G.R. No. 105188 January 23, 1998
Butte were also redeemed;
MYRON C. PAPA, Administrator of the Testate Estate of Angela
M. Butte, petitioner,
vs.
A.U. VALENCIA, respondents.
The antecedent facts of this case are as follows:
Sometime in June 1982, herein private respondents A.U.
Valencia and Co., Inc. (hereinafter referred to as respondent
Valencia, for brevity) and Felix Peñarroyo (hereinafter called
respondent Peñarroyo), filed with the Regional Trial Court of
Pasig, Branch 151, a complaint for specific performance against
herein petitioner Myron C. Papa, in his capacity as
administrator of the Testate Estate of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron
C. Papa, acting as attorney-in-fact of Angela M. Butte, sold to
respondent Peñarroyo, through respondent Valencia, a parcel
of land, consisting of 286.60 square meters, located at corner
Retiro and Cadiz Streets, La Loma, Quezon City, and covered by
Transfer Certificate of Title No. 28993 of the Register of Deeds
of Quezon City; that prior to the alleged sale, the said property,
together with several other parcels of land likewise owned by
Angela M. Butte, had been mortgaged by her to the Associated
Banking Corporation (now Associated Citizens Bank); that after
the alleged sale, but before the title to the subject property had
been released, Angela M. Butte passed away; that despite
representations made by herein respondents to the bank to
release the title to the property sold to respondent Peñarroyo,
the bank refused to release it unless and until all the mortgaged
properties of the late Angela M.
that in order to protect his rights and interests over the
property, respondent Peñarroyo caused the annotation on the
title of an adverse claim as evidenced by Entry No. P.E.-6118/T-
28993, inscribed on 18 January 1997.
The complaint further alleged that it was only upon the release
of the title to the property, sometime in April 1977, that
respondents Valencia and Peñarroyo discovered that the
mortgage rights of the bank had been assigned to one Tomas L.
Parpana (now deceased), as special administrator of the Estate
of Ramon Papa, Jr., on 12 April 1977; that since then, herein
petitioner had been collecting monthly rentals in the amount
of P800.00 from the tenants of the property, knowing that said
property had already been sold to private respondents on 15
June 1973; that despite repeated demands from said
respondents, petitioner refused and failed to deliver the title to
the property. Thereupon, respondents Valencia and Peñarroyo
filed a complaint for specific performance, praying that
petitioner be ordered to deliver to respondent Peñarroyo the
title to the subject property (TCT 28993); to turn over to the
latter the sum of P72,000.00 as accrued rentals as of April 1982,
and the monthly rental of P800.00 until the property is
delivered to respondent Peñarroyo; to pay respondents the
sum of P20,000.00 as attorney's fees; and to pay the costs of
the suit.
In his Answer, petitioner admitted that the lot had been
mortgaged to the Associated Banking Corporation (now
Associated Citizens Bank). He contended, however, that the
complaint did not state a cause of action; that the real property
in interest was the Testate Estate of Angela M. Butte, which
should have been joined as a party defendant; that the case
amounted to a claim against the Estate of Angela M. Butte and
should have been filed in Special Proceedings No. A-17910
before the Probate Court in Quezon City; and that, if as alleged
in the complaint, the property had been assigned to Tomas L.
Parpana, as special administrator of the Estate of Ramon Papa,
Jr., said estate should be impleaded. Petitioner, likewise,
claimed that he could not recall in detail the transaction which
allegedly occurred in 1973; that he did not have TCT No. 28993
in his possession; that he could not be held personally liable as
he signed the deed merely as attorney-in-fact of said Angela M.
Butte. Finally, petitioner asseverated that as a result of the
filing of the case, he was compelled to hire the services of
counsel for a fee of P20,000.00 for which respondents should
be held liable.
Upon his motion, herein private respondent Delfin Jao was
allowed to intervene in the case. Making common cause with
respondents Valencia and Peñarroyo, respondent Jao alleged
that the subject lot which had been sold to respondent
Peñarroyo through respondent Valencia was in turn sold to him
on 20 August 1973 for the sum of P71,500.00, upon his paying
earnest money in the amount of P5,000.00. He, therefore,
prayed that judgment be rendered in favor of respondents, the
latter in turn be ordered to execute in his favor the appropriate
deed of conveyance covering the property in question and to
turn over to him the rentals which aforesaid respondents
sought to collect from petitioner Myron V. Papa.
Respondent Jao, likewise, averred that as a result of petitioner's
refusal to deliver the title to the property to respondents
Valencia and Peñarroyo, who in turn failed to deliver the said
title to him, he suffered mental anguish and serious anxiety for
which he sought payment of moral damages; and, additionally,
the payment of attorney's fees and costs.
For his part, petitioner, as administrator of the Testate Estate
of Angela M. Butte, filed a third-party complaint against herein
private respondents, spouses Arsenio B. Reyes and Amanda
Santos (respondent Reyes spouses, for short). He averred,
among other's that the late Angela M. Butte was the owner of
the subject property; that due to non-payment of real estate
tax said property was sold at public auction the City Treasurer
of Quezon City to the respondent Reyes spouses on 21 January
1980 for the sum of P14,000.00; that the one-year period of
redemption had expired; that respondents Valencia and
Peñarroyo had sued petitioner Papa as administrator of the
estate of Angela M. Butte, for the delivery of the title to the
property; that the same aforenamed respondents had
acknowledged that the price paid by them was insufficient, and
that they were willing to add a reasonable amount or a
minimum of P55,000.00 to the price upon delivery of the
property, considering that the same was estimated to be worth
P143,000.00; that petitioner was willing to reimburse
respondents Reyes spouses whatever amount they might have
paid for taxes and other charges, since the subject property was
still registered in the name of the late Angela M. Butte; that it
was inequitable to allow respondent Reyes spouses to acquire
property estimated to be worth P143,000.00, for a measly sum
of P14,000.00. Petitioner prayed that judgment be rendered
canceling the tax sale to respondent Reyes spouses; restoring
the subject property to him upon payment by him to said
respondent Reyes spouses of the amount of P14,000.00, plus
legal interest; and, ordering respondents Valencia and
Peñarroyo to pay him at least P55,000.00 plus everything they
might have to pay the Reyes spouses in recovering the
property.
Respondent Reyes spouses in their Answer raised the defense
of prescription of petitioner's right to redeem the property.
At the trial, only respondent Peñarroyo testified. All the other
parties only submitted documentary proof.
On 29 June 1987, the trial court rendered a decision, the
dispositive portion of which reads:
WHEREUPON, judgment is hereby rendered as
follows:
1) Allowing defendant to redeem from third-
party defendants and ordering the latter to
allow the former to redeem the property in
question, by paying the sum of P14,000.00 plus
legal interest of 12% thereon from January 21,
1980;
2) Ordering defendant to execute a Deed of
Absolute Sale in favor of plaintiff Felix Peñarroyo
covering the property in question and to deliver
peaceful possession and enjoyment of the said
property to the said plaintiff, free from any liens
and encumbrances;
Should this not be possible, for any reason not
attributable to defendant, said defendant is
ordered to pay to plaintiff Felix Peñarroyo the
sum of P45,000.00 plus legal interest of 12%
from June 15, 1973;
3) Ordering plaintiff Felix Peñarroyo to execute
and deliver to intervenor a deed of absolute sale
over the same property, upon the latter's
payment to the former of the balance of the
purchase price of P71,500.00;
Should this not be possible, plaintiff Felix
Peñarroyo is ordered to pay intervenor the sum
of P5,000.00 plus legal interest of 12% from
August 23, 1973; and
4) Ordering defendant to pay plaintiffs the
amount of P5,000.00 for and as attorney's fees
and litigation expenses.
SO ORDERED.1
Petitioner appealed the aforesaid decision of the trial court to
the Court of Appeals, alleging among others that the sale was
never "consummated" as he did not encash the check (in the
amount of P40,000.00) given by respondents Valencia and
Peñarroyo in payment of the full purchase price of the subject
lot. He maintained that what said respondent had actually paid
was only the amount of P5,000.00 (in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the above
decision. However, their appeal was dismissed because of
failure to file their appellant's brief.
On 27 January 1992, the Court of Appeals rendered a decision,
affirming with modification the trial court's decision, thus:
WHEREFORE, the second paragraph of the
dispositive portion of the appealed decision is
MODIFIED, by ordering the defendant-appellant
to deliver to plaintiff-appellees the owner's
duplicate of TCT No. 28993 of Angela M. Butte
and the peaceful possession and enjoyment of
the lot in question or, if the owner's duplicate
certificate cannot be produced, to authorize the
Register of Deeds to cancel it and issue a
certificate of title in the name of Felix Peñarroyo.
In all other respects, the decision appealed from
is AFFIRMED. Costs against defendant-appellant
Myron C. Papa.
SO ORDERED.2
In affirming the trial court's decision, respondent court held
that contrary to petitioner's claim that he did not encash the
aforesaid check, and therefore, the sale was not consummated,
there was no evidence at all that petitioner did not, in fact,
encash said check. On the other hand, respondent Peñarroyo
testified in court that petitioner Papa had received the amount
of P45,000.00 and issued receipts therefor. According to
respondent court, the presumption is that the check was
encashed, especially since the payment by check was not
denied by defendant-appellant (herein petitioner) who, in his
Answer, merely alleged that he "can no longer recall the
transaction which is supposed to have happened 10 years
ago."3
On petitioner's claim that he cannot be held personally liable as
he had acted merely as attorney-in-fact of the owner, Angela
M. Butte, respondent court held that such contention is
without merit. This action was not brought against him in his
personal capacity, but in his capacity as the administrator of the
Testate Estate of Angela M. Butte.4
On petitioner's contention that the estate of Angela M. Butte
should have been joined in the action as the real party in
interest, respondent court held that pursuant to Rule 3, Section
3 of the Rules of Court, the estate of Angela M. Butte does not
have to be joined in the action. Likewise, the estate of Ramon
Papa, Jr., is not an indispensable party under Rule 3, Section 7
of the same Rules. For the fact is that Ramon Papa, Jr., or his
estate, was not a party to the Deed of Absolute Sale, and it is
basic law that contracts bind only those who are parties
thereto.5
Respondent court observed that the conditions under which
the mortgage rights of the bank were assigned are not clear. In
any case, any obligation which the estate of Angela M. Butte
might have to the estate of Ramon Papa, Jr. is strictly between
them. Respondents Valencia and Peñarroyo are not bound by
any such obligation.
Petitioner filed a motion for reconsideration of the above
decision, which motion was denied by respondent Court of
Appeals.
Hence, this petition wherein petitioner raises the following
issues:
I. THE CONCLUSION OR FINDING OF THE COURT
OF APPEALS THAT THE SALE IN QUESTION WAS
CONSUMMATED IS GROUNDED ON
SPECULATION OR CONJECTURE, AND IS
CONTRARY TO THE APPLICABLE LEGAL
PRINCIPLE.
II. THE COURT OF APPEALS, IN MODIFYING THE
DECISION OF THE TRIAL COURT, ERRED BECAUSE
IT, IN EFFECT, CANCELLED OR NULLIFIED AN
ASSIGNMENT OF THE SUBJECT PROPERTY IN
FAVOR OF THE ESTATE OF RAMON PAPA, JR.
WHICH IS NOT A PARTY IN THIS CASE.
III. THE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE ESTATE OF ANGELA M.
BUTTE AND THE ESTATE OF RAMON PAPA, JR.
ARE INDISPENSABLE PARTIES IN THIS
CASE.6
Petitioner argues that respondent Court of Appeals erred in
concluding that alleged sale of the subject property had been
consummated. He contends that such a conclusion is based on
the erroneous presumption that the check (in the amount of
P40,000.00) had been cashed, citing Art. 1249 of the Civil Code,
which provides, in part, that payment by checks shall produce
the effect of payment only when they have been cashed or
when through the fault of the creditor they have been
impaired.7 Petitioner insists that he never cashed said check;
and, such being the case, its delivery never produced the effect
of payment. Petitioner, while admitting that he had issued
receipts for the payments, asserts that said receipts,
particularly the receipt of PCIB Check No. 761025 in the amount
of P40,000.00, do not prove payment. He avers that there must
be a showing that said check had been encashed. If, according
to petitioner, the check had been encashed, respondent
Peñarroyo should have presented PCIB Check No. 761025 duly
stamped received by the payee, or at least its microfilm copy.
Petitioner finally avers that, in fact, the consideration for the
sale was still in the hands of respondents Valencia and
Peñarroyo, as evidenced by a letter addressed to him in which
said respondents wrote, in part:
. . . Please be informed that I had been
authorized by Dr. Ramon Papa, Jr., heir of Mrs.
Angela M. Butte to pay you the aforementioned
amount of P75,000.00 for the release and
cancellation of subject property's mortgage. The
money is with me and if it is alright with you, I
would like to tender the payment as soon as
possible. . . .8
We find no merit in petitioner's arguments.
It is an undisputed fact that respondents Valencia and
Peñarroyo had given petitioner Myron C. Papa the amounts of
Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and
Forty Thousand Pesos (P40,000.00) in check on 15 June 1973,
in payment of the purchase price of the subject lot. Petitioner
himself admits having received said amounts,9 and having
issued receipts therefor.10 Petitioner's assertion that he never
encashed the aforesaid check is not substantiated and is at
odds with his statement in his answer that "he can no longer
recall the transaction which is supposed to have happened 10
years ago." After more than ten (10) years from the payment in
party by cash and in part by check, the presumption is that the
check had been encashed. As already stated, he even waived
the presentation of oral evidence.
Granting that petitioner had never encashed the check, his
failure to do so for more than ten (10) years undoubtedly
resulted in the impairment of the check through his
unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect
of payment only when it is cashed, pursuant to Art. 1249 of the
Civil Code, the rule is otherwise if the debtor is prejudiced by
the creditor's unreasonable delay in presentment. The
acceptance of a check implies an undertaking of due diligence
in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate
as actual payment of the debt or obligation for which it was
given.11 It has, likewise, been held that if no presentment is
made at all, the drawer cannot be held liable irrespective of loss
or injury12 unless presentment is otherwise excused. This is in
harmony with Article 1249 of the Civil Code under which
payment by way of check or other negotiable instrument is
conditioned on its being cashed, except when through the fault
of the creditor, the instrument is impaired. The payee of a
check would be a creditor under this provision and if its no-
payment is caused by his negligence, payment will be deemed
effected and the obligation for which the check was given as
conditional payment will be discharged.13
Considering that respondents Valencia and Peñarroyo had
fulfilled their part of the contract of sale by delivering the
payment of the purchase price, said respondents, therefore,
had the right to compel petitioner to deliver to them the
owner's duplicate of TCT No. 28993 of Angela M. Butte and the
peaceful possession and enjoyment of the lot in question.
With regard to the alleged assignment of mortgage rights,
respondent Court of Appeals has found that the conditions
under which said mortgage rights of the bank were assigned are
not clear. Indeed, a perusal of the original records of the case
would show that there is nothing there that could shed light on
the transactions leading to the said assignment of rights; nor is
there any evidence on record of the conditions under which
said mortgage rights were assigned. What is certain is that
despite the said assignment of mortgage rights, the title to the
subject property has remained in the name of the late Angela
M. Butte.14This much is admitted by petitioner himself in his
answer to respondent's complaint as well as in the third-party
complaint that petitioner filed against respondent-spouses
Arsenio B. Reyes and Amanda
15
Santos. Assuming arquendo that the mortgage rights of the
Associated Citizens Bank had been assigned to the estate of
Ramon Papa, Jr., and granting that the assigned mortgage
rights validly exists and constitute a lien on the property, the
estate may file the appropriate action to enforce such lien. The
cause of action for specific performance which respondents
Valencia and Peñarroyo have against petitioner is different
from the cause of action which the estate of Ramon Papa, Jr.
may have to enforce whatever rights or liens it has on the
property by reason of its being an alleged assignee of the bank's
rights of mortgage.
WHEREFORE, the petition for review is hereby DENIED and the
Decision of the Court of Appeals, dated 27 January 1992 is
AFFIRMED.
SO ORDERED.

Finally, the estate of Angela M. Butte is not an indispensable

party. Under Section 3 of Rule 3 of the Rules of Court, an
executor or administrator may sue or be sued without joining
the party for whose benefit the action is presented or
defended, thus:

Sec. 3. Representative parties. — A trustee of an

express trust, a guardian, executor or
administrator, or a party authorized by statute,
may sue or be sued without joining the party for
whose benefit the action is presented or
defended; but the court may, at any stage of the
proceedings, order such beneficiary to be made
a party. An agent acting in his own name and for
the benefit of an undisclosed principal may sue
or be sued without joining the principal except
when the contract involves things belonging to
the principal.16

Neither is the estate of Ramon Papa, Jr. an indispensable party

without whom, no final determination of the action can be had.
Whatever prior and subsisting mortgage rights the estate of
Ramon Papa, Jr. has over the property may still be enforced
regardless of the change in ownership thereof.
G.R. No. L-49188 January 30, 1990
PHILIPPINE AIRLINES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO,
Court of First Instance of Manila, Branch XIII, JAIME K. DEL
ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and
AMELIA TAN, respondents.
This is a petition to review on certiorari the decision of the
Court of Appeals in CA-G.R. No. 07695 entitled "Philippine
Airlines, Inc. v. Hon. Judge Ricardo D. Galano, et al.", dismissing
the petition for certiorari against the order of the Court of First
Instance of Manila which issued an alias writ of execution
against the petitioner.
The petition involving the alias writ of execution had its
beginnings on November 8, 1967, when respondent Amelia
Tan, under the name and style of Able Printing Press
commenced a complaint for damages before the Court of First
Instance of Manila. The case was docketed as Civil Case No.
71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch 13, then
presided over by the late Judge Jesus P. Morfe rendered
judgment on June 29, 1972, in favor of private respondent
Amelia Tan and against petitioner Philippine Airlines, Inc. (PAL)
as follows:
WHEREFORE, judgment is hereby rendered, ordering the
defendant Philippine Air Lines:
1. On the first cause of action, to pay to the plaintiff the amount
of P75,000.00 as actual damages, with legal interest thereon
from plaintiffs extra-judicial demand made by the letter of July
20, 1967;
2. On the third cause of action, to pay to the plaintiff the
amount of P18,200.00, representing the unrealized profit of
10% included in the contract price of P200,000.00 plus legal
interest thereon from July 20,1967;
3. On the fourth cause of action, to pay to the plaintiff the
amount of P20,000.00 as and for moral damages, with legal
interest thereon from July 20, 1 967;
4. On the sixth cause of action, to pay to the plaintiff the
amount of P5,000.00 damages as and for attorney's fee.
Plaintiffs second and fifth causes of action, and defendant's
counterclaim, are dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court
of Appeals. The case was docketed as CA-G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision,
the dispositive portion of which reads:
IN VIEW WHEREOF, with the modification that PAL is
condemned to pay plaintiff the sum of P25,000.00 as damages
and P5,000.00 as attorney's fee, judgment is affirmed, with
costs. (CA Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to the trial
court and on dates subsequent thereto, a motion for
reconsideration was filed by respondent Amelia Tan, duly
opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution
denying the respondent's motion for reconsideration for lack of
merit.
No further appeal having been taken by the parties, the
judgment became final and executory and on May 31, 1977,
judgment was correspondingly entered in the case.
The case was remanded to the trial court for execution and on
September 2,1977, respondent Amelia Tan filed a motion
praying for the issuance of a writ of execution of the judgment
rendered by the Court of Appeals. On October 11, 1977, the
trial court, presided over by Judge Galano, issued its order of
execution with the corresponding writ in favor of the
respondent. The writ was duly referred to Deputy Sheriff Emilio
Z. Reyes of Branch 13 of the Court of First Instance of Manila
for enforcement.
Four months later, on February 11, 1978, respondent Amelia
Tan moved for the issuance of an alias writ of execution stating
that the judgment rendered by the lower court, and affirmed
with modification by the Court of Appeals, remained
unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the
motion for the issuance of an alias writ of execution stating that
it had already fully paid its obligation to plaintiff through the
deputy sheriff of the respondent court, Emilio Z. Reyes, as
evidenced by cash vouchers properly signed and receipted by
said Emilio Z. Reyes.
On March 3,1978, the Court of Appeals denied the issuance of
the alias writ for being premature, ordering the executing
sheriff Emilio Z. Reyes to appear with his return and explain the
reason for his failure to surrender the amounts paid to him by
petitioner PAL. However, the order could not be served upon
Deputy Sheriff Reyes who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias
writ of execution was filed by respondent Amelia Tan.
On April 19, 1978, respondent Amelia Tan filed a motion to
withdraw "Motion for Partial Alias Writ of Execution" with
Substitute Motion for Alias Writ of Execution. On May 1, 1978,
the respondent Judge issued an order which reads:
As prayed for by counsel for the plaintiff, the Motion to
Withdraw 'Motion for Partial Alias Writ of Execution with
Substitute Motion for Alias Writ of Execution is hereby granted,
and the motion for partial alias writ of execution is considered
withdrawn.
Let an Alias Writ of Execution issue against the defendant for
the fall satisfaction of the judgment rendered. Deputy Sheriff
Jaime K. del Rosario is hereby appointed Special Sheriff for the
enforcement thereof. (CA Rollo, p. 34)
On May 18, 1978, the petitioner received a copy of the first alias
writ of execution issued on the same day directing Special
Sheriff Jaime K. del Rosario to levy on execution in the sum of
P25,000.00 with legal interest thereon from July 20,1967 when
respondent Amelia Tan made an extra-judicial demand through
a letter. Levy was also ordered for the further sum of P5,000.00
awarded as attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to
quash the alias writ of execution stating that no return of the
writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and
that the judgment debt had already been fully satisfied by the
petitioner as evidenced by the cash vouchers signed and
receipted by the server of the writ of execution, Deputy Sheriff
Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario served a
notice of garnishment on the depository bank of petitioner, Far
East Bank and Trust Company, Rosario Branch, Binondo,
Manila, through its manager and garnished the petitioner's
deposit in the said bank in the total amount of P64,408.00 as of
May 16, 1978. Hence, this petition for certiorari filed by the
Philippine Airlines, Inc., on the grounds that:
I circumstances here obtaining is justified because even with the
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT
PRIOR RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING
OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS
DIRECTED IN THE WRIT OF EXECUTION CONSTITUTES
SATISFACTION OF JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS
TO THE PAYMENT THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF
PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL OR SALE
THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return
of the original writ by the implementing officer?
We rule in the affirmative and we quote the respondent court's
decision with approval:
The issuance of the questioned alias writ of execution under the
absence of a Sheriffs return on the original writ, the unalterable
fact remains that such a return is incapable of being obtained
(sic) because the officer who is to make the said return has
absconded and cannot be brought to the Court despite the
earlier order of the court for him to appear for this purpose.
(Order of Feb. 21, 1978, Annex C, Petition). Obviously, taking
cognizance of this circumstance, the order of May 11, 1978
directing the issuance of an alias writ was therefore issued.
(Annex D. Petition). The need for such a return as a condition
precedent for the issuance of an alias writ was justifiably
dispensed with by the court below and its action in this regard
meets with our concurrence. A contrary view will produce an
abhorent situation whereby the mischief of an erring officer of
the court could be utilized to impede indefinitely the
undisputed and awarded rights which a prevailing party
rightfully deserves to obtain and with dispatch. The final
judgment in this case should not indeed be permitted to
become illusory or incapable of execution for an indefinite and
over extended period, as had already transpired. (Rollo, pp. 35-
36)
Judicium non debet esse illusorium; suum effectum habere
debet (A judgment ought not to be illusory it ought to have its
proper effect).
Indeed, technicality cannot be countenanced to defeat the
execution of a judgment for execution is the fruit and end of
the suit and is very aptly called the life of the law (Ipekdjian
Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59 [1963];
Commissioner of Internal Revenue v. Visayan Electric Co., 19
SCRA 697, 698 [1967]). A judgment cannot be rendered
nugatory by the unreasonable application of a strict rule of
procedure. Vested rights were never intended to rest on the
requirement of a return, the office of which is merely to inform
the court and the parties, of any and all actions taken under the
writ of execution. Where such information can be established
in some other manner, the absence of an executing officer's
return will not preclude a judgment from being treated as
discharged or being executed through an alias writ of execution
as the case may be. More so, as in the case at bar. Where the
return cannot be expected to be forthcoming, to require the
same would be to compel the enforcement of rights under a
judgment to rest on an impossibility, thereby allowing the total
avoidance of judgment debts. So long as a judgment is not
satisfied, a plaintiff is entitled to other writs of execution
(Government of the Philippines v. Echaus and Gonzales, 71 Phil.
318). It is a well known legal maxim that he who cannot
prosecute his judgment with effect, sues his case vainly.
More important in the determination of the propriety of the
trial court's issuance of an alias writ of execution is the issue of
satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did the
payment made to the absconding sheriff by check in his name
operate to satisfy the judgment debt? The Court rules that the
plaintiff who has won her case should not be adjudged as
having sued in vain. To decide otherwise would not only give
her an empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia
Tan was found to have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First
Instance and the Court of Appeals, Ms. Tan won her case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a
centavo of what the courts have solemnly declared as rightfully
hers. Through absolutely no fault of her own, Ms. Tan has been
deprived of what, technically, she should have been paid from
the start, before 1967, without need of her going to court to
enforce her rights. And all because PAL did not issue the checks
intended for her, in her name.
Under the peculiar circumstances of this case, the payment to
the absconding sheriff by check in his name did not operate as
a satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an
obligation, must be made to the proper person. Article 1240 of
the Civil Code provides:
Payment shall be made to the person in whose favor the
obligation has been constituted, or his successor in interest, or
any person authorized to receive it. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an
agent having authority, express or implied, to receive the
particular payment (Ulen v. Knecttle 50 Wyo 94, 58 [2d] 446,
111 ALR 65). Payment made to one having apparent authority
to receive the money will, as a rule, be treated as though actual
authority had been given for its receipt. Likewise, if payment is
made to one who by law is authorized to act for the creditor, it
will work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO
800,34 LRA 283). The receipt of money due on ajudgment by an
officer authorized by law to accept it will, therefore, satisfy the
debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra; Seattle v.
Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).
The theory is where payment is made to a person authorized
and recognized by the creditor, the payment to such a person
so authorized is deemed payment to the creditor. Under
ordinary circumstances, payment by the judgment debtor in
the case at bar, to the sheriff should be valid payment to
extinguish the judgment debt.
There are circumstances in this case, however, which compel a
different conclusion.
The payment made by the petitioner to the absconding sheriff
was not in cash or legal tender but in checks. The checks were
not payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then
in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
In the absence of an agreement, either express or implied,
payment means the discharge of a debt or obligation in money
(US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the
parties so agree, a debtor has no rights, except at his own peril,
to substitute something in lieu of cash as medium of payment
of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA
200,47 Am. St. Rep. 402). Consequently, unless authorized to
do so by law or by consent of the obligee a public officer has no
authority to accept anything other than money in payment of
an obligation under a judgment being executed. Strictly
speaking, the acceptance by the sheriff of the petitioner's
checks, in the case at bar, does not, per se, operate as a
discharge of the judgment debt.
Since a negotiable instrument is only a substitute for money
and not money, the delivery of such an instrument does not, by
itself, operate as payment (See. 189, Act 2031 on Negs. Insts.;
Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil.
255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check,
whether a manager's check or ordinary cheek, is not legal
tender, and an offer of a check in payment of a debt is not a
valid tender of payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks does not discharge
the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by
commercial document is actually realized (Art. 1249, Civil Code,
par. 3).
If bouncing checks had been issued in the name of Amelia Tan
and not the Sheriff's, there would have been no payment. After
dishonor of the checks, Ms. Tan could have run after other
properties of PAL. The theory is that she has received no value
for what had been awarded her. Because the checks were
drawn in the name of Emilio Z. Reyes, neither has she received
anything. The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there
would have been payment in full legal contemplation. The
reasoning is logical but is it valid and proper? Logic has its limits
in decision making. We should not follow rulings to their logical
extremes if in doing so we arrive at unjust or absurd results.
In the first place, PAL did not pay in cash. It paid in cheeks.
And second, payment in cash always carries with it certain
cautions. Nobody hands over big amounts of cash in a careless
and inane manner. Mature thought is given to the possibility of
the cash being lost, of the bearer being waylaid or running off
with what he is carrying for another. Payment in checks is
precisely intended to avoid the possibility of the money going
to the wrong party. The situation is entirely different where a
Sheriff seizes a car, a tractor, or a piece of land. Logic often has
to give way to experience and to reality. Having paid with
checks, PAL should have done so properly.
Payment in money or cash to the implementing officer may be
deemed absolute payment of the judgment debt but the Court
has never, in the least bit, suggested that judgment debtors
should settle their obligations by turning over huge amounts of
cash or legal tender to sheriffs and other executing officers.
Payment in cash would result in damage or interminable
litigations each time a sheriff with huge amounts of cash in his
hands decides to abscond.
As a protective measure, therefore, the courts encourage the
practice of payments by cheek provided adequate controls are
instituted to prevent wrongful payment and illegal withdrawal
or disbursement of funds. If particularly big amounts are
involved, escrow arrangements with a bank and carefully
supervised by the court would be the safer procedure. Actual
transfer of funds takes place within the safety of bank premises.
These practices are perfectly legal. The object is always the safe
and incorrupt execution of the judgment.
It is, indeed, out of the ordinary that checks intended for a
particular payee are made out in the name of another. Making
the checks payable to the judgment creditor would have
prevented the encashment or the taking of undue advantage
by the sheriff, or any person into whose hands the checks may
have fallen, whether wrongfully or in behalf of the creditor. The
issuance of the checks in the name of the sheriff clearly made
possible the misappropriation of the funds that were
withdrawn.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was for the
private party respondent Amelia Tan, the petitioner
corporation, utilizing the services of its personnel who are or
should be knowledgeable about the accepted procedures and
resulting consequences of the checks drawn, nevertheless, in
this instance, without prudence, departed from what is
generally observed and done, and placed as payee in the checks
the name of the errant Sheriff and not the name of the rightful
payee. Petitioner thereby created a situation which permitted
the said Sheriff to personally encash said checks and
misappropriate the proceeds thereof to his exclusive personal
benefit. For the prejudice that resulted, the petitioner himself
must bear the fault. The judicial guideline which we take note
of states as follows:
As between two innocent persons, one of whom must suffer
the consequence of a breach of trust, the one who made it
possible by his act of confidence must bear the loss. (Blondeau,
et al. v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)
Having failed to employ the proper safeguards to protect itself,
the judgment debtor whose act made possible the loss had but
itself to blame.
The attention of this Court has been called to the bad practice
of a number of executing officers, of requiring checks in
satisfaction of judgment debts to be made out in their own
names. If a sheriff directs a judgment debtor to issue the checks
in the sheriff's name, claiming he must get his commission or
fees, the debtor must report the sheriff immediately to the
court which ordered the execution or to the Supreme Court for
appropriate disciplinary action. Fees, commissions, and salaries
are paid through regular channels. This improper procedure
also allows such officers, who have sixty (60) days within which
to make a return, to treat the moneys as their personal finds
and to deposit the same in their private accounts to earn sixty
(60) days interest, before said finds are turned over to the court
or judgment creditor (See Balgos v. Velasco, 108 SCRA 525
[1981]). Quite as easily, such officers could put up the defense
that said checks had been issued to them in their private or
personal capacity. Without a receipt evidencing payment of the
judgment debt, the misappropriation of finds by such officers
becomes clean and complete. The practice is ingenious but evil
as it unjustly enriches court personnel at the expense of
litigants and the proper administration of justice. The
temptation could be far greater, as proved to be in this case of
the absconding sheriff. The correct and prudent thing for the
petitioner was to have issued the checks in the intended
payee's name.
The pernicious effects of issuing checks in the name of a person
other than the intended payee, without the latter's agreement
or consent, are as many as the ways that an artful mind could
concoct to get around the safeguards provided by the law on
negotiable instruments. An angry litigant who loses a case, as a
rule, would not want the winning party to get what he won in
the judgment. He would think of ways to delay the winning
party's getting what has been adjudged in his favor. We cannot
condone that practice especially in cases where the courts and
their officers are involved.1âwphi1 We rule against the
petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. Execution of money judgments. — The officer must
enforce an execution of a money judgment by levying on all the
property, real and personal of every name and nature
whatsoever, and which may be disposed of for value, of the
judgment debtor not exempt from execution, or on a sufficient
amount of such property, if they be sufficient, and selling the
same, and paying to the judgment creditor, or his attorney, so
much of the proceeds as will satisfy the judgment. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be
considered satisfied and therefore the orders of the
respondent judge granting the alias writ of execution may not
be pronounced as a nullity.
xxx xxx xxx
It is clear and manifest that after levy or garnishment, for a
judgment to be executed there is the requisite of payment by
the officer to the judgment creditor, or his attorney, so much
of the proceeds as will satisfy the judgment and none such
payment had been concededly made yet by the absconding
Sheriff to the private respondent Amelia Tan. The ultimate and
essential step to complete the execution of the judgment not
having been performed by the City Sheriff, the judgment debt
legally and factually remains unsatisfied.
Strictly speaking execution cannot be equated with satisfaction
of a judgment. Under unusual circumstances as those obtaining
in this petition, the distinction comes out clearly.
Execution is the process which carries into effect a decree or
judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360,
363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's
Law Dictionary), whereas the satisfaction of a judgment is the
payment of the amount of the writ, or a lawful tender thereof,
or the conversion by sale of the debtor's property into an
amount equal to that due, and, it may be done otherwise than
upon an execution (Section 47, Rule 39). Levy and delivery by
an execution officer are not prerequisites to the satisfaction of
a judgment when the same has already been realized in fact
(Section 47, Rule 39). Execution is for the sheriff to accomplish
while satisfaction of the judgment is for the creditor to achieve.
Section 15, Rule 39 merely provides the sheriff with his duties
as executing officer including delivery of the proceeds of his
levy on the debtor's property to satisfy the judgment debt. It is
but to stress that the implementing officer's duty should not
stop at his receipt of payments but must continue until
payment is delivered to the obligor or creditor.

Finally, we find no error in the respondent court's

pronouncement on the inclusion of interests to be recovered
under the alias writ of execution. This logically follows from our
ruling that PAL is liable for both the lost checks and interest.
The respondent court's decision in CA-G.R. No. 51079-R does
not totally supersede the trial court's judgment in Civil Case No.
71307. It merely modified the same as to the principal amount
awarded as actual damages.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is

hereby DISMISSED. The judgment of the respondent Court of
Appeals is AFFIRMED and the trial court's issuance of the alias
writ of execution against the petitioner is upheld without
prejudice to any action it should take against the errant sheriff
Emilio Z. Reyes. The Court Administrator is ordered to follow up
the actions taken against Emilio Z. Reyes.

SO ORDERED.
A.M. No. 21901-96 June 27, 1978
REPARATIONS COMMISSION, plaintiff-appellants,
vs.
UNIVERSAL DEEP-SEA FISHING CORPORATION and MANILA
SURETY AND FIDELITY CO., INC., defendant-appellants.
MANILA SURETY & FIDELITY CO., INC., third-party plaintiff-
appellee,
vs.
PABLO S. SARMIENTO, third-party defendant-appellant.
CONCEPCION JR., J.:
Appeal of the defendant Universal Deep-Sea Fishing
Corporation, defendant and third-party plaintiff Manila Surety
and Fidelity Co., Inc., and third-party defendant Pablo
Sarmiento from the decision of the Court of First Instance of
Manila, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered as follows:
1. The defendant Universal Deep-Sea Fishing Corporation is
hereby sentenced to pay the plaintiff the sum of P100,242.04
in the first cause of action, P141,343.45 in the second cause of
action and P54,500.00 in the third cause of action, all with
interest at the rate of 6% per annum from August 10, 1962, the
date of the filing of the complaint, until fully paid;
2. Defendant Manila Surety & Fidelity Co., Inc., is hereby
sentenced to pay the plaintiff, jointly and severally with
defendant Universal Deep-Sea Fishing Corporation, the sum of
P53,643.00 in the first cause of action, P68,777.77 in the second
cause of action and P54,508.00 in the third cause of action;
3. Defendant Universal Deep-Sea Fishing Corporation and Pablo
Sarmiento are hereby sentenced to pay, jointly and severally,
the Manila Surety & Fidelity Co., Inc., the sum of P53,643.00
and P68,777.77 with interest thereon at the rate of 12% per
annum from August 10, 1962 until fully paid plus P2,000.00 as
attorney's fees;
4. Defendant Universal Deep-Sea Fishing Corporation is hereby
sentenced to pay the Manila Surety & Fidelity Co., Inc., the sum
of P54,508.00 with interest thereon at the rate of 12% per
annum from August 10, 1962, until fully paid;
5. Defendant Universal Deep-Sea Fishing Corporation shall pay
the costs. 1
It is not disputed that the Universal Deep-Sea Fishing
Corporation, hereinafter referred to as UNIVERSAL for short.
was awarded six (6) trawl boats by the. Reparations
Commission as end-user of reparations goods. These fishing
boats, christened the M/S UNIFISH 1, M/S UNIFISH 2. M/S
UNIFISH 3. M/S UNIFISH 4, M/S UNIFISH 5, and M/S UNIFISH 6.
were delivered to UNIVERSAL two at a time, f.o.b. Japanese
port.
The M/S UNIFISH 1 and M/S UNIFISH 2, with an aggregate
purchase price of P536,428.44, were delivered to UNIVERSAL
on November 20,1958, and the contract of Conditional
Purchase and Sale of Reparations Goods, executed by and
between the parties on February 12, 1960, provided among
others, that "the first installment representing 10% of the
amount or FIFTY THREE THOUSAND SIX HUNDRED FORTY TWO
PESOS AND EIGHTY FOUR CENTAVOS (P53,642.84) shall be paid
within 24 months from the date of complete delivery thereof,
the balance shall be paid in the manner herein stated as shown
in the Schedule of Payments, 2 ... to wit:
TOTAL F.O.B. COST — P536,428.44
AMOUNT OF 1st INSTALLMENT (10% OF F.O.B. COST) —
P53,642.84
DUE DATE OF 1st INSTALLMENT — May 8, 1961 a consequence of having become a surety upon the
TERM: Ten (10) EQUAL YEARLY INSTALLMENTS performance bond. 4
RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM The M/S UNIFISH 3 and M/S UNIFISH 4, with a total purchase
price of P687,777.76 were delivered to UNIVERSAL on April 20,
No. of Installments Date Due Amount
1959 and the Contract of Conditional Purchase and Sale
Reparations Goods, dated November 25, 1959, 5 provided that
1 May 8, 1962 P56,597.20
"the first installment representing 10% of the amount or SIXTY-
2 May 8, 1963 EIGHT THOUSAND SEVEN HUNDRED SEVENTY-SEVEN PESOS
P56,597.20
AND SEVENTY-SEVEN CENTAVOS shall be paid within 24
3 May 8, 1964 months from the date of complete delivery thereof, the
P56,597.20
balance shall be paid in the manner herein stated as shown in
4 May 8, 1965 the Schedule of Payments, . . . , to wit:
P56,597.20
TOTAL F.O.B. COSTS — P687,777.76
5 May 8, 1966 AMOUNT P56,597.2
OF 1st INSTALLMENT (10% of F.O.B. COST) —
P68,777.77
6 May 8, 1967 DUE DATE P56,597.20
OF 1st INSTALLMENT — July, 1961
TERM: Ten (10) EQUAL YEARLY INSTALLMENTS
7 May 8, 1968 RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM
P56,597.20
No. of Installments Due Date
8 May 8, 1969 P56,597.20
1 July, 1962
9 May 8, 1970 P56,597.20
2 July, 1963
10 May 8, 1971 P56,597.20
To guarantee the faithful compliance with the obligations 3 July, 1964
under said contract, a performance bond in the amount of
P53,643.00, with UNIVERSAL as principal and the Manila Surety 4 July, 1965
& Fidelity Co., Inc., as surety, was executed in favor of the
Reparations Commission. 3 A Corresponding indemnity 5 July, 1966
agreement was executed to indemnify the surety company for
any damage, loss charges, etc., which it may sustain or incur as 6 July, 1967
 7 July, 1968
8 July, 1969
9 July, 1970
10 July, 1971
A performance bond in the amount of P68,777.77, issued by
the Manila Surety & Fidelity Co., Inc., was also submitted to
guarantee the faithful compliance with the obligations set forth
in the contract, 6 and indemnity agreement was executed in
favor of the surety company in consideration of the said bond. 7
The delivery of the M/S UNIFISH 5 and M/S UNIFISH 6 is covered
by a contract for the Utilization of Reparations Goods (M/S
"UNIFISH 5" and M/S "UNIFISH 6") executed by the parties on
February 12, 1960, 8 and the Schedule of Payments attached
thereto, provided, as follows:
AMOUNT OF 1st INSTALLMENT (10% of F.O.B. COST) —
P54,500.00
DUE DATE OF 1st INSTALLMENT — Oct. 17, 1961
TERM: TEN (10) EQUAL YEARLY INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM
No. of Installments Date Due
1 Oct. 17, 1962
2 Oct. 17, 1963
3 Oct. 17, 1964
4 P72,565.68 Oct. 17, 1965
5 P72,565.68 Oct. 17, 1966
6 P72,565.68 Oct. 17, 1967
7 P72,565.68 Oct. 17, 1968
8 Oct. 17, 1969
9 Oct. 17, 1970
10 Oct. 17, 1971
A performance bond in judgment, amount of P54,500.00 issued
by judgment, Manila Surety & Fidelity Co., Inc., 10was
submitted, and an indemnity agreement was executed by
UNIVERSAL in favor of judgment, surety company. 11
On August 10, 1962, judgment, Reparations Commission
instituted judgment, present action against UNIVERSAL and
judgment, surety company to recover various amounts of
money due under these contracts. In answer, UNIVERSAL
claimed that judgment, amounts of money sought to be
collected are not yet due and demandable. The surety company
also contended Amount
that judgment, action is premature, but set up
a cross-claim against UNIVERSAL for reimbursement of
P57,501.57
whatever amount of money it may have to pay judgment,
plaintiff by reason of judgment, complaint, including interest,
P57,501.57
and for judgment, collection of accumulated and unpaid
premiums on judgment, bonds with interest thereon. With
P57,501.57
leave of courts first obtained, judgment, surety company filed
a third-party complaint against Pablo S. Sarmiento, one of the
indemnitors in judgment, indemnity agreements. The third-
party defendant Pablo S. Sarmiento denied personal liability
claiming that he signed judgment, indemnity agreements in
question in his capacity as acting general manager of
UNIVERSAL. After appropriate proceedings and upon
judgment, preceding facts, judgment, trial court rendered
judgment, judgment hereinbefore stated. hence, this appeal.
(1) The principal issue for resolution is whether or not
judgment, first installments under judgment, three (3)
contracts of conditional purchase and sale of reparations goods
were already due and demandable when judgment, complaint
was filed. UNIVERSAL contends that there is an obscurity in
judgment, terms of judgment, contracts in question which were
caused by the plaintiff as to judgment, amounts and due dates
of judgment, first installments which should have been first
fixed before a creditor can demand its payment from judgment,
debtor. To be explicit. counsel points to judgment, Schedule of
Payment attached to, and forming a part of, the contract for
judgment, purchase and sale of judgment, M/S UNIFISH 1 and
M/S UNIFISH 2 which states that judgment, amount of first
installment is P53,642.84 and judgment, due date of its
payment is May 8, 1961. However, judgment, amount of the
first of succeeding itemized installments is P56,597.20 and
judgment, due date is May 8, 1962. In the case of the M/S
UNIFISH 3 and M/S UNIFISH 4, the first installments are
P68,777.77 and due in July, 1961 and P72,565.68 and due in
July 1962, respectively. In the contract for the purchase and
sale of the M/S UNIFISH 5 and M/S UNIFISH 6, the amounts
indicated as first installments are P54,500.00 and P57,501.57,
and the due dates of payment are October 17, 1961 and
October 17, 1962, respectively.
The terms of the contracts for the purchase and sale of the
reparations vessels, however, are very clear and leave no doubt
as to the intent of the contracting parties. Thus, in the contract
concerning the M/S UNIFISH 1 and M/S UNIFISH 2, the parties
expressly agreed that the first installment representing 10% of
the purchase price or P53,642.84 shall be paid within 24
months from the date of complete delivery of the vessel or on
May 8, 1961, and the balance to be paid in ten (10) equal yearly
installments. The amount of P56,597.20 due on May 8, 1962,
which is also claimed to be a "first installment," is but the first
of the ten (10) equal yearly installments of balance of
judgment, purchase price. In judgment, case of Reparations
Commission vs. Northern Lines, Inc. et al., 12 where judgment,
Schedule of Payments, likewise on RC-LEGAL DEPT FORM NO.
1, also allegedly indicated two (2) due dates for judgment,
payment of judgment, first installment, judgment, Court said:
(a) The major premise in appellants' process of reasoning is that
the first installments due on April 25, 1963, and May 26, 1963,
are 'first installments. although they are not so designated in
judgment, schedule appended to each of judgment, contracts
between judgment, parties. Appellant's, moreover, assume
that judgment, 'first' installment is included in judgment, ten
(10) equal yearly installments' mentioned subsequently to said
'first' installment. In feet, however, only one installment is
labeled as 'first' in each one of said schedules, and that is
judgment, installment due on 'April 25, 1962' - as regards M/S
Don Salvador or Magsaysay - and that due on 'May 26, 1962'-
as regards M/S Don Amando or Estancia. The schedules do not
describe judgment, 'ten (10) equal yearly installments'
— following the one characterized therein as 'first' — meaning
'number,' not order or sequence, of installments — and the
numerals 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 written before each of said
'ten (10) equal yearly installments following the 'first' to accrue
after the due date of said 'first' installment. Just the same, the
parties have not so described (as 'first') — in the schedules
forming part of their contracts — the installments numbered '1'
in the list contained in each. Moreover, considering that the
words 'TERMS: Ten (10) EQUAL YEARLY INSTALLMENTS,'
appear after the lines reading: 'AMOUNT OF 1st INSTALLMENT
(10% OF F.O.B. COSTS) P174,761.42' and DUE DATE OF 1st
INSTALLMENT April 25, 1962 (or May 26, 1962) and
that, subsequently to said 'TERM: Ten (10) EQUAL YEARLY
INSTALLMENTS,' there is a list of ten (10) equal yearly
installments, it is clear that the latter do notinclude the one
designated as 'first' installment.
xxx xxx xxx
(b) The pertinent part of Section 12 of Rep. Act No. 1789,
pursuant to which the vessels in question were sold to the
Buyer reads:
. . . Capital goods . . . disposed of to private parties as provided
for in subsection (a) of Section two hereof shall be sold on a
cash or credit basis, under rules and regulations as may be
determined by the Commission. Sales on a credit basis shall be
payable in installments: Provided, That judgment, first
installment shall be paid within twenty-four months after
complete delivery of judgment, capital goods and judgment,
balance within a period not exceeding ten years, . . . plus
judgment, service provided for in section ten thereof; Provided
further, That judgment, unpaid balance of judgment, price
thereof shall bear interest at judgment, rate of not more than
three percent per annum. . . . .
It should be noted that, pursuant to judgment, schedules
attached to judgment, contracts with judgment, Buyer,
judgment, 'complete delivery' of judgment, vessels took place
on April 25, and May 26, 1960, respectively, so that
judgment, the 24 months taxed by law for judgment, payment
of judgment, 'First installment expired on April 25, 1962 and
May 26,1962, which are judgment, very dates stated in
judgment, aforementioned schedules for judgment, payment
of judgment, respective '1st' installments. What is more, in
view of said legal provision, judgment, Commission had no
authority to agree that the 1st installment shall be paid on any
later date, and judgment, Buyer must have been aware of this
fact. Hence, judgment, parties could not have intended
judgment, first installments to become due on April 25, and
May 26, 1963 It is, likewise, obvious - particularly when
considered in relation to judgment, provision above quoted -
that judgment, 'ten (10) equal yearly installments.' mentioned
in the schedules, refer to the 'balance' of the price to be paid
by the buyer, after deducting judgment, 'first' installment, so
hat, altogether, there would be 'eleven' installments, namely,
the first , which would be the 10% of the F.O.B. cost of the
vessel — as agreed upon between 'The Governments of the
Philippines and Japan — and 'ten (10) yearly installments,'
representing the balance of "he amount due to he Commission
from judgment, Buyer, including tile interest thereon.
Viewing judgment, contracts between judgment, parties in
judgment, light of the foregoing exposition, judgment, first
installment on judgment, M/S UNIFISH 1 and M/S UNIFISH 2 of
judgment, amount of P53,642.84 was due on May 8, 1961,
while judgment, first installments on judgment, M/S UNIFISH 3
and M/S UNIFISH 4, and judgment, M/S UNIFISH 5 and M/S
UNIFISH 6 in judgment, amounts of P68,777.77 and P54,500.00
were due on July 31, 1961 and October 17, 1961, respectively.
Accordingly judgment, obligation of UNIVERSAL to pay
judgment, first installments on the purchase price of judgment,
six (6) reparations vessels was already due and demandable
when the present action was commenced on August 10, 1962.
Also due and demanded from UNIVERSAL were the first of the
ten (10) equal yearly installments on the balance of the
purchase price of the M/S UNIFISH I and M/S UNIFISH 2 in the
amount of P56,597.20 and P72,565.68 on judgment, M/S
UNIFISH 3 and M/S UNIFISH 4. The first accrued on May 8, 1962,
while judgment, second fell due on July 31, 1962.
(2) The claim of judgment, surety company to the effect that
the trial court erred in not awarding it the amount of P7,251.42,
as premium is the performance bonds, is well taken. The
payment of premiums on the bonds to the surety company had
been expressly undertaken by UNIVERSAL in the indemnity
agreements executed by it in favor of judgment, surety
company. The premium is judgment, consideration for
furnishing judgment, bonds and judgment, obligation to pay
judgment, same subsists for as long as judgment, liability of
judgment, surety shall exist. 13 Hence, UNIVERSAL should pay
judgment, amount of P7,251.42 to judgment, surety company.
(3) The surety company also claims that judgment, trial court
erred in not applying judgment, amount of P10,000.00, paid as
down payment by UNIVERSAL to judgment, Reparations
Commission, to judgment, guaranteed indebtedness.
According to judgment, surety company, under Article 1254 of
judgment, Civil rode, where there is no imputation of payment
made by either judgment, debtor or creditor, The debt which is
the most onerous to the debtor shall be deemed to have been
satisfied, so that the amount of P10,000.00 paid by UNIVERSAL
as down payment on the purchase of the, M/S UNIFISH 1 and
M/S UNIFISH 2 should be applied to the guaranteed portion of
the debt, this releasing part of the liability hence the obligation
of 'The surety company shall be only P43,643.00, instead of
P53,643.00.
The rules contained in Articles 1252 to 1254 of judgment, Civil
Code apply to a person owing several debts of judgment, same
kind to a single creditor. They cannot be made applicable to a
person whose obligation as a mere surety is both contingent
and singular, 14 which in this case is the full and faithful
compliance with the terms of the contract of conditional
purchase and sale of reparations goods, The obligation included
the payment, not only of the first installment in the amount of
P53,643.00, but also of the ten (10) equal yearly installments of
P56,597.20 per annum. The amount of P10,000.00 was, indeed,
deducted from judgment, amount of P53,643.00, but then
judgment, first of judgment, ten (10) equal yearly installments
had also accrued, hence, no error was committed in holding
judgment, surety company to judgment, full extent of its
undertaking.
(4) Finally, We find no merit in judgment, claim of judgment,
third-party defendant Pablo S. Sarmiento that he is not
personally liable having merely executed judgment, indemnity
agreements 15 in his capacity as acting general manager of
UNIVERSAL. Pablo S. Sarmiento appears to have signed the
indemnity agreement twice — the first, in this capacity as
acting general manager of UNIVERSAL, and the second, in his
individual capacity. The indemnity agreements in question
state the following. among others:
In consideration of judgment, responsibility undertaken by
judgment, Company, for judgment, original bond, and for any
renewal, extension or substitution thereof, judgment,
undersigned, jointly and severally, bind themselves in favor of
judgment, said COMPANY in judgment, following terms:
xxx xxx xxx
Dated at City of Manila this - - - - day of July l969.
600 Cottage 3, UNIVERSAL DEEP-SEA FISHING CORP.
Aguinaldo Com- BY:
pound, Echague, s/PABLO S. SARMIENTO Manila t/PABLO S.
SARMIENTO Signature
s/PABLO S. SARMIENTO Address t/PABLO S. SARMIENTO
Signature
Besides, the "acknowledgment" stated that "Pablo S.
Sarmiento for himself and on behalf of Universal Deep-Sea
Fishing Corporation" personally appeared before the notary
and acknowledged that judgment, document is his own free
and voluntary act and deed.
WHEREFORE, judgment, judgment appealed from is hereby
affirmed with judgment, modification that judgment,
UNIVERSAL Deep-Sea Fishing Corporation is further ordered to
pay judgment, Manila Surety & Fidelity Co., Inc., judgment,
amount of P7,251.42 for judgment, premiums and
documentary stamps on judgment, performance bonds.
Appellants shall pay proportionate costs.
SO ORDERED.
[G.R. No. 123855. November 20, 2000]
NEREO J. PACULDO, petitioner, vs. BONIFACIO C.
REGALADO, respondent.
The facts are as follows:
On December 27, 1990, petitioner Nereo J. Paculdo (hereafter
Nereo) and respondent Bonifacio C. Regalado (hereafter
Bonifacio) entered into a contract of lease over a 16,478 square
meter parcel of land with a wet market building, located along
Don Mariano Marcos Avenue, Fairview Park, Quezon City. The
contract was for twenty five (25) years, commencing on January
1, 1991 and ending on December 31, 2015.For the first five (5)
years of the contract beginning December 27, 1990, Nereo
would pay a monthly rental of P450,000.00, payable within the
first five (5) days of each month at Bonifacios office, with a 2%
penalty for every month of late payment.
Aside from the above lease, petitioner leased eleven (11) other
property from respondent, ten (10) of which were located
within the Fairview compound, while the eleventh was located
along Quirino Highway, Quezon City. Petitioner also purchased
from respondent eight (8) units of heavy equipment and
vehicles in the aggregate amount of P1,020,000.00.
On account of petitioners failure to pay P361,895.55[2] in rental
for the month of May, 1992, and the monthly rental of
P450,000.00 for the months of June and July 1992, on July 6,
1992, respondent sent a demand letter to petitioner
demanding payment of the back rentals, and if no payment
was made within fifteen (15) days from receipt of the letter, it
would cause the cancellation of the lease contract.[3] Another
demand letter followed this on July 17, 1992, reiterating the
demand for payment and for petitioner to vacate the subject
premises. [4]
Without the knowledge of petitioner, on August 3, 1992,
respondent mortgaged the land subject of the lease contract,
including the improvements which petitioner introduced into
the land amounting to P35,000,000.00, to Monte de Piedad
Savings Bank, as security for a loan in the amount of
P20,000,000.00.[5]
On August 12, 1992, and on subsequent dates thereafter,
respondent refused to accept petitioners daily rental
payments.[6]
On August 20, 1992, petitioner filed with the Regional Trial
Court, Quezon City an action for injunction and damages
seeking to enjoin respondent from disturbing his possession of
the property subject of the lease contract.[7] On the same day,
respondent filed with the Metropolitan Trial Court, Quezon City
a complaint for ejectment against petitioner. Attached to the
complaint were the two (2) demand letters dated July 6 and July
17, 1992.[8]
On August 25, 1992, five (5) days after the filing of the
ejectment complaint, respondent moved to withdraw the
complaint on the ground that certain details had been omitted
in the complaint and must be re-computed.
On April 22, 1993, respondent re-filed the ejectment complaint
with the Metropolitan Trial Court, Quezon City. Computed from
August 1992 until March 31, 1993, the monthly reasonable
compensation that petitioner was liable for was in the total sum
of P3,924,000.00.[9]
On January 31, 1994, the Metropolitan Trial Court, Quezon City
rendered a decision in favor of respondent, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendant, as follows:
1. Ordering the defendant and all persons claiming right under
him to vacate the leased premises located at Don Mariano
Marcos Avenue, Fairview Park, Quezon City, Metro-Manila
covered by Transfer Certificate of Title RT-6883 of the Registry
of Deeds of Quezon City;
2. Ordering the defendant to pay the sum of P527,119.27
representing the unpaid monthly rentals as of June 30, 1992
plus 2% interest thereon;
3. Ordering the defendant to pay the sum of P450,000.00 a
month plus 2% interest thereon starting July 1992 and every
month thereafter until the defendant and all persons claiming
right under him shall have actually vacated the premises and
surrender possession thereof to the plaintiff;
4. Ordering the defendant to pay the sum of P5,000,000.00 as
and for attorneys fees; and
5. Ordering the defendant to pay the costs of suit.
SO ORDERED.[10]
In time, petitioner appealed to the Regional Trial Court, Quezon
City, Branch 220.[11]
On February 19, 1994, respondent, with the support of fifty (50)
armed security guards forcibly entered the property and took
possession of the wet market building.[12]
On July 6, 1994, the Regional Trial Court, Quezon City, Branch
220 rendered a decision affirming in totothe decision of the
Metropolitan Trial Court, to wit:
WHEREFORE, the appealed decision dated January 31, 1994, for
being in accordance with the evidence presented and the law
on the matter, is hereby affirmed in toto.
Let a writ of execution issue against defendant and his surety,
to answer for the decision of the lower court.[13]
On the same day, the Regional Trial Court issued a writ of
execution[14] whereupon, petitioner vacated the subject
premises voluntarily. By July 12, 1994, petitioner had
completely turned over possession of subject property to
respondent.
Meanwhile, on July 21, 1994, petitioner filed a petition for
review with the Court of Appeals.[15] He alleged that he had
paid the amount of P11,478,121.85 for security deposit and
rentals on the wet market building, but respondent, without his
consent, applied portions of the payment to his other
obligations. The vouchers and receipts indicated that the
payments made were for rentals. Thus, at the time of payment
petitioner had declared as to which obligation the payment
must be applied.
On February 10, 1995, the Court of Appeals promulgated its
decision finding that petitioner impliedly consented to
respondents application of payment to his other obligations
and, thus, dismissed the petition for lack of merit.[16]
On March 3, 1995, petitioner filed a motion for
reconsideration;[17] however, on February 9, 1996 the Court of
Appeals denied the motion.[18]
Hence, this appeal.[19]
At issue is whether petitioner was truly in arrears in the
payment of rentals on the subject property at the time of the
filing of the complaint for ejectment.
As found by the Metropolitan Trial Court and Regional Trial
Court, petitioner made a total payment of P10,949,447.18, to
respondent as of July 2, 1992.
If the payment made by respondent applied to petitioners
other obligations is set aside, and the amount petitioner paid
be applied purely to the rentals on the Fairview wet market
building, there would be an excess payment of P1,049,447.18
as of July 2, 1992. The computation in such case would be as
follows:
Amount paid as of July 2, 1992 P10,949,447.18
Less:
Monthly rent from January 1991-July 1992
P450,000.00 x 19 months P 8,550,000.00
Less:
Security deposit P 1,350,000.00
============
Excess amount paid P 1,049,447.18
In the letter dated November 19, 1991, respondent proposed
that petitioners security deposit for the Quirino lot, in the
amount of P643,276.48, be applied as partial payment for his
account under the subject lot as well as to real estate taxes on
the Quirino lot.[20] Petitioner interposed no objection, as
evidenced by his signature signifying his conformity thereto.
In an earlier letter, dated July 15, 1991,[21] respondent informed
petitioner that the payment was to be applied not only to
petitioners accounts under both the subject land and the
Quirino lot but also to heavy equipment bought by the latter
from respondent. Petitioner claimed that the amount applied
as payment for the heavy equipment was critical because it was
equivalent to more than two (2) months rental of the subject
property, which was the basis for the ejectment case in the
Metropolitan Trial Court.
The controversy stemmed from the fact that unlike the
November 19, 1991 letter, which bore a conformity portion
with petitioners signature, the July 15, 1991 letter did not
contain the signature of petitioner.
In nevertheless concluding that petitioner gave his consent
thereto, the Court of Appeals upheld both the lower courts and
trial courts findings that petitioner received the second letter
and its attachment and he raised no objection thereto.
In other words, would petitioners failure to object to the letter
of July 15, 1991 and its proposed application of payments
amount to consent to such application?
Petitioner submits that his silence is not consent but is in fact a
rejection.
The right to specify which among his various obligations to the
same creditor is to be satisfied first rests with the debtor,[22] as
provided by law, to wit:
Article 1252. He who has various debts of the same kind in favor
of one and the same creditor, may declare at the time of
making the payment, to which of them the same must be
applied. Unless the parties so stipulate, or when the application
of payment is made by the party for whose benefit the term has
been constituted, application shall not be made as to debts
which are not yet due.
If the debtor accepts from the creditor a receipt in which an
application of the payment is made, the former cannot
complain of the same, unless there is a cause for invalidating
the contract.[23]
At the time petitioner made the payments, he made it clear to
respondent that they were to be applied to his rental
obligations on the Fairview wet market property. Though he
entered into various contracts and obligations with
respondent, including a lease contract over eleven (11)
property in Quezon City and sale of eight (8) heavy equipment,
all the payments made, about P11, 000,000.00, were to be
applied to rental and security deposit on the Fairview wet
market property.
Respondent Regalado argues that assuming that petitioner
expressed at the time of payment which among his obligations
were to be satisfied first, petitioner is estopped by his assent to
the application made by the respondent. This assent is inferred
from the silence of petitioner on the July 15, 1991
letter[24]containing a statement of the application of payments,
which was different from the application made by petitioner. A
big chunk of the amount paid by petitioner went into the
satisfaction of an obligation which was not yet due and
demandable--the payment of the eight (8) heavy equipment
amounting to about P1,020,000.00.
The statement of account prepared by respondent was not the
receipt contemplated under the law. The receipt is the
evidence of payment executed at the time of payment, and not
the statement of account executed several days thereafter.
There was no clear assent by petitioner to the change in the
manner of application of payment. The petitioners silence as
regards the application of payment by respondent cannot
mean that he consented thereto. There was no meeting of the
minds. Though an offer may be made, the acceptance of such
offer must be unconditional and unbounded in order that
concurrence can give rise to a perfected contract.[25]Hence,
petitioner could not be in estoppel.
Assuming arguendo that, as alleged by respondent, petitioner
did not, at the time the payments were made, choose the
obligation to be satisfied first, respondent may exercise the
right to apply the payments to the other obligations of
petitioner. But this is subject to the condition that the
petitioner must give his consent.Petitioners silence is not
tantamount to consent. The consent must be clear and definite.
Under the law, if the debtor did not declare at the time he made
the payment to which of his debts with the creditor the
payment is to be applied, the law provided the guideline--no
payment is to be made to a debt that is not yet due[26] and the
payment has to be applied first to the debt most onerous to the
debtor.[27]
In the instant case, the purchase price of the eight (8) heavy
equipment was not yet due at the time the payment was made,
for there was no date set for such payment. Neither was there
a demand by the creditor to make the obligation to pay the
purchase price due and demandable.[28] Hence, the application
made by respondent is contrary to the provisions of the law.
The lease over the Fairview wet market property is the most
onerous among all the obligations of petitioner to
respondent. It was established that the wet market is a going-
concern and that petitioner has invested about
P35,000,000.00, in the form of improvements, on the
property. Hence, petitioner would stand to lose more if the
lease would be rescinded, than if the contract of sale of heavy
equipment would not proceed.
The decision of the Court of Appeals was based on a
misapprehension of the facts and the law on the application of
payment. Hence, the ejectment case subject of the instant
petition must be dismissed, without prejudice to the
determination and settlement of the money claims of the
parties inter se.
WHEREFORE, the Court GRANTS the petition. The Court
REVERSES and SETS ASIDE the decision of the Court of Appeals
in CA-G. R. SP No. 34634.
ACCORDINGLY, the Court REVERSES the decision of the
Regional Trial Court, Quezon City, Branch 220 in Civil Case No.
94-20813, and dismisses the complaint filed with the
Metropolitan Trial Court, Quezon City, Branch 36 in Civil Case
No. MTC XXXVI-7089.
No costs.
SO ORDERED.
[G.R. No. 118342. January 5, 1998]
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.
COURT OF APPEALS and LYDIA CUBA, respondents.
These two consolidated cases stemmed from a
complaint[1] filed against the Development Bank of the
Philippines (hereafter DBP) and Agripina Caperal filed by Lydia
Cuba (hereafter CUBA) on 21 May 1985 with the Regional Trial
Court of Pangasinan, Branch 54. The said complaint sought (1)
the declaration of nullity of DBPs appropriation of CUBAs rights,
title, and interests over a 44-hectare fishpond located in
Bolinao, Pangasinan, for being violative of Article 2088 of the
Civil Code; (2) the annulment of the Deed of Conditional Sale
executed in her favor by DBP; (3) the annulment of DBPs sale of
the subject fishpond to Caperal; (4) the restoration of her
rights, title, and interests over the fishpond; and (5) the
recovery ofdamages, attorneys fees, and expenses of litigation.
After the joinder of issues following the filing by the parties
of their respective pleadings, the trial court conducted a pre-
trial where CUBA and DBP agreed on the following facts, which
were embodied in the pre-trial order:[2]
1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond
Lease Agreement No. 2083 (new) dated May 13,
1974 from the Government;
2. Plaintiff Lydia P. Cuba obtained loans from the
Development Bank of the Philippines in the
amounts of P109,000.00; P109,000.00;
and P98,700.00 under the terms stated in the
Promissory Notes dated September 6, 1974;
August 11, 1975; and April 4, 1977;
3. As security for said loans, plaintiff Lydia P. Cuba
executed two Deeds of Assignment of her
Leasehold Rights;
4. Plaintiff failed to pay her loan on the scheduled
dates thereof in accordance with the terms of the
Promissory Notes;
5. Without foreclosure proceedings, whether judicial
or extra-judicial, defendant DBP appropriated the
Leasehold Rights of plaintiff Lydia Cuba over the
fishpond in question;
6. After defendant DBP has appropriated the
Leasehold Rights of plaintiff Lydia Cuba over the
fishpond in question, defendant DBP, in turn,
executed a Deed of Conditional Sale of the
Leasehold Rights in favor of plaintiff Lydia Cuba
over the same fishpond in question;
7. In the negotiation for repurchase, plaintiff Lydia
Cuba addressed two letters to the Manager DBP,
Dagupan City dated November 6, 1979 and
December 20, 1979. DBP thereafter accepted the
offer to repurchase in a letter addressed to
plaintiff dated February 1, 1982;
8. After the Deed of Conditional Sale was executed in
favor of plaintiff Lydia Cuba, a new Fishpond
Lease Agreement No. 2083-A dated March 24,
1980 was issued by the Ministry of Agriculture
 and Food in favor of plaintiff Lydia Cuba only,
excluding her husband;
9. Plaintiff Lydia Cuba failed to pay the amortizations
stipulated in the Deed of Conditional Sale;
10. After plaintiff Lydia Cuba failed to pay the
amortization as stated in Deed of Conditional
Sale, she entered with the DBP a temporary
arrangement whereby in consideration for the
deferment of the Notarial Rescission of Deed of
Conditional Sale, plaintiff Lydia Cuba promised to
make certain payments as stated in temporary
Arrangement dated February 23, 1982;
11. Defendant DBP thereafter sent a Notice of
Rescission thru Notarial Act dated March 13,
1984, and which was received by plaintiff Lydia
Cuba;
12. After the Notice of Rescission, defendant DBP took
possession of the Leasehold Rights of the
fishpond in question;
13. That after defendant DBP took possession of the
Leasehold Rights over the fishpond in question,
DBP advertised in the SUNDAY PUNCH the public
bidding dated June 24, 1984, to dispose of the
property;
14. That the DBP thereafter executed a Deed of
Conditional Sale in favor of defendant Agripina
Caperal on August 16, 1984;
15. Thereafter, defendant Caperal was awarded
Fishpond Lease Agreement No. 2083-A on
December 28, 1984 by the Ministry of Agriculture
and Food.
Defendant Caperal admitted only the facts stated in
paragraphs 14 and 15 of the pre-trial order. [3]
Trial was thereafter had on other matters.
The principal issue presented was whether the act of DBP
in appropriating to itself CUBAs leasehold rights over the
fishpond in question without foreclosure proceedings was
contrary to Article 2088 of the Civil Code and, therefore,
invalid. CUBA insisted on an affirmative resolution. DBP
stressed that it merely exercised its contractual right under the
Assignments of Leasehold Rights, which was not a contract of
mortgage. Defendant Caperal sided with DBP.
The trial court resolved the issue in favor of CUBA by
declaring that DBPs taking possession and ownership of the
property without foreclosure was plainly violative of Article
2088 of the Civil Code which provides as follows:
ART. 2088. The creditor cannot appropriate the things given by
way of pledge or mortgage, or dispose of them. Any stipulation
to the contrary is null and void.
It disagreed with DBPs stand that the Assignments of Leasehold
Rights were not contracts of mortgage because (1) they were
given as security for loans, (2) although the fishpond land in
question is still a public land, CUBAs leasehold rights and
interest thereon are alienable rights which can be the proper
subject of a mortgage; and (3) the intention of the contracting
parties to treat the Assignment of Leasehold Rights as a
mortgage was obvious and unmistakable; hence, upon CUBAs
default, DBPs only right was to foreclose the Assignment in
accordance with law.
The trial court also declared invalid condition no. 12 of the
Assignment of Leasehold Rights for being a clear case
of pactum commissorium expressly prohibited and declared
null and void by Article 2088 of the Civil Code. It then concluded
that since DBP never acquired lawful ownership of CUBAs
leasehold rights, all acts of ownership and possession by the
said bank were void. Accordingly, the Deed of Conditional Sale
in favor of CUBA, the notarial rescission of such sale, and the
Deed of Conditional Sale in favor of defendant Caperal, as well
as the Assignment of Leasehold Rights executed by Caperal in
favor of DBP, were also void and ineffective.
As to damages, the trial court found ample evidence on
record that in 1984 the representatives of DBPejected CUBA
and her caretakers not only from the fishpond area but also
from the adjoining big house; and that when CUBAs son and
caretaker went there on 15 September 1985, they found the
said house unoccupied and destroyed and CUBAs personal
belongings, machineries, equipment, tools, and other articles
used in fishpond operation which were kept in the house were
missing. The missing items were valued at about P550,000. It
further found that when CUBA and her men were ejected by
DBP for the first time in 1979, CUBA had stocked the fishpond
with 250,000 pieces of bangus fish (milkfish), all of which died
because the DBP representatives prevented CUBAs men from
feeding the fish. At the conservative price of P3.00 per fish, the
gross value would have been P690,000, and after deducting
25% of said value as reasonable allowance for the cost of feeds,
CUBA suffered a loss of P517,500. It then set the aggregate of
the actual damages sustained by CUBA at P1,067,500.
The trial court further found that DBP was guilty of gross
bad faith in falsely representing to the Bureau of Fisheries that
it had foreclosed its mortgage on CUBAs leasehold rights. Such
representation induced the said Bureau to terminate CUBAs
leasehold rights and to approve the Deed of Conditional Sale in
favor of CUBA. And considering that by reason of her unlawful
ejectment by DBP, CUBA suffered moral shock, degradation,
social humiliation, and serious anxieties for which she became
sick and had to be hospitalized the trial court found her entitled
to moral and exemplary damages. The trial court also held that
CUBA was entitled to P100,000 attorneys fees in view of the
considerable expenses she incurred for lawyers fees and in view
of the finding that she was entitled to exemplary damages.
In its decision of 31 January 1990, [4] the trial court
disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff:
1. DECLARING null and void and without any legal effect
the act of defendant Development Bank of the
Philippines in appropriating for its own interest,
without any judicial or extra-judicial foreclosure,
plaintiffs leasehold rights and interest over the
fishpond land in question under her Fishpond Lease
Agreement No. 2083 (new);
2. DECLARING the Deed of Conditional Sale dated February
21, 1980 by and between the defendant Development
 Bank of the Philippines and plaintiff (Exh. E and Exh. 1)
and the acts of notarial rescission of the Development
Bank of the Philippines relative to said sale (Exhs. 16
and 26) as void and ineffective;
3. DECLARING the Deed of Conditional Sale dated August
16, 1984 by and between the Development Bank of the
Philippines and defendant Agripina Caperal (Exh. F and
Exh. 21), the Fishpond Lease Agreement No. 2083-A
dated December 28, 1984 of defendant Agripina
Caperal (Exh. 23) and the Assignment of Leasehold
Rights dated February 12, 1985 executed by defendant
Agripina Caperal in favor of the defendant
Development Bank of the Philippines (Exh. 24) as void
ab initio;
4. ORDERING defendant Development Bank of the
Philippines and defendant Agripina Caperal, jointly and
severally, to restore to plaintiff the latters leasehold
rights and interests and right of possession over the
fishpond land in question, without prejudice to the
right of defendant Development Bank of the
Philippines to foreclose the securities given by plaintiff;
5. ORDERING defendant Development Bank of the
Philippines to pay to plaintiff the following amounts:
a) The sum of ONE MILLION SIXTY-SEVEN THOUSAND
FIVE HUNDRED PESOS (P1,067,500.00), as and for
actual damages;
b) The sum of ONE HUNDRED THOUSAND
(P100,000.00) PESOS as moral damages;
c) The sum of FIFTY THOUSAND (P50,000.00) PESOS,
as and for exemplary damages;
d) And the sum of ONE HUNDRED THOUSAND
(P100,000.00) PESOS, as and for attorneys fees;
6. And ORDERING defendant Development Bank of the
Philippines to reimburse and pay to defendant
Agripina Caperal the sum of ONE MILLION FIVE
HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED
TEN PESOS AND SEVENTY-FIVE CENTAVOS
(P1,532,610.75) representing the amounts paid by
defendant Agripina Caperal to defendant
Development Bank of the Philippines under their
Deed of Conditional Sale.
CUBA and DBP interposed separate appeals from the
decision to the Court of Appeals. The former sought an increase
in the amount of damages, while the latter questioned the
findings of fact and law of the lower court.
In its decision [5] of 25 May 1994, the Court of Appeals ruled
that (1) the trial court erred in declaring that the deed of
assignment was null and void and that defendant Caperal could
not validly acquire the leasehold rights from DBP; (2) contrary
to the claim of DBP, the assignment was not a cession under
Article 1255 of the Civil Code because DBP appeared to be the
sole creditor to CUBA - cession presupposes plurality of debts
and creditors; (3) the deeds of assignment represented the
voluntary act of CUBA in assigning her property rights in
payment of her debts, which amounted to a novation of the
promissory notes executed by CUBA in favor of DBP; (4) CUBA
was estopped from questioning the assignment of the
leasehold rights, since she agreed to repurchase the said rights
under a deed of conditional sale; and (5) condition no. 12 of the
deed of assignment was an express authority from CUBA for
DBP to sell whatever right she had over the fishpond. It also
ruled that CUBA was not entitled to loss of profits for lack
of evidence, but agreed with the trial court as to the actual
damages of P1,067,500. It, however, deleted the amount of
exemplary damages and reduced the award of moral damages
from P100,000 to P50,000 and attorneys fees, from P100,000
to P50,000.
The Court of Appeals thus declared as valid the following:
(1) the act of DBP in appropriating Cubas leasehold rights and
interest under Fishpond Lease Agreement No. 2083; (2) the
deeds of assignment executed by Cuba in favor of DBP; (3) the
deed of conditional sale between CUBA and DBP; and (4) the
deed of conditional sale between DBP and Caperal, the
Fishpond Lease Agreement in favor of Caperal, and the
assignment of leasehold rights executed by Caperal in favor of
DBP. It then ordered DBP to turn over possession of the
property to Caperal as lawful holder of the leasehold rights and
to pay CUBA the following amounts: (a) P1,067,500 as actual
damages; P50,000 as moral damages; and P50,000 as attorneys
fees.
Since their motions for reconsideration were
denied,[6] DBP and CUBA filed separate petitions for review.
In its petition (G.R. No. 118342), DBP assails the award of
actual and moral damages and attorneys fees in favor of CUBA.
Upon the other hand, in her petition (G.R. No. 118367),
CUBA contends that the Court of Appeals erred (1) in not
holding that the questioned deed of assignment was a pactum
commissorium contrary to Article 2088 of the Civil Code; (b) in
holding that the deed of assignment effected a novation of the
promissory notes; (c) in holding that CUBA was estopped from
questioning the validity of the deed of assignment when she
agreed to repurchase her leasehold rights under a deed of
conditional sale; and (d) in reducing the amounts of moral
damages and attorneys fees, in deleting the award of
exemplary damages, and in not increasing the amount of
damages.
We agree with CUBA that the assignment of leasehold
rights was a mortgage contract.
It is undisputed that CUBA obtained from DBP three
separate loans totalling P335,000, each of which was covered
by a promissory note. In all of these notes, there was a
provision that: In the event of foreclosure of the mortgage
securing this notes, I/We further bind myself/ourselves, jointly
and severally, to pay the deficiency, if any. [7]
Simultaneous with the execution of the notes was the
execution of Assignments of Leasehold Rights [8]where CUBA
assigned her leasehold rights and interest on a 44-hectare
fishpond, together with the improvements thereon. As pointed
out by CUBA, the deeds of assignment constantly referred to
the assignor (CUBA) as borrower; the assigned rights, as
mortgaged properties; and the instrument itself, as mortgage
contract. Moreover, under condition no. 22 of the deed, it was same dates the loans were granted. Also, the last paragraph of
provided that failure to comply with the terms and condition of the assignment stated: The assignor further reiterates and
any of the loans shall cause all other loans to become due and states all terms, covenants, and conditions stipulated in the
demandable and all mortgages shall be foreclosed. And, promissory note or notes covering the proceeds of this loan,
condition no. 33 provided that if foreclosure is actually making said promissory note or notes, to all intent and
accomplished, the usual 10% attorneys fees and 10% liquidated purposes, an integral part hereof.
damages of the total obligation shall be imposed. There is,
Neither did the assignment amount to payment
therefore, no shred of doubt that a mortgage was intended.
by cession under Article 1255 of the Civil Code for the plain and
Besides, in their stipulation of facts the parties admitted simple reason that there was only one creditor, the DBP. Article
that the assignment was by way of security for the payment of 1255 contemplates the existence of two or more creditors and
the loans; thus: involves the assignment of all the debtors property.
Nor did the assignment constitute dation in payment
3. As security for said loans, plaintiff Lydia P. Cuba
under Article 1245 of the civil Code, which reads: Dation in
executed two Deeds of Assignment of her Leasehold
payment, whereby property is alienated to the creditor in
Rights.
satisfaction of a debt in money, shall be governed by the law on
sales. It bears stressing that the assignment, being in its
In Peoples Bank & Trust Co. vs. Odom,[9] this Court had the
essence a mortgage, was but a security and not a satisfaction
occasion to rule that an assignment to guarantee an obligation
of indebtedness.[10]
is in effect a mortgage.
We do not, however, buy CUBAs argument that condition
We find no merit in DBPs contention that the assignment
no. 12 of the deed of assignment constituted pactum
novated the promissory notes in that the obligation to pay a
commissorium. Said condition reads:
sum of money the loans (under the promissory notes) was
substituted by the assignment of the rights over the fishpond
12. That effective upon the breach of any condition of this
(under the deed of assignment). As correctly pointed out by
assignment, the Assignor hereby appoints the Assignee his
CUBA, the said assignment merely complemented or
Attorney-in-fact with full power and authority to take actual
supplemented the notes; both could stand together. The
possession of the property above-described, together with all
former was only an accessory to the latter. Contrary to DBPs
improvements thereon, subject to the approval of the
submission, the obligation to pay a sum of money remained,
Secretary of Agriculture and Natural Resources, to lease the
and the assignment merely served as security for the loans
same or any portion thereof and collect rentals, to make repairs
covered by the promissory notes.Significantly, both the deeds
or improvements thereon and pay the same, to sell or
of assignment and the promissory notes were executed on the
otherwise dispose of whatever rights the Assignor has or might
have over said property and/or its improvements and perform
any other act which the Assignee may deem convenient to
protect its interest. All expenses advanced by the Assignee in
connection with purpose above indicated which shall bear the
same rate of interest aforementioned are also guaranteed by
this Assignment. Any amount received from rents,
administration, sale or disposal of said property may be
supplied by the Assignee to the payment of repairs,
improvements, taxes, assessments and other incidental
expenses and obligations and the balance, if any, to the
payment of interest and then on the capital of the indebtedness
secured hereby. If after disposal or sale of said property and
upon application of total amounts received there shall remain
a deficiency, said Assignor hereby binds himself to pay the same
to the Assignee upon demand, together with all interest
thereon until fully paid. The power herein granted shall not be
revoked as long as the Assignor is indebted to the Assignee and
all acts that may be executed by the Assignee by virtue of said
power are hereby ratified.
The elements of pactum commissorium are as follows: (1)
there should be a property mortgaged by way of security for
the payment of the principal obligation, and (2) there should be
a stipulation for automatic appropriation by the creditor of the
thing mortgaged in case of non-payment of the principal
obligation within the stipulated period.[11]
Condition no. 12 did not provide that the ownership over
the leasehold rights would automatically pass to DBP upon
CUBAs failure to pay the loan on time. It merely provided for
the appointment of DBP as attorney-in-fact with authority,
among other things, to sell or otherwise dispose of the said real
rights, in case of default by CUBA, and to apply the proceeds to
the payment of the loan. This provision is a standard condition
in mortgage contracts and is in conformity with Article 2087 of
the Civil Code, which authorizes the mortgagee to foreclose the
mortgage and alienate the mortgaged property for the
payment of the principal obligation.
DBP, however, exceeded the authority vested by condition
no. 12 of the deed of assignment. As admitted by it during the
pre-trial, it had [w]ithout foreclosure proceedings, whether
judicial or extrajudicial, appropriated the [l]easehold [r]ights of
plaintiff Lydia Cuba over the fishpond in question. Its
contention that it limited itself to mere administration by
posting caretakers is further belied by the deed of conditional
sale it executed in favor of CUBA. The deed stated:
WHEREAS, the Vendor [DBP] by virtue of a deed of
assignment executed in its favor by the herein vendees [Cuba
spouses] the former acquired all the rights and interest of the
latter over the above-described property;
The title to the real estate property [sic] and all improvements
thereon shall remain in the name of the Vendor until after the
purchase price, advances and interest shall have been fully
paid. (Emphasis supplied).
It is obvious from the above-quoted paragraphs that DBP
had appropriated and taken ownership of CUBAs leasehold
rights merely on the strength of the deed of assignment.
DBP cannot take refuge in condition no. 12 of the deed of
assignment to justify its act of appropriating the leasehold
rights. As stated earlier, condition no. 12 did not provide that In view of the false representation of DBP that it had
CUBAs default would operate to vest in DBP ownership of the already foreclosed the mortgage, the Bureau of Fisheries
said rights. Besides, an assignment to guarantee an obligation, cancelled CUBAs original lease permit, approved the deed of
as in the present case, is virtually a mortgage and not an conditional sale, and issued a new permit in favor of CUBA. Said
absolute conveyance of title which confers ownership on the acts which were predicated on such false representation, as
assignee.[12] well as the subsequent acts emanating from DBPs
appropriation of the leasehold rights, should therefore be set
At any rate, DBPs act of appropriating CUBAs leasehold
aside.To validate these acts would open the floodgates to
rights was violative of Article 2088 of the Civil Code, which
circumvention of Article 2088 of the Civil Code.
forbids a creditor from appropriating, or disposing of, the thing
given as security for the payment of a debt. Even in cases where foreclosure proceedings were had,
this Court had not hesitated to nullify the consequent auction
The fact that CUBA offered and agreed to repurchase her
sale for failure to comply with the requirements laid down by
leasehold rights from DBP did not estop her from questioning
law, such as Act No. 3135, as amended.[15] With more reason
DBPs act of appropriation. Estoppel is unavailing in this case. As
that the sale of property given as security for the payment of a
held by this Court in some cases,[13] estoppel cannot give
debt be set aside if there was no prior foreclosure proceeding.
validity to an act that is prohibited by law or against public
policy.Hence, the appropriation of the leasehold rights, being Hence, DBP should render an accounting of the income
contrary to Article 2088 of the Civil Code and to public policy, derived from the operation of the fishpond in question and
cannot be deemed validated by estoppel. apply the said income in accordance with condition no. 12 of
the deed of assignment which provided: Any amount received
Instead of taking ownership of the questioned real rights
from rents, administration, may be applied to the payment of
upon default by CUBA, DBP should have foreclosed the
repairs, improvements, taxes, assessment, and other incidental
mortgage, as has been stipulated in condition no. 22 of the
expenses and obligations and the balance, if any, to the
deed of assignment. But, as admitted by DBP, there was no
payment of interest and then on the capital of the
such foreclosure. Yet, in its letter dated 26 October 1979,
indebtedness.
addressed to the Minister of Agriculture and Natural Resources
and coursed through the Director of the Bureau of Fisheries and We shall now take up the issue of damages.
Aquatic Resources, DBP declared that it had foreclosed the
Article 2199 provides:
mortgage and enforced the assignment of leasehold rights on
March 21, 1979 for failure of said spouses [Cuba spouces] to
Except as provided by law or by stipulation, one is entitled to
pay their loan amortizations.[14] This only goes to show that DBP
an adequate compensation only for such pecuniary loss
was aware of the necessity of foreclosure proceedings.
suffered by him as he has duly proved. Such compensation is
referred to as actual or compensatory damages.
Actual or compensatory damages cannot be presumed, but
must be proved with reasonable degree of certainty.[16] A court
cannot rely on speculations, conjectures, or guesswork as to
the fact and amount of damages, but must depend upon
competent proof that they have been suffered by the injured
party and on the best obtainable evidence of the actual amount
thereof.[17] It must point out specific facts which could afford a
basis for measuring whatever compensatory or actual damages
are borne.[18]
In the present case, the trial court awarded in favor of
CUBA P1,067,500 as actual damages consisting of P550,000
which represented the value of the alleged lost articles of CUBA
and P517,500 which represented the value of the 230,000
pieces of bangus allegedly stocked in 1979 when DBP first
ejected CUBA from the fishpond and the adjoining house. This
award was affirmed by the Court of Appeals.
We find that the alleged loss of personal belongings and
equipment was not proved by clear evidence.Other than the
testimony of CUBA and her caretaker, there was no proof as to
the existence of those items before DBP took over the fishpond
in question. As pointed out by DBP, there was not inventory of
the alleged lost items before the loss which is normal in a
project which sometimes, if not most often, is left to the care
of other persons. Neither was a single receipt or record of
acquisition presented.
Curiously, in her complaint dated 17 May 1985, CUBA
included losses of property as among the damages resulting
from DBPs take-over of the fishpond. Yet, it was only in
September 1985 when her son and a caretaker went to the
fishpond and the adjoining house that she came to know of the
alleged loss of several articles. Such claim for losses of property,
having been made before knowledge of the alleged actual loss,
was therefore speculative. The alleged loss could have been a
mere afterthought or subterfuge to justify her claim for actual
damages.
With regard to the award of P517,000 representing the
value of the alleged 230,000 pieces of bangus which died when
DBP took possession of the fishpond in March 1979, the same
was not called for. Such loss was not duly proved; besides, the
claim therefor was delayed unreasonably. From 1979 until after
the filing of her complaint in court in May 1985, CUBA did not
bring to the attention of DBP the alleged loss. In fact, in her
letter dated 24 October 1979,[19] she declared:
1. That from February to May 1978, I was then seriously ill in
Manila and within the same period I neglected the
management and supervision of the cultivation and harvest of
the produce of the aforesaid fishpond thereby resulting to the
irreparable loss in the produce of the same in the amount of
about P500,000.00 to my great damage and prejudice due to
fraudulent acts of some of my fishpond workers.
Nowhere in the said letter, which was written seven
months after DBP took possession of the fishpond, did CUBA
intimate that upon DBPs take-over there was a total of 230,000
pieces of bangus, but all of which died because of DBPs
representatives prevented her men from feeding the fish.
 The award of actual damages should, therefore, be struck determination of each partys financial obligation to one
down for lack of sufficient basis. another.
In view, however, of DBPs act of appropriating CUBAs SO ORDERED.
leasehold rights which was contrary to law and public policy, as
well as its false representation to the then Ministry of
Agriculture and Natural Resources that it had foreclosed the
mortgage, an award of moral damages in the amount
of P50,000 is in order conformably with Article 2219(10), in
relation to Article 21, of the Civil Code. Exemplary or corrective
damages in the amount of P25,000 should likewise be awarded
by way of example or correction for the public good.[20] There
being an award of exemplary damages, attorneys fees are also
recoverable.[21]
WHEREFORE, the 25 May 1994 Decision of the Court of
Appeals in CA-G.R. CV No. 26535 is hereby REVERSED, except as
to the award of P50,000 as moral damages, which is hereby
sustained. The 31 January 1990 Decision of the Regional Trial
Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is
MODIFIED setting aside the finding that condition no. 12 of the
deed of assignment constituted pactum commissorium and the
award of actual damages; and by reducing the amounts of
moral damages from P100,000 to P50,000; the exemplary
damages, from P50,000 to P25,000; and the attorneys fees,
from P100,000 to P20,000. The Development Bank of the
Philippines is hereby ordered to render an accounting of the
income derived from the operation of the fishpond in question.
Let this case be REMANDED to the trial court for the
reception of the income statement of DBP, as well as the
statement of the account of Lydia P. Cuba, and for the
 G.R. No. L-50449 January 30, 1982
FILINVEST CREDIT CORPORATION, plaintiff-appellee,
vs.
PHILIPPINE ACETYLENE, CO., INC., defendant-appellant.
This case is certified to Us by the Court of Appeals in its
Resolution 1 dated March 22, 1979 on the ground that it
involves purely questions of law, as raised in the appeal of the
decision of the Court of First Instance of Manila, Branch XII in
Civil Case No. 91932, the dispositive portion of which reads as
follows:
In view of the foregoing consideration, the court hereby
renders judgment -
l) directing defendant to pay plaintiff:
a) the sum of P22,227.81 which is the outstanding unpaid
obligation of the defendant under the assigned credit, with 12
%interest from the date of the firing of the complaint in this suit
until the same is fully paid;
b) the sum equivalent to l5% of P22,227.81 as and for
attorney's fees; and
2) directing plaintiff to deliver to, and defendant to accept,
the motor vehicle, subject of the chattel may have been
changed by the result of ordinary wear and tear of the vehicle.
Defendant to pay the cost of suit.
SO ORDERED.
The facts, as found in the decision 2 subject of the instant
appeal, are undisputed.
On October 30, 1971, the Philippine Acetylene Co., Inc.,
defendant-appellant herein, purchased from one Alexander
Lim, as evidenced by a Deed of Sale marked as Exhibit G, a
motor vehicle described as Chevorlet, 1969 model with Serial
No. 136699Z303652 for P55,247.80 with a down payment of
P20,000.00 and the balance of P35,247.80 payable, under the
terms and conditions of the promissory note (Exh. B), at a
monthly installment of P1,036.70 for thirty-four (34) months,
due and payable on the first day of each month starting
December 1971 through and inclusive September 1, 1974 with
12 % interest per annum on each unpaid installment, and
attorney's fees in the amount equivalent to 25% of the total of
the outstanding unpaid amount.
As security for the payment of said promissory note, the
appellant executed a chattel mortgage (Exh. C) over the same
motor vehicle in favor of said Alexander Lim. Subsequently, on
November 2, 1971. Alexander Lim assigned to the Filinvest
Finance Corporation all his rights, title, and interests in the
promissory note and chattel mortgage by virtue of a Deed of
Assignment (Exh. D).
Thereafter, the Filinvest Finance Corporation, as a
consequence of its merger with the Credit and Development
Corporation assigned to the new corporation, the herein
plaintiff-appellee Filinvest Credit Corporation, all its rights, title,
and interests on the aforesaid promissory note and chattel
mortgage (Exh. A) which, in effect, the payment of the unpaid
balance owed by defendant-appellant to Alexander Lim was
financed by plaintiff-appellee such that Lim became fully paid.
Appellant failed to comply with the terms and conditions
set forth in the promissory note and chattel mortgage since it
had defaulted in the payment of nine successive installments.
Appellee then sent a demand letter (Exh. 1) whereby its counsel
demanded "that you (appellant) remit the aforesaid amount in
full in addition to stipulated interest and charges or return the
mortgaged property to my client at its office at 2133 Taft
Avenue, Malate, Manila within five (5) days from date of this
letter during office hours. " Replying thereto, appellant, thru its
assistant general- manager, wrote back (Exh. 2) advising
appellee of its decision to "return the mortgaged property,
which return shall be in full satisfaction of its indebtedness
pursuant to Article 1484 of the New Civil Code." Accordingly,
the mortgaged vehicle was returned to the appellee together
with the document "Voluntary Surrender with Special Power of
Attorney To Sell" 3 executed by appellant on March 12, 1973
and confirmed to by appellee's vice-president.
On April 4, 1973, appellee wrote a letter (Exh. H) to
appellant informing the latter that appellee cannot sell the
motor vehicle as there were unpaid taxes on the said vehicle in
the sum of P70,122.00. On the last portion of the said letter,
appellee requested the appellant to update its account by
paying the installments in arrears and accruing interest in the
amount of P4,232.21 on or before April 9, 1973.
On May 8, 1973, appellee, in a letter (Exh. 1), offered to
deliver back the motor vehicle to the appellant but the latter
refused to accept it, so appellee instituted an action for
collection of a sum of money with damages in the Court of First
Instance of Manila on September 14, 1973.
In its answer, appellant, while admitting the material
allegations of the appellee's complaint, avers that appellee has
no cause of action against it since its obligation towards the
appellee was extinguished when in compliance with the
appellee's demand letter, it returned the mortgaged property
to the appellee, and that assuming arguendo that the return of
the property did not extinguish its obligation, it was
nonetheless justified in refusing payment since the appellee is
not entitled to recover the same due to the breach of warranty
committed by the original vendor-assignor Alexander Lim.
After the case was submitted for decision, the Court of First
Instance of Manila, Branch XII rendered its decision dated
February 25, 1974 which is the subject of the instant appeal in
this Court.
Appellant's five assignment of errors may be reduced to, or
said to revolve around two issues: first, whether or not the
return of the mortgaged motor vehicle to the appellee by virtue
of its voluntary surrender by the appellant totally extinguished
and/or cancelled its obligation to the appellee; second,
whether or not the warranty for the unpaid taxes on the
mortgaged motor vehicle may be properly raised and imputed
to or passed over to the appellee.
Consistent with its stand in the court a quo, appellant now
reiterates its main contention that appellee, after giving
appellant an option either to remit payment in full plus
stipulated interests and charges or return the mortgaged motor
vehicle, had elected the alternative remedy of exacting
fulfillment of the obligation, thus, precluding the exercise of
any other remedy provided for under Article 1484 of the Civil
Code of the Philippines which reads:
 Article 1484. Civil Code. - In a contract of sale of personal
property the price of which is payable in installments, the
vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail
to pay;
2) Cancel the sale, should the vendee's failure to pay cover
two or more installments;
3) Foreclose the chattel mortgage on the thing sold, if one
has been constituted, should the vendee's failure to pay cover
two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.
In support of the above contention, appellant maintains
that when it opted to return, as in fact it did return, the
mortgaged motor vehicle to the appellee, said return
necessarily had the effect of extinguishing appellant's
obligation for the unpaid price to the appellee, construing the
return to and acceptance by the appellee of the mortgaged
motor vehicle as a mode of payment, specifically, dation in
payment or dacion en pago which according to appellant,
virtually made appellee the owner of the mortgaged motor
vehicle by the mere delivery thereof, citing Articles 1232, 1245,
and 1497 of the Civil Code, to wit:
Article 1232. Payment means not only the delivery of
money but also the performance, in any manner, of an
obligation.
xxx xxx xxx
Article 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in money, shall
be governed by the law of sales.
xxx xxx xxx
Article 1497. The thing sold shall be understood as
delivered, when it is placed in the control and possession of the
vendee.
Passing at once on the relevant issue raised in this appeal,
We find appellant's contention devoid of persuasive force. The
mere return of the mortgaged motor vehicle by the mortgagor,
the herein appellant, to the mortgagee, the herein appellee,
does not constitute dation in payment or dacion en pago in the
absence, express or implied of the true intention of the
parties. Dacion en pago, according to Manresa, is the
transmission of the ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of
obligation. 4 In dacion en pago, as a special mode of payment,
the debtor offers another thing to the creditor who accepts it
as equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtor's
debt. As such, the essential elements of a contract of sale,
namely, consent, object certain, and cause or consideration
must be present. In its modern concept, what actually takes
place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of
the performance of an obligation is considered as the object of
the contract of sale, while the debt is considered as the
purchase price. 5 In any case, common consent is an essential
prerequisite, be it sale or innovation to have the effect of totally
extinguishing the debt or obligation.
The evidence on the record fails to show that the
mortgagee, the herein appellee, consented, or at least
intended, that the mere delivery to, and acceptance by him, of
the mortgaged motor vehicle be construed as actual payment,
more specifically dation in payment or dacion en pago. The fact
that the mortgaged motor vehicle was delivered to him does
not necessarily mean that ownership thereof, as juridically
contemplated by dacion en pago, was transferred from
appellant to appellee. In the absence of clear consent of
appellee to the proferred special mode of payment, there can
be no transfer of ownership of the mortgaged motor vehicle
from appellant to appellee. If at all, only transfer of possession
of the mortgaged motor vehicle took place, for it is quite
possible that appellee, as mortgagee, merely wanted to secure
possession to forestall the loss, destruction, fraudulent transfer
of the vehicle to third persons, or its being rendered valueless
if left in the hands of the appellant.
A more solid basis of the true intention of the parties is
furnished by the document executed by appellant captioned
"Voluntary Surrender with Special Power of Attorney To Sell"
dated March 12, 1973, attached as Annex "C" of the appellant's
answer to the complaint. An examination of the language of the
document reveals that the possession of the mortgaged motor
vehicle was voluntarily surrendered by the appellant to the
appellee authorizing the latter to look for a buyer and sell the
vehicle in behalf of the appellant who retains ownership
thereof, and to apply the proceeds of the sale to the mortgage
indebtedness, with the undertaking of the appellant to pay the
difference, if any, between the selling price and the mortgage
obligation. With the stipulated conditions as stated, the
appellee, in essence was constituted as a mere agent to sell the
motor vehicle which was delivered to the appellee, not as its
property, for if it were, he would have full power of disposition
of the property, not only to sell it as is the limited authority
given him in the special power of attorney. Had appellee
intended to completely release appellant of its mortgage
obligation, there would be no necessity of executing the
document captioned "Voluntary Surrender with Special Power
of Attorney To Sell." Nowhere in the said document can We find
that the mere surrender of the mortgaged motor vehicle to the
appellee extinguished appellant's obligation for the unpaid
price.
Appellant would also argue that by accepting the delivery
of the mortgaged motor vehicle, appellee is estopped from
demanding payment of the unpaid obligation. Estoppel would
not he since, as clearly set forth above, appellee never accepted
the mortgaged motor vehicle in full satisfaction of the
mortgaged debt.
Under the law, the delivery of possession of the mortgaged
property to the mortgagee, the herein appellee, can only
operate to extinguish appellant's liability if the appellee had
actually caused the foreclosure sale of the mortgaged property
when it recovered possession thereof. 6 It is worth noting that
it is the fact of foreclosure and actual sale of the mortgaged
chattel that bar the recovery by the vendor of any balance of
the purchaser's outstanding obligation not satisfied by the
sale. 7 As held by this Court, if the vendor desisted, on his own
initiative, from consummating the auction sale, such desistance
was a timely disavowal of the remedy of foreclosure, and the remedy under the law, but definitely not against appellee to
vendor can still sue for specific performance. 8 This is exactly whom were transferred only rights, title and interest, as such is
what happened in the instant case. the essence of assignment of credit. 10
On the second issue, there is no dispute that there is an WHEREFORE, the judgment appealed from is hereby
unpaid taxes of P70,122.00 due on the mortgaged motor affirmed in toto with costs against defendant-appellant.
vehicle which, according to appellant, liability for the breach of
SO ORDERED.
warranty under the Deed of Sale is shifted to the appellee who
merely stepped into the shoes of the assignor Alexander Lim by
virtue of the Deed of Assignment in favor of appellee. The Deed
of Sale between Alexander Lim and appellant and the Deed of
Assignment between Alexander Lim and appellee are very clear
on this point. There is a specific provision in the Deed of Sale
that the seller Alexander Lim warrants the sale of the motor
vehicle to the buyer, the herein appellant, to be free from liens
and encumbrances. When appellee accepted the assignment of
credit from the seller Alexander Lim, there is a specific
agreement that Lim continued to be bound by the warranties
he had given to the buyer, the herein appellant, and that if it
appears subsequently that "there are such counterclaims,
offsets or defenses that may be interposed by the debtor at the
time of the assignment, such counterclaims, offsets or defenses
shall not prejudice the FILINVEST FINANCE CORPORATION and
I (Alexander Lim) further warrant and hold the said corporation
free and harmless from any such claims, offsets, or defenses
that may be availed of." 9
It must be noted that the unpaid taxes on the motor
vehicle is a burden on the property. Since as earlier shown, the
ownership of the mortgaged property never left the mortgagor,
the herein appellant, the burden of the unpaid taxes should be
home by him, who, in any case, may not be said to be without
 G.R. No. L-52733 July 23, 1985
PILAR DE GUZMAN, ROLANDO GESTUVO, and MINERVA
GESTUVO, petitioners,
vs.
THE HON. COURT OF APPEALS, THE HON. JUDGE PEDRO JL.
BAUTISTA, Presiding Judge of the Court of First Instance of
Rizal, Branch III, Pasay City, and LEONIDA P.
SINGH, respondents.
The facts of record show that on February 17, 1971, the
petitioners, as SELLER, and the private respondent, as BUYER,
executed a Contract to Sell covering two (2) parcels of land
owned by the petitioners located at Cementina Street, Pasay
City and covered by TCT Nos. 11326 and 11327 of the Register
of Deeds of Pasay City. It was stipulated therein that the private
respondent should pay the balance of the purchase price of
P133,640.00 on or before February 17, 1975. Two days before
the said date, or on February 15, 1975, the private respondent
asked the petitioners to furnish her with a statement of account
of the balance due; copies of the certificates of title covering
the two parcels of land subject of the sale; and a copy of the
power of attorney executed by Rolando Gestuvo in favor of
Pilar de Guzman. But, the petitioners denied the request. As a
result, the private respondent filed a complaint for specific
performance with damages against the petitioners before the
Court of First Instance of Rizal. The case, however, was
dismissed for failure to prosecute. But, the private respondent
subsequently refiled the case. The case was docketed in court
as Civil Case No. 5247-P. In her complaint, the private
respondent charged that the petitioners, by refusing to furnish
her with copies of the documents requested, deliberately
intended not to comply with their obligations under the
contract to sell, as a result of which the said petitioners
committed a breach of contract, and had also acted unfairly and
in manifest bad faith for which they should be held liable for
damages. Answering the complaint, the petitioners claimed
that the complaint failed to state a cause of action; that the
balance due was already pre-determined in the contract; that
the petitioners have no obligation to furnish the private
respondent with copies of the documents requested; and that
the private respondent's failure to pay the balance of the
purchase price on the date specified had caused the contract to
expire and become ineffective without necessity of notice or of
any judicial declaration to that effect.
On November 29, 1977, the trial court rendered a decision
approving the compromise agreement submitted by the parties
wherein they agreed on the following:
1. That, not later than December 18, 1977, plaintiff will pay
defendants the total amount of TWO HUNDRED FORTY
THOUSAND (P240,000.00) PESOS, Philippine Currency and in
case of failure to do so, she shall have only until January 27,
1978 within which to pay the total amount of TWO HUNDRED
FIFTY THOUSAND (P250,000.00) PESOS, Philippine Currency,
which shall be treated as complete and final payment of the
consideration in the contract to sell, dated February 17, 1971.
(Annex "A", Complaint);
2. That, immediately upon receipt of either amounts within
the periods so contemplated, defendants undertake to
immediately execute the necessary legal instruments to
transfer to plaintiff the title to the parcels of land subject of the
above-mentioned Contract to Sell, free from liens and
encumbrances but with the understanding that all the expenses
necessary for the issuance of a new Transfer Certificate of Title
in favor of plaintiff or her assigns including documentary stamp
taxes, science stamp taxes and legal research fund fees shall be
for her sole and exclusive account;
3. That defendants would temporarily desist from
enforcing their right or possession over the properties involved
herein until January 27, 1978, but this shall not be construed as
an abandonment or waiver of its causes of action as embodied
in her Complaint in Civil Case No. 12446 entitled "Pilar de
Guzman vs. Wilfredo C. Tan, etc." for Ejectment pending before
Branch IV of the Pasay City Court;
4. Should plaintiff fail to pay either of the amounts
abovestated within the period herein stipulated, the aforesaid
Contract to Sell dated February 17, 1971 shall be deemed
rescinded and defendants would immediately enforce its right
of possession of the premises and plaintiff agrees to voluntarily
surrender and vacate the same without further notice or
demand;
5. That payment of either amounts above-stated shall take
place before the Honorable Judge Pedro Jl. Bautista in the
courtroom of the Court of First Instance of Rizal, Branch III in
Pasay City at 10:00 a.m. Friday, January 27, 1978 unless
payment has been earlier made, in which case plaintiff shall
produce receipt of the same at the same time and place,
otherwise defendants shag immediately be entitled to a Writ of
Execution on its right of possession over the premises;
6. Lastly, that both parties waive and abandon, by reason
hereof, their respective claims and counterclaims as embodied
in the Complaint and Answer. 2
On January 28, 1978, the petitioners filed a motion for the
issuance of a writ of execution, claiming that the private
respondent had failed to abide by the terms of the compromise
agreement and pay the amount specified in their compromise
agreement within the period stipulated. 3 The private
respondent opposed the motion, saying that she had complied
with the terms and conditions of the compromise agreement
and asked the court to direct the petitioners to comply with the
court's decision and execute the necessary documents to effect
the transfer of ownership of the two parcels of land in question
to her. 4
Acting upon the motions, the respondent judge issued an
order on March 27, 1978, denying the petitioners' motion for
execution, and instead, directed the petitioners to immediately
execute the necessary documents, transferring to private
respondent the title to the properties. He also ordered the
Clerk of Court to release to the petitioners the amount of
P250,000.00, which had been deposited by the private
respondent, upon proper receipt therefor. 5
The petitioners filed a motion for the reconsideration of
the order, 6 but the trial court denied the same in an order
dated July 24, 1978. 7
Whereupon, the petitioners filed a notice of appeal, appeal
bond, 8 and a motion for extension of time (20 days) within
which to submit a record on appeal. 9 On August 21, 1978, they
filed a second motion for extension of time (5 days) within
which to file their record on appeal, 10 and on August 26, 1978,
they submitted their record on appeal.
On September 30, 1978, the private respondent filed a
motion to dismiss the appeal on the grounds that: (1) the orders
appealed from are inappealable; and (2) that the record on
appeal is defective as it does not contain the material data
showing that the appeal was perfected on time. 11 The trial
court found merit in the motion and dismissed the appeal of
the petitioners. 12 As a result, the petitioners filed a petition for
certiorari with the respondent Court of Appeals to nullify the
order of the trial court which dismissed their appeal. On
February 5, 1980, the said appellate court rendered judgment
sustaining the decision of the trial court. 13 Hence, the present
recourse.
Passing upon the propriety of the petitioners' appeal, the
rule is that a judgment rendered in accordance with a
compromise agreement is not appealable. It is immediately
executory unless a motion is filed to set aside the compromise
agreement on the ground of fraud, mistake or duress, in which
case an appeal may be taken from the order denying the
motion. 14 It is also a settled rule that an order of execution of
judgment is not appealable. However, where such order of
execution in the opinion of the defeated party varies the terms
of the judgment and does not conform to the essence thereof,
or when the terms of the judgment are not clear and there is
room for interpretation and the interpretation given by the trial
court as contained in its order of execution is wrong in the
opinion of the defeated party, the latter should be allowed to
appeal from said order so that the Appellate Tribunal may pass
upon the legality and correctness of the said order. 15
In the instant case, the legality or enforceability of the
compromise agreement or the decision of the trial court
approving the compromise agreement is not disputed. The
parties both want the said compromise agreement to be
implemented. The petitioners question the ruling of the trial
court that the private respondent had complied with the terms
of the compromise agreement. The issue raised, albeit one of
fact, is appealable.
As to the sufficiency of the record on appeal filed by the
petitioners, the rule is that the submission of a record on
appeal, for purposes of appeal, is no longer required as the
original record is elevated to the appellate court, except in
appeals in special proceedings in accordance with Rule 109 of
the Rules of Court and other cases wherein multiple appeals are
allowed. 16 Since the appeal of the petitioners is not one of
those mentioned above, the late filing or insufficiency of the
record on appeal filed by the petitioners is no longer a ground
for dismissing their appeal.
On the merits of the case, We agree with the findings of
the trial court that the private respondent had substantially
complied with the terms and conditions of the compromise
agreement. Her failure to deliver to the petitioners the full
amount on January 27, 1978 was not her fault. The blame lies
with the petitioners. The record shows that the private
respondent went to the sala of Judge Bautista on the appointed
day to make payment, as agreed upon in their compromise
agreement. But, the petitioners were not there to receive it.
Only the petitioners' counsel appeared later, but, he informed SO ORDERED.
the private respondent that he had no authority to receive and
accept payment. Instead, he invited the private respondent and
her companions to the house of the petitioners to effect
payment. But, the petitioners were not there either. They were
informed that the petitioner Pilar de Guzman would arrive late
in the afternoon, possibly at around 4:00 o'clock. The private
respondent was assured, however, that she would be informed
as soon as the petitioners arrived. The private respondent, in
her eagerness to settle her obligation, consented and waited
for the call which did not come and unwittingly let the period
lapse. The next day, January 28, 1978, the private respondent
went to the office of the Clerk of the Court of First Instance of
Rizal, Pasay City Branch, to deposit the balance of the purchase
price. But, it being a Saturday, the cashier was not there to
receive it. So, on the next working day, Monday, January 30,
1978, the private respondent deposited the amount of
P30,000.00 with the cashier of the Office of the Clerk of the
Court of First Instance of Rizal, Pasay City Branch, to complete
the payment of the purchase price of P250,000.00. Since the
deposit of the balance of the purchase price was made in good
faith and that the failure of the private respondent to deposit
the purchase price on the date specified was due to the
petitioners who also make no claim that they had sustained
damages because of the two days delay, there was substantial
compliance with the terms and conditions of the compromise
agreement.

WHEREFORE, the petition should be, as it is hereby

DISMISSED. The temporary restraining order heretofore issued
is LIFTED and SET ASIDE. With costs against the petitioners.
 G.R. No. L-35381 October 31, 1972
TLG INTERNATIONAL CONTINENTAL ENTERPRISING,
INC., petitioner,
vs.
HON. DELFIN B. FLORES, Presiding Judge, Court of First
Instance of Rizal, Branch XI, respondent.
L. V. Simbulan, Tiongson and Associates for petitioner.
Respondent Judge in his own behalf.
RESOLUTION
ANTONIO, J.:p
Petition for certiorari to set aside the orders dated June 23,
1972 and July 15, 1972 in Civil Case No. 14880 of Respondent,
Hon. Delfin B. Flores as the Presiding Judge of the Court of First
Instance of Rizal, Branch XI, denying the motion of petitioner to
withdraw the sum of P3,750.00 deposited by it, by way of
consignation.
This Court after considering the allegations contained and
the issues raised in the petition and the "manifestation" of
Respondent admitting the facts therein alleged, resolved to
give due course to the petition, and treat the "manifestation"
of Respondent, as his answer. As the issue involved is of minor
importance, and the interest of the parties could be better
served by an expeditious resolution thereof ... We dispensed
with the filing of briefs or memoranda and considered the case
as submitted for decision.
Respondent in an order dated October 5, 1971, granted
petitioner's "Motion To Intervene" and admitted its "Complaint
In Intervention", in Civil Case No. 14880, (Bearcon Trading Co.,
Inc. vs. Juan Fabella Et Al) of the Court of First Instance of Rizal,
Branch XI. The aforecited case was an action for declaratory
relief involving the rights of Bearcon Trading Co., Inc. as lessee
of the premises of the aforesaid defendants. Petitioner
intervened as sub-lessee of Bearcon over the property, and the
purpose of its intervention was to protect its rights as such sub-
lessee and to enable it, during pendency of the case, to make a
consignation of the monthly rentals as it was "at a loss as to
who is lawfully and rightfully entitled to receive payments of
the monthly" rentals.
As a consequence of the admission of the "Complaint In
Intervention", petitioner deposited with the Clerk of Court of
the Court of First Instance of Rizal, the following sums by way
of rentals: .
October 27, 1971 P900.00
November 29, 1971 600.00
January 19, 1972 750.00
March 8, 1972 1,500.00
or a total of P3,750.00, which deposits are properly
covered by official receipts.
On October 20, 1971, defendants in Civil Case No. 14880,
filed with said Court, an "Omnibus Motion" in which they
prayed that the complaint, as well as the Complaint In
Intervention, be dismissed on the ground that the subject
matter thereof could be better ventilated in the ejectment case
filed by Juan Fabella against Bearcon Trading Co., Inc. (Civil Case
No. 3979) then pending before the municipal court of
Mandaluyong Rizal.
The court a quo under date of April 24, 1972 issued an
"Omnibus Order", dismissing both the complaint and the
complaint in intervention.
On May 27, 1972, petitioner filed its Motion to withdraw
the sums it deposited, as "the order dismissing the ... case as
well as the complaint in intervention without a resolution
having been made as to the right of the plaintiff or the
defendants to the rentals deposited by the intervenor, left the
intervenor without any recourse but to apply for authority to
withdraw the ... amount ... and turn over the same to the
defendants in accordance with the understanding arrived at
between the parties hereto". This was denied by Respondent in
its order of June 23, 1972. The motion for reconsideration of
petitioner was likewise denied by Respondent on July 15, 1972.
Hence this petition for certiorari.
The only issue is whether or not Respondent could
authorize the withdrawal of the deposits considering that
according to Respondent, the Court "has not ordered the
intervenor to make any deposit in connection" with the case.
There is no question that in cases of consignation the
debtor is entitled as a matter of right to withdraw the deposit
made with the court, before the consignation is accepted by the
creditor or prior to the judicial approval of such consignation.
This is explicit from the second paragraph of Article 1260 of the
new Civil Code which states that: "Before the creditor has
accepted the consignation, or before a judicial declaration that
the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the
obligation to remain in force".
In the case at bar, the case was dismissed before the
amount deposited was either accepted by the creditor or a
declaration made by the Court approving such consignation.
Such dismissal rendered the consignation ineffectual (Bravo v.
Barreras, 92 Phil. 679, 681). Under such circumstances it was
incumbent upon Respondent to have allowed the withdrawal
by petitioner of the sums of money deposited by it with the
Court.
Respondent nevertheless insists that the Court had no
authority to authorize its withdrawal since it "has not ordered
intervenor to make" the deposit. This contention ignores the
fact that the deposit was made by petitioner as a consequence
of the admission by the Court of its "Complaint In Intervention".
It must be noted that the aforesaid deposit was made with and
officially receipted by the Clerk of Court. The deposit was made
pursuant to Article 1258 of the new Civil Code which states
that: "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, ...". It was therefore
money received by the Clerk of Court pursuant to Section 6 of
the Judiciary Act. (Rep. Act 296 as Amended). From the
moment the deposit was made by petitioner, "the money
remained under the control and jurisdiction of the court and
the former could not recover it without an express order of
restitution" (Manajero v. Buyson Lampa, 61 Phil. 66, 69). In the
light of the aforecited statutory provisions and jurisprudence
We find no justification for Respondent's intransigent posture.

WHEREFORE, the orders dated June 23, 1972 and July 15,
1972 subject of the petition for certiorari are hereby set aside
and Respondent directed to grant the withdrawal of the
deposit in accordance with the foregoing. Without
pronouncement as to costs.
 G.R. No. L-57552 October 10, 1986
LUISA F. MCLAUGHLIN, petitioner,
vs.
THE COURT OF APPEALS AND RAMON FLORES, respondents.
IN VIEW OF THE FOREGOING PREMISES, the petition for
certiorari and mandamus is hereby GRANTED and the Orders of
respondent court dated November 21 and 27 both 1980 are
hereby nullified and set aside and respondent Judge is ordered
to order private respondent to accept petitioner's Pacific
Banking Corporation certified manager's Check No. MC-A-
000311 dated November 17, 1980 in the amount of P76,059.71
in full settlement of petitioner's obligation, or another check of
equivalent kind and value, the earlier check having become
stale.
On February 28, 1977, petitioner Luisa F. McLaughlin and
private respondent Ramon Flores entered into a contract of
conditional sale of real property. Paragraph one of the deed of
conditional sale fixed the total purchase price of P140,000.00
payable as follows: a) P26,550.00 upon the execution of the
deed; and b) the balance of P113,450.00 to be paid not later
than May 31, 1977. The parties also agreed that the balance
shall bear interest at the rate of 1% per month to commence
from December 1, 1976, until the full purchase price was paid.
On June 19, 1979, petitioner filed a complaint in the then
Court of First Instance of Rizal (Civil Case No. 33573) for the
rescission of the deed of conditional sale due to the failure of
private respondent to pay the balance due on May 31, 1977.
On December 27, 1979, the parties submitted a
Compromise Agreement on the basis of which the court
rendered a decision on January 22, 1980. In said compromise
agreement, private respondent acknowledged his
indebtedness to petitioner under the deed of conditional sale
in the amount of P119,050.71, and the parties agreed that said
amount would be payable as follows: a) P50,000.00 upon
signing of the agreement; and b) the balance of P69,059.71 in
two equal installments on June 30, 1980 and December 31,
1980.
As agreed upon, private respondent paid P50,000.00 upon
the signing of the agreement and in addition he also paid an
"escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private
respondent agreed to pay one thousand (P l,000.00) pesos
monthly rental beginning December 5, 1979 until the obligation
is duly paid, for the use of the property subject matter of the
deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further
state:
That the parties are agreed that in the event the defendant
(private respondent) fails to comply with his obligations herein
provided, the plaintiff (petitioner) will be entitled to the
issuance of a writ of execution rescinding the Deed of
Conditional Sale of Real Property. In such eventuality,
defendant (private respondent) hereby waives his right to
appeal to (from) the Order of Rescission and the Writ of
Execution which the Court shall render in accordance with the
stipulations herein provided for.
That in the event of execution all payments made by
defendant (private respondent) will be forfeited in favor of the
plaintiff (petitioner) as liquidated damages.
On October 15, 1980, petitioner wrote to private
respondent demanding that the latter pay the balance of
P69,059.71 on or before October 31, 1980. This demand
included not only the installment due on June 30, 1980 but also
the installment due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to
petitioner signifying his willingness and intention to pay the full
balance of P69,059.71, and at the same time demanding to see
the certificate of title of the property and the tax payment
receipts.
Private respondent states on page 14 of his brief that on
November 3, 1980, the first working day of said month, he
tendered payment to petitioner but this was refused
acceptance by petitioner. However, this does not appear in the
decision of the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of
Execution alleging that private respondent failed to pay the
installment due on June 1980 and that since June 1980 he had
failed to pay the monthly rental of P l,000.00. Petitioner prayed
that a) the deed of conditional sale of real property be declared
rescinded with forfeiture of all payments as liquidated
damages; and b) the court order the payment of Pl,000.00 back
rentals since June 1980 and the eviction of private respondent.
On November 14, 1980, the trial court granted the motion
for writ of execution.
On November 17, 1980, private respondent filed a motion
for reconsideration tendering at the same time a Pacific
Banking Corporation certified manager's check in the amount
of P76,059.71, payable to the order of petitioner and covering
the entire obligation including the installment due on
December 31, 1980. However, the trial court denied the motion
for reconsideration in an order dated November 21, 1980 and
issued the writ of execution on November 25, 1980.
In an order dated November 27, 1980, the trial court
granted petitioner's ex-parte motion for clarification of the
order of execution rescinding the deed of conditional sale of
real property.
On November 28, 1980, private respondent filed with the
Court of Appeals a petition for certiorari and prohibition
assailing the orders dated November 21 and 27, 1980.
As initially stated above, the appellate court nullified and
set aside the disputed orders of the lower court. In its decision,
the appellate court ruled in part as follows:
The issue here is whether respondent court committed a
grave abuse of discretion in issuing the orders dated November
21, 1980 and November 27,1980.
 The general rule is that rescission will not be permitted for
a slight or casual breach of the contract, but only for such
breaches as are substantial and fundamental as to defeat the
object of the parties in making the agreement. (Song Fo & Co.
vs. Hawaiian-Philippine Co., 47 Phil. 821)
In aforesaid case, it was held that a delay in payment for a
small quantity of molasses, for some twenty days is not such a
violation of an essential condition of the contract as warrants
rescission for non-performance.
In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the
Song Fo ruling was reaffirmed.
In the case at bar, McLaughlin wrote Flores on October 15,
1980 demanding that Flores pay the balance of P69,059.71 on
or before October 31, 1980. Thus it is undeniable that despite
Flores' failure to make the payment which was due on June
1980, McLaughlin waived whatever right she had under the
compromise agreement as incorporated in the decision of
respondent court, to demand rescission.
xxx xxx xxx
It is significant to note that on November 17, 1980, or just
seventeen (17) days after October 31, 1980, the deadline set by
McLaughlin, Flores tendered the certified manager's check. We
hold that the Song Fo ruling is applicable herein considering
that in the latter case, there was a 20-day delay in the payment
of the obligation as compared to a 17-day delay in the instant
case.
Furthermore, as held in the recent case of New Pacific
Timber & Supply Co., Inc. vs. Hon. Alberto Seneris, L-41764,
December 19, 1980, it is the accepted practice in business to
consider a cashier's or manager's check as cash and that upon
certification of a check, it is equivalent to its acceptance
(Section 187, Negotiable Instrument Law) and the funds are
thereby transferred to the credit of the creditor (Araneta v.
Tuason, 49 O.G. p. 59).
In the New Pacific Timber & Supply Co., Inc. case, the
Supreme Court further held that the object of certifying a check
is to enable the holder thereof to use it as money, citing the
ruling in PNB vs. National City Bank of New York, 63 Phil. 711.
In the New Pacific Timber case, it was also ruled that the
exception in Section 63 of the Central Bank Act that the clearing
of a check and the subsequent crediting of the amount thereof
to the account of the creditor is equivalent to delivery of cash,
is applicable to a payment through a certified check.
Considering that Flores had already paid P101,550.00
under the contract to sell, excluding the monthly rentals paid,
certainly it would be the height of inequity to have this amount
forfeited in favor McLaughlin. Under the questioned orders,
McLaughlin would get back the property and still keep
P101,550.00.
Petitioner contends that the appellate court erred in not
observing the provisions of Article No. 1306 of the Civil Code of
the Philippines and in having arbitrarily abused its judicial
discretion by disregarding the penal clause stipulated by the
parties in the compromise agreement which was the basis of
the decision of the lower court.
We agree with the appellate court that it would be
inequitable to cancel the contract of conditional sale and to
have the amount of P101,550.00 (P l48,126.97 according to
private respondent in his brief) already paid by him under said
contract, excluding the monthly rentals paid, forfeited in favor
of petitioner, particularly after private respondent had
tendered the amount of P76,059.71 in full payment of his
obligation.
In the analogous case of De Guzman vs. Court of Appeals,
this Court sustained the order of the respondent judge denying
the petitioners' motion for execution on the ground that the
private respondent had substantially complied with the terms
and conditions of the compromise agreement, and directing
the petitioners to immediately execute the necessary
documents transferring to the private respondent the title to
the properties (July 23, 1985, 137 SCRA 730). In the case at bar,
there was also substantial compliance with the compromise
agreement.
Petitioner invokes the ruling of the Court in its Resolution
of November 16, 1978 in the case of Luzon Brokerage Co., Inc.
vs. Maritime Building Co., Inc., to the effect that Republic Act
6552 (the Maceda Law) "recognizes and reaffirms the vendor's
right to cancel the contract to sell upon breach and non-
payment of the stipulated installments but requires a grace
period after at least two years of regular installment payments
... . " (86 SCRA 305, 329)
On the other hand, private respondent also invokes said
law as an expression of public policy to protect buyers of real
estate on installments against onerous and oppressive
conditions (Section 2 of Republic Act No. 6552).
Section 4 of Republic Act No. 6552 which took effect on
September 14, 1972 provides as follows:
In case where less than two years of installments were
paid, the seller shall give the buyer a grace period of not less
than sixty days from the date the installment became due. If
the buyer fails to pay the installments due at the expiration of
the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of the cancellation
or the demand for rescission of the contract by a notarial act.
Section 7 of said law provides as follows:
Any stipulation in any contract hereafter entered into
contrary to the provisions of Sections 3, 4, 5 and 6, shall be null
and void.
The spirit of these provisions further supports the decision
of the appellate court. The record does not contain the
complete text of the compromise agreement dated December
20, 1979 and the decision approving it. However, assuming that
under the terms of said agreement the December 31, 1980
installment was due and payable when on October 15, 1980,
petitioner demanded payment of the balance of P69,059.71 on
or before October 31, 1980, petitioner could cancel the
contract after thirty days from receipt by private respondent of
the notice of cancellation. Considering petitioner's motion for
execution filed on November 7, 1980 as a notice of cancellation,
petitioner could cancel the contract of conditional sale after
thirty days from receipt by private respondent of said motion.
Private respondent's tender of payment of the amount of
P76,059.71 together with his motion for reconsideration on
November 17, 1980 was, therefore, well within the thirty-day
period grants by law..
The tender made by private respondent of a certified bank
manager's check payable to petitioner was a valid tender of
payment. The certified check covered not only the balance of
the purchase price in the amount of P69,059.71, but also the
arrears in the rental payments from June to December, 1980 in
the amount of P7,000.00, or a total of P76,059.71. On this point
the appellate court correctly applied the ruling in the case of
New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686,
692-694) to the case at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of
Court provides that:
An offer in writing to pay a particular sum of money or to
deliver a written instrument or specific property is, if rejected,
equivalent to the actual production and tender of the money,
instrument, or property.
However, although private respondent had made a valid
tender of payment which preserved his rights as a vendee in
the contract of conditional sale of real property, he did not
follow it with a consignation or deposit of the sum due with the
court. As this Court has held:
The rule regarding payment of redemption prices is
invoked. True that consignation of the redemption price is not
necessary in order that the vendor may compel the vendee to
allow the repurchase within the time provided by law or by
contract. (Rosales vs. Reyes and Ordoveza, 25 Phil. 495.) We
have held that in such cases a mere tender of payment is
enough, if made on time, as a basis for action against the
vendee to compel him to resell. But that tender does not in
itself relieve the vendor from his obligation to pay the price
when redemption is allowed by the court. In other words,
tender of payment is sufficient to compel redemption but is not
in itself a payment that relieves the vendor from his liability to
pay the redemption price. " (Paez vs. Magno, 83 Phil. 403, 405)
On September 1, 1986, the Court issued the following
resolution
Considering the allegation in petitioner's reply brief that
the Manager's Check tendered by private respondent on
November 17, 1980 was subsequently cancelled and converted
into cash, the Court RESOLVED to REQUIRE the parties within
ten (10) days from notice to inform the Court whether or not
the amount thereof was deposited in court and whether or not
private respondent continued paying the monthly rental of
P1,000.00 stipulated in the Compromise Agreement.
In compliance with this resolution, both parties submitted
their respective manifestations which confirm that the
Manager's Check in question was subsequently withdrawn and
replaced by cash, but the cash was not deposited with the
court.
 According to Article 1256 of the Civil Code of the
Philippines, if the creditor to whom tender of payment has
been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the
thing or sum due, and that consignation alone shall produce the
same effect in the five cases enumerated therein; Article 1257
provides that in order that the consignation of the thing (or
sum) due may release the obligor, it must first be announced to
the persons interested in the fulfillment of the obligation; and
Article 1258 provides that consignation shall be made by
depositing the thing (or sum) due at the disposal of the judicial
authority and that the interested parties shall also be notified
thereof.
As the Court held in the case of Soco vs.
Militante, promulgated on June 28, 1983, after examining the
above-cited provisions of the law and the jurisprudence on the
matter:
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). (123 SCRA 160,173)
In the above-cited case of De Guzman vs. Court of
Appeals (137 SCRA 730), the vendee was released from
responsibility because he had deposited with the court the
balance of the purchase price. Similarly, in the above-cited case
of New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA
686), the judgment debtor was released from responsibility by
depositing with the court the amount of the judgment
obligation.
In the case at bar, although as above stated private
respondent had preserved his rights as a vendee in the contract
of conditional sale of real property by a timely valid tender of
payment of the balance of his obligation which was not
accepted by petitioner, he remains liable for the payment of his
obligation because of his failure to deposit the amount due
with the court.
In his manifestation dated September 19, 1986, private
respondent states that on September 16, 1980, he purchased a
Metrobank Cashier's Check No. CC 004233 in favor of petitioner
Luisa F. McLaughlin in the amount of P76,059.71, a photocopy
of which was enclosed and marked as Annex "A- 1;" but that he
did not continue paying the monthly rental of Pl,000.00
because, pursuant to the decision of the appellate court,
petitioner herein was ordered to accept the aforesaid amount
in full payment of herein respondent's obligation under the
contract subject matter thereof.
However, inasmuch as petitioner did not accept the
aforesaid amount, it was incumbent on private respondent to
deposit the same with the court in order to be released from
responsibility. Since private respondent did not deposit said
amount with the court, his obligation was not paid and he is
liable in addition for the payment of the monthly rental of
Pl,000.00 from January 1, 1981 until said obligation is duly paid,
in accordance with paragraph 3 of the Compromise Agreement.
Upon full payment of the amount of P76,059.71 and the rentals
in arrears, private respondent shall be entitled to a deed of
absolute sale in his favor of the real property in question.

WHEREFORE, the decision of the Court of Appeals is

AFFIRMED with the following modifications:

(a) Petitioner is ordered to accept from private respondent

the Metrobank Cashier's Check No. CC 004233 in her favor in
the amount of P76,059.71 or another certified check of a
reputable bank drawn in her favor in the same amount;

(b) Private respondent is ordered to pay petitioner, within

sixty (60) days from the finality of this decision, the rentals in
arrears of P l,000.00 a month from January 1, 1981 until full
payment thereof; and

(c) Petitioner is ordered to execute a deed of absolute sale

in favor of private respondent over the real property in
question upon full payment of the amounts as provided in
paragraphs (a) and (b) above. No costs.

SO ORDERED.
G.R. No. L-58961 June 28, 1983
SOLEDAD SOCO, petitioner,
vs.
HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the
Court of First Instance of Cebu, Branch XII, Cebu City and
REGINO FRANCISCO, JR., respondents.
Chua & Associates Law Office (collaborating counsel) and
Andales, Andales & Associates Law Office for petitioner.
Francis M. Zosa for private respondent.
GUERRERO, J.:
The decision subject of the present petition for review holds the
view that there was substantial compliance with the requisites
of consignation and so ruled in favor of private respondent,
Regino Francisco, Jr., lessee of the building owned by petitioner
lessor, Soledad Soco in the case for illegal detainer originally
filed in the City Court of Cebu City, declaring the payments of
the rentals valid and effective, dismissed the complaint and
ordered the lessor to pay the lessee moral and exemplary
damages in the amount of P10,000.00 and the further sum of
P3,000.00 as attorney's fees.
We do not agree with the questioned decision. We hold that
the essential requisites of a valid consignation must be
complied with fully and strictly in accordance with the law,
Articles 1256 to 1261, New Civil Code. That these Articles must
be accorded a mandatory construction is clearly evident and
plain from the very language of the codal provisions themselves
which require absolute compliance with the essential requisites
therein provided. Substantial compliance is not enough for that
would render only a directory construction to the law. The use
of the words "shall" and "must" which are imperative,
operating to impose a duty which may be enforced, positively
indicate that all the essential requisites of a valid consignation
must be complied with. The Civil Code Articles expressly and
explicitly direct what must be essentially done in order that
consignation shall be valid and effectual. Thus, the law
provides:
1257. In order that the consignation of the thing due may
release the obligor, it must first be announcedto the persons
interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment.
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.
Art. 1249. The payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in abeyance.
We have a long line of established precedents and doctrines
that sustain the mandatory nature of the above provisions. The
decision appealed from must, therefore, be reversed.
The antecedent facts are substantially recited in the decision
under review, as follows:
It appears from the evidence that the plaintiff-appellee-Soco,
for short-and the 'defendant-appellant-Francisco, for brevity-
entered into a contract of lease on January 17, 1973, whereby
Soco leased her commercial building and lot situated at Manalili
Street, Cebu City, to Francisco for a monthly rental of P 800.00
for a period of 10 years renewable for another 10 years at the
option of the lessee. The terms of the contract are embodied in
the Contract of Lease (Exhibit "A" for Soco and Exhibit "2" for
Francisco). It can readily be discerned from Exhibit "A" that
paragraphs 10 and 11 appear to have been cancelled while in
Exhibit "2" only paragraph 10 has been cancelled. Claiming that
paragraph 11 of the Contract of Lease was in fact not part of
the contract because it was cancelled, Soco filed Civil Case No.
R-16261 in the Court of First Instance of Cebu seeking the
annulment and/or reformation of the Contract of Lease. ...
Sometime before the filing of Civil Case No. R-16261 Francisco
noticed that Soco did not anymore send her collector for the
payment of rentals and at times there were payments made but
no receipts were issued. This situation prompted Francisco to
write Soco the letter dated February 7, 1975 (Exhibit "3") which
the latter received as shown in Exhibit "3-A". After writing this
letter, Francisco sent his payment for rentals by checks issued
by the Commercial Bank and Trust Company. Obviously, these
payments in checks were received because Soco admitted that
prior to May, 1977, defendant had been religiously paying the
rental. ....
1. The factual background setting of this case clearly indicates
that soon after Soco learned that Francisco sub-leased a
portion of the building to NACIDA, at a monthly rental of more
than P3,000.00 which is definitely very much higher than what
Francisco was paying to Soco under the Contract of Lease, the
latter felt that she was on the losing end of the lease agreement
so she tried to look for ways and means to terminate the
contract. ...
In view of this alleged non-payment of rental of the leased
premises beginning May, 1977, Soco through her lawyer sent a
letter dated November 23, 1978 (Exhibit "B") to Francisco
serving notice to the latter 'to vacate the premises leased.' In
answer to this letter, Francisco through his lawyer informed
Soco and her lawyer that all payments of rental due her were
in fact paid by Commercial Bank and Trust Company through
the Clerk of Court of the City Court of Cebu (Exhibit " 1 ").
Despite this explanation, Soco filed this instant case of Illegal
Detainer on January 8, 1979. ...
2. Pursuant to his letter dated February 7, 1975(Exhibit"3") and
for reasons stated therein, Francisco paid his monthly rentals
to Soco by issuing checks of the Commercial Bank and Trust
Company where he had a checking account. On May 13, 1975,
Francisco wrote the Vice-President of Comtrust, Cebu Branch
(Exhibit "4") requesting the latter to issue checks to Soco in the
amount of P 840.00 every 10th of the month, obviously for
payment of his monthly rentals. This request of Francisco was
complied with by Comtrust in its letter dated June 4, 1975
(Exhibit "5"). Obviously, these payments by checks through
Comtrust were received by Soco from June, 1975 to April, 1977
because Soco admitted that an rentals due her were paid
except the rentals beginning May, 1977. While Soco alleged in
her direct examination that 'since May, 1977 he (meaning
Francisco) stopped paying the monthly rentals' (TSN, Palicte, p.
6, Hearing of October 24, 1979), yet on cross examination she
admitted that before the filing of her complaint in the instant
case, she knew that payments for monthly rentals were
deposited with the Clerk of Court except rentals for the months
of May, June, July and August, 1977. ...
Pressing her point, Soco alleged that 'we personally demanded
from Engr. Francisco for the months of May, June, July and
August, but Engr. Francisco did not pay for the reason that he
had no funds available at that time.' (TSN-Palicte, p. 28, Hearing
October 24, 1979). This allegation of Soco is denied by Francisco
because per his instructions, the Commercial Bank and Trust
Company, Cebu Branch, in fact, issued checks in favor of Soco
representing payments for monthly rentals for the months of
May, June, July and August, 1977 as shown in Debit
Memorandum issued by Comtrust as follows:
(a) Exhibit "6"-Debit Memo dated May 11, 1977 for P926.10 as
payment for May, 1977;
(b) Exhibit"7"-Debit Memo dated June l5, 197 7for P926.10 as
payment for June, 1977;
(c) Exhibit "8"-Debit Memo dated July 11, 1977 for P1926.10 as
payment for July, 1977;
(d) Exhibit "9"-Debit Memo dated August 10, 1977 for P926. 10
as payment for August, 1977.
These payments are further bolstered by the certification
issued by Comtrust dated October 29, 1979 (Exhibit "13").
Indeed the Court is convinced that payments for rentals for the
months of May, June, July and August, 1977 were made by
Francisco to Soco thru Comtrust and deposited with the Clerk
of Court of the City Court of Cebu. There is no need to
determine whether payments by consignation were made from
September, 1977 up to the filing of the complaint in January,
1979 because as earlier stated Soco admitted that the rentals
for these months were deposited with the Clerk of Court. ...
Taking into account the factual background setting of this case,
the Court holds that there was in fact a tender of payment of
the rentals made by Francisco to Soco through Comtrust and
since these payments were not accepted by Soco evidently
because of her intention to evict Francisco, by all means,
culminating in the filing of Civil Case R-16261, Francisco was
impelled to deposit the rentals with the Clerk of Court of the
City Court of Cebu. Soco was notified of this deposit by virtue
of the letter of Atty. Pampio Abarientos dated June 9, 1977
(Exhibit "10") and the letter of Atty. Pampio Abarientos dated
July 6. 1977 (Exhibit " 12") as well as in the answer of Francisco
in Civil Case R-16261 (Exhibit "14") particularly paragraph 7 of
the Special and Affirmative Defenses. She was further notified
of these payments by consignation in the letter of Atty.
Menchavez dated November 28, 1978 (Exhibit " 1 "). There was
therefore substantial compliance of the requisites of
consignation, hence his payments were valid and effective.
Consequently, Francisco cannot be ejected from the leased
premises for non-payment of rentals. ...
As indicated earlier, the above decision of the Court of First
Instance reversed the judgment of the City Court of Cebu,
Branch 11, the dispositive portion of the latter reading as
follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff, ordering the defendant, Regino Francisco, Jr.:
(1) To vacate immediately the premises in question, consisting
of a building located at Manalili St., Cebu City;
(2) To pay to the plaintiff the sum of P40,490.46 for the rentals,
covering the period from May, 1977 to August, 1980, and
starting with the month of September, 1980, to pay to the
plaintiff for one (1) year a monthly rental of P l,072.076 and an
additional amount of 5 per cent of said amount, and for so
much amount every month thereafter equivalent to the rental
of the month of every preceding year plus 5 percent of same
monthly rental until the defendant shall finally vacate said
premises and possession thereof wholly restored to the
plaintiff-all plus legal interest from date of filing of the
complaint;
(3) To pay to the plaintiff the sum of P9,000.00 for attorney's
fee;
(4) To pay to the plaintiff the sum of P5,000.00 for damages and
incidental litigation expenses; and
(5) To pay the Costs.
SOORDERED.
Cebu City, Philippines, November 21, 1980.
(SGD.) PATERNO D. MONTESCLAROS
Acting Presiding Judge
According to the findings of fact made by the City Court, the
defendant Francisco had religiously paid to the plaintiff Soco
the corresponding rentals according to the terms of the Least
Contract while enjoying the leased premises until one day the
plaintiff had to demand upon the defendant for the payment of
the rentals for the month of May, 1977 and of the succeeding
months. The plaintiff also demanded upon the defendant to
vacate the premises and from that time he failed or refused to
vacate his possession thereof; that beginning with the month
of May, 1977 until at present, the defendant has not made valid
payments of rentals to the plaintiff who, as a consequence, has
not received any rental payment from the defendant or
anybody else; that for the months of May to August, 1977,
evidence shows that the plaintiff through her daughter, Teolita
Soco and salesgirl, Vilma Arong, went to the office or residence
of defendant at Sanciangko St., Cebu City, on various occasions
to effect payment of rentals but were unable to collect on
account of the defendant's refusal to pay; that defendant
contended that payments of rental thru checks for said four
months were made to the plaintiff but the latter refused to
accept them; that in 1975, defendant authorized the
Commercial Bank and Trust Company to issue checks to the
plaintiff chargeable against his bank account, for the payment
of said rentals, and the delivery of said checks was coursed by
the bank thru the messengerial services of the FAR Corporation,
but the plaintiff refused to accept them and because of such
refusal, defendant instructed said bank to make consignation
with the Clerk of Court of the City Court of Cebu as regard said
rentals for May to August, 1977 and for subsequent months.
The City Court further found that there is no showing that the
letter allegedly delivered to the plaintiff in May, 1977 by
Filomeno Soon, messenger of the FAR Corporation contained
cash money, check, money order, or any other form of note of
value, hence there could never be any tender of payment, and
even granting that there was, but plaintiff refused to accept it
without any reason, still no consignation for May, 1977 rental
could be considered in favor of the defendant unless evidence
is presented to establish that he actually made rental deposit
with the court in cash money and prior and subsequent to such
deposit, he notified the plaintiff thereof.
Notwithstanding the contradictory findings of fact and the
resulting opposite conclusions of law by the City Court and the
Court of First Instance, both are agreed, however, that the case
presents the issue of whether the lessee failed to pay the
monthly rentals beginning May, 1977 up to the time the
complaint for eviction was filed on January 8, 1979. This issue
in turn revolves on whether the consignation of the rentals was
valid or not to discharge effectively the lessee's obligation to
pay the same. The City Court ruled that the consignation was
not valid. The Court of First Instance, on the other hand, held
that there was substantial compliance with the requisites of the
law on consignation.
Let us examine the law and consider Our jurisprudence on the
matter, aside from the codal provisions already cited herein.
According to Article 1256, New Civil Code, if the creditor to
whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the
following cases: (1) When the creditor is absent or unknown, or
does not appear at the place of payment; (2) When he is
incapacitated to receive the payment at the time it is due; (3)
When, without just cause, he refuses to give a receipt; (4) When
two or more persons claim the same right to collect; (5) When
the title of the obligation has been lost.
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. (Limkako vs. Teodoro, 74 Phil. 313).
In order that consignation may be effective, the debtor must
first comply with certain requirements prescribed by law. The
debtor must show (1) that there was a debt due; (2) that 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 (Art. 1176, Civil Code); (3) that previous notice of
the consignation had been given to the person interested in the
performance of the obligation (Art. 1177, Civil Code); (4) that
the amount due was placed at the disposal of the court (Art.
1178, Civil Code); and (5) that after the consignation had been
made the person interested was notified thereof (Art. 1178,
Civil Code). Failure in any of these requirements is enough
ground to render a consignation ineffective. (Jose Ponce de
Leon vs. Santiago Syjuco, Inc., 90 Phil. 311).
Without the notice first announced to the persons interested in
the fulfillment of the obligation, the consignation as a payment
is void. (Limkako vs. Teodoro, 74 Phil. 313),
In order to be valid, the tender of payment must be made in
lawful currency. While payment in check by the debtor may be
acceptable as valid, if no prompt objection to said payment is
made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956)
the fact that in previous years payment in check was accepted
does not place its creditor in estoppel from requiring the debtor
to pay his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30,
1958). Thus, the tender of a check to pay for an obligation is not
a valid tender of payment thereof (Desbarats vs. Vda. de
Mortera, supra). See Annotation, The Mechanics of
Consignation by Atty. S. Tabios, 104 SCRA 174-179.
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).
Reviewing carefully the evidence presented by respondent
lessee at the trial of the case to prove his compliance with all
the requirements of a valid tender of payment and
consignation and from which the respondent Judge based his
conclusion that there was substantial compliance with the law
on consignation, We note from the assailed decision
hereinbefore quoted that these evidences are: Exhibit 10, the
letter of Atty. Pampio Abarintos dated June 9, 1977: Exhibit 12,
letter of Atty. Pampio Abarintos dated July 6, 1977; Exhibit 14,
the Answer of respondent Francisco in Civil Case R- 16261,
particularly paragraph 7 of the Special and Affirmative
Defenses; and Exhibit 1, letter of Atty. Eric Menchavez dated
November 28, 1978. All these evidences, according to
respondent Judge, proved that petitioner lessor was notified of
the deposit of the monthly rentals.
We have analyzed and scrutinized closely the above exhibits
and We find that the respondent Judge's conclusion is
manifestly wrong and based on misapprehension of facts.
Thus-
(1) Exhibit 10 reads: (see p. 17, Records)
June 9, 1977
Miss Soledad Soco
Soledad Soco Retazo
P. Gullas St., Cebu City
Dear Miss Soco:
This is in connection with the payment of rental of my client,
Engr. Regino Francisco, Jr., of your building situated at Manalili
St., Cebu City.
It appears that twice you refused acceptance of the said
payment made by my client.
It appears further that my client had called your office several
times and left a message for you to get this payment of rental
but until the present you have not sent somebody to get it.
In this connection, therefore, in behalf of my client, you are
hereby requested to please get and claim the rental payment
aforestated from the Office of my client at Tagalog Hotel and
Restaurant, Sanciangko St., Cebu City. within three (3) days
from receipt hereof otherwise we would be constrained to
make a consignation of the same with the Court in accordance
with law.
Hoping for your cooperation on this matter, we remain.
Very truly yours,
(SGD.) PAMPIO A. ABARINTOS
Counsel for Engr. REGINO FRANCISCO, Jr.
We may agree that the above exhibit proves tender of payment
of the particular monthly rental referred to (the letter does not,
however, indicate for what month and also the intention to
deposit the rental with the court, which is the first notice. But
certainly, it is no proof of tender of payment of other or
subsequent monthly rentals. Neither is it proof that notice of
the actual deposit or consignation was given to the lessor,
which is the second notice required by law.
(2) Exhibit 12 (see p. 237, Records) states:
July 6, 1977
Miss Soledad Soco
Soledad Soco Reta
P. Gullas St., Cebu City
Dear Miss Soco:
This is to advise and inform you that my client, Engr. Regino
Francisco, Jr., has consigned to you, through the Clerk of Court,
City Court of Cebu, Cebu City, the total amount of Pl,852.20, as
evidenced by cashier's checks No. 478439 and 47907 issued by
the Commercial Bank and Trust Company (CBTC) Cebu City
Branch, dated May 11, 1977 and June 15, 1977 respectively and
payable to your order, under Official Receipt No. 0436936
dated July 6,1977.
This amount represents payment of the rental of your building
situated at Manalili St., Cebu City which my client, Engr. Regino
Francisco, Jr., is renting. You can withdraw the said amount
from the Clerk of Court, City Court of Cebu, Cebu City at any
time.
Please be further notified that all subsequent monthly rentals
will be deposited to the Clerk of Court, City Court of Cebu, Cebu
City.
Very truly yours,
(SGD.) PAMPIO A. ABARINTOS
Counsel for ENGR. REGINO FRANCISCO, JR.
The above evidence is, of course, proof of notice to the lessor
of the deposit or consignation of only the two payments by
cashier's checks indicated therein. But surely, it does not prove
any other deposit nor the notice thereof to the lessor. It is not
even proof of the tender of payment that would have preceded
the consignation.
(3) Exhibit 14, paragraph 7 of the Answer (see p. 246, Records)
alleges:
7. That ever since, defendant had been religiously paying his
rentals without any delay which, however, the plaintiff had in
so many occasions refused to accept obviously in the hope that
she may declare non-payment of rentals and claim it as a
ground for the cancellation of the contract of lease. This, after
seeing the improvements in the area which were effected, at
no small expense by the defendant. To preserve defendant's
rights and to show good faith in up to date payment of rentals,
defendant had authorized his bank to issue regularly cashier's
check in favor of the plaintiff as payment of rentals which the
plaintiff had been accepting during the past years and even for
the months of January up to May of this year, 1977 way past
plaintiff's claim of lease expiration. For the months of June and
July, however, plaintiff again started refusing to accept the
payments in going back to her previous strategy which forced
the defendant to consign his monthly rental with the City Clerk
of Court and which is now the present state of affairs in so far
as payment of rentals is concerned. These events only goes to
show that the wily plaintiff had thought of this mischievous
scheme only very recently and filed herein malicious and
unfounded complaint.
The above exhibit which is lifted from Civil Case No. R-16261
between the parties for annulment of the lease contract, is self-
serving. The statements therein are mere allegations of
conclusions which are not evidentiary.
(4) Exhibit 1 (see p. 15, Records) is quoted thus:
November 28, 1978
Atty. Luis V. Diores
Suite 504, SSS Bldg.
Jones Avenue, Cebu City
Dear Compañero:
Your letter dated November 23, 1978 which was addressed to
my client, Engr. Regino Francisco, Jr. has been referred to me
for reply.
It is not true that my client has not paid the rentals as claimed
in your letter. As a matter of fact, he has been religiously paying
the rentals in advance. Payment was made by Commercial Bank
and Trust Company to the Clerk of Court, Cebu City. Attached
herewith is the receipt of payment made by him for the month
of November, 1978 which is dated November 16, 1978.
You can check this up with the City Clerk of Court for
satisfaction.
Regards.
(SGD.) ERIC MENCHAVEZ Counsel for Regino Francisco, Jr.
377-B Junquera St., Cebu City
(new address)
Again, Exhibit 1 merely proves rental deposit for the particular
month of November, 1978 and no other. It is no proof of tender
of payment to the lessor, not even proof of notice to consign.
We hold that the best evidence of the rental deposits with the
Clerk of Court are the official receipts issued by the Clerk of
Court. These the respondent lessee utterly failed to present
and produce during the trial of the case. As pointed out in
petitioner's Memorandum, no single official receipt was
presented in the trial court as nowhere in the formal offer of
exhibits for lessee Francisco can a single official receipt of any
deposit made be found (pp. 8-9, Memorandum for Petitioner;
pp. 163-164, Records).
Summing up Our review of the above four (4) exhibits, We hold
that the respondent lessee has utterly failed to prove the
following requisites of a valid consignation: First, tender of
payment of the monthly rentals to the lessor except that
indicated in the June 9, l977 Letter, Exhibit 10. In the original
records of the case, We note that the certification, Exhibit 11 of
Filemon Soon, messenger of the FAR Corporation, certifying
that the letter of Soledad Soco sent last May 10 by Commercial
Bank and Trust Co. was marked RTS (return to sender) for the
reason that the addressee refused to receive it, was rejected by
the court for being immaterial, irrelevant and impertinent per
its Order dated November 20, 1980. (See p. 117, CFI Records).
Second, respondent lessee also failed to prove the first notice
to the lessor prior to consignation, except the payment referred
to in Exhibit 10.
In this connection, the purpose of the notice is in order to give
the creditor an opportunity to reconsider his unjustified refusal
and to accept payment thereby avoiding consignation and the
subsequent litigation. This previous notice is essential to the
validity of the consignation and its lack invalidates the same.
(Cabanos vs. Calo, 104 Phil. 1058; Limkako vs. Teodoro, 74 Phil.
313).
There is no factual basis for the lower court's finding that the
lessee had tendered payment of the monthly rentals, thru his
bank, citing the lessee's letter (Exh. 4) requesting the bank to
issue checks in favor of Soco in the amount of P840.00 every
10th of each month and to deduct the full amount and service
fee from his current account, as well as Exhibit 5, letter of the
Vice President agreeing with the request. But scrutinizing
carefully Exhibit 4, this is what the lessee also wrote: "Please
immediately notify us everytime you have the check ready so
we may send somebody over to get it. " And this is exactly what
the bank agreed: "Please be advised that we are in conformity
to the above arrangement with the understanding that you
shall send somebody over to pick up the cashier's check from
us." (Exhibit 4, see p. 230, Original Records; Exhibit 5, p. 231,
Original Records)
Evidently, from this arrangement, it was the lessee's duty to
send someone to get the cashier's check from the bank and
logically, the lessee has the obligation to make and tender the
check to the lessor. This the lessee failed to do, which is fatal to
his defense.
Third, respondent lessee likewise failed to prove the second
notice, that is after consignation has been made, to the lessor
except the consignation referred to in Exhibit 12 which are the
cashier's check Nos. 478439 and 47907 CBTC dated May 11,
1977 and June 15, 1977 under Official Receipt No. 04369 dated
July 6, 1977.
Respondent lessee, attempting to prove compliance with the
requisites of valid consignation, presented the representative
of the Commercial Bank and Trust Co., Edgar Ocañada, Bank
Comptroller, who unfortunately belied respondent's claim. We
quote below excerpts from his testimony, as follows:
ATTY. LUIS DIORES:
Q What month did you say you made ,you started making the
deposit? When you first deposited the check to the Clerk of
Court?
A The payment of cashier's check in favor of Miss Soledad Soco
was coursed thru the City Clerk of Court from the letter of
request by our client Regino Francisco, Jr., dated September 8,
1977. From that time on, based on his request, we delivered
the check direct to the City Clerk of Court.
Q What date, what month was that, you first delivered the
check to the Clerk of Court.?
A We started September 12, 1977.
Q September 1977 up to the present time, you delivered the
cashier's check to the City Clerk of Court?
A Yes.
Q You were issued the receipts of those checks?
A Well, we have an acknowledgment letter to be signed by the
one who received the check.
Q You mean you were issued, or you were not issued any official
receipt? My question is whether you were issued any official
receipt? So, were you issued, or you were not issued?
A We were not issued.
Q On September, 1977, after you deposited the manager's
check for that month with the Clerk of Court, did you serve
notice upon Soledad Soco that the deposit was made on such
amount for the month of September, 1977 and now to the Clerk
of Court? Did you or did you not?
A Well, we only act on something upon the request of our
client.
Q Please answer my question. I know that you are acting upon
instruction of your client. My question was-after you made the
deposit of the manager's check whether or not you notified
Soledad Soco that such manager's check was deposited in the
Clerk of Court from the month of September, 1977?
A We are not bound to.
Q I am not asking whether you are bound to or not. I'masking
whether you did or you did not?
A I did not.
Q Alright, for October, 1977, after having made a deposit for
that particular month, did you notify Miss Soledad Soco that the
deposit was in the Clerk of Court?
A No, we did not.
Q Now, on November, 1977, did you notify Soledad Soco that
you deposited the manager's check to the City Clerk of Court
for that month?
A I did not.
Q You did not also notify Soledad Soco for the month
December, 1977, so also from January, February, March, April,
May, June, July until December, 1978, you did not also notify
Miss Soledad Soco all the deposits of the manager's check
which you said you deposited with the Clerk of Court in every
end of the month? So also from each and every month from
January 1979 up to December 1979, you did not also serve
notice upon Soledad Socco of the deposit in the Clerk of Court,
is that correct?
A Yes.
Q So also in January 1980 up to this month 1980, you did not
instructed by your client Mr. and Mrs. Regino Francisco, jr. to
make also serve notice upon Soledad Soco of the Manager's
check which you said you deposited to the Clerk of Court?
A I did not.
Q Now, you did not make such notices because you were not
such notices after the deposits you made, is that correct?
A Yes, sir.
Q Now, from 1977, September up to the present time, before
the deposit was made with the Clerk of Court, did you serve
notice to Soledad Soco that a deposit was going to be made in
each and every month?
A Not.
Q In other words, from September 1977 up to the present time,
you did not notify Soledad Soco that you were going to make
the deposit with the Clerk of Court, and you did not also notify
Soledad Soco after the deposit was made, that a deposit has
been made in each and every month during that period, is that
correct?
A Yes
Q And the reason was because you were not instructed by Mr.
and Mrs. Regino Francisco, Jr. that such notification should be
made before the deposit and after the deposit was made, is
that correct?
A No, I did not. (Testimony of Ocanada pp. 32-41, Hearing on
June 3, 1980).
Recapitulating the above testimony of the Bank Comptroller, it
is clear that the bank did not send notice to Soco that the
checks will be deposited in consignation with the Clerk of Court
(the first notice) and also, the bank did not send notice to Soco
that the checks were in fact deposited (the second notice)
because no instructions were given by its depositor, the lessee,
to this effect, and this lack of notices started from September,
1977 to the time of the trial, that is June 3, 1980.
The reason for the notification to the persons interested in the
fulfillment of the obligation after consignation had been made,
which is separate and distinct from the notification which is
made prior to the consignation, is stated in Cabanos vs. Calo,
G.R. No. L-10927, October 30, 1958, 104 Phil. 1058. thus:
"There should be notice to the creditor prior and after
consignation as required by the Civil Code. The reason for this
is obvious, namely, to enable the creditor to withdraw the
goods or money deposited. Indeed, it would be unjust to make
him suffer the risk for any deterioration, depreciation or loss of
such goods or money by reason of lack of knowledge of the
consignation."
And the fourth requisite that respondent lessee failed to prove
is the actual deposit or consignation of the monthly rentals
except the two cashier's checks referred to in Exhibit 12. As
indicated earlier, not a single copy of the official receipts issued
by the Clerk of Court was presented at the trial of the case to
prove the actual deposit or consignation. We find, however,
reference to some 45 copies of official receipts issued by the
Clerk of Court marked Annexes "B-1 " to "B-40" to the Motion
for Reconsideration of the Order granting execution pending
appeal filed by defendant Francisco in the City Court of Cebu
(pp, 150-194, CFI Original Records) as well as in the Motion for
Reconsideration of the CFI decision, filed by plaintiff lessor (pp.
39-50, Records, marked Annex "E ") the allegation that "there
was no receipt at all showing that defendant Francisco has
deposited with the Clerk of Court the monthly rentals
corresponding to the months of May and June, 1977. And for
the months of July and August, 1977, the rentals were only
deposited with the Clerk of Court on 20 November 1979 (or
more than two years later)."... The deposits of these monthly
rentals for July and August, 1977 on 20 November 1979, is very
significant because on 24 October 1979, plaintiff Soco had
testified before the trial court that defendant had not paid the
monthly rentals for these months. Thus, defendant had to
make a hurried deposit on the following month to repair his
failure. " (pp. 43-44, Records).
We have verified the truth of the above claim or allegation and
We find that indeed, under Official Receipt No. 1697161Z, the
rental deposit for August, 1977 in cashier's check No. 502782
dated 8-10-77 was deposited on November 20, 1979 (Annex "B-
15", p. 169, Original CFI Records) and under Official Receipt No.
1697159Z, the rental deposit for July under Check No. 479647
was deposited on November 20, 1979 (Annex "B-16", p. 170,
Original CFI Records). Indeed, these two rental deposits were
made on November 20, 1979, two years late and after the filing
of the complaint for illegal detainer.
The decision under review cites Exhibits 6, 7, 8 and 9, the Debit
Memorandum issued by Comtrust Bank deducting the amounts
of the checks therein indicated from the account of the lessee,
to prove payment of the monthly rentals. But these Debit
Memorandums are merely internal banking practices or office
procedures involving the bank and its depositor which is not
binding upon a third person such as the lessor. What is
important is whether the checks were picked up by the lessee
as per the arrangement indicated in Exhibits 4 and 5 wherein
the lessee had to pick up the checks issued by CBTC or to send
somebody to pick them up, and logically, for the lessee to
tender the same to the lessor. On this vital point, the lessee
miserably failed to present any proof that he complied with the
arrangement.
We, therefore, find and rule that the lessee has failed to prove
tender of payment except that in Exh. 10; he has failed to prove
the first notice to the lessor prior to consignation except that
given in Exh. 10; he has failed to prove the second notice after
consignation except the two made in Exh. 12; and he has failed
to pay the rentals for the months of July and August, 1977 as of
the time the complaint was filed for the eviction of the lessee.
We hold that the evidence is clear, competent and convincing
showing that the lessee has violated the terms of the lease
contract and he may, therefore, be judicially ejected.
The other matters raised in the appeal are of no moment. The
motion to dismiss filed by respondent on the ground of "want
of specific assignment of errors in the appellant's brief, or of
page references to the records as required in Section 16(d) of
Rule 46," is without merit. The petition itself has attached the
decision sought to be reviewed. Both Petition and
Memorandum of the petitioner contain the summary
statement of facts; they discuss the essential requisites of a error allegedly committed by the trial court accomplishes the
valid consignation; the erroneous conclusion of the respondent purpose of a particular assignment of error." (Cabrera vs. Belen,
Judge in reversing the decision of the City Court, his grave abuse 95 Phil. 54; Miguel vs Court of Appeals, L- 20274, Oct. 30, 1969,
of discretion which, the petitioner argues, "has so far departed 29 SCRA 760-773, cited in Moran, Comments on the Rules of
from the accepted and usual course of judicial proceeding in Court, Vol. 11, 1970 ed., p. 534).
the matter of applying the law and jurisprudence on the Pleadings as well as remedial laws should be construed liberally
matter." The Memorandum further cites other basis for in order that the litigants may have ample opportunity to prove
petitioner's plea. their respective claims, and that a possible denial of substantial
In Our mind, the errors in the appealed decision are sufficiently justice, due to legal technicalities, may be avoided."
stated and assigned. Moreover, under Our rulings, We have (Concepcion, et al. vs. The Payatas Estate Improvement Co.,
stated that: Inc., 103 Phil. 10 17).
This Court is clothed with ample authority to review matters, WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of
even if they are not assigned as errors in the appeal, if it finds the Court of First Instance of Cebu, 14th Judicial District, Branch
that their consideration is necessary in arriving at a just decision XII is hereby REVERSED and SET ASIDE, and the derision of the
of the case. Also, an unassigned error closely related to an error City Court of Cebu, Branch II is hereby reinstated, with costs in
properly assigned or upon which the determination of the favor of the petitioner.
questioned raised by the error properly assigned is dependent, SO ORDERED.
will be considered by the appellate court notwithstanding the
failure to assign it as an error." (Ortigas, Jr. vs. Lufthansa
German Airlines, L-28773, June 30, 1975, 64 SCRA 610)
Under Section 5 of Rule 53, the appellate court is authorized to
consider a plain error, although it was not specifically assigned
by appellants." (Dilag vs. Heirs of Resurreccion, 76 Phil. 649)
Appellants need not make specific assignment of errors
provided they discuss at length and assail in their brief the
correctness of the trial court's findings regarding the matter.
Said discussion warrants the appellate court to rule upon the
point because it substantially complies with Section 7, Rule 51
of the Revised Rules of Court, intended merely to compel the
appellant to specify the questions which he wants to raise and
be disposed of in his appeal. A clear discussion regarding an
G.R. No. L-23563 May 8, 1969
CRISTINA SOTTO, plaintiff-appellee,
vs.
HERNANI MIJARES, ET AL., defendants-appellants.
Arboleda and Arboleda for plaintiff-appellee.
Eugenio T. Sanicas for defendants-appellants.
MAKALINTAL, J.:
This is an appeal taken by herein defendants from that portion
of the order of the Court of First Instance of Negros Occidental
dated March 20, 1963 in its Civil Case No. 6796 which requires
them to deposit with the Clerk of Court the amount of
P5,106.00 within ten (10) days from receipt of said order.
Originally appealed to the Court of Appeals, this case was
subsequently certified to this Court, the only issue being one of
law.
In the aforesaid Civil case 1 plaintiff filed a "Motion for Deposit"
on November 13, 1962, the pertinent portions of which read:
2. That in accordance with the contract including the allied
transactions as evidenced by other documents, the balance
indebtedness of the defendants in favor of the plaintiff is the
amount of P5,106.00 only, Philippine Currency ...;
3. That according to the answer of the defendants, the said
claim of P5,106.00 is admitted ..., with the defendants further
alleging that they have offered the said amount to the plaintiff
who refused to receive the said amount;
4. That in view of the admission of the defendants of the same
and in order to limit the other controversial issue ... it is fitting
and proper that the said amount of P5,106.00 be deposited in
the Office of the Clerk of Court of this province or to deliver the
same to the plaintiff and/or her counsel.
Defendants, in their "Opposition" dated November 23, 1962,
signified their willingness to deposit the requested amount
provided that the complaint be dismissed and that they be
absolved of all other liabilities, expenses and costs.
On November 26, 1962 the lower court issued the following
order:
It appearing that the defendants have admitted the claim of the
plaintiff in the sum of P5,106.00, as prayed for by the counsel
for the plaintiff the said defendants are hereby ordered to
deposit said amount to the Clerk of Court pending the final
termination of this case.
On November 28, 1962 plaintiff — this time represented by
new counsel — filed a motion for partial judgment on the
pleadings with respect to the amount of P5,106.00, modifying
their previous request for judicial deposit, which had already
been granted. On the other hand, defendants moved to
reconsider the order of November 26, explaining that through
oversight they failed to allege in their "Opposition" that the
sum of P5,106.00 was actually secured by a real estate
mortgage. They would thus premise their willingness to deposit
said amount upon the condition "... that the plaintiff will cancel
the mortgage abovementioned and that the plaintiff be
ordered to return to the defendants Transfer Certificate of Title
No. 29326 covering Lot No. 327 of Pontevedra and Transfer
Certificate of Title No. 29327 covering Lot No. 882 of Hinigaran
Cadastre, Negros Occidental."
On March 20, 1963 the lower court resolved both motions, in
effect denying them and reiterating its previous order, as
follows:
WHEREFORE, the motion for partial judgment on the pleadings
dated November 28, 1962 is hereby denied but in its stead the
defendants are hereby ordered to deposit with the Clerk of
Court the amount of P5,106.00 within ten (10) days from
receipt of this order subject to further disposition thereof in
accordance with the decision to be rendered after trial.
It is the foregoing order from which the present appeal has
been taken. Since this case was submitted upon the filing of the
briefs, there has been no showing as to the outcome of the
main case below for foreclosure of mortgage. The decision
therein, if one has been rendered, since no injunction was
sought in or granted by this Court, must have rendered this
appeal moot and academic, considering that the defendants
admit their indebtedness to the plaintiff but object merely to
their being compelled to deposit the amount thereof in court
during the pendency of the foreclosure case. However, no
manifestation having been received on the matter, we shall
proceed to the issues raised by the parties.lawphi1.ñet
The first of said issue is procedural, and has been set up by the
appellee as a roadblock to this appeal. She maintains that the
controverted order is interlocutory, since it does not dispose of
the case with finality but leaves something still to be done, and
hence is unappealable. The remedy, it is pointed out, should
have been by petition for certiorari. The point, strictly speaking,
is well taken; but this Court sees fit to disregard technicalities
and treat this appeal as such a petition and consider it on the
merits, limiting the issue, necessarily, to whether or not the
court below exceeded its jurisdiction or committed a grave
abuse of discretion in issuing the order complained of.
The defendants admit their indebtedness to the plaintiff, but
only in the sum of P5,106.00. It seems that the controversy
refers to the plaintiff's additional claim for interest, attorney's
fees and costs.
The defendants expressed their willingness to deposit the said
amount in court, subject to the condition that the mortgage
they had executed as security be cancelled. The question, then,
is: Did the court act with authority and in the judicious exercise
of its discretion in ordering the defendants to make the deposit
but without the condition they had stated? Whether or not to
deposit at all the amount of an admitted indebtedness, or to do
so under certain conditions, is a right which belongs to the
debtor exclusively. If he refuses he may not be compelled to do
so, and the creditor must fall back on the proper coercive
processes provided by law to secure or satisfy his credit, as by
attachment, judgment and execution. From the viewpoint of
the debtor a deposit such as the one involved here is in the
nature of consignation, and consignation is a facultative
remedy which he may or may not avail himself of. If made by
the debtor, the creditor merely accepts it, if he wishes; or the
court declares that it has been properly made, in either of
which events the obligation is ordered cancelled. Indeed, the
law says that "before the creditor has accepted the
consignation or before a judicial declaration that the
consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the
obligation to remain in force." 2 If the debtor has such right of
withdrawal, he surely has the right to refuse to make the
deposit in the first place. For the court to compel him to do so
was a grave abuse of discretion amounting to excess of
jurisdiction.
The order appealed from is set aside, without pronouncement
as to costs.
G.R. No. 109020 March 3, 1994
FELISA CHAN, petitioner,
vs.
HON. COURT OF APPEALS, and GRACE CU, respondents.
Arthur D. Lim Law Office for petitioner.
Nicolas V. Benedicto, Jr. for private respondent.
DAVIDE, JR., J.:
This is a petition for review on certiorari of the decision of the
Court of Appeals in CA-G.R. SP No. 288701 which reversed and
set aside the decision of the Regional Trial Court (RTC) of Manila
in Civil Case No. 91-55879.2 The RTC had affirmed the decision
of the Metropolitan Trial Court (MTC) of Manila in civil Case No.
131203-CV.3
The antecedent facts are set forth in the challenged decision of
the public respondent Court of Appeals as follows:
It appears from the records that on February 1, 1983, Felisa
Chan and Grace Cu entered into a contract of lease whereby
the latter will occupy for residential purposes Room 401 and
the roof top of Room 442 of a building owned by the former
located at Elcano corner Urbistondo, Manila. The term of the
lease is one year or up to February 1, 1984 at a monthly rental
of P2,400.00. Said contract of lease was renewed every year for
two successive years or up to February 1, 1986. In the contracts,
it was agreed that the premises shall be used as a learning
center. After February 1, 1986, there was no written contract
of lease executed by the parties, but Grace has continuously
occupied the premises as a learning center.
The monthly rental was raised every year. In January, 1989, it
was increased to P3,484.80.
Sometime in November, 1989, Felisa padlock the way to the
roof top. Thereafter, there was an exchange of communications
between the parties. Grace insisted that she should be allowed
to use the roof top of Room 442, while Felisa maintained that
only Room 401 was leased and that the use of the roof top
which, according to her poses danger to the students, was
merely tolerated. Eventually, Felisa terminated the lease, giving
Grace until January 1, 1990 to vacate the premises.
Because of the dispute between the parties, Felisa did not
collect the rental for December, 1989. Whereupon, Grace
tendered to Felisa a check amounting to P3,310.56. The latter
refused to accept the check. So Grace's lawyer tendered the
payment in cash in the same amount of P3,310.56, with notice
to Felisa that if she will not accept the payment, the same will
be deposited in court by way of consignation. At this juncture,
Felisa allowed Grace to hold classes only up the March, 1990.
On January 15, 1990, Grace filed Civil Case No. 131203 for
consignation with the Metropolitan Trial Court of Manila,
Branch 15, alleging in her complaint that Felisa refused to
accept, without justifiable cause, the rentals for the premises in
question. Felisa interposed in her answer a counterclaim for
ejectment, contending that the lease, being month to month,
had expired but that despite demand, Grace refused to vacate
the premises. 4
On 18 December 1990, the MTC rendered its decision, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as follows:
1. The court declares that the roof top of the building at 442
Elcano corner Urbistondo Street, Manila is included in the
lease;
2. The court fixes the term of the lease over the subject
premises until June 30, 1992 upon the expiration of which,
petitioner [Grace Cu] is ordered to vacate the said premises;
3. The court declares the consignation of rentals made by the
petitioner to be valid and legal and hereby release[s] the
petitioner from the obligation of paying the said rentals;
4. All the respective claims of the parties against each other for
damages and attorney's fees are hereby dismissed.
SO ORDERED.5
Both parties appealed to the RTC of Manila. Grace Cu
maintained that the MTC should have fixed a longer period,
while Felisa Chan contended that the MTC erred in extending
the term of the lease and in upholding the validity of the
consignation. In its Decision of 27 March 1992, the RTC affirmed
the decision of the MTC.
Cu then went to the Court of Appeals on a petition for
review6 alleging therein that the RTC erred "in not fixing a
longer period of extension of the lease" and "in extending the
duration of the lease to 30 June 1992 but subverting its factual
findings in justification of the extension as it concluded that the
period was intended by the parties for a longer duration." In its
challenged Decision of 20 January 1993, the Court of Appeals
reversed and set aside the decisions of the MTC and the RTC
and dismissed the complaint for consignation for lack of merit.
It likewise said that the MTC and the RTC erred in passing upon
the issue of ejectment raised in Chan's counterclaim since an
action for ejectment can only be initiated through a verified
complaint, not a counterclaim.
In dismissing the complaint for consignation, the Court of
Appeals ruled that under Article 1256 of the Civil Code,
consignation may only be resorted to by a debtor if the creditor
to whom tender of payment has been made refuses without
just cause to accept it. The court of Appeals held that Chan's
refusal to accept the rental was justified. It said:
Thus, the respondent [Chan] allowed the petitioner [Cu] to hold
classes in the premises only until March, 1981.7 Obviously, from
respondent landlord's point of view, beyond March, 1989,8 (1)
the petitioner may no longer be considered as lessee or debtor
who may relieve herself of liability by tendering payment of the
rentals and if refused, by consigning them in court; and that (2)
the petitioner is a squatter or trespasser who has occupied the
premises not only without any agreement with the respondent
but against her will. So, as far as the respondent is concerned,
this consignation may not come under the provisions of Article
1256 of the Civil Code cited above. Simply put, respondent's
refusal to accept petitioner['s] rental payments was with just
cause and that, therefore, the respondent may not be
compelled to accept such rental payments. 9
On the issue of ejectment, the Court of Appeals made the
following observations:
Now, for a digression, We cannot see our way clear why the
MTC and the RTC passed upon the issue of ejectment raised in
respondent's counterclaim and fixed the term of the lease up
to June 10, 1992. Under Section 1, Rule 70 of the Revised Rules
of Court, an action for ejectment can only be initiated through
a verified complaint, not counterclaim. This is basic. Thus, the
said courts should not have fixed the terms of the lease. This
issue can only be decided in a case of ejectment filed pursuant
to the said rule. The supreme Court, in Ching Pue
vs. Gonzales [87 Phil. 81] held:
Consignation in court under article 1176 of the Civil Code, is not
the proper proceedings to determine the relation between
landlord and tenant, the period or life of the lease or tenancy,
the reasonableness of the rental, the right of the tenant to keep
the premises against the will of landlord, etc. These questions
should be decided in a case of ejectment or detainer like those
two cases brought by Gonzales against two of the petitioners
under the provisions of Rule 72 of the Rules of Court. In a case
of ejectment, the landlord claims either that the lease has
ended or been terminated or that the lessee has forfeited his
right as such because of his failure to pay the rents as agreed
upon or because he failed or refused to pay the new rentals
fixed and demanded by the lessor. The lessee in his turn may
put up the defense that according to law, the rental demanded
of him is unreasonable, exorbitant and illegal, or that the period
of the lease has not yet expired, or that if the rental law is
applicable, and that the premises are destined solely for
dwelling, he may not be ousted therefrom because the owner
does not need them for his own use, etc. We repeat that all
these questions should be submitted and decided in a case of
ejectment and cannot be decided in a case of consignation.10
Chan's motion to reconsider the decision 11 having been denied
by the Court of Appeals in its Resolution of 23 February
1993, 12 she filed the instant petition wherein she alleges that:
1. THE HONORABLE COURT OF APPEALS HAS DECIDED THE
CASE IN A WAY PROBABLY NOT IN ACCORD WITH THE LAW OR
APPLICABLE JURISPRUDENCE OF THE SUPREME COURT
(SECTION 4 (A), RULE 45 OF THE RULES OF COURT);
2. THE HONORABLE COURT OF APPEALS, WITH UTMOST
RESPECT, COMMITTED AN ERROR:
(A) IN HOLDING THAT THE COUNTERCLAIM FOR UNLAWFUL
DETAINER WAS IMPROPERLY INCLUDED IN THE COMPLAINT
FOR CONSIGNATION;
(B) IN RELYING ON THE CASE OF CHING PUE VS. GONZALES (87
PHIL. 81) AS BASIS FOR NOT ACTING UPON THE
COUNTERCLAIM FOR UNLAWFUL DETAINER AND IN IMPLIEDLY
DISMISSING THE SAME;
(C) IN RENDERING A DECISION WHICH PROMOTES, INSTEAD OF
AVOID, A MULTIPLICITY OF SUITS;
(D) IN RENDERING A DECISION WHICH GAVE THE PRIVATE
RESPONDENT UNWARRANTED BENEFITS BECAUSE SHE IS
PRACTICALLY ALLOWED TO CONTINUE OCCUPYING
PETITIONER'S PREMISES WHILE PETITIONER, WHOSE RIGHTS
OVER THE PREMISES WERE UPHELD, IS FORCED TO LITIGATE
ANEW AND/OR TO RE-COMMENCE UNLAWFUL DETAINER
PROCEEDINGS. 13
Chan maintains that the Court of Appeals erred in giving due
course to Cu's petition for review and in deciding upon issues
which Cu never raised in her petition. Chan contends that the
Court of Appeals should have limited itself to the matter of the
extension of the lease period and not on the jurisdiction over
the action or subject matter of the suit which was never raised,
nor on the propriety of the counterclaim for ejectment.
Chan submits that while it is true that her cause of action for
unlawful detainer was incorporated in her answer to the
complaint for consignation, the Rules of Court do not prohibit
such procedure, and in her case the MTC has exclusive original
jurisdiction on the counterclaim for ejectment. The summary
disposition of the complaint for consignation as determined by
the trial court was not affected by the filing of the counterclaim
since it is a counterclaim allowed under Section 1 of the Rule
on Summary Procedure as it did not involve any question of
ownership nor did it allege any claim in excess of P20,000.00.
She then concludes that what the Court of Appeals has
impliedly suggested was for her to file a separate complaint for
unlawful detainer, which would be laborious and would
encourage multiplicity of suits; hence, the counterclaim for
unlawful detainer should not have been dismissed.
Chan also contends that the case of Ching Pue vs. Gonzales 14 is
not applicable because in Ching Pue the consignation cases
were filed with the Court of First Instance of Manila which did
not have jurisdiction to pass upon the unlawful detainer cases
that were properly cognizable by the Municipal Court. In the
instant case, the consignation case was filed with the MTC
which also has jurisdiction over the counterclaim for ejectment.
The Court of Appeals should have ordered the ejectment of Cu
not only because it found that her refusal to accept the
payment was with just cause, thereby impliedly holding that Cu
has no right to stay in the premises in question, but also
because when it promulgated its decision on 20 January 1993,
the extended period (until 30 June 1992) fixed by the trial court
and the Regional Trial Court had already expired.
Chan further asserts that the Court of Appeals' decision gives
Cu undue and unwarranted benefits since Cu was granted much
more than what she prayed for in her complaint for
consignation and Chan's counterclaim was dismissed. A new
ejectment suit may last for years, even beyond March 1995
which is the expiration date originally prayed for by Cu, for the
duration of which Chan would be precluded from increasing the
rentals.
In her Comment, 15 Cu claims that the Court of Appeals decided
the case properly and in accord with applicable law and
jurisprudence. As to the dismissal of the counterclaim for
ejectment, Cu cites Metals Engineering Resources
Corp. vs. Court of Appeals 16 which holds that where there is no
claim against the counterclaimant, the counterclaim is
improper and should be dismissed, and that a compulsary
counterclaim is auxiliary to the proceeding in the original suit
and derives its jurisdictional support therefrom inasmuch as it
arises out of or is necessarily connected with the transaction or
occurrence that is the subject matter of the complaint. It
follows that if the court does not have jurisdiction to entertain
the main action of the case and dismisses the same, then the
compulsory counterclaim, being ancillary to the principal
controversy, must likewise be dismissed since no jurisdiction
remained for any grant of relief under the counterclaim.
In her Reply to the Comment, 17 Chan maintains that the Court
of Appeals should not have dismissed the counterclaim because
such dismissal would deny her justice and give undue
advantage to Cu. She set up the counterclaim for ejectment to
avoid the effects of Section 4, Rule 9 of the Rules of Court which
bars a counterclaim not set up and Section 2(A) of the Rules of
Summary Procedure which states that a compulsory
counterclaim "must be asserted in the answer, or be
considered barred." The Metals case is not applicable to this
case because the issue therein was lack of jurisdiction by reason
of non-payment of docket fees.
Cu filled a Rejoinder to the Reply. 18
After deliberating on the allegations, issues, and arguments
raised by the parties in their pleadings, we find merit in the
petition.
It must be stressed that the validity of the consignation and the
propriety of the counterclaim for ejectment were not raised
before the Court of Appeals. As to the first, both the MTC and
the RTC ruled that the consignation was valid. The MTC
specifically stated in its decision:
On the validity of the consignation, both parties agree that the
controlling case is Ponce de Leon vs. Syjuco Inc., 90 Phil. 311.
The court believes that under the undisputed facts earlier
narrated, petitioner has complied with all the requisites laid
down in the said case, namely; "The debtor must show (1) that
there was a debt due; (2) that 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 (Art 1176, Civil Code); (3)
that previous notice of the consignation had been given to the
person interested in the performance of the obligation (Art.
1177, Civil Code); (4) that the amount due was placed at the
disposal of the court and (5) that after the consignation had
been made the person interested was notified thereof. 19
The RTC explicitly affirmed the MTC on this issue, thus:
3. With respect to the validity of the consignation, the Court
affirms the finding of the trial court that indeed plaintiff
substantially complied with all the requirements of
consignation and, therefore, the same was valid and
effective. 20
Chan filed no petition for the review of the RTC decision and
had, therefore, accepted the said ruling. Cu did not, for obvious
reasons, raise the issue on consignation in her petition for
review in CA-G.R. SP No. 28870. Since the validity of the
consignation was not raised before it, the Court of Appeals
seriously erred when it dismissed the complaint for
consignation on the ground that it has no merit. Section 7, Rule
51 of the Revised Rules of Court provides:
Sec. 7. Question that may be decided. — No error which does
not effect the jurisdiction over the subject matter will be
considered unless stated in the assignment of errors and
properly argued in the brief, save as the court, at its option, may
notice plain errors not specified, and also clerical errors.
Jurisdiction is not involved in the consignation case, and no
plain errors with respect thereto are discernible from the MTC
and RTC decisions.
As to the counterclaim for ejectment, it must be emphasized
that the parties have conceded its propriety and accepted the
MTC's jurisdiction thereon. As a matter of fact, the consignation
was relegated to the background and the parties heatedly
tangled on the nagging issues on the duration of the lease after
the expiration of the last written contract, the power of the
court to extend the lease, and the length of the extension — all
of which were provoked by and linked to the counterclaim for
ejectment. In her Position Paper for the Plaintiff filed with the
MTC, 21 Cu admitted having filed an answer to the counterclaim
and even a counterclaim to the counterclaim:
In answer to the counterclaim, plaintiff [Cu] asserted that the
lease is not on a month-to-month basis but for as long as the
premises is being used as a learning center. She contends that
it will be highly iniquitous that after undergoing so much
expenses, her occupancy of the premises will be abruptly
terminated. . . . that on the basis of justice and equity, the
period of plaintiff's lease should be fixed for at least five years
from February
1990 . . .
As counterclaim to the counterclaim, plaintiff alleged . . . 22
and assigned as one of the errors to be resolved by the court
the following:
2. Whether or not the plaintiff may be ejected from the subject
premises. 23
A counterclaim is any claim for money or other relief which a
defending party may have against an opposing party. It need
not diminish or defeat the recovery sought by the opposing
party, but may claim relief exceeding in amount or different in
kind from that sought by the opposing party's
claim. 24 Counterclaims are designed to enable the disposition
of a whole controversy of interested parties' conflicting claims,
at one time and in one action, provided all the parties can be
brought before the court and the matter decided without
prejudicing the rights of any party. 25 A counterclaim "is in itself
a distinct and independent cause of action, so that when
properly stated as such, the defendant becomes, in respect to
the matter stated by him, an actor, and there are two
simultaneous actions pending between the same parties,
wherein each is at the same time both a plaintiff and a
defendant . . . A counterclaim stands on the same footing and
is to be tested by the same rules, as if it were an independent
action." 26 In short, the defendant is a plaintiff with respect to
his counterclaim.
Section 8, Rule 6 of the Rules of Court provides that the answer
may contain any counterclaim which a party may have against
the opposing party provided that the court has jurisdiction to
entertain the claim and can, if the presence of third parties is
essential for its adjudication, acquire jurisdiction of such
parties. Under Section 4 of Rule 9, a counterclaim not set up
shall be barred if it arises out of or is necessarily connected with
the transaction or occurrence that is the subject matter of the
opposing party's claim and does not require for its adjudication
the presence of third parties of whom the court cannot acquire
jurisdiction. A counterclaim may be compulsary or permissive.
The former is that covered by Section 4 of Rule 9.
Chan's counterclaim for ejectment is a compulsary
counterclaim because it is necessarily connected with the
transaction or occurrence which is the subject matter of Cu's
complaint, viz., the lease contract between them.
Consequently, the Court of Appeals erred when it held that
Chan's cause of action for ejectment should not be set up in a
counterclaim.
We agreed with Chan that Ching Pue vs. Gonzales is
inapplicable because in Ching Pue the consignation cases were
filed with the Court of First Instance which did not have
jurisdiction over ejectment cases; necessarily, no counterclaim
for ejectment could have been interposed therein. The ratio
decidendi of the said case is that consignation is not proper
where the refusal of the creditor to accept tender of payment
is with just cause. One will search therein in vain even for
an obiter dictum which suggests that an action for ejection
cannot be set up in a counterclaim. In the instant case, the
ejectment was set up as a counterclaim in the MTC which has
jurisdiction over it and Cu joined that issue and the incidents
thereto by her answer to the counterclaim and the
counterclaim to the counterclaim.
The Court of Appeals therefore should have confined itself to
the principal error raised in Cu's petition in CA-G.R. SP No.
28870, viz., the duration of the extended term of the lease fixed
in the decision of the MTC and affirmed by the RTC. As fixed,
the term of the lease was extended to 30 June 1992. That
period had expired six months before the Court of Appeals
promulgated its challenged decision. Considering that Chan did
not file any petition for the review of the RTC decision and was,
therefore, deemed to have agreed to the extension; and
considering further that Cu, as petitioner in CA-G.R. SP No.
28870 , did not come to us on a petition for review to seek determine a longer period after the lessee has been in
reversal of the decision therein and should thus be considered possession for over six months. In case of daily rent, the courts
to have agreed to the dismissal of her consignation case, the may also fix a longer period after the lessee has stayed in the
parties must be deemed bound by the extended term, which place for over one month.
has, nevertheless, already lapsed. Article 1687 grants the court the authority to fix the term of the
We hold that the MTC had the authority to extend the period lease depending on how the rentals are paid and on the length
of the lease. The parties started with a written contract of lease of the lessee's occupancy of the leased premises. In the light of
with a term for one year from 1 February 1983 to 1 February the special circumstances of this case, we find the extended
1984. This was renewed every year for two successive years, or term fixed by the MTC to be reasonable.
up to 1 February 1986. No written contract was made WHEREFORE, the instant petition is GRANTED and the
thereafter, but Cu was allowed to occupy the premises at a challenged Decision of 20 January 1993 of the Court of Appeals
monthly rental which was increased every year. In November in CA-G.R. SP No. 28870 is hereby SET ASIDE, and the Decisions
1989, Chan informed Cu of the termination of the lease and of 27 March 1992 of Branch 11 of the Regional Trial Court of
gave her until 1 January 1990 to vacate the premises. Articles Manila in Civil Case No. 91-55879, and of 18 December 1990 of
1670 and 1687 of the Civil Code thus came into play: Branch 15 of the Metropolitan Trial Court of Manila in Civil Case
Art. 1670. If at the end of the contract the lessee should No. 131203- CV are REINSTATED.
continue enjoying the thing leased for fifteen days with the Costs against the private respondent.
acquiescence of the lessor and unless a notice to the contrary SO ORDERED.
by either party has previously been given, it is understood that
there is an implied new lease, not for the period of the original
contract, but for the time established in Articles 1682 and 1687.
The other terms of the original contract shall be revived.
xxx xxx xxx
Art. 1687. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to
week, if the rent is weekly; and from day to day, if the rent is to
be paid daily. However, even though a monthly rent is paid, and
no period for the lease has been set, the courts may fix a longer
term for the lease after the lessee has occupied the premises
for over one year. If the rent is weekly, the courts may likewise
[G.R. No. 103068. June 22, 2001]
MEAT PACKING CORPORATION OF THE
PHILIPPINES, petitioner, vs. THE HONORABLE
SANDIGANBAYAN, THE PRESIDENTIAL COMMISSION ON
GOOD GOVERNMENT and PHILIPPINE INTEGRATED MEAT
CORPORATION, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for certiorari, mandamus and prohibition,
assailing the Resolutions of the Sandiganbayan in Civil Case No.
0024, dated July 2, 1991 and November 29, 1991, directing
petitioner to accept the tender of payment of rentals by the
Presidential Commission on Good Government (hereinafter,
PCGG).
Petitioner Meat Packing Corporation of the Philippines
(hereinafter, MPCP), is a corporation wholly owned by the
Government Service Insurance System (GSIS). It is the owner of
three (3) parcels of land situated in Barrio Ugong, Pasig City, as
well as the meat processing and packing plant thereon. On
November 3, 1975, MPCP and the Philippine Integrated Meat
Corporation (hereinafter, PIMECO) entered into an
Agreement[1]whereby MPCP leased to PIMECO, under a lease-
purchase arrangement, its aforesaid property at an annual
rental rate of P1,375,563.92, payable over a period of twenty-
eight years commencing on the date of execution of the
Agreement, or for a total consideration of P38,515,789.87. The
Agreement contained rescission clauses, to wit:
5. If for any reason whatsoever the LESSEE-VENDEE should fail
or default in the payment of rentals equivalent to the
cumulative sum total of three (3) annual installments, this
Agreement shall be deemed automatically cancelled and
forfeited without need of judicial intervention, and LESSOR-
VENDOR shall have the complete and absolute power,
authority, and discretion, and without reservation by the
LESSEE-VENDEE, to dispose of, sell, transfer, convey, lease,
assign, or encumber the project to any person or persons,
natural or juridical, in the same manner as if this lease-purchase
arrangement was never entered into. In the event of such
cancellation or forfeiture, the LESSEE-VENDEE unconditionally
agrees that all forms of money paid or due from the LESSEE-
VENDEE shall be considered as rentals for the use and
occupancy of the project, and the LESSEE-VENDEE hereby
waives and forfeits all rights to ask for and demand the return
or reimbursement thereof.[2]
xxx xxx xxx.
16. Violation of any of the terms and conditions of this
Agreement shall be sufficient ground for the LESSOR-VENDOR
to rescind and/or consider null and void this Agreement
without need of judicial intervention by giving the LESSEE-
VENDEE one hundred eighty (180) days written notice to that
effect, which shall be final and binding on the LESSEE-VENDEE,
and the LESSEE-VENDEE shall thereupon leave and vacate the
project, provided that if LESSEE-VENDEE has subleased portions
of the project, LESSEE-VENDEE shall relinquish all its rights
and/or interests over the sublease contracts in favor of the
LESSOR-VENDOR.LESSEE-VENDEE shall leave all improvements,
whether finished or unfinished, in good and serviceable
condition immediately after the corresponding notice in writing
has been received by the LESSEE-VENDEE, and all said
improvements shall automatically belong to and become the
property of the LESSOR-VENDOR without liability or obligation
on the part of the LESSOR-VENDOR to pay for the value
thereof. LESSEE-VENDEE further holds the LESSOR-VENDOR
free and harmless from any and all liabilities arising from and/or
connected with such sublease contracts.[3]
Subsequently, on November 3, 1975, MPCP and PIMECO
entered into a Supplementary and Loan
[4]
Agreement, whereby, in consideration of the additional
expenditures incurred by MPCP for rehabilitating and
refurbishing the meat processing and packing plant, the total
contract price of the lease-purchase agreement was increased
to P93,695,552.59, payable over a period of twenty-eight years
commencing on January 1, 1981, at the annual rental rate of
P3,346,269.70.
On March 17, 1986, the PCGG, in a letter signed by then
Commissioner Ramon A. Diaz, sequestered all the assets,
properties and records of PIMECO.[5] The sequestration
included the meat packing plant and the lease-purchase
agreement.
MPCP wrote a letter on November 17, 1986 to PIMECO,[6] giving
notice of the rescission of the lease-purchase agreement on the
ground, among others, of non-payment of rentals of more than
P2,000,000.00 for the year 1986.
GSIS asked the PCGG to exclude the meat packing plant from
the sequestered assets of PIMECO, inasmuch as the same is
owned by MPCP. However, PCGG denied the request. Likewise,
MPCP sought the turnover to it of the meat packing plant on
the ground that the lease-purchase agreement had already
been rescinded. Acceding to this, PCGG passed on January 24,
1989 a resolution stating thus:
WHEREAS, the Presidential Commission on Good Government
at its session en banc on September 20, 1988 ordered the
transfer of subject property, consisting of a meat packing
complex including the land located at Barrio Ugong, Pasig,
Metro Manila, to the GSIS under the condition then that the
PCGG management team might continue its operations for the
purpose of completing the outstanding orders up to December
1988;
WHEREAS, the Government Service Insurance System has
shown, to the satisfaction of the Commission, that it owns the
said plant complex; that it has the legal and equitable right to
regain possession and control thereof; that whatever claim
PIMECO had to the complex under its so-called agreement to
lease/purchase with GSIS/MPCP has been validly rescinded by
the GSIS; and that the projected turn-over to the GSIS will not
adversely affect the ill-gotten wealth case pending against
crony Peter Sabido before the Sandiganbayan;
WHEREFORE, the turn-over to the GSIS of the said property
should be done forthwith upon compliance with these
conditions, to be implemented by the Operations and Legal
Departments: (a) joint PCGG-COA audit; (b) approval by the
Sandiganbayan; and (c) execution of a Memorandum of
Agreement to contain these stipulations, among others: (a)
that the shares of Peter Sabido in PIMECO are subject to the
Sandiganbayan case; (b) that any disposition or transfer by the
GSIS of said property or any part thereof shall be with the
conformity of the PCGG; and (c) that this Memorandum be
annotated on the title of the property.[7]
Meanwhile, PCGG instituted with the Sandiganbayan on July
29, 1987 a complaint for reconveyance, reversion, accounting,
restitution and damages, docketed as Civil Case No. 0024,
entitled, Republic of the Philippines, Plaintiff versus Peter
Sabido, et al., Defendants.[8] The complaint alleged, in pertinent
part, that Peter Sabido obtained, under favored and very liberal
terms, huge loans from the GSIS in favor of PIMECO, among
other corporations, which was beneficially held and controlled
by defendants Peter Sabido, Roberto S. Benedicto and Luis D.
Yulo; and that PIMECO was granted the monopoly to supply
meat products in the Greater Manila Area.
Defendant Peter Sabido filed his answer,[9] alleging that the
acts, deeds, transactions and contracts referred to in the
complaint were negotiated and/or executed by his father, the
late Roberto M. Sabido, and not by him; and that, far from
being illegal, the acts performed or committed by the late
Roberto M. Sabido as a corporate officer of PIMECO were done
in good faith, to the best of his ability and in accordance with
law, and whatever income he received as an officer of PIMECO
and whatever assets or properties he acquired during his
lifetime were the fruits of his dedication to his profession, hard
work, and honest labor.
On April 28, 1989, defendant Sabido filed with the
Sandiganbayan an Urgent Manifestation and Motion,[10] to the
effect that he has come across newspaper reports stating that
PCGG intends to turn over the management, control and
possession of PIMECO to the GSIS and MPCP. Sabido also
learned from a reliable source that the PCGG has passed a
resolution to implement the said turnover. Hence, Sabido
argued that inasmuch as PIMECO was a sequestered asset, the
projected turnover must be approved by the
Sandiganbayan. He prayed that PCGG be required to admit or
deny these matters.
The Sandiganbayan, in a Resolution dated May 4,
1989,[11] ordered the PCGG to submit its comment as to the
veracity of the alleged turnover of the management, control
and possession of PIMECO to the GSIS or MPCP, and if true, to
furnish movant Sabido a copy of the PCGG resolution approving
the same.
Meanwhile, on May 20, 1989, Sabido filed an Urgent
Manifestation and Motion,[12] alleging that, according to
newspaper accounts, PCGG had in fact already turned over the
management and operation of PIMECO to the
GSIS/MPCP. Thus, he prayed that the transfer of the
management, control and possession of PIMECO to GSIS be
declared null and void ab initio for having been done without
the approval of the Sandiganbayan.
Sometime thereafter, the Sandiganbayan received a
letter[13] from members of the PIMECO Labor Union, praying for
the maintenance of the status quo to enable PIMECO to
continue its business operations and to ensure their continuity
of work and security of tenure. Thus, on June 2, 1989, the
Sandiganbayan issued a Resolution, the dispositive portion of
which reads:
WHEREFORE, in the interest of justice, and conformably with
this Courts adherence to the rule of law, to the end that undue
prejudice and/or injury may be avoided to any and all parties
affected by these proceedings, especially the avoidance of any
cessation in the operations of PIMECO, a temporary restraining
order is hereby issued commanding the Presidential
Commission on Good Government, their officers, agents,
representatives, monitors or persons acting in their behalf or
stead, to cease and desist from enforcing the contemplated
turnover of the management, control and possession of
PIMECO to the Meat Packing Corporation of the Philippines
until further orders. In view of the serious issues involved, let
the instant incident be re-scheduled for hearing and
consideration on June 6, 1989, at 2:30 oclock p.m.
SO ORDERED.[14]
On June 22, 1989, Sabido filed with the Sandiganbayan a
Motion for the Issuance of a Writ of Preliminary Injunction,
alleging that the PCGG, in an Order dated May 11, 1989, had
ordered that the status quo as regards the management and
operations of PIMECO be maintained pending submission of
inventory and financial audit. However, at the hearings of this
incident, it was sufficiently shown that the transfer of PIMECO
to MPCP will result in the dissipation of assets which will cause
irreparable injury to Sabidos rights and interests in the
company in the event that the Sandiganbayan shall ultimately
rule that the same was not ill-gotten.
The Sandiganbayan, finding that the PCGG committed grave
abuse of authority, power and discretion in unilaterally
terminating the lease-purchase agreement of PIMECO with
MPCP and in turning over its management, control and
operation to the latter, ordered the issuance of a writ of
preliminary injunction, to wit:
WHEREFORE, finding the verified application for issuance of a
writ of preliminary injunction to be sufficient in form and
substance and that after due hearing, it appears that great and
irreparable injury will be caused not only to defendant-
applicant but also to PIMECO should the acts sought to be
enjoined be allowed to be done or performed, accordingly,
upon defendant-applicants posting of a bond of P50,000.00, let
the corresponding writ of preliminary injunction issue
commanding the Presidential Commission on Good
Government, its officers, representatives, nominees or agents
from proceeding or consummating the projected turnover of
PIMECO to the GSIS-MPCP or to interfere with its present
management and operations, until further orders of this Court.
SO ORDERED.[15]
Accordingly, upon the posting of the requisite bond, the Writ of
Preliminary Injunction was issued on July 10, 1989, enjoining
the Presidential Commission on Good Government, its officers,
representatives, nominees or agents, from proceeding or
consummating the projected turn-over of PIMECO to GSIS-
MPCP or to interfere with its present management and
operations, until further orders from this Court.[16]
PCGG filed a Motion for Reconsideration of the Resolution of
June 22, 1989. On August 3, 1989, the Sandiganbayan issued its
Resolution, viz:
WHEREFORE, premises considered, plaintiffs Motion for
Reconsideration (Re: Resolution dated June 22, 1989) dated
July 3, 1989 is hereby GRANTED, and the dispositive portion of
Our Resolution of June 22, 1989, ordered amended to read as
follows:
WHEREFORE, finding the verified application for issuance of a
writ of preliminary injunction to be sufficient in form and
substance and that after due hearing, it appears that great and
irreparable injury will be caused not only to defendant-
applicant but also to PIMECO should the acts sought to be
enjoined be allowed to be done or performed, accordingly,
upon defendant-applicants posting of a bond of P50,000.00, let
the corresponding writ of preliminary injunction issue
commanding the Presidential Commission on Good
Government, its officers, representatives, nominees or agents
from proceeding or consummating the projected turnover of
PIMECO to the GSIS-MPCP until further orders of this Court and
from replacing, dismissing, demoting, reassigning, grounding,
or otherwise prejudicing the present members of the PCGG
management team in PIMECO, except for valid and serious
reasons not attributable to or arising from their objection or
opposition to or activities of statements against the said
turnover.
SO ORDERED.[17]
Thereafter, the Sandiganbayan continued to conduct hearings
on the issue of the validity of the turn-over of the meat packing
plant to GSIS. On November 29, 1989, it issued a Resolution
disposing thus:
WHEREFORE, considering the attendant circumstances of the
present incident in light of the standard laid down by the
Supreme Court, this Court finds and holds:
(1) That the PCGG gravely abused its discretion when it passed
the resolutions dated September 20, 1988, and January 24,
1989, turning over the meat packing complex including the land
located at Barrio Ugong, Pasig, Metro Manila, to the GSIS/MPCP
(Exh. E).
(2) That the PCGG commissioner concerned exceeded his
authority when he executed the Memorandum of Agreement
with MPCP on April 28, 1989, transferring the management and
operation of PIMECO to the GSIS/MPCP (Record, pp. 1828-
1832).
(3) That, accordingly, the said turnovers or transfers are
declared null and void ab initio, and
(4) That the PCGG, its commissioners, officers, representatives,
and agents are permanently enjoined from implementing the
same turnovers or transfers.
SO ORDERED.[18]
On August 30, 1990, PIMECO filed with the Sandiganbayan a
petition, docketed as Civil Case No. 0108, entitled, Philippine
Integrated Meat Corporation (PIMECO), Petitioner versus Meat
Packing Corporation of the Philippines (MPCP) and Presidential
Commission on Good Government (PCGG),
Respondents, captioned as for Declaratory Relief and Other
Similar Remedies (Related to PCGG Case No. 25 and Civil Case
No. 0024).[19]
In its petition, PIMECO alleged that from 1981 to 1985, PIMECO
has been regularly paying the annual rentals in the amount of
P3,346,269.70; and that prior to its sequestration in January
1986, PIMECO was able to pay MPCP the amount of
P846,269.70. However, after its sequestration, the PCGG
Management Team that took over the plant became erratic and
irregular in its payments of the annual rentals to MPCP, thus
presenting the danger that PIMECO may be declared in default
in the payment of rentals equivalent to three (3) annual
installments and causing the cancellation of the lease-purchase
agreement. Hence, PIMECO prayed for a declaration that it is
no longer bound by the provisions of the above-quoted
paragraph 5 of the lease-purchase agreement.
In the meantime, PCGG tendered to MPCP two checks in the
amounts of P3,000,000.00 and P2,000,000.00, or a total of
P5,000,000.00, representing partial payment of accrued rentals
on the meat packing plant, which MPCP refused to accept on
the theory that the lease-purchase agreement had been
rescinded. Thus, the PCGG filed an Urgent Motion[20] praying
that the Sandiganbayan order MPCP to accept the tendered
amount of P5,000,000.00.
The Sandiganbayan set the aforesaid Urgent Motion for
hearing. On April 3, 1991, MPCP, by special appearance, filed its
Comment,[21] alleging that the Sandiganbayan had no
jurisdiction over MPCP since it was not a party in Civil Case No.
0024; that its lease-purchase agreement with PIMECO has been
rescinded as early as November 19, 1986; and that PIMECO was
in arrears in the payment of rentals in the amount of
P12,378,171.06, which is more than the equivalent of three
cumulative rentals at the annual rate of P3,346,269.70.
On July 2, 1991, the Sandiganbayan issued the first assailed
Resolution, as follows:
WHEREFORE, the Court declares that the tender of payment
and consignation of P5,000,000.00 in the form of two checks,
namely: China Banking Corporation Check No. LIB M 003697 for
P3,000,000.00 and Far East Bank and Trust Company Check No.
29A A 021341 for P2,000,000.00, both dated January 30, 1991,
and payable to GSIS-MPCP, have been validly made in
accordance with law and, accordingly, orders Meat Packing
Corporation of the Philippines to accept the payment and issue
the corresponding receipt.
SO ORDERED.[22]
MPCP, still under a special appearance, filed a Motion for
Reconsideration of the above Resolution.[23] On November 29,
1991, the Sandiganbayan issued the second assailed
Resolution,[24] denying MPCPs Motion for
Reconsideration. Said the Sandiganbayan:
When the PCGG sequestered the assets and records of PIMECO,
including the lease-purchase agreement over MPCPs meat
packing plant, it assumed the duty to preserve and conserve
those assets and documents while they remained in its
possession and control. That duty did not disappear when the
writ was deemed ipso facto lifted. On the contrary, it continued
until the sequestered assets and records where returned to
PIMECO. And in the performance of that duty in order to
prevent the cancellation of the lease-purchase agreement by
reason of the failure to pay three accumulated yearly rentals-
installments, the PCGG made the timely tender of payment and
consignation which the Resolution sought to be reconsidered
sustained. To rule otherwise would be unfair and unjust to
PIMECO considering that during the time the PCGG had
possession and control of the sequestered assets and records,
PIMECO was not in the position to take steps necessary for the
preservation and conservation of those assets and records.[25]
Meanwhile, on December 2, 1991, the Sandiganbayan
dismissed Civil Case No. 0108, i.e., the petition for declaratory
relief, it appearing that while the unpaid rentals as of January
27, 1991 have reached P7,530,036.21, PCGGs tender of
payment and consignation of the amount of P5,000,000.00,
which was upheld by the Sandiganbayan in Civil Case No. 0024,
averted the accumulation of the unpaid rentals to three yearly
rentals-installments. Consequently, the petition for declaratory
relief has become moot and academic.[26]
Hence, MPCP brought this petition for certiorari, mandamus
and prohibition, arguing in fine that the Sandiganbayan did not
have jurisdiction over its person since it was not a party to Civil
Case No. 0024; that the Sandiganbayan likewise did not acquire
jurisdiction over the person of PIMECO since it has not been
served summons; and that the PCGG is in estoppel because it
has already admitted in its en banc resolutions that the lease-
purchase agreement between MPCP and PIMECO has been
rescinded. MPCP prays for injunctive relief and for judgment
setting aside the assailed Resolutions of the Sandiganbayan;
ordering the Sandiganbayan to deny the PCGGs motion for
consignation and to compel MPCP to accept the tendered
amount of P5,000,000.00; and prohibiting the Sandiganbayan
from accepting any papers or pleadings from PCGG or PIMECO
against MPCP in Civil Case No. 0024.
Counsel for Peter Sabido filed his Comment,[27] with the
qualification that the same was being filed only on behalf of
Sabido, a stockholder of PIMECO, and not on behalf of the
corporation. He argued that the Sandiganbayan correctly held
that the MPCP voluntarily submitted itself to the courts
jurisdiction; that there was a valid consignation made by PCGG;
and that the Sandiganbayan did not commit grave abuse of
discretion in issuing the assailed resolutions.
PCGG filed its Comment,[28] also contending that MPCP
voluntarily submitted itself to the jurisdiction of the
Sandiganbayan; and that the consignation was validly made.
Copies of this Courts resolutions were furnished PIMECO at its
principal office at 117 E. Rodriguez, Sr. Ave., Barrio Ugong, Pasig
City. However, all of these were returned unserved with the
notation, RTS Closed.[29] Thus, on June 19, 1995, this Court
resolved to dispense with the comment of PIMECO.[30]
The petition, being one for certiorari, mandamus and
prohibition, is mainly anchored on the alleged grave abuse of
discretion amounting to want of jurisdiction on the part of the
Sandiganbayan.
Grave abuse of discretion implies a capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, or,
when the power is exercised in an arbitrary or despotic manner
by reason of passion or personal hostility, and it must be so
patent and gross as to amount to an evasion of positive duty
enjoined or to act at all in contemplation of law.[31] It is not
sufficient that a tribunal, in the exercise of its power, abused its
discretion; such abuse must be grave.[32]
In the assailed resolutions, the Sandiganbayan approved the
consignation by PCGG of the amount of P5,000,000.00 as
payment for back rentals or accrued amortizations on the meat
packing plant, after the MPCP refused the tender of payment
of the same.
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.[33] It should be distinguished from
tender of payment. 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.[34] Tender and consignation,
where validly made, produces the effect of payment and
extinguishes the obligation.
If the creditor to whom tender of payment has been made
refuses without just cause to accept it, the debtor shall be
released from responsibility by the consignation of the thing or
sum due.
Consignation alone shall produce the same effect in the
following cases:
(1) When the creditor is absent or unknown, or does not appear
at the place of payment;
(2) When he is incapacitated to receive the payment at the time
it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost.[35]
In the case at bar, there was prior tender by PCGG of the
amount of P5,000,000.00 for payment of the rentals in
arrears. MPCPs refusal to accept the same, on the ground
merely that its lease-purchase agreement with PIMECO had
been rescinded, was unjustified. As found by the
Sandiganbayan, from January 29, 1986 to January 30, 1990,
PIMECO paid, and GSIS/MPCP received, several amounts due
under the lease-purchase agreement, such as annual
amortizations or rentals, advances, insurance, and taxes, in
total sum of P15,921,205.83.[36] Surely, the acceptance by
MPCP and GSIS of such payments for rentals and amortizations
negates any rescission of the lease-purchase
agreement. Parenthetically, the factual findings of the
Sandiganbayan are conclusive upon this Court, subject to
certain exceptions.[37] The aforesaid factual findings, moreover,
have not been disputed by petitioner.
In support of its contention that the lease-purchase agreement
has been rescinded, MPCP makes reference to the resolutions
of the PCGG turning over to the GSIS the meat packing complex
and the land on which it is situated. MPCP argues that PCGG
was estopped from taking a contrary position. A closer perusal
of the resolutions, however, readily shows that the turn-over
was explicitly made dependent on certain conditions
precedent, among which was the approval by the
Sandiganbayan and the execution of a Memorandum of
Agreement between PCGG and MPCP.[38] A Memorandum of
Agreement was in fact executed on April 28, 1989, although the
same suffers from formal and substantial infirmities. However,
no approval was sought from the Sandiganbayan. On the
contrary, the Sandiganbayan, in its Resolution declaring the
turn-over null and void, refused to honor the PCGG resolutions,
reasoning thus:
First, what was approved by the PCGG in its resolutions of
September 20, 1988, and January 24, 1989, is the transfer of
the meat packing complex including the land located at Barrio
Ugong, Pasig, Metro Manila, and not the management and
operation of PIMECO. It is, however, the latter that the
Memorandum of Agreement, executed on April 28, 1989,
pursuant to the said resolutions, transferred to the GSIS.
Second, the second resolution made the turnover of the meat
packing complex including the land located at Barrio Ugong,
Pasig Metro Manila, upon compliance with these conditions, to
be implemented by the [PCGG] Operations and Legal
Departments: . . . (b) approval by the Sandiganbayan . . . Until
now, however, no motion has been presented to secure that
approval, and none can be expected because the same
Memorandum of Agreement changed the requirement of
approval to (t)he Sandiganbayan shall be advised of this
Agreement. Even the advice stipulated has never been given by
the PCGG.
Since the Memorandum of Agreement was executed by one
PCGG commissioner only, the same cannot validly amend the
resolutions passed by the PCGG itself. Consequently, the
turnover of the management and operation of PIMECO, which,
of course, include the meat packing complex and the land of
which it stands, stipulated in the Memorandum of Agreement,
cannot be legally enforced. Needless to say, the commissioners
should be the first to abide by the PCGGs resolutions.[39]
Under the terms of the lease-purchase agreement, the amount
of arrears in rentals or amortizations must be equivalent to the
cumulative sum of three annual installments, in order to
warrant the rescission of the contract. Therefore, it must be
shown that PIMECO failed to pay the aggregate amount of at
least P10,038,809.10 before the lease-purchase agreement can
be deemed automatically cancelled. Assuming in the extreme
that, as alleged by MPCP, the arrears at the time of tender on
January 30, 1991 amounted to P12,578,171.00,[40] the tender
and consignation of the sum of P5,000,000.00, which had the
effect of payment, reduced the back rentals to only
P7,578,171.00, an amount less than the equivalent of three
annual installments. Thus, with the Sandiganbayans approval
of the consignation and directive for MPCP to accept the
tendered payment, the lease-purchase agreement could not be
said to have been rescinded.
MPCPs chief complaint in its present petition is that it was not
a party in Civil Case No. 0024. As such, it alleges that the
Sandiganbayan had no jurisdiction over its person and may not
direct it to accept the consigned amount of P5,000,000.00. In
rejecting this argument, the Sandiganbayan held that Civil Case
No. 0024, i.e., the sequestration case, on the one hand, and
Civil Case No. 0108, i.e., the petition for declaratory relief in
which it was the named respondent, on the other hand, were
interrelated since they both involved the sequestered assets of
PIMECO. Thus, the titles of both cases appear on the caption of
the assailed Resolutions dated July 2, 1991. On this point, the
Sandiganbayan further ruled:
While MPCP is not a named party in Civil Case No. 0024, it is in
Civil Case No. 0108. These two civil actions are interrelated in
the sense that they both involve the sequestered and taken-
over assets of PIMECO, principal of which are the lease-
purchase agreement, the rights thereunder of PIMECO, and,
since these rights can not be exercised without possession of
the meat processing plant, the plant itself. It is for this reason
that the caption of the present Urgent Motion expressly
indicates that Civil Case No. 0024 is Related to Civil Case No.
0108. In view of these circumstances, the Court considers the
Urgent Motion as also filed in Case No. 0108.
Moreover, when the propriety of the turn-over of the
management and control of PIMECO, including the meat
packing plant, to MPCP was in issue in Civil Case No. 0024,
MPCP, through its officers, appeared in all the proceedings and
actively coordinated with PCGG. To justify the turn-over, the
Office of the Solicitor General echoed the stand of MPCP that
the lease-purchase agreement had already been
rescinded. And in the present Urgent Motion, MPCP again
appeared. In fact, it appeared in Case No. 0024 even if the
matter at hand was not the said motion. Although MPCPs
lawyer entered a special appearance in the present incident, he
did not confine himself to assailing the jurisdiction of this Court
over MPCP, but went to the extent of participating in the oral
argument on the merits of the motion,. Indeed, his Comment
devoted only one page on the issue of jurisdiction and seven
pages to the alleged untenability of the motion. Although
MPCP did not expressly pray for the denial of the urgent
motion, not even for lack of jurisdiction over it, by setting forth
therein arguments not only on the jurisdictional issue, but more
extensively on the alleged lack of merit of the motion, it
thereby impliedly prayed for affirmative relief in its
favor. Under these circumstances, MPCP voluntarily submitted
itself to the jurisdiction of the Court.[41]
Jurisdiction over the person of the defendant in civil cases is
acquired either by his voluntary appearance in court and his
submission to its authority or by service of
summons.[42] Furthermore, the active participation of a party in
the proceedings is tantamount to an invocation of the courts
jurisdiction and a willingness to abide by the resolution of the
case, and will bar said party from later on impugning the court
or bodys jurisdiction.[43] In this case, petitioner MPCP is
precluded from questioning the jurisdiction of the
Sandiganbayan over its person in Civil Case No. 0024,
considering that, as shown by the records, it actively
participated in the discussion of the merits of the said case,
even going to the extent of seeking affirmative relief. The
Sandiganbayan did not commit grave abuse of discretion in
saying so.
WHEREFORE, in view of the foregoing, the instant petition is
DISMISSED for lack of merit.
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 Appeals2in 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 default clause of the
"Agreement And Undertaking" was agreed upon by the parties,
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.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 prohibitory provisions.28 To grant the withdrawal would be to
deposited, allowing the obligation to remain in force. sanction a void contract.29
The amount consigned with the trial court can no longer be WHEREFORE, in view of all the foregoing, the instant petition
withdrawn by petitioner because respondent’s prayer in his for review is DENIED. The January 16, 2003 Amended Decision
answer that the amount consigned be awarded to him is of the Court of Appeals in CA-G.R. CV No. 55740, which declared
equivalent to an acceptance of the consignation, which has the the consignation by the petitioner in favor of respondent of the
effect of extinguishing petitioner’s obligation. amount of P672,900.00 with the Clerk of Court of the Regional
Moreover, petitioner failed to manifest his intention to comply Trial Court of Makati City valid, and which declared petitioner’s
with the "Agreement And Undertaking" by delivering the obligation to respondent under paragraph 5 of the "Agreement
necessary documents and the lot subject of the sale to And Undertaking" as having been extinguished, is AFFIRMED.
respondent in exchange for the amount deposited. Withdrawal No costs.
of the money consigned would enrich petitioner and unjustly SO ORDERED.
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
G.R. No. L-44349 October 29, 1976
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First
Instance of Rizal, Branch XXVI; COURT OF APPEALS and
TROPICAL HOMES, INC., respondents.
Occena Law Office for petitioners.
Serrano, Diokno & Serrano for respondents.
TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed resolution.
The Civil Code authorizes the release of an obligor when the
service has become so difficult as to be manifestly beyond the
contemplation of the parties but does not authorize the courts
to modify or revise the subdivision contract between the
parties or fix a different sharing ratio from that contractually
stipulated with the force of law between the parties. Private
respondent's complaint for modification of the contract
manifestly has no basis in law and must therefore be dismissed
for failure to state a cause of action. On February 25, 1975
private respondent Tropical Homes, Inc. filed a complaint for
modification of the terms and conditions of its subdivision
contract with petitioners (landowners of a 55,330 square meter
parcel of land in Davao City), making the following allegations:
"That due to the increase in price of oil and its derivatives and
the concomitant worldwide spiralling of prices, which are not
within the control of plaintiff, of all commodities including basis
raw materials required for such development work, the cost of
development has risen to levels which are unanticipated,
unimagined and not within the remotest contemplation of the
parties at the time said agreement was entered into and to such
a degree that the conditions and factors which formed the
original basis of said contract, Annex 'A', have been totally
changed; 'That further performance by the plaintiff under the
contract.
That further performance by the plaintiff under the
contract,Annex 'S', will result in situation where defendants
would be unustly enriched at the expense of the plaintiff; will
cause an inequitous distribution of proceeds from the sales of
subdivided lots in manifest actually result in the unjust and
intolerable exposure of plaintiff to implacable losses, all such
situations resulting in an unconscionable, unjust and immoral
situation contrary to and in violation of the primordial concepts
of good faith, fairness and equity which should pervade all
human relations.
Under the subdivision contract, respondent "guaranteed
(petitioners as landowners) as the latter's fixed and sole share
and participation an amount equivalent to forty (40%) percent
of all cash receifpts fromthe sale of the subdivision lots"
Respondent pray of the Rizal court of first instance that "after
due trial, this Honorable Court render judgment modifying the
terms and conditions of the contract ... by fixing the proer
shares that shouls pertain to the herein parties out of the gross
proceeds from the sales of subdivided lots of subjects
subdivision".
Petitioners moved to dismiss the complaint principally for lack
of cause of action, and upon denial thereof and of
reconsideration by the lower court elevated the matter on
certiorari to respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976
set aside the preliminary injunction previously issued by it and
dimissed petition on the ground that under Article 1267 of the
Civil Code which provides that
ART. 1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the obligor
may also be released therefrom, in whole or in part. 1
... a positive right is created in favor of the obligor to be
released from the performance of an obligation in full or in part
when its performance 'has become so difficult as to be
manifestly beyond the contemplation of the parties.
Hence, the petition at abar wherein petitioners insist that the
worldwide increase inprices cited by respondent does not
constitute a sufficient casue of action for modification of the
subdivision contrct. After receipt of respondent's comment, the
Court in its Resolution of September 13, 1976 resolved to treat
the petition as special civil actionand declared the case
submitted for decision.
The petition must be granted.
While respondent court correctly cited in its decision the Code
Commission's report giving the rationale for Article 1267 of the
Civil Code, to wit;
The general rule is that impossibility of performance releases
the obligor. However, it is submitted that when the service has
become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to
release the obligor in whole or in part. The intention of the
parties should govern and if it appears that the service turns
out to be so difficult as have been beyond their contemplation,
it would be doing violence to that intention to hold the obligor
still responsible. ... 2
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to
comply with the subdivision contract, assuming it could show
at the trial that the service undertaken contractually by it had
"become so difficult as to be manifestly beyond the
contemplation of the parties", then respondent court's
upholding of respondet's complaint and dismissal of the
petition would be justifiable under the cited codal article.
Without said article, respondent would remain bound by its
contract under the theretofore prevailing doctrine that
performance therewith is ot excused "by the fact that the
contract turns out to be hard and improvident, unprofitable, or
unespectedly burdensome", 3 since in case a party desires to be
excuse from performance in the event of such contingencies
arising, it is his duty to provide threfor in the contract.
But respondent's complaint seeks not release from the
subdivision contract but that the court "render judgment I
modifying the terms and Conditions of the Contract by fixing
the proper shares that should pertain to the herein parties out
of the gross proceed., from the sales of subdivided lots of
subject subdivision". The cited article does not grant the courts
this authority to remake, modify or revise the contract or to fix
the division of shares between the parties as contractually
stipulated with the force of law between the parties, so as to
substitute its own terms for those covenanted by the
partiesthemselves. Respondent's complaint for modification of
contract manifestly has no basis in law and therefore states no
cause of action. Under the particular allegations of
respondent's complaint and the circumstances therein averred,
the courts cannot even in equity grant the relief sought.
A final procedural note. Respondent cites the general rule that
an erroneous order denying a motion to dismiss is interlocutory
and should not be corrected by certiorari but by appeal in due
course. This case however manifestly falls within the
recognized exception that certiorari will lie when appeal would
not prove to be a speedy and adequate remedy.' Where the
remedy of appeal would not, as in this case, promptly relieve
petitioners from the injurious effects of the patently erroneous
order maintaining respondent's baseless action and compelling
petitioners needlessly to go through a protracted trial and
clogging the court dockets by one more futile case, certiorari
will issue as the plain, speedy and adequate remedy of an
aggrieved party.
ACCORDINGLY, the resolution of respondent appellate court is
reversed and the petition for certiorari is granted and private
respondent's complaint in the lower court is ordered dismissed
for failure to state a sufficient cause of action. With costs in all
instances against private respondent.
G.R. No. 107112 February 24, 1994
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M.
MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC
COOPERATIVE, INC. (CASURECO II), respondents.
The case of Reyes v. Caltex (Philippines), Inc.1 enunciated the
doctrine that where a person by his contract charges himself
with an obligation possible to be performed, he must perform
it, unless its performance is rendered impossible by the act of
God, by the law, or by the other party, it being the rule that in
case the party desires to be excused from performance in the
event of contingencies arising thereto, it is his duty to provide
the basis therefor in his contract.
With the enactment of the New Civil Code, a new provision was
included therein, namely, Article 1267 which provides:
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.
In the report of the Code Commission, the rationale behind this
innovation was explained, thus:
The general rule is that impossibility of performance releases
the obligor. However, it is submitted that when the service has
become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to
release the obligor in whole or in part. The intention of the
parties should govern and if it appears that the service turns
out to be so difficult as to have been beyond their
contemplation, it would be doing violence to that intention to
hold their contemplation, it would be doing violence to that
intention to hold the obligor still responsible.2
In other words, fair and square consideration underscores the
legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the
application by the Court of Appeals of Article 1267 in favor of
Camarines Sur II Electric Cooperative, Inc. in the case before us.
Stated differently, the former insists that the complaint should
have been dismissed for failure to state a cause of action.
The antecedent facts, as narrated by respondent Court of
Appeals are, as follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone
company rendering local as well as long distance telephone
service in Naga City while private respondent Camarines Sur II
Electric Cooperative, Inc. (CASURECO II) is a private corporation
established for the purpose of operating an electric power
service in the same city.
On November 1, 1977, the parties entered into a contract (Exh.
"A") for the use by petitioners in the operation of its telephone
service the electric light posts of private respondent in Naga
City. In consideration therefor, petitioners agreed to install,
free of charge, ten (10) telephone connections for the use by
private respondent in the following places:
(a) 3 units — The Main Office of (private respondent);
(b) 2 Units — The Warehouse of (private respondent);
(c) 1 Unit — The Sub-Station of (private respondent) at
Concepcion Pequeña;
(d) 1 Unit — The Residence of (private respondent's) President;
(e) 1 Unit — The Residence of (private respondent's) Acting
General Manager; &
(f) 2 Units — To be determined by the General Manager.3
Said contract also provided:
(a) That the term or period of this contract shall be as long as
the party of the first part has need for the electric light posts of
the party of the second part it being understood that this
contract shall terminate when for any reason whatsoever, the
party of the second part is forced to stop, abandoned [sic] its
operation as a public service and it becomes necessary to
remove the electric lightpost; (sic)4
It was prepared by or with the assistance of the other
petitioner, Atty. Luciano M. Maggay, then a member of the
Board of Directors of private respondent and at the same time
the legal counsel of petitioner.
After the contract had been enforced for over ten (10) years,
private respondent filed on January 2, 1989 with the Regional
Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against
petitioners for reformation of the contract with damages, on
the ground that it is too one-sided in favor of petitioners; that
it is not in conformity with the guidelines of the National
Electrification Administration (NEA) which direct that the
reasonable compensation for the use of the posts is P10.00 per
post, per month; that after eleven (11) years of petitioners' use
of the posts, the telephone cables strung by them thereon have
become much heavier with the increase in the volume of their
subscribers, worsened by the fact that their linemen bore holes
through the posts at which points those posts were broken
during typhoons; that a post now costs as much as P2,630.00;
so that justice and equity demand that the contract be
reformed to abolish the inequities thereon.
As second cause of action, private respondent alleged that
starting with the year 1981, petitioners have used 319 posts in
the towns of Pili, Canaman, Magarao and Milaor, Camarines
Sur, all outside Naga City, without any contract with it; that at
the rate of P10.00 per post, petitioners should pay private
respondent for the use thereof the total amount of
P267,960.00 from 1981 up to the filing of its complaint; and
that petitioners had refused to pay private respondent said
amount despite demands.
And as third cause of action, private respondent complained
about the poor servicing by petitioners of the ten (10)
telephone units which had caused it great inconvenience and
damages to the tune of not less than P100,000.00
In petitioners' answer to the first cause of action, they averred
that it should be dismissed because (1) it does not sufficiently
state a cause of action for reformation of contract; (2) it is
barred by prescription, the same having been filed more than
ten (10) years after the execution of the contract; and (3) it is
barred by estoppel, since private respondent seeks to enforce
the contract in the same action. Petitioners further alleged that
their utilization of private respondent's posts could not have
caused their deterioration because they have already been in
use for eleven (11) years; and that the value of their expenses
for the ten (10) telephone lines long enjoyed by private
respondent free of charge are far in excess of the amounts
claimed by the latter for the use of the posts, so that if there
was any inequity, it was suffered by them.
Regarding the second cause of action, petitioners claimed that
private respondent had asked for telephone lines in areas
outside Naga City for which its posts were used by them; and
that if petitioners had refused to comply with private
respondent's demands for payment for the use of the posts
outside Naga City, it was probably because what is due to them
from private respondent is more than its claim against them.
And with respect to the third cause of action, petitioners
claimed, inter alia, that their telephone service had been
categorized by the National Telecommunication Corporation
(NTC) as "very high" and of "superior quality."
During the trial, private respondent presented the following
witnesses:
(1) Dioscoro Ragragio, one of the two officials who signed the
contract in its behalf, declared that it was petitioner Maggay
who prepared the contract; that the understanding between
private respondent and petitioners was that the latter would
only use the posts in Naga City because at that time,
petitioners' capability was very limited and they had no
expectation of expansion because of legal squabbles within the
company; that private respondent agreed to allow petitioners
to use its posts in Naga City because there were many
subscribers therein who could not be served by them because
of lack of facilities; and that while the telephone lines strung to
the posts were very light in 1977, said posts have become
heavily loaded in 1989.
(2) Engr. Antonio Borja, Chief of private respondent's Line
Operation and Maintenance Department, declared that the
posts being used by petitioners totalled 1,403 as of April 17,
1989, 192 of which were in the towns of Pili, Canaman, and
Magarao, all outside Naga City (Exhs. "B" and "B-1"); that
petitioners' cables strung to the posts in 1989 are much bigger
than those in November, 1977; that in 1987, almost 100 posts
were destroyed by typhoon Sisang: around 20 posts were
located between Naga City and the town of Pili while the posts
in barangay Concepcion, Naga City were broken at the middle
which had been bored by petitioner's linemen to enable them
to string bigger telephone lines; that while the cost per post in
1977 was only from P700.00 to P1,000.00, their costs in 1989
went up from P1,500.00 to P2,000.00, depending on the size;
that some lines that were strung to the posts did not follow the
minimum vertical clearance required by the National Building
Code, so that there were cases in 1988 where, because of the
low clearance of the cables, passing trucks would accidentally
touch said cables causing the posts to fall and resulting in
brown-outs until the electric lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General
Manager of private respondent and Manager of Region V of
NEA, declared that according to NEA guidelines in 1985 (Exh.
"C"), for the use by private telephone systems of electric
cooperatives' posts, they should pay a minimum monthly rental
of P4.00 per post, and considering the escalation of prices since
1985, electric cooperatives have been charging from P10.00 to
P15.00 per post, which is what petitioners should pay for the
use of the posts.
(4) Engineer Antonio Macandog, Department Head of the
Office of Services of private respondent, testified on the poor
service rendered by petitioner's telephone lines, like the
telephone in their Complaints Section which was usually out of
order such that they could not respond to the calls of their
customers. In case of disruption of their telephone lines, it
would take two to three hours for petitioners to reactivate
them notwithstanding their calls on the emergency line.
(5) Finally, Atty. Luis General, Jr., private respondent's counsel,
testified that the Board of Directors asked him to study the
contract sometime during the latter part of 1982 or in 1983, as
it had appeared very disadvantageous to private respondent.
Notwithstanding his recommendation for the filing of a court
action to reform the contract, the former general managers of
private respondent wanted to adopt a soft approach with
petitioners about the matter until the term of General Manager
Henry Pascual who, after failing to settle the matter amicably
with petitioners, finally agreed for him to file the present action
for reformation of contract.
On the other hand, petitioner Maggay testified to the following
effect:
(1) It is true that he was a member of the Board of Directors of
private respondent and at the same time the lawyer of
petitioner when the contract was executed, but Atty. Gaudioso
Tena, who was also a member of the Board of Directors of
private respondent, was the one who saw to it that the contract
was fair to both parties.
(2) With regard to the first cause of action:
(a) Private respondent has the right under the contract to use
ten (10) telephone units of petitioners for as long as it wishes
without paying anything therefor except for long distance calls
through PLDT out of which the latter get only 10% of the
charges.
(b) In most cases, only drop wires and not telephone cables
have been strung to the posts, which posts have remained erect
up to the present;
(c) Petitioner's linemen have strung only small messenger wires
to many of the posts and they need only small holes to pass
through; and
(d) Documents existing in the NTC show that the stringing of
petitioners' cables in Naga City are according to standard and
comparable to those of PLDT. The accidents mentioned by
private respondent involved trucks that were either overloaded
or had loads that protruded upwards, causing them to hit the
cables.
(3) Concerning the second cause of action, the intention of the
parties when they entered into the contract was that the
coverage thereof would include the whole area serviced by
petitioners because at that time, they already had subscribers
outside Naga City. Private respondent, in fact, had asked for
telephone connections outside Naga City for its officers and
employees residing there in addition to the ten (10) telephone
units mentioned in the contract. Petitioners have not been
charging private respondent for the installation, transfers and
re-connections of said telephones so that naturally, they use
the posts for those telephone lines.
(4) With respect to the third cause of action, the NTC has found
petitioners' cable installations to be in accordance with
engineering standards and practice and comparable to the best
in the country.
On the basis of the foregoing countervailing evidence of the
parties, the trial court found, as regards private respondent's
first cause of action, that while the contract appeared to be fair
to both parties when it was entered into by them during the
first year of private respondent's operation and when its Board
of Directors did not yet have any experience in that business, it
had become disadvantageous and unfair to private respondent
because of subsequent events and conditions, particularly the
increase in the volume of the subscribers of petitioners for
more than ten (10) years without the corresponding increase in
the number of telephone connections to private respondent
free of charge. The trial court concluded that while in an action
for reformation of contract, it cannot make another contract
for the parties, it can, however, for reasons of justice and
equity, order that the contract be reformed to abolish the
inequities therein. Thus, said court ruled that the contract
should be reformed by ordering petitioners to pay private
respondent compensation for the use of their posts in Naga
City, while private respondent should also be ordered to pay
the monthly bills for the use of the telephones also in Naga City.
And taking into consideration the guidelines of the NEA on the
rental of posts by telephone companies and the increase in the
costs of such posts, the trial court opined that a monthly rental
of P10.00 for each post of private respondent used by
petitioners is reasonable, which rental it should pay from the
filing of the complaint in this case on January 2, 1989. And in
like manner, private respondent should pay petitioners from
the same date its monthly bills for the use and transfers of its
telephones in Naga City at the same rate that the public are
paying.
On private respondent's second cause of action, the trial court
found that the contract does not mention anything about the
use by petitioners of private respondent's posts outside Naga
City. Therefore, the trial court held that for reason of equity,
the contract should be reformed by including therein the
provision that for the use of private respondent's posts outside
Naga City, petitioners should pay a monthly rental of P10.00 per
post, the payment to start on the date this case was filed, or on
January 2, 1989, and private respondent should also pay
petitioners the monthly dues on its telephone connections
located outside Naga City beginning January, 1989.
And with respect to private respondent's third cause of action,
the trial court found the claim not sufficiently proved.
Thus, the following decretal portion of the trial court's decision
dated July 20, 1990:
WHEREFORE, in view of all the foregoing, decision is hereby
rendered ordering the reformation of the agreement (Exh. A);
ordering the defendants to pay plaintiff's electric poles in Naga
City and in the towns of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where defendant NATELCO
uses plaintiff's electric poles, the sum of TEN (P10.00) PESOS
per plaintiff's pole, per month beginning January, 1989 and
ordering also the plaintiff to pay defendant NATELCO the
monthly dues of all its telephones including those installed at
the residence of its officers, namely; Engr. Joventino Cruz, Engr.
Antonio Borja, Engr. Antonio Macandog, Mr. Jesus Opiana and
Atty. Luis General, Jr. beginning January, 1989. Plaintiff's claim
for attorney's fees and expenses of litigation and defendants'
counterclaim are both hereby ordered dismissed. Without
pronouncement as to costs.
Disagreeing with the foregoing judgment, petitioners appealed
to respondent Court of Appeals. In the decision dated May 28,
1992, respondent court affirmed the decision of the trial
court,5 but based on different grounds to wit: (1) that Article
1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered
said condition void. The motion for reconsideration was denied
in the resolution dated September 10, 1992.6 Hence, the
present petition.
Petitioners assign the following pertinent errors committed by
respondent court:
1) in making a contract for the parties by invoking Article 1267
of the New Civil Code;
2) in ruling that prescription of the action for reformation of the
contract in this case commenced from the time it became
disadvantageous to private respondent; and
3) in ruling that the contract was subject to a potestative
condition in favor of petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil
Code is not applicable primarily because the contract does not
involve the rendition of service or a personal prestation and it
is not for future service with future unusual change. Instead,
the ruling in the case of Occeña, et al. v. Jabson, etc., et
al.,7 which interpreted the article, should be followed in
resolving this case. Besides, said article was never raised by the
parties in their pleadings and was never the subject of trial and
evidence.
In applying Article 1267, respondent court rationalized:
We agree with appellant that in order that an action for
reformation of contract would lie and may prosper, there must
be sufficient allegations as well as proof that the contract in
question failed to express the true intention of the parties due
to error or mistake, accident, or fraud. Indeed, in embodying
the equitable remedy of reformation of instruments in the New
Civil Code, the Code Commission gave its reasons as follows:
Equity dictates the reformation of an instrument in order that
the true intention of the contracting parties may be expressed.
The courts by the reformation do not attempt to make a new
contract for the parties, but to make the instrument express
their real agreement. The rationale of the doctrine is that it
would be unjust and inequitable to allow the enforcement of a
written instrument which does not reflect or disclose the real
meeting of the minds of the parties. The rigor of the legalistic
rule that a written instrument should be the final and inflexible
criterion and measure of the rights and obligations of the
contracting parties is thus tempered to forestall the effects of
mistake, fraud, inequitable conduct, or accident. (pp. 55-56,
Report of Code Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil
Code provide in essence that where through mistake or
accident on the part of either or both of the parties or mistake
or fraud on the part of the clerk or typist who prepared the
instrument, the true intention of the parties is not expressed
therein, then the instrument may be reformed at the instance
of either party if there was mutual mistake on their part, or by
the injured party if only he was mistaken.
Here, plaintiff-appellee did not allege in its complaint, nor does
its evidence prove, that there was a mistake on its part or
mutual mistake on the part of both parties when they entered
into the agreement Exh. "A", and that because of this mistake,
said agreement failed to express their true intention. Rather,
plaintiff's evidence shows that said agreement was prepared by
Atty. Luciano Maggay, then a member of plaintiff's Board of
Directors and its legal counsel at that time, who was also the
legal counsel for defendant-appellant, so that as legal counsel
for both companies and presumably with the interests of both
companies in mind when he prepared the aforesaid agreement,
Atty. Maggay must have considered the same fair and equitable
to both sides, and this was affirmed by the lower court when it
found said contract to have been fair to both parties at the time
of its execution. In fact, there were no complaints on the part
of both sides at the time of and after the execution of said
contract, and according to 73-year old Justino de Jesus, Vice
President and General manager of appellant at the time who
signed the agreement Exh. "A" in its behalf and who was one of
the witnesses for the plaintiff (sic), both parties complied with
said contract "from the very beginning" (p. 5, tsn, April 17,
1989).
That the aforesaid contract has become inequitous or
unfavorable or disadvantageous to the plaintiff with the
expansion of the business of appellant and the increase in the
volume of its subscribers in Naga City and environs through the
years, necessitating the stringing of more and bigger telephone
cable wires by appellant to plaintiff's electric posts without a
corresponding increase in the ten (10) telephone connections
given by appellant to plaintiff free of charge in the agreement
Exh. "A" as consideration for its use of the latter's electric posts
in Naga City, appear, however, undisputed from the totality of
the evidence on record and the lower court so found. And it
was for this reason that in the later (sic) part of 1982 or 1983
(or five or six years after the subject agreement was entered
into by the parties), plaintiff's Board of Directors already asked
Atty. Luis General who had become their legal counsel in 1982,
to study said agreement which they believed had become
disadvantageous to their company and to make the proper
recommendation, which study Atty. General did, and
thereafter, he already recommended to the Board the filing of
a court action to reform said contract, but no action was taken
on Atty. General's recommendation because the former
general managers of plaintiff wanted to adopt a soft approach
in discussing the matter with appellant, until, during the term
of General Manager Henry Pascual, the latter, after failing to
settle the problem with Atty. Luciano Maggay who had become
the president and general manager of appellant, already
agreed for Atty. General's filing of the present action. The fact
that said contract has become inequitous or disadvantageous
to plaintiff as the years went by did not, however, give plaintiff
a cause of action for reformation of said contract, for the
reasons already pointed out earlier. But this does not mean that
plaintiff is completely without a remedy, for we believe that the
allegations of its complaint herein and the evidence it has
presented sufficiently make out a cause of action under Art.
1267 of the New Civil Code for its release from the agreement
in question.
xxx xxx xxx
The understanding of the parties when they entered into the
Agreement Exh. "A" on November 1, 1977 and the prevailing
circumstances and conditions at the time, were described by
Dioscoro Ragragio, the President of plaintiff in 1977 and one of
its two officials who signed said agreement in its behalf, as
follows:
Our understanding at that time is that we will allow NATELCO
to utilize the posts of CASURECO II only in the City of Naga
because at that time the capability of NATELCO was very
limited, as a matter of fact we do [sic] not expect to be able to
expand because of the legal squabbles going on in the
NATELCO. So, even at that time there were so many subscribers
in Naga City that cannot be served by the NATELCO, so as a
mater of public service we allowed them to sue (sic) our posts
within the Naga City. (p. 8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to
the electric posts of plaintiff were very light and that very few
telephone lines were attached to the posts of CASURECO II in
1977, said posts have become "heavily loaded" in 1989
(tsn, id.).
In truth, as also correctly found by the lower court, despite the
increase in the volume of appellant's subscribers and the
corresponding increase in the telephone cables and wires
strung by it to plaintiff's electric posts in Naga City for the more
10 years that the agreement Exh. "A" of the parties has been in
effect, there has been no corresponding increase in the ten (10)
telephone units connected by appellant free of charge to
plaintiff's offices and other places chosen by plaintiff's general
manager which was the only consideration provided for in said
agreement for appellant's use of plaintiffs electric posts. Not
only that, appellant even started using plaintiff's electric posts
outside Naga City although this was not provided for in the
agreement Exh. "A" as it extended and expanded its telephone
services to towns outside said city. Hence, while very few of
plaintiff's electric posts were being used by appellant in 1977
and they were all in the City of Naga, the number of plaintiff's
electric posts that appellant was using in 1989 had jumped to
1,403,192 of which are outside Naga City (Exh. "B"). Add to this
the destruction of some of plaintiff's poles during typhoons like
the strong typhoon Sisang in 1987 because of the heavy
telephone cables attached thereto, and the escalation of the
costs of electric poles from 1977 to 1989, and the conclusion is
indeed ineluctable that the agreement Exh. "A" has already
become too one-sided in favor of appellant to the great
disadvantage of plaintiff, in short, the continued enforcement
of said contract has manifestly gone far beyond the
contemplation of plaintiff, so much so that it should now be
released therefrom under Art. 1267 of the New Civil Code to
avoid appellant's unjust enrichment at its (plaintiff's) expense.
As stated by Tolentino in his commentaries on the Civil Code
citing foreign civilist Ruggiero, "equity demands a certain
economic equilibrium between the prestation and the counter-
prestation, and does 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 (IV
Tolentino, Civil Code of the Philippines, 1986 ed.,
pp. 247-248).
We therefore, find nothing wrong with the ruling of the trial
court, although based on a different and wrong premise (i.e.,
reformation of contract), that from the date of the filing of this
case, appellant must pay for the use of plaintiff's electric posts
in Naga City at the reasonable monthly rental of P10.00 per
post, while plaintiff should pay appellant for the telephones in
the same City that it was formerly using free of charge under
the terms of the agreement Exh. "A" at the same rate being paid
by the general public. In affirming said ruling, we are not
making a new contract for the parties herein, but we find it
necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the
public and to avoid unjust enrichment by appellant at the
expense of plaintiff, said arrangement to continue only until
such time as said parties can re-negotiate another agreement
over the same
subject-matter covered by the agreement Exh. "A". Once said
agreement is reached and executed by the parties, the
aforesaid ruling of the lower court and affirmed by us shall
cease to exist and shall be substituted and superseded by their
new agreement. . . ..8
Article 1267 speaks of "service" which has become so difficult.
Taking into consideration the rationale behind this
provision,9 the term "service" should be understood as
referring to the "performance" of the obligation. In the present
case, the obligation of private respondent consists in allowing
petitioners to use its posts in Naga City, which is the service
contemplated in said article. Furthermore, a bare reading of
this article reveals that it is not a requirement thereunder that
the contract be for future service with future unusual change.
According to Senator Arturo M. Tolentino,10 Article 1267 states
in our law the doctrine of unforseen events. This is said to be
based on the discredited theory of rebus sic stantibus in public
international law; 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. Considering
practical needs and the demands of equity and good faith, the
disappearance of the basis of a contract gives rise to a right to
relief in favor of the party prejudiced.
In a nutshell, private respondent in the Occeña case filed a
complaint against petitioner before the trial court praying
for modification of the terms and conditions of the contract
that they entered into by fixing the proper shares that should
pertain to them out of the gross proceeds from the sales of
subdivided lots. We ordered the dismissal of the complaint
therein for failure to state a sufficient cause of action. We
rationalized that the Court of Appeals misapplied Article 1267
because:
. . . respondent's complaint seeks not release from the
subdivision contract but that the court "render
judgment modifying the terms and conditions of the contract .
. . by fixing the proper shares that should pertain to the herein
parties out of the gross proceeds from the sales of subdivided
lots of subject subdivision". The cited article (Article 1267) does
not grant the courts (the) authority to remake, modify or revise
the contract or to fix the division of shares between the parties
as contractually stipulated with the force of law between the
parties, so as to substitute its own terms for those covenanted
by the parties themselves. Respondent's complaint for
modification of contract manifestly has no basis in law and
therefore states no cause of action. Under the particular
allegations of respondent's complaint and the circumstances
therein averred, the courts cannot even in equity grant the
relief sought.11
The ruling in the Occeña case is not applicable because we
agree with respondent court that the allegations in private
respondent's complaint and the evidence it has presented
sufficiently made out a cause of action under Article 1267. We,
therefore, release the parties from their correlative obligations
under the contract. However, our disposition of the present
controversy does not end here. We have to take into account
the possible consequences of merely releasing the parties
therefrom: petitioners will remove the telephone wires/cables
in the posts of private respondent, resulting in disruption of
their service to the public; while private respondent, in
consonance with the contract12 will return all the telephone
units to petitioners, causing prejudice to its business. We shall
not allow such eventuality. Rather, we require, as ordered by
the trial court: 1) petitioners to pay private respondent for the
use of its posts in Naga City and in the towns of Milaor,
Canaman, Magarao and Pili, Camarines Sur and in other places
where petitioners use private respondent's posts, the sum of
ten (P10.00) pesos per post, per month, beginning January,
1989; and 2) private respondent to pay petitioner the monthly
dues of all its telephones at the same rate being paid by the
public beginning January, 1989. The peculiar circumstances of
the present case, as distinguished further from the Occeña
case, necessitates exercise of our equity jurisdiction.13 By way
of emphasis, we reiterate the rationalization of respondent
court that:
. . . In affirming said ruling, we are not making a new contract
for the parties herein, but we find it necessary to do so in order
not to disrupt the basic and essential services being rendered
by both parties herein to the public and to avoid unjust
enrichment by appellant at the expense of plaintiff . . . .14
Petitioners' assertion that Article 1267 was never raised by the
parties in their pleadings and was never the subject of trial and
evidence has been passed upon by respondent court in its well
reasoned resolution, which we hereunder quote as our own:
First, we do not agree with defendant-appellant that in
applying Art. 1267 of the New Civil Code to this case, we have
changed its theory and decided the same on an issue not
invoked by plaintiff in the lower court. For basically, the main
and pivotal issue in this case is whether the continued
enforcement of the contract Exh. "A" between the parties has,
through the years (since 1977), become too inequitous or
disadvantageous to the plaintiff and too one-sided in favor of
defendant-appellant, so that a solution must be found to
relieve plaintiff from the continued operation of said
agreement and to prevent defendant-appellant from further
unjustly enriching itself at plaintiff's expense. It is indeed
unfortunate that defendant had turned deaf ears to plaintiffs
requests for renegotiation, constraining the latter to go to
court. But although plaintiff cannot, as we have held, correctly
invoke reformation of contract as a proper remedy (there
having been no showing of a mistake or error in said contract
on the part of any of the parties so as to result in its failure to
express their true intent), this does not mean that plaintiff is
absolutely without a remedy in order to relieve itself from a
contract that has gone far beyond its contemplation and has
become so highly inequitous and disadvantageous to it through
the years because of the expansion of defendant-appellant's
business and the increase in the volume of its subscribers. And
as it is the duty of the Court to administer justice, it must do so
in this case in the best way and manner it can in the light of the
proven facts and the law or laws applicable thereto.
It is settled that when the trial court decides a case in favor of
a party on a certain ground, the appellant court may uphold the
decision below upon some other point which was ignored or
erroneously decided by the trial court (Garcia Valdez v. Tuazon,
40 Phil. 943; Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de
Paz, 18 SCRA 467). Furthermore, the appellate court has the
discretion to consider an unassigned error that is closely related
to an error properly assigned (Paterno v. Jao Yan, 1 SCRA 631;
Hernandez v. Andal, 78 Phil. 196). It has also been held that the
Supreme Court (and this Court as well) has the authority to
review matters, even if they are not assigned as errors in the
appeal, if it is found that their consideration is necessary in
arriving at a just decision of the case (Saura Import & Export
Co., Inc. v. Phil. International Surety Co. and PNB, 8 SCRA 143).
For it is the material allegations of fact in the complaint, not the
legal conclusion made therein or the prayer, that determines
the relief to which the plaintiff is entitled, and the plaintiff is
entitled to as much relief as the facts warrant although that
relief is not specifically prayed for in the complaint (Rosales v.
Reyes and Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50 Phil. 844;
Baguioro v. Barrios, 77 Phil. 120). To quote an old but very
illuminating decision of our Supreme Court through the pen of
American jurist Adam C. Carson:
"Under our system of pleading it is the duty of the courts to
grant the relief to which the parties are shown to be entitled by
the allegations in their pleadings and the facts proven at the
trial, and the mere fact that they themselves misconstrue the
legal effect of the facts thus alleged and proven will not prevent
the court from placing the just construction thereon and
adjudicating the issues accordingly." (Alzua v. Johnson, 21 Phil.
308)
And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA
741, the Honorable Supreme Court also held:
We rule that the respondent court did not commit any error in
taking cognizance of the aforesaid issues, although not raised
before the trial court. The presence of strong consideration of
substantial justice has led this Court to relax the well-
entrenched rule that, except questions on jurisdiction, no
question will be entertained on appeal unless it has been raised
in the court below and it is within the issues made by the parties
in their pleadings (Cordero v. Cabral, L-36789, July 25, 1983,
123 SCRA 532). . . .
We believe that the above authorities suffice to show that this
Court did not err in applying Art. 1267 of the New Civil Code to
this case. Defendant-appellant stresses that the applicability of
said provision is a question of fact, and that it should have been
given the opportunity to present evidence on said question. But
defendant-appellant cannot honestly and truthfully claim that
it (did) not (have) the opportunity to present evidence on the
issue of whether the continued operation of the contract Exh.
"A" has now become too one-sided in its favor and too
inequitous, unfair, and disadvantageous to plaintiff. As held in
our decision, the abundant and copious evidence presented by
both parties in this case and summarized in said decision
established the following essential and vital facts which led us
to apply Art. 1267 of the New Civil Code to this case:
xxx xxx xxx 15
On the issue of prescription of private respondent's action for
reformation of contract, petitioners allege that respondent
court's ruling that the right of action "arose only after said
contract had already become disadvantageous and unfair to it
due to subsequent events and conditions, which must be
sometime during the latter part of 1982 or in 1983 . . ." 16 is
erroneous. In reformation of contracts, what is reformed is not
the contract itself, but the instrument embodying the contract.
It follows that whether the contract is disadvantageous or not
is irrelevant to reformation and therefore, cannot be an
element in the determination of the period for prescription of
the action to reform.
Article 1144 of the New Civil Code provides, inter alia, that an
action upon a written contract must be brought within ten (10)
years from the time the right of action accrues. Clearly, the ten
(10) year period is to be reckoned from the time the right of
action accrues which is not necessarily the date of execution of
the contract. As correctly ruled by respondent court, private
respondent's right of action arose "sometime during the latter
part of 1982 or in 1983 when according to Atty. Luis General, Jr.
. . ., he was asked by (private respondent's) Board of Directors
to study said contract as it already appeared disadvantageous
to (private respondent) (p. 31, tsn, May 8, 1989). (Private
respondent's) cause of action to ask for reformation of said
contract should thus be considered to have arisen only in 1982
or 1983, and from 1982 to January 2, 1989 when the complaint
in this case was filed, ten (10) years had not yet elapsed." 17
Regarding the last issue, petitioners allege that there is nothing
purely potestative about the prestations of either party
because petitioner's permission for free use of telephones is
not made to depend purely on their will, neither is private
respondent's permission for free use of its posts dependent
purely on its will.
Apart from applying Article 1267, respondent court cited
another legal remedy available to private respondent under the
allegations of its complaint and the preponderant evidence
presented by it:
. . . we believe that the provision in said agreement —
(a) That the term or period of this contract shall be as long as
the party of the first part [herein appellant] has need for the
electric light posts of the party of the second part [herein
plaintiff] it being understood that this contract shall terminate
when for any reason whatsoever, the party of the second part
is forced to stop, abandoned [sic] its operation as a public
service and it becomes necessary to remove the electric light
post [sic]"; (Emphasis supplied)
is invalid for being purely potestative on the part of appellant
as it leaves the continued effectivity of the aforesaid agreement
to the latter's sole and exclusive will as long as plaintiff is in
operation. A similar provision in a contract of lease wherein the
parties agreed that the lessee could stay on the leased premises
"for as long as the defendant needed the premises and can
meet and pay said increases" was recently held by the Supreme
Court in Lim v. C.A., 191 SCRA 150, citing the much earlier case
of Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being "a
purely potestative condition because it leaves the effectivity
and enjoyment of leasehold rights to the sole and exclusive will
of the lessee." Further held the High Court in the Lim case:
The continuance, effectivity and fulfillment of a contract of
lease cannot be made to depend exclusively upon the free and
uncontrolled choice of the lessee between continuing the
payment of the rentals or not, completely depriving the owner
of any say in the matter. Mutuality does not obtain in such a
contract of lease of no equality exists between the lessor and
the lessee since the life of the contract is dictated solely by the
lessee.
The above can also be said of the agreement Exh. "A" between
the parties in this case. There is no mutuality and equality
between them under the afore-quoted provision thereof since
the life and continuity of said agreement is made to depend as
long as appellant needs plaintiff's electric posts. And this is
precisely why, since 1977 when said agreement was executed
and up to 1989 when this case was finally filed by plaintiff, it
could do nothing to be released from or terminate said
agreement notwithstanding that its continued effectivity has
become very disadvantageous and inequitous to it due to the
expansion and increase of appellant's telephone services within
Naga City and even outside the same, without a corresponding
increase in the ten (10) telephone units being used by plaintiff
free of charge, as well as the bad and inefficient service of said
telephones to the prejudice and inconvenience of plaintiff and
its customers. . . . 18
Petitioners' allegations must be upheld in this regard. A
potestative condition is a condition, the fulfillment of which
depends upon the sole will of the debtor, in which case, the
conditional obligation is void. 19 Based on this definition,
respondent court's finding that the provision in the contract, to
wit:
(a) That the term or period of this contract shall be as long as
the party of the first part (petitioner) has need for the electric
light posts of the party of the second part (private respondent)
. . ..
is a potestative condition, is correct. However, it must have
overlooked the other conditions in the same provision, to wit:
. . . it being understood that this contract shall terminate when
for any reason whatsoever, the party of the second part
(private respondent) is forced to stop, abandoned (sic) its
operation as a public service and it becomes necessary to
remove the electric light post (sic);
which are casual conditions since they depend on chance,
hazard, or the will of a third person. 20 In sum, the contract is
subject to mixed conditions, that is, they depend partly on the
will of the debtor and partly on chance, hazard or the will of a
third person, which do not invalidate the aforementioned
provision. 21 Nevertheless, in view of our discussions under the
first and second issues raised by petitioners, there is no reason
to set aside the questioned decision and resolution of
respondent court.
WHEREFORE, the petition is hereby DENIED. The decision of the
Court of Appeals dated May 28, 1992 and its resolution dated
September 10, 1992 are AFFIRMED.
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.
DECISION
DAVIDE, JR., J.:
This petition for review on certiorari has its roots in Civil Case
No. 53444, which was sparked by the 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 the 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.
...
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 contract, payment of rental would commence on the
date of the issuance of an industrial clearance by the Ministry
of Human Settlements, and not from 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]
The 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 the claim of the private respondents 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, the 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 the 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 the 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 the 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] (Underscoring 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 the 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 rental counted from the date
the permit was issued.
Also worth noting is the earlier letter of petitioner; 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 the 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 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."
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".[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 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 petitioners 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 the 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 petitioners
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 or 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 is not apply here.
Third. According to petitioner, the award of P492,000
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 petitioners 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 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 1988.[39] Upon the denial of the said motion for lack of
petitioners behalf. merit,[40] petitioner filed a second motion for
It must be recalled that private respondents rested their case reconsideration. But during the hearing of the motion on a date
on 7 September 1987 yet.[27] Almost a year after, or on 10 selected by him, Atty. Vega was absent for no reason at all,
August 1988 when it was petitioners turn to present evidence, despite due notice.[41]
petitioners counsel asked for postponement of the hearing to From the foregoing narration of procedural antecedents, it
25 August 1988 due to conflict of schedules,[28] and this was cannot be said that the petitioner was deprived of its day in
granted.[29] At the rescheduled hearing, petitioners counsel, court. The essence of due process is simply an opportunity to
through a representative, moved anew for postponement, as be heard.[42]To be heard does not only mean oral arguments in
he was allegedly indisposed.[30] The case was then reset court; one may be heard also through pleadings. Where
intransferable to September 15 and 26, 1988.[31] On 2 opportunity to be heard, either through oral arguments or
September 1988, the Office of the Government Corporate pleadings, is accorded, there is no denial of procedural due
Counsel, through Atty. Elpidio J. Vega, entered its appearance process.[43]
for the petitioner,[32] and later the original counsel withdrew his WHEREFORE, the instant petition is DENIED and the challenged
appearance.[33] On 15 September 1988, Atty. Vega requested decision of the Court of Appeals is AFFIRMED in toto.
for postponement to enable him to go over the records of the No pronouncements as to costs.
case.[34] With his conformity, the hearing was reset SO ORDERED.
intransferable to September 26 and October 17, 1988.[35] In the
morning of 26 September 1988, the court received Atty. Vegas
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 file one.
Likewise, the court was liberal in respect to petitioners 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
[G.R. No. 104726. February 11, 1999]
VICTOR YAM & YEK SUN LENT, doing business under the name
and style of Philippine Printing Works, petitioners, vs. THE
COURT OF APPEALS and MANPHIL INVESTMENT
CORPORATION, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision[1] of the Court of
Appeals affirming in toto the decision of the Regional Trial
Court of Manila (Branch 149), ordering petitioners to pay
private respondent the amount of P266,146.88 plus interest,
service charge, penalty fees, and attorneys fees and the costs,
otherwise the chattel mortgage given to secure payment of the
loan would be foreclosed.
The following are the facts:
On May 10, 1979, the parties in this case entered into a Loan
Agreement with Assumption of Solidary Liability whereby
petitioners were given a loan of P500,000.00 by private
respondent. The contract provided for the payment of 12%
annual interest, 2% monthly penalty, 1 1/2% monthly service
charge, and 10% attorneys fees.[2] Denominated the first
Industrial Guarantee and Loan Fund (IGLF), the loan was
secured by a chattel mortgage on the printing machinery in
petitioners establishment.[3]
Petitioners subsequently obtained a second IGLF loan
of P300,000.00 evidenced by two promissory notes, dated July
3, 1981 and September 30, 1981. For this purpose, a new loan
agreement[4] was entered into by the parties containing
identical provisions as the first one, except as to the annual
interest which was increased to 14% and the service charge
which was reduced to 1% per annum. The deed of chattel
mortgage was amended correspondingly.[5]
By April 2, 1985, petitioners had paid their first loan
of P500,000.00. On November 4, 1985, private respondent was
placed under receivership by the Central Bank and Ricardo Lirio
and Cristina Destajo were appointed as receiver and in-house
examiner, respectively.
On May 17, 1986, petitioners made a partial payment
of P50,000.00 on the second loan. They later wrote private
respondent a letter, dated June 18, 1986, proposing to settle
their obligation. On July 2, 1986, private respondent, through
its counsel, replied with a counter-offer, namely, that it would
reduce the penalty charges up to P140,000.00, provided
petitioners can pay their obligation on or before July 30, 1986.[6]
As of July 31, 1986, petitioners total liability to private
respondent was P727,001.35, broken down as follows:[7]
Principal - P295,469.47
Interest - 165,385.00
Penalties - 254,820.55
Service Charges - 11,326.33
TOTAL P 727,001.35
On this date, petitioners paid P410,854.47 by means of a
Pilipinas Bank check, receipt of which was acknowledged by
Destajo.[8] The corresponding voucher for the check bears the
following notation: full payment of IGLF LOAN.[9]
The amount of P410,854.47 was the sum of the principal
(P295,469.47) and the interest (P165,385.00) less the partial
payment of P50,000.00. The private respondent sent two
demand letters to petitioners, dated September 4, 1986 and
September 25, 1986, seeking payment of the balance
of P266,146.88. As petitioners did not respond, private
respondent filed this case in the Regional Trial Court of Metro
Manila for thecollection of P266,146.88 plus interests,
penalties, and service charges or, in the alternative, for the
foreclosure of the mortgaged machineries.
In their Answer, petitioners claimed that they had fully paid
their obligation to private respondent. They contended that
some time after receiving private respondents letter of July 2,
1986 (concerning the conditional offer to reduce their penalty
charges), petitioner Victor Yam and his wife, Elena Yam, met
with Carlos Sobrepeas, president of respondent corporation,
during which the latter agreed to waive the penalties and
service charges, provided petitioners paid the principal and
interest, computed as of July 31, 1986, less the earlier payment
of P50,000.00. This is the reason why according to them they
only paid P410,854.47. Petitioners added that this fact of full
payment is reflected in the voucher accompanying the Pilipinas
Bank check they issued, which bore the notation full payment
of IGLF loan.
On April 30, 1990, the lower court rendered a decision, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the defendants Victor
Yam and Yek Sun Lent are hereby ordered to pay jointly and
severally, the principal loan balance of P266,146.88 as of
September 4, 1986 plus interest at 14% per annum, service
charge at 1% per annum and penalty fees at 2% per month and
to pay plaintiff attorneys fees equivalent to 10% of the amount
to be recovered, and to pay the costs of suit, failing in which,
the chattel mortgage instituted on the printing machineries and
equipment described in the Deed of Chattel Mortgage dated
May 10, 1979, as amended, is hereby declared foreclosed and
the subject thereof sold in accordance with law to satisfy the
judgment herein rendered.
SO ORDERED.[10]
On appeal, the Court of Appeals affirmed the decision of the
trial court in toto. Hence, this petition. Petitioners reiterate the
same assignment of errors made by them before the Court of
Appeals, to wit:[11]
FIRST ASSIGNED ERROR
THAT THE LOWER COURT GRIEVOUSLY ERRED IN FAILING TO
GIVE CREDENCE TO THE DOCUMENTARY AS WELL AS
TESTIMONIAL EVIDENCE OF THE PETITIONERS RELATIVE TO THE
PAYMENT TO THE RESPONDENT OF THE ADDITIONAL LOAN
UNDER THE AMENDMENT OF DEED OF CHATTEL MORTGAGE
(EXHIBIT K, RESPONDENT) AND AS AGAINST THE TESTIMONY
OF RESPONDENTS WITNESS, CRISTINA L. DESTAJO.
SECOND ASSIGNED ERROR
THAT THE COURT BELOW ERRED IN NOT TOTALLY
DISREGARDING EXHIBITS E AND F OF THE RESPONDENTS
The question is whether petitioners are liable for the payment
of the penalties and service charges on their loan which, as of
July 31, 1986, amounted to P266,146.88.
The answer is in the affirmative. Art. 1270, par. 2 of the Civil
Code provides that express condonation must comply with the
forms of donation.[12] Art. 748, par. 3 provides that the
donation and acceptance of a movable, the value of which
exceeds P5,000.00, must be made in writing, otherwise the
same shall be void. In this connection, under Art. 417, par. 1,
obligations, actually referring to credits,[13] are considered
movable property. In the case at bar, it is undisputed that the
alleged agreement to condone P266,146.88 of the second IGLF
loan was not reduced in writing.[14]
Nonetheless, petitioners insist that the voucher covering the
Pilipinas Bank check for P410,854.47, containing the notation
that the amount is in full payment of IGLF loan, constitutes
documentary evidence of such oral agreement. This contention
is without merit. The notation in full payment of IGLF loan
merely states petitioners intention in making the payment, but
in no way does it bind private respondent. It would have been
a different matter if the notation appeared in a receipt issued
by respondent corporation, through its receiver, because then
it would be an admission against interest. Indeed, if private
respondent really condoned the amount in question,
petitioners should have asked for a certificate of full payment
from respondent corporation, as they did in the case of their
first IGLF loan of P500,000.00.[15]
Petitioners, however, contend that the Central Bank examiner
assigned to respondent corporation, Cristina Destajo, signed
the voucher in question. Destajo claimed that, when she signed
the voucher, she failed to notice the statement that the amount
of P410,854.47 was being given in full payment of IGLF
Loan. She said she merely took note of the amount and the
check number indicated therein.[16] In any event, Destajo, by
countersigning the voucher, did no more than acknowledge
receipt of the payment. She cannot be held to have ascented
thereby to the payment in full of petitioners indebtedness to
private respondent. It was obvious she had no authority to
condone any indebtedness, her duties being limited to issuing
official receipts, preparing check vouchers and
documentation.[17]
Moreover, it is to be noted that the alleged agreement to
condone the amount in question was supposedly entered into
by the parties sometime in July 1986, that is, after respondent
corporation had been placed under receivership on November
4, 1985. As held in Villanueva v. Court of Appeals[18] the
appointment of a receiver operates to suspend the authority of
a [corporation] and of its directors and officers over its property
and effects, such authority being reposed in the
receiver.[19] Thus, Sobrepeas had no authority to condone the
debt.
Indeed, Mrs. Yam herself testified that when she and her
husband sought the release of the chattel mortgage over their
property, they were told that only the Central Bank would
authorize the same because [the CB] is the
receiver.[20] Considering this, petitioners cannot feign
ignorance and plead good faith.
The second assignment of error pertains to the petitioners
allegation that they did not receive the two letters of demand
sent by private respondent on September 4 and September 25,
1986. Both the lower court and the Court of Appeals found
otherwise. We have no reason to disturb this factual finding. It
is settled that findings of fact of trial courts, adopted and
confirmed by the Court of Appeals, are final and conclusive and,
as a rule, will not be reviewed on appeal.[21]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 109172 August 19, 1994
TRANS-PACIFIC INDUSTRIAL SUPPLIES, INC., petitioner,
vs.
The COURT OF APPEALS and ASSOCIATED BANK, respondents.
Gancayco Law Offices for petitioners.
Jose A. Soluta, Jr. & Associates for private respondent.
BIDIN, J.:
In this petition for review on certiorari, petitioner Trans-Pacific
Industrial Supplies, Inc. seeks the reversal of the decision of
respondent court, the decretal portion of which reads:
WHEREFORE, the decision of June 11, 1991 is SET ASIDE and
NULLIFIED; the complaint is dismissed, and on the
counterclaim, Transpacific is ordered to pay Associated
attorney's fees of P15,000.00.
Costs against Transpacific.
SO ORDERED. (Rollo, p. 47)
Sometime in 1979, petitioner applied for and was granted
several financial accommodations amounting to P1,300,000.00
by respondent Associated Bank. The loans were evidenced and
secured by four (4) promissory notes, a real estate mortgage
covering three parcels of land and a chattel mortgage over
petitioner's stock and inventories.
Unable to settle its obligation in full, petitioner requested for,
and was granted by respondent bank, a restructuring of the
remaining indebtedness which then amounted to
P1,057,500.00, as all the previous payments made were applied
to penalties and interests.
To secure the re-structured loan of P1,213,400.00, three new
promissory notes were executed by Trans-Pacific as follows: (1)
Promissory Note No. TL-9077-82 for the amount of
P1,050,000.00 denominated as working capital; (2) Promissory
Note No. TL-9078-82 for the amount of P121,166.00
denominated as restructured interest; (3) Promissory Note No.
TL-9079-82 for the amount of P42,234.00 denominated
similarly as restructured interest (Rollo. pp. 113-115).
The mortgaged parcels of land were substituted by another
mortgage covering two other parcels of land and a chattel
mortgage on petitioner's stock inventory. The released parcels
of land were then sold and the proceeds amounting to
P1,386,614.20, according to petitioner, were turned over to the
bank and applied to Trans-Pacific's restructured loan.
Subsequently, respondent bank returned the duplicate original
copies of the three promissory notes to Trans-Pacific with the
word "PAID" stamped thereon.
Despite the return of the notes, or on December 12, 1985,
Associated Bank demanded from Trans-Pacific payment of the
amount of P492,100.00 representing accrued interest on PN
No. TL-9077-82. According to the bank, the promissory notes
were erroneously released.
Initially, Trans-Pacific expressed its willingness to pay the
amount demanded by respondent bank. Later, it had a change
of heart and instead initiated an action before the Regional Trial
Court of Makati, Br. 146, for specific performance and
damages. There it prayed that the mortgage over the two
parcels of land be released and its stock inventory be lifted and
that its obligation to the bank be declared as having been fully
paid.
After trial, the court a quo rendered judgment in favor of Trans-
Pacific, to wit:
WHEREFORE, premises considered and upon a clear
preponderance of evidence in support of the stated causes of
action, the Court finds for the plaintiffs and against defendant,
and
(a) declares plaintiff's obligations to defendant to have been
already fully paid;
(b) orders defendant to execute and deliver to plaintiffs a
release on the i September 11, 1981 mortgage over TCT
(50858)
S-10086 and TCT (50859) S-109087, and ii December 20, 1983
chattel mortgage, within fifteen (15) days from the finality
hereof;
(c) orders defendant to pay plaintiffs Romeo Javier and Romana
Bataclan-Javier the sum of P50,000.00 as and for moral
damages; and
(d) orders defendant to pay plaintiffs the sum of P30,000.00 as
attorney's fees, plus expenses of the suit.
Defendant's counterclaims are dismissed for lack of merit.
With costs against defendant.
SO ORDERED. (Rollo, p. 101)
Respondent bank elevated the case to the appellate court
which, as aforesaid, reversed the decision of the trial court. In
this appeal, petitioner raises four errors allegedly committed by
the respondent court, namely:
I Respondent court disagreed and held, among others, that the
RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT THE
ACCRUED INTEREST IN THE AMOUNT OF 492,100.00 HAS NOT
BEEN PAID WHEN ARTICLE 1176 OF THE CIVIL CODE PROVIDES
THAT SUCH CLAIM FOR INTEREST UPON RECEIPT OF PAYMENT
OF THE PRINCIPAL MUST BE RESERVED OTHERWISE IT IS
DEEMED PAID.
II
RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT
WITH THE DELIVERY OF THE DOCUMENTS EVIDENCING THE
PRINCIPAL OBLIGATION, THE ANCILLARY OBLIGATION OF
PAYING INTEREST WAS NOT RENOUNCED CONTRARY TO THE
PROVISIONS OF ART. 1273 OF THE CIVIL CODE AND THE
UNDISPUTED EVIDENCE ON RECORD.
III
RESPONDENT APPELLATE COURT ERRED IN NOT HOLDING THAT
PETITIONER HAS FULLY PAID ITS OBLIGATION CONFORMABLY
WITH ARTICLE 1234 OF THE CIVIL CODE.
IV
RESPONDENT APPELLATE COURT ERRED IN AWARDING
ATTORNEY'S FEES IN FAVOR OF ASSOCIATED BANK (Rollo, p.
15).
The first three assigned errors will be treated jointly since their
resolution border on the common issue, i.e., whether or not
petitioner has indeed paid in full its obligation to respondent
bank.
Applying the legal presumption provided by Art. 1271 of the
Civil Code, the trial court ruled that petitioner has fully
discharged its obligation by virtue of its possession of the
documents (stamped "PAID") evidencing its indebtedness.
documents found in possession of Trans-Pacific are mere
duplicates and cannot be the basis of petitioner's claim that its
obligation has been fully paid. Accordingly, since the
promissory notes submitted by petitioner were duplicates and
not the originals, the delivery thereof by respondent bank to
the petitioner does not merit the application of Article 1271
(1st par.) of the Civil Code which reads:
Art. 1271. The delivery of a private document evidencing a
credit, made voluntarily by the creditor to the debtor, implies
the renunciation of the action which the former had against the
latter.
Respondent court is of the view that the above provision must
be construed to mean the original copy of the document
evidencing the credit and not its duplicate, thus:
. . . [W]hen the law speaks of the delivery of the private
document evidencing a credit, it must be construed as referring
to the original. In this case, appellees (Trans-Pacific) presented,
not the originals but the duplicates of the three promissory
notes." (Rollo, p. 42)
The above pronouncement of respondent court is manifestly
groundless. It is undisputed that the documents presented
were duplicate originals and are therefore admissible as
evidence. Further, it must be noted that respondent bank itself
did not bother to challenge the authenticity of the duplicate
copies submitted by petitioner. In People vs. Tan, (105 Phil.
1242 [1959]), we said:
When carbon sheets are inserted between two or more sheets
of writing paper so that the writing of a contract upon the
outside sheet, including the signature of the party to be
charged thereby, produces a facsimile upon the sheets
beneath, such signature being thus reproduced by the same
stroke of pen which made the surface or exposed impression,
all of the sheets so written on are regarded as duplicate
originals and either of them may be introduced in evidence as
such without accounting for the nonproduction of the others.
A duplicate copy of the original may be admitted in evidence
when the original is in the possession of the party against whom
the evidence is offered, and the latter fails to produce it after
reasonable notice (Sec. 2[b], Rule 130), as in the case of
respondent bank.
This notwithstanding, we find no reversible error committed by
the respondent court in disposing of the appealed decision. As
gleaned from the decision of the court a quo, judgment was
rendered in favor of petitioner on the basis of presumptions, to
wit:
The surrender and return to plaintiffs of the promissory notes
evidencing the consolidated obligation as restructured,
produces a legal presumption that Associated had thereby
renounced its actionable claim against plaintiffs (Art. 1271,
NCC). The presumption is fortified by a showing that said
promissory notes all bear the stamp "PAID", and has not been
otherwise overcome. Upon a clear perception that Associated's
record keeping has been less than exemplary . . ., a proffer of
bank copies of the promissory notes without the "PAID" stamps
thereon does not impress the Court as sufficient to overcome
presumed remission of the obligation vis-a-vis the return of
said promissory notes. Indeed, applicable law is supportive of a
finding that in interest bearing obligations-as is the case here,
payment of principal (sic) shall not be deemed to have been
made until the interests have been covered (Art. 1253, NCC).
Conversely, competent showing that the principal has been
paid, militates against postured entitlement to unpaid
interests.
In fine. the Court is satisfied that plaintiffs must be found to
have settled their obligations in full.
As corollary, a finding is accordingly compelled that plaintiffs
(sic) accessory obligations under the real estate mortgage over
two (2) substituted lots as well as the chattel mortgage, have
been extinguished by the renunciation of the principal debt
(Art. 1273, NCC), following the time-honored axiom that the
accessory follows the principal. There is, therefore, compelling
warrant (sic) to find in favor of plaintiffs insofar as specific
performance for the release of the mortgages on the
substituted lots and chattel is concerned. (Rollo, p. 100)
premised by:
Records show that Associated's Salvador M. Mesina is on
record as having testified that all three (3) December 8, 1990
promissory notes for the consolidated principal obligation,
interest and penalties had been fully paid (TSN, July 18, 1990,
p. 18). It is, moreover, admitted that said promissory notes
were accordingly returned to Romeo Javier. (Ibid.)
The above disquisition finds no factual support, however, per
review of the records. The presumption created by the Art.
1271 of the Civil Code is not conclusive but merely prima facie.
If there be no evidence to the contrary, the presumption
stands. Conversely, the presumption loses its legal efficacy in
the face of proof or evidence to the contrary. In the case before
us, we find sufficient justification to overthrow the
presumption of payment generated by the delivery of the
documents evidencing petitioners indebtedness.
It may not be amiss to add that Article 1271 of the Civil Code
raises a presumption, not of payment, but of the renunciation
of the credit where more convincing evidence would be
required than what normally would be called for to prove
payment. The rationale for allowing the presumption of
renunciation in the delivery of a private instrument is that,
unlike that of a public instrument, there could be just one copy
of the evidence of credit. Where several originals are made out
of a private document, the intendment of the law would thus
be to refer to the delivery only of the original original rather
than to the original duplicate of which the debtor would
normally retain a copy. It would thus be absurd if Article 1271
were to be applied differently.
While it has been consistently held that findings of facts are not
reviewable by this Court, this rule does not find application
where both the trial and the appellate courts differ thereon
(Asia Brewery, Inc. v. CA, 224 SCRA 437 [1993]).
Petitioner maintains that the findings of the trial court should
be sustained because of its advantage in observing the
demeanor of the witnesses while testifying (citing Crisostomo
v. Court of Appeals, 197 SCRA 833) more so where it is
supported by the records (Roman Catholic Bishop of Malolos v.
Court of Appeals, 192 SCRA 169).
This case, however, does not concern itself with the demeanor
of witnesses. As for the records, there is actually none
submitted by petitioner to prove that the contested amount,
i.e., the interest, has been paid in full. In civil cases, the party
that alleges a fact has the burden of proving it (Imperial Victory
Shipping Agency v. NLRC 200 SCRA 178 [1991]). Petitioner could
have easily adduced the receipts corresponding to the amounts
paid inclusive of the interest to prove that it has fully discharged
its obligation but it did not.
There is likewise nothing on the records relied upon by the trial
court to support its claim, by empirical evidence, that the
amount corresponding to the interest has indeed been paid.
The trial court totally relied on a disputable presumption that
the obligation of petitioner as regards interest has been fully
liquidated by the respondent's act of delivering the instrument
evidencing the principal obligation. Rebuttable as they are, the
court a quo chose to ignore an earlier testimony of Mr. Mesina
anent the outstanding balance pertaining to interest, as
follows:
Court:
Q Notwithstanding, let us go now specifically to promissory
note No. 9077-82 in the amount of consolidated principal of
P1,050,000.00. Does the Court get it correctly that this
consolidated balance has been fully paid?
A Yes, the principal, yes, sir.
Q Fully settled?
A Fully settled, but the interest of that promissory note has not
been paid, Your Honor.
Q In other words, you are saying, fully settled but not truly fully
settled?
A The interest was not paid.
Q Not fully settled?
A The interest was not paid, but the principal obligation was
removed from our books, Your Honor.
Q And you returned the promissory note?
A We returned the promissory note. (TSN, July 18, 1990, p. 22)
That petitioner has not fully liquidated its financial obligation to
the Associated Bank finds more than ample confirmation and
self-defeating posture in its letter dated December 16, 1985,
addressed to respondent bank, viz.:
. . . that because of the prevailing unhealthy economic
conditions, the business is unable to generate sufficient
resources for debt servicing.
Fundamentally on account of this, we propose that you permit
us to fully liquidate the remaining obligations to you of
P492,100 through a payment in kind (dacion en pago)
arrangement by way of the equipments (sic) and spare parts
under chattel mortgage to you to the extent of their latest
appraised values." (Rollo, pp. 153-154; Emphasis supplied)
Followed by its August 20, 1986 letter which reads:
We have had a series of communications with your bank
regarding our proposal for the eventual settlement of our
remaining obligations . . .
As you may be able to glean from these letters and from your
credit files, we have always been conscious of our obligation to
you which had not been faithfully serviced on account of
unfortunate business reverses. Notwithstanding these
however, total payments thus far remitted to you already
exceede (sic) the original principal amount of our
obligation. But because of interest and other charges, we find
ourselves still obligated to you by P492,100.00. . . .
. . . We continue to find ourselves in a very fluid (sic) situation
in as much as the overall outlook of the industry has not
substantially improved. Principally for this reason, we had
proposed to settle our remaining obligations to you by way of
dacion en pago of the equipments (sic) and spare parts
mortgaged to you to (the) extent of their applicable loan values.
(Rollo, p. 155; Emphasis supplied)
Petitioner claims that the above offer of settlement or
compromise is not an admission that anything is due and is
inadmissible against the party making the offer (Sec. 24, Rule
130, Rules of Court). Unfortunately, this is not an iron-clad rule.
To determine the admissibility or non-admissibility of an offer
to compromise, the circumstances of the case and the intent of
the party making the offer should be considered. Thus, if a party
denies the existence of a debt but offers to pay the same for
the purpose of buying peace and avoiding litigation, the offer
of settlement is inadmissible. If in the course thereof, the party
making the offer admits the existence of an indebtedness The countervailing evidence against the claim of full payment
combined with a proposal to settle the claim amicably, then, emanated from Transpacific itself. It cannot profess ignorance
the admission is admissible to prove such indebtedness of the existence of the two letters, Exhs. 3 & 4, or of the import
(Moran, Comments on the Rules of Court, Vol. 5, p. 233 [1980 of what they contain. Notwithstanding the letters, Transpacific
ed.); Francisco, Rules of Court, Vol. VII, p. 325 [1973 ed.] citing opted to file suit and insist(ed) that its liabilities had already
McNiel v. Holbrook, 12 Pac. (US) 84, 9 L.ed. 1009). Indeed, an been paid. There was thus an
offer of settlement is an effective admission of a borrower's ill-advised attempt on the part of Transpacific to capitalize on
loan balance (L.M. Handicraft Manufacturing Corp. v. Court of the delivery of the duplicates of the promissory notes, in
Appeals, 186 SCRA 640 [1990]). Exactly, this is what petitioner complete disregard of what its own records show. In the
did in the case before us for review. circumstances, Art. 2208 (4) and (11) justify the award of
Finally, respondent court is faulted in awarding attorney's fees attorney's fees. The sum of P15,000.00 is fair and equitable.
in favor of Associated Bank. True, attorney's fees may be (Rollo, pp. 46-47)
awarded in a case of clearly unfounded civil action (Art. 2208 WHEREFORE, the petition is DENIED for lack of merit. Costs
[4], CC). However, petitioner claims that it was compelled to file against petitioner.
the suit for damages in the honest belief that it has fully SO ORDERED.
discharged its obligations in favor of respondent bank and
therefore not unfounded.
We believe otherwise. As petitioner would rather vehemently
deny, undisputed is the fact of its admission regarding the
unpaid balance of P492,100.00 representing interests. It cannot
also be denied that petitioner opted to sue for specific
performance and damages after consultation with a lawyer
(Rollo, p. 99) who advised that not even the claim for interests
could be recovered; hence, petitioner's attempt to seek refuge
under Art. 1271 (CC). As previously discussed, the presumption
generated by Art. 1271 is not conclusive and was successfully
rebutted by private respondent. Under the circumstances, i.e.,
outright and honest letters of admission vis-a-vis counsel-
induced recalcitrance, there could hardly be honest belief. In
this regard, we quote with approval respondent court's
observation:
G.R. No. 111890 May 7, 1997
CKH INDUSTRIAL AND DEVELOPMENT CORPORATION and
RUBI SAW, petitioners,
vs.
THE COURT OF APPEALS, (FORMER 13TH DIVISION), THE
REGISTER OF DEEDS OF METRO MANILA — DISTRICT III
(VALENZUELA), CENTURY-WELL PHIL. CORPORATION,
LOURDES CHONG, CHONG TAK KEI and UY CHI
KIM, respondents.
TORRES, JR., J.:
The present petition springs from a civil action instituted by
herein petitioners, to rescind and/or annul the sale of two
parcels of land, from petitioner CKH Industrial and
Development Corporation (CKH, for brevity) to private
respondent Century-Well Phil. Corporation (Century-Well, for
brevity), for failure to pay the stipulated price of P800,000.00.
Petitioners specifically assail the Decision1 of the respondent
Court of Appeals, which denied the annulment of the sale. The
appellate court found that there was payment of the
consideration by way of compensation, and ordered petitioners
to pay moral damages and attorney's fees to private
respondents. The dispositive portion of the questioned
decision reads:
WHEREFORE, in view of all the foregoing, the appealed Decision
is REVERSED. The complaint is DISMISSED with costs against the
plaintiffs. The plaintiffs jointly and severally are required to pay
each of the defendants Lourdes Chong, Chong Tak Kei, and Uy
Chi Kim moral damages of P20,000.00; and further requiring
the plaintiffs, jointly and severally, to pay to each of the
defendants Century-Well Phil. Corporation, Lourdes Chong,
Chong Tak Kei and Uy Chi Kim attorney's fees of P20,000.00.
With costs in this instance against the plaintiffs-appellees.
SO ORDERED.2
The said decision reversed the disposition of the Regional Trial
Court of Valenzuela, Branch 172 in Civil Case No. 2845-V-88
entitled "CKH Industrial & Development Corporation vs.
Century-Well Philippine Corporation, Lourdes Chong, Chong
Tak Kei, Uy Chi Kim, and the Register of Deeds of Metro Manila,
District III (Valenzuela)." The trial court's decision stated
pertinently:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered in favor of plaintiff:
1. Ordering the rescission/annulment of the Deed of Absolute
Sale of Reality.
2. Ordering defendants Lourdes Chong, Chong Tak Kei and
Century-Well to pay plaintiffs moral damages in the sum of
P200,000.00;
3. Ordering defendants Lourdes Chong, Chong Tak Kei and
Century Well to pay plaintiffs Attorney's fees in the amount of
15% of the agreed price of P800,000.00 per appearance fees of
P500.00 per appearance;
4. Ordering defendants Lourdes Chong, Chong Tak Kei and
Century Well to pay the costs of suit;
5. As the writ of preliminary injunction was denied, the
defendant Register of Deeds of Valenzuela is hereby ordered to
cancel the certificates of title issued to Century-Well by virtue
of the Deed of Absolute Sale of Realty and to reissue a new title
in the name of CKH.
The case is dismissed as far as defendant Uy Chi Kim is
concerned. His counterclaim is likewise dismissed considering
that by his mediation he took it upon himself to assume the
damages he allegedly suffered.
SO ORDERED.3
The records disclosed that petitioner CKH is the owner of two
parcels of land, consisting of 4,590 sq. m. and 300 sq. m.
respectively, located in Karuhatan, Valenzuela, and covered by
Transfer Certificates of Tittle Nos. 8710 and 8711, Register of
Deeds of Caloocan City (now Register of Deeds District III
[Valenzuela]). 4 CKH is a corporation established under
Philippine law by the late Cheng Kim Heng (Cheng), an
immigrant of Chinese descent. Upon Cheng's demise, control
over the petitioner corporation was transferred to Rubi Saw,
also of Chinese descent, and Cheng's second wife.
It also appear that before coming to the Philippines, Cheng Kim
Heng was married to Hung Yuk Wah (Wah), who lived in
Hongkong together with their children, Chong Tak Kei (Kie),
Chong Tak Choi (Choi), and Chong Tak Yam (Yam). After Cheng
immigrated to the Philippines in 1976, and married Rubi Saw in
1977, he brought his first wife, Heng, and their children to this
country, and established himself and his Chinese family as
naturalized Filipino citizens. Heng died in 1984.
On May 8, 1988, Rubi Saw and Lourdes Chong, the wife of
Cheng's son, Kei, met at the 1266 Soler St., Sta. Cruz, Manila,
the residence of Cheng's friend, Uy Chi Kim, and executed a
Deed of Absolute Sale,5 whereby Rubi Saw, representing CKH,
agreed to sell the subject properties to Century-Well, a
corporation owned in part by Lourdes Chong, Kei and Choi.6
The pertinent portions of the Deed of Sale are hereby
reproduced:
KNOW ALL MEN BY THESE PRESENTS:
This Deed of Absolute Sale of Realty executed by and between:
CKH INDUSTRIAL & DEVELOPMENT CORPORATION, a
corporation duly organized and existing under and by virtue of
the laws of the Republic of the Philippines, with business
address at 553 Bermuda St.., Sta. Cruz, Manila, represented in
this act by its authorized representative, Ms. RUBI SAW,
hereinafter referred to as VENDOR,
— in favor of —
CENTURY-WELL PHIL. CORPORATION, a corporation duly
organized and existing under and by virtue of the laws of the
Republic of the Philippines at least sixty 60%) percent of the
subscribed capital stock of which is owned by Filipino citizens,
duly qualified to own and acquire lands in the Philippines, with
office and business address at 66 F Bautista St., Valenzuela,
Metro Manila and represented in this act by its Treasurer and
authorized representative, Ms. Lourdes Chong, hereinafter
referred to as VENDEE,
W I T N E S S E T H:
That vendor is the registered owner of two adjacent parcels of
residential land situated in the Bo. of Karuhatan, Municipality
of Valenzuela, Metro Manila, covered by Transfer Certificates
of Titles Nos. B-8710 and B-8711 of the Registry of Deeds for
Metro Manila District III, and more particularly described as
follows:
xxx xxx xxx
That for and in consideration of the sum of EIGHT HUNDRED
THOUSAND (P800,000.00) PESOS, Philippine Currency, paid by
VENDEE to VENDOR, receipt of which is hereby acknowledged
by the letter to its entire satisfaction, said VENDOR, by these
presents, has SOLD, CEDED, TRANSFERRED, and CONVEYED by
way of absolute sale unto said VENDEE, its successors and
assigns, the two parcels of land above described and any and
all improvements therein;
That the above-described parcels of land are free from liens and
encumbrances of whatever kind and nature.
IN WITNESS WHEREOF, the parties hereto and their
instrumental witnesses have hereunto set their hand on
_____at_____.
Rubi Saw signed on behalf of CKH, while Lourdes Chong signed
for Century Well.7 The document was notarized the day after
the parties signed the same, i.e., March 9, 1988.8
Claiming that the consideration for the sale of the subject
properties was not paid by the private respondent-vendee
despite several demands to do so, Petitioners CKH and Rubi
Saw filed the instant complaint 9 on May 23, 1988, with the
Regional Trial Court of Valenzuela, Branch 172, against Century-
Well, Lourdes Chong, Chong Tak Kei and Uy Chi Kim. Petitioners
prayed for the annulment/rescission of the Deed of Absolute
Sale, and in the meantime, for the issuance of a writ of
preliminary injunction restraining the Register of Deeds of
Valenzuela from registering the Certificates of Title over the
subject properties in the name of the private respondent
Century-Well.
The trial court synthesized the petitioners' submissions as
follows:
The complaint alleges the following:
Lourdes Chong and Rubi Saw agreed that the full payment of
P800,000.00 as purchase price shall be in the form of a
Manager's Check, to be delivered to Rubi Saw upon the
execution of the Deed of Sale, the preparation of which,
Lourdes Chong undertook. On May 8, 1988, the date agreed
upon for the execution of the Deed of Sale, plaintiff Rubi Saw,
accompanied by her friend Aurora Chua Ng, went to 1266 Soler
St., Sta. Cruz, Manila which is the residence and place of
business of defendant Uy Chi Kim, an elderly man of Chinese
ancestry and the place suggested by Lourdes Chong as their
meeting place. During the meeting, Uy Chi Kim who was there
presented to Rubi Saw a Deed of Absolute Sale in favor of
defendant Century Well for her signature. Before Rubi Saw
signed the Deed of Absolute Sale she inquired about the
payment of the P800,000.00. Defendant Uy Chi Kim presented
to her a personal check but she refused the same because it
was contrary to her arrangement with Lourdes Chong that the
payment would be in the form of Manager's Check. Uy Chi Kim
then explained to Rubi Saw that since it was a Sunday that day,
they were unable to obtain the Manager's Check. He assured
her that he had sufficient cash money at the first floor of his
residence which is a store owned by Uy Chi Kim. Before Uy Chi
Kim left on the pretext of getting the money, he persuaded
plaintiff Rubi Saw to sign the Deed of Absolute Sale and give the
same to Lourdes Chong together with the two Certificates of
Title. Since Uy Chi Kim is an elderly Chinese whom Rubi Saw had
no reason to mistrust, following Chinese custom, plaintiff Rubi
Saw acceded to the request of Uy Chi Kim, trusting that he had
sufficient cash amounting to P800,000.00 kept in the first floor
of his residence. When Uy Chi Kim returned, he told Rubi Saw
that he had only P20,000 on hand. He assured plaintiff,
however, that there was no cause for her to worry (as) he was
certain he would have the entire amount ready by the next day
when the banks would be open. Again, trusting the elderly
defendant Uy Chi Kim, Rubi Saw did not object and did not insist
on the return of the Deed of Absolute Sale that she signed,
together with the Certificate of Title which she delivered to
Lourdes Chong. The next day, May 9, 1988 Rubi Saw called
Lourdes Chong and Uy Chi Kim over the telephone but was told
they were not around. She could not go to the residence of Uy
Chi Kim because she could not leave her office due to business
concerns. On May 10, 1988 Rubi Saw repeatedly called the two
but was informed they were not around. On May 11, 1988
already anxious, she personally went to the residences and
offices of the two defendants but they were not around. On
May 12, 1988 Rubi Saw wrote defendant Century Well advising
Lourdes Chong of the rescission and cancellation of the Deed of
Absolute Sale because of lack of consideration. Lourdes Chong
refused to receive the letter. Thereafter, several demand
letters were sent to the defendants but they refused to pay
plaintiffs. Worried that defendants might surreptitiously
transfer the certificates of title to their names, Rubi Saw wrote
the public defendant Register of Deeds on May 16, 1988, giving
information about the circumstances of the sale and requesting
not to allow registration of the Deed of Absolute Sale, together
with an Affidavit of Adverse Claim. On May 20, 1988, plaintiffs
representative was informed by the Register of Deeds that
defendants have made representations with defendant to
Register the Deed of Absolute Sale on May 23, 1988.
Plaintiff Rubi Saw filed this Complaint alleging that Lourdes
Chong and Uy Chi Kim maliciously misled her to believe that
they would pay the P800,000 as consideration when in fact they
had no intention to pay plaintiffs, and prayed that they should
be awarded moral damages; that defendants be restrained
from registering the Deed of Absolute Sale, and be ordered to
return to them the 2 titles of the properties together with the
Deed of Absolute Sale. 10
On the other hand, private respondents Century-Well, Lourdes
Chong, and Chong Tak Kei alleged that:
. . . the consideration for the two parcels of land was paid by
means of off-setting or legal compensation in the amount of
P700,000 thru alleged promissory notes executed by Cheng Kim
Heng in favor of his sons Chong Tak Choi and Chong Tak Kei
(Exh. 6, 7, & 8) and payment of P100,000.00 in cash.
The defendant Century Well filed its Answer stating that during
the operation of plaintiff CKH, the latter borrowed from Chong
Tak Choi and Chong Tak Kei the total sum of P700,000.00 paying
interest on P300,000.00 while the remaining P400,000.00 was
interest free, and upon the death of Cheng Kim Heng, it stopped
making said payments. Defendant tried to prove that the
source of this P700,000 was Hung Yuk Wah while she was still
residing in Hongkong, sent via bank draft from Hongkong to
Chong Tak Choi and Chong Tak Kei on a bank to bank transfer.
Defendant likewise tried to prove that after the death of Cheng
Kim Heng, Rubi Saw unilaterally arrogated to herself the
executive positions in plaintiff corporation such as President,
Secretary, Treasurer and General Manager; thus effectively
shunting aside Hung Yuk Wah and her children in the
management of plaintiff corporation. Family differences
(arose) between Rubi Saw on one hand, and Hung Yuk Wah and
her children on the other hand which turned to worst after the
death of Cheng Kim Heng. This brought about the entry of
Chinese mediators between them, one of whom is defendant
Uy Chi Kim, a reason why the execution of the Deed of Absolute
Sale was to be done at the residence and business address of
Uy Chi Kim. 11
Uy Chi Kim, on the other hand, answered on his behalf, that:
. . . his only participation in the transaction was as a mediator,
he being one of the closest friends of Cheng Kim Heng; that
because the heirs of Cheng Kim Heng could not settle their
problems he, together with Machao Chan and Tomas Ching
tried to mediate in accordance with Chinese traditions; that
after long and tedious meetings the parties finally agreed to
meet at his residence at 1266 Solar St., Sta. Cruz, Manila for the
purpose of pushing thru the sale of the properties in question
as part of the settlement of the estate. Defendant Uy Chi Kim
corroborated the defense of his co-defendants that the
purchase price of the properties was P800,000.00 the payment
of which consists in the form of P100,000.00 in cash Philippine
Currency; and the balance of P700,000.00 will be applied as a
set-off to the amount borrowed by plaintiff CKH from Chong
Tak Choi and Chong Tak Kei. He advanced the amount of
P100,000.00 by way of his personal check to Rubi Saw but
because Rubi Saw refused, he gave Rubi Saw P100,000 in the
form of P100 bills which Rubi Saw and Jacinto Say even
counted. After the P100,000.00 cash was given and the
promissory notes, Rubi Saw signed the document of sale. It was
during the registration of the sale that a problem arose as to
the payment of the capital gains (tax) which Rubi Saw refused
to pay. The buyer likewise refused to pay the same. The
complaint against him is baseless and which besmirched his
reputation. Hence his counterclaim for damages. 12
The trial court denied the petitioners' prayer for issuance of the
writ of preliminary injunction in its Order dated August 4,
1988. 13
After trial, the lower court rendered its Decision on February 4,
1991, finding that the annulment of the Deed of Absolute Sale
was merited, as there was no payment of the stipulated
consideration for the sale of the real properties involved to Rubi
Saw.
In the first place, said the court, the Deed of Sale itself, which is
the best evidence of the agreement between the parties, did
not provide for payment by offsetting a portion of the purchase
price with the outstanding obligation of Cheng Kim Heng to his
sons Chong Tak Choi and Chong Tak Kei. On the contrary, it
provided for payment in cash, in the amount of P800,000.00.
The evidence presented, however, did not disclose that
payment of the said amount had ever been made by the private
respondent. Moreover, there cannot be any valid off-setting or
compensation in this case, as Article 1278 of the Civil
Code 14 requires, as a prerequisite for compensation, that the
parties be mutually bound principally as creditors and debtors,
which is not the case in this instance. The rescission of the
contract is, therefore, called for, ruled the court.
Upon appeal, the respondent Court of Appeals reversed the
findings and pronouncements of the trial court. In its
Decision 15 dated April 21, 1993, the appellate court expressed
its own findings, that the execution of the Deed of Absolute Sale
was in settlement of a dispute between Rubi Saw and the first
family of Cheng Kim Heng, which arose upon Cheng's death.
The appellate court described the history of their dispute as
follows:
In 1977, Heng formed plaintiff-appellee CKH Industrial &
Development Corporation (CKH), with his first wife Wah,
children Choi and Kei, and second wife Rubi as his co-
incorporators/stockholders, along with other individuals (Exhs.
C and D; ibid., p. 9 and pp. 10-13, respectively). On April 15 and
July 17 the following year, Heng, on behalf of CHK [sic],
obtained loans of P400,000.00 and P100,000.00 from Choi, for
which Heng executed two promissory notes in Choi's favor
(Exhs. 6 and 7; ibid., p. 40 and p. 41, respectively). On
November 24, 1981, Heng obtained from his other son, Kei,
another loan this time in the sum of P200,000.00 on behalf of
CKH for which he issued another promissory note. (Exh. 8, ibid.,
p. 42.)
After its incorporation, CKH acquired two parcels of land
situated in Karuhatan, Valenzuela, Bulacan (now Metro Manila)
covered by Transfer Certificates of Title Nos. B-8710 (Annex A-
Complaint; Record, p. 13) and B-8711 (Annex B-
Complaint; ibid., p. 14), which are now the subject of litigation
in instant case.
On October 11, 1982, Kei was married to defendant-appellant
Lourdes Chong nee Lourdes Gochico Hai Huat (Lourdes). During
their marriage, Kei and Lourdes resided in the house on Tetuan
St., Sta. Cruz, Manila, which CKH was then utilizing as its office.
At about this time, Heng and Rubi had moved residence from
Valenzuela, Metro Manila, to Bermuda St., Sta. Cruz, Manila.
Two years later, or in late 1984, Heng died. Thenceforth, there
appeared to be a falling out between Heng's first wife Wah and
their three children on the one hand, and his second wife Rubi,
on the other, which came to a head when, Rubi as president of
CKH wrote a letter dated August 21, 1985 to the mayor of
Valenzuela, Metro Manila, to prevent issuance of a business
permit to American Metals managed by Chong Tak Choi, stating
that CKH has not allowed it to make use of the property, and on
November 7, 1985, when CKH, through counsel, demanded
that Wah, Choi and Yam vacate the residential and factory
buildings and premises owned by CKH and located on one of
the subject lots on 76 F. Bautista St., Valenzuela, which the
three and the corporation (of which two of them were
stockholders), had been allegedly illegally occupying (Exhs. 10
and 10-A; Folio, pp. 44-45).
Respected mediators from the Chinese community in the
persons of defendant-appellant Uy Chi Kim, Ma Chao, Tomas
Cheng and Johnny Saw, were called in to mediate. The
mediation efforts which resulted in the withdrawal by Rubi Saw
of her letter about the withholding of a license to American
Metals, Inc. and much later, had culminated in the transaction
now under litigation.
The formula for settlement in the dispute was for the
Valenzuela properties of CKH to be sold to Century Well for the
amount of P800,000.00, P100,000.00 of which will be paid in
cash and the balance of P700,000.00 to be set-off by the three
(3) promissory notes executed in behalf of CKH in favor of
Chong Tak Choi and Chong Tak Kei (Exhs. 6, 7 and 8) the
accumulated interests thereon to be waived as unstated
consideration of the sale.
Having reached such agreement, on May 8, 1988, the parties
met at the residence of Kim at Soler St., where the
corresponding deed of absolute sale of realty was executed
(Exhs. 11, 11-A to 11-C; ibid., pp. 46-49), with mediator Cheng
and CKH stockholder and Rubi's secretary, Jacinto Say, signing
as instrumental witnesses. After having received the cash
consideration of P100,000.00 and the promissory notes
amounting to P700,000.00 Rubi had signed the deed, and
thereafter delivered to Lourdes the document of sale and the
owner's copies of the certificates of tittle for the two lots. The
deed having been executed on a Sunday, the parties agreed to
have the same notarized the following day, May 9, 1988. The
parties again met the next day, May 9, 1988, when they
acknowledge the deed before a notary public. 16
In sum, the appellate court found that there was indeed
payment of the purchase price, partially in cash for P100,000.00
and partially by compensation by off-setting the debt of Cheng
Kim Heng to his sons Choi and Kei for P500,000.00 and
P200,000.00 respectively, against the remainder of the
stipulated price. Such mode of payment is recognized under
Article 1249 17 of the Civil Code.
As observed by the appellate court:
We are of the considered view that the appellees have not
established what they claim to be the invalidity of the subject
deed of sale. The appellees are therefore neither entitled to the
rescission or annulment of the document nor to the award
made in their favor in the decision under question and those
other reliefs they are seeking. 18
The question the Court is now tasked to answer is whether or
not there was payment of the consideration for the sale of real
property subject of this case. More specifically, was there a
valid compensation of the obligations of Cheng Kim Heng to his
sons with the purchase price of the sale?
To resolve this issue, it is first required that we establish the
true agreement of the parties.
Both parties take exception to the provisions of the Deed of
Absolute Sale to bolster their respective claims. Petitioners,
while submitting that as worded, the Deed of Absolute Sale
does not provide for payment by compensation, thereby ruling
out the intention of the parties to provide for such mode of
payment, submit on the other hand, that they had not received
payment of the stipulated cash payment of P800,000.00. The
testimony of Rubi Saw during the hearings for preliminary
injunction and during trial was submitted to advance the
submission that she was never paid the price of the subject lots,
in cash or in promissory notes.
On the other side of the fence, private respondents, who,
ironically, were the parties, who drafted the subject document,
claim that the Deed of Sale does not express the true
agreement of the parties, specifically with regard to the mode
of payment. Private respondents allege that the execution of
the deed of absolute sale was the culmination of mediation of
the dispute of the first and second families of Cheng Kim Heng,
over the properties of the decedent; that the price of the real
property subject of the contract of sale was partly in cash, and
the reminder to be compensated against Cheng's indebtedness
to his sons Choi and Kei, reflected in the promissory notes
submitted as Exhibits 6, 7 and 8 during the trial; that by virtue
of such compensation, the sale has been consummated and the
private respondent Century-Well is entitled to the registration
of the certificates of title over the subject properties in its
name.
These contrasting submissions of the circumstances
surrounding the execution of the subject document have led to
this stalemate of sorts. Still, the best test to establish the true
intent of the parties remains to be the Deed of Absolute Sale,
whose genuineness and due execution, are unchallenged. 19
Section 9 of Rule 130 of the Rules of Court states that "when
the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there
can be, between the parties and their successors-in-interest, no
evidence of such terms other than the contents of the written
agreement."
The so-called "parol evidence rule" forbids any addition to or
contradiction of the terms of a written instrument by testimony
or other evidence purporting to show that, at or before the
execution of the parties' written agreement, other or different
terms were agreed upon by the parties, varying the purport of
the written contract. When an agreement has been reduced to
writing, the parties cannot be permitted to adduce evidence to
prove alleged practices which to all purposes would alter the
terms of the written agreement. Whatever is not found in the
writing is understood to have been waived and abandoned. 20
The rule is not without exceptions, however, as it is likewise
provided that a party to an action may present evidence to
modify, explain, or add to the terms of the written agreement
if he puts in issue in his pleadings: (a) An intrinsic ambiguity,
mistake or imperfection in the written agreement; (b) The
failure of the written agreement to express the true intent and
agreement of the parties thereto; (c) The validity of the written
agreement; or (d) The existence of other terms agreed to by the
parties or their successors in interest after the execution of the
written agreement. 21
We reiterate the pertinent provisions of the deed:
That for and in consideration of the sum of EIGHT HUNDRED
THOUSAND (P800,000.00) PESOS, Philippine Currency, paid by
VENDEE to VENDOR, receipt of which is hereby acknowledged
by the latter to its entire satisfaction, said VENDOR, by these
presents, has SOLD, CEDED, TRANSFERRED, and CONVEYED by
way of absolute sale unto said VENDEE, its successors and
assigns, the two parcels of land above described and any and
all improvements therein; 22
The foregoing stipulation is clear enough in manifesting the
vendor's admission of receipt of the purchase price, thereby
lending sufficient, though reluctant, credence to the private
respondents' submission that payment had been made by off-
setting P700,000.00 of the purchase price with the obligation
of Cheng Kim Heng to his sons Choi and Kei. By signing the Deed
of Absolute Sale, petitioner Rubi Saw has given
her imprimatur to the provisions of the deed, and she cannot
now challenge its veracity.
However, the suitability of the said stipulations as benchmarks
for the intention of the contracting parties, does not come
clothed with the cloak of validity. It must be remembered that
agreements affecting the civil relationship of the contracting
parties must come under the scrutiny of the provisions of law
existing and effective at the time of the execution of the
contract.
We refer particularly to the provisions of the law on
compensation as a mode of extinguishment of obligations.
Under Article 1231 of the Civil Code, an obligation may be
extinguished: (1) by payment or performance; (2) by the loss of
the thing due, (3) by the condonation or remission of the debt;
(4) by the confusion or merger of the rights of creditor and
debtor, (5) by compensation; or (6) by novation. Other causes
of extinguishment of obligations include annulment, rescission,
fulfillment of a resolutory condition and prescription.
Compensation may take place by operation of law (legal
compensation), when two persons, in their own right, are
creditors and debtors of each other. 23 Article 1279 of the Civil
Code provides for the requisites of legal compensation:
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.
Compensation may also be voluntary or conventional, that is,
when the parties, who are mutually creditors and debtors agree
to compensate their respective obligations, even though not all
the requisites for legal compensation are present. Without the
confluence of the characters of mutual debtors and creditors,
contracting parties cannot stipulate to the compensation of
their obligations, for then the legal tie that binds contracting
parties to their obligations would be absent. At least one party
would be binding himself under an authority he does not
possess. As observed by a noted author, the requirements of
conventional compensation are (1) that each of the parties can
dispose of the credit he seeks to compensate, and (2) that they
agree to the mutual extinguishment of their credits. 24
In the instant case, there can be no valid compensation of the
purchase price with the obligations of Cheng Kim Heng
reflected in the promissory notes, for the reason that CKH and
Century-Well the principal contracting parties, are not mutually
bound as creditors and debtors in their own name. A close
scrutiny of the promissory notes does not indicate the late
Cheng, as then president of CKH, acknowledging any
indebtedness to Century-Well. As worded, the promissory
notes reveal CKH's indebtedness to Chong Tak Choi and Chong
Tak Kei.
Exhibit 6
Metro Manila, Philippines
April 15, 1978
For Value Received, We, CKH INDUSTRIAL & DEVELOPMENT
CORPORATION, a duly registered corporation with postal
address at Rm. 330, MTM Bldg. 1002 C. M. Recto Avenue,
Manila, promises [sic] to pay on demand to Mr. CHONG TAK
CHOI, the sum of FOUR HUNDRED THOUSAND PESOS, Philippine
currency (P400,000.00)
To certify the correctness of the indebtedness to the party, I,
CHENG KIM HENG, President of CKH INDUSTRIAL &
DEVELOPMENT CORPORATION, do hereby signed [sic] in behalf
of the Corporation.
CKH INDUSTRIAL & DEVELOPMENT
CORPORATION
signed:
CHENG KIM HENG
Exhibit 7
Manila,
July 17, 1978
For Value received, we, CKH INDUSTRIAL & DEVELOPMENT
CORPORATION, a duly registered domestic corporation in the
City of Manila, represented by its presidents, CHENG KIM HENG
with residence certificate no. 118824650 issued at Manila, on
2-28-78 do promise to pay on demand the sum of ONE
HUNDRED THOUSAND PESOS ONLY (P100,000.00), Philippine
currency with interest from the date hereof at the rate of ten
per cent (10%) per annum to Mr. CHONG TAK CHOI.
In witness hereof on the consents [sic] of the parties to this
promissory note, I, CHENG KIM HENG, president of CKH
INDUSTRIAL & DEVELOPMENT CORPORATION do hereby affixed
[sic] my signature below.
signed:
CHENG KIM HENG
Exhibit 8
Manila, Philippines,
November 24, 1981
I, CHENG KIM HENG, President of CKH INDUSTRIAL &
DEVELOPMENT CORPORATION, 831 Tetuan St. (2nd floor) Sta.
Cruz, Manila, promises to pay to CHONG TAK KEI, with postal
address at 76 F. Bautista St., Valenzuela, Metro Manila, the sum
of PESOS: TWO HUNDRED THOUSAND ONLY (P200,000.00)
Philippine Currency, with interest at the rate of Ten per cent
(10%) per annum from date stated above to a period of one
year and I hereby consent to any renewal, or extension of same
amount to a same period which may be requested by any one
of us for the payment of this note.
I also acknowledge the receipt of the above sum of money today
from MR. CHONG TAK KEI.
CKH IND. & DEV. CORP.
signed:
CHENG KIM HENG
President
In fact, there is no indication at all, that such indebtedness was
contracted by Cheng from Choi and Kei as stockholders of
Century-Well. Choi and Kei, in turn, are not parties to the Deed
of Absolute Sale. They are merely stockholders of Century-
Well, 25 and as such, are not bound principally, not even in a
representative capacity, in the contract of sale. Thus, their
interest in the promissory notes cannot be off-set against the
obligations between CKH and Century-Well arising out of the
deed of absolute sale, absent any allegation, much less, even a
scintilla of substantiation, that Choi and Kei's interest in
Century-Well are so considerable as to merit a declaration of
unity of their civil personalities. Under present law,
corporations, such as Century-Well, have personalities separate
and distinct from their stockholders, 26 except only when the
law sees it fit to pierce the veil of corporate identity, particularly
when the corporate fiction is shown to be used to defeat public
convenience, justify wrong, protect fraud or defend crime, or
where a corporation the mere alter ego or business conduit of a
person. 27 The Court cannot, in this instance make such a ruling
absent a demonstration of the merit of such a disposition.
Considering the foregoing premises, the Court finds it proper to
grant the prayer for rescission of the subject deed of sale, for
failure of consideration. 28
IN VIEW WHEREOF, the Court hereby RESOLVED to GRANT the
present petition. The decision of the Court of Appeals dated
April 21, 1993, is hereby REVERSED and SET ASIDE. The decision
of the Regional Trial Court of Valenzuela, Branch 173 dated
February 4, 1991, is hereby REINSTATED, with the
MODIFICATION that the award of moral damages and
attorney's fees to Rubi Saw, and the order for payment of costs
are DELETED.
The parties shall bear their respective costs.
SO ORDERED.
G.R. No. L-22490 May 21, 1969
GAN TION, petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P.
MONTESA, as Judge of the Court of First Instance of Manila,
ONG WAN SIENG and THE SHERIFF OF MANILA, respondents.
The sole issue here is whether or not there has been legal
compensation between petitioner Gan Tion and respondent
Ong Wan Sieng.
Ong Wan Sieng was a tenant in certain premises owned by Gan
Tion. In 1961 the latter filed an ejectment case against the
former, alleging non-payment of rents for August and
September of that year, at P180 a month, or P360 altogether.
The defendant denied the allegation and said that the agreed
monthly rental was only P160, which he had offered to but was
refused by the plaintiff. The plaintiff obtained a favorable
judgment in the municipal court (of Manila), but upon appeal
the Court of First Instance, on July 2, 1962, reversed the
judgment and dismissed the complaint, and ordered the
plaintiff to pay the defendant the sum of P500 as attorney's
fees. That judgment became final.
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng
that he was increasing the rent to P180 a month, effective
November 1st, and at the same time demanded the rents in
arrears at the old rate in the aggregate amount of P4,320.00,
corresponding to a period from August 1961 to October
1963.lâwphi1.ñet
In the meantime, over Gan Tion's opposition, Ong Wan Sieng
was able to obtain a writ of execution of the judgment for
attorney's fees in his favor. Gan Tion went on certiorari to the
Court of Appeals, where he pleaded legal compensation,
claiming that Ong Wan Sieng was indebted to him in the sum of
P4,320 for unpaid rents. The appellate court accepted the
petition but eventually decided for the respondent, holding
that although "respondent Ong is indebted to the petitioner for
unpaid rentals in an amount of more than P4,000.00," the sum
of P500 could not be the subject of legal compensation, it being
a "trust fund for the benefit of the lawyer, which would have to
be turned over by the client to his counsel." In the opinion of
said court, the requisites of legal compensation, namely, that
the parties must be creditors and debtors of each other in their
own right (Art. 1278, Civil Code) and that each one of them
must be bound principally and at the same time be a principal
creditor of the other (Art. 1279), are not present in the instant
case, since the real creditor with respect to the sum of P500
was the defendant's counsel.
This is not an accurate statement of the nature of an award for
attorney's fee's. The award is made in favor of the litigant, not
of his counsel, and is justified by way of indemnity for damages
recoverable by the former in the cases enumerated in Article
2208 of the Civil Code.1 It is the litigant, not his counsel, who is
the judgment creditor and who may enforce the judgment by
execution. Such credit, therefore, may properly be the subject
of legal compensation. Quite obviously it would be unjust to
compel petitioner to pay his debt for P500 when admittedly his
creditor is indebted to him for more than P4,000.
WHEREFORE, the judgment of the Court of Appeals is reversed,
and the writ of execution issued by the Court of First Instance
of Manila in its Civil Case No. 49535 is set aside. Costs against
respondent.
[G.R. No. 116792. March 29, 1996]
BANK OF THE PHILIPPINE ISLANDS and GRACE
ROMERO, petitioners, vs. COURT OF APPEALS and EDVIN F.
REYES, respondents.
DECISION
PUNO, J.:
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 respondents 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. 3 185-
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.
Private respondent also held a joint AND/OR Savings Account
No. 3185-0128-82 with his grandmother, Emeteria M.
Fernandez, opened3 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. 3 185-0128-82. 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. 3 185-0128-82 and transferred its
funds amounting to P13,112.91 to Savings Account No. 3 185-
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 respondents 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 Damages8against 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 judgment appealed from is set aside, and
another one entered ordering defendant (petitioner) to credit
plaintiffs (private respondents) S.A. No. 3 185-0172-56 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 credence. Bernardo testified:
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
xxx xxx xxx
Q: After that, what happened?
A: x x x 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: Dont you worry about it, there is no personal problem.
xxx xxx xxx
Q: And so what was his response?
A: He said that dont you worry about it.
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: x x x Was there any opportunity wherein 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, if any was the content of her conversation, if you
know?
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 respondents 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. 3 185-
0172-56). Worse, private respondent declared under the
penalties of perjury in the withdrawal slip17 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 IN VIEW HEREOF, the Decision of respondent Court of Appeals
controversy, commenced by third persons and communicated in CA-G.R. CV No. 41543 dated August 16,1994 is ANNULLED
in due time to the debtor. and SET ASIDE and the Decision of the trial court in Civil Case
The elements of legal compensation are all present in the case No. Q-91-8451 dated January 20, 1993 is REINSTATED. Costs
at bar. The obligors bound principally are at the same time against private respondent.
creditors of each other. Petitioner bank stands as a debtor of SO ORDERED.
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 respondents 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
[G.R. No. 108052. July 24, 1996]
PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF
APPEALS and RAMON LAPEZ,[1] doing business under the
name and style SAPPHIRE SHIPPING, respondents.
DECISION
PANGANIBAN, J.:
Does a local bank, while acting as local correspondent bank,
have the right to intercept funds being coursed through it by its
foreign counterpart for transmittal and deposit to the account
of an individual with another local bank, and apply the said
funds to certain obligations owed to it by the said individual?
Assailed in this petition is the Decision of respondent Court of
Appeals[2] in CA-G.R. CV No. 27926 rendered on June 16,
1992 affirming the decision of the Regional Trial Court, Branch
107 of Quezon City, the dispositive portion of which read:[3]
"WHEREFORE, judgment is hereby rendered:
1) In the main complaint, ordering the defendant (herein
petitioner PNB) to pay the plaintiff (private respondent herein)
the sum of US$2,627.11 or its equivalent in Philippine currency
with interest at the legal rate from January 13, 1987, the date
of judicial demand;
2) The plaintiff's supplemental complaint is hereby dfismissed
(sic);
3) The defendant's counterclaims are likewise dismissed.
The Facts
The factual antecedents as quoted by the respondent Court are
reproduced hereinbelow, the same being undisputed by the
parties:[4]
"The body of the decision reads:
"'After a close scrutiny and analysis of the pleadings as well as
the evidence of both parties, the Court makes the following
conclusions:
"'(a) The defendant applied/appropriated the amounts of
$2,627.11 and P34,340.38 from remittances of the plaintiff's
principals (sic) abroad. These were admitted by the defendant,
subject to the affirmative defenses of compensation for what is
owing to it on the principle of solution (sic) indebiti;
"'(b) The first remittance was made by the NCB of Jeddah for
the benefit of the plaintiff, to be credited to his account at
Citibank, Greenhills Branch; the second was from Libya, and
was intended to be deposited at the plaintiff's account with the
defendant, No. 830-2410;
(c) The plaintiff made a written demand upon the defendant for
remittance of the equivalent of P2,627.11 by means of a letter
dated December 4, 1986 (Exh. D). This was answered by the
defendant on December 22, 1986 (Exh. 13), inviting the plaintiff
to come for a conference;
"'(d) There were indeed two instances in the past, one in
November 1980 and the other in January 1981 when the
plaintiff's account No. 830-2410 was doubly credited with the
equivalents of $5,679.23 and $5,885.38, respectively, which
amounted to an aggregate amount of P87,380.44. The
defendant's evidence on this point (Exhs. 1 thru 11, 14 and 15;
see also Annexes C and E to defendant's Answer), were never
refuted nor impugned by the plaintiff. He claims, however, that
plaintiffs claim has prescribed.
"'(e) Defendant PNB made a demand upon the plaintiff for
refund of the double or duplicated credits erroneously made on
plaintiff's account, by means of a letter (Exh. 12) dated October
23, 1986 or 5 years and 11 months from November 1980, and
5 years and 9 months from January 1981. Such letter was
answered by the plaintiff on December 2, 1986 (Annex C,
Complaint). This plaintiff's letter was likewise replied to by the
defendant through Exh. 13;
"'(f) The deduction of P34,340.38 was made by the defendant
not without the knowledge and consent of the plaintiff, who
was issued a receipt No. 857576 dated February 18, 1987 (Exh.
E) by the defendant.
"'There is no question that the two erroneous double payments
made to plaintiff's accounts in 1980 and 1981 created an extra-
contractual obligation on the part of the plaintiff in favor of the
defendant, under the principle of solutio indebiti, as follows:
"'If something is received when there is no right to demand it,
and it was unduly delivered throughg (sic) mistake, the
obligation to return it arises."' (Article 2154, Civil Code of the
Phil.)
Two issues were raised before the trial court,
namely, first, whether the herein petitioner was legally justified
in making the compensation or set-off against the two
remittances coursed through it in favor of private respondent
to recover on the double credits it erroneously made in 1980
and 1981, based on the principle of solutio indebiti, and
second, whether or not petitioner's claim is barred by the
statute of limitations. The trial court's ratiocination, as quoted
by the appellate Court, follows:[5]
"'Article 1279 of the Civil Code provides:
"'In order that compensation may prosper, 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 consists 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 by any retention or
controversy, commenced by third persons and communicated
in due time to the debtor."'
"'In the case of the $2,627.11, requisites Nos. 2 through 5 are
apparently present, for both debts consist in a sum of money,
are both due, liquidated and demandable, and over neither of
them is there a retention or controversy commenced by third
persons and communicated in due time to the debtor. The
question, however, is, where both of the obligors bound
principally, and was each one of them a debtor and creditor of
the other at the same time?
"'Analyzing now the relationship between the parties, it
appears that:
"'(a) With respect to the plaintiff's being a depositor of the
defendant bank, they are creditor and debtor respectively
(Guingona, et al. vs. City Fiscal, et al., 128 SCRA 577);
"'(b) As to the relationship created by the telexed fund transfers
from abroad: A contract between a foreign bank and local bank
asking the latter to pay an amount to a beneficiary is a
stipulation pour autrui. (Bank of America NT & SA vs. IAC, 145
SCRA 419).
"'A stipulation pour autrui is a stipulation in favor of a third
person (Florentino vs. Encarnacion, 79 SCRA 193; Bonifacio
Brothers vs. Mora, 20 SCRA 261; Uy Tam vs. Leonard, 30 Phils.
475).
"'Thus between the defendant bank (as the local correspondent
of the National Commercial Bank of Jeddah) and the plaintiff as
beneficiary, there is created an implied trust pursuant to Art.
1453 of the Civil Code, quoted as follows:
"'When the property is conveyed to a person in reliance upon
his declared intention to hold it for, or transfer it to another or
the grantor, there is an implied trust in favor of the person
whose benefit is contemplated (sic).
"'c) By the principle of solutio indebiti (Art. 2154, Civil Code),
the plaintiff who unduly received something (sic) by mistake
(i.e., the 2 double credits, although he had no right to demand
it), became obligated to the defendant to return what he
unduly received. Thus, there was created between them a
relationship of obligor and obligee, or of debtor and creditor
under a quasi-contract.
"In view of the foregoing, the Court is of the opinion that the
parties are not both principally bound with respect to the
$2,627.11 from Jeddah neither are they at the same time
principal creditor of the other. Therefore, as matters stand, the
parties' obligations are not subject to compensation or set off
under Art. 1279 of the Civil Code, for the reason that the
defendant is not a principal debtor nor is the plaintiff a principal
creditor insofar as the amount of $2,627.11 is concerned. They
are debtor and creditor only with respect to the double
payments; but are trustee-beneficiary as to the fund transfer of
$2,627.11.
"'Only the plaintiff is principally bound as a debtor of the
defendant to the extent of the double credits. On the other
hand, the defendant was an implied trustee, who was obliged
to deliver to the Citibank for the benefit of the plaintiff the sum
of $2,627.11.
"'Thus while it may be concluded that the plaintiff owes the
defendant the equivalent of the sums of $5,179.23 and
$5,885.38 erroneously doubly credited to his account, the
defendant's actuation in intercepting the amount of $2,627.11
supposed to be remitted to another bank is not only improper;
it will also erode the trust and confidence of the international
banking community in the banking system of the country,
something we can ill afford at this time when we need to attract
and invite deposits of foreign currencies."'
"It would have been different has the telex advice from NCB of
Jeddah been for deposit of $2,627.11 to plaintiffs account No.
830-2410 with the defendant bank. However, the defendant
alleged this for the first time in its Memorandum (Pls. see par.
16, p. 6 of defendant's Memorandum). There was neither any
allegation thereof in its pleadings, nor was there any evidence
to prove such fact. On the contrary, the defendant admitted
thatthe telex advice was for credit of the amount of $2,627.11
to plaintiffs account with Citibank, Greenhills, San Juan,
MetroManila (Pls. see par. of defendant's Answer with
Compulsory Counterclaim, in relation to plaintiff's
Complaint). Hence, it is submitted that the set-off or
compensation of $2,627.11 against the double payments to
plaintiff's account is not in accordance with law.
"'On this point, the Court finds the plaintiff's theory of agency
to be untenable. For one thing, there was no express contract
of agency. On the other hand, were we to infer that there was
an implied agency, the same would not be between the plaintiff
and defendant, but rather, between the National Commercial
Bank of Jeddah as principal on the one hand, and the defendant
as agent on the other. Thus, in case of violation of the agency,
the cause of action would accrue to the NCB and not to the
plaintiff.
"'The P34,340.38 subject of the supplemental complaint is
quite another thing. The plaintiff's Exh. "E", which is a receipt
issued to the plaintiff by the defendant for the amount of
P34,340.00 in "full settlement of accounts receivables with
RICB Fund Transfer Department, PNB-Escolta base on Legal
Department Memo dated February 28, 1987" seems to uphold
the defendant's theory that the said amount was voluntarily
delivered by the plaintiff to the defendant as alleged in the last
paragraph of defendant's memorandum. The same is
in accordance with the defendant's answer, as follows:
"The retention and application of the amount of P34,340.38
was done in a manner consonant with basic due process
considering that
plaintiff was not only furnished documented proof of the caus
e but was also given theopportunity to con(tro)vert such Proof
. respondent the amount of US$2,627.11 or its peso equivalent,
"Moreover, plaintiff, through counsel, communicated his uneq
uivocal and unconditional consent to the retention and applica
tion of the amount in question." (Pls. see paragraphs 8-9,
defendant's Answer with Compulsory Counterclaim to
Plaintiff's Supplemental Complaint)."
This conclusion is borne by the fact that the receipt is in the
hands of the plaintiff, indicating that such receipt was handed
over to the plaintiff when he "paid" or allowed the deduction
from the amount of $28,392.38 from Libya.
"'At any rate, the plaintiff in his Memorandum, stated that the
subsequent fund transfer from Brega Petroleum Marketing
Company of Libya (from where the P34,340.38 was deducted)
was intended for credit and deposit in plaintiff's account at the
defendant's Bank CA No. 830-2410 (per par. 1, page 2,
Memorandum for the plaintiff). Such being the case, the Court
believes that insofar as the amount of P34,340.38 is concerned,
all the requirements of Art. 1279 of the Civil Code are present,
and the said amount may properly be the subject of
compensation or set-off. And since all the requisites of Art.
1279 of the Civil Code are present (insofar as the amount of
P34,392.38 is concerned), compensation takes place by
operation of law (Art. 1286, Ibid.), albeit only partial with
respect to plaintiff's indebtedness of P7,380.44.
"Now, on the question of prescription, the Court believes that
Art. 1149 as cited by the plaintiff is not applicable in this
case. Rather, the applicable law is Art. 1145, which fixes the
prescriptive period for actions upon a quasi-contract (such
as solutio indebiti) at six years.
In the dispositive portion of its decision, the trial court ruled
that the herein petitioner was obligated to pay private
with interest at the legal rate. The court dismissed all other
claims and counterclaims.
On appeal to the respondent Court, petitioner bank continued
to insist that it validly retained the US$2,627.11 in payment of
the private respondent's indebtedness by way of compensation
or set-off, as provided under Art. 1279 of the Civil Code.
The respondent Court of Appeals rejected such argument,
saying:
"The telegraphic money transfer was sent by the IBN, plaintiff's
principal in Jeddah, Saudi Arabia, thru the National Commercial
Bank of Jeddah, Saudi Arabia (NCB, for short), for the
credit/account of Plaintiff with the Citibank, Greenhills Branch,
San Juan, Metro Manila, coursed thru the PNB's head office, the
NCB's corresponden(t) bank in the Philippines.
"The credit account, or simply account means
that the amount stated in the telegraphic money transfer is to
be credited in the account of plaintiff with the Citibank, and, in
that sense, presupposes a creditor-
debtorrelationship between the plaintiff, as creditor and the C
itibank, as debtor. Withal the telegraphic money transfer, no s
uch creditor-
debtor relationship could have been created between the plai
ntiff and defendant.
"The telegraphic money transfer, or simply telegraphic
transfer(,) was purchased by the IBN from the NCB in Saudi
Arabia, and since the PNB is the NCB's corresponden(t) bank in
the Philippines, there is created between the two banks a sort
of communication exchange for the corresponden(t) bank to
transmit and/or remit and/or pay the value of the telegraphic
transfer in accordance with the dictate of the correspondence
exchange. Some such responsibility of the corresponden(t)
bank is akin to Section 7 of the Rules and Regulations
Implementing E.O. 857, as amended by E.O. 925, "x x x to take
charge of the prompt payment" of the telegraphic transfer, that
is,
by transmitting the telegraphic money transfer to the Citibank
so that the amount can be promptly credited to the account of
the plaintiff with the said bank. That is all that the PNB can do
under the remittance arrangement that it has with the NCB. W
ith its responsibility as defined as well as by the nature of its
banking business and the responsibility attached to it, and
through which the industry, trade and commerce of all
countries and communities are carried on, the PNB's liability as
corresponden(t) bank continues until it has completgely (sic)
performed and discharged it(s) obligation thereunder."
(underscoring ours)
Hence, the respondent Court affirmed the trial court's
holding in toto.
Dissatisfied, petitioner bank comes before this Court seeking a
review of the assailed Decision.
The Issue
Petitioner's arguments revolve around one single issue:[6]
"WHILE THE RESPONDENT COURT CORRECTLY FOUND PRIVATE
RESPONDENT LEGALLY BOUND (UNDER THE PRINCIPLE OF
SOLUTIO INDEBITI) TO RETURN TO PNB THE SUM OF
US$2,627.11, IT ERRED IN NOT RULING THAT LEGAL
COMPENSATION HAS TAKEN PLACE WHEN PNB WAS ORDERED
BY THE TRIAL COURT TO RETURN TO PRIVATE RESPONDENT
THE SAME AMOUNT. SUCH COURSE OF ACTION IS IN
CONSONANCE WITH SPEEDY AND SUBSTANTIAL JUSTICE, AND
WOULD PREVENT THE UNNECESSARY FILING OF A
SUBSEQUENT SUIT BY PNB FOR THE COLLECTION OF THE SAME
AMOUNT FROM PRIVATE RESPONDENT."
The Court's Ruling
We note that in framing the issue in the manner aforecited, the
petitioner implicitly admits the correctness of the respondent
Court's affirmance of the trial court's ruling finding herein
petitioner liable to private respondent for the sum of
US$2,627.11 or its peso equivalent. And it could not have done
otherwise. After a careful scrutiny of both the decision of the
trial court and that of the appellate court, we find no reversible
error whatsoever in either ruling, and see no need to add to the
extensive discussions already made regarding the non-
existence of all the requisites for legal compensation to take impossible intention of using this case as a precedent for similar
place. acts of interception in the future. This piratical attitude of the
But petitioner has adopted a novel theory, contending that nation's premier bank deserves a warning that it should not
since respondent Court found that private respondent is "an abuse the justice system in its collection efforts, particularly
obligor of PNB and the latter, as aforesaid, has become an since we are aware that if the petitioner bank had been in good
obligor of private respondent (resulting in legal compensation), faith, it could have easily disposed of this controversy in ten
the (h)onorable respondent court should have ordered private minutes flat by means of an exchange of checks with private
respondent to pay PNB what the latter is bound by the trial respondent for the same amount. The litigation could have
court's decision to return the former.[7] ended there, but it did not. Instead, this plainly unmeritorious
By this simplistic approach, petitioner in effect seeks to render case had to clog our docket and take up the valuable time of
nugatory the decisions of the trial court and the appellate this Court.
Court, and have this Court validate its original misdeed, thereby WHEREFORE, the instant petition is herewith DENIED for being
making a mockery of the entire judicial process of this plainly unmeritorious, and the assailed Decision is AFFIRMED in
country. What the petitioner bank is effectively saying is that toto. Costs against petitioner.
since the respondent Court of Appeals ruled that petitioner SO ORDERED.
bank could not do a shortcut and simply intercept funds being
coursed through it, for transmittal to another bank, and
eventually to be deposited to the account of an individual who
happens to owe some amount of money to the petitioner, and
because respondent Court ordered petitioner bank to return
the intercepted amount to said individual, who in turn was
found by the appellate Court to be indebted to petitioner bank,
THEREFORE, there must now be legal compensation of the
amounts each owes the other, and hence, there is no need for
petitioner bank to actually return the amount, and finally, that
petitioner bank ends up in exactly the same position as when it
first took the improper and unwarranted shortcut by
intercepting the said money transfer, notwithstanding the
assailed Decision saying that this could not be done!
We see in this petition a clever ploy to use this Court to validate
or legalize an improper act of the petitioner bank, with the not