
that tend to undermine the faith and confidence of the people in
our government and aggravate the present national emergency,
you are hereby ordered forthwith to take over and control or cause
the taking over and control of all such newspapers, magazines,
radio and television facilities and all other media of
communications, wherever they are, for the duration of the present
national emergency, or until otherwise ordered by me or by my
duly designated representative.1âwphi1.nêt
"In carrying out the foregoing order you are hereby also directed to
see to it that reasonable means are employed by you and your men
and that injury to persons and property must be carefully avoided."
On September 25, 1972, pursuant to the aforequoted Letter of Instruction,
the Radio Control Office issued Administrative Circular No. 4 (hereinafter
referred to as "the Admin. Circular"), herein quoted in full:
"SUBJECT: SUSPENDING THE ACCEPTANCE AND PROCESSING OF
APPLICATIONS FOR RADIO STATION CONSTRUCTION PERMITS AND
FOR PERMITS TO OWN AND/OR POSSESS RADIO TRANSMITTERS OR
TRANSCEIVERS.
 "In view of the existence of a state of emergency and the
declaration by the President of martial law in the entire country
under Proclamation No. 1081 dated September 21, 1972, effective
immediately the acceptance and processing by the radio control
office of applications for radio stations constructions permits and
for permits to possess, own, transfer, purchase and sale of radio
transmitters and transreceivers as well as manufacturers and
dealer's permits of said equipment is hereby suspended.
"Exempted from this circular are applications for radio station
construction permits and for permits to possess, own, transfer,
purchase and sell radio transmitters and transceivers for the
following radio stations:
"1. Aeronautical Stations;
"2. Aeronautical Fixed Stations;
"3. Aircraft Stations;
"4. Coastal Stations; and
"5. Ship Stations.
"This circular shall be strictly observed until lifted upon proper
instructions from higher authorities."
On September 25, 1972, Guerrero and Victorino D. Magat (hereinafter
referred to as Victorino), as General Manager of Spectrum Electronic
Laboratories, a single proprietorship, executed a letter-contract for the
purchase of transceivers at a quoted price of US$77,620.59, FOB Yokohoma.
Victorino was to deliver the transceivers within 60 to 90 days after receiving
notice from Guerrero of the assigned radio frequency,7 "taking note of
Government Regulations."8
The contract was signed and Victorino contacted his Japanese supplier, Koide
& Co., Ltd. and placed an order for the transceivers.
On September 29, 1972, Navy Exchange Officer, A. G. Mason confirmed that
Guerrero won the bid for the commercial transportation contract.9
On October 4, 1972, middle man and broker10 Isidro Q. Aligada of Reliance
Group Engineers, Inc. (hereinafter referred to as "Aligada"), wrote Victorino,
informing him that a radio frequency was not yet assigned to Guerrero and
that government regulations might complicate the importation of the
transceivers. However, in the same letter, Victorino was advised to advise his
supplier "to proceed (with) production pending frequency information."
Victorino was also assured of Guerrero's financial capability to comply with
the contract.11
On October 6, 1972, Guerrero informed Aligada of the frequency
number12 assigned by Subic Naval Base authorities. Aligada was instructed to
"proceed with the order thru Spectrum Electronics Laboratories."13
On October 7, 1972, Aligada informed Magat of the assigned frequency
number. Aligada also advised Victorino to "proceed with the order upon
receipt of letter of credit."14
On January 10, 1973, Guerrero applied for a letter of credit with the
Metropolitan Bank and Trust Company.15 This application was not pursued.16
On March 27, 1973, Victorino, represented by his lawyer, Atty. Sinesio S.
Vergara, informed Guererro that the order with the Japanese supplier has not
been canceled. Should the contract be canceled, the Japanese firm would
forfeit 30% of the deposit and charge a cancellation fee in an amount not yet
known, Guerrero to bear the loss. Further, should the contract be canceled,
Victorino would demand an additional amount equivalent to 10% of the
contract price.17
Unable to get a letter of credit from the Central Bank due to the refusal of the
Philippine government18 to issue a permit to import the
transceivers,19 Guerrero commenced operation of the taxi cabs within Subic
Naval Base, using radio units borrowed from the U.S. government (through
the Subic Naval Base authorities).20 Victorino thus canceled his order with his
Japanese supplier.
On May 22, 1973, Victorino filed with the Regional Trial Court, Makati a
complaint for damages arising from breach of contract against Guerrero.21
On June 7, 1973, Guerrero moved to dismiss the complaint on the ground that
it did not state a cause of action.22
On June 16, 1973, the trial court23 granted the motion and dismissed the
complaint.24
On July 11, 1973, Victorino filed a petition for review on certiorari with this
Court assailing the dismissal of the complaint.25
Pag
On April 20, 1983, this Court2 6 ruled that the complaint sufficiently averred a
cause of action. We set aside the order of dismissal and remanded the case to
e|
the trial court for further proceedings, to wit:27 96
"ACCORDINGLY, the questioned order of dismissal is hereby set
aside and the case ordered remanded to the court of origin for
further proceedings. No costs.
"SO ORDERED."
On November 27, 1984, the trial court28 ordered that the case be archived for
failure of Victorino to prosecute.29
On March 11, 1985, petitioners, Olivia, Dulce, Ma. Magnolia, Ronald and
Dennis Magat (hereinafter referred to as "heirs of Victorino"), moved to
reinstate the case and to substitute Victorino in its prosecution. Apparently,
Victorino died on February 18, 1985.30
On April 29, 1985, the trial court granted the motion.31
On July 12, 1991, the trial court decided in favor of the heirs of Victorino and
ordered Guerrero to pay temperate, moral and exemplary damages, and
attorney's fees, disposing of the case in this wise:32
"WHEREFORE, judgment is rendered for the substituted plaintiffs
and against the defendant
"1. Ordering defendant to pay substituted plaintiffs the sum of
P25,000.00 for temperate damages for injury to plaintiff's business
dealings with foreign and local businessmen;
"2. P50,000.00 as moral damages;
"3. P25,000.00 as exemplary
damages; and
"4. P20,000.00 as attorney's fees.
"SO ORDERED."
On August 21, 1991, Guerrero appealed to the Court of Appeals.33
On October 4, 1995, the Court of Appeals rendered the decision appealed
from, disposing as follows:34
"WHEREFORE, judgment is hereby rendered DISMISSING the
complaint.
"No pronouncements as to costs.
" SO ORDERED."
On October 26, 1995, the heirs of Victorino filed with the Court of Appeals a
motion for reconsideration.35
On March 12, 1996, the Court of Appeals denied the motion for
reconsideration.36
Hence, this appeal.37
The issue is whether the contract between Victorino and Guerrero for the
purchase of radio transceivers was void. Stated differently, whether the
transceivers subject of the contract were banned contraband items prohibited
by the LOI and the Administrative Circular to import.
The contract was valid; the radio transceivers were not contraband.
"Contraband" generally refers to "any property which is unlawful to produce
or possess." It refers to goods which are exported and imported into a country
against its laws.38
In declaring the contract void ab initio, the Court of Appeals ruled that the
importation of the transceivers meant the inevitable passing of such goods
through Philippine Ports, where the LOI and the Administrative Circular have
to be observed and applied with full force and effect.39 The Court of Appeals
declared that the proposed importation of such goods was contrary to law,
hence, the nullity of the contract.40
We do not agree. The contract was not void ab initio. Nowhere in the LOI and
Admin. Circular is there an express ban on the importation of transceivers.
The LOI and Administrative Circular did not render "radios and transceivers"
illegal per se. The Administrative Circular merely ordered the Radio Control
Office to suspend the "acceptance and processing . . . . of applications . . . for
permits to possess, own, transfer, purchase and sell radio transmitters and
transceivers . . . "41 Therefore, possession and importation of the radio
transmitters and transceivers was legal provided one had the necessary
license for it.42 Transceivers were not prohibited but merely regulated goods.
The LOI and Administrative Circular did not render the transceivers outside
the commerce of man. They were valid objects of the contract.43
Affirming the validity of the contract, we next discuss whether the contract
was breached.
Guerrero testified that a permit to import the transceivers from Japan was
denied by the Radio Control Board. He stated that he, together with Aligada,
Victorino and a certain John Dauden personally went to the Radio Control
Office, and were denied a permit to import. They also went to the Office of
the President, where Secretary Ronaldo B. Zamora explained that radios were
"banned like guns because of martial law."44 Guerrero testified that this
prevented him from securing a letter of credit from the Central Bank.45 This
testimony was not rebutted.
The law provides that "[w]hen the service (required by the contract) has
become so manifestly beyond the contemplation of the parties, the obligor
may also be released therefrom, in whole or in part."46 Here, Guerrero's
inability to secure a letter of credit and to comply with his obligation was a
direct consequence of the denial of the permit to import. For this, he cannot
be faulted.
Even if we assume that there was a breach of contract, damages cannot be
awarded. Damnum absque injuria.
There was no bad faith.47 Bad faith does not simply connote bad judgment or
negligence. It imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. It means a breach of a known duty through some
motive or interest or ill will that partakes of the nature of fraud.48 Guerrero
honestly relied on the representations of the Radio Control Office and the
Office of the President.
True, Guerrero borrowed equipment from the Subic Naval Base authorities at
zero cost.49 This does not automatically translate to bad faith. Guerrero was
faced with the danger of the cancellation of his contract with Subic Naval
Base. He borrowed equipment as a prudent and swift alternative. There was
no proof that he resorted to this option with a deliberate and malicious intent
to dishonor his contract with Victorino. An award of damages surely cannot be
based on mere hypotheses, conjectures and surmises. Good faith is
presumed, the burden of proving bad faith rests on the one alleging
it.50 Petitioners did not effectively discharge the burden in this case.
To recover moral damages in an action for breach of contract, the breach
must be palpably wanton, reckless, malicious, in bad faith, oppressive or
abusive.51 This is not the case here.
Exemplary damages also cannot be awarded. Guerrero did not act in a
wanton, fraudulent, reckless, oppressive or malevolent manner.52
Neither can actual damages be awarded. True, indemnification for damages
contemplates not only actual loss suffered (damnum emergens) but
unrealized profits (lucrum cessans) as well.53 However, to be entitled to
adequate compensation for pecuniary loss, the loss must be actually suffered
and duly proved.54 To recover actual damages, the amount of loss must not
only be capable of proof, but must be proven with a reasonable degree of
certainty. The claim must be premised upon competent proof or upon the
best evidence obtainable,55 such as receipts56 or other documentary proof.
Only the testimony of Aligada was presented to substantiate petitioners' claim
for unrealized profits.57 Aligada testified that as a result of the cancellation of
the contract, Victorino had to suspend transactions with his Japanese supplier
for six (6) months. Aligada stated that the volume of Victorino's business with
Subic Naval Base also diminished significantly. Aligada approximated that
Victorino's unrealized business opportunities amounted to
P400,000.00.58 Being a witness for Victorino's heirs and standing to gain from
the contract's fulfillment, Aligada's testimony is self-serving. It is also hearsay.
We fail to see how this "evidence" proves actual damages with a "reasonable
degree of certainty."59 If proof is "flimsy", we cannot award actual damages.60
Pag
e|
WHEREFORE, we AFFIRM the decision of the Court of Appeals promulgated on
October 11, 1995, in CA-G. R. CV No. 34952, dismissing the 97
complaint.1âwphi1.nêt
No costs.
SO ORDERED.
G.R. No. 160033, July 01, 2015
TAGAYTAY REALTY CO., INC., Petitioner, v. ARTURO G. GACUTAN, Respondent.
DECISION
BERSAMIN, J.:
The Court reiterates the right of the installment buyer of a subdivision lot to
withhold payment of his amortizations for the duration that the subdivision
developer has not complied with its contractual undertaking to build the
promised amenities in the subdivision.
The Case
On appeal by the subdivision developer is the decision promulgated on May
29, 2003,1 whereby the Court of Appeals (CA) upheld the ruling in favor of the
installment buyer issued on December 6, 2001 by the Office of the President
(OP).2 By such ruling, the OP affirmed the July 14, 1997 decision3 rendered by
the Housing and Land Use Regulatory Board (HLURB) Board of Commissioners
adopting the HLURB Arbiter's decision dated March 22, 1995.4cralawrednad
Antecedents
On September 6, 1976, the respondent entered into a contract to sell with the
petitioner for the purchase on installment of a residential lot with an area of
308 square meters situated in the Foggy Heights Subdivision then being
developed by the petitioner.5 Earlier, on June 30, 1976, the petitioner
executed an express undertaking in favor of the respondent, as follows:6
We hereby undertake to complete the development of the roads, curbs,
gutters, drainage system, water and electrical systems, as well as all the
amenities to be introduced in FOGGY HEIGHTS SUBDIVISION, such as,
swimming pool, pelota court, tennis and/or basketball court, bath house,
children's playground and a clubhouse within a period of two years from 15
July 1976, on the understanding that failure on their part to complete such
development within the stipulated period shall give the VENDEE the option to
suspend payment of the monthly amortization on the lot/s he/she purchased
until completion of such development without incurring penalty interest.
It is clearly understood, however, that the period or periods during which we
cannot pursue said development by reason of any act of God, any act or event
constituting force majeure or fortuitous event, or any restriction, regulation,
or prohibition by the government or any of its branches or instrumentalities,
shall suspend the running of said 2-year period and the running thereof shall
resume upon the cessation of the cause of the stoppage or suspension of said
development.
In his letter dated November 12, 1979,7 the respondent notified the petitioner
that he was suspending his amortizations because the amenities had not been
constructed in accordance with the undertaking. Despite receipt of the
respondent's other communications requesting updates on the progress of
the construction of the amenities so that he could resume his
amortization,8 the petitioner did not reply. Instead, on June 10, 1985, the
petitioner sent to him a statement of account demanding the balance of the
price, plus interest and penalty.9 He refused to pay the interest and penalty.
On October 4, 1990, the respondent sued the petitioner for specific
performance in the HLURB, praying that the petitioner be ordered to accept
his payment of the balance of the contract without interest and penalty, and
to deliver to him the title of the property.10cralawrednad
In its answer,11 the petitioner sought to be excused from performing its
obligations under the contract, invoking Article 1267 of the Civil Code as its
basis. It contended that the depreciation of the Philippine Peso since the time
of the execution of the contract, the increase in the cost of labor and
construction materials, and the increase in the value of the lot in question
were valid justifications for its release from the obligation to construct the
amenities.
In its positiOn paper,12 the petitiOner stated that it had purposely suspended
the construction of the amenities which would have deteriorated at any rate
because its lot buyers had not constructed their houses in the subdivision.
On March 22, 1995, the HLURB Arbiter ruled m favor of the respondent,13 to
wit:cralawlawlibrary
WHEREFORE, premises considered, respondents are hereby ordered to accept
the payment of the balance of the contract price in the amount of Eight
Thousand Five Hundred Eighty Seven and 80/100 Pesos (P8,587.80) without
regular and penalty interest and, thereafter, to execute and deliver to
complainant the absolute deed of sale covering the sale of property subj,ct of
this complaint, together with the valid title over the said lot.14
The petitioner appealed, but the HLURB Board of Commissioners affirmed the
ruling of the HLURB Arbiter on July 14, 1997.15 Upon the denial of its motion
for reconsideration, the petitioner appealed to the OP.16cralawrednad
On December 6, 2001, the OP upheld the decision of the HLURB Board of
Commissioners.17 The OP later denied the petitioner's motion for
reconsideration.18cralawrednad
On appeal, the CA affirmed the OP through the assailed decision promulgated
on May 29, 2003,19 disposing:cralawlawlibrary
WHEREFORE, premises considered and finding no reversible error in the
challenged Decision and Order dated December 6, 2001, and July 1, 2002,
respectively, of the Office of the President in OP Case No. 98-C-8261 said
Decision and Order are AFFIRMED and UPHELD, and the petition
is DISMISSED for lack of merit.
SO ORDERED.20
The CA denied the petitioner's motion for reconsideration.21cralawrednad
Issues
In this appeal by petition for review on certiorari, the petitioner contends that
the CA erred in affirming the incorrect findings of the OP in a way probably
not in accord with law; and in declaring that the respondent was not guilty of
laches.
The petitioner submits that the CA, by observing that the petitioner did not
fulfill its obligation to finish the subdivision project and that it had itself
admitted not having finished the project, did not consider that it must be
discharged because extraordinary and unforeseeable circumstances had
rendered its duty to perform its obligation so onerous that to insist on the
performance would have resulted in its economic ruin; that the Court should
consider the practical circumstances surrounding the construction of the
luxurious amenities of the project; that the luxurious amenities of the project
would only be exposed to the elements, resulting in wastage and loss of
resources, because none of the lot buyers had constructed any house in the
subdivision; that delaying the construction for that reason was reasonable on
its part considering that no one would have benefited from the amenities
anyway, and was also a sound business practice because the construction
would be at great cost to it as the developer; that another justification for the
non-construction was its having suffered extreme economic hardships during
the political and economic turmoil of the 1980s that the parties did not
foresee at the time they entered into their contract; that under Article 1267 of
the Civil Code, equity demanded a certain economic equilibrium between the
prestation and the counter-prestation, and did not permit the unlimited
impoverishment of one party for the benefit of the other by the excessive
rigidity of the principle of the obligatory force of contracts; that as the debtor,
it should be partially excused or altogether released from its obligations due
to the extraordinary obstacles to the prestation, which could be overcome
only by a sacrifice that would be absolutely disproportionate, or with very
grave risks, or by violating some important duties; and that the CA thereby
erred in closing its eyes to the realities, and in opting not to apply the
principles of equity in favor of applying the terms of the agreement even if
doing so would cause the economic ruin of one of the parties.
The petitioner further submits that the CA erred in declaring that it was
apparent that there was no "unreasonable failure" on the part of the
respondent because he had made timely written demands on November 12,
1979, February 11, 1983, March 20, 1984, June 24, 1985 and November 16,
1988. It urges that the CA's error consisted in its confusing laches as the
failure to assert a right, notwithstanding that jurisprudence has considered
laches to be the unreasonable failure to assert a claim that, by exercising due
diligence, could or should be done earlier; that laches was not, in legal
significance, mere delay, but a delay that worked a disadvantage to another;
that the letters of the respondent could hardly be construed as motivated by
prudence and good faith; that the economy had worsened between 1979 and
1988, and such worsening became a factor that raised the cost of real estate
development by leaps and bounds; and that the respondent, whose
actuations smacked of bad faith and opportunism at its expense, had then
appeared out of nowhere to seize the opportunity presented by the real
estate boom of the early 1990s, despite having been silent and having failed
to act for a long time, evincing his belief of not having any right at all.
In his comment, the respondent asserts that the submissions of the petitioner
did not warrant the non-construction of the amemt1es; that Article 1159 of Pag
the Civil Code provides that obligations arising from contracts have the force
of law between the contracting parties and should be complied with in good e|
faith; that neither party could unilaterally and upon his own exclusive volition 98
escape his obligations under the contract unless for causes sufficient in law
and pronounced adequate by a competent tribunal; that correlative to Article
1159 is Article 1308 of the Civil Code which holds that the validity or
compliance of a contract cannot be left to the will of one party; that a party
could not revoke or renounce a contract without the consent of the other, nor
could a party have a contract set aside on the ground that he had made a bad
bargain; that he was not liable for the interest because it was not expressly
stipulated in the contract pursuant to Article 1956 of the Civil Code; that no
penalty should be imposed on him by virtue of the undertaking clearly stating
that the two-year period for the completion of the amenities would be
suspended only if the development could not be pursued "by reason of any
act God, any act or event constituting force majeure or fortuitous event; or
any restriction, regulation, or prohibition by the government or any of its
branches or instrumentalities;" that the reason given by the petitioner that
"the contemplated amenities could not be constructed as they would have
only been left exposed to the elements and would have come to naught on
account of the fact that there are no persons residing thereat" did not justify
or excuse the non construction of the amenities; that the petitioner could not
seek refuge in Article 1267 of the Civil Code by merely alleging inflation
without laying down the legal and factual basis to justify the release from its
obligation; that his written extrajudicial demands negated the defense of
laches; that he did not fail to assert his right, or abandon it; and that his
written extrajudicial demands wiped out the period that had already lapsed
and started the prescriptive period anew.
In short, was the petitioner released from its obligation to construct the
amenities in the Foggy Heights Subdivision?
Ruling of the Court
The appeal is partly meritorious.
1.
Petitioner was not relieved from its statutory and contractual obligations to
complete the amenities
The arguments of the petitioner to be released from its obligation to construct
the amenities lack persuasion.
To start with, the law is not on the side of the petitioner.
Under Section 20 of Presidential Decree No. 957, all developers, including the
petitioner, are mandated to complete their subdivision projects, including the
amenities, within one year from the issuance of their licenses. The provision
reads:cralawlawlibrary
Section 20. Time of Completion. - Every owner or developer shall construct
and provide the facilities, improvements, infrastructures and other forms of
development, including water supply and lighting facilities, which are offered
and indicated in the approved subdivision or condominium plans, brochures,
prospectus, printed matters, letters or in any form of advertisement, within
one year from the date of the issuance of the license for the subdivision or
condominium project or such other period of time as maybe fixed by the
Authority.
Pursuant to Section 30 of Presidential Decree No. 957,22 the amenities, once
constructed, are to be maintained by the developer like the petitioner until a
homeowners' association has been organized to manage the amenities.
There is no question that the petitioner did not comply with its legal obligation
to complete the construction of the subdivision project, including the
amenities, within one year from the issuance of the license. Instead, it
unilaterally opted to suspend the construction of the amenities to avoid
incurring maintenance expenses. In so opting, it was not driven by any
extremely difficult situation that would place it at any disadvantage, but by its
desire to benefit from cost savings. Such cost-saving strategy dissuaded the lot
buyers from constructing their houses in the subdivision, and from residing
therein.
Considering that the petitioner's unilateral suspension of the construction of
the amenities was intended to save itself from costs, its plea for relief from its
contractual obligations was properly rejected because it would thereby gain a
position of advantage at the expense of the lot owners like the respondent. Its
invocation of Article 1267 of the Civil Code, which provides that "(w)hen 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,"
was factually unfounded. For Article 1267 to apply, the following conditions
should concur, namely: (a) the event or change in circumstances could not
have been foreseen at the time of the execution of the contract; (b) it makes
the performance of the contract extremely difficult but not impossible; (c) it
must not be due to the act of any of the parties; and (d) the contract is for a
future prestation.23 The requisites did not concur herein because the difficulty
of performance under Article 1267 of the Civil Code should be such that one
party would be placed at a disadvantage by the unforeseen event.24 Mere
inconvenience, or unexepected impediments, or increased expenses did not
suffice to relieve the debtor from a bad bargain.25cralawredcralawrednad
And, secondly, the unilateral suspension of the construction had preceded the
worsening of economic conditions in 1983; hence, the latter could not
reasonably justify the petitioner's plea for release from its statutory and
contractual obligations to its lot buyers, particularly the respondent. Besides,
the petitioner had the legal obligation to complete the amenities within one
year from the issuance of the license (under Section 20 of Presidential Decree
No. 957), or within two years from July 15, 1976 (under the express
undertaking of the petitioner). Hence, it should have complied with its
obligation by July 15, 1978 at the latest, long before the worsening of the
economy in 1983.
2.
Respondent as instalment buyer should pay the annual interest but not the
penalty
The respondent insists that his unpaid obligation was only the balance of the
contract price amounting to P8,587.80.26 He declines to pay the interest and
the penalty on the ground that the petitioner had not constructed the
amenities as promised under the undertaking.
The Court holds that the respondent was liable for the stipulated annual
interest of 12% but not the penalty.
Paragraph 2.b, first sentence, of the contract to sell stipulated the 12% annual
interest, as follows:cralawlawlibrary
xxxx
2.) The VENDEE/S hereby agree/s to pay the purchase price of TWENTY SEVEN
THOUSAND SEVEN HUNDRED TWENTY ONLY PESOS (P27,720.00), Philippine
Currency, at the office of the VENDOR at Makati, Rizal, without necessity of
demand or the services of a collector in the following
manner:ChanRoblesvirtualLawlibrary
a.) As downpayment, the amount of FOUR THOUSAND ONE HUNDRED FIFTY
EIGHT ONLY PESOS (P4,158.00) upon the execution of the contract.
b.) The balance of TWENTY THREE THOUSAND FIVE HUNDRED SIXTY TWO
ONLY PESOS (P23,562.00) in eighty four (84) consecutive monthly installments
of FOUR HUNDRED FIFTEEN & 95/100 PESOS (P415.95) each
installment, including interest at the rate of twelve (12%) percent per annum
on all outstanding balances, the first of such monthly installment to be paid on
or before the 6th day of each month, beginning October, 1976. It is understood
that unpaid installments or installments in arrears shall earn a penalty interest
of one (1%) percent per month until fully paid.27 (Bold underscoring supplied
for emphasis of the relevant portion)
xxxx
Accordingly, the parties agreed to an 84-month or seven-year term of
installment on the net contract price of P23,562.00 at the monthly rate of
P415.95, the monthly rate being inclusive of the 12% interest per annum. Such
monthly installment of P415.95 included the principal and the annual interest,
the latter being legally termed the amortization interest. The annual interest
was designed to compensate the petitioner for waiting seven years before
receiving the total principal amount. As such, the total cost of the lot
purchased by the respondent for the seven-year term would be P39,097.80,
which amount would be inclusive of the contract price of the lot and the
amortization interest.28cralawrednad
The imposition of the annual or amortization interest on the price for the
purchase of a lot on installment was valid and enforceable. As the Court has
explained in Relucio v. Brillante-Garfin:29
x x x The contract price of P10,800.00 may thus be seen to be the cash price of
the subdivision lots, that is, the amount payable if the price of the lots were to
be paid in cash and in full at the execution of the contract; it is not the amount
that the vendor will have received in the aggregate after fifteen (15) years if
the vendee shall have religiously paid the monthly installments.
The installment price, upon the other hand, of the subdivision lots-the sum
total of the monthly installments (i.e., P16,101.00) typically, as in the instant
case, has an interest component which compensates the vendor for waiting
fifteen (15) years before receiving the total principal amount of P10,600.00.
Economically or financially, P10,600.00 delivered in full today is simply worth
much more than a long series of small payments totalling, after fifteen (15)
years, P10,600.00. For the vendor, upon receiving the full cash price, could
have deposited that amount in a bank, for instance, and earned interest
income which at six percent (6%) per year and for fifteen (15) years, would
precisely total P5,501.00 (the difference between the installment price of
P16,101.00 and the cash price of P10,600.00) To suppose, as private Pag
respondent argues, that mere prompt payment of the monthly installments as
they fell due would obviate application of the interest charge of six percent e|
(6%) per annum, is to ignore that simple economic fact. That economic fact is, 99
of course, recognized by law, which authorizes the payment of interest when
contractually stipulated for by the parties or when implied in recognized
commercial custom or usage.
Vendor and vendee are legally free to stipulate for the payment of either the
cash price of a subdivision lot or its installment price. Should the vendee opt to
purchase a subdivision lot via the installment payment system, he is in effect
paying interest on the cash price, whether the fact and rate of such interest
payment is disclosed in the contract or not. The contract for the purchase and
sale of a piece of land on the installment payment system in the case at bar is
not only quite lawful; it also reflects a very wide spread usage or custom in our
present day commercial life.30
In view of the foregoing, the respondent's insistence on condoning his liability
for the contractually-stipulated 12% annual amortization interest is
unwarranted. The condonation will impose a harsh burden upon the
petitioner, even as it will result in the unjust enrichment of the respondent.
We cannot ignore that the former has waited for a very long period of time
before it would be able to use the proceeds of the lot sold to the respondent.
The 1% monthly penalty sought to be charged on the arrears for failure to pay
the amortizations on time until the arrears would be fully paid was also
stipulated in paragraph 2.b, second sentence, of the contract to sell, supra.
But such stipulation could not be enforced against the respondent because
the petitioner waived the penalty should the subdivision development not be
completed by July 15, 1978. The waiver should stand considering that the
suspension of the amortization payment in 1979 was excusable on account of
the failure to construct the amenities by July 15, 1978, and considering further
that the petitioner did not contest the suspension of payment of the monthly
amortization.31cralawrednad
Under Tamayo v. Huang,32 the buyer has the option to demand the
reimbursement of the total amounts paid, or to await the further
development of the subdivision; when the buyer opts for the latter
alternative, he may suspend the payment of his installments until the time
when the developer has fulfilled its obligation to him; should the developer
persist in refusing to complete the facilities, the National Housing Authority
may take over or cause the development and completion of the subdivision at
the expense of the developer.33cralawrednad
In this case, the respondent initially opted to suspend the payment of his
amortizations, but then offered to complete the payment upon realizing that
the petitioner did not anymore intend to build the amenities. His payments
from October 6, 1976 to October 6, 1979 corresponded to 36 monthly
amortizations totaling P14,974.20, leaving 48 installments unpaid totaling
P19,965.60.34cralawrednad
3.
Claim of respondent was not barred by laches
Laches is the failure of or neglect for an unreasonable and unexplained length
of time to do that which by exercising due diligence could or should have been
done earlier, or to assert a right within a reasonable time. It warrants a
presumption that the party entitled thereto has either abandoned it or
declined to assert it.35cralawrednad
The CA correctly declared that laches did not set in to bar the claim of the
respondent because he had made periodic written demands upon the
petitioner that indicated that he had not abandoned or declined to assert the
claim. In 1979, he manifested the intention to avail himself of his right to
suspend the payment of his amortizations pursuant to the undertaking. Since
then until 1984, he had continuously requested the petitioner for updates on
the progress of the construction of the amenities so that he could resume his
amortizations. The petitioner did not respond to his requests. His efforts to
have the petitioner construct the amenities so that he would already pay for
the lot demonstrated his prudence and alacrity in insisting on his rights,
negating any hint of bad faith or of lack of diligence on his part.
WHEREFORE, the Court AFFIRMS the judgment promulgated on May 29, 2003
subject to the MODIFICATIONS, as follows: (1) the respondent shall pay to the
petitioner the amount of P19,965.60; (2) the petitioner shall execute the deed
of absolute sale covering the property, and shall deliver the property to the
respondent together with the pertinent certificate of title in accordance with
the terms of their contract; and (3) the petitioner shall pay the costs of suit.
SO ORDERED.chanrobles virtuallawlibrary
G.R. No. 202989, March 25, 2015
COMGLASCO CORPORATION/AGUILA GLASS, Petitioner, v. SANTOS CAR CHECK
CENTER CORPORATION, Respondent.
DECISION
REYES, J.:
On August 16, 2000, respondent Santos Car Check Center Corporation
(Santos), owner of a showroom located at 75 Delgado Street, in Iloilo City,
leased out the said space to petitioner Comglasco Corporation (Comglasco),
an entity engaged in the sale, replacement and repair of automobile
windshields, for a period of five years at a monthly rental of P60,000.00 for
the first year, P66,000.00 on the second year, and P72,600.00 on the third
through fifth years.1
On October 4, 2001, Comglasco advised Santos through a letter2 that it was
pre-terminating their lease contract effective December 1, 2001. Santos
refused to accede to the pre-termination, reminding Comglasco that their
contract was for five years. On January 15, 2002, Comglasco vacated the
leased premises and stopped paying any further rentals. Santos sent several
demand letters, which Comglasco completely ignored. On September 15,
2003, Santos sent its final demand letter,3 which Comglasco again ignored. On
October 20, 2003, Santos filed suit for breach of contract.4
Summons and a copy of the complaint, along with the annexes, were served
on Comglasco on January 21, 2004, but it moved to dismiss the complaint for
improper service. The Regional Trial Court (RTC) of Iloilo City, Branch 37,
dismissed the motion and ordered the summons served anew. On June 28,
2004, Comglasco filed its Answer.5 Santos moved for a judgment on the
pleadings, which the RTC granted. On August 18, 2004, the trial court
rendered its judgment,6 the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of [Santos] and against
[Comglasco]:
1. Ordering [Comglasco] to faithfully comply with [its] obligation under the
Contract of Lease and pay its unpaid rentals starting January 16, 2002 to
August 15, 2003 in the total amount of Php1,333,200.00, plus 12% interest
per annum until fully paid;
2. To pay [Santos]:
a) Php200,000.00 as attorney’s fees;
b) [Php]50,000.00 as litigation expenses;
c) [Php]400,000.00 as exemplary damages.
3. Costs of the suit.
SO ORDERED.7
On February 14, 2005, Santos moved for execution pending Comglasco’s
appeal, which the trial court granted on May 12, 2005. In its appeal,
Comglasco interposed the following issues for resolution:
1. Whether or not judgment on the pleadings was properly
invoked by the trial court as basis for rendering its
decision;
2. Whether or not material issues were raised in
[Comglasco’s] Answer;
3. Whether or not damages may be granted by the trial
court without proof and legal basis.8
In its Decision9 dated August 10, 2011, the Court of Appeals (CA) affirmed the
judgment of the RTC but reduced the award of attorney’s fees to P100,000.00
and deleted the award of litigation expenses and exemplary damages.
Petition for Review to the Supreme Court
In this petition, Comglasco raises the following issues:
1. Whether or not judgment on the pleadings was properly
invoked by the trial court as basis for rendering its
decision?
2. Whether or not material issues were raised in
[Comglasco’s] answer?
3. Whether or not summary judgment or judgment on the
pleadings is the proper remedy for [Santos] under the
circumstances of the present case?
4. Whether or not the amount deposited for advance rental
and deposit should be credited to [Comglasco’s] Pag
account?
5. Whether or not attorney’s fees may be granted by the e|
trial court without proof and legal basis?10 100
Paragraph 15 of the parties’ lease contract11 permits pre-termination with
cause in the first three years and without cause after the third year. Citing
business reverses which it ascribed to the 1997 Asian financial crisis,
Comglasco insists that under Article 1267 of the Civil Code it is exempted from
its obligation under the contract, because its business setback is the “cause”
contemplated in their lease which authorized it to pre-terminate the same.
Article 1267 provides:
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.
Comglasco argues that it cannot be said to have admitted in its Answer the
material allegations of the complaint precisely because it invoked therein a
valid cause for its decision to pre-terminate the lease before the lapse of three
years; that therefore, in view of its pleaded “cause” for reneging on its rentals
(the 1997 Asian financial crisis), the RTC should have ordered the reception of
evidence for this purpose, after which a summary judgment would then have
been proper, not a judgment on the pleadings. After all, Santos has claimed in
its Motion for Summary Judgment that Comglasco’s cited “cause” for pre-
termination was fictitious or a sham, whereas in truth the prevailing business
climate which ensued after the 1997 currency crisis resulted in great difficulty
on its part to comply with the terms of the lease “as to be manifestly beyond
the contemplation of the parties”; thus, Comglasco should be deemed
released from the lease.
Next, Comglasco insists that its advance rentals and deposit totaling
P309,000.00 should be deducted from any sum awarded to Santos while it
also insists that there is no factual and legal basis for the award of damages.
Ruling of the Court
The petition is denied.
The first three issues being related will be discussed together.
Comglasco maintains that the RTC was wrong to rule that its answer to Santos’
complaint tendered no issue, or admitted the material allegations therein;
that the court should have heard it out on the reason it invoked to justify its
action to pre-terminate the parties’ lease; that therefore a summary judgment
would have been the proper recourse, after a hearing.
In Philippine National Construction Corporation v. CA12 (PNCC), which also
involves the termination of a lease of property by the lessee “due to financial,
as well as technical, difficulties,”13 the Court ruled:
The obligation to pay rentals or deliver the thing in a contract of lease falls
within the prestation “to give”; hence, it is not covered within the scope of
Article 1266. At any rate, the unforeseen event and causes mentioned by
petitioner are not the legal or physical impossibilities contemplated in said
article. Besides, petitioner failed to state specifically the circumstances
brought about by “the abrupt change in the political climate in the country”
except the alleged prevailing uncertainties in government policies on
infrastructure projects.
The principle of rebus sic stantibus neither fits in with the facts of the case.
Under this theory, the parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to exist, the contract also ceases
to exist. This theory is said to be the basis of Article 1267 of the Civil Code,
which provides:
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.
This article, which enunciates the doctrine of unforeseen events, is not,
however, an absolute application of the principle of rebus sic stantibus, which
would endanger the security of contractual relations. The parties to the
contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional changes of
circumstances that equity demands assistance for the debtor.
In this case, petitioner wants this Court to believe that the abrupt change in
the political climate of the country after the EDSA Revolution and its poor
financial condition “rendered the performance of the lease contract
impractical and inimical to the corporate survival of the petitioner.”
This Court cannot subscribe to this argument. As pointed out by private
respondents:
xxxx
Anent petitioner’s alleged poor financial condition, the same will neither
release petitioner from the binding effect of the contract of lease. As held
in Central Bank v. Court of Appeals, cited by private respondents, mere
pecuniary inability to fulfill an engagement does not discharge a contractual
obligation, nor does it constitute a defense to an action for specific
performance.14
Relying on Article 1267 of the Civil Code to justify its decision to pre-
terminate its lease with Santos, Comglasco invokes the 1997 Asian currency
crisis as causing it much difficulty in meeting its obligations. But in PNCC,15 the
Court held that the payment of lease rentals does not involve a prestation “to
do” envisaged in Articles 1266 and 1267 which has been rendered legally or
physically impossible without the fault of the obligor-lessor. Article 1267
speaks of a prestation involving service which has been rendered so difficult
by unforeseen subsequent events as to be manifestly beyond the
contemplation of the parties. To be sure, the Asian currency crisis befell the
region from July 1997 and for sometime thereafter, but Comglasco cannot be
permitted to blame its difficulties on the said regional economic phenomenon
because it entered into the subject lease only on August 16, 2000, more than
three years after it began, and by then Comglasco had known what business
risks it assumed when it opened a new shop in Iloilo City.
This situation is no different from the Court’s finding in PNCC wherein PNCC
cited the assassination of Senator Benigno Aquino Jr. (Senator Aquino) on
August 21, 1983 and the ensuing national political and economic crises as
putting it in such a difficult business climate that it should be deemed released
from its lease contract. The Court held that the political upheavals, turmoils,
almost daily mass demonstrations, unprecedented inflation, and peace and
order deterioration which followed Senator Aquino’s death were a matter of
judicial notice, yet despite this business climate, PNCC knowingly entered into
a lease with therein respondents on November 18, 1985, doing so with open
eyes of the deteriorating conditions of the country. The Court rules now, as in
PNCC, that there are no “absolutely exceptional changes of circumstances that
equity demands assistance for the debtor.”16
As found by the CA, Comglasco’s Answer admitted the material allegations in
the complaint, to wit: a) that Santos holds absolute title to a showroom space;
b) that Comglasco leased the said showroom from Santos; c) that after a little
over a year, Comglasco pre-terminated the lease; d) that, disregarding Santos’
rejection of the pre-termination of their lease, Comglasco vacated the leased
premises on January 15, 2002; e) that Comglasco never denied the existence
and validity of the parties’ lease contract. Specifically, the CA noted that
Paragraph 2 of the Answer admitted the allegations in Paragraphs 2, 3 and 4
of the complaint that the lease was for five years, starting on August 16, 2000
and to expire on August 15, 2005, at a monthly rental of P60,000.00 on the
first year, P66,000.00 on the second year, and P72,600.00 on the third up to
the fifth year.
The RTC acted correctly in resorting to Section 1 of Rule 34, on Judgment on
the Pleadings, to cut short a needless trial. This Court agrees with the CA that
Comglasco cannot cite Article 1267 of the Civil Code, and that it must be
deemed to have admitted the material allegations in the complaint. Section 1,
Rule 34 reads:
Sec. 1. Judgment on the pleadings. - Where an answer fails to tender an issue,
or otherwise admits the material allegations of the adverse party’s pleading,
the court may, on motion of that party, direct judgment on such pleading.
However, in actions for declaration of nullity or annulment of marriage or for
legal separation, the material facts alleged in the complaint shall always be
proved.
A judgment on the pleadings is a judgment on the facts as pleaded,17 and is
based exclusively upon the allegations appearing in the pleadings of the
parties and the accompanying annexes.18 It is settled that the trial court has
the discretion to grant a motion for judgment on the pleadings filed by a party
if there is no controverted matter in the case after the answer is filed.19 A
genuine issue of fact is that which requires the presentation of evidence, as
distinguished from a sham, fictitious, contrived or false issue.20 Come to think
of it, under Rule 35, on Summary Judgments, Comglasco had recourse to
move for summary judgment, wherein it could have adduced supporting
evidence to justify its action on the parties’ lease, but it did not do so. Section
2 of Rule 35 provides:
Sec. 2. Summary judgment for defending party. - A party against whom a
claim, counterclaim, or cross-claim is asserted or a declaratory relief is sought
may, at any time, move with supporting affidavits, depositions or admissions
for a summary judgment in his favor as to all or any part thereof.
Concerning, now, whether Comglasco’s alleged rental deposit and advance
rentals of P309,000.00 should be credited to Comglasco’s account, let it
Pag
suffice to state that it never raised this matter in its answer to the complaint, e|
nor in its appeal to the CA. Certainly, it cannot do so now. 101
Finally, as to whether attorney’s fees may be recovered by Santos, Article
2208(2) of the Civil Code justifies the award thereof, in the absence of
stipulation, where the defendant’s act or omission has compelled the plaintiff
to incur expenses to protect his interest. The pre-termination of the lease by
Comglasco was not due to any fault of Santos, and Comglasco completely
ignored all four demands of Santos to pay the rentals due from January 16,
2002 to August 15, 2003, thereby compelling Santos to sue to obtain relief. It
is true that the policy of the Court is that no premium should be placed on the
right to litigate,21 but it is also true that attorney’s fees are in the nature of
actual damages, the reason being that litigation costs money.22 But the Court
agrees with the CA that the lesser amount of P100,000.00 it awarded to
Santos instead of P200,000.00 adjudged by the RTC, is more reasonable.
WHEREFORE, premises considered, the petition is DENIED for lack of merit.
SO ORDERED.
G.R. No. 183794, June 13, 2016
SPOUSES JAIME AND MATILDE POON, Petitioners, v. PRIME SAVINGS BANK
REPRESENTED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS
STATUTORY LIQUIDATOR, Respondent.
DECISION
SERENO, C.J.:
Before this Court is a Petition for Review on Certiorari1 assailing the Court of
Appeals (CA) Decision2 which affirmed the Decision3 issued by Branch 21,
Regional Trial Court (RTC) of Naga City.
The RTC ordered the partial rescission of the penal clause in the lease contract
over the commercial building of Spouses Jaime and Matilde Poon
(petitioners). It directed petitioners to return to Prime Savings Bank
(respondent) the sum of P1,740,000, representing one-half of the unused
portion of its advance rentals, in view of the closure of respondent's business
upon order by the Bangko Sentral ng Pilipinas (BSP).
Antecedent Facts
The facts are undisputed.
Petitioners owned a commercial building in Naga City, which they used for
their bakery business. On 3 November 2006, Matilde Poon and respondent
executed a 10-year Contract of Lease4 (Contract) over the building for the
latter's use as its branch office in Naga City. They agreed to a fixed monthly
rental of P60,000, with an advance payment of the rentals for the first 100
months in the amount of P6,000,000. As agreed, the advance payment was to
be applied immediately, while the rentals for the remaining period of the
Contract were to be paid on a monthly basis.5chanrobleslaw
In addition, paragraph 24 of the Contract provides:ChanRoblesVirtualawlibrary
24. Should the lease[d] premises be closed, deserted or vacated by the
LESSEE, the LESSOR shall have the right to terminate the lease without the
necessity of serving a court order and to immediately repossess the leased
premises. Thereafter the LESSOR shall open and enter the leased premises in
the presence of a representative of the LESSEE (or of the proper authorities)
for the purpose of taking a complete inventory of all furniture, fixtures,
equipment and/or other materials or property found within the leased
premises.
The LESSOR shall thereupon have the right to enter into a new contract with
another party. All advanced rentals shall be forfeited in favor of the
LESSOR.6chanroblesvirtuallawlibrary
Barely three years later, however, the BSP placed respondent under the
receivership of the Philippine Deposit Insurance Corporation (PDIC) by virtue
of BSP Monetary Board Resolution No. 22,7 which
reads:ChanRoblesVirtualawlibrary
On the basis of the report of Mr. Candon B. Guerrero, Director of Thrift Banks
and Non-Bank Financial Institutions (DTBNBF1), in his memorandum dated
January 3, 2000, which report showed that the Prime Savings Bank, Inc. (a) is
unable to pay its liabilities as they became due in the ordinary course of
business; (b) has insufficient realizable assets as determined by the Bangko
Sentral ng Pilipinas to meet its liabilities; (c) cannot continue in business
without involving probable losses to its depositors and creditors; and (d) has
wilfully violated cease and desist orders under Section 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the
assets of the institution; x x x.8 (Emphasis supplied)
The BSP eventually ordered respondent's liquidation under Monetary Board
Resolution No. 664.9chanrobleslaw
On 12 May 2000, respondent vacated the leased premises and surrendered
them to petitioners.10 Subsequently, the PDIC issued petitioners a demand
letter11 asking for the return of the unused advance rental amounting to
P3,480,000 on the ground that paragraph 24 of the lease agreement had
become inoperative, because respondent's closure constituted force majeure.
The PDIC likewise invoked the principle of rebus sic stantibus under Article
1267 of Republic Act No. 386 (Civil Code) as alternative legal basis for
demanding the refund.
Petitioners, however, refused the PDIC's demand.12 They maintained that they
were entitled to retain the remainder of the advance rentals following
paragraph 24 of their Contract.
Consequently, respondent sued petitioners before the RTC of Naga City for a
partial rescission of contract and/or recovery of a sum of money.
The RTC Ruling
After trial, the RTC ordered the partial rescission of the lease agreement,
disposing as follows:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby entered ordering the partial rescission of the
Contract of Lease dated November 3, 1996 particularly the second paragraph
of Par. 24 thereof and directing the defendant-spouses Jaime and Matilde
Poon to return or refund to the Plaintiff the sum of One Million Seven
Hundred Forty Thousand Pesos (P1,740,000) representing one-half of the
unused portion of the advance rentals.
Parties' respective claims for damages and attorney's fees are dismissed.
No costs.13chanroblesvirtuallawlibrary
The trial court ruled that the second clause in paragraph 24 of the Contract
was penal in nature, and that the clause was a valid contractual
agreement.14 Citing Provident Savings Bank v. CA15 as legal precedent, it ruled
that the premature termination of the lease due to the BSP's closure of
respondent's business was actually involuntary. Consequently, it would be
iniquitous for petitioners to forfeit the entire amount of P
3,480,000.16 Invoking its equity jurisdiction under Article 1229 of the Civil
Code,17 the trial court limited the forfeiture to only one-half of that amount to
answer for respondent's unpaid utility bills and E-VAT, as well as petitioner's
lost business opportunity from its former bakery business.18chanrobleslaw
The CA Ruling
On appeal, the CA affirmed the RTC Decision,19 but had a different rationale
for applying Article 1229. The appellate court ruled that the closure of
respondent's business was not a fortuitous event. Unlike Provident Savings
Bank,20 the instant case was one in which respondent was found to have
committed fraudulent acts and transactions. Lacking, therefore, was the first
requisite of a fortuitous event, i.e, that the cause of the breach of obligation
must be independent of the will of the debtor.21chanrobleslaw
Still, the CA sustained the trial court's interpretation of the proviso on the
forfeiture of advance rentals as a penal clause and the consequent application
of Article 1229. The appellate court found that the forfeiture clause in the
Contract was intended to prevent respondent from defaulting on the latter's
obligation to finish the term of the lease. It further found that respondent had
partially performed that obligation and, therefore, the reduction of the
penalty was only proper. Similarly, it ruled that the RTC had properly denied
petitioners' claims for actual and moral damages for lack of
basis.22chanrobleslaw
On 10 July 2008,23 the CA denied petitioners' Motion for Reconsideration.
Hence, this Petition.
Issues
The issues to be resolved are whether (1) respondent may be released from
its contractual obligations to petitioners on grounds of fortuitous event under
Article 1174 of the Civil Code and unforeseen event under Article 1267 of the
Civil Code; (2) the proviso in the parties' Contract allowing the forfeiture of
advance rentals was a penal clause; and (3) the penalty agreed upon by the
parties may be equitably reduced under Article 1229 of the Civil Code.
COURT RULING
We DENY the Petition.
Preliminarily, we address petitioners' claim that respondent had no cause of Pag
action for rescission, because this case does not fall under any of the
e|
circumstances enumerated in Articles 138124 and 138225cralawred of the Civil
Code. 102
The legal remedy of rescission, however, is by no means limited to the
situations covered by the above provisions. The Civil Code uses rescission in
two different contexts, namely: (1) rescission on account of breach of contract
under Article 1191; and (2) rescission by reason of lesion or economic
prejudice under Article 1381.26 While the term "rescission" is used in Article
1191, "resolution" was the original term used in the old Civil Code, on which
the article was based. Resolution is a principal action based on a breach by a
party, while rescission under Article 1383 is a subsidiary action limited to cases
of rescission for lesion under Article 1381 of the New Civil
Code.27chanrobleslaw
It is clear from the allegations in paragraphs 12 and 13 of the Complaint28 that
respondent's right of action rested on the alleged abuse by petitioners of their
right under paragraph 24 of the Contract. Respondent's theory before the trial
court was that the tenacious enforcement by petitioners of their right to
forfeit the advance rentals was tainted with bad faith, because they knew that
respondent was already insolvent. In other words, the action instituted by
respondent was for the rescission of reciprocal obligations under Article 1191.
The lower courts, therefore, correctly ruled that Articles 1381 and 1382 were
inapposite.
We now resolve the main issues.
The closure of respondent's business was neither a fortuitous nor an unforeseen
event that rendered the lease agreement functus officio.
Respondent posits that it should be released from its contract with
petitioners, because the closure of its business upon the BSP's order
constituted a fortuitous event as the Court held in Provident Savings
Bank.29chanrobleslaw
The cited case, however, must always be read in the context of the earlier
Decision in Central Bank v. Court of Appeals.30 The Court ruled in that case
that the Monetary Board had acted arbitrarily and in bad faith in ordering the
closure of Provident Savings Bank. Accordingly, in the subsequent case
of Provident Savings Bank it was held that fuerza mayor had interrupted the
prescriptive period to file an action for the foreclosure of the subject
mortgage.31chanrobleslaw
In contrast, there is no indication or allegation that the BSP's action in this
case was tainted with arbitrariness or bad faith. Instead, its decision to place
respondent under receivership and liquidation proceedings was pursuant to
Section 30 of Republic Act No. 7653.32 Moreover, respondent was partly
accountable for the closure of its banking business. It cannot be said, then,
that the closure of its business was independent of its will as in the case of
Provident Savings Bank. The legal effect is analogous to that created by
contributory negligence in quasi-delict actions.
The period during which the bank cannot do business due to insolvency is not
a fortuitous event,33 unless it is shown that the government's action to place a
bank under receivership or liquidation proceedings is tainted with
arbitrariness, or that the regulatory body has acted without
jurisdiction.34chanrobleslaw
As an alternative justification for its premature termination of the Contract,
respondent lessee invokes the doctrine of unforeseen event under Article
1267 of the Civil Code, which provides:ChanRoblesVirtualawlibrary
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.
The theory of rebus sic stantibus in public international law is often cited as
the basis of the above article. Under this theory, the parties stipulate in light
of certain prevailing conditions, and the theory can be made to apply when
these conditions cease to exist.35 The Court, however, has once cautioned that
Article 1267 is not an absolute application of the principle of rebus sic
stantibus, otherwise, it would endanger the security of contractual relations.
After all, parties to a contract are presumed to have assumed the risks of
unfavorable developments. It is only in absolutely exceptional changes of
circumstance, therefore, that equity demands assistance for the
debtor.36chanrobleslaw
Tagaytay Realty Co., Inc. v. Gacutan37 lays down the requisites for the Q. So after telling Mrs. Lauang that you can be amenable to lease the place
application of Article 1267, as follows: for P100,000.00 monthly, what if any, did Mrs. Lauang tell you?

chanRoblesvirtualLawlibrary1. The event or change in circumstance could not A. She told me it is very high. And then she asked me if it is still negotiable, I
have been foreseen at the time of the execution of the contract. answered, yes.

2. It makes the performance of the contract extremely difficult but not Q. So, what happened after your clarified to her that [it is] still negotiable?
impossible.
A. She asked me if there is other condition, and I answered her, yes, if your Pag
3. It must not be due to the act of any of the parties. client can give me advances I can lease my property.
e|
4. The contract is for a future prestation.38chanrobleslaw
xxxx
103
The difficulty of performance should be such that the party seeking to be
released from a contractual obligation would be placed at a disadvantage by Q. So what is your answer when you were asked for the amount of the
the unforeseen event. Mere inconvenience, unexpected impediments, advances?
increased expenses,39 or even pecuniary inability to fulfil an
A. I told her I need 7 million pesos because I need to pay my debts.
engagement,40 will not relieve the obligor from an undertaking that it has
knowingly and freely contracted.
xx
The law speaks of "service." This term should be understood as referring to xx
the performance of an obligation or a prestation.41 A prestation is the object
of the contract; i.e., it is the conduct (to give, to do or not to do) required of
Q. Who was with her when she came over?
the parties.42 In a reciprocal contract such as the lease in this case, one
obligation of respondent as the lessee was to pay the agreed rents for the A. A certain guy name Ricci and said that he is the assistant manager of the
whole contract period.43 It would be hard-pressed to complete the lease term Prime Savings Bank.
since it was already out of business only three and a half years into the 10-
year contract period. Without a doubt, the second and the fourth requisites
mentioned above are present in this case. Q. What did you and Mr. Ricci talk about?

A. I told him the same story as I talked with Mrs. Lauang.

The first and the third requisites, however, are lacking. It must be noted that
the lease agreement was for 10 years. As shown by the unrebutted testimony
of Jaime Poon during trial, the parties had actually considered the possibility Q. Was the agreement finally reached between you and Mr. Ricci?
of a deterioration or loss of respondent's business within that
A. Not yet, Sir.
period:ChanRoblesVirtualawlibrary
ATTY. SALES
Q. What happened after that?
Q. Now to the offer of that real estate broker for possible lease of your
A. He said that he [will discuss] the matter with his higher officer, the
property at No. 38 General Luna Street, Naga City which was then the
branch manager in the person of Henry Lee.
Madam Poon Bakery, what did you tell your real estate broker?

Q. Were you able to meet this Henry Lee?

WITNESS (JAIME POON)
A. After a week later.
A. When Mrs. Lauang approached me, she told me that she has a client who
wants to lease a property in Naga City.
Q. Who was with Henry Lee?
Q. Did she disclose to you the identity of her client? A. Mrs. Lauang.
A. Yes, Sir.
Q. Was there a final agreement on the day when you and Henry Lee met?
Q. What was the name of her client? A. Not yet, he offered to reduce the rental and also the advances. Finally I
gave way after 2 or 3 negotiations.
A. That is the Prime Savings Bank.

Q. What happened after 2 or 3 negotiations?

Q. After you have known that it was the Prime Savings Bank that [wanted] to
lease your property located at No. 38 General Luna St., Naga City, what A. We arrived at P60,000.00 for monthly rentals and P6,000,000.00
did you tell Mrs. Lauang[?] advances for 100 months.
A. I told her that if the price is good, I am willing to give up the place where
this bakery of mine is situated. Q. Was the agreement between you and the representative of the Prime
Savings Bank reduced into writing?
Q. So, did Mrs. Lauang give you the quotation as to the price? A. Yes Sir.
A. Yes, Sir.
xx
xx
Q. What was the amount?

A. She asked first if how much I demand for the price. Q. Now, Mr. Poon, I would like to direct your attention to paragraphs 4 and
5 of the contract of lease which I read: Inasmuch as the leased property is
Q. What did you tell her? presently mortgaged with the PCI Bank, the Lessor and the Lessee hereby
agree that another property with a clean title shall serve as security for
A. I told her, if they can give me P100,000.00 for the rental, I will give up the herein Lessee; Provided that the mortgaged property with PCI Bank is
place. cancelled, the Lessee agrees that the above-mentioned property shall be
released to herein Lessor; paragraph 5 says: It is hereby stipulated that
Q. What do you mean P100,000.00 rental? should the leased property be foreclosed by the PCI Bank or any other
banking or financial institution, all unused rentals shall be returned by the
A. That is only for the establishment [concerned]. Lessor to the Lessee. Now, my question is: Who asked or requested that
paragraphs 4 and 5 be incorporated in the contract of lease?
Q. What was the period to be covered by the P100,000.00 rental? A. Mr. Lee himself.
A. That is monthly basis.
Q. The representative of the plaintiff?
A. Yes, Sir.
Q. Q. For what purpose did Mr. Lee ask these matters to be incorporated?
A. Because they are worried that my building might be foreclosed because it
is under [mortgage] with the PCI Bank, that is why I gave them protection
of a clean title. But I also asked them, what will happen to me, in case your
bank will be closed?
Q. When you asked that question, what did Mr. Lee tell you?
A. He told me that I don't have to worry I will have P6,000,000 advances.
Q. What was your protection as to the 6 million payment made by the
plaintiff?
A. That is the protection for me because during that time I have my bakery
and I myself [spent] 2 million for the improvement of that bakery and I
have sacrificed that for the sake of the offer of lease.
Q. In what manner that you are being protected for that 6 million pesos?
A. They said that if in case the bank will be closed that advance of 6 million
pesos will be forfeited in my favor.
Q. And that is what is found in paragraph 24 of the Contract of Lease which I
asked you to read?
A. That is true.44
Clearly, the closure of respondent's business was not an unforeseen event. As
the lease was long-term, it was not lost on the parties that such an eventuality
might occur, as it was in fact covered by the terms of their Contract. Besides,
as We have previously discussed, the event was not independent of
respondent's will.
The forfeiture clause in the Contract is penal in nature.
Petitioners claim that paragraph 24 was not intended as a penal clause. They
add that respondent has not even presented any proof of that intent. It was,
therefore, a reversible error on the part of the CA to construe its forfeiture
provision of the Contract as penal in nature.
It is settled that a provision is a penal clause if it calls for the forfeiture of any
remaining deposit still in the possession of the lessor, without prejudice to any
other obligation still owing, in the event of the termination or cancellation of
the agreement by reason of the lessee's violation of any of the terms and
conditions thereof. This kind of agreement may be validly entered into by the
parties. The clause is an accessory obligation meant to ensure the
performance of the principal obligation by imposing on the debtor a special
prestation in case of nonperformance or inadequate performance of the
principal obligation.45chanrobleslaw
It is evident from the above-quoted testimony of Jaime Poon that the
stipulation on the forfeiture of advance rentals under paragraph 24 is a penal
clause in the sense that it provides for liquidated damages.
Notably, paragraph 5 of the Contract also
provides:ChanRoblesVirtualawlibrary
5. It is hereby stipulated that should the leased property be foreclosed by PCI
Bank or any other banking or financial institution, all unused rentals shall be
returned by the LESSOR to the LESSEE; x x x.46chanroblesvirtuallawlibrary
In effect, the penalty for the premature termination of the Contract works
both ways. As the CA correctly found, the penalty was to compel respondent
to complete the 10-year term of the lease. Petitioners, too, were similarly
obliged to ensure the peaceful use of their building by respondent for the
entire duration of the lease under pain of losing the remaining advance rentals
paid by the latter.
The forfeiture clauses of the Contract, therefore, served the two functions of a
penal clause, i.e., (1) to provide for liquidated damages and (2) to strengthen
the coercive force of the obligation by the threat of greater responsibility in
case of breach.47 As the CA correctly found, the prestation secured by those
clauses was the parties' mutual obligation to observe the fixed term of the
lease. For this reason, We sustain the lower courts' finding that the forfeiture
clause in paragraph 24 is a penal clause, even if it is not expressly labelled as
such.
A reduction of the penalty agreed upon by the parties is warranted under Article
1129 of the Civil Code.
We have no reason to doubt that the forfeiture provisions of the Contract
were deliberately and intelligently crafted. Under Article 1196 of the Civil
Code,48 the period of the lease contract is deemed to have been set for the
benefit of both parties. Its continuance, effectivity or fulfillment cannot be
made to depend exclusively upon the free and uncontrolled choice of just one
party.49 Petitioners and respondent freely and knowingly committed
themselves to respecting the lease period, such that a breach by either party
would result in the forfeiture of the remaining advance rentals in favor of the
aggrieved party.
Pag
If this were an ordinary contest of rights of private contracting parties,
respondent lessee would be obligated to abide by its commitment to e|
petitioners. The general rule is that courts have no power to ease the burden 104
of obligations voluntarily assumed by parties, just because things did not turn
out as expected at the inception of the contract.50chanrobleslaw
It must be noted, however, that this case was initiated by the PDIC in
furtherance of its statutory role as the fiduciary of Prime Savings Bank.51 As
the state-appointed receiver and liquidator, the PDIC is mandated to recover
and conserve the assets of the foreclosed bank on behalf of the latter's
depositors and creditors.52 In other words, at stake in this case are not just the
rights of petitioners and the correlative liabilities of respondent lessee. Over
and above those rights and liabilities is the interest of innocent debtors and
creditors of a delinquent bank establishment. These overriding considerations
justify the 50% reduction of the penalty agreed upon by petitioners and
respondent lessee in keeping with Article 1229 of the Civil Code, which
provides:ChanRoblesVirtualawlibrary
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
The reasonableness of a penalty depends on the circumstances in each case,
because what is iniquitous and unconscionable in one may be totally just and
equitable in another.53 In resolving this issue, courts may consider factors
including but not limited to the type, extent and purpose of the penalty; the
nature of the obligation; the mode of the breach and its consequences; the
supervening realities; and the standing and relationship of the
parties.54chanrobleslaw
Under the circumstances, it is neither fair nor reasonable to deprive
depositors and creditors of what could be their last chance to recoup
whatever bank assets or receivables the PDIC can still legally recover. Besides,
nothing has prevented petitioners from putting their building to other
profitable uses, since respondent surrendered the premises immediately after
the closure of its business. Strict adherence to the doctrine of freedom of
contracts, at the expense of the rights of innocent creditors and investors, will
only work injustice rather than promote justice in this case.55 Such adherence
may even be misconstrued as condoning profligate bank operations. We
cannot allow this to happen. We are a Court of both law and equity; We
cannot sanction grossly unfair results without doing violence to Our solemn
obligation to administer justice fairly and equally to all who might be affected
by our decisions.56chanrobleslaw
Neither do We find any error in the trial court's denial of the damages and
attorney's fees claimed by petitioners. No proof of the supposed expenses
they have incurred for the improvement of the leased premises and the
payment of respondent's unpaid utility bills can be found in the records.
Actual and compensatory damages must be duly proven with a reasonable
degree of certainty.57chanrobleslaw
To recover moral and exemplary damages where there is a breach of contract,
the breach must be palpably wanton, reckless, malicious, in bad faith,
oppressive, or abusive. Attorney's fees are not awarded even if a claimant is
compelled to litigate or to incur expenses where no sufficient showing of bad
faith exists.58 None of these circumstances have been shown in this case.
Finally, in line with prevailing jurisprudence,59 legal interest at the rate of 6%
per annum is imposed on the monetary award computed from the finality of
this Decision until full payment.
WHEREFORE, premises considered, the Petition for Review on Certiorari
is DENIED. The Court of Appeals Decision dated 29 November 2007 and its
Resolution dated 10 July 2008 in CA-G.R. CV No. 75349 are
hereby MODIFIED in that legal interest at the rate of 6% per annum is imposed
on the monetary award computed from the finality of this Decision until full
payment.
No costs.
SO ORDERED.chanRoblesvirtualLawlibrary
G.R. No. 219509, January 18, 2017
 ILOILO JAR CORPORATION, Petitioner, v. COMGLASCO CORPORATION/AGUILA
GLASS, Respondent.
DECISION
MENDOZA, J.:
This petition for review on certiorari seeks to reverse and set aside the January
30,2015 Decision1 and June 17,2015 Resolution2 of the Court of Appeals (CA)
in CA-G.R. CV No. 01475, which overturned the February 17, 2005 Amended
Order3 of the Regional Trial Court, Branch 37, Iloilo City (RTC).
The Antecedents:
On August 16, 2000, petitioner Iloilo Jar Corporation (Iloilo Jar), as lessor, and
respondent Comglasco Corporation/Aguila Glass (Comglasco), as lessee,
entered into a lease contract over a portion of a warehouse building, with an
estimated floor area of 450 square meters, located on a parcel of land
identified as Lot 2-G-1-E-2 in Barangay Lapuz, La Paz District, Iloilo City. The
term of the lease was for a period of three (3) years or until August 15, 2003.4
On December 1, 2001, Comglasco requested for the pre-termination of the
lease effective on the same date. Iloilo Jar, however, rejected the request on
the ground that the pre-termination of the lease contract was not stipulated
therein. Despite the denial of the request for pre-termination, Comglasco still
removed all its stock, merchandise and equipment from the leased premises
on January 15, 2002. From the time of the withdrawal of the equipment, and
notwithstanding several demand letters, Comglasco no longer paid all rentals
accruing from the said date.5
On September 14, 2003, Iloilo Jar sent a final demand letter to Comglasco, but
it was again ignored. Consequently, Iloilo Jar filed a civil action for breach of
contract and damages before the RTC on October 10, 2003.6
On June 28, 2004, Comglasco filed its Answer7 and raised an affirmative
defense, arguing that by virtue of Article 1267 of the Civil Code (Article
1267),8 it was released from its obligation from the lease contract. It explained
that the consideration thereof had become so difficult due to the global and
regional economic crisis that had plagued the economy. Likewise, Comglasco
admitted that it had removed its stocks and merchandise but it did not refuse
to pay the rentals because the lease contract was already deemed terminated.
Further, it averred that though it received the demand letters, it did not
amount to a refusal to pay the rent because the lease contract had been pre-
terminated in the first place.
On July 15, 2004, Iloilo Jar filed its Motion for Judgment on the
Pleadings9 arguing that Comglasco admitted all the material allegations in the
complaint. It insisted that Comglasco's answer failed to tender an issue
because its affirmative defense was unavailing.
The RTC Order
In its August 18, 2004 Order,10 the RTC granted the motion for judgment on
the pleadings. It opined that Comglasco's answer admitted the material
allegations of the complaint and that its affirmative defense was unavailing
because Article 1267 was inapplicable to lease contracts.
Comglasco moved for reconsideration but its motion was denied by the RTC in
its January 24, 2005 Order.11 After formal defects in the original order were
raised, the RTC issued the assailed February 17, 2005 Amended Order wherein
the total amount of unpaid rentals to be paid was modified from
P1,333,200.00 to P333,300.00. Further, it changed the following: (a) award of
attorney's fees from P200,000.00 to P75,000.00; (b) litigation expenses from
P50,000.00 to P30,000.00; and (c) exemplary damages from P400,000.00 to
P200,000.00.
Aggrieved, Comglasco appealed before the CA.
The CA Ruling
In its January 30, 2015 decision, the CA reversed the amended order of the
RTC. The appellate court was of the view that judgment on the pleadings was
improper as Comglasco's answer tendered an issue considering that Iloilo Jar's
material allegations were specifically denied therein. Further, the CA opined
that even if the same were not specifically denied, the answer raised an
affirmative issue which was factual in nature. It disposed:
IN LIGHT OF ALL THE FOREGOING, the instant appeal is GRANTED. The Order
dated August 18, 2004; the Order dated January 24, 2005; and the Order
dated February 17, 2005 of the Regional Trial Court, Branch 37, Iloilo City, in
Civil Case No. 03- 27960, are REVERSED.
Let the records be REMANDED to the RTC for the conduct of further
proceedings.
SO ORDERED.12
Iloilo Jar moved for reconsideration, but its motion was denied by the CA in its Pag
assailed June 17, 2015 resolution.
e|
Hence, this petition.
105
ISSUES
I
WHETHER OR NOT A DEFENSE RAISED IN THE ANSWER THAT IS NOT
APPLICABLE TO THE CASE AT BAR CAN BE CONSIDERED AS APPROPRIATELY
TENDERING AN ISSUE THAT NEED TO BE TRIED BY THE TRIAL COURT; AND
II
WHETHER OR NOT A JUDGMENT ON THE PLEADINGS IS APPROPRIATE AND
VALID WHEN THE DEFENSE INTERPOSED BY THE DEFENDANT IN THE ANSWER IS
NOT APPLICABLE AS A DEFENSE TO THE CAUSE OF ACTION AS STATED IN THE
COMPLAINT.13
Iloilo Jar argues that Comglasco's answer materially admitted the allegations
of the former's complaint, particularly, that the latter had removed its
merchandise from the lease premises and failed to pay subsequent rentals,
after it had received the demand letters sent. It points out that Comglasco
brushed aside its obligation by merely claiming that it was no longer bound by
the lease contract because it was terminated due to the financial difficulties it
was experiencing in light of the economic crisis. Iloilo Jar insisted that
Comglasco cannot rely on Article 1267 because it does not apply to lease
contracts, which involves an obligation to give, and not an obligation to do.
In its Comment,14 dated February 11, 2016, Comglasco countered that its
answer raised material defenses which rendered judgment on the pleadings
improper. It asserted that judgment on the pleadings may be had only when
the answer fails to tender an issue or otherwise admits the material
allegations of the adverse party's pleading. Comglasco argued that even if the
allegations in the complaint were deemed admitted, the affirmative defenses
it raised may give rise to factual controversies or issues which should be
subject to a trial.
In its Reply,15 dated September 28, 2016, Iloilo Jar reiterated that judgment on
the pleadings was warranted because Comglasco's answer failed to specifically
deny the allegation in the complaint, and that the affirmative defense alleged
therein was improper because Article 1267 is inapplicable to a lease contract.
As such, it stressed that Comglasco's answer failed to tender an issue.
The Court's Ruling
The Court finds merit in the petition.
Rules of Procedure
strictly complied with;
Exceptions
It must be remembered that the right to appeal is not a natural right but
merely a statutory privilege; a party appealing is, thus, expected to comply
with the requirements of relevant rules otherwise he would lose the statutory
right to appeal.16
A review of the records reveals that Iloilo Jar received the Notice of Resolution
of the assailed CA resolution on July 9, 2015. Pursuant to Section 2 Rule 45 of
the Rules of Court,17 it had fifteen (15) days from receipt of the resolution or
until July 24, 2015 to file its petition for review on certiorari before the Court.
On the said date, however, Iloilo Jar filed a motion for extension to file the
said petition. In its September 2, 2015 Resolution,18 the Court granted that
same and extended for thirty (30) days reckoned from the expiration of the
reglementary period within which to file the petition, with a warning that it
would be the last extension to be given. In other words, Iloilo Jar had until
August 23, 2015 to file its petition for review on certiorari.
On August 24, 2015, Iloilo Jar again filed another motion for
extension19 requesting an additional thirty (30) days. In its November 25, 2015
Resolution,20 the Court again granted the same and gave another 30- day
extension reckoned from August 24, 2015. Thus, it had until September 23,
2015 to file its petition.
Iloilo Jar, unfortunately, filed its petition for review only on September 24,
2015,21 one day past the twice extended filing period. Again, procedural rules
are not lightly brushed aside as its strict compliance is necessary for the
orderly administration of justice. Thus, even if the filing of the petition was
merely late for a day, it is still a violation of the rules on appeal, which
generally leads to its outright denial.
The tardy filing, notwithstanding, the Court may still entertain the present
appeal. Procedural rules may be disregarded by the Court to serve the ends of
substantial justice. When a petition for review is filed a few days late,
application of procedural rules may be relaxed, where strong considerations
of substantial justice are manifest in the petition, in the exercise of the Court's
equity jurisdiction.22 In CMTC International Marketing Corporation v. Bhagis
International Trading Corporation,23 the Court did not strictly apply procedural
rules as it would serve the interest of justice, elucidating:
Time and again, this Court has emphasized that procedural rules should be
treated with utmost respect and due regard, since they are designed to
facilitate the adjudication of cases to remedy the worsening problem of delay
in the resolution of rival claims and in the administration of justice. From time
to time, however, we have recognized exceptions to the Rules, but only for the
most compelling reasons where stubborn obedience to the Rules would defeat
rather than serve the ends of justice.
xxxx
Ergo, where strong considerations of substantive justice are manifest in the
petition, the strict application of the rules of procedure may be relaxed, in the
exercise of its equity jurisdiction. Thus, a rigid application of the rules of
procedure will not be entertained if it will obstruct rather than serve the
broader interests of justice in the light of the prevailing circumstances in the
case under consideration.24 [Emphases supplied]
The merits of Iloilo Jar's petition for review warrant a relaxation of the strict
rules of procedure if only to attain justice swiftly. A denial of its petition will
cause the remand of the case, which based on the circumstances, will
unnecessarily delay the proceedings. Thus, the Court deems it wise to let Iloilo
Jar's procedural lapse pass.
Judgment on the
pleadings vis-a-vis
Summary Judgment
Section 1, Rule 34 of the Revised Rules of Court governs motions for judgment
on the pleadings. It reads:
SECTION 1. Judgment on the pleadings. - Where an answers fails to tender an
issue, or otherwise admits the material allegations of the adverse party's
pleading, the court may, on motion of that party, direct judgment on such
pleading. However, in actions for declaration of nullity or annulment of
marriage or for legal separation, the material facts alleged in the complaint
shall always be proved. [Emphasis supplied]
On the other hand, under Rule 35 of the Rules of Court, a party may move for
summary judgment if there are no genuine issues raised.
In Basbas v. Sayson,25 the Court differentiated judgment on the pleadings
from summary judgment in that the former is appropriate if the answer failed
to tender an issue and the latter may be resorted to if there are no genuine
issues raised, to wit:
Simply stated, what distinguishes a judgment on the pleadings from a summary
judgment is the presence of issues in the Answer to the Complaint. When the
Answer fails to tender any issue, that is, if it does not deny the material
allegations in the complaint or admits said material allegations of the adverse
party's pleadings by admitting the truthfulness thereof and/or omitting to deal
with them at all, a judgment on the pleadings is appropriate. On the other
hand, when the Answer specifically denies the material averments of the
complaint or asserts affirmative defenses, or in other words raises an issue, a
summary judgment is proper provided that the issue raised is not genuine. "A
'genuine issue' means an issue of fact which calls for the presentation of
evidence, as distinguished from an issue which is fictitious or contrived or
which does not constitute a genuine issue for trial."
xxx
In this case, we note that while petitioners' Answer to respondents' Complaint
practically admitted all the material allegations therein, it nevertheless asserts
the affirmative defences that the action for revival of judgment is not the
proper action and that petitioners are not the proper parties. As issues
obviously arise from these affirmative defenses, a judgment on the pleadings is
clearly improper in this case.26 [Emphases supplied]
In the case at bench, Comglasco interposed an affirmative defense in its
Pag
answer. While it admitted that it had removed its stocks from the leased e|
premises and had received the demand letter for rental payments, it argued 106
that the lease contract had been pre-terminated because the consideration
thereof had become so difficult to comply in light of the economic crisis then
existing. Thus, judgment on the pleadings was improper considering that
Comglasco's Answer raised an affirmative defense.
Although resort to judgment on the pleadings might have been improper,
there was still no need to remand the case to the RTC for further proceedings.
In Wood Technology Corporation v. Equitable Banking Corporation (Wood
Technology),27 the Court ruled that summary judgment may be availed if no
genuine issue for trial is raised, viz:
Summary judgment is a procedure aimed at weeding out sham claims or
defenses at an early stage of the litigation. The proper inquiry in this regard
would be whether the affirmative defenses offered by petitioners constitute
genuine issues of fact requiring a full-blown trial. In a summary judgment, the
crucial question is: are the issues raised by petitioners not genuine so as to
justify a summary judgment? A "genuine issue" means an issue of fact which
calls for the presentation of evidence, as distinguished from an issue which is
fictitious or contrived, an issue that does not constitute a genuine issue for
trial.28 [Emphasis supplied]
It bears noting that in Wood Technology, the RTC originally rendered a
judgment on the pleadings but was corrected by the Court to be a summary
judgment because of the issue presented by the affirmative defense raised
therein. In the said case, the Court, nonetheless, ruled in favor of the
complainant therein because there was no genuine issue raised.
Similar to Wood Technology, the judgment rendered by the RTC in this case
was a summary judgment, not a judgment on the pleadings, because
Comglasco's answer raised an affirmative defense. Nevertheless, no genuine
issue was raised because there is no issue of fact which needs presentation of
evidence, and the affirmative defense Comglasco invoked is inapplicable in the
case at bench.
A full blown trial would needlessly prolong the proceedings where a summary
judgment would suffice. It is undisputed that Comglasco removed its
merchandise from the leased premises and stopped paying rentals thereafter.
Thus, there remains no question of fact which must be resolved in trial. What
is to be resolved is whether Comglasco was justified in treating the lease
contract terminated due to the economic circumstances then prevalent.
To evade responsibility, Comglasco explained that by virtue of Article 1267, it
was released from the lease contract. It cited the existing global and regional
economic crisis for its inability to comply with its obligation.
Comglasco's position fails to impress because Article 1267 applies only to
obligations to do and not to obligations to give. Thus, in Philippine National
Construction Corporation v. Court of Appeals,29 the Court expounded:
Petitioner cannot, however, successfully take refuge in the said article, since it
is applicable only to obligations "to do," and not to obligations "to give." An
obligation "to do" includes all kinds of work or service; while an obligation "to
give" is a prestation which consists in the delivery of a movable or an
immovable thing in order to create a real right, or for the use of the recipient,
or for its simple possession, or in order to return it to its owner.
The obligation to pay rentals or deliver the thing in a contract of lease falls
within the prestation "to give"; xxx
The principle of rebus sic stantibus neither fits in with the facts of the case.
Under this theory, the parties stipulate in the light of certain prevailing
conditions, and once these conditions cease to exist, the contract also ceases
to exist. xxx
This article, which enunciates the doctrine of unforeseen events, is not,
however, an absolute application of the principle of rebus sic stantibus, which
would endanger the security of contractual relations. The parties to the
contract must be presumed to have assumed the risks of unfavorable
developments. It is therefore only in absolutely exceptional changes of
circumstances that equity demands assistance for the debtor.30 [Emphases and
Underscoring supplied]
Considering that Comglasco's obligation of paying rent is not an obligation to
do, it could not rightfully invoke Article 1267 of the Civil Code. Even so, its
position is still without merit as financial struggles due to an economic crisis is
not enough reason for the courts to grant reprieve from contractual
obligations.
In COMGLASCO Corporation/Aguila Glass v. Santos Car Check Center
Corporation,31 the Court ruled that the economic crisis which may have caused
therein petitioner's financial problems is not an absolute exceptional change
of circumstances that equity demands assistance for the debtor. It is
noteworthy that Comglasco was also the petitioner in the above-mentioned
case, where it also involved Article 1267 to pre-terminate the lease contract.
Thus, the RTC was correct in ordering Comglasco to pay the unpaid rentals
because the affirmative defense raised by it was insufficient to free it from its
obligations under the lease contract. In addition, Iloilo Jar is entitled to
attorney's fees because it incurred expenses to protect its interest. The trial
court, however, erred in awarding exemplary damages and litigation
expenses.
Exemplary damages may be recovered in contractual obligations if the
defendant acted in wanton or fraudulent, reckless, oppressive or malevolent
manner.32 As discussed, Comglasco defaulted in its obligation to pay the
rentals by reason of its erroneous belief that the lease contract was pre-
terminated because of the economic crisis. The same, however, does not
prove that Comglasco acted in wanton or fraudulent, reckless, oppressive or
malevolent manner.33 On the other hand, attorney's fees may be recovered in
case the plaintiff was compelled to incur expenses to protect his interest
because of the defendant's acts or omissions.
Further, the interest rate should be modified pursuant to recent
jurisprudence.34 The monetary awards shall be subject to 12% interest per
annum until June 30, 2013 and 6% per annum from July 1, 2013 until fully
satisfied.
A Final Note
A lawyer, as an officer of the court, is expected to observe utmost respect and
deference to the Court. As such, he must ensure that he faithfully complies
with rules of procedure especially since they are in place to aid in the
administration of justice. This duty to be subservient to the rules of procedure
is manifested in numerous provisions35 of the Code of Professional
Responsibility.
The Court admonishes Iloilo Jar' counsel for repeatedly failing to comply with
the rules of procedure and court processes. First, he belatedly filed the
petition for review. Second, Iloilo Jar's counsel failed to file its Reply within the
time originally allotted prompting the Court to require him to show cause why
he should not be held in contempt.36 Personal obligations, heavy workload
does not excuse a lawyer from complying with his obligations particularly in
timely filing the pleadings required by the Court.
WHEREFORE, the January 30, 2015 Decision and June 17, 2015 Resolution of
the Court of Appeals are REVERSED and SET ASIDE. The February 17, 2005
Amended Order of the Regional Trial Court, Branch 37, Iloilo City, is AFFIRMED
WITH MODIFCATION in that the award of exemplary damages and litigation
expenses is DELETED. The monetary award shall be subject to 12% per
annum until June 30, 2013 and 6% per annum from July 1, 2013 until fully
satisfied.
Atty. Raleigh Silvino L. Manikan is ADMONISHED for his repeated failure to
observe the rules of procedure, with a WARNING that a repetition to strictly
comply with procedural rules shall be dealt with more severely.
SO ORDERED.
G.R. No. 116792 March 29, 1996
BANK OF THE PHILIPPINES ISLAND and GRACE ROMERO, petitioners,
vs.
COURT OF APPEALS and EDVIN F. REYES, respondents.
PUNO, J.:p
Petitioners seek a review of the Decision1 of respondent Court of Appeals in
CA-G.R. CV No. 41543 reversing the Decision2 of the Regional Trial Court of
Quezon City, Branch 79, and ordering petitioners to credit private
respondent's Savings Account No. 3185-0172-56 with P10,556,00 plus
interest.
The facts reveal that on September 25, 1985, private respondent Edvin F.
Reyes opened Savings Account No. 3185-0172-56 at petitioner Bank of the
Philippine Islands (BPI) Cubao, Shopping Center Branch. It is a joint "AND/OR"
account with his wife, Sonia S. Reyes. Pag
e|
Private respondent also held a joint "AND/OR" Savings Account No. 3185- 107
0128-82 with his grandmother, Emeteria M. Fernandez, opened on February
11, 1986 at the same BPI branch. He regularly deposited in this account the
U.S. Treasury Warrants payable to the order of Emeteria M. Fernandez as her
monthly pension.
Emeteria M. Fernandez died on December 28, 1989 without the knowledge of
the U.S. Treasury Department. She was still sent U.S. Treasury Warrant No.
21667302 dated January 1, 1990 in the amount of U.S. $377.003 or
P10,556.00. On January 4, 1990, private respondent deposited the said U.S.
treasury check of Fernandez in Savings Account No. 3185-0128-82. The U.S.
Veterans Administration Office in Manila conditionally cleared the check.4 The
check was then sent to the United States for further clearing.5
Two months after or on March 8, 1990, private respondent closed Savings
Account No. 3185-0128-82 and transferred its funds amounting to P13,112.91
to Savings Account No. 3185-0172-56, the joint account with his wife.
On January 16, 1991, U.S. Treasury Warrant No. 21667302 was dishonored as
it was discovered that Fernandez died three (3) days prior to its issuance. The
U.S. Department of Treasury requested petitioner bank for a refund.6 For the
first time petitioner bank came to know of the death of Fernandez.
On February 19, 1991, private-respondent received a PT&T urgent telegram
from petitioner bank requesting him to contact Manager Grace S. Romero or
Assistant Manager Carmen Bernardo. When he called up the bank, he was
informed that the treasury check was the subject of a claim by Citibank NA,
correspondent of petitioner bank. He assured petitioners that he would drop
by the bank to look into the matter. He also verbally authorized them to debit
from his other joint account the amount stated in the dishonored U.S.
Treasury Warrant.7 On the same day, petitioner bank debited the amount of
P10,556.00 from private respondent's Savings Account No. 3185-0172-56.
On February 21, 1991, private respondent with his lawyer Humphrey
Tumaneng visited the petitioner bank and the refund documents were shown
to them. Surprisingly, private respondent demanded from petitioner bank
restitution of the debited amount. He claimed that because of the debit, he
failed to withdraw his money when he needed them. He then filed a suit for
Damages8 against petitioners before the Regional Trial Court of Quezon City,
Branch 79.
Petitioners contested the complaint and counter claimed, for moral and
exemplary damages. By way of Special and Affirmative Defense, they averred
that private respondent gave them his express verbal authorization to debit
the questioned amount. They claimed that private respondent later refused to
execute a written authority.9
In a Decision dated January 20, 1993, the trial court dismissed the complaint
of private respondent for lack of cause of action.10
Private respondent appealed to the respondent Court of Appeals. On August
16, 1994, the Sixteenth Division of respondent court in AC-G.R. CV No. 41543
reversed the impugned decision, viz:
WHEREFORE, the judgement appealed from is set aside,
and another one entered ordering defendant (petitioner)
to credit plaintiff's (private respondent's) S.A. No. 3185-
0172-56 with P10,556.00 plus interest at the applicable
rates for express teller savings accounts from February
19, 1991, until compliance herewith. The claim and
counterclaim for damages are dismissed for lack of merit.
SO ORDERED.11
Petitioners now contend that respondent Court of Appeals erred:
I
 RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
NOT HOLDING THAT RESPONDENT REYES GAVE EXPRESS
AUTHORITY TO PETITIONER BANK TO DEBIT HIS JOINT
ACCOUNT WITH HIS WIFE FOR THE VALUE OF THE
RETURNED U.S. TREASURY WARRANT.
II
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
NOT HOLDING THAT PETITIONER BANK HAS LEGAL RIGHT
TO APPLY THE DEPOSIT OF RESPONDENT REYES TO HIS
OUTSTANDING OBLIGATION TO PETITIONER BANK
BROUGHT ABOUT BY THE RETURN OF THE U.S. TREASURY
WARRANT HE EARLIER DEPOSITED UNDER THE PRINCIPLE
OF "LEGAL COMPENSATION."
III
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
NOT APPLYING CORRECTLY THE PRINCIPLES ENUNCIATED
BY THE SUPREME COURT IN THE CASE OF GULLAS V. PNB,
62 PHIL. 519.
IV.
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
NOT APPRECIATING THE FACT THAT THE MONEY
DEBITED BY PETITIONER BANK WAS THE SAME MONEY
TRANSFERRED BY RESPONDENT REYES FROM HIS JOINT
"AND/OR" ACCOUNT WITH HIS GRANDMOTHER TO HIS
JOINT "AND/OR" ACCOUNT WITH HIS WIFE.12
We find merit in the petition.
The first issue for resolution is whether private respondent verbally
authorized petitioner bank to debit his joint account with his wife for the
amount of the returned U.S. Treasury Warrant. We find that petitioners
were able to prove this verbal authority by preponderance of evidence. The
testimonies of Bernardo and Romero deserve credence. Bernardo testified:
xxx xxx xxx
Q After that, what happened?
A . . . Dr. Reyes Called me up and I
informed him about the return of
the U.S. Treasury Warrant and we
are requested to reimburse for the
amount.
Q What was his response if any?
A Don't you worry about it, there is
no personal problem.
xxx xxx xxx
Q And so what was his response?
A He said that don' t you worry
about.
xxx xxx xxx
Q You said that you asked him the
advice and he did not answer, what
advice are you referring to?
A In our conversation, he promised
me that he will give me written
confirmation or authorization.13
The conversation was promptly relayed to Romero who testified:
xxx xxx xxx
Q . . . Was there any opportunity
where in said Mrs. Bernardo was
able to convey to you the contents
of their conversation?
A This was immediately relayed to
me as manager of the Bank of the
Philippine Islands, sir.
Q What, any was the content of her
Pag
conversation, if you know? e|
108
A Mr. Reyes instructed
Mrs. Bernardo to debit his account
with the bank. His account was
maintained jointly with his wife then
he promised to drop by to give us a
written confirmation, sir.
xxx xxx xxx
Q You said that you authorized the
debiting of the account on February
19, 1991, is that correct?
A I did not authorize, we merely
followed the instruction of
Mr. Reyes, sir.14
We are not disposed to believe private respondent's allegation that
he did not give any verbal authorization. His testimony
is uncorroborated. Nor does he inspire credence. His past and
fraudulent conduct is an evidence against him.15 He concealed from
petitioner bank the death of Fernandez on December
28, 1989. 16 As of that date, he knew that Fernandez was no longer
entitled to receive any pension. Nonetheless, he-still received the
U.S. Treasury Warrant of Fernandez, and on January 4, 1990
deposited the same in Savings Account No. 3185-0128-82. To pre-
empt a refund, private respondent closed his joint account with
Fernandez (Savings Account No. 31-85-0128-82) on March
8, 1990 and transferred its balance to his joint account with his wife
(Savings Account No. 3185-0172-56). Worse, private respondent
declared under the penalties of perjury in the withdrawal
slip 17 dated March 8, 1990 that his co-depositor, Fernandez, is still
living. By his acts, private respondent has stripped himself of
credibility.
More importantly, the respondent court erred when it failed to rule that legal
compensation is proper. Compensation shall take place when two persons, in
their own right, are creditors and debtors of each other.18 Article 1290 of the
Civil Code provides that "when all the requisites mentioned in Article 1279 are
present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and debtors are not
aware of the compensation." Legal compensation operates even against the
will of the interested parties and even without the consent of them. 19 Since
this compensation takes place ipso jure, its effects arise on the very day on
which all its requisites concur. 20 When used as a defense, it retroacts to the
date when its requisites are fulfilled.21
Article 1279 states that in order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of
the other;
(2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
 The elements of legal compensation are all present in the case at
bar. The obligors bound principally are at the same time creditors of
each other. Petitioner bank stands as a debtor of the private
respondent, a depositor. At the same time, said bank is the creditor
of the private respondent with respect to the dishonored U.S.
Treasury Warrant which the latter illegally transferred to his joint
account. The debts involved consist of a sum of money. They are
due, liquidated, and demandable. They are not claimed by a third
person.
It is true that the joint account of private respondent and his wife was debited
in the case at bar. We hold that the presence of private respondent's wife
does not negate the element of mutuality of parties, i.e., that they must be
creditors and debtors of each other in their own right. The wife of private
respondent is not a party in the case at bar. She never asserted any right to
the debited U.S. Treasury Warrant. Indeed, the right of the petitioner bank to
make the debit is clear and cannot be doubted. To frustrate the application of
legal compensation on the ground that the parties are not all mutually
obligated would result in unjust enrichment on the part of the private
respondent and his wife who herself out of honesty has not objected to the
debit. The rule as to mutuality is strictly applied at law. But not in
equity, where to allow the same would defeat a clear right or permit
irremediable injustice.22
In VIEW HEREOF, the Decision of respondent Court of Appeals in CA-G.R. CV
No. 41543 dated August 16, 1994 is ANNULLED and SET ASIDE and the
Decision of the trial court in Civil Case No. Q-91-8451 dated January 20, 1993
is REINSTATED. Costs against private respondent.
SO ORDERED.
PNB VS CA
G.R. No. 120236 July 20, 1999
E.G.V. REALTY DEVELOPMENT CORPORATION and CRISTINA CONDOMINIUM
CORPORATION, petitioners,
vs.
COURT OF APPEALS and UNISPHERE INTERNATIONAL, INC. respondents.
KAPUNAN, J.:
This petition for review on certiorari seeks to set aside the decision and
resolution of the Court of Appeals rendered on February 17, 1995 and on May
15, 1995, respectively, in CA-G.R. SP No. 22735 reversing the order of the
securities and Exchange Commission (SEC) in SEC-AC No. 271 issued on August
21, 1990.
The following facts are not disputed:
Petitioner E.G.V. Realty Development Corporation (hereinafter referred to as
E.G.V. Realty) is the owner/develops of a seven-storey condominium building
known as Cristina Condominium. Cristina Condominium Corporation
(hereinafter referred to as CCC) holds title to all common areas of Cristina
Condominium and is in charge of managing, maintaining and administering
the condominium's common areas and providing for the building's security.
Respondent Unisphere International, Inc. (hereinafter referred to as
Unisphere) is the owner/occupant of Unit 301 of said condominium.
On November 28, 1981, respondent Unisphere's Unit 301 was allegedly
robbed of various items valued at P6,165.00. The incident was reported to
petitioner CCC.
On July 25, 1982, another robbery allegedly occurred at Unit 301 where the
items carted away were valued at P6,130.00, bringing the total value of items
lost to P12,295.00. This incident was likewise reported to petitioner CCC.
On October 5, 1982, respondent Unisphere demanded compensation and
reimbursement from petitioner CCC for the losses incurred as a result of the
robbery.1âwphi1.nêt
Petitioner CCC denied any liability for the losses claimed to have been
incurred by respondent Unisphere, stating that the goods lost belonged to
Amtrade, a third party.
As a consequence of the denial, respondent Unisphere withheld payment of
its monthly dues starting November 1982.
On September 13, 1983, respondent Unisphere received a letter from
petitioner CCC demanding payment of past dues.
On December 5, 1984, petitioner E.G.V. Realty executed a Deed of Absolute
Sale over Unit 301 in favor of respondent Unisphere. Thereafter,
Condominium Certificate of Title No. 7010 was issued in respondent
Unisphere's name bearing the annotation of a lien in favor of petitioner E.G.V.
Pag
Realty for the unpaid condominium dues in the amount of P13,142.67. e|
109
On January 28, 1987, petitioners E.G.V. Realty and CCC jointly filed a petition
with the Securities and Exchange Commission (SEC) for the collection of the
unpaid monthly dues in the amount of P13,142.67 against respondent
Unisphere.
In its answer, respondent Unisphere alleged that it could not be deemed in
default in the payment of said unpaid dues because its tardiness was
occasioned by the petitioners' failure to comply with what was incumbent
upon them, that is, to provide security for the building premises in order to
prevent, if not to stop, the robberies taking place therein. It asserted as
counterclaim that the amount of P12,295.00 representing the total value of its
loss due to the two robberies be awarded to it by way of damages for the
latter's failure to secure the premises.
On January 11, 1989, SEC Hearing Officer Antero F.L. Villaflor, Jr. rendered a
decision which dispositively reads as follows:
WHEREFORE, respondent is hereby ordered to pay
petitioner the sum of P13,142.67 within fifteen (15) days
from receipt of this Decision. Further, petitioner is
hereby ordered to pay respondent within fifteen (15)
days from receipt of this Decision, the sum of
P12,295.00.
Let copy of this Decision be furnished the Register of
Deeds of Makati, Metro Manila for the purpose of
cancellation of the lien in favor of Cristina Condominium
found at the back of Title for unpaid monthly dues in the
sum of P13,142.67, upon full payment of respondent of
said amount unto petitioner.
SO ORDERED.1
Both parties filed their respective motions for reconsideration.
On July 17, 1989, the decision of Hearing Officer Villaflor was modified and
amended by Hearing Officer Enrique L. Flores, Jr. to read as follows:
WHEREFORE, respondent's motion for reconsideration
should be, as it is, hereby DENIED and the petitioners'
motion for reconsideration is hereby GRANTED.
Accordingly, the decision dated January 11, 1989, is
partially reconsidered to the effect that petitioners are
not made liable for the value of the items/articles
burglarized from respondent's condominium unit.
SO ORDERED.2
On July 18, 1989, respondent Unisphere filed a notice of appeal with the
SEC en banc questioning the above-mentioned decision.
On August 15, 1989, it filed a motion for an extension of thirty (30) days to file
its memorandum on appeal thirty (30) days from the stated deadline of
August 18, 1989.
Said motion was granted on August 17, 1989.
On September 18, 1989, respondent Unisphere filed a second motion for
extension of time to file its memorandum on appeal for another twenty (20)
days.
The motion was likewise granted on September 26, 1989.
On October 9, 1989, respondent Unisphere filed its memorandum on appeal.
After the petitioners filed their reply thereto, the SEC en banc issued the
Order dated February 23, 1990 which is quoted hereunder:
Before this Commission en banc is an appeal from the
Order dated July 17, 1989 of the Hearing Officer in SEC
Case No. 3119 entitled "E.G.V. Realty Development
Corporation and Cristina Condominium Corporation vs.
Unisphere International, Inc."
The records of the case show that respondent-appellant
received a copy of the above order on July 18, 1989 and
filed its Notice of Appeal on July 21, 1989. On August 15,
1989, respondent asked for an extension of thirty (30)
days to file its Memorandum on Appeal which was
granted on August 17, 1989.
On September 18, 1989, respondent asked for an
additional period of twenty (20) days until October 8,
1989 to file his Appeal which was also granted.
Respondent filed his Memorandum on October 13, 1989,
five days after the due date.
The penultimate paragraph of Section 6 of Presidential
Decree No. 902-A (as amended) clearly provides:
. . . The decision, ruling or order of
any such Commissioner, bodies,
boards, committees, and/or officer
as may be appealed to the
Commission sitting en banc within
thirty (30) days after receipt by the
appellant of notice of such decision,
ruling or order. The Commission
shall promulgate rules or procedure
to govern the proceedings, hearings
and appeals of cases falling within
its jurisdiction.
Pursuant to the above provision, the Commission
promulgated the Revised Rules of Procedure of the
Securities and Exchange Commission, Section 3, Rule XVI
of said Rules reiterates the thirty (30)-day period
provided for under the above provision:
Appeal may be taken by filing with
the Hearing Officer who
promulgated the decision, order or
ruling within thirty (30) days from
notice thereof, and serving upon
the adverse party, a notice of
appeal and a memorandum on
appeal and paying the
corresponding docket fee therefor.
The appeal shall be considered
perfected upon the filing of the
memorandum on appeal and
payment of the docket fee within
the period hereinabove fixed.
The Commission en banc notes that respondent had,
extensions included, a total of eighty (80) days to file its
Appeal memorandum but failed to do so.
WHEREFORE, premises considered, the instant appeal is
hereby dismissed for having been filed out of time.
SO ORDERED. 3 February 23, 1990 order of the SEC en banc has already become final and
Respondent Unisphere moved for a reconsideration of the above-quoted
order but the same was denied, and so was its second motion for
reconsideration.
On September 6, 1990, respondent Unisphere filed a notice of appeal to the
SEC en banc in order to question the latter's ruling to the Court of Appeals
pursuant to Rule 43 of the Rules of Court, as amended by Republic Act No.
5434.
On September 10, 1990, it filed a notice of appeal to the Court of Appeals.
The Court of Appeals reversed the SEC en banc in Order of August 21, 1990 in
its Decision dated February 17, 1995 which dispositively reads as follows:
WHEREFORE, the instant petition is GRANTED and the
assailed Order dated August 21, 1989 is hereby
REVERSED and SET ASIDE. Another judgment is entered
declaring that the appeal memorandum before the SEC
ten (en banc) of appellant Unisphere was filed on time
and that the amount of P13,142.67, the unpaid monthly
dues of Unisphere to the Corporation should be offset by Pag
the losses suffered by the Unisphere in the amount of e|
P12,295.00. Unisphere is hereby ordered to pay the
Cristina Condominium Corporation the amount of 110
P847.67 representing the balance after offsetting the
amount of P12,295.00 against the said P13,142.67, with
12% interest per annum from January 28, 1987 when the
Joint Petition of the petitioners-appellees was filed
before the SEC (for collection and damages) until fully
paid.
No pronouncement as to costs.
SO ORDERED.4
Petitioners moved for reconsideration of the said decision but the same was
denied by the appellate court on May 15, 1995.
Hence, the instant petition for review interposed by petitioners E.G.V. Realty
and CCC challenging the decision of the Court of Appeals on the following
grounds: (a) the Court of Appeals did not acquire jurisdiction over respondent
Unisphere's appeal because the latter failed to comply with the prescribed
mode of appeal; (b) even if the jurisdictional infirmity is brushed aside, the
SEC en banc Order dated February 23, 1990 has already attained finality; and
(c) the ruling of the Court of Appeals on the offsetting of the parties' claims is
unfounded.
A perusal of the foregoing issues readily reveals that petitioners raise two (2)
aspects of the case for consideration, that is, the procedural aspect and the
substantive aspect.
We will discuss the procedural aspect first. Petitioners contend that (a) the
Court of Appeals did not acquire jurisdiction over the appeal because
respondent failed to comply with the prescribed mode of appeal; and (b)
assuming that the Court of Appeals has jurisdiction, the assailed SEC en
banc Order of February 23, 1990 had already become final and executory.
Anent the first contention, petitioners claim that respondent Unisphere erred
in merely filing a notice of appeal as in ordinary civil cases from the regular
courts instead of a petition for review with the Court of Appeals.
Contrary to petitioners' contention, respondent Unisphere complied with the
prescribed mode of appeal. At the time the appeal was elevated to the Court
of Appeals in 1990, the rule governing recourse to the Court of Appeals from
the decision, resolution or final order of a quasi-judicial body was Rule 43 of
the Revised Rules of Court, as amended by Republic Act No. 5434 as
embodied in Batas Pambansa Blg. 129 and its Interim Rules and
Guidelines.5 The rule provided for a uniform procedure for appeals from the
specified administrative tribunals, SEC included, to the Court of Appeals by
filing a notice of appeal with the appellate court and with the court, officer,
board, commission or agency that made or rendered the assailed ruling within
fifteen (15) days from notice thereof. Records bear out that respondent
Unisphere complied with the foregoing rules when it filed a notice of appeal
with the SEC en banc on September 6, 1990 and with the Court of Appeals on
September 10, 1990. Clearly therefore, respondent Unisphere complied with
the proper mode of appeal as mandated by the rules.
With respect to the second contention, petitioners asseverate that the
unappealable, therefore can no longer be reversed, amended or modified.
They maintain that respondent Unisphere received a copy of said order on
February 26, 1990 and that ten (10) days thereafter, it filed its motion for
reconsideration. Said motion was denied by the SEC on May 14, 1990 which
was received by respondent Unisphere on May 15, 1990. Consequently, they
assert that respondent Unisphere had only the remaining five (5) days or May
20, 1990 within which to file a notice of appeal. However, instead of appealing
therefrom, respondent Unisphere second motion for reconsideration on May
25, 1990 with the SEC en banc. Petitioner contend that no second motion for
reconsideration is allowed by SEC Rules unless with express prior leave of the
hearing officer. Said second motion for reconsideration was likewise denied
on August 21, 1990. Fifteen (15) days later on September 5, 1990, respondent
Unisphere filed its notice of appeal.
Sec. 8, Rule XII of the Revised Rules of Procedure of the SEC provides that: It must be noted that Unisphere just stopped paying its
monthly dues to the Corporation on September 23, 1983
Sec. 8. Reconsideration. — Within thirty (30) days from without notifying the latter. It was only on February 24,
receipt of the order or decision of the Hearing Officer, 1984, or five months after, that it informed the
the aggrieved party may file a motion for reconsideration corporation of its suspension of payment of the
of such order or decision together with proof of service condominium dues to offset the losses it suffered
thereof upon the adverse party. No more than one because of the robberies.
motion for reconsideration shall be allowed unless with
the express prior leave of the Hearing Officer. In resisting the finding which underscores their
negligence, E.G.V. Realty and Cristina condominium Pag
Respondent Unisphere's non-observance of the foregoing rule rendered the corporation, would have this Court appreciate in their e|
February 23, 1990 and the May 14, 1990 orders of the SEC en banc final and favor the admission of Mr. Alfonso Zamora of Unisphere
that there was no such agreement among the unit 111
unappealable. Its failure to perfect its appeal in the manner and within the
period fixed by law rendered the decision sought to be appealed final, with owners that any member who incurred losses will be
the result that no court can exercise appellate jurisdiction to review the indemnified from the common contribution. (TSN, July 7,
decision.6 Contrary to petitioners' view, the appeal to the Court of Appeals in 1987, p. 60).
this case should have been perfected within fifteen (15) days from the receipt
of the order denying the motion for reconsideration on May 15, 1990. But The herein appellees further argue that the cause of
instead of appealing, respondent Unisphere filed a prohibited second motion action for reimbursement of the value of the items lost
for reconsideration without express prior leave of the hearing officer. because of the robberies should be against the security
Consequently, when it subsequently filed its notice of appeal on September 6, agency and not the Corporation.
1990, it was already eighty-two (82) days late. Therefore, the appeal before
the Court of Appeals could have been dismissed outright for being time- On the other hand, Unisphere invokes ART. 1170 of the
barred. Rules of procedure are intended to ensure the proper administration Civil Code which provides:
of justice and the protection of substantive rights in judicial and quasi-judicial
proceedings. Blatant violation of such rules smacks of a dilatory tactic which
we simply cannot countenance. Art. 1170. — Those who in the
performance of their obligations are
guilty of fraud, negligence, or delay
Now, we go to the substantive aspect.1âwphi1.nêt and those who in any manner
contravene the tenor thereof, are
It is petitioners' assertion that the ruling of the Court of Appeals to offset the liable for damages.
alleged losses as a result of the robberies in the amount of P12,295.00 from
the unpaid monthly dues of P13,142.67 is unfounded because respondent There is weight in the initial factual findings of the SEC
Unisphere is not the owner of the goods lost but a third party, Amtrade. Hearing Officer with respect to the losses suffered by
Respondent Unisphere, on its part, claims that this issue is factual, hence, not Unisphere in the amount of P12,295.00:
a proper issue to raise before this Court.

Plaintiff likewise does not dispute

Actually, the issue for our consideration is whether or not set-off or the fact of robbery that occurred on
compensation has taken place in the instant case. The Court of Appeals' November 28, 1981 and July 26,
dissertation on the matter is commendably instructive, but, lamentably, it 1982 inside 301 Cristina
reached a different conclusion. We quote pertinent portions of the assailed Condominium.
decision:

Plaintiff admits that it had secured

Compensation or offset under the New Civil Code takes the services of Jimenez Protective
place only when two persons or entities in their own and Security Agency to safeguard
rights, are creditors and debtors of each other. (Art. the Condominium premises under
1278). . . . its instructions and supervision, but
which failed to detect the robbery
A distinction must be made between a debt and a mere incidents that occurred twice at
claim. A debt is an amount actually ascertained. It is a Unit 301 of respondent, canting (sic)
claim which has been formally passed upon by the courts away bulk items.
or quasi-judicial bodies to which it can in law be
submitted and has been declared to be a debt. A claim, xxx xxx xxx
on the other hand, is a debt in embryo. It is mere
evidence of a debt and must pass thru the process
prescribed by law before it develops into what is properly From the undisputed facts, plaintiff
called a debt. (Vallarta vs. CA, 163 SCRA 587). Absent, was remissed (sic) within its
however, any such categorical admission by an obligor or obligation to provide safety to
final adjudication, no compensation or off-set can take respondent inside its unit. This was
place. Unless admitted by a debtor himself, the demonstrated by the fact that two
conclusion that he is in truth indebted to another cannot robbery incidents befell
be definitely and finally pronounced, no matter how respondents under the negligent
convinced he may be from the examination of the eye of plaintiffs hired security
pertinent records of the validity of that conclusion the guards. It can be safely pronounced
indebtedness must be one that is admitted by the that plaintiff has not complied with
alleged debtor or pronounced by final judgment of a what was incumbent upon it to do
competent court or in this case by the Commission in a proper manner.
(Villanueva vs. Tantuico, 182 SCRA 263).
Since it has been determined and proven by the evidence
There can be no doubt that Unisphere is indebted to the presented before the hearing office of respondent SEC
Corporation for its unpaid monthly dues in the amount of that Unisphere indeed suffered losses because of the
P13,142,67. This is admitted. But whether the robbery incidents and since it (Unisphere) did not refute
Corporation is indebted to Unisphere is vigorously its liability to the corporation for the unpaid monthly
disputed by the former. dues in the amount of P13,142.67, this amount should be
set-off against the aforestated losses of Unisphere. 7

It appears quite clear that the offsetting of debts does

not extend to unliquidated, disputed claims arising from We fully agree with the appellate court's dissertation on the nature and
tort or breach of contract. (Compania General de character of a set-off or compensation. However, we cannot subscribe to its
Tabacos vs. French and Unson, 39 Phil. 34; Lorenzo and conclusion that a set-off or compensation took place in this case.
Martinez vs. herrero, 17 Phil. 29).
In Article 1278 of the Civil Code, compensation is said to take place when two
persons, in their own right, are creditors and debtors of each other.
Compensation is "a mode of extinguishing to the concurrent amount, the
obligations of those persons who in their own right are reciprocally debtors
and creditors of each other" and "the offsetting of two obligations which are
reciprocally extinguished if they are of equal value, or extinguished to the
concurrent amount if of different values." 8 Article 1279 of the same Code
provides:
Art. 1279. In order that compensation may be proper, it
is necessary:
(1) That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of
the other;
(2) That both debts consist in a sum of money, or if the
things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
Absent any showing that all of these requisites exist, compensation may not
take place.
While respondent Unisphere does not deny its liability for its unpaid dues to
petitioners, the latter do not admit any responsibility for the loss suffered by
the former occasioned by the burglary. At best, what respondent Unisphere
has against petitioners is just a claim, not a debt. Such being the case, it is not
enforceable in court. It is only the debts that are enforceable in court, there
being no apparent defenses inherent in them.9 Respondent Unisphere's claim
for its loss has not been passed upon by any legal authority so as to elevate it
to the level of a debt. So we held in Alfonso Vallarta v. Court of Appeals, et
al., 10 that:
Compensation or offset takes place by operation of law
when two (2) persons, in their own right, are creditor and
debtor of each other. For compensation to take place, a
distinction must be made between a debt and a mere
claim. A debt is a claim which has been formally passed
upon by the highest authority to which it can in law be
submitted and has been declared to be a debt. A claim,
on the other hand, is a debt in embryo. It is mere
evidence of a debt and must pass thru the process
prescribed by law before it develops into what is properly
called a debt. 11
Tested by the foregoing yardstick, it has not been sufficiently established that
compensation or set-off is proper here as there is lack of evidence to show
that petitioners E.G.V. Realty and CCC and respondent Unisphere are mutually
debtors and creditors to each other.
Considering the foregoing disquisition, therefore, we find that respondent
Court of Appeals committed reversible error in ruling that compensation or
set-off is proper in the instant case.
WHEREFORE, for all the foregoing, the instant petition is hereby GRANTED.
The Decision of the Court of Appeals dated February 17, 1995 is REVERSED
and SET ASIDE. The Order of the Securities and Exchange Commission dated
August 21, 1990 reiterating the Hearing Officer's Decision dated January 11,
1989, as amended by the Order of July 17, 1989, is hereby REINSTATED.
SO ORDERED.
G.R. No. 134436 August 16, 2000
METROPOLITAN BANK and TRUST COMPANY, petitioner,
vs.
JOAQUIN TONDA and MA. CRISTINA TONDA, respondents.
DECISION
GONZAGA REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision1 of the Court of Appeals2 dated June 29, 1998
in CA-G.R. SP No. 38113 which: (1) reversed Resolution No. 417, s.
1994,3 dated June 1, 1994 of the Department of Justice4 directing to file the
appropriate Information against herein respondents Joaquin P. Tonda and Ma.
Cristina V. Tonda for violation of P.D. 115 in relation to Article 315 (1) (b) of
the Revised Penal Code; and (2) effectively set aside the Resolutions dated
April 7, 19955 and July 12 19956 of the Department of Justice denying the Pag
motions for reconsideration. e|
112
Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter referred to
as the TONDAS, applied for and were granted commercial letters of credit by
petitioner Metropolitan Bank and Trust Company, hereinafter referred to as
METROBANK for a period of eight (8) months beginning June 14, 1990 to
February 1, 1991 in connection with the importation of raw textile materials
to be used in the manufacturing of garments. The TONDAS acting both in their
capacity as officers of Honey Tree Apparel Corporation (HTAC) and in their
personal capacities, executed eleven (11) trust receipts to secure the release
of the raw materials to HTAC. The imported fabrics with a principal value of
P2,803,000.00 were withdrawn by HTAC under the 11 trust receipts executed
by the TONDAS. Due to their failure to settle their obligations under the trust
receipts upon maturity, METROBANK through counsel, sent a letter dated
August 10, 1992, making its final demand upon the TONDAS to settle their
past due TR/LC accounts on or before August 15, 1992. They were informed
that by said date, the obligations would amount to P4,870,499.13. Despite
repeated demands therefor, the TONDAS failed to comply with their
obligations stated in the trust receipts agreements, i.e. the TONDAS failed to
account to METROBANK the goods and/or proceeds of sale of the
merchandise, subject of the trust receipts.
Consequently, on November 9, 1992, Metrobank, through its account officer
Eligio Labog, Jr., filed with the Provincial Prosecutor of Rizal a
complaint/affidavit against the TONDAS for violation of P.D. No. 115 (Trust
Receipts Law) in relation to Article 315 (1) (b) of the Revised Penal Code. On
February 12, 1993, the assigned Assistant Prosecutor of Rizal submitted a
Memorandum to the Provincial Prosecutor recommending that the complaint
in I.S. No. 92-8703 be dismissed on the ground that the complainants had
failed to establish "the existence of the essential elements of Estafa as
charged." The recommendation was approved by Rizal Provincial Prosecutor
Mauro Castro on May 18, 1993.
METROBANK then appealed to the Department of Justice (DOJ). On June 1,
1994, Undersecretary Ramon. S. Esguerra reversed the findings of the
Provincial Prosecutor of Rizal and ordered the latter to file the appropriate
information against the TONDAS as charged in the complaint.
The TONDAS immediately sought a reconsideration of the DOJ Resolution but
their motion was denied by the then acting Justice Secretary Demetrio G.
Demetria in a Letter-Resolution dated April 7, 1995. A second motion for
reconsideration by the TONDAS was likewise denied by then Justice Secretary
Teofisto Guingona on July 12, 1995.
Subsequently, the TONDAS filed with the Court of Appeals a special civil action
for certiorari and prohibition with application for a temporary restraining
order or a writ of preliminary injunction,7 which was docketed as CA-G.R. SP
No. 38113. They contended therein that the Secretary of Justice acted without
or in excess of jurisdiction in issuing the aforementioned Resolution dated July
12, 1995 denying with finality their motion for the reconsideration of the
Resolution dated April 7, 1995 of the Acting Secretary of Justice, which in turn
denied their motion for the reconsideration of Resolution No. 417, s. 94,
dated June 1, 1994, directing to file the appropriate Information against the
TONDAS.
The Court of Appeals granted the TONDAS' petition and ordered the criminal
complaint against them dismissed. The Court of Appeals held that
METROBANK had failed to show a prima facie case that the TONDAS violated
the Trust Receipts Law in relation to Art. 315 (1) (b) of the Revised Penal Code
in the face of convincing proof that "that the amount of P2.8 Million
representing the outstanding obligation of the TONDAS under the trust
receipts account had already been settled by them in compliance with the
loan restructuring proposal; and that in the absence of a loan restructuring
agreement, METROBANK could still validly apply the amount as payment
thereof." The relevant portions of the Court of Appeals decision are quoted as
follows:
"Petitioners admitted that in 1991 their company, the Honey Tree Apparel
Corporation (HTAC), had some financial reversals making it difficult for them
to comply with their loan obligations with Metrobank. They were then
constrained to propose a loan restructuring agreement with the private
respondent to enable them to finally settle all outstanding obligations with the
latter. In a letter dated 23 September 1991, petitioner Joaquin Tonda
submitted a proposed Loan Restructuring Scheme to Metrobank. In said
letter, petitioner Tonda proposed to immediately pay in full the outstanding
principal charges under the trust receipts account and the remaining
obligations under a separate schedule of payment. Petitioners attached with
said letter an itemized proposal (Attachment "A"), part of which reads:
1. Trust Receipts - The new management and. Mr. Joaquin G. Tonda will pay
immediately the entire principal of the outstanding Trust Receipts amounting
to ₱2,803,097.14. While the interest accrued up to September 13, 1991
amounting to ₱409,601.57 plus the additional interest shall be re-structured
together with item no. 2 below. A joint sharing account in the name of Joaquin
G. Tonda and Wang Tien En equal to Trust Receipt amount of 1.8 Million will
be opened at Metrobank Makati. (emphasis supplied)
It would appear that the aforestated amount of 1.8 Million was erroneously
written since the intention of the petitioners was to open an account of ₱2.8
Million to pay the entire principal of the outstanding trust receipts account. In
fact, also on 23 September 1991, petitioner Joaquin Tonda and Wang Tien En
deposited four different checks with a total amount of P2,800,000.00 with
Metrobank. The checks were received by a certain Flor C. Naanep. Notably,
the petitioners had obtained a written acknowledgement of receipt of the
checks totaling P2.8 Million from the Metrobank officer in order to show proof
of compliance with the loan restructuring proposal. If the petitioners had
intended it to be a simple deposit, then a deposit slip with a machine
validation by the private respondent bank would have otherwise been
sufficient.
In a letter dated 22 October 1991, Metrobank wrote to the petitioners
informing them that the bank had accepted their proposal subject to certain
conditions, the first of which referred to the immediate payment of the
amount of P2.8 Million, representing the outstanding trust receipts account.
The petitioners appeared to have offered a counter proposal such that no final
agreement had yet been reached.
However, the succeeding negotiations between petitioners and Metrobank,
after the initial offer of 23 September 1991 was made, dealt with the other
outstanding obligations while the matter regarding the trust receipts account
remained unchanged; therefore, it was settled between the parties that the
amount of P2.8 Million should be paid to cover all outstanding obligations
under the trust receipts account. Despite the inability of both parties to reach
a mutually agreeable loan restructured agreement, the amount of P2.8 Million
which was deposited on 23 September 1991 by the petitioners appears to
remain intact and untouched as Metrobank had failed to show evidence that
the money has been withdrawn from the savings account of the petitioners.
Moreover, the deposit made by the petitioners was made known to
Metrobank clearly as a compliance with the proposed loan restructuring
agreement. As shown in the correspondence made by the petitioners on 28
February 1992 to Metrobank, after the latter had made a formal demand for
payment of all outstanding obligations, the deposit was mentioned, to wit:
"May we emphasize that to show sincerity and financial capability, soon after
we received your letter dated October 22, 1991 informing us of your approval
of the restructuring and consolidation of our firm's obligations, a personal
account was opened by two (2) of our stockholders in the amount equivalent
to the TR/LC, Account of about P2.8 Million which deposit is still maintained
with your bank, free from any lien or encumbrance, and may be applied
anytime to the payment of the TR/LC Account upon the implementation by
the parties of the terms of restructuring.""(emphasis supplied)
The contention of Metrobank that the money had not been actually applied as
payment for petitioners' outstanding obligation under the trust receipts
account is absolutely devoid of merit, considering that the petitioners were
still in the process of negotiating for a reasonable loan restructuring
arrangement with Metrobank when the latter abruptly abandoned all efforts
to negotiate and instantly demanded from the petitioners the fulfillment of all
their outstanding obligations.
In the case of Tan Tiong Tick vs. American Apothecaries, 65 Phil. 414, the
Supreme Court had held that:
"When a depositor is indebted to a bank, and the debts are mutual - that is,
between the same parties and in the, same right - the bank may apply the
deposit, or such portion thereof as may be necessary, to the payment of the
debt due it by the depositor, provided there is no express agreement to the
contrary and the deposit is not specifically applicable to some other particular
purpose."
Applying the above-mentioned ruling in this case, if the parties therefore fail
to reach an agreement regarding the restructuring of HTAC's loan, Metrobank
can validly apply the amount deposited by the petitioners as payment of the
principal obligation under the trust receipts account.
On the basis of all the evidence before Us, this Court is convinced that the
amount of P2.8 Million representing the outstanding obligation of the
petitioners under the trust receipts account had already been settled by the
petitioners. The money remains deposited under the savings account of the
petitioners awaiting a final agreement with Metrobank regarding the loan Pag
restructuring arrangement. Meanwhile, Metrobank has the right to use the e|
deposited amount in connection with any of its banking business.
113
With convincing proof that the amount of P2.8 Million deposited under
petitioners' savings account with Metrobank was indeed intended to be
applied as payment for the outstanding obligations of HTAC under the trust
receipts, Metrobank, therefore, had failed to show a prima facie case that the
petitioners had violated the Trust Receipts Law (P.D. No. 115) in relation to
Art. 315 of the Revised Penal Code. Besides, there is absolutely no evidence
suggesting that Metrobank has been damaged by the proposal and the
deposit made by the petitioners. As noted by the prosecutor:
"It is clear from the evidence that complainant bank had, all the while, been
informed of the steps undertaken by the respondents relative to the trust
receipts and other financial obligations vis-a-vis HTAC's financial difficulties.
Hardly therefore, could it be said that respondents were unfaithfully,
deceptively, deceitfully and fraudulently dealing with complainant bank to
warrant an indictment for Estafa."8
Hence, this recourse to this Court where petitioner submits for the
consideration of this Court the following issues:
I.
WHETHER METROBANK HAS SHOWN A PRIMA FACIE VIOLATION OF
THE TRUST RECEIPTS LAW IN RELATION TO ART. 315 OF THE
REVISED PENAL CODE
II.
WHETHER AN AGREEMENT WAS FORGED BETWEEN THE PARTIES
THAT THE 2.8 MILLION DEPOSITED IN THE JOINT ACCOUNT OF
JOAGUIN G. TONDA AND WANG TIEN EN WOULD BE CONSIDERED
AS PAYMENT FOR THE OUTSTANDING OBLIGATIONS OF THE
SPOUSES TONDA UNDER THE TRUST RECEIPTS
III.
WHETHER INSPITE OF THE FAILURE OF THE PARTIES TO AGREE
UPON A RESTRUCTURING AGREEMENT, METROBANK CAN STILL
APPLY THE P2.8 MILLION DEPOSIT AS PAYMENT TO THE PRINCIPAL
AMOUNT COVERED BY THE TRUST RECEIPTS
IV.
WHETHER DAMAGE HAS BEEN CAUSED TO METROBANK BECAUSE
OF THE PROPOSAL AND OF THE DEPOSIT
V.
WHETHER METROBANK HAS THE STANDING TO PROSECUTE THE
CASE A QUO
VI.
WHETHER THE ASSIGNED ERRORS IN THE PETITION FOR
CERTIORARI FILED WITH THIS HONORABLE COURT RAISES PURELY
QUESTIONS OF FACTS9
In response to the foregoing, the TONDAS maintain that METROBANK has no
legal standing to file the present petition without the conformity or authority
of the prosecutor as it deals solely with the criminal aspect of the case, a
separate action to recover civil liability having already been instituted; that the
issues raised in the present petition are purely factual; and that the subject
trust receipts obligations have been extinguished by payment or legal
compensation.
We find for petitioner bank.
Preliminarily, we shall resolve the issues raised by the TONDAS regarding the
standing of METROBANK to file the instant petition and whether the same
raises questions of law.
The general rule is that it is only the Solicitor General who is authorized to
bring or defend actions on behalf of the People or the Republic of the
Philippines once the case is brought before this Court or the Court of Appeals.
However, an exception has been made that "if there appears to be grave error
committed by the judge or lack of due process, the petition will be deemed
filed by the private complainants therein as if it were filed by the Solicitor
General."10 In that case, the Court gave due course to the petition and allowed
the petitioners to argue their case in lieu of the Solicitor General. We accord
the same treatment to the instant petition on account of the grave errors
committed by the Court of Appeals. We add that no information having been
filed yet in court, there is, strictly speaking, no case yet for the People or the
Republic of the Philippines. In answer to the second issue raised by the
TONDAS, while the jurisdiction of the Supreme Court in a petition for review
on certiorari under Rule 45 of the Revised Rules of Court is limited to
reviewing only errors of law, not of fact, one exception to the rule is when the
factual findings complained of are devoid of support by the evidence on
record or the assailed judgment is based on misappreciation of facts11 , as will
be shown to have happened in the instant case.
In the main, the issue is whether or not the dismissal by the Court of Appeals
of the charge for violation of the Trust Receipts Law in relation to Art. 315(1)
(b) of the Revised Penal Code against the TONDAS is warranted by the
evidence at hand and by law.
The Court of Appeals gravely erred in reversing the Department of Justice on
the finding of probable cause to hold the TONDAS for trial. The documentary
evidence presented during the preliminary investigation clearly show that
there was probable cause to warrant a criminal prosecution for violation of
the Trust Receipts Law.
The relevant penal provision of P.D. 115 provides:
SEC. 13. Penalty Clause. - The failure of an entrustee to turn over the proceeds
of the sale of the goods, documents or instruments covered by a trust receipt
to the extent of the amount owing to the entruster or as appears in the trust
receipt or to return said goods, documents or instruments if they were not
sold or disposed of in accordance with the terms of the trust receipt shall
constitute the crime of estafa, punishable under the provisions of Article
Three Hundred and Fifteen, Paragraph One (b), of Act Numbered Three
Thousand Eight Hundred and Fifteen, as amended, otherwise known as the
Revised Penal Code. If the violation or offense is committed by a corporation,
partnership, association or other judicial entities, the penalty provided for in
this Decree shall be imposed upon the directors, officers, employees or other
officials or persons therein responsible for the offense, without prejudice to
the civil liabilities arising from the criminal offense.
Section 1 (b), Article 315 of the Revised Penal Code under which the violation
is made to fall, states:
"x x x Swindling (estafa). - Any person who shall defraud another by any of the
mans mentioned herein below x x x:
xxx xxx xxx
b. By misappropriating or converting, to the prejudice of another, money,
goods, or any other personal property received by the offender in trust or on
commission, or for administration, or under any other obligation involving the
duty to make delivery of or to return the same, even though such obligation
be totally or partially guaranteed by a bond; or by denying having received
such money, goods, or other property."
Based on the foregoing, it is plain to see that the Trust Receipts Law declares
the failure to turn over the goods or the proceeds realized from the sale
thereof, as a criminal offense punishable under Article 315 (1) (b) of the
Revised Penal Code. The law is violated whenever the entrustee or the person
to whom the trust receipts were issued in favor of fails to: (1) return the goods
covered by the trust receipts; or (2) return the proceeds of the sale of the said
goods. The foregoing acts constitute estafa punishable under Article 315 (1)
(b) of the Revised Penal Code. Given that various trust receipts were executed
by the TONDAS and that as entrustees, they did not return the proceeds from
the goods sold nor the goods themselves to METROBANK, there is no dispute
that that the TONDAS failed to comply with the obligations under the trust
receipts despite several demands from METROBANK.
Finding favorably for the TONDAS, however, and ordering the dismissal of the
complaint against them, the Court of Appeals held that: (1) the TONDAS
opened a savings account of P2.8 Million to pay the entire principal of the
outstanding trust receipts account; (2) the TONDAS obtained from a
METROBANK officer12 a written acknowledgement of receipt of checks totaling
P2.8 Million in order to show proof of compliance with the loan
restructuring proposal; (3) it was settled between the parties that the amount
of 2.8 Million should be paid to cover all outstanding obligations under the
trust receipts account; (4) the money remains deposited under the savings
account of petitioners awaiting a final agreement with METROBANK regarding
the loan restructuring arrangement; and that (5) there is no evidence
suggesting that METROBANK has been damaged by the proposal and the Pag
deposit or that the TONDAS employed fraud and deceit in their dealings with
the bank. e|
114
The foregoing findings and conclusions are palpably erroneous.
First, the amount of P2.8 million was not directly paid to METROBANK to settle
the trust receipt accounts, but deposited in a joint account of Joaquin G.
Tonda and a certain Wang Tien En. In a letter dated February 28, 1992, signed
by HTAC's Vice President for Finance, METROBANK was informed that the
amount "may be applied anytime to the payment of the trust receipts account
upon implementation of the parties of the terms of the restructuring."13 The
parties failed to agree on the terms of the loan restructuring agreement as the
offer by the TONDAS to restructure the loan was followed by a series of
counter-offers which yielded nothing. It is axiomatic that acceptance of an
offer must be unqualified and absolute14 to perfect a contract. The alleged
payment of the trust receipts accounts never became effectual on account of
the failure of the parties to finalize a loan restructuring arrangement.
Second, the handwritten note by the METROBANK officer acknowledging
receipt of the checks amounting to P2.8 Million made no reference to the
TONDAS' trust receipt obligations, and we cannot presume that it was
anything more than an ordinary bank deposit. The Court of Appeals citing the
case of Tan Tiong Tick vs. American Apothecories15 implied that in making the
deposit, the TONDAS are entitled to set off, by way of compensation, their
obligations to METROBANK. However, Article 1288 of the Civil Code provides
that "compensation shall not be proper when one of the debts consists in civil
liability arising from a penal offense" as in the case at bar. The raison d'etre for
this is that, "if one of the debts consists in civil liability arising from a penal
offense, compensation would be improper and inadvisable because the
satisfaction of such obligation is imperative."16
Third, reliance on the negotiations for the settlement of the trust receipts
obligations between the TONDAS and METROBANK is simply misplaced. The
negotiations pertain and affect only the civil aspect of the case but does not
preclude prosecution for the offense already committed. It has been held that
"[a]ny compromise relating to the civil liability arising from an offense does
not automatically terminate the criminal proceeding against or extinguish the
criminal liability of the malefactor."17 All told, the P2.8 Million deposit could
not be considered as having settled the trust receipts obligations of the
TONDAS to the end of extinguishing any incipient criminal culpability arising
therefrom.
Hence, it has been held in Office of the Court Administrator vs. Soriano18 that:
"xxx it is too well-settled for any serious argument that whether in
malversation of public funds or estafa, payment, indemnification, or
reimbursement of, or compromise as to, the amounts or funds malversed or
misappropriated, after the commission of the crime, affects only the civil
liability of the offender but does not extinguish his criminal liability or relieve
him from the penalty prescribed by law for the offense committed, because
both crimes are public offenses against the people that must be prosecuted
and penalized by the Government on its own motion, though complete
reparation should have been made of the damage suffered by the offended
parties. xxx."
As to the statement of the Court of Appeals that there is no evidence that
METROBANK has been damaged by the proposal and the deposit, it must be
clarified that the damage can be traced from the non-fulfillment of an
entrustee's obligation under the trust receipts. The nature of trust receipt
agreements and the damage caused to trade circles and the banking
community in case of violation thereof was explained in Vintola vs. IBAA19 and
echoed in People vs. Nitafan20 , as follows:
"[t]rust receipt arrangements do not involve a simple loan transaction
between a creditor and a debtor-importer. Apart from a loan feature, the trust
receipt arrangement has a security feature that is covered by the trust receipt
itself. The second feature is what provides the much needed financial
assistance to traders in the importation or purchase of goods or merchandise
through the use of those goods or merchandise as collateral for the
advancements made by the bank. The title of the bank to the security is the
one sought to be protected and not the loan which is a separate and distinct
agreement."
xxx xxx xxx
"Trust receipts are indispensable contracts in international and domestic
business transactions.1âwphi1 The prevalent use of trust receipts, the danger
of their misuse and/or misappropriation of the goods or proceeds realized
from the sale of goods, documents or instruments held in trust for entruster-
banks, and the need for regulation of trust receipt transactions to safeguard
the rights and enforce the obligations of the parties involved are the main
thrusts of P.D. 115. As correctly observed by the Solicitor General, P.D. 115,
like Bata Pambansa Blg. 22, punishes the act "not as an offense against
property, but as an offense against public order. x x x The misuse of trust
receipts therefore should be deterred to prevent any possible havoc in trade
circles and the banking community. (citing Lozano vs. Martinez, 146 SCRA 323
[1986]; Rollo, p. 57) It is in the context of upholding public interest that the
law now specifically designates a breach of a trust receipt agreement to be an
act that "shall" make one liable foe estafa."
The finding that there was no fraud and deceit is likewise misplaced
Considering that the offense is punished as a malum prohibitum regardless of
the existence of intent or malice. A mere failure to deliver the proceeds of the
sale or the goods if not sold, constitutes a criminal offense that causes
prejudice not only to another, but more to the public interest.21
Finally, it is worthy of mention that a preliminary investigation proper -
whether or not there is reasonable ground to believe that the accused is guilty
of the offense and therefore, whether or not he should be subjected to the
expense, rigors and embarrassment of trial - is the function of the
prosecutor.22 Preliminary investigation is an executive, not a judicial
function.23 Such investigation is not part of the trial, hence, a full and
exhaustive presentation of the parties' evidence is not required, but only such
as may engender a well-grounded belief that an offense has been committed
and that the accused is probably guilty thereof.24
Section 4, Rule 112 of the Rules of Court recognizes the authority of the
Secretary of Justice to reverse the resolution of the provincial or city
prosecutor or chief state prosecutor upon petition by a proper party.25 Judicial
review of the resolution of the Secretary of Justice is limited to a
determination of whether there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction considering that the full
discretionary authority has been delegated to the executive branch in the
determination of probable cause during a preliminary investigation. Courts are
not empowered to substitute their judgment for that of the executive branch;
it may, however, look into the question of whether such exercise has been
made in grave abuse of discretion.26
Verily, there was no grave abuse of discretion on the part of the Secretary of
Justice in directing the filing of the Information against the TONDAS, end the
Court of Appeals overstepped its boundaries in reversing the same without
basis in law and in evidence. We emphasize that for purposes of preliminary
investigation, it is enough that there is evidence showing that a crime has
been committed and that the accused is probably guilty thereof.27 By reason
of the abbreviated nature of preliminary investigations, a dismissal of the
charges as a result thereof is not equivalent to a judicial pronouncement of
acquittal,28 a converso, the finding of a prima facie case to hold the accused
for trial is not equivalent to a finding of guilt.
WHEREFORE, the petition is hereby GRANTED. The assailed Decision is
REVERSED and SET ASIDE.
SO ORDERED.
G.R. No. 171897, October 14, 2015
PHILIPPINE TRUST COMPANY, Petitioner, v. FLORO ROXAS AND EUFEMIA
ROXAS, Respondents.
DECISION
JARDELEZA, J.:
We consider whether the principle of legal compensation may be applied to
offset the judgment debt of petitioner Philippine Trust Company ("PTC") and
the loan obligation of private respondents Floro and Eufemia Roxas ("Spouses
Roxas").
I debt due to the Spouses Roxas.
The Spouses Roxas procured loans from PTC in the amount of Php 2,523,200
to finance their real estate business.1 These loans were secured by real estate
mortgages on the Spouses Roxas' real properties. On April 10, 1979, the
Spouses Roxas, PTC, and Roben Construction and Furnishing Group, Inc.
entered into "a contract of building construction," under which PTC granted
an additional loan of Php 900,000 to the Spouses Roxas to enable them to
finish their ongoing housing projects located at Cabcaben, Mariveles, Bataan.
This was superseded by a new "contract of building construction" executed by
and among PTC, Spouses Roxas, and Rosendo P. Dominguez, Jr.
Pag
("Dominguez"). Dominguez substituted Roben Construction as the contractor
under the same terms and conditions of the contract dated April 10, 1979. e|
The new contract stipulated that the money loaned from PTC shall be devoted 115
to the funding of the housing projects, the rentals of which when finished,
would then be used to liquidate the loan. It also provided that PTC may only
release the proceeds of the loan for the purchase of materials and supplies
when requested by Dominguez and with the conformity of the Spouses
Roxas.2 Invoices covering materials previously purchased with the funds
should also be submitted to PTC before any subsequent release of funds is
made.3 PTC, however, released to Dominguez the sum of Php 870,000 out of
the Php 900,000 although the Spouses Roxas had agreed only to the release of
not more than Php 450,000, as evidenced by a promissory note dated April
11, 1979.4
Due to financial difficulties, however, the Spouses Roxas did not finish the
housing project. As a result, they did not receive monthly rentals from
prospective lessees of the houses, which led to missed amortization payments
in their loans from PTC.5
On March 28, 1980, Dominguez filed a complaint against PTC and the Spouses
Roxas with the Court of First Instance (CFI) of Manila,6 Branch XL for breach of
the contract of building construction. This was docketed as Civil Case No.
130783. The Spouses Roxas in turn filed Civil Case No. 130892 with the CFI of
Manila against Dominguez and the insurance company that issued his
performance bond. These two cases were later consolidated.7
When the Spouses Roxas filed their answer in Civil Case No. 130783, they
included a cross-claim against PTC.8 In response, PTC filed a counterclaim
against the Spouses Roxas on their unpaid loan obligation amounting to Php
3,053,738.509 plus interest and the amount of Php 245,720 as attorney's fees;
and, in default of such payments, the foreclosure of the real estate mortgages
executed by the Spouses Roxas in favor of PTC. After trial on the merits, the
trial court rendered a decision in favor of Dominguez. It denied PTC's
counterclaim for lack of sufficient proof, without prejudice to the filing of a
collection suit against the Spouses Roxas. Both PTC and the Spouses Roxas
appealed to the Court of Appeals, docketed as CA-G.R. CV No. 30340. To this
date, the same remains pending.10
In a parallel development, while Civil Case No. 130783 was still pending in the
trial court, PTC, on August 31, 1981, filed with the provincial sheriff of Bataan
a petition for extrajudicial foreclosure of the same real estate mortgages, The
Spouses Roxas opposed the petition and filed a verified complaint against PTC
for damages with preliminary injunction in the Regional Trial Court of Bataan
docketed as Civil Case No. 4809 ("Main Case"). The complaint sought to
restrain and enjoin the sheriff from proceeding with the foreclosure sale while
Civil Case No. 130783 is still pending.11 On December 26, 1988, the Bataan
RTC rendered a Decision in favor of the Spouses Roxas, the dispositive portion
of which reads as follows:cralawlawlibrary
WHEREFORE, the Court hereby renders judgment (a) Ordering the issuance of
a writ of permanent injunction perpetually enjoining defendant Philippine
Trust Company and defendant provincial sheriff of Bataan or any of his
deputies from foreclosing extrajudicially the real estate mortgage(s) executed
in its favor by plaintiffs covering the real properties subject of this
action;ChanRoblesVirtualawlibrary
(b) Condemning said defendant bank to pay to plaintiffs: (1) Ordinary damages
for breach of the provisions of the contract of building construction (Exhs. "B"
& "26"), in the sum of One Hundred Thousand Pesos (P100,000.00); (2) Moral
damages for the improvident extrajudicial foreclosure of plaintiffs'
mortgage(s) after it had elected judicial foreclosure thereof, in the amount of
Three Hundred Thousand Pesos (P300,000.00) for both plaintiffs; (3)
Exemplary damages by way of example or correction for the public good in the
sum of Fifty Thousand Pesos (P50,000.00); (4) Attorney's fees in the amount
of Fifty Thousand Pesos (P50,000.00); and (5) Double costs of suit
SO ORDERED.12chanrobleslaw
The Court of Appeals affirmed the decision of the Bataan RTC. The decision
became final and executory, prompting the Spouses Roxas to file a Motion for
Execution. PTC responded by filing an Opposition to the Motion for Execution,
where it raised for the first time legal compensation to offset the judgment
On January 25, 1994, the trial court denied PTC's Opposition and issued a writ
of execution, holding that PTC is deemed to have waived legal compensation
as a defense because it failed to invoke the same as an affirmative defense in
its answer. PTC filed a motion for reconsideration of the order, which was
denied by the trial court on April 19, 1994.13 PTC filed another motion for
reconsideration, which was again denied by the trial court on June 7, 1994.14
PTC filed a Petition for Certiorari15 under Rule 65 with the Court of Appeals
seeking the annulment of the trial court's order issuing the writ of execution
and its subsequent orders denying PTC's motions for reconsideration. On
November 17, 2005, the Court of Appeals dismissed the petition for lack of
merit. It found that not all requisites of legal compensation under Article 1279
of the Civil Code were present and that the defense of legal compensation
was belatedly raised by PTC, considering that it was raised for the first time at
the execution stage.16 The Court of Appeals denied PTC's motion for
reconsideration on March 9, 2006.17
PTC then filed this Petition for Review on Certiorari18 under Rule 45, arguing
that the Court of Appeals erred in not finding that all the requisites of legal
compensation were present and in ruling that the defense of compensation
was belatedly raised. PTC claims it did not raise legal compensation as a
defense before the Bataan RTC because the judgment debt was not yet due at
the time it filed its answer. Furthermore, it had already set up as a compulsory
counterclaim the loan obligation of the Spouses Roxas in Civil Case No.
130783, which was pending with the former CFI of Manila. But because the
Manila court denied PTC's counterclaims, PTC argues there is a change in the
situation of the parties that makes execution inequitable.
In response, the Spouses Roxas assert that the execution of the Bataan RTC
decision is proper because the prevailing party is entitled to a writ of
execution as a matter of right once a judgment becomes final.19 Moreover,
the decision in Civil Case No. 130873 is not a supervening event that warrants
the stay of execution.20 The Spouses Roxas also dispute the applicability of
legal compensation because both the demandability of the loan as well as the
exact amount due had been put in issue in Civil Case No. 130873, which is now
pending appeal with the Court of Appeals as CA-G.R. CV No. 30340.21 The
Spouses Roxas maintain that PTC is deemed to have waived compensation as
a defense because it did not raise compensation either in a motion to dismiss
or as an affirmative defense in its answer to the Main Case.22 Finally, the
Spouses Roxas point out that the orders of the Bataan RTC were challenged by
PTC through a Rule 65 petition. Thus, it was incumbent upon PTC to prove lack
or grave abuse of discretion on the part of the Bataan RTC, which PTC
ultimately failed to do.23
The petition has no merit.
II
A
We agree with the Court of Appeals that it was too late for PTC to set up legal
compensation as a defense because the Main Case had already reached the
execution stage. The rule is that once a decision becomes final and executory,
execution shall issue as a matter of right,24 and the issuance of a writ of
execution is the court's ministerial duty, compellable by mandamus.25 This is in
accordance with the doctrine of immutability of final judgments, which states
that a judgment that has become final and executory is immutable and
unalterable, and may no longer be modified in any respect, even if the
modification is meant to correct what is perceived to be an erroneous
conclusion of fact or law, and regardless of whether the modification is
attempted to be made by the court rendering it or by the highest Court of the
land.26 Although there are recognized exceptions to this doctrine, one of
which is where there is a supervening event that renders execution
inequitable or unjust,27 none obtains in this case.
First, there is nothing unjust or inequitable in the issuance of the writ of
execution in this case because execution will have no effect on the unpaid
loan obligation of the Spouses Roxas to PTC. The Spouses Roxas' unpaid loan
obligation to PTC is the subject of a separate case now pending before the
Court of Appeals, CA-G.R. CV No. 30340. Thus, there exists a proper forum
where PTC may be allowed to recover whatever is due from the Spouses
Roxas. What is inequitable is to allow PTC to recover its credit in full in CA-G.R.
CV No. 30340 while concurrently being allowed to offset its judgment debt in
this case. In such instance, there would effectively be double recovery on the
part of PTC—which we cannot sanction because of the fundamental
proscription against unjust enrichment.28
Second, it would be more unjust to stay the execution of a decision that had
become final and executory twenty three (23) years ago. There should be an
end to litigation, for public policy dictates that once a judgment becomes final,
executory, and unappealable, the prevailing party should not be denied the
fruits of his victory by some subterfuge devised by the losing
party.29 Unjustified delay in the enforcement of a judgment sets at naught the
role and purpose of the courts to resolve justiciable controversies with
finality.30 To accept PTC's contentions would not only be unfair to private
respondents but, more importantly, would defeat a vital poliey consideration
behind the doctrine of immutability of final judgments.
B
The Bataan RTC and the Court of Appeals also correctly ruled that PTC should
have raised the argument on legal compensation at the trial stage. The 1964
Rules of Court, which was then in effect at the time the Main Case was filed by
the Spouses Roxas in 1980, provides that:cralawlawlibrary Pag
e|
RULE 9. Effect of Pleadings
116
Sec. 2. Defenses and objections not pleaded deemed waived.— Defenses and
objections not pleaded either in a motion to dismiss or in the answer are
deemed waived; except the failure to state a cause of action which may be
alleged in a later pleading, if one is permitted, or by motion for judgment on
the pleadings, or at the trial on the merits; but in the last instance, the motion
shall be disposed of as provided in section 5 of Rule 10 in the light of any
evidence which may have been received. Whenever it appears that the court
has no jurisdiction over the subject-matter, it shall dismiss the
action.31 (Emphasis added)chanrobleslaw
Although legal compensation takes place by operation of law, it must be
alleged and proved as a defense by the debtor who claims its benefits. Only
after it is proved will its effects retroact to the moment when all the requisites
under Article 1279 of the Civil Code have concurred.32
PTC's contention that it could not have raised legal compensation as a defense
because it was not yet a debtor of the Spouses Roxas when it filed its answer
is unconvincing. Under Rule 8, Section 2 of the 1964 Rules of Court, "[a] party
may set forth two or more statements of a claim or defense alternatively or
hypothetically, either in one cause of action or defense or in separate causes
of action or defenses."33 Thus, the defense of compensation would have been
proper and allowed under the rules even if PTC disclaimed any liability at the
time it filed its answer. In Marquez v. Valencia,34 we held that when a
defendant failed to set up such alternative defenses and chosen or elected to
rely on one only, the overruling thereof was a complete determination of the
controversy between the parties, which bars a subsequent action based upon
an unpleaded defense. Unmistakably, the rationale behind this is the
proscription against the splitting of causes of action.
In any case, even if PTC were excused from pleading compensation as a
defense in its answer, we note that PTC still failed to raise this defense in its
motion for reconsideration of the Bataan RTC decision and in its subsequent
appeal. Hence, there can be no other conclusion than that PTC is already
estopped from raising the issue of legal compensation.
It is fairly clear to us that the reason why PTC did not raise legal compensation
as a defense in the Main Case is because it was banking on a favorable ruling
on its counterclaim in the other case, Civil Case No. 130873. It was presumably
an informed choice arrived at by PTC and its counsel, with full knowledge of
the consequences of its failure to plead this specific claim/defense in the Main
Case. Unfortunately for PTC, its counterclaim in the other case was disallowed.
Having adopted the wrong legal strategy, PTC cannot now expediently change
its theory of the case or its defense at the execution stage of the Main Case.
Following the doctrine of election of remedies,35 PTC's choice of setting up the
Spouses Roxas' unpaid loan obligation as a counterclaim in Civil Case No.
130873, which has gone to judgment on the merits but is pending appeal,
precludes it from raising compensation of the same loan obligation for the
purpose of opposing the writ of execution in the Main Case. Equitable in
nature, the doctrine of election of remedies is designed to mitigate possible
unfairness to both parties. It rests on the moral premise that it is fair to hold
people responsible for their choices. The purpose of the doctrine is not to
prevent any recourse to any remedy, but to prevent a double redress for a
single wrong.36
III
Even if we assume that legal compensation was not waived and was otherwise
timely raised, we find that not all requisites of legal compensation are present
in this case. Under Article 1279, in order for legal compensation to take place,
the following requisites must concur: (a) that each one of the obligors be
bound principally, and that he be at the same time a principal creditor of the
other; (b) that both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated; (c) that the two debts be due; (d) that they be
liquidated and demandable; and (e) that over neither of them there be any
retention or controversy, commenced by third persons and communicated in
due time to the debtor.
Here, the fourth requisite is absent. A debt is liquidated when its existence
and amount are determined.37 Compensation can only take place between
certain and liquidated debts; it cannot extend to unliquidated, disputed
claims.38 Since the loan obligation, including its amount and demandability, is
still being disputed in CA-G.R. CVNo. 30340, PTC's credit cannot be considered
liquidated as of yet. Consequently, no legal compensation could have taken
place between PTC's loan credit and the Spouses Roxas' judgment credit.
IV
Finally, we observe that PTC appears to have willfully engaged in forum
shopping. PTC, in its own words, opposed the execution of the Bataan RTC
decision because '"the Decision promulgated on September 4, 1990 by the
RTC of Manila, Branch 40 [in Civil Case No. 130783] denied Petitioner's
counterclaims."39 Forum shopping is committed by a party who, having
received an adverse judgment in one forum, seeks another opinion in another
court, other than by appeal or the special civil action of certiorari. More
accurately, forum shopping is the institution of two or more suits in different
courts, either simultaneously or successively, in order to ask the courts to rule
on the same or related causes and/or to grant the same or substantially the
same reliefs.40
The relief PTC now seeks is compensation of its judgment debt with the
Spouses Roxas' loan obligation. In the other case, Civil Case No. 130783 (now
CA-G.R. CV No. 30340), PTC asks for the payment of the same loan obligation
of the Spouses Roxas. Essentially, PTC is seeking the same relief in both
cases: the extinguishment of the Spouses Roxas' loan obligation. Under Article
1231 of the Civil Code, payment and compensation are modes of extinguishing
an obligation. Although legally distinct, both must be pleaded in the same case
if the obligation sought to be extinguished and the parties thereto arc
identical; otherwise, it would constitute splitting of causes of action.
Forum shopping exists when the elements of litis pendentia are present, viz.:
(a) identity of parties, or at least such parties as those representing the same
interests in both actions; (b) identity of rights assered and relief prayed for,
the relief being founded on the same facts; and (c) the identity of the two
preceding particulars is such that any judgment rendered in the other action,
will, regardless of which party is successful, amount to res judicata in the
action under consideration.41
We find that the elements of litis pendentia—and, as a consequence, forum
shopping—exist in this case. PTC's claim for legal compensation is founded on
the same unpaid loan obligation now being litigated in CA-G.R. CV No. 30340.
Although that case originated from a complaint filed by Dominguez for breach
of contract, PTC counterclaimed the entire unpaid loan obligation, plus
interest, owed to it by the Spouses Roxas. In other words, PTC had squarely
put in issue the matter of the Spouses Roxas' indebtedness arising from the
loans the latter obtained from PTC. It is immaterial that PTC's cause of action
in the other case was set forth by way of a counterclaim, since the latter
partakes of the nature of a complaint by the defendant against the
plaintiff.42 On the other hand, while the Main Case originally involved a
different subject matter and cause of action (i.e., the injunction against PTC's
extrajudicial foreclosure and the Spouses Roxas' claim for damages) as that
embraced in CA-G.R. CV No. 30340, the primary issue raised by PTC in its
Opposition to the Motion for Execution, and subsequently in the petition
for certiorari with the Court of Appeals and the present petition, pertained to
the same loan obtained by the Spouses Roxas. Thus, with respect to the
Spouses Roxas' indebtedness to PTC, there is a clear identity of parties, of
subject matter, and of cause of action. Consequently, once a final decision in
CA-G.R. CV No. 30340 is rendered, it will constitute res judicata and bar
further litigation on the same loan obligation, including any dispute on the
applicability or non-applicability of legal compensation.
Forum shopping is an act of malpractice that is prohibited and condemned
because it trifles with the courts and abuses their processes, and degrades the
administration of justice and adds to the already congested court
dockets.43 Under Section 5 of Rule 8, willful and deliberate forum shopping is a
ground for summary dismissal of the case and constitutes direct contempt of
court, as well as a cause for administrative sanctions. The litigation could have
ended promptly if PTC had simply paid its judgment debt and awaited the final
decision in the other case to recover whatever is due from the Spouses Roxas.
Instead, this plainly unmeritorious case had to clog our docket and take up the
valuable time of this Court.
WHEREFORE, the petition for review is DENIED for lack of merit. The Decision
dated November 17, 2005 and Resolution dated March 9, 2006 of the Court of
Appeals in CA-G.R. SP No. 35203 are hereby AFFIRMED. Costs against
petitioner.
SO ORDERED.
G.R. No. 187922, September 21, 2016
MARPHIL EXPORT CORPORATION AND IRENEO LIM, Petitioners, v. ALLIED
BANKING CORPORATION, SUBSTITUTED BY PHILIPPINE NATIONAL
BANK, Respondent.
DECISION
JARDELEZA, J.:
This is a petition1 seeking to nullify the Court of Appeals' (CA) January 12, 2009 Pag
Decision2 and May 12, 2009 Resolution3 in CA-G.R. CV No. 89481. The CA
modified4 the April 23, 2007 Omnibus Decision5 of Branch 61 of the Regional
e|
Trial Court (RTC), Makati City in the consolidated cases of petition for 117
declaratory relief filed by petitioner Marphil Export Corporation (Marphil)
against Allied Banking Corporation (Allied Bank), and the complaint for
collection of sum of money with application for writ of attachment filed by
Allied Bank against Marphil's surety, petitioner Ireneo Lim (Lim).
Facts
Marphil is a domestic company engaged in the exportation of cuttlefish,
cashew nuts and similar agricultural products.6 To finance its purchase and
export of these products, Allied Bank granted Marphil a credit line from which
Marphil availed of several loans evidenced by promissory notes (PN).7 These
loans were in the nature of advances to finance the exporter's working capital
requirements and export bills.8 The loans were secured by three (3)
Continuing Guaranty or Continuing Surety (CG/CS) Agreements9 executed by
Lim, Lim Shiao Tong and Enrique Ching.10 Apart from the CG/CS Agreements,
irrevocable letters of credits also served as collaterals for the loans obtained
to pay export bills.11 In turn, Allied Bank required Marphil, through its
authorized signatories Lim and Rebecca Lim So, to execute a Letter of
Agreement12 where they undertake to reimburse Allied Bank in the event the
export bills/drafts covering the letters of credit are refused by the drawee.
Upon negotiations of export bills/drafts that Allied Bank purchases from
Marphil, the amount of the face value of the letters of credit is credited in
favor of the latter.13chanrobleslaw
The transaction involved in this petition is the export of cashew nuts to Intan
Trading Ltd. Hongkong (Intan) in Llong Kong. Upon application of Intan,
Nanyang Commercial Bank (Nanyang Bank), a bank based in China, issued
irrevocable letters of credit. These were Letter of Credit (L/C) No. 22518 and
L/C No. 21970, with Marphil as beneficiary and Allied Bank as correspondent
bank.14 These covered two (2) separate purchase contracts/orders for cashew
nuts made by Intan.
The first order of cashew nuts was covered by L/C No. 22518. After the first
shipment was made, Marphil presented export documents including drafts to
Allied Bank. The latter credited Marphil's: credit line the peso equivalent of
the face value of L/C No. 22518 (in the amount of P1,986,702.70 and this
amount was deducted from the existing loans of Marphil.15 There were no
problems encountered for the shipment covered by L/C No. 22518. It was the
second order covered by L/C No. 21970 that encountered problems.
When Intan placed a second order for cashew nuts, Marphil availed additional
loans in their credit line evidenced by PN No. 0100-88-0246316 (PN No. 2463)
for P500,000.00 and PN No. 0100-88-0273017 (PNNo. 2730) for P500,000.00.
Similar to the previous transaction, Intan applied for and opened L/C No.
21970 with Nanyang Bank in the amount of US$185,000.00, with Marphil as
the beneficiary and Allied Bank as correspondent bank.18 After receiving the
export; documents including the draft issued by Marphil, Allied Bank credited
Marphil in the amount of P1,913,763.45, the peso value of the amount in the
letter of credit.19chanrobleslaw
However, on July 2, 1988, Allied Bank informed Marphil that it received a
cable from Nanyang Bank noting some discrepancies in the shipping
documents.20 On July 16, 1988, Allied Bank again informed Marphil that it
received another cable from Nanyang Bank still noting the discrepancies and
that Intan refused to accept the discrepancies.21 Consequently, Nanyang Bank
refused to reimburse Allied Bank the amount the latter had credited in
Marphil's credit line. In its debit memo, Allied Bank informed Marphil of the
dishonor of L/C No. 21970 and that it was reversing the earlier credit entry of
P1,913,763.45.22 Lim was made to sign a blank promissory note, PN No. 0100-
88-04202,23 (PN No. 4202) on September 9, 1988 to cover for the
amount.24 This was later filled up by Allied Bank in the amount of
P1,505,391.36.
On March 6, 1990, Marphil filed a Complaint25cralawred for declaratory relief
and damages against Allied Bank (Declaratory' Relief Case) raffled to Branch
61 of RTC Makati.26 In its Complaint, Marphil asked the court to declare PN
No. 4202 void, to declare as fully paid its other obligations to Allied Bank, and
to award it actual, moral and exemplary damages, and attorney's
fees.27 Marphil maintained that it had fully paid its account with Allied Bank,
and that PN No. 4202, which Lim executed on September 9, 1988, was void for
lack of consideration. Marphil alleged that it was constrained to send back the
shipment to the Philippines thereby incurring expenses and tremendous
business losses. It attributed bad faith to Allied Bank because the latter did
nothing to protect its interest; Allied Bank merely accepted Nanyang Bank's
position despite L/C No. 21970 being irrevocable, and Allied Bank allegedly
confirmed Nanyang Bank's revocation.
On May 7, 1990, Allied Bank filed its Answer with Compulsory Counterclaim
and Petition for Writ of Preliminary Attachment.28 Allied Bank maintained that
PN No. 4202 was supported by consideration, and denied that Marphil has
fully paid its obligation to it. As counterclaim, Allied bank sought to collect on
three (3) promissory notes, PN Nos. 2463, 2730 and 4202.29chanrobleslaw
On September 14, 1990, Allied Bank filed a Complaint with Petition for Writ of
Preliminary Attachment30 (Collection Case) against Lim and Lim Shao Tong
which was raffled to Branch 145 of RTC Makati. Allied Bank sued them as
sureties under the CG/CS Agreements for the loan obligations of Marphil
under three (3) promissory notes, PN Nos. 2463, 2730 and 4202, in the total
amount of P2,505,391.36. It also prayed for the issuance of a writ of
preliminary attachment on the ground that Lim was guilty of fraud in
contracting his obligations.
On February 7, 1992, Lim filed his Answer31 in the Collection Case. He raised as
defense that Marphil had fully paid the loans covered by PN Nos. 2463, 2730,
while PN No. 4202 is null and void.32 He likewise maintained he could not be
held personally liable for the CG/CS Agreements because he could not
remember signing them. Lim claimed that the issuance of the writ of
preliminary attachment was improper because he never had any preconceived
intention not to pay his obligations with the bank. He had been transacting
with the bank for six (6) years arid the gross value of the thirty-two (32)
transactions between them amounted to US$640,188.51.33chanrobleslaw
On March 15, 1994, Branch 145 of RTC Makati granted ex parte the prayer for
preliminary attachment in the Collection Case.34chanrobleslaw
On May 7, 1991, Allied Bank filed a Motion to Consolidate/Be Accepted35 with
Branch 61 of RTC Makati, which was granted by Order dated June 25,
1991.36 The two civil cases were jointly heard before Branch 61 of RTC Makati.
On April 23, 2007, the RTC rendered the Omnibus Decision.37 The RTC granted
Marphil's complaint for declaratory relief, and declared PN No. 4202 void.
However, it held Marphil and/or Ireneo Lim jointly and severally liable for any
balance due on their obligation under PN Nos. 2463 and 2730, and
additionally for the amount of P1,913,763.45 with interest rate fixed at
12% per annum until fully paid.38chanrobleslaw
On May 9, 2007, petitioners filed a Notice of Appeal39 with the RTC. Allied
Bank did not appeal the RTC decision. Records were then forwarded to the CA,
which began proceedings.40chanrobleslaw
The CA rendered its Decision41 on January 12, 2009 modifying the RTC
decision. The CA declared PN Nos. 2463 and 2730 fully paid, but held
petitioners liable for the amount of P1,913,763.45, the amount equal to the
face value of L/C No. 21970.42chanrobleslaw
The CA found that Allied Bank is not directly liable for the P1,913,763.45
under L/C No. 21970 because it was not a confirming bank and did not
undertake to assume the obligation of Nanyang Bank to Marphil as its own. At
most, it could only be a discounting bank which bought drafts under the letter
of credit. Following the ruling in Bank of America, NT & SA v. Court of
Appeals,43 it held that Allied Bank, as the negotiating bank, has the ordinary
right of recourse against the exporter in the event of dishonor by the issuing
bank. A negotiating bank has a right of recourse against the issuing bank, and
until reimbursement is obtained, the drawer of the draft continues to assume
a contingent liability on the draft. That there is no assumption of direct
obligation is further affirmed by the terms of the Letter Agreement. The CA
also declared PN Nos. 2463 and 2730 as fully paid. The CA held that with these
payments, the only obligation left of Marphil was the amount of the reversed
credit of P1,913,763.45. On the writ of preliminary attachment, the CA noted
that petitioners did not file any motion to discharge it on the ground of
irregular issue. The CA found that no forum shopping existed because the
causes of actions for declaratory relief and collection suit are
different.44chanrobleslaw
In a Resolution45 dated May 12, 2009, the CA denied petitioners Motion for
Partial Reconsideration46 dated January 22, 2009.
Hence, this petition.
Meanwhile, Allied Bank and Philippine National Bank (PNB) jointly filed a
Motion for Substitution of Party with Notice of Change of Address47 on
October 22, 2013 informing this Court that the Securities and Exchange
Commission approved a merger between Allied Bank and PNB, with the latter
as the surviving corporation. They prayed that Allied Bank be dropped and
substituted by PNB as party respondent in this petition. This was granted by
this Court in a Resolution48 dated December 4, 2013.
Issues
The issues are as follows:
I. Whether Allied Bank's debit memo on Maprhil's credit line in the
amount of P1,913,763.45 is valid.
Pag
II. Whether the RTC and CA created a new obligation when it held e|
Marphil liable for the amount of P1,913,763.45. 118
III. Whether Allied Bank committed forum shopping in filing the
Collection Case.
IV. Whether the writ of preliminary attachment should be dissolved.
Ruling
We partly grant the petition.
At the outset, Allied Bank did not appeal from the decisions of the RTC and CA
respecting the nullification of PN No. 4202, and the extinguishment by
payment of PN Nos. 2730 and 2463. Allied Bank (now PNB) can thus no longer
seek their modification or reversal, but may only oppose the arguments of
petitioners on grounds consistent with the judgment of the RTC and
CA.49 Bearing this in mind, we proceed to dispose of the issues.
I. Validity of the debit memo
a. Allied Bank as correspondent bank in L/C No. 21970
Both the RTC and CA found that Allied Bank is not a confirming bank which
undertakes Nanyang Bank's obligation as issuing bank, but at most, buys the
drafts drawn by Marphil as exporter at a discount.
Marphil, however, argues that the RTC and CA erred in ruling that Allied Bank
is not a confirming bank. It insists that Allied Bank as correspondent bank
assumed the risk when it confirmed L/C No. 21970. It invokes the ruling
in Feati Bank & Trust Company v. Court of Appeals50 on the rule of strict
compliance in letters of credit stating that "[a] correspondent bank which
departs from what has been stipulated under the letter of credit, as when it
accepts a faulty tender, acts on its own risks and it may not thereafter be able
to recover from the buyer or the issuing bank x x x."51 Thus, Marphil claims
that Allied Bank had no authority to debit the amount equivalent to the face
value of L/C No. 21970 since the latter is directly liable for it.
We affirm the RTC and CA's findings that Allied Bank did not act as confirming
bank in L/C No. 21970.
As noted by the CA, Feati is not in all fours with this case. The correspondent
bank in that case refused to negotiate the letter of credit precisely because of
the beneficiary's non-compliance with its terms. Here, it is Nanyang Bank, the
issuing bank, which refused to make payment on L/C No. 21970 because there
was no strict compliance by Marphil.52chanrobleslaw
Further, while we said in Feati that a correspondent bank may be held liable
for accepting a faulty tender under the rule of strict compliance, its liability is
necessarily defined by the role it assumed under the terms of the letter of
credit. In order to consider a correspondent bank as a confirming bank, it must
have assumed a direct obligation to the seller as if it had issued the letter of
credit itself.53 We said that "[i]f the [correspondent bank] was a confirming
bank, then a categorical declaration should have been stated in the letter of
credit that the [correspondent bank] is to honor all drafts drawn in conformity
with the letter of credit."54 Thus, if we were to hold Allied Bank liable to
Marphil (which would result in a finding that the former's debit from the
latter's account is wrong) based on the rule of strict compliance, it must be
because Allied Bank acted as confirming bank under the language of L/C No.
21970.
In finding that Allied Bank, as correspondent bank, did not act as confirming
bank; the CA reviewed the instructions of Nanyang Bank to Allied Bank in L/C
No. 21970. It found that based on the instructions, there is nothing to support
Marphil's argument that Allied Bank undertook, as its own, Nanyang Bank's
obligations in the letter of credit:ChanRoblesVirtualawlibrary
In the case of [Bank of America], the functions assumed by a correspondent
bank are classified according to the obligations taken up by it. In the case of a
notifying bank, the correspondent bank assumes no liability except to notify
and/or transmit to the beneficiary the existence of the L/C. A negotiating bank
is a correspondent bank which buys or discounts a draft under the L/C. Its
liability.is dependent upon the stage of the negotiation. If before negotiation,
it has no liability with respect to the seller but after negotiation, a contractual
relationship will then prevail between the negotiating bank and the seller. A
confirming bank is a correspondent bank which assumes a direct obligation to
the seller and its liability is a primary one as if the correspondent bank itself
had issued the L/C.
In the instant case, the letter of Nanyang to Allied provided the following
instructions: 1) the negotiating bank is kindly requested to forward all
documents to Nanyang in one lot; 2) in reimbursement for the negotiation(s),
Nanyang shall remit cover to Allied upon receipt of documents in compliance
with the terms and conditions of the credit; 3) the drafts drawn must be
marked "drawn under Nanyang Commercial Bank"; and 4) to advise
beneficiary.
From the above-instructions, it is clear that Allied did not undertake to assume
the obligation of Nanyang to Marphil as its own, as if it had itself issued the
L/C. At most, it can only be a discounting bank which bought the drafts under
the L/C. Following then the rules laid down in the case of Bank of America, a
negotiating bank has a right of recourse against the issuing bank, and until
reimbursement is obtained, the drawer of the draft continues to assume a
contingent liability thereon. x x x55chanroblesvirtuallawlibrary
In this regard, this issue of whether Allied Bank confirmed L/C No. 21970 and
assumed direct obligation on it is a question of fact that was resolved by both
RTC and CA in the negative. This Court is not a trier of facts and does not
normally undertake the re-examination of the evidence.56 This is especially
true where the trial court's factual findings are adopted and affirmed by the
CA.57 Factual findings of the trial court affirmed by the CA are final and
conclusive and may not be reviewed on appeal.58 Here, there is no reason to
deviate from these findings of the RTC and CA.
In any event, we find that Allied Bank may seek reimbursement of the amount
credited to Marphil's account on an independent obligation it undertook
under the Letter Agreement.
b. Allied Bank's right to reimbursement under the Letter Agreement
To recall, Marphil and Allied Bank executed the Letter Agreement dated June
24, 1988 the subject of which is the draft equivalent to the face value of L/C
No. 21970.
In the Letter Agreement, Marphil expressly bound itself to refund the amount
paid by Allied Bank in purchasing the export bill or draft, in case of its dishonor
by the drawee bank:ChanRoblesVirtualawlibrary
Purchase of the Draft shall be with recourse to me/us in the event of non-
payment for any reason whatsoever. Notice of dishonor, non-acceptance,
non-payment, protest and presentment for payment are hereby waived.
xxx
If, for any reason, my/our Draft is not finally honored or retired by the drawee,
I/we hereby further undertake and bind myself/ourselves to refund to you, on
demand, the full amount of this negotiation, together with the corresponding
interest thereon as well as your or your correspondent's charges and expenses
thereon, if any; and to compensate you fully for any damages that you might
incur arising out of any suit, action or proceedings, whether judicial or extra-
judicial that might be instituted by the buyer or importer on the ground of lack
of faithful performance of the contract between said buyer or importer and
myself/ourselves. Likewise, should my/our Draft be dishonored for any cause
whatsoever, I/we hereby authorize you, at your discretion and without any
responsibility on your part to sell, or cause to be sold, either publicly or
privately, the underlying goods, wherever they may be found, and, from the
proceeds thereof, I/we hereby empower you to collect all expenses incident
thereto, together with your commission, interest and other charges, as well as
to reimburse yourself therefrom x x x the full amount of this negotiation,
interest, charges and other expenses thereon, returning to me/us only
whatever amount that may remain thereafter; and, should there be any
deficiency still in your favor, notwithstanding the sale made as herein
authorized, I/we likewise bind myself/ourselves to pay the said deficiency to
you upon demand.59chanroblesvirtuallawlibrary
The case of Velasquez v. Solidbank Corporation60 is instructive as to the nature
of obligations arising from this form of undertaking. In that case, we ruled that
the obligation under a letter of undertaking, where the drawer undertakes to
pay the full amount of the draft in case of dishonor, is independent from the
liability under the sight draft.61 The letter of undertaking of this tenor is a
separate contract the consideration for which is the promise to pay the bank
the value of the sight draft if it was dishonored for any reason.62 The liability
provided is direct and primary, without need to establish collateral facts such
as the violation of the letter of credit connected to it.63chanrobleslaw
Similarly, the Letter of Agreement is a contract between Marphil and Allied
Bank where the latter agreed to purchase the draft and credit the former its
value on the undertaking that Allied Bank will be reimbursed in case the draft
is dishonored. This obligation is direct, and is independent, not only from the
obligation under the draft, but also from the obligation under L/C No. 21970.
In this connection, the CA is incorrect to say that the Letter Agreement
bolsters the bank's claim that it did not undertake direct obligation under the
letter of credit. The Letter Agreement simply creates a separate obligation on
Marphil's part to refund the amount of the proceeds, in case of dishonor.64 As
an independent obligation, Marphil is bound to fulfill this obligation to
reimburse Allied Bank.
However, a conflict arose because instead of waiting for Marphil's own
initiative to return the amount, Allied Bank on its own debited from the
former's credit line. Pag
c. Allied Banti 's right to debit Marphil's account e|
119
We now proceed to determine whether Allied Bank may unilaterally debit the
amount it credited to Marphil's account.
In the case of Associated Bank v. Tan,65 we upheld the right of a collecting
bank to debit a client's account for; the value of a dishonored check it
previously credited by virtue of the principle of legal compensation. Since the
relationship between banks and depositors has been held to be that of
creditor and debtor in a simple loan, legal compensation may take place when
the conditions in Article 1279 of the Civil Code are present: (1) that each one
of the obligors be bound principally, and that he be at the same time a
principal creditor of the other; (2) that both debts consist in a sum of money,
or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated; (3) that the two debts be due; (4)
that they be liquidated and demandable; and (5) that over neither of them
there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.66chanrobleslaw
In this case, when Allied Bank credited the amount of P1,913,763.45 to
Marphil's account, it became the debtor of Marphil. However, once Nanyang
Bank dishonored the export documents and draft for L/C No. 21970, Marphil
became the debtor of Allied Bank for the amount by virtue of its obligation to
reimburse the bank under the Letter Agreement. This obligation consisting of
sum of money became demandable upon notice of the dishonor by Nanyang
Bank. Thus, legal compensation may take place between the two debts.
In Associated Bank, we nevertheless emphasized that while the bank has the
right to set off, the exercise of such right must be consistent with the required
degree of diligence from banks, i.e., highest degree of care. Thus, the question
that needs to be resolved now is whether Allied Bank properly exercised its
right to set off.67chanrobleslaw
We rule that Allied Bank properly exercised its right to set off. Firstly, having
signed the Letter Agreement, Marphil expressly undertook that in case of
dishonor of the draft for the letter of the credit, it will refund to Allied Bank
whatever the latter has credited in its favor. This places Marphil on its guard
that the dishonor will create an obligation to refund the amount credited.
Secondly, prior to debiting the amount, Allied Bank informed Marphil twice of
Nanyang Bank's refusal to honor the tender of documents on L/C No. 21970.
Thirdly, it immediately informed Marphil that it was debiting the amount of
the dishonored draft from the credit line.
Most importantly, the debiting of the account was not the proximate cause of
the loss to Marphil brought about by the reshipment of goods back to Manila.
The proximate cause of the loss is the subsequent dishonor of the documents
by Nanyang Bank, which came before the debiting of the account. The
P1,913,763.45 subject of the debit memo was already the costs incurred in
relation to the financing and shipping of the goods to Hong Kong, and do not
refer to the loss incurred when the goods were shipped back to Manila. Thus,
the debiting of Marphil's account did not result in additional losses for
Marphil.
In sum, we affirm that Allied Bank is not a confirming bank under L/C No.
21970. In any case, whether Allied Bank is directly liable as confirming bank
will not affect Marphil's obligation to reimburse Allied Bank the amount;of
P1,913,763.45 because its liability to refund the amount arose under an
independent contract, i.e. the Letter Agreement. And while Allied Bank is the
debtor of Marphil for the amount it credited under the draft, the obligation
under the Letter Agreement made Allied Bank the creditor of Marphil for the
same amount. Being debtor and creditor of each other, Allied Bank was
entitled to legal compensation by debiting the amount, which did not result in
any loss to Marphil.
II. Obligation of P1,913,763.45 to Allied Bank
Marphil next argues that the RTC and CA erroneously held it liable to Allied for
P1,913,763.45 as a new obligation.
We rule that there is no new obligation created when1 both the RTC and CA
held petitioners liable for the P1,913,763.45. This was a prior and existing
obligation of Marphil separate from the amount covered by the draft under
L/C No. 21970. In filing the Declaratory Relief Case, Marphil asked the court
not only to determine the status of its obligations evidenced by PN Nos. 2463,
2730 and 4202, but also to determine the status of its existing loans with
Allied Bank, regardless of the counterclaim of the latter.
To recall, the arrangement between Marphil and Allied Bank is that advances
were made by the bank in the form of loans to finance the exportation
busiriess of Marphil. When Allied Bank purchases the drafts for the letters of
credit from Marphil, it credits the amount to the latter's credit line and
deducts; from the total amount of Marphil's existing loans from Allied Bank.
This is what Allied Bank did in this case; it credited to Marphil's account the
amount of P1,913,763.45 upon purchase of the draft. However, when L/C No.
21970 was dishonored by Nanyang Bank, it reversed the credit memo thereby
leaving the parties in their situation prior to the credit memo — that Marphil
has existing loan obligations arising from the advances made by Allied Bank.
Simply put, Marphil is liable for the amount of P1,913,763.45 because this is
the only amount not proven to be paid in the many loans obtained by Marphil
in the credit line.
The CA imposed the legal interest rate of twelve percent (12%) on this loan
obligation. Notably, the CA made no factual determination that the amount of
P1,913,763.45 was subject to any stipulated interest between the parties.
Likewise, Allied Bank neither claimed for the application of a stipulated
interest nor questioned the imposition of legal interest on the loan, as it no
longer appealed the decision. Considering this, we are constrained to uphold
that the amount of P1,913,763.45, as a loan obligation, is only subject to the
legal interest applicable as of the time of this decision. This is in line with our
ruling in Nacar v. Gallery Frames68 that in the absence of a stipulated interest,
a loan obligation shall earn legal interest from the time of default, i.e., from
judicial or extrajudicial demand.69chanrobleslaw
We, however, modify the rate of legal interest imposed by the CA also in
conformity with Nacar. The amount of P1,913,763.45 shall earn legal interest
at the rate of six percent (6%) per annum computed from the time of judicial
demand, i.e. from the date of the filing of the counterclaim in the Declaratory
Relief Case on May 7, 1990, until the date of finality of this judgment. The
total amount shall thereafter earn interest at the rate of six percent (6%) per
annum from such finality of judgment until its satisfaction.70chanrobleslaw
III. Forum Shopping
Marphil argues that in determining that Allied Bank committed forum
shopping upon filing the Collection Case, the RTC and CA should have
considered the counterclaim filed in the Declaratory Relief Case, and not the
main petition itself. Marphil contends that Allied Bank is collecting on the
same three promissory notes in its counterclaim in the two cases.
Forum shopping exists "when a party repetitively avails of several judicial
remedies in different courts, simultaneously or successively, all substantially
founded on the same transactions and the same essential facts and
circumstances, and all raising substantially the same issues either pending in
or already resolved adversely by some other court."71 Forum shopping is
proscribed by the rules because of the vexation caused to the courts and
parties-litigants by the filing of similar cases to claim the same reliefs.72 The
rule against forum shopping aims to avoid the grave evil that may result in the
rendition by two competent tribunals of two separate and contradictory
decisions.73 Thus, any violation of the rule against forum shopping results in
the dismissal of a case, or can result in holding of direct contempt against the
actor.74chanrobleslaw
There is forum shopping when the elements of litis pendentia are present, or
when a final judgment in one case amounts to res judicata in the other.75 It
must be shown that the following elements are present: (a) identity of parties,
or at least such parties representing the same interests in both actions; (b)
identity of rights asserted and reliefs prayed for, the relief being founded on
the, same facts; and (c) the identity of the two preceding particulars, such that
any judgment rendered in the other action will, regardless of which party is
successful, amounts to res judicata in the action under
consideration.76chanrobleslaw
We rule that there is no forum shopping, albeit for a reason different from
that explained by the CA.
The CA concluded that there is no forum shopping because the cases involve
different causes of action: the first case is a petition for declaratory relief
while the second case is one of collection of sum of money. We find this
analysis too sweeping and erroneous. The CA failed to take into account that it
was Allied Bank who is being charged with violating the rule on forum
shopping. As such, the cause of action that should have been considered is the
counterclaim of Allied Bank in the Declaratory Relief Case, which is essentially
a collection suit against the principal debtor Marphil. Subsequently, it also
filed another Collection Case seeking to collect also on the surety Lim under
the same three (3) promissory notes. These cases are the actions that the CA
should have considered in deciding whether Allied Bank committed forum
shopping.
We rule that Allied Bank did not commit forum shopping when it initiated the
Collection Case against Lim despite the pendency of the counterclaim in the
Declaratory Relief Case, because there is no identity of parties and cause1 of
action.
In Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank General
Insurance Co., Inc.,77 we explained that while a surety contract is merely
ancillary to a principal obligation, the surety's liability is direct, primary and
absolute. The surety's obligation is joint and solidary with that of the principal, Pag
and he becomes liable for the debt and duty of the principal, even without
possessing a direct or personal interest in the principal obligation. As such, a e|
surety may be sued separately or together with principal.78 We emphasized 120
this in Ong v. Philippine Commercial International Bank79 where we held that
the right to collect payment from the surety exists independently of its right to
proceed directly against the principal debtor.80 In fact, the creditor bank may
go against the surety alone without prior demand for payment on the
principal debtor.81chanrobleslaw
Here, the parties in the counterclaim in the Declaratory Relief Case are Allied
Bank, as creditor, and Marphil, as principal debtor. On the other hand, the
parties in the Collection Case are Allied Bank, as creditor, and Lim, as surety.
There is no identity of parties. Also, the causes of action pleaded are different
because the counterclaim in the Declaratory Relief Case involves collection on
the loan obligations, while Allied Bank in its complaint in the Collection Case
seeks to collect on the surety obligation of Lim under the CG/CS Agreements.
Another reason why forum shopping does not obtain here is the circumstance
that the two cases were subsequently consolidated, jointly heard, and a single
decision was rendered. Thus, the evil that the rule against forum shopping
avoids, and the vexation on the court and parties-litigant, are wanting.
IV. Validity of the writ of preliminary attachment
In its application for a writ of preliminary attachment in the Collection Case
against the surety Lim, Allied Bank alleged:ChanRoblesVirtualawlibrary
25. Defendants in conspiracy with Marphil and with one
another, committed fraud in contracting the obligations upon which
the first, second and third causes of action are brought (Sec. 1, par.
(d) Rule 57, Rules of Court) when:
a.) There is a preconceived intention not to pay their obligations as
further manifested by the premature and unjust filing of a
complaint by Marphil against the plaintiff in Civil Case No. 90-640
before RTC, Makati, Branch 61;
b.) To induce plaintiff to grant the credit accommodation, defendants
and Marphil represented to the plaintiff that they would present the
proper and sufficient documents to the issuing bank when in truth
and in fact, there were discrepancies noted in the documents
presented to the issuing bank by Marphil.
c.) Further, defendants and Marphil committed misrepresentation in
shipping the cashew nuts at a volume less than that which was
required by the foreign buyer.82 (Emphasis supplied.)
Subsequently, Branch 145 of RTC Makati issued the writ of preliminary
attachment ex parte. When the case reached it, the CA summarily disposed of
the issue of the propriety of the writ by stating that petitioners did not file any
motion to discharge. However, the records show that Lim filed his Motion to
Discharge Attachment83 dated May 20, 1994 before Branch 61 of RTC Makati
where Lim raised that no ground exists for the writ of attachment, making it
irregularly and improperly issued.
We grant the petition as to the dissolution of the writ of preliminary
attachment.
A writ of preliminary attachment is "a provisional remedy issued upon order of
the court where an action is pending to be levied upon the property or
properties of the defendant therein, the same to be held thereafter by the
sheriff as security for the satisfaction of whatever judgment might be secured
in said action by the attaching creditor against the defendant."84 Section 1,
Rule 57 of the Revised Rules of Court provides for the grounds upon which the
writ may issue. For this case, it is grounded under Section 1 (d) of Rule 57 of
the Revised Rules of Court:ChanRoblesVirtualawlibrary
Sec. 1. Grounds upon which attachment may issue. — At the commencement
of the action or at any time before entry of judgment, a plaintiff or any proper
party may have the property of the adverse party attached as security for the
satisfaction of any judgment that may be recovered in the following cases:
chanRoblesvirtualLawlibraryx x x
(d) In an action against a party who has been guilty of a fraud in contracting
 In this case, the writ of preliminary attachment was improperly or irregularly
the debt or incurring the obligation upon which the action is brought, or
issued because there is no ground for the attachment.
in the performance thereof;
To begin with, Allied Bank filed the application for the writ of preliminary
xxx attachment in the Collection Case against Lim as surety. However, the
allegations of fraud refer to the execution of the promissory notes, and not on
Once issued, a writ of attachment may be dissolved or discharged on the
the surety agreement. The application was bereft of any allegation as to Lim's
following grounds: (a) the debtor has posted, a counter-bond or has made the
participation in the alleged conspiracy of fraud. Also, the writ of preliminary
requisite cash deposit; (b) the attachment was improperly or irregularly issued
attachment was granted in the Collection Case against Lim as . surety, yet
as where there is no ground for attachment, or the affidavit and/or bond filed
there was no allegation on Lim's fraudulent intention in incurring its obligation Pag
therefor are defective or insufficient; (c) the attachment is excessive, but the
under the CG/CS Agreements. It cannot be inferred that Lim had, at the time
discharge shall be limited to the excess; (d) the property attachment is exempt
of contracting the obligation, the preconceived intention to renege on his e|
from preliminary attachment; or (e) the judgment is rendered against the
attaching creditor.85chanrobleslaw
obligation under the CG/CS Agreements. Continuing guaranty and surety 121
agreements are normally required by a bank or financing company
anticipating to enter into a series of credit transactions with a particular
In Ng Wee v. Tankiansee,86 we explained that to justify the attachment of the
principal debtor.91 This avoids a need to execute a separate surety contract or
debtor's property under Section 1(d) of Rule 57 of the Rules of Court, the
bond for each financing or credit accommodation extended to the principal
applicant must show that in incurring the obligation sued upon, fraud must be
debtor.92 Here, the CG/CS Agreements were executed prior to the issuance of
the reason which induced the other party into giving its consent. In addition,
L/C No. 21970, and were in force during other transactions including the one
the particular acts constituting the fraud imputed to the defendant must be
involving L/C No. 22518 which encountered no problem. Thus, this transaction
alleged with specificity. We held:ChanRoblesVirtualawlibrary
cannot be singled out to justify that the surety agreement has been
In the case at bench, the basis of petitioner" s application for the issuance of
contracted through fraud.
the writ of preliminary attachment against the properties of respondent is
Section 1(d) of Rule 57 of the Rules of Court which pertinently reads:
Moreover, the filing of the Declaratory Relief Case cannot be evidence of a
preconceived intention not to pay the surety's obligation because it was filed
chanRoblesvirtualLawlibrary
by Marphil, and not Lim. In any case, the filing of the case is a legitimate
xxx
means resorted to by Marphil in, seeking to clarify its existing obligations with
Allied Bank. If its intention was to renege on its obligations, it would not have
For a writ of attachment to issue under this rule, the applicant must
submitted itself to the jurisdiction of the court where it can be ordered to pay
sufficiently show the factual circumstances of the alleged fraud because
any existing obligations. The allegation that petitioners made representations
fraudulent intent cannot be inferred from the debtor's mere non-payment of
to induce it to grant them a credit line is belied by the fact that it is only in the
the debt or failure to comply with his obligation. The applicant must then be
transaction involving L/C No. 21970 where Allied Bank encountered problems,
able to demonstrate that the debtor has intended to defraud the creditor.
because of Nanyang Bank's dishonor of the draft and documents. Also, the
In Liberty Insurance Corporation v. Court of Appeals, we explained as
allegation that petitioners committed misrepresentation in shipping the
follows:ChanRoblesVirtualawlibrary
cashew nuts at a volume less than that which was required by the foreign
"To sustain an attachment on triis ground, it must be shown that the debtor in
buyer, relates to the sale between Marphil and Intan, and not to the loan
contracting the debt or incurring the obligation intended to defraud the
between Marphil and Allied Bank.
creditor. The fraud must relate to the execution of the agreement and must
have been the reason which induced the other party into giving consent which
From the foregoing, Allied Bank was not able to sufficiently establish the
he would not have otherwise given. To constitute a ground for attachment in
factual circumstances of the alleged fraud in contracting the obligation. Thus,
Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed upon
there being no ground for its issuance, the writ of preliminary attachment
contracting the obligation sued upon. A debt is fraudulently contracted if at
should be dissolved.
the time of contracting it the debtor has a preconceived plan or intention not
to pay, as it is in this case. Fraud is a state of mind and need not be proved by
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The
direct evidence but may be inferred1 from the circumstances attendant in
January 12, 2009 Decision and May 12, 2009 Resolution of the Court of
each case."
Appeals are MODIFIED. Marphil Export Corporation and Ireneo Lim are
In the instant case, petitioner's October 12, 2000 Affidavit is bereft of any ordered to pay jointly and severally Allied Banking Corporation (now Philippine
factual statement that respondent committed a fraud. The affidavit narrated National Bank) the principal amount of P1,913,763.45, with interest at the
only the alleged fraudulent transaction between Wincorp and Virata and/or rate of six percent (6%) per annum computed from May 7, 1990, until the date
Power Merge, which, by the way, explains why this Court, in G.R. No. 162928, of finality of this judgment. The total amount shall thereafter earn interest at
affirmed the writ of attachment issued against the latter. As to the the rate of six percent (6%) per annum from the finality of judgment until its
participation of respondent in the said transaction, the affidavit merely states satisfaction. Let the writ of preliminary attachment issued against Ireneo Lim's
that respondent, an officer and director of Wincorp, connived with the other property be DISSOLVED.
defendants in the civil case to defraud petitioner of his money placements. No
other factual averment or circumstance details how respondent committed a SO ORDERED.chanRoblesvirtualLawlibrary
fraud or how he connived with the other defendants to commit a fraud in the
transaction sued upon. In other words, petitioner has not shown any specific
act or deed to support the allegation that respondent is guilty of fraud.
G.R. No. 202454
The affidavit, being the foundation of the writ, must contain such particulars
as to how the fraud imputed to respondent was committed for the court to CALIFORNIA MANUFACTURING COMPANY, INC., Petitioner,
decide whether or not to issue the writ. Absent any statement of other factual vs.
circumstances to show that respondent, at the time of contracting the ADVANCED TECHNOLOGY SYSTEM, INC., Respondent.
obligation, had a preconceived plan or intention not to pay, or without any
showing of how respondent committed the alleged fraud, the general DECISION
averment in the affidavit that respondent is an officer and director of Wincorp
who allegedly connived with the other defendants to commit a fraud, is
SERENO, J.:
insufficient to support the issuance of a writ of preliminary attachment. In the
application for the writ under the said ground, compelling is the need to give a
hint about what constituted the fraud and how it was perpetrated because Before us is a Petition for Review on Certiorari assailing the Decision 1 of the
established is the rule that fraud is never presumed. Verily, the mere fact that Court of Appeals (CA) in CA-G.R. CV No. 94409, which denied the appeal filed
respondent is an officer and director of the company does not necessarily give by California Manufacturing Company, Inc. (CMCI) from the Decision2 of
rise to the inference that he committed a fraud or that he connived with the Regional Trial Court (RTC) of Pasig City, Branch 268, in the Complaint for Sum
other defendants to commit a fraud. While under certain circumstances, of Money3 filed by Advanced Technology Systems, Inc. (ATSI) against the
courts may treat a corporation as a mere aggroupment of persons, to whom former.
liability will directly attach, this is only done when the wrongdoing has been
clearly and convincingly established.87 (Citations omitted.) The RTC ordered CMCI to pay ATSI the amount of ₱443,729.39 for the unpaid
We also reiterated in Ng Wee that the rules on the issuance of the writ of rentals for a Prodopak machine, plus legal interest from the date of extra-
preliminary attachment as a provisional remedy are strictly construed against judicial demand until full payment; 30% of the judgment award as attorney's
the applicant because it exposes the debtor to humiliation and fees; and the costs of litigation. The CA affirmed the trial court's decision, but
annoyance.88 The applicant must show that all requisites are it deleted the award of attorney's fees for lack of factual and legal basis and
present.89 Otherwise, if issued on false or insufficient allegations, the court ordered CMCI to pay the costs of litigation.
acts in excess of its jurisdiction which must be corrected.90chanrobleslaw
THE ANTECEDENT FACTS
Petitioner CMCI is a domestic corporation engaged in the food and beverage
manufacturing business. Respondent ATSI is also a domestic corporation that
fabricates and distributes food processing machinery and equipment, spare
parts, and its allied products.4
In August 200 I, CMCI leased from ATSI a Prodopak machine which was used
to pack products in 20-ml. pouches.5 The parties agreed to a monthly rental of
₱98,000 exclusive of tax. Upon receipt of an open purchase order on 6 August
2001, ATSI delivered the machine to CMCI's plant at Gateway Industrial Park,
General Trias, Cavite on 8 August 2001.
In November 2003, ATSI filed a Complaint for Sum of Money against CMCI to
collect unpaid rentals for the months of June, July, August, and September
2003. ATSI alleged that CMCI was consistently paying the rents until June 2003
when the latter defaulted on its obligation without just cause. ATSI also
claimed that CMCI ignored all the billing statements and its demand letter.
Hence, in addition to the unpaid rents A TSI sought payment for the
contingent attorney's fee equivalent to 30% of the judgment award.
CMCI moved for the dismissal of the complaint on the ground of
extinguishment of obligation through legal compensation. The RTC, however,
ruled that the conflicting claims of the parties required trial on the merits. It
therefore dismissed the motion to dismiss and directed CMCI to file an
Answer.7
In its Answer,8 CMCI averred that ATSI was one and the same with Processing
Partners and Packaging Corporation (PPPC), which was a toll packer of CMCI
products. To support its allegation, CMCI submitted copies of the Articles of
Incorporation and General Information Sheets (GIS)9 of the two corporations.
CMCI pointed out that ATSI was even a stockholder of PPPC as shown in the
latter's GIS. 10
CMCI alleged that in 2000, PPPC agreed to transfer the processing of CMCI's
product line from its factory in Meycauayan to Malolos, Bulacan. Upon the
request of PPPC, through its Executive Vice President Felicisima Celones, CMCI
advanced ₱4 million as mobilization fund. PPPC President and Chief Executive
Officer Francis Celones allegedly committed to pay the amount in 12 equal
instalments deductible from PPPC's monthly invoice to CMCI beginning in
October 2000. 11 CMCI likewise claims that in a letter dated 30 July
2001, 12 Felicisima proposed to set off PPPC's obligation to pay the
mobilization fund with the rentals for the Prodopak machine.
CMCI argued that the proposal was binding on both PPPC and A TSI because
Felicisima was an officer and a majority stockholder of the two corporations.
Moreover, in a letter dated 16 September 2003, 13 she allegedly represented
to the new management of CMCI that she was authorized to request the
offsetting of PPPC's obligation with ATSI's receivable from CMCI. When ATSI
filed suit in November 2003, PPPC's debt arising from the mobilization fund
allegedly amounted to ₱10,766.272.24.
Based on the above, CMCl argued that legal compensation had set in and that
ATSI was even liable for the balance of PPPC's unpaid obligation after
deducting the rentals for the Prodopak machine.
After trial, the RTC rendered a Decision in favor of ATSI with the following
dispositive portion:
WHEREFORE, foregoing premises considered, judgment is hereby rendered in
favor of plaintiff and against the defendant, ordering the latter to pay the
former, the following sums:
1. Php443,729.39 representing the unpaid rental for the
prodopak machine plus legal interest from the date of
extra judicial demand (October 13, 2003 - Exh. "E") until
satisfaction of this judgment;
2. 30% of the judgment award as and by way of
attorney's fees; and
3. Cost of litigation.14
The trial court ruled that legal compensation did not apply because PPPC had
a separate legal personality from its individual stockholders, the Spouses
Celones, and ATSI. Moreover, there was no board resolution or any other
proof showing that Felicisima's proposal to set-off the unpaid mobilization
fund with CMCI 's rentals to A TSI for the Prodopak Machine had been
authorized by the two corporations. Consequently, the RTC ruled that CMCI's
financial obligation to pay the rentals for the Prodopak machine stood and
that its claim against PPPC could be properly ventilated in the proper
proceeding upon payment of the required docket fees. 15
On appeal by CMCI, the CA affirmed the trial court's ruling that legal
compensation had not set in because the element of mutuality of parties was
lacking. Likewise, the appellate court sustained the trial court's refusal to
pierce the corporate veil. It ruled that there must be clear and convincing
proof that the Spouses Celones had used the separate personalities of ATSI or
PPPC as a shield to commit fraud or any wrong against CMCI, which was not
existing in this case. 16
Aside from the absence of a board resolution issued by ATSI, the CA observed
that the letter dated 30 July 2001 clearly showed that Felicisima's proposal to Pag
effect the offsetting of debts was limited to the obligation of PPPC. 17 The e|
appellate court thus sustained the trial court's finding that ATSI was not bound
by Felicisima's conduct. 122
Moreover, the CA rejected CMCI's argument that ATSI is barred by estoppel as
it found no indication that ATSI had created any appearance of false fact. 18 CA
also held that estoppel did not apply to PPPC because the latter was not even
a party to this case.
The CA, however, deleted the trial court's award of attorney's fees and costs
of litigation in favor of ATSI as it found no discussion in the body of the
decision of the factual and legal justification for the award.
CMCI filed a Motion for Reconsideration of the CA Decision, but the appellate
court denied the motion for lack of merit. 19 Hence, this petition.20
THE ISSUE
The assignment of errors raised by CMCI all boil down to the question of
whether the CA erred in affirming the ruling of the RTC that legal
compensation between ATSI's claim against CMCI on the one hand, and the
latter's claim against PPPC on the other hand, has not set in.
OUR RULING
We affirm the CA Decision in toto.
CMCI argues that both the RTC and the CA overlooked the circumstances that
it has proven to justify the piercing of corporate veil in this case, i.e., (1) the
interlocking board of directors, incorporators, and majority stockholder of
PPPC and ATSI; (2) control of the two corporations by the Spouses Celones;
and (3) the two corporations were mere alter egos or business conduits of
each other. CMCI now asks us to disregard the separate corporate
personalities of A TSI and PPPC based on those circumstances and to enter
judgment in favor of the application of legal compensation.
Whether one corporation is merely an alter ego of another, a sham or
subterfuge, and whether the requisite quantum of evidence has been
adduced to warrant the puncturing of the corporate veil are questions of
fact. 21 Relevant to this point is the settled rule that in a petition for review
on certiorari like this case, this Court's jurisdiction is limited to reviewing
errors of law in the absence of any showing that the factual findings
complained of are devoid of support in the records or are glaringly
erroneous. 22 This rule alone wan-ants the denial of the petition, which
essentially asks us to reevaluate the evidence adduced by the pm1ies and the
credibility of the witnesses presented.
We have reviewed the evidence on record and have found no cogent reason
to disturb the findings of the co mis a quo that A TSI is distinct and separate
from PPPC, or from the Spouses Celones.
Any piercing of the corporate veil must be done with caution.23 As the CA had
correctly observed, it must be ce11ain that the corporate fiction was misused
to such an extent that injustice, fraud, or crime was committed against
another, in disregard of rights. Moreover, the wrongdoing must be clearly and
convincingly established. Sarona v. NLRC24 instructs, thus:
Whether the separate personality of the corporation should be pierced hinges
on obtaining facts appropriately pleaded or proved. However, any piercing of
the corporate veil has to be done with caution, albeit the Court will not
hesitate to disregard the corporate veil when it is misused or when necessary
in the interest of justice. After all, the concept of corporate entity was not
meant to promote unfair objectives.
The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used
as a vehicle for the evasion of an existing obligation; 2) fraud cases or when
the corporate entity is used to justify a wrong, protect fraud, or defend a
crime; or 3) alter ego cases, where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely
an instrumentality, agency, conduit or adjunct of another corporation.25
CMCI 's alter ego theory rests on the alleged interlocking boards of directors
and stock ownership of the two corporations. The CA, however, rejected this
theory based on the settled rule that mere ownership by a single stockholder
of even all or nearly all of the capital stocks of a corporation, by itself, is not
sufficient ground to disregard the corporate veil. We can only sustain the CA's
ruling. The instrumentality or control test of the alter ego doctrine requires
not mere majority or complete stock control, but complete domination of
finances, policy and business practice with respect to the transaction in
question. The corporate entity must be shown to have no separate mind, will,
or existence of its own at the time of the transaction.26
Without question, the Spouses Celones are incorporators, directors, and
majority stockholders of the ATSI and PPPC. But that is all that CMCI has
proven. There is no proof that PPPC controlled the financial policies and
business practices of ATSI either in July 2001 when Felicisima proposed to set
off the unpaid ₱3.2 million mobilization fund with CMCI's rental of
Prodopak machines; or in August 2001 when the lease agreement between
CMCI and ATSI commenced. Assuming arguendo that Felicisima was
sufficiently clothed with authority to propose the offsetting of obligations, her
proposal cannot bind ATSI because at that time the latter had no transaction
yet with CMCI. Besides, CMCI had leased only one Prodopak machine.
Felicisima's reference to the Prodopak machines in its letter in July 2001 could
only mean that those were different from the Prodopak machine that CMCI
had leased from A TSI.
Contrary to the claim of CMCI, none of the letters from the Spouses Celones
tend to show that ATSI was even remotely involved in the proposed offsetting
of the outstanding debts of CMCI and PPPC. Even Felicisima's letter to the new
management of CMCI in 2003 contains nothing to support CMCI's argument
that Felicisima represented herself to be clothed with authority to propose
the offsetting. For clarity, we quote below the relevant portions of her letter:
Gentlemen:
I apologize for writing this letter. But kindly spare me your time and allow to
ventilate my grievances against California Manufacturing Corporation x x x. I
had formally lodged my grievances with the management of CMC, but until
now, no action has been done yet. It is on this spirit and time tested principle
of diplomacy that I write this letter.
I am the Executive Vice President of Processing Partners & Packaging
Corporation (PPPC), a duly organized domestic corporation, engaged in the toll
packing business.
Sometime in November of 1996, CMC availed of the toll packing services of
PPPC. At the outset, business relationship between the two was going
smoothly. In due time, PPPC proved its name to CMC in delivering quality toll
packing services. As a matter of fact, after the expiration of the toll packing
contract, CMC still retained the services of PPPC. Thus, sometime in the year
2000, CMC executed another toll packing contract with PPC.
However, the business relationship unexpectedly turned sour when CMC
changed its Management in the latter part of 2002. Since then CMC's new
management has been committing unsound business practices prejudicial to
the interests of PPPC.
xxxx
Failure of CMC to honor its
agreement with PPC anent
the pickling machinery
xxxx
Leapfrog Plant/Jasmine al)d
Rose Plant
xxxx
Pre-termination of toll
[p]acking [a]greement for
KLS Spaghetti Sauce without
just cause
xxxx
Unpaid rentals for the lease
of machinery from Advanced
Technology Systems, Inc.
CMC has been leasing a machinery of Advanced Technology Systems, Inc.
(Advanced Tech), a domestic corporation of which I am also the majority
stockholder. CMC owes Advanced Tech. unpaid rentals in
Pag
e|
the amount of P443,729.37, but despite various demands, CMC refused to pay
Advanced Tech. 123
We have already formally lodged our grievances concerning the foregoing
with the management of CMC. However, until now, no action has been done.
We believe that before we take coercive actions available under the law, it is
wise to bring said grievances first to your attention to exhaust available
venues for amicable settlement.
Though PPPC's grievances are ripe for judicial action, we still hope that we can
settle [the] same amicably. However, if we run out of choices, we will [be]
constrained to invoke the aid of the appropriate court. (Emphases supplied)27
Nothing in the narration above supports CMCI's claim that it had been led to
believe that ATSI and PPPC were one and the same; or, that ATSI's collectible
was intertwined with the business transaction of PPPC with CMCI.
In all its pleadings, CMCI averred that the P4 million mobilization fund was in
furtherance of its agreement with PPPC in 2000.1awp++i1 Prior thereto, PPPC
had been a toll packer of its products as early as 1996. Clearly, CMCI had been
dealing with PPPC as a distinct juridical person acting through its own
corporate officers from 1996 to 2003.
CMCI's dealing with ATSI began only in August 2001. It appears, however, that
CMCI now wants the Court to gloss over the separate corporate existence
ATSI and PPPC notwithstanding the dearth of evidence showing that either
PPPC or ATSI had used their corporate cover to commit fraud or evade their
respective obligations to CMCI. It even appears that CMCI faithfully discharged
its obligation to ATSI for a good two years without raising any concern about
its relationship to PPPC.
The fraud test, which is the second of the three-prong test to determine the
application of the alter ego doctrine, requires that the parent corporation's
conduct in using the subsidiary corporation be unjust, fraudulent or wrongful.
Under the third prong, or the harm test, a causal connection between the
fraudulent conduct committed through the instrumentality of the subsidiary
and the injury suffered or the damage incurred by the plaintiff has to be
established.28 None of these elements have been demonstrated in this case.
Hence, we can only agree with the CA and RTC in ruling out mutuality of
parties to justify the application of legal compensation in this case.
Article 1279 of the Civil Code provides:
ARTICLE 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.
The law, therefore, requires that the debts be liquidated and demandable.
Liquidated debts are those whose exact amounts have already been
determined. 29
CMCI has not presented any credible proof, or even just an exact
computation, of the supposed debt of PPPC. It claims that the mobilization
fund that it had advanced to PPPC was in the amount of ₱4 million. Yet,
Felicisima's proposal to conduct offsetting in her letter dated 30 July 2001
pertained to a ₱3.2 million debt of PPPC to CMCI. Meanwhile, in its Answer to
ATSI's complaint, CMCI sought to set off its unpaid rentals against the alleged
₱10 million debt of PPPC. The uncertainty in the supposed debt of PPPC to
CMCI negates the latter's invocation of legal compensation as justification for
its non-payment of the rentals for the subject Prodopak machine.
WHEREFORE, the Decision dated 25 August 2011 and Resolution dated 21
June 2012 issued by the Court of Appeals in CA-G.R. CV No. 94409
are AFFIRMED. The instant Petition is DENIED for lack of merit.
SO ORDERED.
G.R. No. 142838 August 9, 2001
ABELARDO B. LICAROS, petitioner,
vs.
ANTONIO P. GATMAITAN, respondent.
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court.
The petition seeks to reverse and set aside the Decision1 dated February 10,
2000 of the Court of Appeals and its Resolution2 dated April 7, 2000 denying
petitioner's Motion for Reconsideration thereto. The appellate court decision
reversed the Decision3 dated November 11, 1997 of the Regional Trial Court of
Makati, Branch 145 in Civil Case No. 96-1211.
The facts of the case, as stated in the Decision of the Court o Appeals dated
February 10, 2000, are as follows:
"The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity),
is a private bank registered and organized to do business under the
laws of the Republic of Vanuatu but not in the Philippines. Its
business consists primarily in receiving fund placements by way of
deposits from institutions and individuals investors from different
parts of the world and thereafter investing such deposits in money
market placements and potentially profitable capital ventures in
Hongkong, Europe and the United States for the purpose of
maximizing the returns on those investments.
Enticed by the lucrative prospects of doing business with Anglo-
Asean, Abelardo Licaros, a Filipino businessman, decided to make a
fund placement with said bank sometime in the 1980's. As it turned
out, the grim outcome of Licaros' foray in overseas fund investment
was not exactly what he envisioned it to be. More particularly,
Licaros, after having invested in Anglo-Asean, encountered
tremendous and unexplained difficulties in retrieving, not only the
interest or profits, but even the very investments he had put in
Anglo-Asean.1âwphi1.nêt
Confronted with the dire prospect of not getting back any of his
investments, Licaros then decide to seek the counsel of Antonio P.
Gatmaitan, a reputable banker and investment manager who had
been extending managerial, financial and investment consultancy
services to various firms and corporations both here and abroad. To
Licaros' relief, Gatmaitan was only too willing enough to help.
Gatmaitan voluntarily offered to assume the payment of Anglo-
Asean's indebtedness to Licaros subject to certain terms and
conditions. In order to effectuate and formalize the parties'
respective commitments, the two executed a notarized
MEMORANDUM OF AGREEMENT on July 29, 1988 (Exh. "B"); also
Exhibit "1"), the full text of which reads:
Memorandum of Agreement
KNOW ALL MEN BY THESE PRESENTS:
This MEMORANDUM OF AGREEMENT made and executed this 29th day of July
1988, at Makati by and between:
ABELARDO B. LICAROS, Filipino, of legal age and holding office at Concepcion
Building, Intramuros, Manila hereinafter referred to as THE PARTY OF THE
FIRST PART,
and
ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 Mangyan St.,
La vista, hereinafter referred to as the PARTY OF THE SECOND PART,
WITNESSETH THAT:
WHEREAS, ANGLO-ASEAN BANK & TRUST, a company incorporated by the
Republic of Vanuatu, hereinafter referred to as the OFFSHORE BANK, is
indebted to the PARTY OF THE FIRST PART in the amount of US dollars; ONE
HUNDRED FIFTY THOUSAND ONLY (US$150,000) which debt is now due and
demandable.
Pag
e|
WHEREAS, the PARTY OF THE FIRST PART has encountered difficulties in 124
securing full settlement of the said indebtedness from the OFFSHORE BANK
and has sought a business arrangement with the PARTY OF THE SECOND PART
regarding his claims;
WHEREAS, the PARTY OF THE SECOND PART, with his own resources and due
to his association with the OFFSHORE BANK, has offered to the PARTY OF THE
FIRST PART to assume the payment of the aforesaid indebtedness, upon
certain terms and conditions, which offer, the PARTY OF THE FIRST PART has
accepted;
WHREAS, the parties herein have come to an agreement on the nature, form
and extent of their mutual prestations which they now record herein with the
express conformity of the third parties concerned;
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants stipulated herein, the PARTY OF THE FIRST PART and the PARTY OF
THE SECOND PART have agreed, as they do hereby agree, as follows:
1. The PARTY OF THE SECOND PART hereby undertakes to pay the
PARTY OF THE FIRST PART the amount of US DOLLARS ONE
HOUNDRED FIFTY THOUSAND (US$150,000) payable in Philippine
Currency at the fixed exchange rate of Philippine Pesos 21 to US$1
without interest on or before July 15, 1993.
For this purpose, the PARTY OF THE SECOND PART shall execute
and deliver a non negotiable promissory note, bearing the aforesaid
material consideration in favor of the PARTY OF THE FIRST PART
upon execution of this MEMORANDUM OF AGREEMENT, which
promissory note shall form part as ANNEX A hereof.
2. For and in consideration of the obligation of the PARTY OF THE
SECOND PART, the PARTY OF THE FIRST does hereby;
a. Sell, assign, transfer and set over unto the PARTY OF
THE SECOND PART that certain debt now due and owing
to the PARTY OF THE FIRST PART by the OFFSHORE BANK,
to the amount of US Dollars One Hundred Fifty
Thousand plus interest due and accruing thereon;
b. Grant the PART OF THE SECOND PART the full power
and authority, for his own use and benefit, but at his own
cost and expense, to demand, collect, receive,
compound, compromise and give acquittance for the
same or any part thereof, and in the name of the PARTY
OF THE FIRST PART, to prosecute, and withdraw any suit
or proceedings therefor;
c. Agree and stipulate that the debt assigned herein is
justly owing and due to the PARTY OF THE FIRST PART
from the said OFFSHORE BANK, and that the PARTY OF
THE FIRST PART has not done and will not cause anything
to be done to diminish or discharge said debt, or to delay
or prevent the PARTY OF THE SECOND PART from
collecting the same; and;
d. At the request of the PARTY OF SECOND PART and the
latter's own cost and expense, to execute and do all such
further acts and deeds as shall be reasonably necessary
for proving said debt and to more effectually enable the
PARTY OF THE SECOND PART to recover the same in
accordance with the true intent and meaning of the
arrangements herein.
IN WITNESS WHEREOF, the parties have caused this MEMORANDUM OF
AGREEMENT to be signed on the date and place first written above.
 Sgd.
CAROS ANTONIO P. GATMAITAN
FIRST PART PARTY OF THE FIRST ART
NFORME:
BANK & TRUST
PRESENCE OF:
____________________ ________________________________
Conformably with his undertaking under paragraph 1 of the aforequoted
agreement, Gatmaitan executed in favor of Licaros a NON-NEGOTIABLE
PROMISSORY NOTE WITH ASSIGNMENT OF CASH DIVIDENDS (Exhs. "A"; Also
Exh. "2"), which promissory note, appended as Annex "A" to the same
Memorandum of Agreement, states in full, thus
"NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF
CASH DIVIDENDS
This promissory note is Annex A of the Memorandum of Agreement
executed between Abelardo B. Licaros and Antonio P. Gatmaitan,
on ______ 1988 at Makati, Philippines and is an integral part of said
Memorandum of Agreement.
P3,150.00.
On or before July 15, 1993, I promise to pay to Abelardo B. Licaros
the sum of Philippine Pesos 3,150,000 (P3,150,000) without
interest as material consideration for the full settlement of his
money claims from ANGLO-ASEAN BANK, referred to in the
Memorandum of Agreement as the 'OFFSHORE BANK".
As security for the payment of this of Promissory Note. I hereby
ASSIGN, CEDE and TRANSFER, Seventy Percent (70%) of ALL CASH
DIVIDENDS, that may be due or owing to me as the registered
owner of __________________ (______________) shares of stock
in the Prudential Life Realty, Inc.
This assignment shall likewise include SEVENTY PERCENT (70%) of
cash dividends that may be declared by Prudential Life Realty, Inc.
and due or owing to Prudential Life Plan, Inc., of which I am a
stockholder, to the extent of or in proportion to my aforesaid
shareholding in Prudential Life Plan, Inc, the latter being the holding
company of Prudential Life Realty, Inc.
In the event that I decide to sell or transfer my aforesaid shares in
either or both the Prudential Life Plan, Inc. or Prudential Life Realty,
Inc. and the Promissory Note remains unpaid or outstanding, I
hereby give Mr. Abelardo B. Licaros the first option to buy the said
shares.
Manila, Philippines
July ______, 1988
(SGD.)
ANTONIO P. GATMAITAN
7 Mangyan St., La Vista QC
SIGNED IN THE PRESENCE OF:
(SGD.)
______________________________ ___________________
___________
Francisco A. Alba
President, Prudential Life Plan, Inc."
Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of
Agreement earlier executed by him and Licaros for the purpose of collecting
the latter's placement thereat of U.S. $150,000.00. Albeit the officers of
Anglo-Asean allegedly committed themselves to "look into [this matter]", no
formal response was ever made by said bank to either Licaros or Gatmaitan. Pag
To date, Anglo-Asean has not acted on Gatmaitan's monetary claims. e|
125
Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did
not bother anymore to make good his promise to pay Licaros the amount
stated in his promissory note (Exh. "A"; also Exh. 2"). Licaros, however,
thought differently. He felt that he had a right to collect on the basis of the
promissory note regardless of the outcome of Gatmaitan's recovery efforts.
Thus, in July, 1996, Licaros, thru counsel, addressed successive demand letters
to Gatmaitan (Exhs. "C" and "D"), demanding payment of the later's
obligations under the promissory note. Gatmaitan, however, did not accede to
these demands.
Hence, on August 1, 1996, in the Regional Trial Court at Makati, Licaros filed
the complaint in this case. In his complaint, docketed in the court below as
Civil case No. 96-1211, Licaros prayed for a judgment ordering Gatmaitan to
pay him the following:
'a) Principal Obligation in the amount of Three Million Five Hundred
Thousand Pesos (P3,500,000.00);
b) Legal interest thereon at the rate of six (6%) percent per annum
from July 16, 1993 when the amount became due until the
obligation is fully paid;
b) Twenty percent (20%) of the amount due as reasonable
attorney's fees;
d) Costs of the suit.'"4
After trial on the merits, the court a quo rendered judgment in favor of
petitioner Licaros and found respondent Gatmaitan liable under the
Memorandum of Agreement and Promissory Note for P3,150,000.00 plus 12%
interest per annum from July 16, 1993 until the amount is fully paid.
Respondent was likewise ordered to pay attorney's fees of P200,000.00.5
Respondent Gatmaitan appealed the trial court's decision to the Court of
Appeals. In a decision promulgated on February 10, 2000, the appellate court
reversed the decision of the trial court and held that respondent Gatmaitan
did not at any point become obligated to pay to petitioner Licaros the amount
stated in the promissory note. In a Resolution dated April 7, 2000 the Court of
Appeals denied petitioner's Motion for Reconsideration of its February 10,
2000 Decision.
Hence this petition for review on certiorari where petitioner prays for the
reversal of the February 10, 2000 Decision of the Court of Appeals and the
reinstatement of the November 11, 1997 decision of the Regional Trial Court.
The threshold issue for the determination of this Court is whether the
Memorandum of Agreement between petitioner and respondent is one of
assignment of credit or one of conventional subrogation. This matter is
determinative of whether or not respondent became liable to petitioner
under the promissory note considering that its efficacy is dependent on the
Memorandum of Agreement, the note being merely an annex to the said
memorandum.6
An assignment of credit has been defined as the process of transferring the
right of the assignor to the assignee who would then have the right to proceed
against the debtor. The assignment may be done gratuitously or onerously, in
which case, the assignment has an effect similar to that of a sale.7
On the other hand, subrogation has been defined as the transfer of all the
rights of the creditor to a third person, who substitutes him in all his rights. It
may either be legal or convention. Legal subrogation is that which takes place
without agreement but by operation of law because of certain acts.
Conventional subrogation is that which takes place by agreement of parties.8
The general tenor of the foregoing definitions of the terms "subrogation" and
"assignment of credit" may make it seem that they are one and the same
which they are not. A noted expert in civil law notes their distinctions thus:
 "Under our Code, however, conventional subrogation is not
identical to assignment of credit. In the former, the debtor's
consent is necessary; in the latter it is not required. Subrogation
extinguishes the obligation and gives rise to a new one; assignment
refers to the same right which passes from one person to another.
The nullity of an old obligation may be cured by subrogation, such
that a new obligation will be perfectly valid; but the nullity of an
obligation is not remedied by the assignment of the creditor's right
to another."9
For our purposes, the crucial distinction deals with the necessity of the
consent of the debtor in the original transaction. In an assignment of credit,
the consent of the debtor is not necessary in order that the assignment may
fully produce legal effects.10 What the law requires in an assignment of credit
is not the consent of the debtor but merely notice to him as the assignments
takes effect only from the time he has knowledge thereof.11 A creditor may,
therefore, validly assign his credit and its accessories without the debtor's
consent.12 On the other hand, conventional subrogation requires an
agreement among the three parties concerned – the original creditor, the
debtor, and the new creditor. It is a new contractual relation based on the
mutual agreement among all the necessary parties. Thus, Article 1301 of the
Civil Code explicitly states that "(C)onventional subrogation of a third person
requires the consent of the original parties and of the third person."
The trial court, in finding for the petitioner, ruled that the Memorandum of
Agreement was in the nature of an assignment of credit. As such, the court a
quo held respondent liable for the amount stated in the said agreement even
if the parties thereto failed to obtain the consent of Anglo-Asean Bank. On the
other hand, the appellate court held that the agreement was one of
conventional subrogation which necessarily requires the agreement of all the
parties concerned. The Court of Appeals thus ruled that the Memorandum of
Agreement never came into effect due to the failure of the parties to get the
consent of Anglo-Asean Bank to the agreement and, as such, respondent
never became liable for the amount stipulated.
We agree with the finding of the Court of Appeals that the Memorandum of
Agreement dated July 29, 1988 was in the nature of a conventional
subrogation which requires the consent of the debtor, Anglo-Asean Bank, for
its validity. We note with approval the following pronouncement of the Court
of Appeals:
"Immediately discernible from above is the common feature of
contracts involving conventional subrogation, namely, the approval
of the debtor to the subrogation of a third person in place of the
creditor. That Gatmaitan and Licaros had intended to treat their
agreement as one of conventional subrogation is plainly borne by a
stipulation in their Memorandum of Agreement, to wit:
"WHEREAS, the parties herein have come to an agreement on the
nature, form and extent of their mutual prestations which hey now
record herein with the express conformity of the third
parties concerned" (emphasis supplied), which third party is
admittedly Anglo-Asean Bank.
Had the intention been merely to confer on appellant the status of
a mere "assignee" of appellee's credit, there is simply no sense for
them to have stipulated in their agreement that the same is
conditioned on the "express conformity" thereto of Anglo-Asean
Bank. That they did so only accentuates their intention to treat the
agreement as one of conventional subrogation. And it is basic in the
interpretation of contracts that the intention of the parties must be
the one pursued (Rule 130, Section 12, Rules of Court).
Given our finding that the Memorandum of Agreement (Exh. "B";
also Exh. "1"), is not one of "assignment of credit" but is actually a
"conventional subrogation", the next question that comes to mind
is whether such agreement was ever perfected at all. Needless to
state, the perfection – or non-perfection – of the subject
agreement is of utmost relevance at this point. For, if the same
Memorandum of Agreement was actually perfected, then it cannot
be denied that Gatmaitan still has a subsisting commitment to pay
Licaros on the basis of his promissory note. If not, Licaros' suit for
collection must necessarily fail.
Here, it bears stressing that the subject Memorandum of
Agreement expressly requires the consent of Anglo-Asean to the
subrogation. Upon whom the task of securing such consent
devolves, be it on Licaros or Gatmaitan, is of no significance. What
counts most is the hard reality that there has been an abject failure
to get Anglo-Asean's nod of approval over Gatmaitan's being
subrogated in the place of Licaros. Doubtless, the absence of such
conformity on the part of Anglo-Asean, which is thereby made a
party to the same Memorandum of Agreement, prevented the
agreement from becoming effective, much less from being a source
of any cause of action for the signatories thereto"13
Aside for the "whereas clause" cited by the appellate court in its decision, we
likewise note that on the signature page, right under the place reserve for the
signatures of petitioner and respondent, there is, typewritten, the words
"WITH OUR CONFORME." Under this notation, the words "ANGLO-ASEAN
BANK AND TRUST" were written by hand.14 To our mind, this provision which Pag
contemplates the signed conformity of Anglo-Asean Bank, taken together with e|
the aforementioned preambulatory clause leads to the conclusion that both
parties intended that Anglo-Asean Bank should signify its agreement and 126
conformity to the contractual arrangement between petitioner and
respondent. The fact that Anglo-Asean Bank did not give such consent
rendered the agreement inoperative considering that, as previously discussed,
the consent of the debtor is needed in the subrogation of a third person to the
rights of a creditor.
In this petition, petitioner assails the ruling of the Court of Appeals that what
was entered into by the parties was a conventional subrogation of petitioner's
rights as creditor of the Anglo-Asean Bank which necessary requires the
consent of the latter. In support, petitioner alleges that: (1) the Memorandum
of Agreement did not create a new obligation and, as such, the same cannot
be a conventional subrogation; (2) the consent of Anglo-Asean Bank was not
necessary for the validity of the Memorandum of Agreement; (3) assuming
that such consent was necessary, respondent failed to secure the same as was
incumbent upon him; and (4) respondent himself admitted that the
transaction was one of assignment of credit.
Petitioner argues that the parties to the Memorandum of Agreement could
not have intended the same to be a conventional subrogation considering that
no new obligation was created. According to petitioner, the obligation of
Anglo-Asean Bank to pay under Contract No. 00193 was not extinguished and
in fact, it was the basic intention of the parties to the Memorandum of
Agreement to enforce the same obligation of Anglo-Asean Bank under its
contract with petitioner. Considering that the old obligation of Anglo-Asean
Bank under Contract No. 00193 was never extinguished under the
Memorandum of Agreement, it is contended that the same could not be
considered as a conventional subrogation.
We are not persuaded.
It is true that conventional subrogation has the effect of extinguishing the old
obligation and giving rise to a new one. However, the extinguishment of the
old obligation is the effect of the establishment of a contract for conventional
subrogation. It is not a requisite without which a contract for conventional
subrogation may not be created. As such, it is not determinative of whether or
not a contract of conventional subrogation was constituted.
Moreover, it is of no moment that the subject of the Memorandum of
Agreement was the collection of the obligation of Anglo-Asean Bank to
petitioner Licaros under Contract No. 00193. Precisely, if conventional
subrogation had taken place with the consent of Anglo-Asian Bank to effect a
change in the person of its creditor, there is necessarily created a new
obligation whereby Anglo-Asean Bank must now give payment to its new
creditor, herein respondent.
Petitioner next argues that the consent or conformity of Anglo-Asean Bank is
not necessary to the validity of the Memorandum of Agreement as the
evidence on record allegedly shows that it was never the intention of the
parties thereto to treat the same as one of conventional subrogation. He
claims that the preambulatory clause requiring the express conformity of third
parties, which admittedly was Anglo-Asean Bank, is a mere surplusage which is
not necessary to the validity of the agreement.
As previously discussed, the intention of the parties to treat the Memorandum
of Agreement as embodying a conventional subrogation is shown not only by
the "whereas clause" but also by the signature space captioned "WITH OUR
CONFORME" reserved for the signature of a representative of Anglo-Asean
Bank. These provisions in the aforementioned Memorandum of Agreement
may not simply be disregarded or dismissed as superfluous.
It is a basic rule in the interpretation of contracts that "(t)he various
stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken
jointly."15 Moreover, under our Rules of Court, it is mandated that "(I)n the
construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give effect
to all."16 Further, jurisprudence has laid down the rule that contracts should be
so construed as to harmonize and give effect to the different provisions
thereof.17
In the case at bench, the Memorandum of Agreement embodies certain
provisions that are consistent with either a conventional subrogation or
assignment of credit. It has not been shown that any clause or provision in the
Memorandum of Agreement is inconsistent or incompatible with a
conventional subrogation. On the other hand, the two cited provisions
requiring consent of the debtor to the memorandum is inconsistent with a
contract of assignment of credit. Thus, if we were to interpret the same as one
of assignment of credit, then the aforementioned stipulations regarding the
consent of Anglo-Asean Bank would be rendered inutile and useless
considering that, as previously discussed, the consent of the debtor is not
necessary in an assignment of credit.
Petitioner next argues that assuming that the conformity of Anglo-Asean was
necessary to the validity of the Memorandum of Agreement, respondently
only had himself to blame for the failure to secure such conformity as was,
allegedly, incumbent upon him under the memorandum.
As to this argument regarding the party responsible for securing the
conformity of Anglo-Asean Bank, we fail to see how this question would have
any relevance on the outcome of this case. Having ruled that the consent of
Anglo-Asean was necessary for the validity of the Memorandum of
Agreement, the determinative fact is that such consent was not secured by
either petitioner or respondent which consequently resulted in the invalidity
of the said memorandum.
With respect to the argument of petitioner that respondent himself allegedly
admitted in open court that an assignment of credit was intended, it is enough
to say that respondent apparently used the word "assignment" in his
testimony in the general sense. Respondent is not a lawyer and as such, he is
no so well versed in law that he would be able to distinguish between the
concepts of conventional subrogation and of assignment of credit. Moreover,
even assuming that there was an admission on his part, such admission is not
conclusive on this court as the nature and interpretation of the Memorandum
of Agreement is a question of law which may not be the subject of stipulations
and admission.18
Considering the foregoing, it cannot then be said that the consent of the
debtor Anglo-Asean Bank is not necessary to the validity of the Memorandum
of Agreement. As above stated, the Memorandum of Agreement embodies a
contract for conventional subrogation and in such a case, the consent of the
original parties and the third person is required.19 The absence of such
conformity by Anglo-Asean Bank prevented the Memorandum of Agreement
from becoming valid and effective. Accordingly, the Court of Appeals did not
err when it ruled that the Memorandum of Agreement was never perfected.
Having arrived at the above conclusion, the Court finds no need to discuss the
other issues raised by petitioner.
WHEREFORE, the instant petition is DENIED and the Decision of the Court of
Appeals dated February 10, 2000 and its Resolution dated April 7, 2000 are
hereby AFFIRMED.1âwphi1.nêt
[G.R. No. 154127. December 8, 2003.]
ROMEO C. GARCIA, Petitioner, v. DIONISIO V. LLAMAS, Respondent.
DECISION
PANGANIBAN, J.:
Novation cannot be presumed. It must be clearly shown either by the express
assent of the parties or by the complete incompatibility between the old and
the new agreements. Petitioner herein fails to show either requirement
convincingly; hence, the summary judgment holding him liable as a joint and
solidary debtor stands.chanrob1es virtua1 1aw 1ibrary
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court,
seeking to nullify the November 26, 2001 Decision 2 and the June 26, 2002
Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 60521. The
appellate court disposed as follows:jgc:chanrobles.com.ph
"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from,
insofar as it pertains to [Petitioner] Romeo Garcia, must be, as it hereby is,
AFFIRMED, subject to the modification that the award for attorney’s fees and
cost of suit is DELETED. The portion of the judgment that pertains to . . .
Eduardo de Jesus is SET ASIDE and VACATED. Accordingly, the case against . . .
Eduardo de Jesus is REMANDED to the court of origin for purposes of receiving
ex parte [Respondent] Dionisio Llamas’ evidence against . . . Eduardo de
Jesus." 4
The challenged Resolution, on the other hand, denied petitioner’s Motion for
Reconsideration.
Pag
The Antecedents
e|
127
The antecedents of the case are narrated by the CA as
follows:jgc:chanrobles.com.ph
"This case started out as a complaint for sum of money and damages by . . .
[Respondent] Dionisio Llamas against . . . [Petitioner] Romeo Garcia and
Eduardo de Jesus. Docketed as Civil Case No. Q97-32-873, the complaint
alleged that on 23 December 1996[,] [petitioner and de Jesus] borrowed
P400,000.00 from [respondent]; that, on the same day, [they] executed a
promissory note wherein they bound themselves jointly and severally to pay
the loan on or before 23 January 1997 with a 5% interest per month; that the
loan has long been overdue and, despite repeated demands, [petitioner and
de Jesus] have failed and refused to pay it; and that, by reason of the[ir]
unjustified refusal, [respondent] was compelled to engage the services of
counsel to whom he agreed to pay 25% of the sum to be recovered from
[petitioner and de Jesus], plus P2,000.00 for every appearance in court.
Annexed to the complaint were the promissory note above-mentioned and a
demand letter, dated 02 May 1997, by [respondent] addressed to [petitioner
and de Jesus].
"Resisting the complaint, [Petitioner Garcia,] in his [Answer,] averred that he
assumed no liability under the promissory note because he signed it merely as
an accommodation party for . . . de Jesus; and, alternatively, that he is relieved
from any liability arising from the note inasmuch as the loan had been paid by
. . . de Jesus by means of a check dated 17 April 1997; and that, in any event,
the issuance of the check and [respondent’s] acceptance thereof novated or
superseded the note.
" [Respondent] tendered a reply to [Petitioner] Garcia’s answer, thereunder
asserting that the loan remained unpaid for the reason that the check issued
by . . . de Jesus bounced, and that [Petitioner] Garcia’s answer was not even
accompanied by a certificate of non-forum shopping. Annexed to the reply
were the face of the check and the reverse side thereof.
"For his part, . . . de Jesus asserted in his [A]nswer with [C]ounterclaim that
out of the supposed P400,000.00 loan, he received only P360,000.00, the
P40,000.00 having been advance interest thereon for two months, that is, for
January and February 1997; that[,] in fact[,] he paid the sum of P120,000.00
by way of interests; that this was made when [respondent’s] daughter, one
Nits Llamas-Quijencio, received from the Central Police District Command at
Bicutan, Taguig, Metro Manila (where . . . de Jesus worked), the sum of
P40,000.00, representing the peso equivalent of his accumulated leave
credits, another P40,000.00 as advance interest, and still another P40,000.00
as interest for the months of March and April 1997; that he had difficulty in
paying the loan and had asked [respondent] for an extension of time; that
[respondent] acted in bad faith in instituting the case, [respondent] having
agreed to accept the benefits he (de Jesus) would receive for his retirement,
but [respondent] nonetheless filed the instant case while his retirement was
being processed; and that, in defense of his rights, he agreed to pay his
counsel P20,000.00 [as] attorney’s fees, plus P1,000.00 for every court
appearance.chanrob1es virtua1 1aw 1ibrary
"During the pre-trial conference, . . . de Jesus and his lawyer did not appear,
nor did they file any pre-trial brief. Neither did [Petitioner] Garcia file a pre-
trial brief, and his counsel even manifested that he would no [longer] present
evidence. Given this development, the trial court gave [respondent]
permission to present his evidence ex parte against . . . de Jesus; and, as
regards [Petitioner] Garcia, the trial court directed [respondent] to file a
motion for judgment on the pleadings, and for [Petitioner] Garcia to file his
comment or opposition thereto.
"Instead, [respondent] filed a [M]otion to declare [Petitioner] Garcia in default
and to allow him to present his evidence ex parte. Meanwhile, [Petitioner]
Garcia filed a [M]anifestation submitting his defense to a judgment on the
pleadings. Subsequently, [respondent] filed a [M]anifestation/[M]otion to
submit the case for judgment on the pleadings, withdrawing in the process his
previous motion. Thereunder, he asserted that [petitioner’s and de Jesus’]
solidary liability under the promissory note cannot be any clearer, and that the
check issued by de Jesus did not discharge the loan since the check bounced."
5
On July 7, 1998, the Regional Trial Court (RTC) of Quezon City (Branch 222)
disposed of the case as follows:jgc:chanrobles.com.ph
"WHEREFORE, premises considered, judgment on the pleadings is hereby
rendered in favor of [respondent] and against [petitioner and De Jesus], who
are hereby ordered to pay, jointly and severally, the [respondent] the
following sums, to wit:chanrob1es virtual 1aw library
‘1) P400,000.00 representing the principal amount plus 5% interest thereon
per month from January 23, 1997 until the same shall have been fully paid,
less the amount of P120,000.00 representing interests already paid by . . . de
Jesus;
‘2) P100,000.00 as attorney’s fees plus appearance fee of P2,000.00 for each
day of [c]ourt appearance, and;
‘3) Cost of this suit.’" 6
Ruling of the Court of Appeals
The CA ruled that the trial court had erred when it rendered a judgment on
the pleadings against De Jesus. According to the appellate court, his Answer
raised genuinely contentious issues. Moreover, he was still required to
present his evidence ex parte. Thus, respondent was not ipso facto entitled to
the RTC judgment, even though De Jesus had been declared in default. The
case against the latter was therefore remanded by the CA to the trial court for
the ex parte reception of the former’s evidence.
As to petitioner, the CA treated his case as a summary judgment, because his
Answer had failed to raise even a single genuine issue regarding any material
fact.
The appellate court ruled that no novation — express or implied — had taken
place when respondent accepted the check from De Jesus. According to the
CA, the check was issued precisely to pay for the loan that was covered by the
promissory note jointly and severally undertaken by petitioner and De Jesus.
Respondent’s acceptance of the check did not serve to make De Jesus the sole
debtor because, first, the obligation incurred by him and petitioner was joint
and several; and, second, the check — which had been intended to extinguish
the obligation — bounced upon its presentment.chanrob1es virtua1 1aw
1ibrary
Hence, this Petition. 7
Issues
Petitioner submits the following issues for our consideration:chanrob1es
virtual 1aw library
"I
Whether or not the Honorable Court of Appeals gravely erred in not holding
that novation applies in the instant case as . . . Eduardo de Jesus had expressly
assumed sole and exclusive liability for the loan obligation he obtained from . .
. Respondent Dionisio Llamas, as clearly evidenced by:chanrob1es virtual 1aw
library
a) Issuance by . . . de Jesus of a check in payment of the full amount of the
loan of P400,000.00 in favor of Respondent Llamas, although the check
subsequently bounced[;]
b) Acceptance of the check by the . . . Respondent. . . which resulted in [the]
substitution by . . . de Jesus or [the superseding of] the promissory note;
c) . . . de Jesus having paid interests on the loan in the total amount of
P120,000.00;
d) The fact that Respondent Llamas agreed to the proposal of . . . de Jesus that
due to financial difficulties, he be given an extension of time to pay his loan
obligation and that his retirement benefits from the Philippine National Police
will answer for said obligation.
"II
Whether or not the Honorable Court of Appeals seriously erred in not holding
that the defense of petitioner that he was merely an accommodation party,
despite the fact that the promissory note provided for a joint and solidary
liability, should have been given weight and credence considering that
subsequent events showed that the principal obligor was in truth and in fact . .
. de Jesus, as evidenced by the foregoing circumstances showing his
assumption of sole liability over the loan obligation.
‘’III
Whether or not judgment on the pleadings or summary judgment was
properly availed of by Respondent Llamas, despite the fact that there are
genuine issues of fact, which the Honorable Court of Appeals itself admitted in
its Decision, which call for the presentation of evidence in a full-blown trial." 8
Simply put, the issues are the following: 1) whether there was novation of the
obligation; 2) whether the defense that petitioner was only an Pag
accommodation party had any basis; and 3) whether the judgment against
him — be it a judgment on the pleadings or a summary judgment — was e|
proper. 128
The Court’s Ruling
The Petition has no merit
First Issue:chanrob1es virtual 1aw library
Novation
Petitioner seeks to extricate himself from his obligation as joint and solidary
debtor by insisting that novation took place, either through the substitution of
De Jesus as sole debtor or the replacement of the promissory note by the
check. Alternatively, the former argues that the original obligation was
extinguished when the latter, who was his co-obligor, "paid" the loan with the
check.chanrob1es virtua1 1aw 1ibrary
The fallacy of the second (alternative) argument is all too apparent. The check
could not have extinguished the obligation, because it bounced upon
presentment. By law, 9 the delivery of a check produces the effect of payment
only when it is encashed.
We now come to the main issue of whether novation took place.
Novation is a mode of extinguishing an obligation by changing its objects or
principal obligations, by substituting a new debtor in place of the old one, or
by subrogating a third person to the rights of the creditor. 10 Article 1293 of
the Civil Code defines novation as follows:jgc:chanrobles.com.ph
"Art. 1293. Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the
will of the latter, but not without the consent of the creditor. Payment by the
new debtor gives him rights mentioned in articles 1236 and 1237."cralaw
virtua1aw library
In general, there are two modes of substituting the person of the debtor: (1)
expromision and (2) delegacion. In expromision, the initiative for the change
does not come from — and may even be made without the knowledge of —
the debtor, since it consists of a third person’s assumption of the obligation.
As such, it logically requires the consent of the third person and the creditor.
In delegacion, the debtor offers, and the creditor accepts, a third person who
consents to the substitution and assumes the obligation; thus, the consent of
these three persons are necessary. 11 Both modes of substitution by the
debtor require the consent of the creditor. 12
Novation may also be extinctive or modificatory. It is extinctive when an old
obligation is terminated by the creation of a new one that takes the place of
the former. It is merely modificatory when the old obligation subsists to the
extent that it remains compatible with the amendatory agreement. 13
Whether extinctive or modificatory, novation is made either by changing the
object or the principal conditions, referred to as objective or real novation; or
by substituting the person of the debtor or subrogating a third person to the
rights of the creditor, an act known as subjective or personal novation. 14 For
novation to take place, the following requisites must concur:chanrob1es
virtual 1aw library
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract. 15
Novation may also be express or implied. It is express when the new obligation
declares in unequivocal terms that the old obligation is extinguished. It is
implied when the new obligation is incompatible with the old one on every
point. 16 The test of incompatibility is whether the two obligations can stand
together, each one with its own independent existence. 17
Applying the foregoing to the instant case, we hold that no novation took
place.
The parties did not unequivocally declare that the old obligation had been
extinguished by the issuance and the acceptance of the check, or that the
check would take the place of the note. There is no incompatibility between
the promissory note and the check. As the CA correctly observed, the check
had been issued precisely to answer for the obligation. On the one hand, the
note evidences the loan obligation; and on the other, the check answers for it.
Verily, the two can stand together.chanrob1es virtua1 1aw 1ibrary
Neither could the payment of interests — which, in petitioner’s view, also
constitutes novation 18 — change the terms and conditions of the obligation.
Such payment was already provided for in the promissory note and, like the
check, was totally in accord with the terms thereof.
Also unmeritorious is petitioner’s argument that the obligation was novated
by the substitution of debtors. In order to change the person of the debtor,
the old one must be expressly released from the obligation, and the third
person or new debtor must assume the former’s place in the relation. 19
Well-settled is the rule that novation is never presumed. 20 Consequently,
that which arises from a purported change in the person of the debtor must
be clear and express. 21 It is thus incumbent on petitioner to show clearly and
unequivocally that novation has indeed taken place.
In the present case, petitioner has not shown that he was expressly released
from the obligation, that a third person was substituted in his place, or that
the joint and solidary obligation was cancelled and substituted by the solitary
undertaking of De Jesus. The CA aptly held:jgc:chanrobles.com.ph
". . . Plaintiff’s acceptance of the bum check did not result in substitution by de
Jesus either, the nature of the obligation being solidary due to the fact that
the promissory note expressly declared that the liability of appellants
thereunder is joint and [solidary.] Reason: under the law, a creditor may
demand payment or performance from one of the solidary debtors or some or
all of them simultaneously, and payment made by one of them extinguishes
the obligation. It therefore follows that in case the creditor fails to collect from
one of the solidary debtors, he may still proceed against the other or others . .
." 22
Moreover, it must be noted that for novation to be valid and legal, the law
requires that the creditor expressly consent to the substitution of a new
debtor. 23 Since novation implies a waiver of the right the creditor had before
the novation, such waiver must be express. 24 It cannot be supposed, without
clear proof, that the present respondent has done away with his right to exact
fulfillment from either of the solidary debtors.25cralaw:red
More important, De Jesus was not a third person to the obligation. From the
beginning, he was a joint and solidary obligor of the P400,000 loan; thus, he
can be released from it only upon its extinguishment. Respondent’s
acceptance of his check did not change the person of the debtor, because a
joint and solidary obligor is required to pay the entirety of the obligation.
It must be noted that in a solidary obligation, the creditor is entitled to
demand the satisfaction of the whole obligation from any or all of the debtors.
26 It is up to the former to determine against whom to enforce collection. 27
Having made himself jointly and severally liable with De Jesus, petitioner is
therefore liable 28 for the entire obligation. 29
Second Issue:chanrob1es virtual 1aw library
Accommodation Party
Petitioner avers that he signed the promissory note merely as an
accommodation party; and that, as such, he was released as obligor when
respondent agreed to extend the term of the obligation.
This reasoning is misplaced, because the note herein is not a negotiable
instrument. The note reads:jgc:chanrobles.com.ph
"PROMISSORY NOTE
"P400,000.00
"RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR HUNDRED
THOUSAND PESOS, Philippine Currency payable on or before January 23, 1997
at No. 144 K-10 St. Kamias, Quezon City, with interest at the rate of 5% per
month or fraction thereof.chanrob1es virtua1 1aw 1ibrary
"It is understood that our liability under this loan is jointly and severally [sic].
"Done at Quezon City, Metro Manila this 23rd day of December, 1996." 30
By its terms, the note was made payable to a specific person rather than to
bearer or to order 31 — a requisite for negotiability under Act 2031, the
Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of
the NIL’s provisions on the liabilities and defenses of an accommodation party.
Besides, a non-negotiable note is merely a simple contract in writing and is
evidence of such intangible rights as may have been created by the assent of
the parties. 32 The promissory note is thus covered by the general provisions
of the Civil Code, not by the NIL.
Even granting arguendo that the NIL was applicable, still, petitioner would be
liable for the promissory note. Under Article 29 of Act 2031, an
accommodation party is liable for the instrument to a holder for value even if, Pag
at the time of its taking, the latter knew the former to be only an
accommodation party. The relation between an accommodation party and the e|
party accommodated is, in effect, one of principal and surety — the 129
accommodation party being the surety. 33 It is a settled rule that a surety is
bound equally and absolutely with the principal and is deemed an original
promisor and debtor from the beginning. The liability is immediate and direct.
34
Third Issue:chanrob1es virtual 1aw library
Propriety of Summary Judgment or Judgment on the Pleadings
The next issue illustrates the usual confusion between a judgment on the
pleadings and a summary judgment. Under Section 3 of Rule 35 of the Rules of
Court, a summary judgment may be rendered after a summary hearing if the
pleadings, supporting affidavits, depositions and admissions on file show that
(1) except as to the amount of damages, there is no genuine issue regarding
any material fact; and (2) the moving party is entitled to a judgment as a
matter of law.
A summary judgment is a procedural device designed for the prompt
disposition of actions in which the pleadings raise only a legal, not a genuine,
issue regarding any material fact. 35 Consequently, facts are asserted in the
complaint regarding which there is yet no admission, disavowal or
qualification; or specific denials or affirmative defenses are set forth in the
answer, but the issues are fictitious as shown by the pleadings, depositions or
admissions. 36 A summary judgment may be applied for by either a claimant
or a defending party. 37
On the other hand, under Section 1 of Rule 34 of the Rules of Court, a
judgment on the pleadings is proper when an answer fails to render an issue
or otherwise admits the material allegations of the adverse party’s pleading.
The essential question is whether there are issues generated by the pleadings.
38 A judgment on the pleadings may be sought only by a claimant, who is the
party seeking to recover upon a claim, counterclaim or cross-claim; or to
obtain a declaratory relief. 39
Apropos thereto, it must be stressed that the trial court’s judgment against
petitioner was correctly treated by the appellate court as a summary
judgment, rather than as a judgment on the pleadings. His Answer 40
apparently raised several issues — that he signed the promissory note
allegedly as a mere accommodation party, and that the obligation was
extinguished by either payment or novation. However, these are not factual
issues requiring trial. We quote with approval the CA’s
observations:jgc:chanrobles.com.ph
"Although Garcia’s [A]nswer tendered some issues, by way of affirmative
defenses, the documents submitted by [respondent] nevertheless clearly
showed that the issues so tendered were not valid issues. Firstly, Garcia’s
claim that he was merely an accommodation party is belied by the promissory
note that he signed. Nothing in the note indicates that he was only an
accommodation party as he claimed to be. Quite the contrary, the promissory
note bears the statement: ‘It is understood that our liability under this loan is
jointly and severally [sic].’ Secondly, his claim that his co-defendant de Jesus
already paid the loan by means of a check collapses in view of the dishonor
thereof as shown at the dorsal side of said check." 41
From the records, it also appears that petitioner himself moved to submit the
case for judgment on the basis of the pleadings and documents. In a written
Manifestation, 42 he stated that "judgment on the pleadings may now be
rendered without further evidence, considering the allegations and
admissions of the parties." 43
In view of the foregoing, the CA correctly considered as a summary judgment
that which the trial court had issued against petitioner.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.
G.R. No. 160451 February 9, 2007
EDUARDO G. RICARZE, Petitioner,
vs.
COURT OF APPEALS, PEOPLE OF THE PHILIPPINES, CALTEX PHILIPPINES, INC.,
PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK (PCIBANK), Respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is a petition for review on certiorari of the Decision1 of the
Court of Appeals in CA-G.R. SP No. 68492, and its Resolution2 which denied
the Motion for Reconsideration and the Supplemental Motion for
Reconsideration thereof.
The Antecedents
Petitioner Eduardo G. Ricarze was employed as a collector-messenger by City
Service Corporation, a domestic corporation engaged in messengerial services.
He was assigned to the main office of Caltex Philippines, Inc. (Caltex) in Makati
City. His primary task was to collect checks payable to Caltex and deliver them
to the cashier. He also delivered invoices to Caltex’s customers.3
On November 6, 1997, Caltex, through its Banking and Insurance Department
Manager Ramon Romano, filed a criminal complaint against petitioner before
the Office of the City Prosecutor of Makati City for estafa through falsification
of commercial documents. Romano alleged that, on October 16, 1997, while
his department was conducting a daily electronic report from Philippine
Commercial & Industrial Bank (PCIB) Dela Rosa, Makati Branch, one of its
depositary banks, it was discovered that unknown to the department, a
company check, Check No. 74001 dated October 13, 1997 in the amount of
₱5,790,570.25 payable to Dante R. Gutierrez, had been cleared through PCIB
on October 15, 1997. An investigation also revealed that two other checks
(Check Nos. 73999 and 74000) were also missing and that in Check No. 74001,
his signature and that of another signatory, Victor S. Goquinco, were forgeries.
Another check, Check No. 72922 dated September 15, 1997 in the amount of
₱1,790,757.25 likewise payable to Dante R. Gutierrez, was also cleared
through the same bank on September 24, 1997; this check was likewise not
issued by Caltex, and the signatures appearing thereon had also been forged.
Upon verification, it was uncovered that Check Nos. 74001 and 72922 were
deposited at the Banco de Oro’s SM Makati Branch under Savings Account No.
S/A 2004-0047245-7, in the name of a regular customer of Caltex, Dante R.
Gutierrez.
Gutierrez, however, disowned the savings account as well as his signatures on
the dorsal portions thereof. He also denied having withdrawn any amount
from said savings account. Further investigation revealed that said savings
account had actually been opened by petitioner; the forged checks were
deposited and endorsed by him under Gutierrez’s name. A bank teller from
the Banco de Oro, Winnie P. Donable Dela Cruz, positively identified petitioner
as the person who opened the savings account using Gutierrez’s name.4
In the meantime, the PCIB credited the amount of ₱581,229.00 to Caltex on
March 29, 1998. However, the City Prosecutor of Makati City was not
informed of this development. After the requisite preliminary investigation,
the City Prosecutor filed two (2) Informations for estafa through falsification of
commercial documents on June 29, 1998 against petitioner before the
Regional Trial Court (RTC) of Makati City, Branch 63. The Informations are
worded as follows:
Criminal Case No. 98-1611
That on or about the 24th day of September 1997 in the City of Makati, Metro
Manila, Philippines, a place within the jurisdiction of this Honorable Court, the
above-named accused, a private individual, with intent to defraud and intent
to gain, without the knowledge and consent of Caltex Philippines, Inc. through
its duly authorized officers/representatives, and by means of falsification of
commercial document, did then and there willfully, unlawfully and feloniously
defraud Caltex Phils., Inc., in the following manner, to wit: said accused,
having obtained possession of PCIBank check no. 72922 dated September 15,
1997 payable to Dante R. Gutierrez, in the amount of Php1,790,757.50 with
intent to defraud or cause damage to complainant Caltex Phils., Inc., willfully,
unlawfully and feloniously affixed or caused to be affixed signatures
purporting to be those of Ramon Romano and Victor Goquingco, Caltex
authorized officers/signatories, and of payee Dante R. Gutierrez, causing it to
appear that Ramon Romano and Victor Goquingco have participated in the
issuance of PCIBank check no. 72922 and that Dante R. Gutierrez had
endorsed it, when in truth and in fact, as said accused well knew, such was not
the case, since said check previously stolen from Payables Section of CALTEX,
was neither duly signed by Ramon Romano and Victor Goquingco nor
endorsed by Dante R. Gutierrez, after the check, a commercial document, was
falsified in the manner above set forth, the said accused purporting himself to
be the payee, Dante R. Gutierrez, deposited the check with Banco De Oro
under Account No. 2004-0047245-7, thereby appropriating the proceeds of
the falsified but cleared check, to the damage and prejudice of complainant
herein represented by Ramon Romano, in the amount of Php1,790,757.50.
Criminal Case No. 98-1612
That on or about the 15th day of October 1997 in the City of Makati, Metro
Manila, Philippines, a place within the jurisdiction of this Honorable Court, the
above-named accused, a private individual, with intent to defraud and intent
Pag
to gain, without the knowledge and consent of Caltex Philippines, Inc. through e|
its duly authorized officers/representatives, and by means of falsification of 130
commercial document, did then and there willfully, unlawfully and feloniously
defraud Caltex Phils., Inc., in the following manner, to wit: said accused,
having obtained possession of PCIBank check no. 74001 dated October 13,
1997 payable to Dante R. Gutierrez, in the amount of Php5,790,570.25 with
intent to defraud or cause damage to complainant Caltex Phils., Inc., willfully,
unlawfully and feloniously affixed or caused to be affixed signatures
purporting to be those of Ramon Romano and Victor Goquingco, Caltex
authorized officers/signatories, and of payee Dante R. Gutierrez, causing it to
appear that Ramon Romano and Victor Goquingco have participated in the
issuance of PCIBank check no. 74001 and that Dante R. Gutierrez had
endorsed it, when in truth and in fact, as said accused well knew, such was not
the case, since said check previously stolen from Payables Section of CALTEX,
was neither duly signed by Ramon Romano and Victor Goquingco nor
endorsed by Dante R. Gutierrez, after the check, a commercial document, was
falsified in the manner above set forth, the said accused purporting himself to
be the payee, Dante R. Gutierrez, deposited the check with Banco De Oro
under Account No. 2004-0047245-7, thereby appropriating the proceeds of
the falsified but cleared check, to the damage and prejudice of complainant
herein represented by Ramon Romano, in the amount of Php5,790,570.25.5
Petitioner was arraigned on August 18, 1998, and pleaded not guilty to both
charges.6 Pre-trial ensued and the cases were jointly tried. The prosecution
presented its witnesses, after which the Siguion Reyna, Montecillio and
Ongsiako Law Offices (SRMO) as private prosecutor filed a Formal Offer of
Evidence.7 Petitioner opposed the pleading, contending that the private
complainant was represented by the ACCRA Law Offices and the Balgos and
Perez Law Office during trial, and it was only after the prosecution had rested
its case that SRMO entered its appearance as private prosecutor representing
the PCIB. Since the ACCRA and Balgos and Perez Law Offices had not
withdrawn their appearance, SRMO had no personality to appear as private
prosecutor. Under the Informations, the private complainant is Caltex and not
PCIB; hence, the Formal Offer of Evidence filed by SRMO should be stricken
from the records.
Petitioner further averred that unless the Informations were amended to
change the private complainant to PCIB, his right as accused would be
prejudiced. He pointed out, however, that the Informations can no longer be
amended because he had already been arraigned under the original
Informations.8 He insisted that the amendments of the Informations to
substitute PCIB as the offended party for Caltex would place him in double
jeopardy.
PCIB, through SRMO, opposed the motion. It contended that the PCIB had re-
credited the amount to Caltex to the extent of the indemnity; hence, the PCIB
had been subrogated to the rights and interests of Caltex as private
complainant. Consequently, the PCIB is entitled to receive any civil indemnity
which the trial court would adjudge against the accused. Moreover, the re-
credited amount was brought out on cross-examination by Ramon Romano
who testified for the Prosecution. PCIB pointed out that petitioner had marked
in evidence the letter of the ACCRA Law Office to PCIBank dated October 10,
1997 and the credit memo sent by PCIB to Caltex.9
Petitioner filed a Motion to Expunge the Opposition of SRMO.10 In his
Rejoinder, he averred that the substitution of PCIB as private complainant
cannot be made by mere oral motion; the Information must be amended to
allege that the private complainant was PCIB and not Caltex after the
preliminary investigation of the appropriate complaint of PCIB before the
Makati City Prosecutor.
In response, the PCIB, through SRMO, averred that as provided in Section 2,
Rule 110 of the Revised Rules of Criminal Procedure, the erroneous
designation of the name of the offended party is a mere formal defect which
can be cured by inserting the name of the offended party in the Information.
To support its claim, PCIB cited the ruling of this Court in Sayson v. People.11
On July 18, 2001, the RTC issued an Order granting the motion of the private
prosecutor for the substitution of PCIB as private complainant for Caltex. It
however denied petitioner’s motion to have the formal offer of evidence of
SRMO expunged from the record.12 Petitioner filed a motion for
reconsideration which the RTC denied on November 14, 2001.13
Petitioner filed a Petition for Certiorari under Rule 65 of the Rules of Court
with Urgent Application for Temporary Restraining Order with the Court of
Appeals (CA,) praying for the annulment of the RTC’s Orders of July 18, 2001
and November 14, 2001. The petitioner averred that:
I RECONSIDERATION DID NOT VIOLATE THE OMNIBUS MOTION RULE
RESPONDENT JUDGE GRIEVEOUSLY (SIC) ERRED IN RENDERING ITS ORDER
ISSUED WITH GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OF OR IN
EXCESS OF JURISDICTION BY ALLOWING THE SUBSTITUTION OF PRIVATE
COMPLAINANT, AFTER THE ACUSED WAS ALREADY ARRAIGNED AND
PROSECUTION HAS ALREADY TERMINATED PRESENTING ITS EVIDENCE
THEREBY PATENTLY VIOLATING THE STRICT CONDITION IMPOSED UPON BY
RULE 110 SEC. 14 RULES ON CRIMINAL ROCEDURE.
II
AND AS A COROLLARY GROUND RESPONDENT JUDGE COMMITTED GRAVE
ABUSE OF DISCRETION IN EXCESS OF JURISDICTION IN RENDERING AN ORDER
RECOGNIZING THE APPEARANCE OF A NEW PROSECUTOR WITHOUT WRITTEN
OR EVEN ORAL WITHDRAWAL OF THE COUNSEL ON RECORD.14
According to petitioner, damage or injury to the offended party is an essential
element of estafa. The amendment of the Informations substituting the
PCIBank for Caltex as the offended party would prejudice his rights since he is
deprived of a defense available before the amendment, and which would be
unavailable if the Informations are amended. Petitioner further insisted that
the ruling in the Sayson case did not apply to this case.
On November 5, 2002, the appellate court rendered judgment dismissing the
petition. The fallo reads:
WHEREFORE, premises considered, the petition to annul the orders dated July
18, 2001 and November 14, 2001 of the Regional Trial Court, Branch 63,
Makati City in Criminal Case Nos. 98-1611 and 98-1612 is hereby DENIED and
consequently DISMISSED.
SO ORDERED.15
The appellate court declared that when PCIB restored the amount of the
checks to Caltex, it was subrogated to the latter’s right against petitioner. It
further declared that in offenses against property, the designation of the
name of the offended party is not absolutely indispensable for as long as the
criminal act charged in the complaint or information can be properly
identified. The appellate court cited the rulings of this Court in People v.
Ho16 and People v. Reyes.17
On October 17, 2003, the CA issued a Resolution denying petitioner’s Motion
for Reconsideration and Supplemental Motion for Reconsideration.18
Hence, petitioner filed the instant petition which is anchored on the following
grounds:
I. THE PEOPLE V. YU CHAI HO 53 PHILIPPINES 874 IS INAPPLICABLE
TO THE CASE AT BAR CONSIDERING THE PACTS ARE SUBSTANTIALLY
DIFFERENT.
II. LIKEWISE, THE CASE OF PEOPLE VS. REYES CA, 50 (2) OG 665,
NOVEMBER 11, 1953 HAS NO MATERIAL BEARING TO THE PRESENT
CASE.
III. THE SUBSTITUTION OF PCIBANK WILL SUBSTANTIALLY
PREJUDICE THE RIGHTS OF THE PETITIONER HENCE, IT IS
PROHIBITED BY SEC. 14 OF RULE 110.
IV. THERE IS NO VALID SUBROGATION BETWEEN CALTEX AND
PCIBANK. ASSUMING THERE IS, THE CIVIL CASE SHOULD BE
DISMISSED TO PROSECUTE.
V. THE TWIN INFORMATIONS UPON WHICH PETITIONER WAS
INDICTED, ARRAIGNED, PRE-TRIAL HELD AND PUBLIC PROSECUTOR
TERMINATED THE PRESENTATION OF ITS EVIDENCE IN CHIEF ARE
DEFECTIVE AND VOID, HENCE THE DISMISSAL IS IN ORDER.
VI. PETITIONER TIMELY OBJECTED TO THE APPEARANCE OF PRIVATE
PROSECUTOR FOR PCIBANK.
VII. THE FINDINGS OF MATERIAL FACTS ARE NOT SUPORTED BY THE
RECORD NOR EVIDENCE AND BASED ON MISAPPRECIATION OF
FACTS.
VIII. PETITIONER’S SUPPLEMENTAL MOTION FOR
UNDER SEC. 8, RULE 15 OF THE 1997 RULES OF CIVIL PROCEDURE.19
Pag
e|
The Court’s Ruling 131
Petitioner argues that the substitution of Caltex by PCIB as private
complainant at this late stage of the trial is prejudicial to his defense. He
argues that the substitution is tantamount to a substantial amendment of the
Informations which is prohibited under Section 14, Rule 110 of the Rules of
Court.
Under Section 5, Rule 11020 of the Revised Rules of Rules, all criminal actions
covered by a complaint or information shall be prosecuted under the direct
supervision and control of the public prosecutor. Thus, even if the felonies or
delictual acts of the accused result in damage or injury to another, the civil
action for the recovery of civil liability based on the said criminal acts is
impliedly instituted, and the offended party has not waived the civil action,
reserved the right to institute it separately or instituted the civil action prior to
the criminal action, the prosecution of the action (including the civil) remains
under the control and supervision of the public prosecutor. The prosecution of
offenses is a public function. Under Section 16, Rule 110 of the Rules of
Criminal Procedure, the offended party may intervene in the criminal action
personally or by counsel, who will act as private prosecutor for the protection
of his interests and in the interest of the speedy and inexpensive
administration of justice. A separate action for the purpose would only prove
to be costly, burdensome and time-consuming for both parties and further
delay the final disposition of the case. The multiplicity of suits must be
avoided. With the implied institution of the civil action in the criminal action,
the two actions are merged into one composite proceeding, with the criminal
action predominating the civil. The prime purpose of the criminal action is to
punish the offender in order to deter him and others from committing the
same or similar offense, to isolate him from society, reform and rehabilitate
him or, in general, to maintain social order.21
On the other hand, the sole purpose of the civil action is for the resolution,
reparation or indemnification of the private offended party for the damage or
injury he sustained by reason of the delictual or felonious act of the
accused.22 Under Article 104 of the Revised Penal Code, the following are the
civil liabilities of the accused:
ART. 104. What is included in civil liability. – The civil liability established in
Articles 100, 101, 102 and 103 of this Code includes:
1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.
On the other hand, Section 14, Rule 110 of the Revised Rules of Criminal
Procedure states:
Section 14. Amendment or substitution. – A complaint or information may be
amended, in form or in substance, without leave of court, at any time before
the accused enters his plea. After the plea and during the trial, a formal
amendment may only be made with leave of court and when it can be done
without causing prejudice to the rights of the accused.
However, any amendment before plea, which downgrades the nature of the
offense charged in or excludes any accused from the complaint or
information, can be made only upon motion by the prosecutor, with notice to
the offended party and with leave of court. The court shall state its reasons in
resolving the motion and copies of its order shall be furnished all parties,
especially the offended party.
Thus, before the accused enters his plea, a formal or substantial amendment
of the complaint or information may be made without leave of court. After the
entry of a plea, only a formal amendment may be made but with leave of
court and if it does not prejudice the rights of the accused. After arraignment,
a substantial amendment is proscribed except if the same is beneficial to the
accused.23
A substantial amendment consists of the recital of facts constituting the
offense charged and determinative of the jurisdiction of the court. All other
matters are merely of form.24 The following have been held to be mere formal
amendments: (1) new allegations which relate only to the range of the penalty
that the court might impose in the event of conviction; (2) an amendment
which does not charge another offense different or distinct from that charged
in the original one; (3) additional allegations which do not alter the
prosecution’s theory of the case so as to cause surprise to the accused and
affect the form of defense he has or will assume; (4) an amendment which
does not adversely affect any substantial right of the accused; and (5) an
amendment that merely adds specifications to eliminate vagueness in the
information and not to introduce new and material facts, and merely states
with additional precision something which is already contained in the original
information and which adds nothing essential for conviction for the crime
charged.25
The test as to whether a defendant is prejudiced by the amendment is
whether a defense under the information as it originally stood would be
available after the amendment is made, and whether any evidence defendant
might have would be equally applicable to the information in the one form as
in the other. An amendment to an information which does not change the
nature of the crime alleged therein does not affect the essence of the offense
or cause surprise or deprive the accused of an opportunity to meet the new
averment had each been held to be one of form and not of substance.26
In the case at bar, the substitution of Caltex by PCIB as private complaint is not
a substantial amendment. The substitution did not alter the basis of the
charge in both Informations, nor did it result in any prejudice to petitioner.
The documentary evidence in the form of the forged checks remained the
same, and all such evidence was available to petitioner well before the trial.
Thus, he cannot claim any surprise by virtue of the substitution.
Petitioner next argues that in no way was PCIB subrogated to the rights of
Caltex, considering that he has no knowledge of the subrogation much less
gave his consent to it. Alternatively, he posits that if subrogation was proper,
then the charges against him should be dismissed, the two Informations being
"defective and void due to false allegations."
Petitioner was charged of the crime of estafa complex with falsification
document. In estafa one of the essential elements "to prejudice of another" as
mandated by article 315 of the Revise Penal Code.
The element of "to the prejudice of another" being as essential element of the
felony should be clearly indicated and charged in the information with TRUTH
AND LEGAL PRECISION.
This is not so in the case of petitioner, the twin information filed against him
alleged the felony committed " to the damage and prejudice of Caltex." This
allegation is UNTRUE and FALSE for there is no question that as early as March
24, 1998 or THREE (3) LONG MONTHS before the twin information were filed
on June 29, 1998, the prejudice party is already PCIBank since the latter Re-
Credit the value of the checks to Caltex as early as March 24, 1998. In effect,
assuming there is valid subrogation as the subject decision concluded, the
subrogation took place an occurred on March 24, 1998 THREE (3) MONTHS
before the twin information were filed.
The phrase "to the prejudice to another" as element of the felony is limited to
the person DEFRAUDED in the very act of embezzlement. It should not be
expanded to other persons which the loss may ultimately fall as a result of a
contract which contract herein petitioner is total stranger.
In this case, there is no question that the very act of commission of the
offense of September 24, 1997 and October 15, 1997 respectively, Caltex was
the one defrauded by the act of the felony.
In the light of these facts, petitioner submits that the twin information are
DEFECTIVE AND VOID due to the FALSE ALLEGATIONS that the offense was
committed to the prejudice of Caltex when it truth and in fact the one
prejudiced here was PCIBank.
The twin information being DEFECTIVE AND VOID, the same should be
dismissed without prejudice to the filing of another information which should
state the offense was committed to the prejudice of PCIBank if it still legally
possible without prejudicing substantial and statutory rights of the
petitioner.27
Petitioner’s argument on subrogation is misplaced. The Court agrees with
respondent PCIB’s comment that petitioner failed to make a distinction
between legal and conventional subrogation. Subrogation is the transfer of all
the rights of the creditor to a third person, who substitutes him in all his
rights.28 It may either be legal or conventional. Legal subrogation is that which
takes place without agreement but by operation of law because of certain
acts.29 Instances of legal subrogation are those provided in Article 130230 of
the Civil Code. Conventional subrogation, on the other hand, is that which
takes place by agreement of the parties.31 Thus, petitioner’s acquiescence is
not necessary for subrogation to take place because the instant case is one of
legal subrogation that occurs by operation of law, and without need of the
debtor’s knowledge.
Contrary to petitioner’s asseverations, the case of People v. Yu Chai Pag
Ho32 relied upon by the appellate court is in point. The Court declared –
e|
132
We do not however, think that the fiscal erred in alleging that the commission
of the crime resulted to the prejudice of Wm. H. Anderson & Co. It is true that
originally the International Banking Corporation was the prejudiced party, but
Wm. H. Anderson & Co. compensated it for its loss and thus became
subrogated to all its rights against the defendant (article 1839, Civil Code).
Wm. H. Anderson & Co., therefore, stood exactly in the shoes of the
International Banking Corporation in relation to the defendant's acts, and the
commission of the crime resulted to the prejudice of the firm previously to the
filing of the information in the case. The loss suffered by the firm was the
ultimate result of the defendant's unlawful acts, and we see no valid reason
why this fact should not be stated in the information; it stands to reason that,
in the crime of estafa, the damage resulting therefrom need not necessarily
occur simultaneously with the acts constituting the other essential elements
of the crime.
Thus, being subrogated to the right of Caltex, PCIB, through counsel, has the
right to intervene in the proceedings, and under substantive laws is entitled to
restitution of its properties or funds, reparation, or indemnification.
Petitioner’s gripe that the charges against him should be dismissed because
the allegations in both Informations failed to name PCIB as true offended
party does not hold water.
Section 6, Rule 110 of the Rules on Criminal Procedure states:
Sec. 6. Sufficiency of complaint or information. – A complaint or information is
sufficient if it states the name of the accused; the designation of the offense
by the statute; the acts or omissions complained of as constituting the
offense; the name of the offended party; the approximate time of the
commission of the offense; and the place wherein the offense was committed.
When the offense is committed by more than one person, all of them shall be
included in the complaint or information.
On the other hand, Section 12 of the same Rule provides:
Section. 12. Name of the offended party. –The complaint or information must
state the name and surname of the person against whom or against whose
property the offense was committed, or any appellation or nickname by which
such person has been or is known. If there is no better way of identifying him,
he must be described under a fictitious name.
(a) In offenses against property, if the name of the offended party is
unknown, the property must be described with such particularity as
to properly identify the offense charged.
(b) If the true name of the person against whom or against whose
property the offense was committed is thereafter disclosed or
ascertained, the court must cause such true name to be inserted in
the complaint or information and the record.
(c) If the offended party is a juridical person, it is sufficient to state
its name, or any name or designation by which it is known or by
which it may be identified, without need of averring that it is a
juridical person or that it is organized in accordance with law. (12a)
In Sayson v. People,33 the Court held that in case of offenses against property,
the designation of the name of the offended party is not absolutely
indispensable for as long as the criminal act charged in the complaint or
information can be properly identified:
The rules on criminal procedure require the complaint or information to state
the name and surname of the person against whom or against whose property
the offense was committed or any appellation or nickname by which such
person has been or is known and if there is no better way of Identifying him,
he must be described under a fictitious name (Rule 110, Section 11, Revised
Rules of Court; now Rule 110, Section 12 of the 1985 Rules on Criminal
Procedure.] In case of offenses against property, the designation of the name
of the offended party is not absolutely indispensable for as long as the
criminal act charged in the complaint or information can be properly
identified. Thus, Rule 110, Section 11 of the Rules of Court provides that:
Section 11. Name of the offended party-
… shall be liable for a penalty equivalent to 20% of the total outstanding balance;
(a) In cases of offenses against property, if the name of the
offended party is unknown, the property, subject matter of the
offense, must be described with such particularity as to properly
Identify the particular offense charged.
(b) If in the course of the trial, the true name of the person against
whom or against whose property the offense was committed is
disclosed or ascertained, the court must cause the true name to be
inserted in the complaint or information or record.
… KNOW ALL MEN BY THESE PRESENTS:
In U.S. v. Kepner [1 Phil. 519 (1902)], this Court laid down the rule that when
an offense shall have been described in the complaint with sufficient certainty
as to Identify the act, an erroneous allegation as to the person injured shall be
deemed immaterial as the same is a mere formal defect which did not tend to
prejudice any substantial right of the defendant. Accordingly, in the
aforementioned case, which had a factual backdrop similar to the instant case,
where the defendant was charged with estafa for the misappropriation of the
proceeds of a warrant which he had cashed without authority, the erroneous
allegation in the complaint to the effect that the unlawful act was to the
prejudice of the owner of the cheque, when in reality the bank which cashed it
was the one which suffered a loss, was held to be immaterial on the ground
that the subject matter of the estafa, the warrant, was described in the
complaint with such particularity as to properly Identify the particular offense
charged. In the instant suit for estafa which is a crime against property under
the Revised Penal Code, since the check, which was the subject-matter of the
offense, was described with such particularity as to properly identify the
offense charged, it becomes immaterial, for purposes of convicting the
accused, that it was established during the trial that the offended party was
actually Mever Films and not Ernesto Rufino, Sr. nor Bank of America as
alleged in the information.
Lastly, on petitioner’s claim that he timely objected to the appearance of
SRMO34 as private prosecutor for PCIB, the Court agrees with the observation
of the CA that contrary to his claim, petitioner did not question the said entry
of appearance even as the RTC acknowledged the same on October 8,
1999.35 Thus, petitioner cannot feign ignorance or surprise of the incident,
which are "all water under the bridge for [his] failure to make a timely
objection thereto."36
WHEREFORE, the petition is DENIED. The assailed decision and resolution of
the Court of Appeals are AFFIRMED. This case is REMANDED to the Regional
Trial Court of Makati City, Branch 63, for further proceedings.
SO ORDERED.
G.R. No. 149040 July 4, 2007
EDGAR LEDONIO, petitioner,
vs.
CAPITOL DEVELOPMENT CORPORATION, respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the
Revised Rules of Court praying that (1) the Decision,2 dated 20 March 2001, of
the Court of Appeals in CA-G.R. CV No. 43604, affirming in toto the
Decision,3 dated 6 August 1993, of the Quezon City Regional Trial Court (RTC),
Branch 91, in Civil Case No. Q-90-5247, be set aside; and (2) the Complaint4 in
Civil Case No. Q-90-5247 be dismissed.
Herein respondent Capitol Development Corporation instituted Civil Case No.
Q-90-5247 by filing a Complaint for the collection of a sum of money against
herein petitioner Edgar Ledonio.
In its Complaint, respondent alleged that petitioner obtained from a Ms.
Patrocinio S. Picache two loans, with the aggregate principal amount
of P60,000.00, and covered by promissory notes duly signed by petitioner. In
the first promissory note,5 dated 9 November 1988, petitioner promised to
pay to the order of Ms. Picache the principal amount of P30,000.00, in
monthly installments of P3,000.00, with the first monthly installment due on 9
January 1989. In the second promissory note,6 dated 10 November 1988,
petitioner again promised to pay to the order of Ms. Picache the principal
amount of P30,000.00, with 36% interest per annum, on 1 December 1988. In
case of default in payment, both promissory notes provide that (a) petitioner
(b) unpaid interest shall be compounded or added to the balance of the Pag
principal amount and shall bear the same rate of interest as the latter; and (c)
in case the creditor, Ms. Picache, shall engage the services of counsel to e|
enforce her rights and powers under the promissory notes, petitioner shall 133
pay as attorney's fees and liquidated damages the sum equivalent to 20% of
the total amount sought to be recovered, but in no case shall the said sum be
less that P10,000.00, exclusive of costs of suit.
On 1 April 1989, Ms. Picache executed an Assignment of Credit7 in favor of
respondent, which reads –
That I, PAT S. PICACHE of legal age and with postal address at 373
Quezon Avenue, Quezon City for and in consideration of SIXTY
THOUSAND PESOS (P60,000.00) Philippine Currency, to me paid by
[herein respondent] CAPITOL DEVELOPMENT CORPORATION, a
corporation organized and existing under the laws of the Republic
of the Philippines with principal office at 373 Quezon Avenue,
Quezon City receipt whereof is hereby acknowledged have sold,
transferred, assigned and conveyed and (sic) by me these presents
do hereby sell, assign, transfer and convey unto the said
[respondent] CAPITOL DEVELOPMENT CORPORATION, a certain
debt due me from [herein petitioner] EDGAR A. LEDONIO in the
principal sum of SIXTY THOUSAND PESOS (P60,000.00) Philippine
Currency, under two (2) Promissory Notes dated November 9, 1988
and November 10, 1988, respectively, photocopies of which are
attached to as annexes A & B to form integral parts hereof with full
power to sue for, collect and discharge, or sell and assign the same.
That I hereby declare that the principal sum of SIXTY THOUSAND
PESOS (P60,000.00) with interest thereon at THIRTY SIX (36%) PER
CENT per annum is justly due and owing to me as aforesaid.
IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of
April, 1989 at Quezon City.
(SGD)PAT S. PICACHE
The foregoing document was signed by two witnesses and duly acknowledged
by Ms. Picache before a Notary Public also on 1 April 1989.
Since petitioner did not pay any of the loans covered by the promissory notes
when they became due, respondent -- through its Vice President Nina P. King
and its counsel King, Capuchino, Banico & Associates -- sent petitioner several
demand letters.8 Despite receiving the said demand letters, petitioner still
failed and refused to settle his indebtedness, thus, prompting respondent to
file the Complaint with the RTC, docketed as Civil Case No. Q-90-5247.
In his Answer filed with the RTC, petitioner sought the dismissal of the
Complaint averring that respondent had no cause of action against him. He
denied obtaining any loan from Ms. Picache and questioned the genuineness
and due execution of the promissory notes, for they were the result of
intimidation and fraud; hence, void. He asserted that there had been no
transaction or privity of contract between him, on one hand, and Ms. Picache
and respondent, on the other. The assignment by Ms. Picache of the
promissory notes to respondent was a mere ploy and simulation to effect the
unjust enforcement of the invalid promissory notes and to insulate Ms.
Picache from any direct counterclaims, and he never consented or agreed to
the said assignment.
Petitioner then presented his own narration of events leading to the filing of
Civil Case No. Q-90-5247. According to him, on 24 February 1988, he entered
into a Contract of Lease9 of real property located in Quezon City with Mission
Realty & Management Corporation (MRMC), of which Ms. Picache is an
incorporator and member of the Board of Directors.10 Petitioner relocated the
plant and machines used in his garments business to the leased property.
After a month or two, a foreign investor was interested in doing business with
him and sent a representative to conduct an ocular inspection of petitioner's
plant at the leased property. During the inspection, a group of Meralco
employees entered the leased property to cut off the electric power
connections of the plant. The event gave an unfavorable impression to the
foreign investor who desisted from further transacting with petitioner. Upon
verification with Meralco, petitioner discovered that there were unpaid
electric bills on the leased property amounting to hundreds of thousands of
pesos. These electric bills were supposedly due to the surreptitious electrical
connections to the leased property. Petitioner claimed that he was never
informed or advised by MRMC of the existence of said unpaid electric bills. It
took Meralco considerable time to restore electric power to the leased
property and only after petitioner pleaded that he was not responsible for the
illegal electrical connections and/or the unpaid electric bills, for he was only a
recent lessee of the leased property. Because of the work stoppage and loss of
business opportunities resulting from the foregoing incident, petitioner
purportedly suffered damages amounting to United States $60,000.00, for
which petitioner verbally attempted to recover compensation from MRMC.
Having failed to obtain compensation from MRMC, petitioner decided to
vacate and pull out his machines from the leased property but he can only do
so, unhampered and uninterrupted by MRMC security personnel, if he signed,
as he did, blank promissory note forms. Petitioner alleged that when he signed
the promissory note forms, the allotted spaces for the principal amount of the
loans, interest rates, and names of the promisee/s were in blank; and that Ms.
Picache took advantage of petitioner's signatures on the blank promissory
note forms by filling up the blanks.
To raise even more suspicions of fraud and spuriousness of the promissory
notes and their subsequent assignment to respondent, petitioner called
attention to the fact that Ms. Picache is an incorporator and member of the
Board of Directors of both MRMC and respondent.11
After the pre-trial conference and the trial proper, the RTC rendered a
Decision12 on 6 August 1993, ruling in favor of respondent. The RTC gave more
credence to respondent's version of the facts, finding that –
[Herein petitioner]'s disclaimer of the promissory note[s] does not
inspire belief. He is a holder of a degree in Bachelor of Science in
Chemical Engineering and has been a manufacturer of garments
since 1979. As a matter of fact, [petitioner]'s testimony that he was
made to sign blank sheets of paper is contrary to his admission in
paragraphs 12 and 13 of his Answer that as a condition to his
removal of his machines [from] the leased premises, he was made
to sign blank promissory note forms with respect to the amount,
interest and promisee. It thus appears incredulous that a
businessman like [petitioner] would simply sign blank sheets of
paper or blank promissory notes just [to] be able to vacate the
leased premises.
Moreover, the credibility of [petitioner]'s testimony leaves much to
be desired. He contradicted his earlier testimony that he only met
Patrocinio Picache once, which took place in the office of Mission
Realty and Management Corporation, by stating that he saw
Patrocinio Picache a second time when she went to his house.
Likewise, his claim that the electric power in the leased premises
was cut off only two months after he occupied the same is belied by
his own evidence. The contract of lease submitted by [petitioner] is
dated February 24, 1988 and took effect on March 1, 1988. His
letter to Mission Realty and Management Corporation dated
September 21, 1988, complained of the electric power
disconnection that took place on September 6, 1988, that is, six (6)
months after he had occupied the leased premises, and did not
even give a hint of his intention to vacate the premises because of
said incident. It appears that [petitioner] was already advised to pay
his rental arrearages in a letter dated August 9, 1988 (Exh. "2") and
was notified of the termination of the lease contract in a letter
dated September 19, 1988 (Exh. "4"). However, in a letter dated
September 26, 1988, [petitioner] requested for time to look for a
place to transfer.
The RTC also sustained the validity and enforceability of the Assignment of
Credit executed by Ms. Picache in favor of respondent, even in the absence of
petitioner's consent to the said assignment, based on the following reasoning
–
The promissory notes (Exhs. "A" and "B") were assigned by Ms.
Patrocinio Picache to [herein respondent] by virtue of a notarized
Assignment of Credit dated April 1, 1989 for a consideration
of P60,000.00 (Exh. "C"). The fact that the assignment of credit does
not bear the conformity of [herein petitioner] is of no moment. In C
& C Commercial Corporation vs. Philippine National Bank, 175 SCRA
1, 11, the Supreme Court held thus:
"x x x Article 1624 of the Civil Code provides that 'an
assignment of credits and other incorporeal rights shall
be perfected in accordance with the provisions of Article
1475' which in turn states that 'the contract of sale is
perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and
upon the price.' The meeting of the minds contemplated
here is that between the assignor of the credit and his
assignee, there being no necessity for the consent of the
debtor, contrary to petitioner's claim. It is sufficient that Pag
the assignment be brought to his knowledge in order to
be binding upon him. This may be inferred from Article e|
1626 of the Civil Code which declares that 'the debtor 134
who, before having knowledge of the assignment, pays
his creditor shall be released from the obligation.'"
[Petitioner] does not deny having been notified of the assignment
of credit by Patrocinio Picache to the [respondent]. Thus,
[respondent] sent several demand letters to the [petitioner] in
connection with the loan[s] (Exhs. "D", "E", "F" and "G"). [Petitioner]
acknowledged receipt of [respondent]'s letter of demand dated
June 13, 1989 (Exh. "F") and assured [respondent] that he would
settle his account, as per their telephone conversation (Exhs. "H"
and "9"). Such communications between [respondent] and
[petitioner] show that the latter had been duly notified of the said
assignment of credit. x x x.
Given its aforequoted findings, the RTC proceeded to a determination of
petitioner's liabilities to respondent, taking into account the provisions of the
promissory notes, thus –
x x x Consequently, [herein respondent] is entitled to recover from
[herein petitioner] the principal amount of P30,000.00 for the
promissory note dated November 9, 1988. As said note did not
provide for any interest, [respondent] may only recover interest at
the legal rate of 12% per annum from April 18, 1990, the date of
the filing of the complaint. With respect to the promissory note
dated November 10, 1988, the same provided for interest at 36%
per annum and that interest not paid when due shall be added to
and shall become part of the principal and shall bear the same rate
of interest as the principal. Likewise, both promissory notes
provided for a penalty of 20% of the total outstanding balance
thereon and attorney's fees equivalent to 20% of the sum sought to
be recovered in case of litigation.
In Garcia vs. Court of Appeals, 167 SCRA 815, it was held that
penalty interests are in the nature of liquidated damages and may
be equitably reduced by the courts if they are iniquitous or
unconscionable, pursuant to Articles 1229 and 2227 of the Civil
Code. Considering that the promissory note dated November 10,
1988 already provided for interest at 36% per annum on the
principal obligation, as well as for the capitalization of the unpaid
interest, the penalty charge of 20% of the total outstanding balance
of the obligation thus appears to be excessive and unconscionable.
The interest charges are enough punishment for [petitioner]'s
failure to comply with his obligation under the promissory note
dated November 10, 1988.
With respect to the attorney's fees, the court is likewise
empowered to reduce the same if they are unreasonable or
unconscionable, notwithstanding the express contract therefor.
(Insular Bank of Asia and America vs. Spouses Salazar, 159 SCRA
133, 139). Thus, an award of P10,000.00 as and for attorney's fees
appears to be enough.
Consequently, the fallo of the RTC Decision reads –
WHEREFORE, in view of the foregoing, judgment is hereby rendered
in favor of the [herein respondent] and against [herein petitioner]
ordering the latter as follows:
1. To pay [respondent], on the promissory note dated
November 9, 1988, the amount of P30,000.00 with
interest thereon at the legal rate of 12% per annum from
April 18, 1990 until fully paid and a penalty of 20% on the
total amount;
2. To pay [respondent], on the promissory note dated
November 10, 1988, the amount of P30,000.00 with
interest thereon at 36% per annum compounded at the
same rate until fully paid;
 3. To pay [respondent] the amount of P10,000.00, as and
for attorney's fees; and
4. To pay the costs of the suit.13
Aggrieved by the RTC Decision, dated 6 August 1993, petitioner filed an appeal
with the Court of Appeals, which was docketed as CA-G.R. CV No. 43604. The
appellate court, in a Decision,14 dated 20 March 2001, found no cogent reason
to depart from the conclusions arrived at by the RTC in its appealed Decision,
dated 6 August 1993, and affirmed the latter Decision in toto. The Court of
Appeals likewise denied petitioner's Motion for Reconsideration in a
Resolution,15 dated 16 July 2001, stating that the grounds relied upon by
petitioner in his Motion were mere reiterations of the issues and matters
already considered, weighed and passed upon; and that no new matter or
substantial argument was adduced by petitioner to warrant a modification,
much less a reversal, of the Court of Appeals Decision, dated 20 March 2001.
Comes now petitioner to this Court, via a Petition for Review
on Certiorari under Rule 45 of the Revised Rules of Court, raising the sole
issue16 of whether or not the Court of Appeals committed grave abuse of
discretion in affirming in toto the RTC Decision, dated 6 August 1993.
Petitioner's main argument is that the Court of Appeals erred when it ruled
that there was an assignment of credit and that there was no
novation/subrogation in the case at bar. Petitioner asserts the position that
consent of the debtor to the assignment of credit is a basic/essential element
in order for the assignee to have a cause of action against the debtor. Without
the debtor's consent, the recourse of the assignee in case of non-payment of
the assigned credit, is to recover from the assignor. Petitioner further argues
that even if there was indeed an assignment of credit, as alleged by the
respondent, then there had been a novation of the original loan contracts
when the respondent was subrogated in the rights of Ms. Picache, the original
creditor. In support of said argument, petitioner invokes the following
provisions of the Civil Code –
ART. 1300. Subrogation of a third person in the rights of the
creditor is either legal or conventional. The former is not presumed,
except in cases expressly mentioned in this Code; the latter must be
clearly established in order that it may take effect.
ART. 1301. Conventional subrogation of a third person requires the
consent of the original parties and the third person.
According to petitioner, the assignment of credit constitutes conventional
subrogation which requires the consent of the original parties to the loan
contract, namely, Ms. Picache (the creditor) and petitioner (the debtor); and
the third person, the respondent (the assignee). Since petitioner never gave
his consent to the assignment of credit, then the subrogation of respondent in
the rights of Ms. Picache as creditor by virtue of said assignment is without
force and effect.
This Court finds no merit in the present Petition.
Before proceeding to a discussion of the points raised by petitioner, this Court
deems it appropriate to emphasize that the findings of fact of the Court of
Appeals and the RTC in this case shall no longer be disturbed. It is axiomatic
that this Court will not review, much less reverse, the factual findings of the
Court of Appeals, especially where, as in this case, such findings coincide with
those of the trial court, since this Court is not a trier of facts.17
The jurisdiction of this Court in a Petition for Review on Certiorari under Rule
45 of the Revised Rules of Court is limited to reviewing only errors of law, not
of fact, unless it is shown, inter alia, that: (a) the conclusion is grounded
entirely on speculations, surmises and conjectures; (b) the inference is
manifestly mistaken, absurd and impossible; (c) there is grave abuse of
discretion; (d) the judgment is based on a misapplication of facts; (e) the
findings of fact of the trial court and the appellate court are contradicted by
the evidence on record and (f) the Court of Appeals went beyond the issues of
the case and its findings are contrary to the admissions of both parties.18 None
of these circumstances are present in the case at bar. After a perusal of the
records, this Court can only conclude that the factual findings of the Court of
Appeals, affirming those of the RTC, are amply supported by evidence and are,
resultantly, conclusive on this Court.19
Therefore, the following facts are already beyond cavil: (1) petitioner obtained
two loans totaling P60,000.00 from Ms. Picache, for which he executed
promissory notes, dated 9 November 1988 and 10 November 1988; (2) he
failed to pay any of the said loans; (3) Ms. Picache executed on 1 April 1989 an
Assignment of Credit covering petitioner's loans in favor of respondent for the
consideration of P60,000.00; (4) petitioner had knowledge of the assignment
of credit; and (5) petitioner still failed to pay his indebtedness despite
repeated demands by respondent and its counsel. Petitioner's persistent
assertions that he never acquired any loan from Ms. Picache, or that he signed
the promissory notes in blank and under duress, deserve scant consideration.
They were already found by both the Court of Appeals and the RTC to be
implausible and inconsistent with petitioner's own evidence.
Now this Court turns to the questions of law raised by petitioner, all of which
hinges on the contention that a conventional subrogation occurred when Ms.
Picache assigned the debt, due her from the petitioner, to the respondent;
and without petitioner's consent as debtor, the said conventional subrogation
should be deemed to be without force and effect. Pag
e|
This Court cannot sustain petitioner's contention and hereby declares that the 135
transaction between Ms. Picache and respondent was an assignment of credit,
not conventional subrogation, and does not require petitioner's consent as
debtor for its validity and enforceability.
An assignment of credit has been defined as an agreement by virtue of which
the owner of a credit (known as the assignor), by a legal cause - such as
sale, dation in payment or exchange or donation - and without need of the
debtor's consent, transfers that credit and its accessory rights to another
(known as the assignee), who acquires the power to enforce it, to the same
extent as the assignor could have enforced it against the debtor.20
On the other hand, subrogation, by definition, is the transfer of all the rights
of the creditor to a third person, who substitutes him in all his rights. It may
either be legal or conventional. Legal subrogation is that which takes place
without agreement but by operation of law because of certain acts.
Conventional subrogation is that which takes place by agreement of parties.21
Although it may be said that the effect of the assignment of credit is to
subrogate the assignee in the rights of the original creditor, this Court still
cannot definitively rule that assignment of credit and conventional
subrogation are one and the same.
A noted authority on civil law provided a discourse22 on the difference
between these two transactions, to wit –
Conventional Subrogation and Assignment of Credits. – In the
Argentine Civil Code, there is essentially no difference between
conventional subrogation and assignment of credit. The
subrogation is merely the effect of the assignment. In fact it is
expressly provided (article 769) that conventional redemption shall
be governed by the provisions on assignment of credit.
Under our Code, however, conventional subrogation is not identical
to assignment of credit. In the former, the debtor's consent is
necessary; in the latter, it is not required. Subrogation extinguishes
an obligation and gives rise to a new one; assignment refers to the
same right which passes from one person to another. The nullity of
an old obligation may be cured by subrogation, such that the new
obligation will be perfectly valid; but the nullity of an obligation is
not remedied by the assignment of the creditor's right to another.
(Emphasis supplied.)
This Court has consistently adhered to the foregoing distinction between an
assignment of credit and a conventional subrogation.23 Such distinction is
crucial because it would determine the necessity of the debtor's consent. In
an assignment of credit, the consent of the debtor is not necessary in order
that the assignment may fully produce the legal effects. What the law requires
in an assignment of credit is not the consent of the debtor, but merely notice
to him as the assignment takes effect only from the time he has knowledge
thereof. A creditor may, therefore, validly assign his credit and its accessories
without the debtor's consent. On the other hand, conventional subrogation
requires an agreement among the parties concerned – the original creditor,
the debtor, and the new creditor. It is a new contractual relation based on the
mutual agreement among all the necessary parties.24
Article 1300 of the Civil Code provides that conventional subrogation must be
clearly established in order that it may take effect. Since it is petitioner who
claims that there is conventional subrogation in this case, the burden of proof
rests upon him to establish the same25 by a preponderance of evidence.26
In Licaros v. Gatmaitan,27 this Court ruled that there was conventional
subrogation, not just an assignment of credit; thus, consent of the debtor is
required for the effectivity of the subrogation. This Court arrived at such a
conclusion in said case based on its following findings –
We agree with the finding of the Court of Appeals that the
Memorandum of Agreement dated July 29, 1988 was in the nature
of a conventional subrogation which requires the consent of the
 debtor, Anglo-Asean Bank, for its validity. We note with approval
the following pronouncement of the Court of Appeals:
"Immediately discernible from above is the common
feature of contracts involving conventional subrogation,
namely, the approval of the debtor to the subrogation of
a third person in place of the creditor. That Gatmaitan
and Licaros had intended to treat their agreement as one
of conventional subrogation is plainly borne by a
stipulation in their Memorandum of Agreement, to wit:
"WHEREAS, the parties herein have come to
an agreement on the nature, form and extent
of their mutual prestations which they now
record herein with the express conformity of
the third parties concerned" (emphasis
supplied),
which third party is admittedly Anglo-Asean Bank.
Had the intention been merely to confer on appellant the status of
a mere "assignee" of appellee's credit, there is simply no sense for
them to have stipulated in their agreement that the same is
conditioned on the "express conformity" thereto of Anglo-Asean
Bank. That they did so only accentuates their intention to treat the
agreement as one of conventional subrogation. And it is basic in the
interpretation of contracts that the intention of the parties must be
the one pursued (Rule 130, Section 12, Rules of Court).
xxxx
Aside for the 'whereas clause" cited by the appellate court in its
decision, we likewise note that on the signature page, right under
the place reserved for the signatures of petitioner and respondent,
there is, typewritten, the words "WITH OUR CONFORME." Under
this notation, the words "ANGLO-ASEAN BANK AND TRUST" were
written by hand. To our mind, this provision which contemplates
the signed conformity of Anglo-Asean Bank, taken together with the
aforementioned preambulatory clause leads to the conclusion that
both parties intended that Anglo-Asean Bank should signify its
agreement and conformity to the contractual arrangement
between petitioner and respondent. The fact that Anglo-Asean
Bank did not give such consent rendered the agreement
inoperative considering that, as previously discussed, the consent of
the debtor is needed in the subrogation of a third person to the
rights of a creditor.
None of the foregoing circumstances are attendant in the present case. The
Assignment of Credit, dated 1 April 1989, executed by Ms. Picache in favor of
respondent, was a simple deed of assignment. There is nothing in the said
Assignment of Credit which imparts to this Court, whether literally or
deductively, that a conventional subrogation was intended by the parties
thereto. The terms of the Assignment of Credit only convey the
straightforward intention of Ms. Picache to "sell, assign, transfer, and convey"
to respondent the debt due her from petitioner, as evidenced by the two
promissory notes of the latter, dated 9 November 1988 and 10 November
1988, for the consideration of P60,000.00. By virtue of the same document,
Ms. Picache gave respondent full power "to sue for, collect and discharge, or
sell and assign" the very same debt. The Assignment of Credit was signed
solely by Ms. Picache, witnessed by two other persons. No reference was
made to securing the conforme of petitioner to the transaction, nor any space
provided for his signature on the said document.
Perhaps more in point to the case at bar is Rodriguez v. Court of Appeals, 28 in
which this Court found that –
The basis of the complaint is not a deed of subrogation but an
assignment of credit whereby the private respondent became the
owner, not the subrogee of the credit since the assignment was
supported by HK $1.00 and other valuable considerations.
xxxx
The petitioner further contends that the consent of the debtor is
essential to the subrogation. Since there was no consent on his
part, then he allegedly is not bound.
Again, we find for the respondent. The questioned deed of
assignment is neither one of subrogation nor a power of attorney as
the petitioner alleges. The deed of assignment clearly states that
the private respondent became an assignee and, therefore, he
became the only party entitled to collect the indebtedness. As a
result of the Deed of Assignment, the plaintiff acquired all rights of
the assignor including the right to sue in his own name as the legal
assignee. Moreover, in assignment, the debtor's consent is not
essential for the validity of the assignment (Art. 1624 in relation to
Art. 1475, Civil Code), his knowledge thereof affecting only the
validity of the payment he might make (Article 1626, Civil Code).
Since the Assignment of Credit, dated 1 April 1989, is just as its title suggests, Pag
then petitioner's consent as debtor is not necessary in order that the e|
assignment may fully produce legal effects. The duty to pay does not depend
on the consent of the debtor; otherwise, all creditors would be prevented 136
from assigning their credits because of the possibility of the debtors' refusal to
give consent.29 Moreover, this Court had already noted previously that there
does not appear to be anything in Philippine statutes or jurisprudence which
prohibits a creditor, without the consent of the debtor, from making an
assignment of his credit and the rights accessory thereto; and, certainly, an
assignment of credit and its accessory rights does not at all obliterate the
obligation of the debtor to pay, but merely puts the assignee in the place of
the assignor.30 Hence, the obligation of petitioner to pay his debt subsists
despite the assignment thereof; only, his obligation after he came to know of
the said assignment would be to pay the debt to the respondent (the
assignee), instead of Ms. Picache (the original creditor).
It bears to emphasize that even if the consent of petitioner as debtor is
unnecessary for the validity and enforceability of the assignment of credit,
nonetheless, the petitioner must have knowledge, acquired either by formal
notice or some other means, of the assignment so that he may pay the debt to
the proper party, which shall now be the assignee. This much can be gathered
from a reading of Article 1626 of the Civil Code providing that, "The debtor
who, before having knowledge of the assignment, pays his creditor shall be
released from the obligation."
This Court, in Sison v. Yap Tico,31 presented and adopted Manresa's analysis of
Article 1626 of the Civil Code (then Article 1527 of the old Civil Code) –
Manresa, in commenting upon the provisions of article 1527 of the
Civil Code, after discussing the articles of the Mortgage Law, says:
"We have said that article 1527 deals with the individual phase or
aspect which presupposes the existence of a relationship with third
parties, that is, with the person of the debtor. Let us see in what
way.
"The above-mentioned article states that a debtor who, before
having knowledge of the assignment, should pay the creditor shall
be released from the obligation.
"In the first place, the necessity for the notice to the debtor in order
that the assignment may fully produce its legal effects may be
inferred from the above. It refers to a notice and not to a petition
for the consent which is not necessary. We say that the notice is
not necessary in order that the legal effects may be fully produced,
because if it should be omitted, such omission will not imply that
the assignment will not exist legally, but that its effects will be
limited to the parties thereto; at least, they will not reach the
debtor.
"* * * * * * * *
"Let us go to the legal effects produced by the failure to give the
notice. In the beginning, we have said that the contract does not
lose its efficacy with respect to the parties who made it; but article
1527 determines specifically one of the consequences arising from
the failure to give notice, for it evidently takes for granted that the
debtor who, before having knowledge of the assignment, should
pay the creditor shall be released from the obligation. So that if the
creditor assigned his credit, acting in bad faith and taking advantage
of the fact that the debtor does not know anything about the
assignment because the latter has not been notified, and collects its
amount, the debtor shall be free from the obligation, inasmuch as it
has been legally extinguished by a payment which fully redounds to
his benefit. The assignee can take advantage of all civil and criminal
actions against the assignor, but he can ask nothing from the
debtor, because the latter did not know of the assignment, nor was
he bound to know it; the assignor should blame himself for his
failure to have the notice made.
"* * * * * * * *
 "Hence, there not having been any notice to the debtor, the
existence of his knowledge of the assignment should be proved by
him who is interested therein; and the debtor is not bound to prove
his ignorance."
In a more recent case, Aquintey v. Spouses Tibong,32 this Court stated: "The
law does not require any formal notice to bind the debtor to the assignee, all
that the law requires is knowledge of the assignment. Even if the debtor had
not been notified, but came to know of the assignment by whatever means,
the debtor is bound by it."
Since his consent is immaterial, the only other matter which this Court must
determine is whether petitioner had knowledge of the Assignment of Credit,
dated 1 April 1989, between Ms. Picache and respondent. Both the Court of
Appeals and the RTC ruled in the affirmative, and so must this Court.
Petitioner does not deny having knowledge of the assignment of credit by Ms.
Picache to the respondent. In 1989, when petitioner's loans became overdue,
it was respondent and its counsel who sent several demand letters to him. It
can be reasonably presumed that petitioner received said letters for they
were sent by registered mail, and the return cards were signed by petitioner's
agent. Petitioner expressly acknowledged receipt of respondent's demand
letter, dated 13 June 1989, to which he replied with another letter, dated 21
June 1989, stating that he would settle his account with respondent but also
requesting consideration of the losses he suffered from the electric power
disconnection at the property he leased from MRMC. It further appears that
petitioner had never questioned why it was respondent seeking payment of
the loans and not the original creditor, Ms. Picache. All these circumstances
tend to establish that respondent already knew of the assignment of credit
made by Ms. Picache in favor of respondent and explains his acceptance of all
the demands for payment of the loans made upon him by the respondent.
Finally, assuming arguendo that this Court considers petitioner a third person
to the Assignment of Credit, dated 1 April 1989, the fact that the said
document was duly notarized makes it legally enforceable even as to him.
According to Article 1625 of the Civil Code –
ART. 1625. An assignment of credit, right or action shall produce no
effect as against third persons, unless it appears in a public
instrument, or the instrument is recorded in the Registry of
Property in case the assignment involves real property.
Notarization converted the Assignment of Credit, dated 1 April 1989, a private
document, into a public document,33 thus, complying with the mandate of the
afore-quoted provision and making it enforceable even as against third
persons.
WHEREFORE, premises considered, the instant Petition for Review is
hereby DENIED, and the Decision, dated 20 March 2001, of the Court of
Appeals in CA-G.R. CV No. 43604, affirming in toto the Decision, dated 6
August 1993, of the Quezon City Regional Trial Court, Branch 91, in Civil Case
No. Q-90-5247, is hereby AFFIRMED. Costs against the petitioner.
SO ORDERED.
G.R. No. 169407, March 25, 2015
BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. AMADOR
DOMINGO, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, filed by petitioner Bank of the Philippine Islands (BPI), seeking
the reversal and setting aside of the Decision1 dated July 11, 2005 and
Resolution2 dated August 19, 2005 of the Court of Appeals in CA-G.R. SP No.
88836.
The Petition arose from the following facts:
On September 27, 1993, respondent Amador Domingo (Amador) and his wife,
the late Mercy Maryden Domingo (Mercy),3 (collectively referred to as the
spouses Domingo) executed a Promissory Note4 in favor of Makati Auto
Center, Inc. in the sum of P629,856.00, payable in 48 successive monthly
installments in the amount of P13,122.00 each. They simultaneously executed
a Deed of Chattel Mortgage5 over a 1993 Mazda 323 (subject vehicle) to
secure the payment of their Promissory Note. Makati Auto Center, Inc. then
assigned, ceded, and transferred all its rights and interests over the said
Promissory Note and chattel mortgage to Far East Bank and Trust Company
(FEBTC).
On April 7, 2000, the Securities and Exchange Commission (SEC) approved and
issued the Certificate of Filing of the Articles of Merger and Plan of Merger
executed on January 20, 2000 by and between BPI, the surviving corporation,
and FEBTC, the absorbed corporation. By virtue of said merger, all the assets
and liabilities of FEBTC were transferred to and absorbed by BPI.6
The spouses Domingo defaulted when they failed to pay 21 monthly
installments that had fallen due consecutively from January 15, 1996 to Pag
September 15, 1997. BPI, being the surviving corporation after the merger,
demanded that the spouses Domingo pay the balance of the Promissory Note e|
including accrued late payment charges/interests or to return the possession 137
of the subject vehicle for the purpose of foreclosure in accordance with the
undertaking stated in the chattel mortgage. When the spouses Domingo still
failed to comply with its demands, BPI filed on November 14, 2000 a
Complaint7 for Replevin and Damages (or in the alternative, for the collection
of sum of money, interest and other charges, and attorney's fees) which was
raffled to the Metropolitan Trial Court (MeTC) of Manila, Branch 9, and
docketed as Civil Case No. 168949-CV. BPI included a John Doe as defendant
because at the time of filing of the Complaint, BPI was already aware that the
subject vehicle was in the possession of a third person but did not yet know
the identity of said person.
In their Answer,8 the spouses Domingo raised the following affirmative
defenses:chanroblesvirtuallawlibrary
4. [BPI] has no cause of action against the [spouses Domingo].
5. The Honorable Court has no jurisdiction over this case,
6. As per the allegations in the complaint, JOHN DOE is an indispensable party
to this case so with his whereabouts unknown, service by publication should
first be made before proceeding with the trial of this case;
7. Defendant Maryden Domingo once obtained a car loan from Far East Bank
and Trust Company but the car was later sold to Carmelita S. Gonzales with
the bank's conformity and the buyer subsequently assumed payment of the
balance of the mortgaged loan.
During trial, the prosecution presented as witness Vicente Magpusao, a
former employee of FEBTC and now an Account Analyst of BPI. His testimony
was summed up by the MeTC as follows:chanroblesvirtuallawlibrary
Vicente Magpusao, [BPI's] Account Analyst and formerly connected with Far
East Bank and Trust Company testified that on September 27, 1993, [the
spouses Domingo] for consideration executed and delivered to Makati Auto
Center, Inc. a Promissory Note in the sum of P629,856.00 payable in monthly
installments in accordance with the schedule of payment indicated in said
Promissory Note. In order to secure the payment of the obligation, the
[spouses Domingo] executed in favor of said Makati Auto Center, Inc. on the
same date a Chattel Mortgage over one (1) unit of 1993 Mazda (323) with
Motor No. B6-270146 and with Serial No. BG1062M9100287. With notice to
[the spouses Domingo], said Makati Auto Center, Inc. assigned to Far East
Bank and Trust Co. the Chattel Mortgage as shown by the Deed of Assignment
executed by [Makati Auto Center, Inc.]. Far East Bank and Trust Co. on the
other hand, has been merged with and/or absorbed by herein plaintiff [BPI].
The [spouses Domingo] defaulted in complying with the terms and conditions
of the Promissory Note with Chattel Mortgage by failing to pay twenty[-one]
(21) successive installments which fell due on January 15, 1996 up to
September 15, 1997. [BPI] sent a demand letter [to] defendant Mercy
Domingo thru registered mail demanding payment of the whole balance of
the Promissory Note plus the stipulated interest and other charges or return
to [BPI] the possession of the above-described motor vehicle. There were
some negotiations made by the [spouses Domingo] to their In House Legal
Assistant but the same did not materialize. Based on the Statement of
Account dated October 31, 2000, [the spouses Domingo have] an outstanding
balance of P275,562.00 exclusive of interest and other charges.
On cross-examination, the witness explained that the first time he came to
handle [the spouses Domingo's] account was in 1997. Despite the fact that he
was not yet employed with the bank in 1993, he knew exactly what happened
in this particular transaction because of his experience in auto financing. He
also has an access [to] the Promissory Note, Chattel Mortgage and other
records of payment made by the bank. Based on the records, the [spouses
Domingo] issued several postdated checks but not for the entire term. There
were payments made from October 30, 199[3] up to September 14, 1994. He
was not the one who received payments for the auto finance. If there were
receipts issued, they will only ride for the account of Mrs. Domingo. He was
not sure if these receipts are kept in the warehouse or probably disposed of
by the bank since the transaction was made in 1997. They already have a
computer records of all payments made by their client. Based on the
subsidiary ledger, there were three (3) checks that bounced and these are
payments from the new buyer. They only have one (1) photocopy of these
checks in the amount of P325,431.60 while the other two (2) are missing. He
was not aware who owns Cargo and Hardware Corporation but the check was
issued by a certain Miss Gonzales. The witness further testified that anyone
can pay the monthly amortization as long as the payment is for the account of
Maryden Domingo. They cannot include Carmelita Gonzales as one of the
defendants in this case because they don't have a document executed by the
latter in behalf of Far East Bank and Trust Co. The bank did not approve the
Deed of Sale with Assumption of Mortgage.
Witness further testified that he found the photocopy of the Deed of Sale in
the records of Maryden Domingo. The Promissory Note and Chattel Mortgage
were executed by the defendants Maryden and Amador Domingo. There was
no assumption of obligation of the [spouses Domingo]. Witness however
admitted that Far East Bank did not turn over to [BPI] all the records
pertaining to the account of the [spouses Domingo].9 (Citations omitted.)
Amador himself testified for the defense. The MeTC provided the following
summary of Amador's testimony:chanroblesvirtuallawlibrary
For his defense, defendant Amador Domingo testified that his wife and co-
defendant Mercy Maryden Domingo died on November 27, 2003. He
admitted that his wife bought a car and was mortgaged to Far East Bank and
Trust Company. He identified the Chattel Mortgage and the Promissory Note
he executed together with his wife. In connection with the execution of this
Promissory Note, he recalled that his wife issued forty-eight (48) checks. The
twelve (12) checks were cleared by the bank and his wife was able to obtain a
discount for prompt payments up to October 1994. While they were still
paying for the car, Carmelita Gonzales got interested to buy the car and is
willing to assume the mortgage. After furnishing the bank [with] the Deed of
Sale duly notarized, Carmelita Gonzales subsequently issued a check payable
to Far East Bank and Trust Company and the remaining postdated checks were
returned to them. Based on the application of payment prepared by [BPI's]
witness, Carmelita Gonzales made payments from November 14, 1995 to
December 1995. Aside from these payments on May 19, 1997, Carmelita
Gonzales issued a check to Far East Bank in the amount of P385,431.60. In
1996, he received a phone call from a certain Marvin Orence asking for their
assistance to locate the car which Carmelita Gonzales bought from them. His
lawyer went to Land Transportation Office for assistance. From the time Ms.
Gonzales started to pay, they never received any demand letter from Far East
Bank. Thereafter, on February 29, 1997, they received a demand letter from
Espino Law Office [on] behalf of [FEBTC]. His lawyer made a reply on March
31, 1997 stating therein that the motor vehicle for which the loan was
obtained had been sold to Carmelita Gonzales as of July 5, 1994 with the
knowledge and approval of their client. After three years, they received
another demand letter dated October 31, 2000 from Labaguis Law Office. His
lawyer made the same reply on March 7, 2000 and another letter on
November 24, 2000.
Witness further testified that this malicious complaint probably triggered the
early demise of his wife who has a high blood pressure. His wife died of
aneurism. As damages, he is asking for the amount of P200,000.00 as moral
damages, P75,000.00 as attorney's fees and P5,000.00 appearance fee.
On cross-examination, witness elaborates that when his wife presented to Far
East Bank the Deed of Sale with Assumption of Mortgage, the bank made no
objection and returned all their postdated checks. His wife was the one who
deal[t] with Carmelita Gonzales but he always provide[d] assistance with
respect to paper works. Aside from the aforesaid Deed of Sale, there is no
other document which shows the conformity of the bank. They were only
verbally assured by Mr. Orence that their papers are in
order.10cralawlawlibrary
On June 10, 2004, the MeTC rendered a Decision in favor of BPI as the bank
was able to establish by preponderance of evidence a valid cause of action
against the spouses Domingo. According to the MeTC, novation is never
presumed and must be clearly shown by express agreement or by acts of
equal import. To effect a subjective novation by a change in the person of the
debtor, it is necessary that the old debtor be released expressly from the
obligation and the third person or new debtor assumes his place. Without
such release, there is no novation and the third person who assumes the
debtor's obligation merely becomes a co-debtor or surety. The MeTC found
Amador's bare testimony as insufficient evidence to prove that he and his wife
Mercy had been expressly released from their obligations and that Carmelita
Gonzales (Carmelita) assumed their place as the new debtor within the
context of subjective novation; and if at all, Carmelita only became the
spouses Domingo's co-debtor or surety. While finding that BPI was entitled to
the reliefs prayed for, the MeTC made no adjudication as to the entitlement of
the bank to the Writ of Replevin, and instead awarded monetary reliefs as
were just and equitable. The dispositive portion of the MeTC decision
reads:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, judgment is hereby rendered in favor of
[BPI], ordering defendant Amador Domingo:
1. To pay [BPI] the sum of P275,562.00 plus interest
thereon at the rate of 36% per annum from November
15, 2000 until fully paid;
2. To pay [BPI] the sum equivalent to 25% of the total
amount due as atorney's fees; and
3. To pay the costs of suit.11
Acting on Amador's Motion for Reconsideration, the MeTC issued an
Order12 dated September 6, 2004 affirming its earlier judgment but reducing
the attorney's fees awarded, thus:chanroblesvirtuallawlibrary
WHEREFORE, premises considered the Decision of this Court dated June 10,
Pag
2014 stands, subject to the modification that the attorney's fees of twenty-
five percent (25%) is ordered reduced to ten percent (10%) of the total e|
amount due.13cralawlawlibrary
138
Dissatisfied, Amador appealed his case before the Regional Trial Court (RTC) of
Manila, Branch 26, wherein it was docketed as Civil Case No. 04-111100. In its
Decision dated February 10, 2005, the RTC held that in novation, consent of
the creditor to the substitution of the debtor need not be by express
agreement, it can be merely implied. The consent is not required to be in any
specific or particular form; the only requirement being that it must be given by
the creditor in one way or another. To the RTC, the following circumstances
demonstrated the implied consent of BPI to the novation: (1) BPI had
knowledge of the Deed of Sale and Assumption of Mortgage executed
between Mercy and Carmelita, but did not interpose any objection to the
same; and (2) BPI (through FEBTC) returned the personal checks of the
spouses Domingo and accepted the payments made by Carmelita. The RTC
also noted that BPI made a demand for payment upon the spouses Domingo
only after 30 months from the time Carmelita assumed payments for the
installments due. The RTC reasoned that if the spouses Domingo truly
remained as debtors, BPI would not have wasted time in demanding payments
from them. Ultimately, the RTC decreed:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the judgment appealed from is hereby
reversed. The complaint filed by [BPI] before [MeTC] Branch 9, Manila, is
hereby DISMISSED and ordering [BPI] to pay defendant/appellant Amador
Domingo the following, to wit:
a) One Hundred Thousand (P100,000.00) Pesos as moral damages;
b) Fifty Thousand (P50,000.00) Pesos as exemplary damages;
c) Fifty Thousand (P50,000.00) Pesos as attorney's fees;
d) Twenty-Five Thousand (P25,000.00) [Pesos] as litigation expenses;
e) Costs of this suit.14cralawlawlibrary
Aggrieved by the foregoing RTC judgment, BPI filed a Petition for Review with
the Court of Appeals, docketed as CA-G.R. SP No. 88836. The Court of Appeals
promulgated its Decision on July 11, 2005, affirming the finding of the RTC
that novation took place. The Court of Appeals, relying on the declaration
in Babst v. Court of Appeals15 that consent of the creditor to the substitution
of debtors need not always be express and may be inferred from the acts of
the creditor, ruled that:chanroblesvirtuallawlibrary
In this case, there is no doubt that FEBTC had the intention to release private
respondent [Amador] and his wife from the obligation when the latter sold the
subject vehicle to [Carmelita]. This intention can be inferred from the
following acts of FEBTC: 1) it returned the postdated checks issued by private
respondent [Amador's] wife in favor of FEBTC; 2) it accepted the payments
made by [Carmelita]; 3) it did not interpose any objection despite knowledge
of the existence of the Deed of Sale with Assumption of Mortgage; and 4) it
did not demand payment from private respondent [Amador] and his wife for
thirty (30) long months.
xxxx
As correctly found by the RTC, the testimony of private respondent [Amador]
as regards the return of the said checks to them by FEBTC was not rebutted by
petitioner BPI.
If indeed the said checks were not returned to private respondent [Amador's]
wife, the least thing that petitioner BPI or FEBTC could have done was to
deposit them. Should the checks thereafter bounce, then petitioner BPI or
FEBTC could have filed a separate case against private respondent [Amador's]
wife. This was never done by petitioner BPI or FEBTC. Hence, it is safe to
conclude that the said checks were indeed returned to private respondent
[Amador's] wife.16cralawlawlibrary
The Court of Appeals rejected the other arguments of
BPI:chanroblesvirtuallawlibrary
Petitioner BPI further argues that as regards the payment made by the alleged
new debtor, Carmelita Gonzales, it appears that the only payment made by
her was a PNB Check No. 00190322 dated May 19, 1997 which was
dishonored due to Account Closed.
Careful scrutiny of the records of the case reveals otherwise. As found by the
MeTC in its decision dated June 10, 2004, Carmelita Gonzales made several
payments on the said loan obligation, as testified to by witness Vicente
Magpusao, petitioner BPFs Account Analyst, thus:chanroblesvirtuallawlibrary
xxx. Based on the subsidiary leger, (Exhibit "2"), there were three (3) checks
that bounced and these are payments from the new buyer. They only have
one (1) photocopy of these checks in the amount of P325,431.60 (Exhibit 4)
while the other two are missing. He was not aware who owns Cargo and
Hardware Corporation but the check was issued by a certain Miss Gonzales.
xxx.
xxxx
Petitioner BPI further argues that it was not its obligation to interpose any
objection to the Deed of Sale with Assumption of Mortgage. Rather it should
be the vendee, [Carmelita], who should secure the approval and consent of
petitioner BPI to the Deed of Sale.
This argument is untenable.
The Deed of Sale with Assumption of Mortgage between private respondent
[Amador's] wife and [Carmelita] was executed way back on July 5, 1994. The
check that was issued by [Carmelita] was dated May 19, 1997. The position of
petitioner BPI is not possible because when the Deed of Sale with Assumption
of Mortgage was executed and the said check was issued, private respondent
[Amador's] wife and [Carmelita] were still dealing with FEBTC, considering the
fact that the merger of petitioner BPI and FEBTC was formalized on April 10,
2000.
Nevertheless, FEBTC interposed no objection to the Deed of Sale with
Assumption of Mortgage, hence, it consented to it.
From the foregoing, it is clear that novation took place so that private
respondent Domingo is no longer the debtor of petitioner BPI.17 (Citations
omitted.)
The Court of Appeals, however, deleted the damages awarded to Amador for
the following reasons:chanroblesvirtuallawlibrary
As to the second issue, petitioner BPI argues that the RTC awarded moral and
exemplary damages and attorney's fees to respondent [Amador] only in the
dispositive portion of the assailed decision without any basis in fact and in law.
This Court finds the argument tenable.
In the case of Solid Homes, Inc. vs. Court of Appeals, it was held
that:chanroblesvirtuallawlibrary
"It is basic that the claim for actual, moral and punitive damages as well as
exemplary damages and attorney's fees must each be independently
identified and justified."
Furthermore, Section 14, paragraph 1 of Article VIII, of the 1987 Constitution
lays down the standard in rendering decisions, to wit: it must be express
therein clearly and distinctly the facts and law on which it is based.
Perusal of the assailed decision reveals that the award of moral and exemplary
damages as well as attorney's fees and litigation expenses were only touched
in the dispositive portion, which is in clear disregard of the established rules
laid down by the Constitution and existing jurisprudence. Therefore, their
deletion is in order.
As regards the award of litigation expenses and costs of the suit, the same
should also be deleted considering that "no premium should be placed on the
right to litigate."18 (Citations omitted.)
The Court of Appeals ultimately adjudged:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the assailed decision dated February 10,
2005 of the Regional Trial Court, Branch 26, Manila in Civil Case No. 04-
111100 is hereby AFFIRMED with MODIFICATION in that the award of moral
and exemplary damages as well as attorney's fees, litigation expenses and
costs of suit, is hereby deleted.19cralawlawlibrary
In its Resolution dated August 19, 2005, the Court of Appeals denied the
Motion for Partial Reconsideration of BPI.
BPI comes to this Court via the present Petition for Review/Appeal
by Certiorari raising the sole issue of whether or not there had been a
novation of the loan obligation with chattel mortgage of the spouses Domingo
to BPI so that the spouses Domingo were released from said obligation and
Carmelita was substituted as debtor.
The Court answers in the negative and grants the Petition.
In De Cortes v.Venturanza,20 the Court discussed some principles and
jurisprudence underlying the concept and nature of novation as a mode of
extinguishing obligations:chanroblesvirtuallawlibrary
According to Manresa, novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal
conditions, or by substituting the person of the debtor, or by subrogating a
third person to the rights of the creditor (8 Manresa 428, cited in IV Civil Code
of the Philippines by Tolentino 1962 ed., p. 352). Unlike other modes of
extinction of obligations, novation is a juridical act with a dual function - it
extinguishes an obligation and creates a new one in lieu of the old.
Article 1293 of the New Civil Code provides:chanroblesvirtuallawlibrary
"Novation which consists in substituting a new debtor in the place of the
original one, may be made even without the knowledge or against the will of
the latter, but not without the consent of the creditor." (emphasis supplied)
Under this provision, there are two forms of novation by substituting the Pag
person of the debtor, and they are: (1) expromision and (2) delegacion. In the e|
former, the initiative for the change does not come from the debtor and may
even be made without his knowledge, since it consists in a third person
139
assuming the obligation. As such, it logically requires the consent of the third
person and the creditor. In the latter, the debtor offers and the creditor
accepts a third person who consents to the substitution and assumes the
obligation, so that the intervention and the consent of these three persons are
necessary (8 Manresa 436-437, cited in IV Civil Code of the Philippines by
Tolentino, 1962 ed., p. 360). In these two modes of substitution, the consent of
the creditor is an indispensable requirement (Garcia vs. Khu Yek Chiong, 65
Phil. 466, 468). (Emphases supplied.)
The Court also emphasized in De Cortes the indispensability of the creditor's
consent to the novation, whether expromision or delegacion, given that the
"substitution of one debtor for another may delay or prevent the fulfillment of
the obligation by reason of the financial inability or insolvency of the new
debtor; hence, the creditor should agree to accept the substitution in order
that it may be binding on him."21
Both the RTC and the Court of Appeals found that there was novation
by delegacion in the case at bar. The Deed of Sale with Assumption of
Mortgage was executed between Mercy (representing herself and her
husband Amador) and Carmelita, thus, their consent to the substitution as
debtors and third person, respectively, are deemed undisputed. It is the
existence of the consent of BPI (or its absorbed corporation FEBTC) as creditor
that is being challenged herein.
As a general rule, since novation implies a waiver of the right the creditor had
before the novation, such waiver must be express.22 The Court explained the
rationale for the rule in Testate Estate of Lazaro Mota v.
Serra23:chanroblesvirtuallawlibrary
It should be noted that in order to give novation its legal effect, the law
requires that the creditor should consent to the substitution of a new debtor.
This consent must be given expressly for the reason that, since novation
extinguishes the personality of the first debtor who is to be substituted by a
new one, it implies on the part of the creditor a waiver of the right that he had
before the novation, which waiver must be express under the principle
that renuntiatio non praesumitor, recognized by the law in declaring that a
waiver of right may not be performed unless the will to waive is indisputably
shown by him who holds the right.
However, in Asia Banking Corporation v. Elser,24 the Court qualified
thus:chanroblesvirtuallawlibrary
The aforecited article 1205 [now 1293] of the Civil Code does not state that
the creditor's consent to the substitution of the new debtor for the old be
express, or given at the time of the substitution, and the Supreme Court of
Spain, in its judgment of June 16, 1908, construing said article, laid down the
doctrine that "article 1205 of the Civil Code does not mean or require that the
creditor's consent to the change of debtors must be given simultaneously with
the debtor's consent to the substitution; its evident purpose being to preserve
the creditor's full right, it is sufficient that the latter's consent be given at any
time and in any form whatever, while the agreement of the debtors subsists."
The same rule is stated in the Enciclopedia Juridica Española, volume 23, page
503, which reads: "The rule that this kind of novation, like all others, must be
express, is not absolute; for the existence of the consent may well be inferred
from the acts of the creditor, since volition may as well be expressed by deeds
as by words." The understanding between Henry W. Elser and the principal
director of Yangco, Rosenstock & Co., Inc., with respect to Luis R. Yangco's
stock in said corporation, and the acts of the board of directors after Henry W.
Elser had acquired said shares, in substituting the latter for Luis R. Yangco, are
a clear and unmistakable expression of its consent. When this court said in the
case of Estate of Mota vs. Serra (47 Phil., 464), that the creditor's express
consent is necessary in order that there may be a novation of a contract by
the substitution of debtors, it did not wish to convey the impression that the
word "express" was to be given an unqualified meaning, as indicated in the
authorities or cases, both Spanish and American, cited in said decision.
Hence, based on the aforequoted ruling in Asia Banking, the existence of the
creditor's consent may also be inferred from the creditor's acts, but such acts
still need to be "a clear and unmistakable expression of [the creditor's]
consent."25
In Ajax Marketing and Development Corporation v. Court of Appeals,26 the
Court further clarified that:chanroblesvirtuallawlibrary
The well settled rule is that novation is never presumed. Novation will not be
allowed unless it is clearly shown by express agreement, or by acts of equal
import. Thus, to effect an objective novation it is imperative that the new
obligation expressly declare that the old obligation is thereby extinguished, or
that the new obligation be on every point incompatible with the new one. In
the same vein, to effect a subjective novation by a change in the person of the
debtor it is necessary that the old debtor be released expressly from the
obligation, and the third person or new debtor assumes his place in the
relation. There is no novation without such release as the third person who
has assumed the debtor's obligation becomes merely a co-debtor or surety.
(Citations omitted.)
The determination of the existence of the consent of BPI to the substitution of
debtors, in accordance with the standards set in the preceding jurisprudence,
is a question of fact because it requires the Court to review the evidence on
record. It is an established rule that the jurisdiction of the Court in cases
brought before it from the Court of Appeals via a petition for review
on certiorari under Rule 45 of the Rules of Court is generally limited to
reviewing errors of law as the former is not a trier of facts. Thus, the findings
of fact of the Court of Appeals are conclusive and binding upon the Court in
the latter's exercise of its power to review for it is not the function of the
Court to analyze or weigh evidence all over again.27 However, several of the
recognized exceptions28 to this rule are present in the instant case that justify
a factual review, i.e., the inference is manifestly mistaken, the judgment is
based on misapprehension of facts, and the findings of the Court of Appeals
and the RTC are contrary to those of the MeTC.
The burden of establishing a novation is on the party who asserts its
existence.29 Contrary to the findings of the Court of Appeals and the RTC,
Amador failed to discharge such burden as he was unable to present proof of
the clear and unmistakable consent of BPI to the substitution of debtors.
Irrefragably, there is no express consent of BPI to the substitution of debtors.
The Court of Appeals and the RTC inferred the consent of BPI from the
following facts: (1) BPI had a copy of the Deed of Sale and Assumption of
Mortgage executed between Mercy and Carmelita in its file, indicating its
knowledge of said agreement, and still it did not interpose any objection to
the same; (2) BPI (through FEBTC) returned the spouses Domingo's checks and
accepted Carmelita's payments; and (3) BPI did not demand any payment
from the spouses Domingo not until 30 months after Carmelita assumed the
payment of balance on the Promissory Note.
The Court disagrees with the inferences made by the Court of Appeals and the
RTC.
First, that BPI (or FEBTC) had a copy of the Deed of Sale and Assumption of
Mortgage executed between Mercy and Carmelita in its file does not mean
that it had consented to the same. The very Deed itself
states:chanroblesvirtuallawlibrary
That the VENDEE [Carmelita] assumes as he/she had assumed to pay the
aforecited mortgage in accordance with the original terms and conditions of
said mortgage, and the parties hereto [Mercy and Carmelita] have agreed to
seek the conformity of the MORTGAGEE [FEBTC].30cralawlawlibrary
This brings the Court back to the original question of whether there is proof of
the conformity of BPI.
The Court notes that the documents of BPI concerning the car loan and
chattel mortgage are still in the name of the spouses Domingo. No new
promissory note or chattel mortgage had been executed between BPI (or
FEBTC) and Carmelita. Even the account itself is still in the names of the
spouses Domingo.
The absence of objection on the part of BPI (or FEBTC) cannot be presumed as
consent. Jurisprudence requires presentation of proof of consent, not mere
absence of objection. Amador cannot rely on Babst which involved a different
factual milieu. Relevant portions of the Court's ruling in Babst are reproduced
below:chanroblesvirtuallawlibrary
In the case at bar, Babst, MULTI and ELISCON all maintain that due to the
failure of BPI to register its objection to the take-over by DBP of ELISCON's
assets, at the creditors' meeting held in June 1981 and thereafter, it is
deemed to have consented to the substitution of DBP for ELISCON as debtor.
We find merit in the argument. Indeed, there exist clear indications that BPI
was aware of the assumption by DBP of the obligations of ELISCON. In fact, BPI
admits that—
"[T]he Development Blank of the Philippines (DBP), for a time, had proposed a
formula for the settlement of Eliscon's past obligations to its creditors,
including the plaintiff [BPI], but the formula was expressly rejected by the
plaintiff as not acceptable (long before the filing of the complaint at bar)."
The Court of Appeals held that even if the account officer who attended the
June 1981 creditors' meeting had expressed consent to the assumption by
DBP of ELISCON's debts, such consent would not bind BPI for lack of a specific
authority therefor. In its petition, ELISCON counters that the mere presence of
the account officer at the meeting necessarily meant that he was authorized
to represent BPI in that creditors' meeting. Moreover, BPI did not object to
the substitution of debtors, although it objected to the payment formula
submitted by DBP.
Indeed, the authority granted by BPI to its account officer to attend the
creditors' meeting was an authority to represent the bank, such that when he
failed to object to the substitution of debtors, he did so on behalf of and for
the bank. Even granting arguendo that the said account officer was not so
empowered, BPI could have subsequently registered its objection to the
substitution, especially after it had already learned that DBP had taken over Pag
the assets and assumed the liabilities of ELISCON. Its failure to do so can only
mean an acquiescence in the assumption by DBP of ELISCON's obligations. As e|
repeatedly pointed out by ELISCON and MULTI, BPI's objection was to the 140
proposed payment formula, not to the substitution itself.31cralawlawlibrary
In Babst, there was a clear opportunity for BPI, as creditor therein, to o ject to
the substitution of debtors given that its representative attended a creditor's
meeting, during which, said representative already objected to the proposed
payment formula made by DBP, as the new debtor. Hence, the silence of BPI
during the same meeting as to the matter of substitution of debtors could
already be interpreted as its acquiescence to the same. In contrast, there was
no clear opportunity for BPI (or FEBTC) to have expressed its objection to the
substitution of debtors in the case at bar.
Second, the consent of BPI to the substitution of debtors cannot be deduced
from its acceptance of payments from Carmelita, absent proof of its clear and
unmistakable consent to release the spouses Domingo from their obligation.
Since the spouses Domingo remained as debtors of BPI, together with
Carmelita, the fact that BPI demanded payment from the spouses Dokningo
30 months after accepting payment from Carmelita is insignificant.
The acceptance by a creditor of payments from a third person, who has
assumed the obligation, will result merely to the addition of debtors and not
novation. The creditor may therefore enforce the obligation against both
debtors.32 As the Court pronounced in Magdalena Estates, Inc. v.
Rodriguez,33 "[t]he mere fact that the creditor receives a guaranty or accepts
payments from a third person who has agreed to assume the obligation, when
there is no agreement that the first debtor shall be released from
responsibility, does not constitute a novation, and the creditor can still
enforce the obligation against the original debtor." The Court reiterated
in Quinto v. People34 that "[n]ot too uncommon is when a stranger to a
contract agrees to assume an obligation; and while this may have the effect of
adding to the number of persons liable, it does not necessarily imply the
extinguishment of the liability of the first debtor. Neither would the fact alone
that the creditor receives guaranty or accepts payments from a third person
who has agreed to assume the obligation, constitute an extinctive novation
absent an agreement that the first debtor shall be released from
responsibility."
Absent proof that BPI gave its clear and unmistakable consent to release the
spouses Domingo from the obligation to pay the car loan, Carmelita is simply
considered an additional debtor. Consequently, BPI can still enforce the
obligation against the spouses Domingo even 30 months after it had started
accepting payments from Carmelita.
And third, there is no sufficient or competent evidence to establish the return
of the checks to the spouses Domingo and the assurance made by FEBTC that
the spouses Domingo were already released from their obligation.
During his direct examination, Amador testified as
follows:chanroblesvirtuallawlibrary
Atty. Rivera:
1. Q. Do you remember who was this person who became interested to
buy this car?
A. Carmelita S. Gonzales, Sir.
2. Q. What did you tell Mrs. Gonzales when she expressed interest in
buying this car, this Mazda vehicle?
A. We told her that the car was mortgaged and she told us that she is
willing to assume the mortgage, Sir.
3. Q. With that willingness, what happened next on the part of Mrs.
Gonzales to assume the mortgage?
A. My wife and Mrs. Gonzales went to Far East Bank and Trust
Company and she informed the bank that somebody is interested in
buying the car and assume the mortgage and the bank informed her
that the bank is agreeable and with no objection.
Atty. Objection, your Honor. May we object to the answer of the witness,
Ganitano:it would be hearsay. The witness testified that it was his wife and the
would-be buyer who went to the bank.
Atty. Then, we are just offering it as part of the narration not necessarily
Rivera: to prove the truth of the statement, your Honor.
Court: The witness may continue.
Atty. So, after that meeting with the bank occurred, what happened next
Rivera: in connection with this intention of Mrs. Gonzales to purchase the
car?
Witness: After furnishing the bank with the Deed of Absolute Sale duly
 notarized, [Ms.] Carmelita Gonzales subsequently issued a check Rivera: stress this point, as early as March 1997, the name of Marvin
payable to Far East Bank and Trust Company, Sir. Oronce...
Atty. Atty. The witness is under cross, your Honor.
Rivera: Ganitano:
1. Q. How about the postdated checks that your wife issued to Far East Court: You just ask that in re-direct, counsel.
Bank and Trust Company? Atty. Yes, you Honor.36
A. The remaining postdated checks were returned to us, Sir. Rivera:
2. Q. Do you remember what were those postdated checks that were Amador admitted that it was his wife Mercy, together with Carmelita, who
returned by the bank? directly transacted with FEBTC regarding the sale of the subject vehicle to and
A. Those were the checks we issued in advance, Sir. assumption of mortgage by Carmelita. Amador had no personal knpwledge of Pag
3. Q. What were the dates of these checks? what had happened when Mercy and Carmelita went to the bank so his
A. October 30, 1994 to 1997, Sir. testimony on the matter was hearsay, which, if not excluded, deserves no e|
xxxx credence. 141
Atty.
Rivera: The Court explained in Da Jose v. Angeles37 that:chanroblesvirtuallawlibrary
1. Q. Aside from this evidence that you have enumerated, were you able Evidence is hearsay when its probative force depends on the competency and
to talk to any representative from Far East Bank relative to the credibility of some persons other than the witness by whom it is sought to be
approval of the change in the personality of the debtor from your produced. The exclusion of hearsay evidence is anchored on three reasons: (1)
wife to... absence of cross-examination; (2) absence of demeanor evidence; and (3)
A. As I remember, sometime in 1996, I received a call from a certain absence of oath. Basic under the rules of evidence is that a witness can only
Marvin Orence asking for our assistance to locate the car that Mrs. testify on facts within his or her personal knowledge. This personal knowledge
Carmelita Gonzales bought from us and informed us that we have is a substantive prerequisite in accepting testimonial evidence establishing the
nothing to worry except that we provide them assistance to locate truth of a disputed fact, x x x. (Citations omitted.)
the car and I informed our lawyer, Atty. Rivera, about this and Atty.
The Court of Appeals and the RTC substantively based their finding that BPI (or
Rivera went to the Land Transportation Office for assistance.35
FEBTC) consented to the substitution of debtors on the return of the checks to
Amador continued to testify on cross-examination,
the spouses Domingo, but the proof of the issuance of the checks, their
thus:chanroblesvirtuallawlibrary
delivery to the bank, and the return of the checks flimsily consists of Amador's
CROSS EXAMINATION BY ATTY. GANITANO
unsubstantiated testimony. Amador recounted that the postdated checks
1. Q.. You testified that out of the 48 checks you paid to Far East Bank &
which he and Mercy executed in favor of FEBTC were returned to them,
Trust Company, only 12 checks were made good. What happened to
however, he failed to provide the details surrounding the return. Amador only
the 36 checks?
stated that when Mercy provided FEBTC with a copy of the Deed of Sale and
A. When my wife brought the transaction to Far East Bank and
Assumption of Mortgage, the bank returned the checks to them
presented the Deed of Absolute Sale, the bank have no objection to
"subsequently" or "afterwards." Amador did not say how the checks were
the sale of the car and afterwards, the bank returned all the
returned and to whom. The checks were not presented during the trial since
postdated checks prepared by my wife that was in the possession of
according to Amador, they were already "discarded," although once more, any
the bank, Sir.
other detail surrounding the discarding of the checks is sorely lacking. Aside
1. Q. Do you have with you those 36 checks that were allegedly returned
from Amador's bare testimony, no other supporting evidence of the return of
by Far East Bank?
the checks to the spouses Domingo was submitted during trial. For the
A. AThese checks have already been discarded, Sir.
foregoing reasons, the Court accords little weight and credence to Amador's
2. Q. So, you cannot present those 36 checks anymore?
testimony on the return of the checks.
A. No, Sir.
3. Q. Who was the alleged buyer of the mortgaged car again?
It is worthy to stress that Amador, as the party asserting novation, bears the
Witness: Carmelita S. Gonzales, Sir.
burden of proving its existence. Amador cannot simply rely on the failure of
Atty.
BPI to produce the checks if these were not actually returned to the spouses
Ganitano:
Domingo. There is simply not enough evidence to establish the prima
1. Q. To whom did this Carmelita Gonzales transacted with respect to the
facie existence of novation to shift the burden of evidence to BPI to controvert
sale of mortgaged vehicle?
the same.
A. To my wife, Mercy Maryden Domingo, Sir.
2. Q. Not with you, Mr. Witness?
The verbal assurances purportedly given by a Mr. Marvin Orence or Oronce
A. Well, I always provide assistance to my wife with regards to paper
(Orence/Oronce) of FEBTC to Amador over the telephone that the spouses
works, Sir.
Domingo's documents were in order do not constitute the clear and
3. Q. Q When was this Deed of Sale executed, was it before when your
unmistakable consent of the bank to the substitution of debtors. Once again,
wife and the buyer went to the bank or after they went to the bank?
except for Amador's bare testimony, there is no other evidence of such
A. A I think it was simultaneous, Sir.
telephone conversations taking place and the subject of such telephone
4. Q. When you say "simultaneous", Mr. Witness, I'm showing to you this
conversations. In addition, Mr. Orence/Oronce's identity, position at FEBTC,
Deed of Sale with Assumption of Mortgage and you said it was with
and authority to represent and bind the bank, were not even clearly
the conformity of the bank. Will you please tell us in this Deed of
established.
Sale with Assumption of Mortgage if you could find any entry which
indicate that the bank agreed to the sale with assumption of
The letter dated March 31, 1997 of Atty. Ricardo J.M. Rivera (Rivera), counsel
mortgage?
for the spouses Domingo, addressed to Atty. Cresenciano L. Espino, counsel
Witness: None, Sir.
for FEBTC, does not serve as supporting evidence for Amador's testimony
Atty. Aside from this Deed of Sale with Assumption of Mortgage, do you
regarding the return of the checks and the verbal assurances given by Mr.
Ganitano:have any document which shows that the bank indeed conformed to
Orence/Oronce. The contents of such letter are rriere hearsay because the
the sale of the mortgaged vehicle with assumption of mortgage?
events stated therein did not personally happen to Aity. Rivera or in his
Witness: We were verbally assured that our papers are in order, Sir.
presence, and he merely relied on what his clients, the spouses Domingo, told
Atty. So, there is no document, Mr. Witness, it was only made orally?
him.
Ganitano:
Witness: Yes, Sir, we were verbally assured that our papers are in order.
The Court is therefore convinced that there is no novation by delegacion in
Atty.
this case and Amador remains a debtor of BPI. The Court reinstates the MeTC
Ganitano:
judgment ordering Amador to pay for the P275,562.00 lance on the
1. Q. Were you present when your wife and the would be buyer went to
Promissory Note, 10% attorney's fees, and costs of suit; but modifies the rate
the bank?
of interest imposed and the date when such interest began to run.
A. No, Sir.
2. Q. How did you know that there was an assurance from the bank?
In Ruiz v. Court of Appeals,38 the Court equitably reduced the interest te of 3%
A. I received a phone call from Mr. Oronce. I asked about the
per month or 36% per annum stipulated in the promissory notes jrein to 1%
transaction and he told me that there is nothing to worry because
per month or 12% per annum, based on the following
our documents or papers were in order, Sir.
ratiocination:chanroblesvirtuallawlibrary
3. Q. Do I get you right, Mr. Witness, that the confirmation was only
We affirm the ruling of the appellate court, striking down as invalid the 10%
through phone call?
compounded monthly interest, the 10% surcharge per month stipulated in the
A. It was Mr. Oronce who called me, Sir.
promissory notes dated May 23, 1995 and December 1, 1995, and the 1%
4. Q. I'm just asking what was the means of communication, was it only
compounded monthly interest stipulated in the promissory note dated April
thru phone call?
21, 1995. The legal rate of interest of 12% per annum shall apply after the
A. Yes, Sir, thru phone call. I think twice or three times.
maturity dates of the notes until full payment of the entire amount due. Also,
Atty. We would like to manifest, your Honor, as early as 1997, just to
the only permissible rate of surcharge is 1% per month, without
compounding. We also uphold the award of the appellate court of attorney's
fees, the amount of which having been reasonably reduced from the
stipulated 25% (in the March 22, 1995 promissory note) and 10% (in the other
three promissory notes) of the entire amount due, to a fixed amount of
P50,000.00. However, we equitably reduce the 3% per month or 36% per
annum interest present in all four (4) promissory notes to 1% per month or
12% per annum interest.
The foregoing rates of interests and surcharges are in accord with Medel vs.
Court of Appeals, Garcia vs. Court of Appeals, Bautista vs. Pilar Development
Corporation, and the recent case of Spouses Solangon vs. Salazar. This Court
invalidated a stipulated 5.5% per month or 66% per annum interest on a
P500,000.00 loan in Medel and a 6% per month or 72% per annum interest on
a P60,000.00 loan in Solangon for being excessive, iniquitous, unconscionable
and exorbitant. In both cases, we reduced the interest rate to 12% per annum.
We held that while the Usury Law has been suspended by Central Bank
Circular No. 905, s. 1982, effective on January 1, 1983, and parties to a loan
agreement have been given wide latitude to agree on any interest rate, still
stipulated interest rates are illegal if they are unconscionable. Nothing in the
said circular grants lenders carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets. On the other hand, in Bautista vs. Pilar Development Corp., this
Court upheld the validity of a 21% per annum interest on a P142,326.43 loan,
and in Garcia vs. Court of Appeals, sustained the agreement of the parties to a
24% per annum interest on an P8,649,250.00 loan. It is on the basis of these
cases that we reduce the 36% per annum interest to 12%. An interest of 12%
per annum is deemed fair and reasonable. While it is true that this Court
invalidated a much higher interest rate of 66% per annum in Medel and 72%
in Solangon it has sustained the validity of a much lower interest rate of 21%
in Bautista and 24% in Garcia. We still find the 36% per annum interest rate in
the case at bar to be substantially greater than those upheld by this Court in
the two (2) aforecited cases. (Citations omitted.)
On the strength of the foregoing jurisprudence, the Court likewise finds the
interest rate of 3% per month or 36% per annum stipulated in the Promissory
Note herein for the balance of P275,562.00 as excessive, iniquitous,
unconscionable, and exorbitant. Following the guidelines set forth in Eastern
Shipping Lines, Inc. v. Court of Appeals39 and Nacar v. Gallery Frames,40 the
Court imposes instead legal interest in the following rates: (1) legal interest of
12% per annum from date of extrajudicial demand on January 29, 1997 until
June 30, 2013; and (2) legal interest of 6% per annum from July 1, 2013 until
fully paid.
Incidentally, Amador passed away on June 5, 2010 during the pendency of the
instant petition, and is survived by his children, namely: Joann D. Moya,
Annabelle G. Domingo, Cristina G. Domingo, Amador G. Domingo, Jr., Gloria
Maryden D. Macatangay, Dante Amador G. Domingo, Gregory Amador A.
Domingo, and Ina Joy A. Domingo.41 To prevent future litigation in the
enforcement of the award, the Court clarifies that Amador's heirs are not
personally responsible for the debts of their predecessor. The extent of
liability of Amador's heirs to BPI is limited to the value of the estate which they
inherited from Amador. In this jurisdiction, "it is the estate or mass of the
property left by the decedent, instead of the heirs directly, that becomes
vested and charged with his rights and obligations which survive after his
death."42 To rule otherwise would unduly deprive Amador's heirs of their
properties.cralawred
WHEREFORE, in view of the foregoing, the Petition is GRANTED. The Decision
dated July 11, 2005 and Resolution dated August 19, 2005 of the Court of
Appeals in CA-G.R. SP No. 88836, affirming with modification the Decision
dated February 10, 2005 of the RTC of Manila, Branch 26 in Civil Case No. 04-
111100, is REVERSED and SET ASIDE. The Decision dated June 10, 2004 and
Order dated September 6, 2004 of the MeTC of Manila, Branch 9 in Civil Case
No. 168949-CV, is REINSTATED with MODIFICATIONS. The heirs of respondent
Amador Domingo are ORDERED to pay petitioner Bank of the Philippine
Islands the following:
(1) the P275,562.00 balance on the Promissory Note, plus legal interest of
12% from January 29, 1997 to June 30, 2013 and 6% from July 1, 2013 until
fully paid; (2) attorney's fees of 10%; and (3) costs of suit. However, the
liability of Amador Domingo's heirs is limited to the value of the inheritance
they received from the deceased.
SO ORDERED.chanroblesvirtuallawlibrary
G.R. No. 154069, June 06, 2016
INTERPORT RESOURCES CORPORATION, Petitioner, v. SECURITIES SPECIALIST,
INC., AND R.C. LEE SECURITIES INC., Respondents.
DECISION
BERSAMIN, J.:
This appeal assails the decision promulgated on February 11, 2002,1 whereby
the Court of Appeals (CA), in C.A.-G.R. SP No. 66600, affirmed the decision the
Securities and Exchange Commission (SEC) rendered in SEC AC No. 501-
5022 ordering Interport Resources Corporation (Interport) to deliver 25% of
the shares of stocks under Subscription Agreements Nos. 1805 and 1808-
1811, or the value thereof, and to pay to respondent Securities Specialist, Inc.
(SSI), jointly and severally with R.C. Lee Securities, Inc. (R.C. Lee), exemplary
damages and litigation expenses. Pag
e|
Antecedents
142
In January 1977, Oceanic Oil & Mineral Resources, Inc. (Oceanic) entered into
a subscription agreement with R.C. Lee, a domestic corporation engaged in
the trading of stocks and other securities, covering 5,000,000 of its shares
with par value of P0.01 per share, for a total of P50,000.00. Thereupon, R.C.
Lee paid 25% of the subscription, leaving 75% unpaid. Consequently, Oceanic
issued Subscription Agreements Nos. 1805, 1808, 1809, 1810, and 1811 to
R.C. Lee.3chanrobleslaw
On July 28, 1978, Oceanic merged with Interport, with the latter as the
surviving corporation. Interport was a publicly-listed domestic corporation
whose shares of stocks were traded in the stock exchange. Under the terms of
the merger, each share of Oceanic was exchanged for a share of
Interport.4chanrobleslaw
On April 16, 1979 and April 18, 1979, SSI, a domestic corporation registered as
a dealer in securities, received in the ordinary course of business Oceanic
Subscription Agreements Nos. 1805, 1808 to 1811, all outstanding in the
name of R.C. Lee, and Oceanic official receipts showing that 25% of the
subscriptions had been paid.5 The Oceanic subscription agreements were duly
delivered to SSI through stock assignments indorsed in blank by R.C.
Lee.6chanrobleslaw
Later on, R.C. Lee requested Interport for a list of subscription agreements
and stock certificates issued in the name of R.C. Lee and other individuals
named in the request. In response, Atty. Rhodora B. Morales, Interport1 s
Corporate Secretary, provided the requested list of all subscription
agreements of Interport and Oceanic, as well as the requested stock
certificates of Interport.7 Upon finding no record showing any transfer or
assignment of the Oceanic subscription agreements and stock certificates of
Interport as contained in the list, R.C. Lee paid its unpaid subscriptions and
was accordingly issued stock certificates corresponding
thereto.8chanrobleslaw
On February 8, 1989, Interport issued a call for the full payment of
subscription receivables, setting March 15, 1989 as the deadline. SSI tendered
payment prior to the deadline through two stockbrokers of the Manila Stock
Exchange. However, the stockbrokers reported to SSI that Interport refused to
honor the Oceanic subscriptions.9chanrobleslaw
Still on the date of the deadline, SSI directly tendered payment to Interport for
the balance of the 5,000,000 shares covered by the Oceanic subscription
agreements, some of which were in the name of R.C. Lee and indorsed in
blank. Interport originally rejected the tender of payment for all unpaid
subscriptions on the ground that the Oceanic subscription agreements should
have been previously converted to shares in Interport.10chanrobleslaw
SSI then required Interport to furnish it with a copy of any notice requiring the
conversion of Oceanic shares to Interport shares. However, Interport failed to
show any proof of the notice. Thus, through a letter dated March 30, 1989, SSI
asked the SEC for a copy of Interport's board resolution requiring said
conversion. The SEC, through Atty. Fe Eloisa C. Gloria, Director of Brokers and
Exchange Department, informed SSI that the SEC had no record of any such
resolution.11chanrobleslaw
Having confirmed the non-existence of the resolution, Francisco Villaroman,
President of SSI, met with Pablo Roman, President and Chairman of the Board
of Interport, and Atty. Pineda, Interport's Corporate Secretary, at which
meeting Villaroman formally requested a copy of the resolution. However,
Interport did not produce a copy of the resolution.12chanrobleslaw
Despite that meeting, Interport still rejected SSI's tender of payment for the
5,000,000 shares covered by the Oceanic Subscription Agreements Nos. 1805,
and 1808 to 1811.13chanrobleslaw
On March 31, 1989, or 16 days after its tender of payment, SSI learned that
Interport had issued the 5,000,000 shares to R.C. Lee, relying on the latter's
registration as the owner of the subscription agreements in the books of the
former, and on the affidavit executed by the President of R.C. Lee stating that
no transfers or encumbrances of the shares had ever been
made.14chanrobleslaw
Thus, on April 27, 1989, SSI wrote R.C. Lee demanding the delivery of the
5,000,000 Interport shares on the basis of a purported assignment of the
subscription agreements covering the shares made in 1979. R.C. Lee failed to
return the subject shares inasmuch as it had already sold the same to other
parties. SSI thus demanded that R.C. Lee pay not only the equivalent of the
25% it had paid on the subscription but the whole 5,000,000 shares at current
market value.15chanrobleslaw
SSI also made demands upon Interport and R.C. Lee for the cancellation of the
shares issued to R.C. Lee and for the delivery of the shares to
SSI.16chanrobleslaw
On October 6, 1989, after its demands were not met, SSI commenced this
case in the SEC to compel the respondents to deliver the 5,000,000 shares and
to pay damages.17 It alleged fraud and collusion between Interport and R.C.
Lee in rejecting the tendered payment and the transfer of the shares covered
by the subscription agreements.
On October 25, 1994, after due hearing, the Hearing Officer of the SEC's
Securities Investigation and Clearing Department (SICD) rendered a
decision,18 disposing thusly:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby rendered ordering respondent Interport to
deliver the five (5) million shares covered by Oceanic Oil and Mineral
Resources, Inc. subscription agreement TNos. 1805, 1808-1811 to petitioner
SSI; and if the same not be possible to deliver the value thereof, at the market
price as of the date of this judgment; and ordering both respondents, jointly
and severally, to indemnify the complainant in the sum of FIVE HUNDRED
THOUSAND PESOS (P500,000.00) by way of temperate or moderate damages,
to indemnify complainant in the sum of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) by way of exemplary damages; to pay for complainant's
litigation expenses, including attorney's fees, reasonably in the sum of THREE
HUNDRED THOUSAND pesos (P300,000.00) and to pay the costs of
suit.19chanroblesvirtuallawlibrary
Both Interport and R.C. Lee appealed to the SEC En Banc, which ultimately
ruled as follows:ChanRoblesVirtualawlibrary
After a careful review of the records of this case, we find basis in partially
reversing the decision dated October 25, 1994.
It is undisputed from the facts presented and evidence adduced that the
subject matter of this case pertains to the subscription agreements for which
complainant paid only twenty five percent and the remaining balance of
seventy five percent paid for by respondent RCL. Accordingly, to order the
return of the five million shares or the payment of the entire value thereof to
the complainant, without requiring the latter to pay the balance of seventy
five percent will be inequitable. Accordingly, the pertinent portion of the
decision is hereby revised to reflect this.
As regards the portion awarding temperate damages, the same may not be
awarded. All evidence presented by Securities Specialist, Inc. pertaining to its
"lost opportunity" seeking for damages for its supposed failure to sell
Interport's shares, when the market was allegedly good, is merely speculative.
Moreover, even if the alleged pecuniary loss of SSI would be considered, the
same is again purely speculative and deserves scant consideration by the
Commission. Hence, temperate damages may not be justly awarded along
with the other damages prayed for.
WHEREFORE, premises considered, judgment is hereby rendered, ordering
respondent Interport to deliver the corresponding shares previously covered
by Oceanic Oil Mineral Resources Inc. subscription agreements Nos. 1805-
1811 to petitioner SSI, to the extent only of 25% thereof, as duly paid by
petitioner SSI; and if the same will not be possible, to deliver the value thereof
at the market price as of the date of this judgment and ordering both
respondents jointly and severally, to indemnify the complainant in the sum of
five hundred thousand pesos (P500,000.00) by way of exemplary damages, to
pay for complainant's litigation expenses, including attorney's fees, reasonably
in the sum of three hundred thousand pesos (P300,000.00) and to pay the
costs of the suit.20chanroblesvirtuallawlibrary
Interport appealed to the CA,21 which on February 11, 2002 affirmed the SEC's
decision,22viz.:ChanRoblesVirtualawlibrary
WHEREFORE, premises considered the Petition is hereby DENIED DUE COURSE
and ordered DISMISSED and the challenged decision of the Securities and
Exchange Commission AFFIRMED, with costs to Petitioner.
SO ORDERED.
On June 25, 2002, the CA denied Interport's motion for
reconsideration.23chanrobleslaw
Issues
Interport assigns the following errors to the CA,
namely:ChanRoblesVirtualawlibrary
I
THE COURT OF APPEALS ERRED AND COMMITTED GRAVE ABUSE OF
DISCRETION IN THE APPRECIATION OF THE FACTS IN HOLDING PETITIONER
LIABLE TO DELIVER THE 25% OF THE SUBJECT 5 MILLION SHARES OR IF THE
SAME NOT BE POSSIBLE TO DELIVER THE VALUE THEREOF DESPITE THE
EVIDENCE TO THE CONTRARY.
II
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS LIABLE FOR Pag
EXEMPLARY DAMAGES IN THE AMOUNT OF P500 000.00 WITHOUT LEGAL
e|
BASIS, WHICH IS NOT IN ACCORD WITH LAW AND APPLICABLE DECISIONS OF
THE SUPREME COURT. 143
III
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER IS LIABLE FOR
ATTORNEY'S FEES IN THE AMOUNT OF P300.000.00 AND COSTS THERE BEING
NO FACTUAL AND LEGAL BASIS, WHICH IS NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE SUPREME COURT.24chanroblesvirtuallawlibrary
The issues are: (a) whether or not Interport was liable to deliver to SSI the
Oceanic shares of stock, or the value thereof, under Subscriptions Agreement
No. 1805, and Nos. 1808 to 1811 to SSI; and (b) whether or not SSI was
entitled to exemplary damages and attorney's fees.
Ruling
The appeal is partly meritorious.
1.
Interport was liable to deliver the Oceanic shares of stock, or the value thereof,
under Subscription Agreements Nos. 1805, and 1808 to 1811 to SSI
Interport argues that R.C. Lee should be held liable for the delivery of 25% of
the shares under the subject subscription agreements inasmuch as R.C. Lee
had already received all the 5,000,000 shares upon its payment of the 75%
balance on the subscription price to Interport; that it was only proper for R.C.
Lee to deliver 25% of the shares under the Oceanic subscription agreements
because it had already received the corresponding payment therefor from SSI
for the assignment of the shares; that R.C. Lee would be unjustly enriched if it
retained the 5,000,000 shares and the 25% payment of the subscription price
made by SSI in favor of R.C. Lee as a result of the assignment; and that it
merely relied on its records, in accordance with Section 74 of the Corporation
Code, when it issued the stock certificates to R.C. Lee upon its full payment of
the subscription price.
Interport's arguments must fail.
In holding Interport liable for the delivery of the Oceanic shares, the SEC
explained:ChanRoblesVirtualawlibrary
x x x [T]he Oceanic subscriptions agreements were duly delivered to the
Complainant SSI supported by stock assignments of respondent R.C. Lee
(Exhibits "B" to "B-4" of the petitioner) and by official receipts of Oceanic
showing that twenty five percent of the subscription had been paid (Exhibits
"C" to "C-4"). To this date, respondent R.C. Lee does not deny having
subscribed and delivered such stock assignments to the Oceanic subscription
agreements. Therefore, having negotiated them by allowing to be in street
certificates, respondent R.C. Lee, as a broker, cannot now legally and morally
claim any further interests over such subscriptions or the shares of stock they
represent.
xxxx
Both respondents seek to be absolved of liability for their machinations by
invoking both the rule on novation of the debtor without the creditor's
consent; as well as the Corporation Code rule of nonregistration of transfers in
the corporation's stock and transfer book. Neither will avail in the case at bar.
Art. 1293 of the New Civil Code states:
chanRoblesvirtualLawlibrary"Art. 1293. Novation which consists in substituting
a new debtor in the place of the original one may be made even without the
knowledge or against the will of the latter but not without the consent of the
creditor" x x x.
More importantly, the allusion by the respondents likening the subscription
contracts to the situation of debtor-creditor finds no basis in law. Indeed, as
held by the Supreme Court, shareholders are not creditors of the corporation
with respect to the shareholdings (Garcia vs. Lim Chu Sing, 59 Phil. 562).
The Memorandum of R.C. Lee, likewise cites the Opinion of the SEC dated
November 12, 1976, which states "that since an assignment will involve a
substitution of debtor or novation of contract, as such the consent of the
creditor must be obtained" has the same effect. The opinion, however, merely
restated the general rule already embodied in the Codal provision quoted
above; it does not preclude previously authorized transfers. According to
Tolentino -
"When the original contract authorizes the debtor to transfer his obligations
to a third person, the novation by substitution of debtor is effected when the
creditor is notified that such transfer has been made" (IV Tolentino 392, 1991
ed, Emphasis supplied)
But even following the argument of the respondents, when complainant SSI
tendered the balance of the unpaid subscription on the subject five (5) million
shares on the basis of the existing subscription agreements covering the same,
respondents Interport was bound to accept payment even as the same were
being tendered in the name of the registered subscriber, respondent R.C. Lee
and once the payment is fully accepted in the name of respondent R.C. Lee,
respondent Interport was then bound to recognize the stock assignment also
tendered duly executed by respondent R.C. Lee in favor of complainant
SSI.25cralawred (bold Emphasis supplied.)
The SEC correctly categorized the assignment of the subscription agreements
as a form of novation by substitution of a new debtor and which required the
consent of or notice to the creditor. We agree. Under the Civil Code,
obligations may be modified by: (1) changing their object or principal
conditions; or (2) substituting the person of the debtor; or (3) subrogating a
third person in the rights of the creditor.26 Novation, which consists in
substituting a new debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but not without the
consent of the creditor.27 In this case, the change of debtor took place when
R.C. Lee assigned the Oceanic shares under Subscription Agreement Nos.
1805, and 1808 to 1811 to SSI so that the latter became obliged to settle the
75% unpaid balance on the subscription.
The SEC likewise did not err in appreciating the fact that Interport was duly
notified of the assignment when SSI tendered its payment for the 75% unpaid
balance, and that it could not anymore refuse to recognize the transfer of the
subscription that SSI sufficiently established by documentary evidence.
Yet, Interport claims that SSI waived its rights over the 5,000,000 shares due
to its failure to register the assignment in the books of Interport; and that SSI
was estopped from claiming the assigned shares, inasmuch as the assignor,
R.C. Lee, had already transferred the same to third parties.
Interport's claim cannot be upheld. It should be stressed that novation
extinguished an obligation between two parties.28 We have stated in that
respect that:ChanRoblesVirtualawlibrary
x x x Novation may:
chanRoblesvirtualLawlibrary[E]ither be extinctive or modificatory, much being
dependent on the nature of the change and the intention of the parties.
Extinctive novation is never presumed; there must be an express intention to
novate; in cases where it is implied, the acts of the parties must clearly
demonstrate their intent to dissolve the old obligation as the moving
consideration for the emergence of the new one. Implied novation
necessitates that the incompatibility between the old and new obligation be
total on every point such that the old obligation is completely superseded by
the new one. The test of incompatibility is whether they can stand together,
each one having an independent existence; if they cannot and are
irreconcilable, the subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing
an existing obligation and, second, creating a new one in its stead. This kind of
novation presupposes a confluence of four essential requisites: (1) a previous
valid obligation, (2) an agreement of all parties concerned to a new contract,
(3) the extinguishment of the old obligation, and (4) the birth of a valid new
obligation. Novation is merely modificatory where the change brought about
by any subsequent agreement is merely incidental to the main obligation (e.g.,
a change in interest rates or an extension of time to pay; in this instance, the
new agreement will not have the effect of extinguishing the first but would
merely supplement it or supplant some but not all of its
provisions.29chanroblesvirtuallawlibrary
Clearly, the effect of the assignment of the subscription agreements to SSI was
to extinguish the obligation of R.C. Lee to Oceanic, now Interport, to settle the
unpaid balance on the subscription. As a result of the assignment, Interport
was no longer obliged to accept any payment from R.C. Lee because the latter
had ceased to be privy to Subscription Agreements Nos. 1805, and 1808 to
1811 for having been extinguished insofar as it was concerned. On the other
hand, Interport was legally bound to accept SSI's tender of payment for the
75% balance on the subscription price because SSI had become the new
debtor under Subscription Agreements Nos. 1805, and 1808 to 1811. As such,
the issuance of the stock certificates in the name of R.C. Lee had no legal basis
in the absence of a contractual agreement between R.C. Lee and Interport.
Under Section 63 of the Corporation Code, no transfer of shares of stock shall
be valid, except as between the parties, until the transfer is recorded in the
books of the corporation so as to show the names of the parties to the
transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
Hence:ChanRoblesVirtualawlibrary
[A] transfer of shares of stock not recorded in the stock and transfer book of
the corporation is non-existent as far as the corporation is concerned. As
between the corporation on the one hand, and its shareholders and third
persons on the other, the corporation looks only to its books for the purpose
of determining who its shareholders are. It is only when the transfer has been
recorded in the stock and transfer book that a corporation may rightfully
regard the transferee as one of its stockholders. From this time, the Pag
consequent obligation on the part of the corporation to recognize such rights
as it is mandated by law to recognize arises.30chanroblesvirtuallawlibrary e|
This statutory rule cannot be strictly applied herein, however, because
144
Interport had unduly refused to recognize the assignment of the shares
between R.C. Lee and SSI. Accordingly, we adopt with approval the SEC's
following conclusion that -
x x x To say that the ten years since the assignment had been made are a
sufficient lapse of time in order for respondent SSI to be considered to have
abandoned its rights under the subscription agreements, is to ignore the rule -
"The right to have the transfer registered exists from the time of the transfers
and it is to the transferee's benefit that the right be exercised early. However,
since the law does not prescribed (sic) any period within which
the registration should be effected the action to be enforced the right does
not accrue until here has been a demand and a refusal to record the transfer."
(11 Campus 310, 1990 ed., citing Won v. Wack Wack Golf, 104 Phil.
466, Emphasis supplied).
Petitioner SSI was denied recognition of its subscription agreement on March
15, 1989; the complaint against the respondents was filed before the SEC on
October 6 of that same year. This is the period of time that is to be taken into
account, not the period between 1979 and 1989. The Commission thus finds
that petitioner acted with sufficient dispatch in seeking to enforce its rights
under the subscription agreements, and sought the intervention of this
Commission within a reasonable period.
In the affidavit of respondent R.C. Lee's president, Ramon C. Lee, dated
February 22, 1989, there are several averments that need to be examined, in
the light of respondent R.C. Lee's claim of having acted in good faith.
The first is the statement made in paragraph 3
thereof:ChanRoblesVirtualawlibrary
"That R.C. Lee Securities, Inc. has delivered to Interport its subscription
Agreements for Twenty Five Million (25,000,000) shares of Oceanic for
conversion into Interport shares however, as of date, only twenty million
(20,000,000) shares have been duly covered by Interport Subscription
Agreements and the Five million (5,000,000) shares still remains without
Subscription Agreements".
No explanation is given for the failure of respondent Interport to convert the
five (5) million shares. As can be seen from the letter of Interport to counsel of
R.C. Lee, dated January 27, 1989, already mentioned above, these five (5)
million shares purportedly belonging to respondent R.C. Lee do not seem to
be covered by any properly identified subscription agreements. Yet
respondent Interport issued the shares without respondent R.C. Lee having
anything to show for the same. On the other hand, respondent Interport
refused to recognize complainant SSI's claim to five (5) millions (sic) shares
inspite of the fact that its claim was fully supported by duly issued subscription
agreements, stock assignment and receipts of payment of the initial
subscription. x x x31chanrobleslaw
Subscription Agreements Nos. 1805, and 1808 to 1811 were now binding
between Interport and SSI only, and only such parties were expected to
comply with the terms thereof. Hence, the CA did not err in relying on the
findings of the SEC, which was in a better position to pass judgment on
whether or not Interport was liable to deliver to SSI the Oceanic shares under
Subscription Agreements Nos. 1805, and 1808 to 1811.
2.
Interport and R.C. Lee were not liable to pay exemplary damages and attorney's
fees
Article 2229 of the Civil Code provides that exemplary damages may be
imposed by way of example or correction for the public good. While
exemplary damages cannot be recovered as a matter of right, they need not
be proved, although the plaintiff must show that he is entitled to moral,
temperate, or compensatory damages before the court may consider the
question of whether or not exemplary damages should be awarded.
Exemplary damages are imposed not to enrich one party or impoverish
another, but to serve as a deterrent against or as a negative incentive to curb
socially deleterious actions.32chanrobleslaw
SSI was not able to show that it was entitled to moral, temperate, or
compensatory damages. In fact, the SEC pointed out that the award of
temperate damages was not proper because SSI's alleged pecuniary loss was
merely speculative in nature. Neither could SSI recover exemplary damages
considering that there was no award of moral damages. Indeed, exemplary
damages are to be allowed only in addition to moral damages, and should not
be awarded unless the claimant first establishes a clear right to moral
damages.33chanrobleslaw
Nonetheless, the Court observes that exemplary damages were awarded in
the past despite the award of moral damages being deleted because the
defendant party to a contract acted in a wanton, fraudulent, oppressive or
malevolent manner.34chanrobleslaw
In this case, the Court finds that Interport's act of refusing to accept SSI's
tender of payment for the 75% balance of the subscription price was not
performed in a wanton, fraudulent, oppressive or malevolent manner. In
doing so, Interport merely relied on its records which did not show that an
assignment of the shares had already been made between R.C. Lee and SSI as
early as 1979. R.C. Lee, on the other hand, persisted in paying the 75%
balance on the subscription price simply on the basis of Interport's
representation that no transfer has yet been made in connection with
Subscription Agreement Nos. 1805, and 1808 to 1811. Although Interport and
R.C. Lee might have acted in bad faith35 in refusing to recognize the
assignment of the subscription agreements in favor of SSI, their acts certainly
did not fall within the ambit of being performed in a wanton, fraudulent,
oppressive or malevolent manner as to entitle SSI to an award for exemplary
damages.
We delete the attorney's fees for lack of legal basis.36chanrobleslaw
WHEREFORE, the Court PARTIALLY GRANTS the petition for review
on certiorari; and AFFIRMS the decision promulgated on February 11, 2002
subject to the following MODIFICATIONS, namely:
chanRoblesvirtualLawlibrary1. ORDERING Interport Resources Corporation: (a)
To accept the tender of payment of Securities Specialist, Inc. corresponding to
the 75% unpaid balance of the total subscription price under Subscription
Agreements Nos. 1805, 1808, 1809, 1810 and 1811; (b) To deliver 5,000,000
shares of stock and to issue the corresponding stock certificates to Securities
Specialist, Inc. upon receipt of the payment of the latter under Item No. (a); (c)
To cancel the stock certificates issued to R.C. Lee Securities, Inc.
corresponding to the 5,000,000 shares of stock covered by Subscription
Agreements Nos. 1805, 1808, 1809, 1810 and 1811; (d) To reimburse R.C. Lee
Securities, Inc. the amounts it paid representing the 75% unpaid balance of
the total subscription price of Subscription Agreements Nos. 1805, 1808,
1809, 1810 and 1811; and (e) In the alternative, if the foregoing is no longer
possible, Interport Resources Corporation shall pay Securities Specialist, Inc.
the market value of the 5,000,000 shares of stock covered by Subscription
Agreements Nos. 1805, 1808, 1809, 1810 and 1811 at the time of the
promulgation of this decision; and cralawlawlibrary
2. DELETING the award for exemplary damages and attorney's fees for lack of
merit.
No pronouncement on costs of suit.
SO ORDERED.chanRoblesvirtualLawlibrary
G.R. No. 204264, June 29, 2016
JENNEFER FIGUERA, AS SUBSTITUTED BY ENHANCE VISA SERVICES, INC.,
REPRESENTED BY MA. EDEN R. DUMONT, Petitioner, v. MARIA REMEDIOS
ANG, Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 under Rule 45 of the Rules of
Court filed by petitioner Jennefer Figuera2 (Figuera) assailing the June 29,
2012 decision3 and the September 28, 2012 resolution4 of the Court of Appeals
(CA) of Cebu City in CA-G.R. CV. No. 02480.
The Facts
Maria Remedios Ang (Ang) is the registered owner of a single proprietorship
business named "Enhance Immigration and Documentation Consultants"
(EIDC).
On December 16, 2004, Ang executed a "Deed of Assignment of Business
Rights" (Deed) transferring all of her business rights over the EIDC to Figuera
for One Hundred Fifty Thousand Pesos (P150,000.00).
In addition to the assignment of rights, the parties also agreed that Ang shall
pay the bills for electricity, telephone, office rentals, and the employees'
salaries up to the month of December 2004.5chanrobleslaw
Without Ang's consent, Figuera paid all the utility bills amounting to
P107,903.21 as of December 2004. On January 17, 2005, Figuera tendered
only the amount of P42,096.79 to Ang, after deducting the amount paid for
the utility bills from the P150,000.00 consideration of the Deed.
Ang refused to accept Figuera's payment. Figuera mailed the Formal Tender of Pag
Payment and gave Ang five (5) days to accept the amount. Despite the lapse of
the 5-day period, however, Ang still refused to accept the payment. e|
145
Thus, Figuera filed a complaint for specific performance before the Regional
Trial Court (RTC), Branch 9 of Cebu City against Ang. Figuera consigned the
amount of P42,096.79 to the RTC.
In her answer, Ang maintained that the amount due pursuant to the Deed is
P150,000.00 and not just P42,096.79. She argued that she cannot be
compelled to accept the amount because it is not what was agreed upon.
On May 19, 2005, Figuera conveyed all her rights, assets, interests, liabilities,
and causes of action over EIDC in favor of the Enhance Visa Services, Inc.
(EVSI) through a "Deed of Assignment Coupled with Interest." Thus, on June
14, 2005, EVSI substituted Figuera, on motion, as plaintiff.
The RTC Ruling
The RTC ruled in Ang's favor in its decision dated December 28, 2007.
The RTC held that the unambiguous language of the Deed mandates Ang, as
the Assignor, to pay the December 2004 utility bills. Figuera, however, paid
the utility bills without Ang's consent.
The RTC explained that for the tender of payment and consignation to be
valid, Figuera must tender the full amount of P150,000.00 rather than just
P42,096.79. Ang is not obliged to accept an amount less than what is agreed
upon in the Deed.
Figuera appealed the RTC decision to the CA and argued that by operation of
law, legal subrogation and compensation had taken place. Consequently,
Figuera's obligation to the extent of the amount of P107,903.21 is
extinguished.
The CA Ruling
In its June 29, 2012 decision, the CA affirmed the RTC's ruling.
The CA held that there is nothing in the Deed that grants Figuera the option to
pay the utility bills and to deduct the payment from the agreed consideration
in the Deed; thus, the amount of P150,000.00 remains as the due
consideration from Figuera. Moreover, Figuera failed to prove that Ang
consented to the payment of the bills.
The CA added that Figuera's payment of P42,096.79 cannot be considered as a
valid tender of payment or a valid consignation because it is insufficient to
cover the consideration due to Ang.
As for the other issues and arguments which Figuera failed to raise before the
RTC, the CA held that these issues cannot be raised for the first time on
appeal.
Figuera sought reconsideration of the CA's decision which the CA denied for
lack of merit in its September 28, 2012 resolution.
The Parties' Arguments
In the present petition for review, Figuera challenges the CA's decision and
resolution affirming the RTC ruling.
Figuera argues that the CA committed errors of law based on the following
grounds: First, Figuera was eager to pay the utility bills being the EIDC's new
owner.
Second, Figuera had been subrogated to the rights of Ang's creditor's (i.e., the
Telephone Company, electric company, office space lessor, and company
employees) upon payment of the utility bills even if the payment was made
without Ang's knowledge. Consequently, Ang became Figuera's debtor.
Third, Figuera and Ang became debtors and creditors of one another for a sum
of money that is liquidated, due, demandable, and without controversy.
Fourth, Figuera and Ang's obligations amounting to P107,903.21 were
compensated against each other by operation of law.
Fifth, Figuera's tender of the amount of P42,096.79 to Ang is a valid tender of
payment.
Sixth, Figuera validly consigned the amount of P42,096.79.
Finally, Figuera presented the foregoing issues before the RTC and did not
raise them for the first time on appeal.
In her comment,6 Ang argued that: first, a petition for review under Rule 45 of
the Rules of Court only allows questions of law. Figuera's contention that legal
subrogation and compensation took place requires proof that should have
been established during the trial.
Second, Figuera admitted that the RTC was correct in ruling that there was
nothing in the Deed that grants her the option to pay the utilities nor allows
any deduction from the agreed consideration upon her payment of the utility
bills.
Third, legal subrogation cannot take place because the situation of the parties
under the Deed is not among the instances provided by law for subrogation to
take place.
Fourth and last, Figuera should not be allowed to raise issues regarding legal
subrogation and compensation because these were raised for the first time on
appeal.
The Issue
The main issue to be resolved in this case is whether or not there was a valid
tender of payment and consignation.
Our Ruling
We grant the petition and reverse the CA's ruling.
The questions raised in this petition are one of law which the Court can properly
review.
It is a settled rule that the Court cannot review questions of fact on a petition
for review under Rule 45 of the Rules of Court. A question of fact exists when
the truth or falsity of the parties' factual allegations is in dispute. A question of
law, on the other hand, exists when the application of the law on the stated
facts is in controversy.7chanrobleslaw
The parties' description of the questions raised does not determine whether
these questions are of fact or of law. The true test is whether the appellate
court can resolve the issue without reviewing or evaluating the evidence, in
which case, it is a question of law; otherwise, it is a question of
fact.8chanrobleslaw
Contrary to Ang's allegation, the question involved in the present case is a
question of law which the Court can properly pass upon. There is no dispute
regarding the existence of the Deed and its consideration, and the provision
that mandates Ang to pay the EIDC's bills until December 2004. Ang also did
not refute Figuera's payment amounting to P107,903.21 to Ang's creditors
and Figuera's tender of payment to Ang amounting to P42,096.79.
The CA can assess Figuera's contention that legal subrogation and
compensation had taken place even without requiring Figuera to present
further evidence. The issue on the validity, of Figuera's tender of payment and
consignation can be resolved through the application of the relevant laws.
The Court may properly address the questions raised even though they are
raised for the first time on appeal.
Ang contends that the CA correctly dismissed Figuera's argument that her
debt amounting to P107,903.21 is extinguished through legal subrogation and
compensation. Figuera's argument, Ang insists, was not raised before the trial
court and cannot be raised for the first time on appeal.
We disagree. The Court grants to consider and resolve the issues on the
application of legal subrogation and compensation, even though it was raised
for the first time on appeal.
As a general rule, points of law, theories, and arguments not brought before
the trial court cannot be raised for the first time on appeal and will not be
considered by this Court; otherwise, a denial of the respondent's right to due
process will result.9chanrobleslaw
In the interest of justice, however, the Court may consider and resolve issues
not raised before the trial court if it is necessary for the complete adjudication
of the rights and obligations of the parties, and it falls within the issues found
by the parties.10chanrobleslaw
Thus, an appellate court is clothed with authority to review rulings even if they
are not assigned as errors in the appeal in the following instances:
chanRoblesvirtualLawlibrary
(a) grounds not assigned as errors but affecting jurisdiction over the subject
matter;
(b) matters not assigned as errors on appeal but are evidently plain or Pag
clerical errors within contemplation of law;
e|
(c) matters not assigned as errors on appeal but consideration of which is 146
necessary in arriving at a just decision and complete resolution of the
case or to serve the interests of justice or to avoid dispensing piecemeal
justice;
(d) matters not specifically assigned as errors on appeal but raised in the trial
court and are matters of record having some bearing on the issue
submitted which the parties failed to raise or which the lower court
ignored;
(e) matters not assigned as errors on appeal but closely related to an error
assigned; and
(f) matters not assigned as errors on appeal but upon which the
determination of a question properly assigned, is dependent.11
Figuera's position falls under two of these exceptions, namely - that the
determination of the question newly raised is necessary in arriving at a just
decision and complete resolution of the case, and that the resolution of a
question properly assigned is dependent on those which were not assigned as
errors on appeal.
For the CA to rule on whether there was a valid tender of payment and
consignation, it must first determine the amount that Figuera should have
tendered. To do so, the appellate court must examine whether the principles
of legal subrogation and compensation, as Figuera argued, should be applied.
To recall, Figuera claims that the consideration for the assignment worth
P150,000.00 should be reduced by P107,903.21, representing the amount
that she paid for the EIDC's utility bills. Figuera argues that her payment of the
utility bills subrogated her to the rights of Ang's creditors against Ang.
Article 1291 of the New Civil Code12 provides that the subrogation of a third
person to the rights of the creditor is one of the means to modify obligations.
Subrogation, sometimes referred to as substitution, is "an arm of equity that
may guide or even force one to pay a debt for which an obligation was
incurred but which was in whole or in part paid by another."13 It transfers to
the person subrogated the credit, with all the rights appertaining thereto,
either against the debtor or against third persons.14chanrobleslaw
Subrogation of a third person in the rights of a creditor may either be legal or
conventional.15 There is legal subrogation when: (a) a creditor pays another
preferred creditor, even without the debtor's knowledge; (b) a third person
who is not interested in the obligation pays with the express or tacit approval
of the debtor; and (c) a person interested in the fulfilment of the obligation
pays, even without the knowledge of the debtor.16chanrobleslaw
In the present case, Figuera based her claim on the third type of subrogation.
She claims that as the EIDC's new owner, she is interested in fulfilling Ang's
obligation to pay the utility bills. Since the payment of the bills was long
overdue prior to the assignment of business rights to Figuera, the failure to
settle the bills would eventually result in "the disconnection of the electricity
and telephone services, ejectment from the office premises, and resignation
by some, if not all, of the company's employees with the possibility of
subsequent labor claims for sums of money."17These utilities are obviously
necessary for the continuation of Figuera's business transactions.
A person interested in the fulfilment of the obligation is one who stands to be
benefited or injured in the enforcement of the obligation. The Court agrees
with Figuera that it became absolutely necessary for her to pay the bills since
Ang did not do so when the obligation became due.
We note that both the RTC and the CA held that Figuera failed to prove that
Ang had consented to the payment of the EIDC bills; therefore, Figuera cannot
deduct the amount she paid for the utility bills from the P150,000.00
consideration.
A clear reading, however, of Article 1302 of the New Civil Code would lead to
a different conclusion. The, consent or approval of the debtor is required only if
a third person who is not interested in the fulfilment of the obligation pays
such. On the other hand, no such requirement exists in cases of payment by a
creditor to another creditor who is preferred, and by a person interested in the
fulfilment of the obligation. Notably, Article 1302 (1) and (3) does not require
the debtor's knowledge.
Therefore, legal subrogation took place despite the absence of Ang's consent
to Figuera's payment of the EIDC bills. Figuera is now deemed as Ang's
creditor by operation of law.
On Figuera's argument that legal compensation took place, and in effect,
extinguished her obligation to Ang to the extent of the amount Figuera paid
for the EIDC bills, Article 1278 of the New Civil Code is instructive.
Article 1278 of the New Civil Code states that there is compensation when
two persons, in their own right, are creditors and debtors of one another.
These elements must concur for legal compensation to apply: (1) each one of
the debtors is bound principally, and that the debtor is at the same time a
principal creditor of the other; (2) both debts consist of a sum of money, or if
the things due be consumable, they be of the same kind and also of the same
quality if the latter has been stated; (3) both debts are due; (4) both debts are
liquidated and demandable; and (5) there be no retention or controversy over
both debts commenced by third persons and communicated in due time to
the debtor.18 When all these elements are present, compensation takes effect
by operation of law and extinguishes both debts to the corresponding
amount, even though both parties are without knowledge of the
compensation.19 It operates even against the will of the interested parties and
even without their consent.20chanrobleslaw
We find that all the elements of legal compensation are present in this case.
First, in the assignment of business rights, Figuera stood as Ang's debtor for
the consideration amounting to P150,000.00. Figuera, on the other hand,
became Ang's creditor for the amount of P107,903.21 through Figuera's
subrogation to the rights of Ang's creditors against the latter.
Second, both debts consist of a sum of money, which are both due, liquidated,
and demandable.
Finally, neither party alleged that there was any claim raised by third persons
against said obligation.
In effect, even without the knowledge and consent of Ang or Figuera, their
obligation as to the amount of P107,903.21 had already been extinguished.
Consequently, Figuera owes Ang the remaining due amount of P42,096.79.
While the RTC and the CA correctly held that there was nothing in the Deed
that grants Figuera an option to pay the utility bills and to deduct the amount
from the consideration, we stress that although not expressly written, laws
are deemed incorporated in every contract entered within our territories.
Thus, the Court reads into the Deed the provisions of law on subrogation and
compensation.
With the determination of the amount of Figuera's obligation to Ang, the
question left to be resolved is: Was there a valid tender of payment and
consignation?
Tender of payment is the act of offering to the creditor what is due him,
together with the demand for the creditor to accept it. To be valid, the tender
of payment must be a "fusion of intent, ability, and capability to make good
such offer, which must be absolute and must cover the amount
due."21chanrobleslaw
As earlier discussed, the remaining amount due in Figuera's obligation is
P42,096.79. Thus, Figuera's tender of the remaining amount to Ang is valid and
Ang offered no valid justification in refusing to accept the tender of payment.
Due to the creditor's refusal, without any just cause, to the valid tender of
payment, the debtor is released from her obligation by the consignation of the
thing or sum due.22chanrobleslaw
WHEREFORE, the Court GRANTS the petition for review on certiorari. The
decision dated June 29, 2012 and resolution dated September 28, 2012 of the
Court of Appeals in CA-G.R. CV. No. 02480 are hereby REVERSED.
SO ORDERED.chanRoblesvirtualLawlibrary
G.R. No. 191174, June 07, 2017
PARADIGM DEVELOPMENT CORPORATION OF THE
PHILIPPINES, Petitioner, v. BANK OF THE PHILIPPINES ISLANDS, Respondent.
DECISION
REYES, J.:
This is a Petition for Review on Certiorari1 filed under Rule 45 of the Rules of
Court assailing the Decision2 dated November 25, 2009 and Resolution3 dated
February 2, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 89755, which
granted respondent Bank of the Philippine Islands' (BPI) appeal and
accordingly dismissed the complaint filed by petitioner Paradigm
Development Corporation of the Philippines (PDCP).
Pag
The Facts
e|
Sometime in February 1996, Sengkon Trading (Sengkon), a sole proprietorship 147
owned by Anita Go, obtained a loan from Far East Bank and Trust Company
(FEBTC) under a credit facility denominated as Omnibus Line in the amount of
P100 Million on several sub-facilities with their particular sub-limits
denominated as follows: (i) Discounting Line for P20 Million; (ii) Letter of
Credit/Trust Receipt (LC-TR) Line for P60 Million; and (iii) Bills Purchased Line
for P8 Million. This was embodied in the document denominated as
"Agreement for Renewal of Omnibus Line."4
On April 19, 1996, FEBTC again granted Sengkon another credit facility,
denominated as Credit Line, in the amount of P60 Million as contained in the
"Agreement for Credit Line." Two real estate mortgage (REM) contracts were
executed by PDCP President Anthony L. Go (Go) to partially secure Sengkon's
obligations under this Credit Line. One REM, acknowledged on April 22, 1996,
was constituted over Transfer Certificate of Title (TCT) No. RT-55259 (354583)
and secured the amount of P8 Million. The other REM, acknowledged on
December 19, 1997, was constituted over TCT Nos. RT-58281, RT-54993
(348989) and RT-55260 (352956) and secured the amount of P42,400,000.00.5
In a letter dated September 18, 1997, FEBTC informed Sengkon regarding the
renewal, increase and conversion of its P100 Million Omnibus Line to P150
Million LC-TR Line and P20 Million Discounting Line, the renewal of the P60
Million Credit Line and P8 Million Bills Purchased Line.6
In the same letter, FEBTC also approved the request of Sengkon to change the
account name from SENGKON TRADING to SENGKON TRADING, INC. (STI).7
Eventually, Sengkon defaulted in the payment of its loan obligations.8 Thus, in
a letter dated September 8, 1999, FEBTC demanded payment from PDCP of
alleged Credit Line and Trust Receipt availments with a principal balance of
P244,277,199.68 plus interest and other charges which Sengkon failed to pay.
PDCP responded by requesting for segregation of Sengkon's obligations under
the Credit Line and for the pertinent statement of account and supporting
documents.9
Negotiations were then held and PDCP proposed to pay approximately P50
Million, allegedly corresponding to the obligations secured by its property, for
the release of its properties but FEBTC pressed for a comprehensive
repayment scheme for the entirety of Sengkon's obligations.10
Meanwhile, the negotiations were put on hold because BPI acquired FEBTC
and assumed the rights and obligations of the latter.11
When negotiations for the payment of Sengkon's outstanding obligations,
however, fell, FEBTC, on April 5, 2000, initiated foreclosure proceedings
against the mortgaged properties of PDCP before the Regional Trial Court
(RTC) of Quezon City.12 In its Bid for the mortgaged properties, FEBTC's
counsel stated that:
On behalf of our client, [FEBTC], we hereby submit its Bid for the Real
Properties including all improvements existing thereon covered by [TCT] Nos.
RT - 55259 (354583), 58281, RT - 54993 (348989) and RT- 55260 (352956)
which are the subject of the Auction Sale scheduled on June, 20, 2000 in the
amount of:
SEVENTY[-]SIX MILLION FIVE HUNDRED THOUSAND PESOS ONLY
(P76,500,000.00), Philippine Currency.
Please note that the aforesaid Bid is only in PARTIAL SETTLEMENT of the
obligation of [PDCP], x x x.13
Upon verification with the Registry of Deeds, PDCP discovered that FEBTC
extra-judicially foreclosed on June 20, 2000 the first and second mortgage
without notice to it as mortgagor and sold the mortgaged properties to FEBTC
as the lone bidder.14 Thereafter, on August 8, 2000, the corresponding
Certificate of Sale was registered.15
Consequently, on July 19, 2001, PDCP filed a Complaint for Annulment of
Mortgage, Foreclosure, Certificate of Sale and Damages16 with the RTC of
Quezon City, against BPI, successor-in-interest of FEBTC, alleging that the
REMs and their foreclosure were null and void.17
In its Amended Complaint,18 PDCP alleged that FEBTC assured it that the
mortgaged properties will only secure the Credit Line sub-facility of the
Omnibus Line. With this understanding, PDCP President Go allegedly agreed to
sign on two separate dates a pro-forma and blank REM, securing the amount
ofP42.4 Million and P8 Million, respectively. PDCP, however, claimed that it
had no intent to be bound under the second REM, which was not intended to
be a separate contract, but only a means to reduce registration expenses.19
Moreover, PDCP averred that sometime in September 1997, FEBTC allegedly
requested it to sign a document which would effectively extend the liability of
the properties covered by the mortgage beyond the Credit Line. Because of its
refusal to sign said document, it surmised that this must have been the reason
why, as it later discovered, FEBTC registered not only the first but also the
second REM, contrary to the parties' agreement.20
In asking for the nullity of the REMs and the foreclosure proceeding, PDCP
alleged:
a.) THAT although the [REM] of April 22, 1996 for Php 8.0 Million was not a
separate security but was merely intended to reduce registration expenses,
FEBTC, [BPI's] predecessor-in-interest, fraudulently and in violation of the
original intent and agreement of the parties, made it appear that said [REM]
of April 22, 1996 was separate and distinct from that of December 18, 1997
and caused the registration of both mortgages with separate considerations
totaling Php 50.4 Million;
b.) THAT the subject [REMs] were foreclosed to answer not only for
obligations incurred under SENGKON's Credit Line but also for other
obligations of SENGKON and other companies which were not secured by said
mortgages;
c.) THAT no notice was given to or received by [PDCP] of the projected
foreclosure x x x since the notice of said foreclosure was sent by defendant
SHERIFF to an address (333 EDSA, Quezon City) other than [PDCP's] known
address as stated in the [REMs] themselves (333 EDSA Caloocan City) x x x;
d.) THAT, contrary to the then prevailing Supreme Court Circular AM 99-10-
05-0 x x x, only one (1) bidder was present and participated at the foreclosure
sale[; and]
e.) THAT, without the knowledge and consent of [PDCP], obligation of
SENGKON has been transferred to STI[,] a juridical personality separate and
distinct from SENGKON, a single proprietorship. This substitution of SENGKON
as debtor by STI x x x effectively novated the obligation of [PDCP] to FEBTC. x x
x.21 (Underlining ours)
Ruling of the RTC
On April 16, 2007, the RTC rendered its Decision22 nullifying the REMs and the
foreclosure proceedings. It also awarded damages to PDCP. The dispositive
portion of the decision reads:
WHEREFORE, premises considered the Court renders judgment in favor of
[PDCP] and against defendants [BPI], Sheriff and the Register of Deeds of
Quezon City in the following manner:
1) Declaring null and void and of no further force and effect the following:
(a) the [REMs] (Annexes "F" and "F-1" hereof);
(b) the foreclosure thereof;
(c) the Certificate of Sale; and
(d) the entries relating to said [REMs] and Certificate of Sale annotated on TCT
Nos. 58281, RT-54993 (348989), RT-55260 (352956) and RT-55259 (354583)
covering the mortgaged properties;
2) Ordering defendant Registrar of Deeds to cancel all the annotations of the
[REMs] and the Certificate of Sale on the above stated TCTs covering the
mortgaged properties and otherwise to clear said TCTs of any liens and
encumbrances annotated thereon relating to the invalid [REMs] aforesaid;
3) Ordering defendant [BPI] to return to [PDCP] the owner's duplicate copies
of the TCTs covering the mortgaged properties free from any and all liens and
encumbrances; and,
4) Ordering the defendant BPI to pay [PDCP] the following sums:
(a) Php 150,000.00 as attorney's fees; and,
(b) Php 50,000.00 as litigation expenses.
The Writ of Preliminary Injunction is hereby made FINAL and PERMANENT.
Costs against defendant [BPI].
Pag
SO ORDERED.23 e|
148
The RTC observed that the availments under the Credit Line, secured by
PDCP's properties, may be made only within one year, or from April 19, 1996
to April 30, 1997. While BPI claimed that the period of said credit line was
extended up to July 31, 1997, PDCP was not notified of the extension and thus
could not have consented to the extension. Anyhow, said the RTC, "no
evidence had been adduced to show that Sengkon availed of any loan under
the credit line up to July 31, 1997." Thus, in the absence of any monetary
obligation that needed to be secured, the REM cannot be said to subsist.24
Further, the RTC agreed with PDCP that novation took place in this case, which
resulted in discharging the latter from its obligations as third-party mortgagor.
In addition, it also nullified the foreclosure proceedings because the original
copies of the promissory notes (PNs), which were the basis of FEBTC's Petition
for Extrajudicial Foreclosure of Mortgage, were not presented in court and no
notice of the extrajudicial foreclosure sale was given to PDCP.25
Lastly, the RTC ruled that the shorter period of redemption under Republic Act
No. 879126 cannot apply to PDCP considering that the REMs were executed
prior to the effectivity of said law. As such, the longer period of redemption
under Act No. 313527 applies.28
Aggrieved, BPI appealed to the CA.29
Ruling of the CA
In its Decision30 dated November 25, 2009, the CA reversed the RTC's ruling on
all points. The CA found PDCP's contentions incredible for the following
reasons: (i) the fact that PDCP surrendered the titles to the mortgaged
properties to FEBTC only shows that PDCP intended to mortgage all of these
properties; (ii) if it were true that FEBTC assured PDCP that it would be
registering only one of the two REMs in order to reduce registration expenses,
then each of the two REMs should have covered the four properties but it was
not. On the contrary, the four properties were spread out with one REM
covering one of the four properties and the other REMs covering the
remaining three properties; and (iii) PDCP never complained to FEBTC
regarding the registration of the two REMs even after it discovered the
same.31
Also, the CA ruled that novation could not have taken place from FEBTC's
mere act of approving Sengkon's request to change account name from
Sengkon to STI.32
Moreover, it held that the fact that FEBTC failed to submit the original copies
of the PNs that formed the basis of its Petition for Extrajudicial Foreclosure of
Mortgage cannot affect the validity of foreclosure because the validity of the
obligations represented in those PNs was never denied by Sengkon nor by
PDCP.33
The CA added that even if the obligations of Sengkon in credit facilities (other
than the Credit Line) were included, since the REMs contain a dragnet clause,
these other obligations were still covered by PDCP's REMs.34 Lastly, the CA
ruled that the failure to send a notice of extrajudicial foreclosure sale to PDCP
did not affect the validity of the foreclosure sale because personal notice to
the mortgagor is not even generally required.35
Hence, this present petition, where PDCP presented the following arguments:
I. THE FINDINGS IN THE CA DECISION WHICH DEVIATED ON ALMOST
ALL POINTS FROM THOSE OF THE RTC ARE NOT IN ACCORD WITH
THE RULES ON THE ASSESSMENT OF THE CREDIBILITY AND WEIGHT
OF THE EVIDENCE;
II. THE VALIDITY OF THE REMs, AS UPHELD BY THE CA, IS VITIATED BY
THE FACT THAT BPI'S PREDECESSOR-IN-INTEREST VIOLATED THE
TRUE INTENT AND AGREEMENT OF THE PARTIES THERETO;
III. THE CA DECISION'S REJECTION OF PDCP'S NOVATION THEORY
BASED ON THE ABSENCE OF AN EXPRESS RELEASE OF THE OLD
 DEBTOR AND THE SUBSTITUTION IN ITS PLACE OF A NEW DEBTOR
IS MISPLACED AND ERRONEOUS;
IV. THE FORECLOSURE OF THE REMs WAS VITIATED NOT ONLY BY THE
INADMISSIBILITY OF THE PNs UPON WHICH IT IS BASED BUT ALSO
BECAUSE IT VIOLATED THE THERETO APPLICABLE RULES; and
V. THE APPLICATION BY THE CA OF THE SHORTENED PERIOD OF
REDEMPTION IN THIS CASE VIOLATED THE NON-IMPAIRMENT AND
EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.36
Ruling of the Court
The Court finds the petition meritorious.
The registration of the REMs, even if
contrary to the supposed intent of the
parties, did not affect the validity of
the mortgage contracts
According to PDCP, when FEBTC registered both REMs, even if the intent was
only to register one, the validity of both REMs was vitiated by lack of consent.
PDCP claims that said intent is supported by the fact that the REMs were
constituted merely as "partial security" for Sengkon's obligations and
therefore there was really no intent to be bound under both - but only in one -
REM.
The Court cannot see its way clear through PDCP's argument. To begin with,
the registration of the REM contract is not essential to its validity. Article 2085
of the Civil Code provides:
Art. 2085. The following requisites are essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged
or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free
disposal of their property, and in the absence thereof, that they be legally
authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property.
In relation thereto, Article 2125 of the Civil Code reads:
Article 2125. In addition to the requisites stated in Article 2085, it is
indispensable, in order that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding between the
parties.
x x x x (Emphasis ours)
In Mobil Oil Philippines, Inc. v. Diocares, et al., 37 the trial court refused to
order the foreclosure of the mortgaged properties on the ground that while
an unregistered REM contract created a personal obligation between the
parties, the same did not validly establish a REM. In reversing the trial court,
the Court said:
The lower court predicated its inability to order the foreclosure in view of the
categorical nature of the opening sentence of [Article 2125] that it is
indispensable, "in order that a mortgage may be validly constituted, that the
document in which it appears be recorded in the Registry of Property." Not[e]
that it ignored the succeeding sentence: "If the instrument is not recorded,
the mortgage is nevertheless binding between the parties." Its conclusion,
however, is that what was thus created was merely "a personal obligation but
did not establish a [REM]."
Such a conclusion does not commend itself for approval. The codal provision is
clear and explicit. Even if the instrument were not recorded, "the mortgage is
nevertheless binding between the parties." The law cannot be any clearer.
Effect must be given to it as written. The mortgage subsists; the parties are
bound. As between them, the mere fact that there is as yet no compliance with
the requirement that it be recorded cannot be a bar to foreclosure.
xxxx
Moreover to rule as the lower court did would be to show less than fealty to
the purpose that animated the legislators in giving expression to their will that
the failure of the instrument to be recorded does not result in the mortgage
being any the less "binding between the parties." In the language of the
Report of the Code Commission: "In Article [2125] an additional provision is
made that if the instrument of mortgage is not recorded, the mortgage, is
nevertheless binding between the parties." We are not free to adopt then an
interpretation, even assuming that the codal provision lacks the forthrightness Pag
and clarity that this particular norm does and therefore requires construction, e|
that would frustrate or nullify such legislative objective.38 (Citation omitted
and emphasis and underlining ours) 149
Hence, even assuming that the parties indeed agreed to register only one of
the two REMs, the subsequent registration of both REMs did not affect an
already validly executed REM if there was no other basis for the declaration of
its nullity. That the REMs were intended merely as "partial security" does not
make PDCP's argument more plausible because as aptly observed by the CA,
the PDCP's act of surrendering all the titles to the properties to FEBTC clearly
establishes PDCP's intent to mortgage all of the four properties in favor of
FEBTC to secure Sengkon's obligation under the Credit Line. The Court notes
that the principal debtor, Sengkon, has several obligations under its Omnibus
Line corresponding to the several credit sub-facilities made available to it by
FEBTC. As found by the trial court, PDCP intended to be bound only for
Sengkon's availments under the Credit Line sub-facility and not for just any of
Sengkon's availments. Hence, it is in this sense that the phrase "partial
security" should be logically understood.
In this regard, PDCP argued that what its President signed is a pro-forma REM
whose important details were still left in blank at the time of its execution. But
notably, nowhere in PDCP's Amended Complaint did it anchor its cause of
action for the nullity of the REMs on this ground. While it indeed alleged this
circumstance, PDCP's Amended Complaint is essentially premised on the
supposed fraud employed on it by FEBTC consisting of the latter's assurances
that the REMs it already signed would not be registered. In Solidbank
Corporation v. Mindanao Ferroalloy Corporation,39 the Court discussed the
nature of fraud that would annul or avoid a contract, thus:
Fraud refers to all kinds of deception - whether through insidious machination,
manipulation, concealment or misrepresentation that would lead an ordinarily
prudent person into error after taking the circumstances into account. In
contracts, a fraud known as dolo causante or causal fraud is basically a
deception used by one party prior to or simultaneous with the contract, in
order to secure the consent of the other. Needless to say, the deceit
employed must be serious. In contradistinction, only some particular or
accident of the obligation is referred to by incidental fraud or dolo incidente,
or that which is not serious in character and without which the other party
would have entered into the contract anyway.40 (Citations omitted)
Under Article 1344 of the Civil Code, the fraud must be serious to annul or
avoid a contract and render it voidable. This fraud or deception must be so
material that had it not been present, the defrauded party would not have
entered into the contract.
In the present case, even if FEBTC represented that it will not register one of
the REMs, PDCP cannot disown the REMs it executed after FEBTC reneged on
its alleged promise. As earlier stated, with or without the registration of the
REMs, as between the parties thereto, the same is valid and PDCP is already
bound thereby. The signature of PDCP's President coupled with its act of
surrendering the titles to the four properties to FEBTC is proof that no fraud
existed in the execution of the contract. Arguably at most, FEBTC's act of
registering the mortgage only amounted to dolo incidente which is not the
kind of fraud that avoids a contract.
No novation took place
The Court likewise agrees with the CA that no novation took place in the
present case. Novation is a mode of extinguishing an obligation by changing its
objects or principal obligations, by substituting a new debtor in place of the
old one, or by subrogating a third person to the rights of the creditor. Article
1293 of the Civil Code defines novation as "consists in substituting a new
debtor in the place of the original one, [which] may be made even without the
knowledge or against the will of the latter, but not without the consent of the
creditor." However, while the consent of the creditor need not be expressed
but may be inferred from the creditor's clear and unmistakable acts,41 to
change the person of the debtor, the former debtor must be expressly
released from the obligation, and the third person or new debtor must assume
the former's place in the contractual relation.42
Thus, in Ajax Marketing and Development Corporation v. CA,43 the Court had
already ruled that:
The well-settled rule is that novation is never presumed. Novation will not be
allowed unless it is clearly shown by express agreement, or by acts of equal
import. Thus, to effect an objective novation it is imperative that the new
obligation expressly declare that the old obligation is thereby extinguished, or
that the new obligation be on every point incompatible with the new one. In
the same vein, to effect a subjective novation by a change in the person of the
debtor it is necessary that the old debtor be released expressly from the
obligation, and the third person or new debtor assumes his place in the
relation. There is no novation without such release as the third person who
has assumed the debtor's obligation becomes merely a co-debtor or
surety.44 (Emphasis ours)
In the present case, PDCP failed to prove by preponderance of evidence that
Sengkon was already expressly released from the obligation and that STI
assumed the former's obligation. Again, as correctly pointed out by the CA,
the Deed of Assumption of Line/Loan with Mortgage (Deed of Assumption)
which was supposed to embody STI's assumption of all the obligations of
Sengkon under the line, including but not necessarily limited to the repayment
of all the outstanding availments thereon, as well as all applicable interests
and other charges, was not signed by the parties.
Contrary to PDCP's claim, the CA's rejection of its claim of novation is not
based on the absence of the mortgagor's conformity to the Deed of
Assumption. The CA's rejection is based on the fact that the non-execution of
the Deed of Assumption by Sengkon, STI and FEBTC rendered the existence of
novation doubtful because of lack of clear proof that Sengkon is
being expressly released from its obligation; that STI was already assuming
Sengkon's former place in the contractual relation; and that FEBTC is giving its
conformity to this arrangement. While FEBTC indeed approved Sengkon's
request for the "change in account name" from Sengkon to STI, such mere
change in account name alone does not meet the required degree of certainty
to establish novation absent any other circumstance to bolster said
conclusion.
The trial court's finding that
Sengkon did not avail under the
Credit Line taints the foreclosure of
the mortgage
PDCP also claims that the foreclosure of the mortgage was invalid because the
PNs that formed the basis of FEBTC's Petition for Extrajudicial Foreclosure of
Mortgage were inadmissible in evidence. Rejecting this argument, the CA
ruled that the admissibility of the PNs is a non-issue in this case because in
questioning the validity of the REMs and the foreclosure proceedings, PDCP
did not actually assail the validity or existence of said PNs; what it raised as an
issue was whether the foreclosure covered obligations other than Sengkon's
availment under the Credit Line. As the CA puts it:
[W]hat should have been the focal and critical question to be answered on the
issue of whether the subject [REMs] were validly foreclosed should have
been whether the [REMs] executed by [PDCP] covered the obligations of
[Sengkon] as represented in those [PNs] or, stated in another way, were the
[PNs] used by defendant BPI in its foreclosure proceedings over [PDCP's]
mortgages availments by [Sengkon] under its Credit Line?
An examination of the subject [PNs] vis-a-vis the Agreement for Credit Line
would yield an affirmative answer.
In the case at bar, a close look at the Agreement for Credit Line would reveal
that the said credit facility for Php60 Million was granted in favor of [Sengkon]
for the purpose of "Additional Working Capital" and that it would be "available
by way of short term [PN]." In the same manner, an examination of [PNs] PN
Nos. 2-002-028618, 2-002-029436 and 2-002-029437 would reveal that the
said [PNs] were availed of by [Sengkon] for the purpose of "Additional
Working Capital."45 (Citations omitted and emphasis in the original)
The Court cannot agree with the CA. In order to determine whether the
obligations sought to be satisfied by the foreclosure proceedings were only
Sengkon's availments under the Credit Line, the court necessarily needs to
refer to the PNs themselves, as what the CA in fact did. Thus, it is actually the
contents of these PNs that are in issue and the trial court did not err in
applying the best evidence rule.
But even if the Court disregards the best evidence rule, the circumstances in
this case militate against the CA's conclusion. The trial court made a factual
finding that Sengkon's availment under the Credit Line, which is the one
secured by PDCP's properties, may be made only within one year, or from
April 19, 1996 to April 30, 1997. While FEBTC claimed that the period of said
credit line was extended up to July 31, 1997, PDCP was not notified of the
extension. At any rate, the RTC found that "no evidence had been adduced to
show that Sengkon availed of any loan under the credit line up to July 31,
1997," which was the period of the extension.
Notably, while PDCP demanded from FEBTC for the segregation of Sengkon's
availments under the Credit Line, FEBTC failed to heed PDCP's valid request
and instead demanded for a comprehensive payment of Sengkon's entire
obligation, unmindful of the fact of PDCP's status as a mere third-party
mortgagor and not a principal debtor. As a third-party mortgagor, the Pag
limitation on its liability pertains not only to the properties it mortgaged but e|
also to the obligations specifically secured thereby. It is well settled that while
a REM may exceptionally secure future loans or advancements, these future 150
debts must be specifically described in the mortgage contract. An obligation is
not secured by a mortgage unless it comes fairly within the terms of the
mortgage contract.46
In this case, there was simply no evidence to support the conclusion that the
PNs were in fact availments under the Credit Line secured by PDCP's
properties. The PNs that were used by FEBTC in its Petition for Extrajudicial
Foreclosure of Mortgage were all executed beyond the extended duration of
Sengkon's Credit Line (or until July 1997). While FEBTC wrote a letter47 dated
September 18, 1997, which is a few days short of the date of the earliest PN
(September 23, 1997), addressed to STI, approving the renewal of the debtor's
Credit Line subject to the condition that the Line "shall be partially secured" by
the PDCP's mortgaged properties, it is worthy to note that this letter did not
bear the conforme of the debtor, lending credence to the trial court's
observation. In this light, FEBTC's failure to heed PDCP's request for the
segregation of the amounts secured by its properties assumes critical
significance. The lack of proof that the availments subject of the foreclosure
proceedings were within the coverage of PDCP's REMs explains FEBTC's
omission.
Despite the foregoing, however, particularly the variance between the
duration of Sengkon's Credit Line and the dates appearing on the face of the
PNs, the CA upheld the validity of the foreclosure based merely on the
similarity in the purpose for which the Credit Line was granted and the
purpose for which the PNs were executed.
On the implied premise that what is material is only the identity of the debtor
whose obligation the mortgagor secures, the CA cited Prudential Bank v.
Alviar48 and applied the dragnet clause in PDCP's REMs. According to the CA,
since the REMs contain a dragnet clause, then PDCP's properties can be made
to answer even if the PNs supporting the Petition for Extrajudicial Foreclosure
of Mortgage refer to Sengkon's obligations in its other credit facilities.49
The CA unfortunately misapplied the ruling in Prudential Bank. In that case,
the Court's discussion on the application of the blanket mortgage clause or
dragnet clause was not as much as critically important as the Court's novel
application of the doctrine of reliance on security test.
A dragnet clause is a stipulation in a REM contract that extends the coverage
of a mortgage to advances or loans other than those already obtained or
specified in the contract. Where there are several advances, however, a
mortgage containing a dragnet clause will not be extended to cover future
advances, unless the document evidencing the subsequent advance refers to
the mortgage as providing security therefor or unless there are clear and
supportive evidence to the contrary.50 This is especially true in this case where
the advances were not only several but were covered by different sub-
facilities. Thus, in Prudential Bank, the Court stated:
In the case at bar, the subsequent loans obtained by respondents were
secured by other securities, thus: PN BD#76/C-345, executed by Don Alviar
was secured by a "hold-out" on his foreign currency savings account, while PN
BD#76/C-430, executed by respondents for Donalco Trading, Inc., was secured
by "Clean-Phase out TOD CA 3923" and eventually by a deed of assignment on
two [PNs] executed by Bancom Realty Corporation with Deed of Guarantee in
favor of A.U. Valencia and Co., and by a chattel mortgage on various heavy
and transportation equipment. The matter of PN BD#76/C-430 has already
been discussed. Thus, the critical issue is whether the "blanket mortgage"
clause applies even to subsequent advancements for which other securities
were intended, or particularly, to PN BD#76/C-345.
Under American jurisprudence, two schools of thought have emerged on this
question. One school advocates that a "dragnet clause" so worded as to be
broad enough to cover all other debts in addition to the one specifically
secured will be construed to cover a different debt, although such other debt
is secured by another mortgage. The contrary thinking maintains that a
mortgage with such a clause will not secure a note that expresses on its face
that it is otherwise secured as to its entirety, at least to anything other than a
deficiency after exhausting the security specified therein, such deficiency
being an indebtedness within the meaning of the mortgage, in the absence of
a special contract excluding it from the arrangement.
The latter school represents the better position. The parties having conformed
to the "blanket mortgage clause" or "dragnet clause," it is reasonable to
conclude that they also agreed to an implied understanding that subsequent
loans need not be secured by other securities, as the subsequent loans will be
secured by the first mortgage. In other words, the sufficiency of the first
security is a corollary component of the "dragnet clause." But of course, there
is no prohibition, as in the mortgage contract in issue, against contractually
requiring other securities for the subsequent loans. Thus, when the mortgagor
takes another loan for which another security was given it could not be
inferred that such loan was made in reliance solely on the original security
with the "dragnet clause," but rather, on the new security given. This is the
"reliance on the security test."
Hence, based on the "reliance on the security test," the California court in the
cited case made an inquiry whether the second loan was made in reliance on
the original security containing a "dragnet clause." Accordingly, finding a
different security was taken for the second loan no intent that the parties
relied on the security of the first loan could be inferred, so it was held. The
rationale involved, the court said, was that the "dragnet clause" in the first
security instrument constituted a continuing offer by the borrower to secure
further loans under the security of the first security instrument, and that when
the lender accepted a different security he did not accept the offer.
xxxx
Indeed, in some instances, it has been held that in the absence of clear,
supportive evidence of a contrary intention, a mortgage containing a "dragnet
clause" will not be extended to cover future advances unless the document
evidencing the subsequent advance refers to the mortgage as providing
security therefor.51 (Citations omitted and emphasis and underlining ours)
In the present case, PDCP's REMs indeed contain a blanket mortgage clause in
the following language:
That, for and in consideration of credit accommodations obtained from the
[FEBTC], and to secure the payment of the same and those that may hereafter
be obtained, the principal of all of which is hereby fixed at x x x PESOS x x x,
Philippine Currency, as well as those that the [FEBTC] may extend to the
[PDCP], including interest and expenses or any other obligation owing to the
[FEBTC], whether direct or indirect, principal or secondary, as appears in the
accounts, books and records of the [FEBTC] x x x.52
Nonetheless, the parties do not dispute that what the REMs secured were
only Sengkon's availments under the Credit Line and not all of Sengkon's
availments under other sub-facilities which are also secured by other
collaterals.53 Since the liability of PDCP's properties was not unqualified, the
PNs, used as basis of the Petition for Extrajudicial Foreclosure of Mortgage
should sufficiently indicate that it is within the terms of PDCP's limited liability.
In this case, the PNs failed to make any reference to PDCP's availments, if any,
under its Credit Line. In fact, it did not even mention Sengkon's securities
under the Credit Line. Notably, the Disclosure Statements, which were
"certified correct" by FEBTC's authorized representative, Ma. Luisa C. Ellescas,
and which accompanied the PNs, failed to disclose whether the loan secured
thereby was actually secured or not.
Thus, even if the Court brushes aside the Best Evidence Rule, the foregoing
observations clearly support the trial court's observation that FEBTC's
foreclosure did not actually cover the specific obligations secured by PDCP's
properties.
FEBTC's failure to send personal
notice to the mortgagor is fatal to the
validity of the foreclosure proceedings
Indeed, FEBTC's failure to comply with its contractual obligation to send notice
to PDCP of the foreclosure sale is fatal to the validity of the foreclosure
proceedings. In Metropolitan Bank v. Wong,54 the Court ruled that while as a
rule, personal notice to the mortgagor is not required, such notice may be
subject of a contractual stipulation, the breach of which is sufficient to nullify
the foreclosure sale, thus:
In resolving the first query, we resort to the fundamental principle that a
contract is the law between the parties and, that absent any showing that its
provisions are wholly or in part contrary to law, morals, good customs, public
order, or public policy, it shall be enforced to the letter by the courts. Section
3, Act No. 3135 reads:
xxxx
The Act only requires (1) the posting of notices of sale in three public places,
and (2) the publication of the same in a newspaper of general circulation.
Personal notice to the mortgagor is not necessary. Nevertheless, the parties to
the mortgage contract are not precluded from exacting additional
requirements. In this case, petitioner and respondent in entering into a
contract of [REM], agreed inter alia:
"all correspondence relative to this mortgage, including demand letters,
Pag
summonses, subpoenas, or notifications of any judicial or extra-judicial action e|
shall be sent to the MORTGAGOR at 40-42 Aldeguer St. Iloilo City, or at the
151
address that may hereafter be given in writing by the MORTGAGOR to the
MORTGAGEE."
Precisely, the purpose of the foregoing stipulation is to apprise respondent of
any action which petitioner might take on the subject property, thus according
him the opportunity to safeguard his rights. When petitioner failed to send the
notice of foreclosure sale to respondent, he committed a contractual breach
sufficient to render the foreclosure sale on November 23, 1981 null and
void.55 (Citation omitted and italics in the original)
In trivializing FEBTC's failure to send personal notice to PDCP however, the CA,
citing Philippine National Bank v. Nepomuceno Productions, Inc.,56 ruled that
since the principal object of a notice of sale is not so much to notify the
mortgagor but to inform the public in general of the particularities of the
foreclosure, then personal notice to the mortgagor may be disregarded.57 The
cited case, however, is inapplicable because that case did not in fact involve
stipulations on personal notice to mortgagor nor the sending of notice to a
wrong address. The issue involved in that case is whether the parties to the
mortgage can validly waive the statutory requirements of posting and
publication and not whether the bank can ignore a contractual stipulation for
personal notice. Neither is PNB v. Spouses Rabat58 likewise cited by the CA
applicable because the trial court therein found that the mortgage contract
did not in fact require that personal service of notice of foreclosure sale be
given to the mortgagors. The CA's cavalier disregard of the mortgagor's
contractual right to notice of the foreclosure sale runs contrary to
jurisprudence. In Wong,59 the Court already had the occasion to observe:
It is bad enough that the mortgagor has no choice but to yield his property in
a foreclosure proceeding. It is infinitely worse, if prior thereto, he was denied
of his basic right to be informed of the impending loss of his property. x x x.60
While the CA acknowledged that there was indeed a contractual stipulation
for notice to PDCP as mortgagor, it considered the absence of a particular
address in the space provided therefor in the mortgage contract as merely
evincing an expression of "general intent" between the parties and that this
cannot prevail against their "specific intent" that Act No. 3135 be the
controlling law between them, citing Cortes v. Intermediate Appellate Court.61
The Court cannot agree with the CA. To begin with, the value of the doctrine
enunciated in Cortes has long been considered questionable by this Court.
Thus, in Global Holiday Ownership Corporation v. Metropolitan Bank and Trust
Company,62 the Court held:
But what is stated in Cortes no longer applies in light of the Court's rulings
in Wong and all the subsequent cases, which have been consistent. Cortes has
never been cited in subsequent rulings of the Court, nor has the doctrine
therein ever been reiterated. Its doctrinal value has been diminished by the
policy enunciated in Wong and the subsequent cases; that is, that in addition
to Section 3 of Act 3135, the parties may stipulate that personal notice of
foreclosure proceedings may be required. Act 3135 remains the controlling
law, but the parties may agree, in addition to posting and publication, to
include personal notice to the mortgagor, the non-observance of which renders
the foreclosure proceedings null and void, since the foreclosure proceedings
become an illegal attempt by the mortgagee to appropriate the property for
itself.
Thus, we restate: the general rule is that personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary, and posting and
publication will suffice. Sec. 3 of Act 3135 governing extra-judicial foreclosure
of [REMs], as amended by Act 4118, requires only posting of the notice of sale
in three public places and the publication of that notice in a newspaper of
general circulation. The exception is when the parties stipulate that personal
notice is additionally required to be given the mortgagor. Failure to abide by
the general rule, or its exception, renders the foreclosure proceedings null and
void.63 (Citation omitted, italics ours, and emphasis and underlining in the
original deleted)
In fact, the 2002 case of Nepomuceno Productions,64 cited by the CA, already
made it clear that while personal notice to the mortgagor in extrajudicial
foreclosure proceedings is not necessary, this holds true only if the parties did
not stipulate therefor. Stated differently, personal notice is necessary if the
parties so agreed in their mortgage contract. In the present case, the parties
provided in their REMs that:
12. All correspondence relative to this mortgage, including demand letters,
summonses, subpoenas, or notifications of any judicial or extrajudicial action
shall be sent to the [PDCP] at _______________ or at the address that may
hereafter be given in writing by the [PDCP] to the [FEBTC]. x x x.65
This provision clearly establishes the agreement between the parties that
personal notice is required before FEBTC may proceed with the foreclosure of
the property and thus, FEBTC's act of proceeding with the foreclosure despite
the absence of personal notice to the mortgagor was its own lookout.
That the portion on the mortgagor's address was left in blank cannot be
simply swept under the rug as "an expression of general intent" that cannot
prevail of the parties' specific intent not to require personal notice. Apart from
the fact that this reasoning is based on a questionable doctrine, the CA's ruling
completely ignored the fact that the mortgage contract containing said
stipulation was a standard contract prepared by FEBTC itself. If the latter did
not intend to require personal notice, on top of the statutory requirements of
posting and publication, then said provision should not have at all been
included in the mortgage contract. In other words, the REMs in this case are
contracts of adhesion, and in case of doubt, the doubt should be resolved
against the party who prepared it.66
Accordingly, the CA should have considered the "doubt" created by the blank
space in the mortgage contract against FEBTC and not in its favor.
Nonetheless, even if the Court ignores this particular rule of interpretation,
the fact that FEBTC caused the sending of a notice, albeit at a wrong address,
to PDCP is itself a clear proof that the parties did intend to impose a
contractual requirement of personal notice, FEBTC's undisputed breach of
which sufficiently nullifies the foreclosure proceeding.
With the foregoing, the Court finds it unnecessary to discuss PDCP's argument
based on the alleged violation of its constitutional right against impairment of
obligations and contract.
WHEREFORE, premises considered, the petition is GRANTED. The Decision
dated November 25, 2009 and Resolution dated February 2, 2010 of the Court
of Appeals in CA-G.R. CV No. 89755 are hereby ANNULLED and SET ASIDE. The
Decision dated April 16, 2007 of the Regional Trial Court of Quezon City,
Branch 222, in Civil Case No. Q01-44630 is REINSTATED and AFFIRMED.
SO ORDERED.
G.R. No. 215691, November 21, 2018
SPOUSES FRANCIS N. CELONES AND FELICISIMA
CELONES, Petitioners, v. METROPOLITAN BANK AND TRUST COMPANY AND
ATTY. CRISOLITO O. DIONIDO, Respondents.
DECISION
TIJAM, J.:
Before Us is a petition for review on certiorari1 filed by petitioners Spouses
Francis N. Celones and Felicisima Celones (Spouses Celones), against
respondents Metropolitan Bank and Trust Company (Metrobank) and Atty.
Crisolito O. Dionido (Atty. Dionido), assailing the Decision2 dated April 14,
2014 and the Resolution3 dated December 11, 2014 of the Court of Appeals
(CA) in CA-G.R. CV No. 96236, reversing the Order4 dated September 1, 2010
of the Regional Trial Court (RTC) of Pasig City, Branch 154, declaring the
Memorandum of Agreement5 (MOA) without force and effect and declaring
that Spouses Celones were the ones who redeemed the mortgaged
properties.
Antecedent Facts
The Spouses Celones together with their company, Processing Partners and
Packaging Corporation (PPPC), obtained various loans from Metrobank and for
which they mortgaged various properties.6 The total obligation of Spouses
Celones with Metrobank was P64,474,058.73.7
The Spouses Celones defaulted in paying their loan, as such, Metrobank
foreclosed all the mortgaged properties. During the foreclosure sale,
Metrobank was declared as the winning bidder. The certificates of sale were
issued on July 2007. Prior to the expiration of the one year redemption period,
Metrobank filed petitions for issuance of writs of possession before several
courts to take possession of the foreclosed properties.8
Sometime in 2007, the spouses Celones offered to redeem the properties
from Metrobank. The latter issued a Conditional Notice of Approval for
Redemption9 (CNAR) dated December 13, 2007 stating that the offer of
Spouses Celones to redeem the property in the amount of P55 Million has
been approved to be paid on or before December 20, 2007.10 Pressed for
time, Spouses Celones sought the help of banking and financing institutions
who are willing to extend them a loan. Finally, they found Atty. Dionido who
agreed to loan them the said amount.11 Pag
Atty. Dionido then issued two (2) manager's check, one amounting to P35 e|
Million and another amounting to P20 Million.12 152
In lieu of executing a loan agreement, Spouses Celones, PPPC, Metrobank and
Atty. Dionido executed a MOA, wherein the parties agreed for the subrogation
of Atty. Dionido to all the rights, interests of Metrobank over the loan
obligation of Spouses Celones and the foreclosed properties.13
Upon receipt of the two manager's checks, Metrobank issued Payment Slips in
favor of Spouses Celones.14 It likewise caused the dismissal of the petitions for
issuance of writs of possession on the ground that Spouses Celones had
already redeemed the properties.15
On the belief that they have redeemed the foreclosed properties, the Spouses
Celones demanded from Metrobank the issuance of a Certificate of
Redemption. However, the latter refused to issue the same on the ground
that all its rights and interests over the foreclosed properties had been
transferred to Atty. Dionido, as such, he should be the one to issue the said
certificate.16
Meanwhile, Atty. Dionido sent several demand letters to Spouses Celones to
vacate the foreclosed properties in view of the expiration of the redemption
period without Spouses Celones redeeming the same.17
Aggrieved, Spouses Celones filed before the trial court a case for Declaratory
Relief and Injunction to compel Metrobank to issue the certificates of
redemption and to deliver to them the certificates of title over the foreclosed
properties.18
On September 1, 2010, the RTC issued an Order19 in favor of Spouses Celones,
thus:
WHEREFORE, judgment is hereby rendered declaring the questioned [MOA]
without force and effect as the same has not been fully executed. The Court
further declares the [Spouses Celones] to be the redemptioners of their
foreclosed properties and directs defendant Metrobank to execute and deliver
the corresponding certificates of redemption over the said properties and
turn-over all the Transfer Certificates of Titles covering the same to [Spouses
Celones] so that they could be registered in accordance with Section 29, Rule
39 of the Revised Rules of Court.
On the other second transaction, the Court hereby finds that the transaction
between the [Spouses Celones] and defendant [Atty.] Dionido is one of a
simple loan.
Lastly, the writ of preliminary injunction is hereby made permanent.
SO ORDERED.20
Upon appeal to the CA, the latter reversed the RTC Order and rendered a
Decision21 dated April 14, 2014, thus:
WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The
Order dated September 1, 2010 issued by the [RTC] of Pasig City, Branch 154,
in the case for Declaratory Relief and Injunction, docketed as SCA No. 3270-
PSG is hereby REVERSED and SET ASIDE.
Accordingly, the [MOA] dated December 20, 2007 entered into by
[Metrobank], [PPPC], [Spouses Celones] and [Atty. Dionido], is declared a
Contract of Subrogation which entitles Atty. Dionido to be subrogated to the
rights of Metrobank as a foreclosure buyer. And having failed to redeem the
property within the redemption period, the [Spouses] Celones are
hereby DIRECTED to immediately and voluntarily surrender the possession of
the foreclosed properties to Atty. Dionido in accordance with the provisions of
the said [MOA].
The [Spouses] Celones are ORDERED to pay Atty. Dionido the loan amount of
Two Million Five Hundred Thousand (P2,500,000.00) Pesos as payment for the
loan they contracted from the latter with legal interest thereon at the rate of
six (6%) percent per annum from the time of its availment, December 20,
2007, until fully paid.
Additionally, the [Spouses] Celones are ordered to pay Atty. Dionido moral
damages in the amount of Five Hundred Thousand (P500,000.00) Pesos, the
amount of Three Hundred Thousand (P300,000.00) Pesos, as exemplary
damages, and Fifty Thousand (P50,000.00) Pesos by way of attorney's fees.
The [Spouses] Celones are likewise ORDERED to pay Metrobank the amount of
Three Hundred Thousand (P300,000.00) Pesos as exemplary damages and
Fifty Thousand (P50,000.00) Pesos as attorney's fees.
With Costs.
SO ORDERED.22
The Motion for Reconsideration23 filed by the spouses Celones was likewise
denied by the CA in its Resolution24 dated December 11, 2014.
Hence, this petition.
Issue
Whether or not Spouses Celones were able to redeem the foreclosed
properties from Metrobank using the loan acquired from Atty. Dionido.
Petitioners' Arguments
Spouses Celones claimed that the transaction between them and Atty.
Dionido was that of a loan.25 Further, Metrobank's subsequent acts shows that
spouses Celones has redeemed the property, such as the issuance of payment
slips in the name of Spouses Celones and the filing of several motions to
dismiss in the civil cases for issuance of a writ of possession pending before
different courts due to the Spouses Celones' redemption of the foreclosed
properties.
Respondents' Arguments
On the other hand, Metrobank and Atty. Dionido both argued that the
Spouses Celones were not able to redeem the property because the CNAR has
been novated by the MOA executed by the parties on December 20, 2007.
Under the MOA, the P55 Million paid by Atty. Dionido to Metrobank was in
consideration of the transfer and assignment of rights of Metrobank to Atty.
Dionido over the foreclosed properties. Metrobank claimed that if there was
indeed a redemption that occurred, it should be Atty. Dionido who should
issue a Certificate of Redemption in view of the transfer and assignment of its
rights to the latter.
Ruling of the Court
The petition is impressed with merit.
It is undisputed that the amount of P55 Million paid to Metrobank came from
Atty. Dionido. The controversy lies as to what transaction occurred between
spouses Celones and Atty. Dionido. Spouses Celones claimed that it was a loan
transaction while Atty. Dionido claimed that it was in consideration of his
subrogation to the rights and interests of Metrobank over the foreclosed
properties.
Under the CNAR dated December 13, 2007, Metrobank approved the offer of
Spouses Celones to redeem the property in the amount of P55 Million and
that the same should be paid on or before December 20, 2007.26
In order to finance the said amount, Spouses Celones sought the help of
banking and financing institutions to pay off the said amount. Their search led
them to Atty. Dionido who agreed to loan them the amount of P55 Million. On
December 20, 2007, to finalize their transaction and with the participation of
Metrobank, the parties executed a MOA. Under the MOA, the following terms
are stipulated:
1. DIONIDO shall pay Metrobank the amount of FIFTY-FIVE MILLION PESOS
(P55,000,000.00) upon execution of this Agreement. The said amount shall be
exclusive of all taxes, fees and charges, which shall likewise be exclusively
assumed by DIONIDO that may be incurred arising from the execution and
subsequent consummation of this Agreement, including friction costs and
expenses associated with the redemption transaction; and all realty taxes,
dues and other assessments on the Subject Properties from date of
foreclosure. The payment shall be made in the form of Manager's Check in the
name of METROBANK and shall be deposited via METROBANK's bills payment
facility.
2. For and in consideration of the said payment by DIONIDO, METROBANK,
PPPC, and SPS. CELONES agree to fully and absolutely assign and transfer all of
METROBANK's rights, interests, and authorities over the Assumed Obligation
and the Subject Properties to DIONIDO, including those arising from the
foreclosure proceedings and foreclosure sale made by METROBANK over the
Subject Properties, and the authority to sign the Deed of Redemption over the
Subject Properties. METROBANK agree to the full subrogation of its rights in
favor of DIONIDO, and to free PPPC and SPS. CELONES from the Assumed
Obligation.27
Metrobank and Atty. Dionido claimed that the MOA being of a later date,
superseded and novated the CNAR. As such, the redemption agreed upon by
Metrobank and Spouses Celones was no longer controlling.
Novation is a mode of extinguishing an obligation by changing its objects or
principal obligations, by substituting a new debtor in place of the old one, or
by subrogating a third person to the rights of the creditor.28 In order that an
obligation may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the
new obligations be on every point incompatible with each other.29 Thus,
"[n]ovation must be stated in clear and unequivocal terms to extinguish an
obligation. It cannot be presumed and may be implied only if the old and new
contracts are incompatible on every point."30 Pag
As held in the case of Salazar v. J.Y. Brothers Marketing Corp.:31 e|
x x x Novation is done by the substitution or change of the obligation by a 153
subsequent one which extinguishes the first, either by changing the object or
principal conditions, or by substituting the person of the debtor, or by
subrogating a third person in the rights of the creditor. Novation may:
[E]ither be extinctive or modificatory, much being dependent on the nature of
the change and the intention of the parties. Extinctive novation is never
presumed; there must be an express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate their intent to dissolve
the old obligation as the moving consideration for the emergence of the new
one. Implied novation necessitates that the incompatibility between the old and
new obligation be total on every point such that the old obligation is completely
superceded by the new one. The test of incompatibility is whether they can
stand together, each one having an independent existence; if they cannot and
are irreconcilable, the subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing
an existing obligation and, second, creating a new one in its stead. This kind of
novation presupposes a confluence of four essential requisites: (1) a previous
valid obligation, (2) an agreement of all parties concerned to a new contract,
(3) the extinguishment of the old obligation, and (4) the birth of a valid new
obligation. Novation is merely modificatory where the change brought about
by any subsequent agreement is merely incidental to the main obligation (e.g.,
a change in interest rates or an extension of time to pay; in this instance, the
new agreement will not have the effect of extinguishing the first but would
merely supplement it or supplant some but not all of its
provisions.)32 (Emphasis ours)
Examination of the MOA showed no express stipulation as to the novation or
extinction of the CNAR. Thus, for implied novation to exist, it is necessary to
determine whether the CNAR and the MOA are incompatible on every point
such that they cannot be reconciled and stand together.
Under the CNAR, it is provided that Metrobank approved the offer of Spouses
Celones to redeem the property in the amount of P55 Million. While under
the MOA, Metrobank assigned all its rights and interests to Atty. Dionido over
the foreclosed properties including the issuance of a certificate of redemption.
After careful scrutiny of the records, we find that the CNAR only deals with the
redemption right of Spouses Celones while the MOA deals with the
assignment of credit of Metrobank to Atty. Dionido. As such, the CNAR and
the MOA can be reconciled and can both stand together.
Under the MOA, Metrobank assigned all its rights and interests over the
foreclosed properties to Atty. Dionido. "An assignment of credit has been
defined as the process of transferring the right of the assignor to the assignee
who would then have the right to proceed against the debtor."33 Atty. Dionido
being an assignee of Metrobank, he merely steps into the shoes of the
assignor, Metrobank. Atty. Dionido can acquire no greater right than that
pertaining to his assignor. Thus, when Atty. Dionido agreed to the assignment
of Metrobank's rights and interests over the foreclosed properties under the
MOA, he acquires exactly the rights and interests over the foreclosed
properties as of the date of the signing of the MOA.
Unfortunately for Atty. Dionido, he merely acquired what right Metrobank
has, as of the date of the signing of the MOA, which was the issuance of a
Certificate of Redemption, because as of that date, the foreclosed properties
have already been redeemed by Spouses Celones from Metrobank. The fact
that Spouses Celones had already redeemed the foreclosed properties was
evidenced by the fact that as soon as Metrobank was paid the redemption
amount, the latter issued payment slips in the name of Spouses Celones.
Further, after the payment of the P55 Million, Metrobank caused the dismissal
of the civil cases it filed for issuance of writ of possession due to the fact that
the foreclosed properties had already been redeemed by the Spouses
Celones. Had the P55 Million been paid by Atty. Dionido to Metrobank as a
consideration for the assigment of credit, the receipt should have been under
the name of Atty. Dionido and not under the name of Spouses Celones.
Finding that the foreclosed properties had already been redeemed by Spouses
Celones, the Certificate of Redemption should naturally be issued by the
assignee, Atty. Dionido. To accept his contention that the redemption period
of the foreclosed properties had already lapsed and that Spouses Celones has
lost their right over the foreclosed properties is to go against the basic
principle of assigment of credit that the assignee cannot acquire no greater
right than the assignor.
Atty. Dionido however is not left without any remedy or recourse against
Spouses Celones. Under Article 1236 of the Civil Code, it is provided that:
Art. 1236. The creditor is not bound to accept payment or performance by a
third person who has no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the
debtor. (Emphasis ours)
Thus, Atty. Dionido has the right to demand payment of the amount of P55
Million from Spouses Celones since it is undisputed that such amount came
from Atty. Dionido. It is unjust enrichment on the part of Spouses Celones to
acquire the amount ofP55 Million and not be required to pay the same. To
save on the time and resources of this Court and because of the possibility
that this case will once again reach this Court, although this case is not an
action to recover a sum of money, we deem it proper to rule on the propriety
of Atty. Dionido's right to recover the said sum from Spouses Celones. Thus,
Spouses Celones should pay the amount of P55 Million to Atty. Dionido with
legal interest counted from the date of finality of this Decision.
WHEREFORE, premises considered, the petition is GRANTED. The Decision
dated April 14, 2014 and the Resolution dated December 11, 2014 of the
Court of Appeals in CA-G.R. CV No. 96236 are hereby REVERSED and SET
ASIDE.
Accordingly, a new one is entered ORDERING Atty. Crisolito O. Dionido to issue
a Certificate of Redemption in favor of Spouses Francis N. Celones and
Felicisima Celones.
The Spouses Francis N. Celones and Felicisima Celones are hereby ORDERED to
pay the amount of P55 Million plus legal interest of six percent (6%) per
annum to Atty. Crisolito O. Dionido counted from finality of this Decision until
full payment thereof.
SO ORDERED.
[ G.R. No. 226088, February 27, 2019 ]
FOOD FEST LAND, INC. AND JOYFOODS CORPORATION, PETITIONERS, VS.
ROMUALDO C. SIAPNO, TEODORO C. SIAPNO, JR. AND FELIPE C. SIAPNO,
RESPONDENTS.
DECISION
PERALTA, J.:
At bench is an appeal[1]from the Decision[2] dated January 6, 2016 and the
Resolution[3] dated July 22, 2016 of the Court of Appeals (CA) in CA G.R. CV No.
101302, affirming the Decision and Resolution, dated February 20, 2013 and
July 5, 2013, respectively, of the Regional Trial Court (RTC), Branch 41,
Dagupan City in Civil Case No. 2009-0084-D.
The facts.
The Contract of Lease
Respondents Romualdo C. Siapno, Teodoro C. Siapno and Felipe C. Siapno are
the registered owners[4] of a 521-square-meter parcel of land (subject land) in
Dagupan City.
On April 14, 1997, respondents entered into a Contract of Lease[5] involving
the subject land with petitioner Food Fest Land, Inc. (Food Fest), a local
corporation who wanted to use such land as the site of a fastfood
restaurant.[6] The contract has the following particulars —
1. The term of the lease shall be fifteen (15) years.[7] On the third (3rd) year
of the lease, however, Food Fest shall have the right to pre-terminate the
lease.[8]
2. During the subsistence of the lease, Food Fest shall have the right to use
the subject land for such lawful purposes, including but not limited to the
operation of a restaurant business therein.[9]
3. In consideration therefor, Food Fest shall pay respondents rent in the
following amounts:[10]
a. For the first year, the rate of rent shall be P43,901.00 per month.[11]
b. For the succeeding years, however, the rate of monthly rent shall
escalate by 10% annually. They are payable within the first ten (10)
days of the following month.
In addition to the foregoing, the Contract of Lease also featured a non- waiver
clause:[12]
16. NON-WAIVER- The failure of the parties to insist upon a strict performance
of any of the terms, conditions and covenants hereof shall not be deemed a
relinquishment or waiver of any rights or remedy that said party may have,
nor shall it be construed as a waiver of any subsequent breach or default of
the terms, conditions and covenants hereof which shall continue to be in full
force and effect. No waiver by the parties of any of their rights under this
Contract of Lease shall be deemed to have been made unless expressed in Pag
writing and signed by the party concerned. [13]
e|
Pursuant to the Contract of Lease, Food Fest proceeded to build and operate 154
its restaurant within the subject land.
In October 1998, Food Fest assigned all its rights and obligations under the
Contract of Lease unto one Tuck:y Foods, Inc. (Tucky Foods).[14] In September
2001, Tucky Foods assigned all the said rights and obligations under such
contract to petitioner Joyfoods Corporation (Joyfoods).[15]
Payment of Rentals and Pre-Termination of the Lease
From the first up to the fifth year of the lease,[16] Food Fest and its assignees
paid rent at the monthly rate prescribed for under the Contract of
Lease.[17] The rental escalation clause in the said contract, which -requires the
annual escalation of monthly rent by 10%, was consistently observed on the
second to the fifth year.
Thus, by the fifth year of the lease,[18] Joyfoods was paying the respondents a
monthly rent of P64,275.45.
The rental escalation clause, however, was not observed during the sixth up to
the tenth year of the lease. For the sixth up to ninth year of the
lease,[19] respondents continued to receive rent at the rate of P64,275.45 per
month.[20] On the tenth year of the lease,[21] on the other hand, respondents
were paid rent at the rate of P68,774.71 per month.[22]
At the start of the eleventh year of the lease,[23] however, respondents called
the attention of Food Fest and Joyfoods regarding its intent to enforce the
rental escalation clause of the Contract of Lease for the said
year.[24] Accordingly, respondents informed Food Fest and Joyfoods that the
rent for the eleventh year of the lease shall be P113,867.89 per month, unless
such amount is renegotiated.
In reply, Food Fest and Joyfoods, on June 27, 2007, sent to respondents a
letter[25] wherein they acknowledged that the applicable rate of rent following
the Contract of Lease would indeed be P113,867.89 per month, but proposed
that the same be reduced to only P80,000.00 per month. The proposal was
rejected by the respondents.
On July 4, 2007, Joyfoods sent to respondents another letter[26] wherein it
proposed the amount of P85,000.00 as monthly rental for the eleventh and
twelfth years of the lease. But this too was met with rejection by the
respondents.
On October 27, 2008, during the lease's twelfth year, Joyfoods sent to
respondents a letter[27] conveying its intent to pre-terminate the lease. In the
letter, Joyfoods stated that "due to severe and irreversible business losses" it
will cease its operations on the 29th of November 2008 and will turnover the
subject land to the respondents on the 131h of December 2008.[28]
The Complaint and the Rulings of the RTC and the CA
On April 20, 2009, respondents lodged before the RTC of Dagupan City a
Complaint[29] for sum of money against Food Fest and Joyfoods. In it,
respondents mainly seek payment of the sum of P988,907.74 from Food Fest
and Joyfoods - which sum respondents refer to as the "escalation for the years
2007 and 2008."[30] In essence, the sum P988,907.74 was supposed to
represent the balance between the amount of rent due under the Contract of
Lease for the period beginning from the lease's eleventh year of up to its pre-
termination, on one hand, and the amount of rent that was actually paid by
Food Fest and Joyfoods during the said period, on the other (unpaid balance).
On February 20, 2013, the RTC rendered a Decision[31] in favor of respondents,
ordering Food Fest and Joyfoods to, among others, pay respondents the
unpaid balance in the amount of P988,907.74. Food Fest and Joyfoods filed a
Motion for Reconsideration, but such motion was denied by the RTC via a
Resolution[32] dated July 5, 2013.
Food Fest and Joyfoods appealed to the CA.
On January 6, 2016, the CA rendered a Decision[33] dismissing such appeal and
affirming the decision of the RTC. Food Fest and Joyfoods moved for a
reconsideration, but the CA was steadfast.[34]
 Such an assumption, however, was already rebuffed by the RTC and the CA.
Hence, this appeal. Both courts did not consider the first and second agreements as established
facts, mainly because they found that the existence of such agreements is not
The Present Appeal[35] supported by any credible evidence on record.[36]

In substance, Food Fest and Joyfoods admit the existence of an unpaid
balance under the Contract of Lease. They, however, deviate from the
decisions of the RTC and the CA on two (2) points:
First. Food Fest and Joyfoods challenge with the amount of the unpaid balance
awarded by the RTC and the CA. Instead of the sum of P988,907.74 claimed by
the respondents, Food Fest and Joyfoods assert that the proper award should
have been just for P382,055.22.
Food Fest and Joyfoods allege that the rental escalation clause of the Contract
of Lease — by reason of an unwritten agreement between Joyfoods and the
respondents — was actually suspended indefinitely beginning from the sixth
year of the lease. Hence, according to Food Fest and Joyfoods, the monthly
rent payable from the sixth year of the lease onwards is no longer determined
by the stipulations of the Contract of Lease, but by negotiation between
Joyfoods and respondents.
Accordingly, the RTC and the CA found nothing that could bar the respondents
from enforcing and applying the rental escalation clause for the eleventh and
twelfth years of the lease.[37]
We are not inclined to review - much less disturb -the foregoing factual Pag
findings of the RTC and the CA, knowing fully well our limitations as an
appellate court and the proper office of appeals by certiorari.[38] This Court, as e|
has often been said, is not a trier of facts.[39] In an appeal by certiorari, such as 155
the instant case, We generally defer to the factual findings of lower courts and
confine our review exclusively to the assigned errors of law. Though this norm
is by no means absolute, it bears to stress that any deviation therefrom is only
ever taken under defined circumstances — such as when the factual finding of
the trial court is reversed by the CA on appeal, or when such finding is
"manifestly mistaken, absurd, or impossible" or the same is otherwise
"grounded entirely on speculation, surmises, or conjectures" or in instances
where there has been grave abuse of discretion.[40] None of such
circumstances, however, affect the factual determinations in discussion.

For the eleventh and twelfth year of the lease, Food Fest and Joyfoods aver
that respondents and Joyfoods had actually come to an agreement fixing the
monthly rentals thereon at P90,000.00 per month. Such agreement was
precipitated, say Food Fest and Joyfoods, by Joyfoods' letter dated July 4,
2007 to respondents. To recall, it is in such letter that Joyfoods proposed the
amount of P85,000.00 as monthly rental for the eleventh and twelfth year of
the lease.
Food Fest and Joyfoods assert that the respondents replied to the July 4, 2007
letter and .made a counter-proposal of P90,000.00 monthly rent for the
eleventh and twelfth years of the lease. The counter-proposal was supposedly
handwritten by the respondents in the July 4, 2007 letter, which they then
sent back via facsimile to Joyfoods. And Joyfoods, apparently, agreed to this
counter-proposal.
Food Fest and Joyfoods point out that when the rate of monthly rent for the
eleventh and twelfth year is reckoned at P90,000.00, the unpaid balance
would have amounted only to P382,055.22, to wit:
All in all, We find no cogent reason to overturn the RTC and the CA's
determination negating the existence of the first and second agreements due
to lack of credible proof. Without such agreements, Food Fest and Joyfoods'
challenge against the amount of the unpaid balance inevitably loses its
potency. We, therefore, cannot accept such challenge and must instead
sustain the amount of unpaid balance awarded by the RTC and the CA.
II
We also reject the plea to limit liability for the unpaid balance solely with
Joyfoods.
Food Fest and Joyfoods' plea is, in substance, an invocation of the concept of
novation - particularly, novation of an obligation by the substitution of the
person of the debtor. Their basic assertion is that the assignment by Food Fest
of its rights and obligations under the Contract of Lease to Tucky Foods, and
the assignment by Tucky Foods of the same rights and obligations to Joyfoods,
ought to have resulted in Food Fest's release from its obligations under the
Contract of Lease and its substitution therein by Joyfoods.

A. Amount of rent rightfully due under We do not agree.

for the period beginning from the
lease's eleventh year of up to its pre-
termination (18 months)
B. Amount of rent actually paid by
Food Fest and Joyfoods during the
same period
UNPAID BALANCE (A-B)
P90,000.00 x 18 months =
P1,620,000.00
P 68,774.71 x 18 months=
P1,237,944.78
P1,620,000.00- P1,237,944.78 =
P382,055.22
Novation is the extinguishment of an obligation by its modification and
replacement by a subsequent one. It takes place when an obligation is
modified in any of the following ways: (a) by changing its object or principal
conditions, (b) by substituting the person of the debtor, or (c) by subrogating a
third person in the rights of the creditor.[41] In such instances, the obligation
ceases to exist as a new one — bearing the modifications agreed upon —
takes its place. Novation is, thus, a juridical act of dual function— for as it
extinguishes an obligation, it also creates a new one in lieu of the old.[42]

Novation of an obligation by substituting the person of the debtor, as the term

Second. Food Fest and Joyfoods also disagree with their
respective liabilities for the unpaid balance as held by the RTC and the CA.
Food Fest and Joyfoods submit that both of them cannot be held liable for the
said balance, in light of Food Fest's assigmnent of its rights and obligations
under the Contract of Lease to Tucky Foods in 1998 and of Tucky Foods'
assignment of the same rights and obligations to Joyfoods in 2001. Under such
circumstances, it is postulated that the liability for the unpaid balance now
solely rests with Joyfoods.
Our Ruling
We deny the appeal. We affirm the decision of the CA.
I be effected with or without the knowledge of the debtor but not without the
We reject the challenge against the amount of the unpaid balance awarded by
the RTC and the CA.
Food Fest and Joyfoods' position pegging the unpaid balance at P382,055.22 is
problematic. It proceeds from a factual assumption that contradicts the actual
factual findings of the RTC and the CA. As is apparent from their arguments,
Food Fest and Joyfoods' position is hinged on the existence of two purported
(2) agreements between the respondents and Joyfoods, to wit:
1. An agreement suspending indefinitely the rental escalation clause of the
Contract of Lease (first agreement); and
2. An agreement fixing the rate of rent for the lease's eleventh and twelfth
year at P 90,000 per month (second agreement).
suggests, entails the replacement of the debtor by a third person. When
validly made, it releases the debtor from the obligation which is then assumed
by the third person as the new debtor. To validly effect such kind of novation,
however, it is not enough for the debtor to merely assign his debt to a third
person, or for the latter to assume the debt of the former; the consent of the
creditor to the substitution of the debtor is essential and must be had. As
Article 1293 of the Civil Code provides:
ARTICLE 1293. Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the knowledge or against
the will of the latter, but not without the consent of the creditor. Payment by
the new debtor gives him the rights mentioned in articles 1236 and 1237.[43]
In De Cortes v. Venturanza,[44] We explained the rationale of this requirement:
x x x A personal novation by substitution of another in place of the debtor may
consent of the creditor (Art. 1205, Civil Code [now Art. 1293, New Civil Code]).
This is the legal provision applicable to the case at bar. The reason for the
requirement that the creditor give his consent to the substitution is obvious.
The substitution of another in place of the debtor may prevent or delay the
fulfillment or performance of the obligation by reason of the inability or
insolvency of the new debtor; hence, the consent of the creditor is necessary.
This kind of substitution may take place without the knowledge of the debtor
when a third party assumes the obligation of the debtor with the consent of
the creditor. The novation effected in this way is called expromision.
Substitution may also take place when the debtor offers and the creditor
accepts a third party who assumes the obligation of the debtor. The novation
made in this manner is called delegacion. (Ali. 1206, Civil Code [now Art. 1295,
New Civil Code]). In these two modes of substitution, the consent of the
creditor is always required. x x x."[45]
The consent of the creditor to the substitution of a debtor, as a rule, may be Appeals in CA-G.R. CV No. 101302 are AFFIRMED.
given expressly or impliedly.[46] As can be observed, the law does not require
that the creditor's consent to the substitution to come at a particular time or SO ORDERED.
in a particular form.[47] What it only demands is that the consent of the
creditor be given one way or another.[48] This notwithstanding, there is also
nothing that precludes the parties in an obligation, pursuant to their freedom to
contract,[49] to agree to a specific form by which the creditor's consent to any
potential novation should be expressed. Once an agreement is reached that
subjects the creditor's consent to certain formal requirements, such
requirements naturally become binding upon the parties.[50] Pag
Going back to the instant case, We find that the established facts do not e|
permit the conclusion that novation had taken place. 156
First. The settled facts do not show that respondents had expressly consented
in writing to the substitution of Food Fest by Joyfoods. The consent of
respondents to such substitution has to be in writing, in . light of the non-
waiver clause of the Contract of Lease. As can be recalled, the non waiver
clause of the Contract of Lease required the parties thereto to express any
waiver of their rights under said contract in writing lest their waiver be
considered null, viz.:
16. NON-WAIVER - The failure of the parties to insist upon a strict
performance of any of the terms, conditions and covenants hereof shall not
be deemed a relinquishment or waiver of any rights or remedy that said party
may have, nor shall it be construed as a waiver of any subsequent breach or
default of the terms, conditions and covenants hereof which shall continue to
be in full force and effect. No waiver by the parties of any of their rights under
this Contract of Lease shall be deemed to have been made unless expressed in
writing and signed by the party concerned.[51]

Respondents' consent to the substitution of Food Fest falls within the ambit of
the foregoing clause, because a novation by the substitution of the person of
the debtor implies a waiver on the part of the creditor of his right to enforce
the obligation as against the original debtor.[52] This correlation has been made
in the case of Testate Estate of Lazaro Mota v. Serra:[53]
It should be noted that in order to give novation its legal effect, the law
requires that the creditor should consent to the substitution of a new debtor.
This consent must be given expressly for the reason that, since novation
extinguishes the personality of the first debtor who is to be substituted by a
new one, it implies on the part of the creditor a waiver of the right that he had
before the novation which waiver must be express under the principle
that renuntiatio non praesumitor, recognized by the law in declaring that a
waiver of right may not be performed unless the will to waive is indisputably
shown by him who holds the right.[54]
Verily, without the consent of the respondents — conveyed in the form
required under the Contract of Lease — there can be no substitution of Food
Fest by Joyfoods. On this score alone, Food Fest and Joyfoods' plea is
dismissible.

Second. Yet, even if we are to set aside the non-waiver clause of the Contract
of Lease, Food Fest and Joyfoods' claim of novation is still doomed to fail. This
is so because the consent of respondents to the substitution of Food Fest, just
the same, cannot be deduced or implied from any of the established acts of
the former. Indeed, under the settled facts, the respondents did nothing in
the way of releasing Food Fest from its obligations other than, perhaps, its
acceptance of rental payments from Joyfoods.

The consent of respondents to the substitution of Food Fest by Joyfoods,

however, cannot be presumed from the sole fact that they accepted
payments from Joyfoods. It is well settled that mere acceptance by a creditor
of payments from a third person for the benefit of the debtor, sans any
agreement that the original debtor will also be released from his obligation,
does not result in novation but merely the addition of debtors. As Ajax
Marketing Development Corporation v. Court of Appeals[55] instructs:
The well-settled rule is that novation is never presumed. Novation will not be
allowed unless it is clearly shown by express agreement, or by acts of equal
import. Thus, to effect an objective novation, it is imperative that the new
obligation expressly declare that the old obligation is thereby extinguished, or
that the new obligation be on every point incompatible with the new one. In
the same vein, to effect a subjective novation by a change in the person of the
debtor it is necessary that the old debtor be released expressly from the
obligation, and the third person or new debtor assumes his place in the
relation. There is no novation without such release as the third person who has
assumed the debtor's obligation becomes merely a co-debtor or surety.[56]
All things considered, We find no valid reason to overturn the RTC and the
CA's ruling holding both Food Fest and Joyfoods liable for the unpaid balance.
Under the limited facts of the instant ease, no novation by the substitution of
the person of debtor can be appreciated. Accordingly, · Food Fest cannot be
considered as released from its obligations under the Contract of Lease. And
Joyfoods' assumption of the debt of Food Fest only made the former a co-
debtor of the latter.[57]

WHEREFORE, premises considered, the instant: appeal is DENIED. the Decision

dated January 6, 2016 and the Resolution dated July 22, 2016 of the Court of