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1985, the third hearing date, the bank moved, and the
THIRD DIVISION
trial court resolved, to consider the case submitted for
decision.
Two years later, or on 23 October 1987,
[G.R. No. 138677. February 12, 2002] petitioners filed a motion for reconsideration of the
order of the trial court declaring them as having
waived their right to present evidence and prayed that
TOLOMEO LIGUTAN and LEONIDAS DE LA they be allowed to prove their case. The court a
LLANA, petitioners, vs. HON. COURT OF quo denied the motion in an order, dated 5 September
APPEALS & SECURITY BANK & TRUST 1988, and on 20 October 1989, it rendered its decision,
[1]
COMPANY, respondents. the dispositive portion of which read:
After petitioners had filed a joint answer to the On 28 October 1998, the Court of Appeals
complaint, the bank presented its evidence and, on 27 resolved the two motions thusly:
March 1985, rested its case. Petitioners, instead of
introducing their own evidence, had the hearing of the We find merit in plaintiff-appellees claim that the
case reset on two consecutive occasions. In view of the principal sum of P114,416.00 with interest thereon
absence of petitioners and their counsel on 28 August must commence not on the date of filing of the
2
complaint as we have previously held in our decision wife Bienvenida Ligutan executed a real estate
but on the date when the obligation became due. mortgage on 18 January 1984 to secure the existing
indebtedness of
Default generally begins from the moment the creditor petitioners Ligutan and dela Llana with the
demands the performance of the obligation. However, bank. Petitioners contended that the execution of the
demand is not necessary to render the obligor in real estate mortgage had the effect of novating the
default when the obligation or the law so provides. contract between them and the bank. Petitioners
further averred that the mortgage
In the case at bar, defendants-appellants executed a was extrajudiciallyforeclosed on 26 August 1986, that
promissory note where they undertook to pay the they were not informed about it, and the bank did not
obligation on its maturity date 'without necessity of credit them with the proceeds of the sale. The
demand.' They also agreed to pay the interest in case appellate court denied the omnibus motion for
of non-payment from the date of default. reconsideration and to admit newly discovered
evidence, ratiocinating that such a second motion for
xxxxxxxxx reconsideration cannot be entertained under Section 2,
Rule 52, of the 1997 Rules of Civil
While we maintain that defendants-appellants must be Procedure. Furthermore, the appellate court said, the
bound by the contract which they acknowledged and newly-discovered evidence being invoked by
signed, we take cognizance of their plea for the petitioners had actually been known to them when the
application of the provisions of Article 1229 x x x. case was brought on appeal and when the first motion
for reconsideration was filed.[7]
Considering that defendants-appellants partially
Aggrieved by the decision and resolutions of the
complied with their obligation under the promissory
Court of Appeals, petitioners elevated their case to this
note by the reduction of the original amount of
Court on 9 July 1999 via a petition for review
P120,000.00 to P114,416.00 and in order that they will
on certiorari under Rule 45 of the Rules of Court,
finally settle their obligation, it is our view and we so
submitting thusly -
hold that in the interest of justice and public policy, a
penalty of 3% per month or 36% per annum would I. The respondent Court of Appeals seriously
suffice. erred in not holding that the
15.189% interest and the penalty of
xxxxxxxxx three (3%) percent per month or
thirty-six (36%) percent per annum
WHEREFORE, the decision sought to be reconsidered imposed by private respondent
is hereby MODIFIED. The defendants- bank on petitioners loan obligation
appellants Tolomeo Ligutan and Leonidas dela Llana a are still manifestly exorbitant,
re hereby ordered to pay the plaintiff-appellee Security iniquitous and unconscionable.
Bank and Trust Company the following:
II. The respondent Court of Appeals gravely
erred in not reducing to a
1. The sum of P114,416.00 with interest
reasonable level the ten (10%)
thereon at the rate of 15.189% per
percent award of attorneys fees
annum and 3% per month penalty
which is highly and grossly
charge commencing May 20,
excessive, unreasonable and
1982 until fully paid;
unconscionable.
2. The sum equivalent to 10% of the total
III. The respondent Court of Appeals gravely
amount of the indebtedness as and for
erred in not admitting petitioners
attorneys fees.[5]
newly discovered evidence which
On 16 November 1998, petitioners filed an could not have been timely
omnibus motion for reconsideration and to admit produced during the trial of this
newly discovered evidence,[6] alleging that while the case.
case was pending before the trial court,
IV. The respondent Court of Appeals
petitioner Tolomeo Ligutan and his
seriously erred in not holding that
3
[15]
there was a novation of the cause irregular performance is made by the debtor. The
of action of private respondents stipulated penalty might even be deleted such as when
complaint in the instant case due to there has been substantial performance in good faith
the subsequent execution of the by the obligor,[16] when the penalty clause itself suffers
real estate mortgage during from fatal infirmity, or when exceptional
the pendency of this case and the circumstances so exist as to warrant it.[17]
subsequent foreclosure of the
The Court of Appeals, exercising its good
mortgage.[8]
judgment in the instant case, has reduced the penalty
Respondent bank, which did not take an appeal, interest from 5% a month to 3% a month which
would, however, have it that the penalty sought to be petitioner still disputes. Given the circumstances, not
deleted by petitioners was even insufficient to fully to mention the repeated acts of breach by petitioners of
cover and compensate for the cost of money brought their contractual obligation, the Court sees no cogent
about by the radical devaluation and decrease in the ground to modify the ruling of the appellate court..
purchasing power of the peso, particularly vis-a-vis the
Anent the stipulated interest of 15.189% per
U.S. dollar, taking into account the time frame of its
annum, petitioners, for the first time, question its
occurrence. The Bank would stress that only the
reasonableness and prays that the Court reduce the
amount of P5,584.00 had been remitted out of the
amount. This contention is a fresh issue that has not
entire loan of P120,000.00.[9]
been raised and ventilated before the courts below. In
A penalty clause, expressly recognized by law, any event, the interest stipulation, on its face, does not
[10]
is an accessory undertaking to assume greater appear as being that excessive. The essence or
liability on the part of an obligor in case of breach of rationale for the payment of interest, quite often
an obligation. It functions to strengthen the coercive referred to as cost of money, is not exactly the same as
force of the obligation[11] and to provide, in effect, for that of a surcharge or a penalty. A penalty stipulation is
what could be the liquidated damages resulting from not necessarily preclusive of interest, if there is an
such a breach. The obligor would then be bound to pay agreement to that effect, the two being distinct
the stipulated indemnity without the necessity of proof concepts which may separately be demanded.[18] What
on the existence and on the measure of damages may justify a court in not allowing the creditor to
caused by the breach.[12] Although a court may not at impose full surcharges and penalties, despite an
liberty ignore the freedom of the parties to agree on express stipulation therefor in a valid agreement, may
such terms and conditions as they see fit that not equally justify the non-payment or reduction of
contravene neither law nor morals, good customs, interest. Indeed, the interest prescribed in loan
public order or public policy, a stipulated penalty, financing arrangements is a fundamental part of the
nevertheless, may be equitably reduced by the courts if banking business and the core of a bank's existence.[19]
it is iniquitous or unconscionable or if the principal
Petitioners next assail the award of 10% of the
obligation has been partly or irregularly complied
total amount of indebtedness by way of attorney's fees
with.[13]
for being grossly excessive, exorbitant and
The question of whether a penalty is reasonable or unconscionable vis-a-vis the time spent and the extent
iniquitous can be partly subjective and partly of services rendered by counsel for the bank and the
objective. Its resolution would depend on such factors nature of the case. Bearing in mind that the rate of
as, but not necessarily confined to, the type, extent and attorneys fees has been agreed to by the parties and
purpose of the penalty, the nature of the obligation, the intended to answer not only for litigation expenses but
mode of breach and its consequences, the supervening also for collection efforts as well, the Court, like the
realities, the standing and relationship of the parties, appellate court, deems the award of 10% attorneys fees
and the like, the application of which, by and large, is to be reasonable.
addressed to the sound discretion of the
Neither can the appellate court be held to have
court. In Rizal Commercial Banking Corp. vs. Court
erred in rejecting petitioners' call for a new trial or to
of Appeals,[14] just an example, the Court has tempered
admit newly discovered evidence. As the appellate
the penalty charges after taking into account the
court so held in its resolution of 14 May 1999 -
debtors pitiful situation and its offer to settle the entire
obligation with the creditor bank. The stipulated
penalty might likewise be reduced when a partial or
4
Under Section 2, Rule 52 of the 1997 Rules of Civil payment or adding compatible covenants or where the
Procedure, no second motion for reconsideration of a old contract is merely supplemented by the new one.
[24]
judgment or final resolution by the same party shall be When not expressed, incompatibility is required so
entertained. Considering that the instant motion is as to ensure that the parties have indeed intended
already a second motion for reconsideration, the same such novation despite their failure to express it in
must therefore be denied. categorical terms. The incompatibility, to be sure,
should take place in any of the essential elements of
Furthermore, it would appear from the records the obligation, i.e., (1) the juridical relation or tie, such
available to this court that the newly-discovered as from a mere commodatum to lease of things, or
evidence being invoked by defendants-appellants have from negotiorum gestio to agency, or from a mortgage
actually been existent when the case was brought on to antichresis,[25] or from a sale to one of loan;[26] (2)
appeal to this court as well as when the first motion for the object or principal conditions, such as a change of
reconsideration was filed. Hence, it is quite surprising the nature of the prestation; or (3) the subjects, such as
why defendants-appellants raised the alleged newly- the substitution of a debtor[27] or the subrogation of the
discovered evidence only at this stage when they could creditor.Extinctive novation does not necessarily imply
have done so in the earlier pleadings filed before this that the new agreement should be complete by itself;
court. certain terms and conditions may be carried, expressly
or by implication, over to the new obligation.
The propriety or acceptability of such a second motion
WHEREFORE, the petition is DENIED.
for reconsideration is not contingent upon the
averment of 'new' grounds to assail the judgment, i.e., SO ORDERED.
grounds other than those theretofore presented and
rejected. Otherwise, attainment of finality of a
judgment might be stayed off indefinitely, depending THIRD DIVISION
on the partys ingenuousness or cleverness in
conceiving and formulating 'additional flaws' or 'newly
discovered errors' therein, or thinking up some injury [G.R. No. 157480. May 6, 2005]
or prejudice to the rights of the movant for
reconsideration.[20]
At any rate, the subsequent execution of the real estate PRYCE CORPORATION (formerly PRYCE
mortgage as security for the existing loan would not PROPERTIES
have resulted in the extinguishment of the original CORPORATION), petitioner,
contract of loan because of novation. Petitioners vs.PHILIPPINE AMUSEMENT AND
acknowledge that the real estate mortgage contract GAMING CORPORATION, respondent.
does not contain any express stipulation by the parties
intending it to supersede the existing loan agreement DECISION
between the petitioners and the bank.[21] Respondent
PANGANIBAN, J.:
bank has correctly postulated that the mortgage is but
an accessory contract to secure the loan in the
promissory note. In legal contemplation, the termination of a
contract is not equivalent to its rescission. When an
Extinctive novation requires, first, a previous agreement is terminated, it is deemed valid at
valid obligation; second, the agreement of all the inception. Prior to termination, the contract binds the
parties to the new contract; third, the extinguishment parties, who are thus obliged to observe its provisions.
of the obligation; and fourth, the validity of the new However, when it is rescinded, it is deemed inexistent,
one.[22] In order that an obligation may be extinguished and the parties are returned to their status quo ante.
by another which substitutes the same, it is imperative Hence, there is mutual restitution of benefits received.
that it be so declared in unequivocal terms, or that the The consequences of termination may be anticipated
old and the new obligation be on every point and provided for by the contract. As long as the terms
incompatible with each other.[23] An obligation to pay a of the contract are not contrary to law, morals, good
sum of money is not extinctively novated by a new customs, public order or public policy, they shall be
instrument which merely changes the terms of respected by courts. The judiciary is not authorized to
5
make or modify contracts; neither may it rescue parties City to determine the pulse of the people whether the
from disadvantageous stipulations. Courts, however, presence of a casino would be welcomed by the
are empowered to reduce iniquitous or unconscionable residents. Some local government officials showed
liquidated damages, indemnities and penalties agreed keen interest in the casino operation and expressed the
upon by the parties. view that possible problems were surmountable. Their
negotiations culminated with PPCs counter-letter
proposal dated October 14, 1992.
The Case
On November 11, 1992, the parties executed a
Contract of Lease x x x involving the ballroom of the
Before us is a Petition for Review[1] under Rule 45 Hotel for a period of three (3) years starting December
of the Rules of Court, assailing the May 22, 2002 1, 1992 and until November 30, 1995. On November
Decision[2] of the Court of Appeals (CA) in CA-GR 13, 1992, they executed an addendum to the contract x
CV No. 51629 and its March 4, 2003 x x which included a lease of an additional 1000
Resolution[3] denying petitioners Motion for square meters of the hotel grounds as living quarters
Reconsideration. The assailed Decision disposed thus: and playground of the casino personnel. PAGCOR
advertised the start of their casino operations on
WHEREFORE, in view of the foregoing, judgment is December 18, 1992.
hereby rendered as follows: (1) In Civil Case No. 93-
68266, the appealed decision[,] is AFFIRMED with Way back in 1990, the Sangguniang Panlungsod of
MODIFICATION[,] ordering [Respondent] Philippine Cagayan de Oro City passed Resolution No. 2295 x x
Amusement and Gaming Corporation to pay x dated November 19, 1990 declaring as a matter of
[Petitioner] Pryce Properties Corporation the total policy to prohibit and/or not to allow the establishment
amount of P687,289.50 as actual damages representing of a gambling casino in Cagayan de Oro City.
the accrued rentals for the quarter September to Resolution No. 2673 x x x dated October 19, 1992 (or
November 1993 with interest and penalty at the rate of a month before the contract of lease was executed) was
two percent (2%) per month from date of filing of the subsequently passed reiterating with vigor and
complaint until the amount shall have been fully paid, vehemence the policy of the City under Resolution No.
and the sum of P50,000.00 as attorneys fees; (2) In 2295, series of 1990, banning casinos in Cagayan de
Civil Case No. 93-68337, the appealed decision is Oro City. On December 7, 1992, the Sangguniang
REVERSED and SET ASIDE and a new judgment is Panlungsod of Cagayan de Oro City enacted
rendered ordering [Petitioner] Pryce Properties Ordinance No. 3353 x x x prohibiting the issuance of
Corporation to reimburse [Respondent] Philippine business permits and canceling existing business
Amusement and Gaming Corporation the amount permits to any establishment for using, or allowing to
of P687,289.50 representing the advanced rental be used, its premises or any portion thereof for the
deposits, which amount may be compensated by operation of a casino.
[Petitioner] Pryce Properties Corporation with its
award in Civil Case No. 93-68266 in the equal amount In the afternoon of December 18, 1992 and just hours
of P687,289.50.[4] before the actual formal opening of casino operations,
a public rally in front of the hotel was staged by some
local officials, residents and religious leaders.
The Facts Barricades were placed [which] prevented some casino
personnel and hotel guests from entering and exiting
According to the CA, the facts are as follows: from the Hotel. PAGCOR was constrained to suspend
casino operations because of the rally. An agreement
Sometime in the first half of 1992, representatives between PPC and PAGCOR, on one hand, and
from Pryce Properties Corporation (PPC for brevity) representatives of the rallyists, on the other, eventually
made representations with the Philippine Amusement ended the rally on the 20th of December, 1992.
and Gaming Corporation (PAGCOR) on the possibility
of setting up a casino in Pryce Plaza Hotel in Cagayan On January 4, 1993, Ordinance No. 3375-93 x x x was
de Oro City. [A] series of negotiations followed. passed by the Sangguniang Panlungsod of Cagayan de
PAGCOR representatives went to Cagayan de Oro Oro City, prohibiting the operation of casinos and
6
providing for penalty for violation thereof. On January and other circumstances which prevented it from
7, 1993, PPC filed a Petition for Prohibition with complying with its obligations. PAGCOR further
Preliminary Injunction x x x against then public stated that it had no other alternative but to pre-
respondent Cagayan de Oro City and/or Mayor Pablo terminate the lease agreement due to the relentless and
P. Magtajas x x x before the Court of Appeals, vehement opposition to their casino operations. In a
docketed as CA G.R. SP No. 29851 praying inter alia, letter dated October 12, 1993 x x x, PAGCOR asked
for the declaration of unconstitutionality of Ordinance PPC to refund the total of P1,437,582.25 representing
No. 3353. PAGCOR intervened in said petition and the reimbursable rental deposits and expenses for the
further assailed Ordinance No. 4475-93 as being permanent improvement of the Hotels parking lot. In a
violative of the non-impairment of contracts and equal letter dated November 5, 1993 x x x, PAGCOR
protection clauses. On March 31, 1993, the Court of formally demanded from PPC the payment of its claim
Appeals promulgated its decision x x x, the dispositive for reimbursement.
portion of which reads:
On November 15, 1993 x x x, PPC filed a case for sum
IN VIEW OF ALL THE FOREGOING, Ordinance No. of money in the Regional Trial Court of Manila
3353 and Ordinance No. 3375-93 are hereby docketed as Civil Case No. 93-68266. On November
DECLARED UNCONSTITUTIONAL and VOID and 19, 1993, PAGCOR also filed a case for sum of money
the respondents and all other persons acting under their in the Regional Trial Court of Manila docketed as
authority and in their behalf are PERMANENTLY Civil Case No. 93-68337.
ENJOINED from enforcing those ordinances.
In a letter dated November 25, 1993, PPC informed
SO ORDERED. PAGCOR that it was terminating the contract of lease
due to PAGCORs continuing breach of the contract
Aggrieved by the decision, then public respondents and further stated that it was exercising its rights under
Cagayan de Oro City, et al. elevated the case to the the contract of lease pursuant to Article 20 (a) and (c)
Supreme Court in G.R. No. 111097, where, in an En thereof.
Banc Decision dated July 20, 1994 x x x, the Supreme
Court denied the petition and affirmed the decision of On February 2, 1994, PPC filed a supplemental
the Court of Appeals. complaint x x x in Civil Case No. 93-68266, which the
trial court admitted in an Order dated February 11,
In the meantime, PAGCOR resumed casino operations 1994. In an Order dated April 27, 1994, Civil Case No.
on July 15, 1993, against which, however, another 93-68377 was ordered consolidated with Civil Case
public rally was held. Casino operations continued for No. 93-68266. These cases were jointly tried by the
some time, but were later on indefinitely suspended court a quo. On August 17, 1995, the court a quo
due to the incessant demonstrations. Per verbal advice promulgated its decision. Both parties appealed.[5]
x x x from the Office of the President of the
Philippines, PAGCOR decided to stop its casino In its appeal, PPC faulted the trial court for the
operations in Cagayan de Oro City. PAGCOR stopped following reasons: 1) failure of the court to award
its casino operations in the hotel prior to September, actual and moral damages; 2) the 50 percent reduction
1993. In two Statements of Account dated September of the amount PPC was claiming; and 3) the courts
1, 1993 x x x, PPC apprised PAGCOR of its ruling that the 2 percent penalty was to be imposed
outstanding account for the quarter September 1 to from the date of the promulgation of the Decision, not
November 30, 1993. PPC sent PAGCOR another from the date stipulated in the Contract.
Letter dated September 3, 1993 x x x as a follow-up to
On the other hand, PAGCOR criticized the trial
the parties earlier conference. PPC sent PAGCOR
court for the latters failure to rule that the Contract of
another Letter dated September 15, 1993 x x x stating
Lease had already been terminated as early as
its Board of Directors decision to collect the full
September 21, 1993, or at the latest, on October 14,
rentals in case of pre-termination of the lease.
1993, when PPC received PAGCORs letter dated
October 12, 1993. The gaming corporation added that
PAGCOR sent PPC a letter dated September 20, 1993
the trial court erred in 1) failing to consider that PPC
x x x [stating] that it was not amenable to the payment
was entitled to avail itself of the provisions of Article
of the full rentals citing as reasons unforeseen legal
XX only when PPC was the party terminating the
7
Contract; 2) not finding that there were valid, had not presented official receipts to prove the latters
justifiable and good reasons for terminating the alleged expenses. The appellate court, however, upheld
Contract; and 3) dismissing the Complaint of the trial courts award to PPC of P50,000 attorneys
PAGCOR in Civil Case No. 93-68337 for lack of fees.
merit, and not finding PPC liable for the
Hence this Petition.[6]
reimbursement of PAGCORS cash deposits and of the
value of improvements.
Issues
Ruling of the Court of Appeals
In their Memorandum, petitioner raised the
following issues:
First, on the appeal of PAGCOR, the CA ruled
that the PAGCORS pretermination of the Contract of
MAIN ISSUE:
Lease was unjustified. The appellate court explained
that public demonstrations and rallies could not be
Did the Honorable Court of Appeals commit x x x
considered as fortuitous events that would exempt the
grave and reversible error by holding that Pryce was
gaming corporation from complying with the latters
not entitled to future rentals or lease payments for the
contractual obligations. Therefore, the Contract
unexpired period of the Contract of Lease between
continued to be effective until PPC elected to
Pryce and PAGCOR?
terminate it on November 25, 1993.
Regarding the contentions of PPC, the CA held Sub-Issues:
that under Article 1659 of the Civil Code, PPC had the
right to ask for (1) rescission of the Contract and 1. Were the provisions of Sections 20(a) and 20(c) of
indemnification for damages; or (2) only the Contract of Lease relative to the right of PRYCE to
indemnification plus the continuation of the Contract. terminate the Contract for cause and to moreover
These two remedies were alternative, not cumulative, collect rentals from PAGCOR corresponding to the
ruled the CA. remaining term of the lease valid and binding?
As PAGCOR had admitted its failure to pay the
2. Did not Article 1659 of the Civil Code supersede
rentals for September to November 1993, PPC
Sections 20(a) and 20(c) of the Contract, PRYCE
correctly exercised the option to terminate the lease
having rescinded the Contract of Lease?
agreement. Previously, the Contract remained
effective, and PPC could collect the accrued rentals.
3. Do the case of Rios, et al. vs. Jacinto Palma
However, from the time it terminated the Contract on
Enterprises, et al. and the other cases cited by
November 25, 1993, PPC could no longer demand
PAGCOR support its position that PRYCE was not
payment of the remaining rentals as part of actual
entitled to future rentals?
damages, the CA added.
Denying the claim for moral damages, the CA 4. Would the collection by PRYCE of future rentals
pointed out the failure of PPC to show that PAGCOR not give rise to unjust enrichment?
had acted in gross or evident bad faith in failing to pay
the rentals from September to November 1993. Such 5. Could we not have harmonized Article 1659 of the
failure was shown especially by the fact that PPC still Civil Code and Article 20 of the Contract of Lease?
had in hand three (3) months advance rental deposits
of PAGCOR. The former could have simply applied 6. Is it not a basic rule that the law, i.e. Article 1659, is
this deposit to the unpaid rentals, as provided in the deemed written in contracts, particularly in the
Contract. Neither did PPC adequately show that its PRYCE-PAGCOR Contract of Lease?[7]
reputation had been besmirched or the hotels goodwill
eroded by the establishment of the casino and the
public protests. The Courts Ruling
Finally, as to the claimed reimbursement for
parking lot improvement, the CA held that PAGCOR The Petition is partly meritorious.
8
Main Issue: b) x x x x x x x x x
Collection of Remaining Rentals
c) Moreover, the LESSEE shall be fully liable to the
LESSOR for the rentals corresponding to the
PPC anchors its right to collect future rentals upon
remaining term of the lease as well as for any and all
the provisions of the Contract. Likewise, it argues
damages, actual or consequential resulting from such
that termination, as defined under the Contract, is
default and termination of this contract.
different from the remedy of rescission prescribed
under Article 1659 of the Civil Code. On the other
d) x x x x x x x x x. (Italics supplied)
hand, PAGCOR contends, as the CA ruled, that Article
1659 of the Civil Code governs; hence, PPC is
The above provisions leave no doubt that the
allegedly no longer entitled to future rentals, because it
parties have covenanted 1) to give PPC the right to
chose to rescind the Contract.
terminate and cancel the Contract in the event of a
default or breach by the lessee; and 2) to make
PAGCOR fully liable for rentals for the remaining
Contract Provisions term of the lease, despite the exercise of such right to
Clear and Binding terminate. Plainly, the parties have voluntarily bound
themselves to require strict compliance with the
Article 1159 of the Civil Code provides that provisions of the Contract by stipulating that a default
obligations arising from contracts have the force of or breach, among others, shall give the lessee the
law between the contracting parties and should be termination option, coupled with the lessors liability
complied with in good faith.[8] In deference to the for rentals for the remaining term of the lease.
rights of the parties, the law[9] allows them to enter into For sure, these stipulations are valid and are not
stipulations, clauses, terms and conditions they may contrary to law, morals, good customs, public order or
deem convenient; that is, as long as these are not public policy. Neither is there anything objectionable
contrary to law, morals, good customs, public order or about the inclusion in the Contract of mandatory
public policy. Likewise, it is settled that if the terms of provisions concerning the rights and obligations of the
the contract clearly express the intention of the parties.[11] Being the primary law between the parties,
contracting parties, the literal meaning of the it governs the adjudication of their rights and
stipulations would be controlling.[10] obligations. A court has no alternative but to enforce
In this case, Article XX of the parties Contract of the contractual stipulations in the manner they have
Lease provides in part as follows: been agreed upon and written.[12] It is well to recall that
courts, be they trial or appellate, have no power to
XX. BREACH OR DEFAULT make or modify contracts.[13]Neither can they save
parties from disadvantageous provisions.
a) The LESSEE agrees that all the terms, conditions
and/or covenants herein contained shall be deemed
essential conditions of this contract, and in the event of Termination or Rescission?
default or breach of any of such terms, conditions
and/or covenants, or should the LESSEE become
Well-taken is petitioners insistence that it had the
bankrupt, or insolvent, or compounds with his
right to ask for termination plus the full payment of
creditors, the LESSOR shall have the right to
future rentals under the provisions of the Contract,
terminate and cancel this contract by giving them
rather than just rescission under Article 1659 of the
fifteen (15 days) prior notice delivered at the leased
Civil Code. This Court is not unmindful of the fact
premises or posted on the main door thereof. Upon
that termination and rescission are terms that have
such termination or cancellation, the LESSOR may
been used loosely and interchangeably in the past. But
forthwith lock the premises and exclude the LESSEE
distinctions ought to be made, especially in this
therefrom, forcefully or otherwise, without incurring
controversy, in which the terms mean differently and
any civil or criminal liability. During the fifteen (15)
lead to equally different consequences.
days notice, the LESSEE may prevent the termination
of lease by curing the events or causes of termination The term rescission is found in 1) Article
or cancellation of the lease. 1191[14] of the Civil Code, the general provision on
9
rescission of reciprocal obligations; 2) Article 1659, for rental arrearages. There is a distinction in law
[15]
which authorizes rescission as an alternative between cancellation of a contract and its
remedy, insofar as the rights and obligations of the rescission. To rescind is to declare a contract void in
lessor and the lessee in contracts of lease are its inception and to put an end to it as though it never
concerned; and 3) Article 1380[16] with regard to the were. It is not merely to terminate it and release
rescission of contracts. parties from further obligations to each other but to
abrogate it from the beginning and restore the parties
In his Concurring Opinion in Universal Food
to relative positions which they would have occupied
Corporation v. CA,[17] Justice J. B. L. Reyes
had no contract ever been made.
differentiated rescission under Article 1191 from that
under Article 1381 et seq. as follows:
x x x. The termination or cancellation of a contract
would necessarily entail enforcement of its terms prior
x x x. The rescission on account of breach of
to the declaration of its cancellation in the same way
stipulations is not predicated on injury to economic
that before a lessee is ejected under a lease contract,
interests of the party plaintiff but on the breach of faith
he has to fulfill his obligations thereunder that had
by the defendant, that violates the reciprocity between
accrued prior to his ejectment. However, termination
the parties. It is not a subsidiary action, and Article
of a contract need not undergo judicial intervention. x
1191 may be scanned without disclosing anywhere that
x x.[21] (Italics supplied)
the action for rescission thereunder is subordinated to
anything other than the culpable breach of his
Rescission has likewise been defined as the
obligations to the defendant. This rescission is a
unmaking of a contract, or its undoing from the
principal action retaliatory in character, it being unjust
beginning, and not merely its
that a party be held bound to fulfill his promises when
termination. Rescission may be effected by both
the other violates his. As expressed in the old Latin
parties by mutual agreement; or unilaterally by one of
aphorism: Non servanti fidem, non est fides
them declaring a rescission of contract without the
servanda. Hence, the reparation of damages for the
consent of the other, if a legally sufficient ground
breach is purely secondary.
exists or if a decree of rescission is applied for before
the courts.[22] On the other hand, termination refers to
On the contrary, in rescission by reason of lesion or
an end in time or existence; a close, cessation or
economic prejudice, the cause of action is
conclusion. With respect to a lease or contract, it
subordinated to the existence of that prejudice, because
means an ending, usually before the end of the
it is the raison detre as well as the measure of the right
anticipated term of such lease or contract, that may be
to rescind. x x x.[18]
effected by mutual agreement or by one party
exercising one of its remedies as a consequence of the
Relevantly, it has been pointed out
default of the other.[23]
that resolution was originally used in Article 1124 of
the old Civil Code, and that the term became the basis Thus, mutual restitution is required in a rescission
for rescission under Article 1191 (and, conformably, (or resolution), in order to bring back the parties to
also Article 1659).[19] their original situation prior to the inception of the
contract.[24] Applying this principle to this case, it
Now, as to the distinction
means that PPC would re-acquire possession of the
between termination (or cancellation)
leased premises, and PAGCOR would get back the
and rescission (more properly, resolution), Huibonhoa
rentals it paid the former for the use of the hotel space.
v. CA[20] held that, where the action prayed for the
payment of rental arrearages, the aggrieved party In contrast, the parties in a case of termination are
actually sought the partial enforcement of a lease not restored to their original situation; neither is the
contract. Thus, the remedy was not rescission, but contract treated as if it never existed. Prior to its
termination or cancellation, of the contract. The Court termination, the parties are obliged to comply with
explained: their contractual obligations. Only afterthe contract
has been cancelled will they be released from their
x x x. By the allegations of the complaint, the obligations.
Gojoccos aim was to cancel or terminate the contract
In this case, the actions and pleadings of petitioner
because they sought its partial enforcement in praying
show that it never intended to rescind the Lease
10
Contract from the beginning. This fact was evident indemnity for damages and the payment of interests in
when it first sought to collect the accrued rentals from case of noncompliance; that is, if there is no
September to November 1993 because, as previously stipulation to the contrary,[29] in which case proof of
stated, it actually demanded the enforcement of the actual damages is not necessary for the penalty to be
Lease Contract prior to termination. Any intent to demanded.[30] There are exceptions to the
rescind was not shown, even when it abrogated the aforementioned rule, however, as enumerated in
Contract on November 25, 1993, because such paragraph 1 of Article 1226 of the Civil Code: 1) when
abrogation was not the rescission provided for under there is a stipulation to the contrary, 2) when the
Article 1659. obligor is sued for refusal to pay the agreed penalty,
and 3) when the obligor is guilty of fraud. In these
cases, the purpose of the penalty is obviously to punish
Future Rentals the obligor for the breach. Hence, the obligee can
recover from the former not only the penalty, but also
other damages resulting from the nonfulfillment of the
As to the remaining sub-issue of future principal obligation. [31]
rentals, Rios v. Jacinto[25] is inapplicable, because the
remedy resorted to by the lessors in that case was In the present case, the first exception applies
rescission, not termination. The rights and obligations because Article XX (c) provides that, aside from the
of the parties in Rios were governed by Article 1659 of payment of the rentals corresponding to the remaining
the Civil Code; hence, the Court held that the damages term of the lease, the lessee shall also be liable for any
to which the lessor was entitled could not have and all damages, actual or consequential, resulting
extended to the lessees liability for future rentals. from such default and termination of this contract.
Having entered into the Contract voluntarily and with
Upon the other hand, future rentals cannot be full knowledge of its provisions, PAGCOR must be
claimed as compensation for the use or enjoyment of held bound to its obligations. It cannot evade further
anothers property after the termination of a contract. liability for liquidated damages.
We stress that by abrogating the Contract in the present
case, PPC released PAGCOR from the latters future
obligations, which included the payment of rentals. To Reduction of Penalty
grant that right to the former is to unjustly enrich it at
the latters expense.
In certain cases, a stipulated penalty may
However, it appears that Section XX (c) was
nevertheless be equitably reduced by the courts.
intended to be a penalty clause. That fact is manifest [32]
This power is explicitly sanctioned by Articles 1229
from a reading of the mandatory provision under
and 2227 of the Civil Code, which we quote:
subparagraph (a) in conjunction with subparagraph (c)
of the Contract. A penal clause is an accessory
Art. 1229. The judge shall equitably reduce the penalty
obligation which the parties attach to a principal
when the principal obligation has been partly or
obligation for the purpose of insuring the performance
irregularly complied with by the debtor. Even if there
thereof by imposing on the debtor a special prestation
has been no performance, the penalty may also be
(generally consisting in the payment of a sum of
reduced by the courts if it is iniquitous or
money) in case the obligation is not fulfilled or is
unconscionable.
irregularly or inadequately fulfilled.[26]
Quite common in lease contracts, this clause Art. 2227. Liquidated damages, whether intended as
functions to strengthen the coercive force of the an indemnity or a penalty, shall be equitably reduced if
obligation and to provide, in effect, for what could be they are iniquitous or unconscionable.
the liquidated damages resulting from a breach.
[27]
There is nothing immoral or illegal in such The question of whether a penalty is reasonable or
indemnity/penalty clause, absent any showing that it iniquitous is addressed to the sound discretion of the
was forced upon or fraudulently foisted on the obligor. courts. To be considered in fixing the amount of
[28]
penalty are factors such as -- but not limited to -- the
type, extent and purpose of the penalty; the nature of
In obligations with a penal clause, the general rule
the obligation; the mode of the breach and its
is that the penalty serves as a substitute for the
11
consequences; the supervening realities; the standing
and relationship of the parties; and the like.[33]
In this case, PAGCORs breach was occasioned by
THIRD DIVISION
events that, although not fortuitous in law, were in fact
real and pressing. From the CAs factual findings,
which are not contested by either party, we find that ERMINDA F. FLORENTINO, G.R. N
PAGCOR conducted a series of negotiations and Petitioner,
consultations before entering into the Contract. It did Presen
so not only with the PPC, but also with local YNARES
Chairper
government officials, who assured it that the problems
were surmountable. Likewise, PAGCOR took pains to AUSTR
- versus - CHICO
contest the ordinances[34] before the courts, which
consequently declared them unconstitutional. On top NACH
of these developments, the gaming corporation was REYES
advised by the Office of the President to stop the
games in Cagayan de Oro City, prompting the former SUPERVALUE, INC.,
to cease operations prior to September 1993. Respondent.
Promu
Also worth mentioning is the CAs finding that
PAGCORs casino operations had to be suspended for
days on end since their start in December 1992; and Septem
indefinitely from July 15, 1993, upon the advice of the x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Office of President, until the formal cessation of - - - - - - - - - - - - - -x
operations in September 1993. Needless to say, these
interruptions and stoppages meant that PAGCOR
suffered a tremendous loss of expected revenues, not
to mention the fact that it had fully operated under the D E C I S I O N
Contract only for a limited time.
While petitioners right to a stipulated penalty is
CHICO-NAZARIO, J.:
affirmed, we consider the claim for future rentals to
the tune of P7,037,835.40 to be highly iniquitous. The
amount should be equitably reduced. Under the
Before this Court is a Petition for Review
circumstances, the advanced rental deposits in the sum
on Certiorari under Rule 45 of the Revised Rules of
of P687,289.50 should be sufficient penalty for
Court, filed by petitioner Erminda F. Florentino,
respondents breach.
seeking to reverse and set aside the Decision,
WHEREFORE, the Petition is GRANTED in dated 10 October 2003 and the Resolution,
[1]
part. The assailed Decision and Resolution are dated 19 April 2006 of the Court of Appeals in CA-
[2]
hereby MODIFIED to include the payment of penalty. G.R. CV No. 73853. The appellate court, in its assailed
Accordingly, respondent is ordered to pay petitioner Decision and Resolution, modified the Decision
the additional amount of P687,289.50 as penalty, dated 30 April 2001 of the Regional Trial Court (RTC)
which may be set off or applied against the formers of Makati, Branch 57, in Civil Case No. 00-1015,
advanced rental deposits. Meanwhile, the CAs award finding the respondent Supervalue, Inc., liable for the
to petitioner of actual damages representing the sum of P192,000.00, representing the security deposits
accrued rentals for September to November 1993 -- made by the petitioner upon the commencement of
with interest and penalty at the rate of two percent their Contract of Lease. The dispositive portion of the
(2%) per month, from the date of filing of the assailed appellate courts Decision thus reads:
Complaint until the amount shall have been fully paid
-- as well as the P50,000 award for attorneys fees, WHEREFORE, premises
is AFFIRMED. No costs. considered, the appeal is PARTLY
GRANTED. The April 30, 2001
SO ORDERED. Decision of the Regional Trial Court
of Makati, Branch 57 is therefore
12
MODIFIED to wit: (a) the portion In the first letter, petitioner was charged with violating
ordering the [herein respondent] to pay Section 8 of the Contracts of Lease by not opening
the amount of P192,000.00 representing on 16 December 1999 and 26 December 1999. [9]
Petitioner is doing business under the business In a letter-reply dated 11 February 2000, petitioner
name Empanada Royale, a sole proprietorship engaged explained that the mini-embutido is not a new variety
in the retail of empanada with outlets in different of empanada but had similar fillings, taste and
malls and business establishments within Metro ingredients as those of pork empanada; only, its size
Manila.[4]
was reduced in order to make it more affordable to the
buyers. [13]
introduced in the leased premises. Since it was already established by the trial
court that the petitioner was guilty of committing
III. Whether or not the respondent is liable for several breaches of contract, the Court of Appeals
attorneys fees. [27]
decreed that she cannot therefore rightfully demand
the return of the security deposits for the same are
The appellate court, in finding that the respondent is deemed forfeited by reason of evident contractual
authorized to forfeit the security deposits, relied on the violations.
provisions of Sections 5 and 18 of the Contract of
Lease, to wit: It is undisputed that the above-quoted provision found
in all Contracts of Lease is in the nature of a penal
Section 5. DEPOSIT. The LESSEE clause to ensure petitioners faithful compliance with
shall make a cash deposit in the sum the terms and conditions of the said contracts.
of SIXTY THOUSAND PESOS
(P60,000.00) equivalent to three (3) A penal clause is an accessory undertaking to assume
months rent as security for the full greater liability in case of breach. It is attached to an
and faithful performance to each and obligation in order to insure performance and has a
every term, provision, covenant and double function: (1) to provide for liquidated damages,
condition of this lease and not as a and (2) to strengthen the coercive force of the
pre-payment of rent. If at any time obligation by the threat of greater responsibility in the
during the term of this lease the rent event of breach. The obligor would then be bound to
[29]
15
pay the stipulated indemnity without the necessity of obligation, the mode of breach and its
proof of the existence and the measure of damages consequences, the supervening realities,
caused by the breach. Article 1226 of the Civil Code
[30]
the standing and relationship of the
states: parties, and the like, the application of
which, by and large, is addressed to the
Art. 1226. In obligations with a sound discretion of the court. xxx.
penal clause, the penalty shall substitute
the indemnity for damages and the
payment of interests in case of In the instant case, the forfeiture of the entire
noncompliance, if there is no stipulation amount of the security deposits in the sum
to the contrary. Nevertheless, damages of P192,000.00 was excessive and unconscionable
shall be paid if the obligor refuses to considering that the gravity of the breaches committed
pay the penalty or is guilty of fraud in by the petitioner is not of such degree that the
the fulfillment of the obligation. respondent was unduly prejudiced thereby. It is but
equitable therefore to reduce the penalty of the
The penalty may be enforced petitioner to 50% of the total amount of security
only when it is demandable in deposits.
accordance with the provisions of this
Code. It is in the exercise of its sound discretion that
this court tempered the penalty for the breaches
As a general rule, courts are not at liberty to ignore the committed by the petitioner to 50% of the amount of
freedoms of the parties to agree on such terms and the security deposits. The forfeiture of the entire sum
conditions as they see fit as long as they are not of P192,000.00 is clearly a usurious and iniquitous
contrary to law, morals, good customs, public order or penalty for the transgressions committed by the
public policy.Nevertheless, courts may equitably petitioner. The respondent is therefore under the
reduce a stipulated penalty in the contracts in two obligation to return the 50% of P192,000.00 to the
instances: (1) if the principal obligation has been partly petitioner.
or irregularly complied with; and (2) even if there has
been no compliance if the penalty is iniquitous or Turning now to the liability of the respondent to
unconscionable in accordance with Article 1229 of the reimburse the petitioner for one-half of the expenses
Civil Code which clearly provides: incurred for the improvements on the leased store
space at SM Megamall, the following provision in the
Contracts of Lease will enlighten us in resolving this
Art. 1229. The judge shall issue:
equitably reduce the penalty when the
principal obligation has been partly or Section 11. ALTERATIONS,
irregularly complied with by the debtor. ADDITIONS, IMPROVEMENTS,
Even if there has been no performance, ETC. The LESSEE shall not make any
the penalty may also be reduced by the alterations, additions, or improvements
courts if it is iniquitous or without the prior written consent of
unconscionable. [31]
LESSOR; and all alterations, additions
or improvements made on the leased
In ascertaining whether the penalty is unconscionable premises, except movable or fixtures
or not, this court set out the following standard put in at LESSEEs expense and which
in Ligutan v. Court of Appeals, to wit:
[32]
are removable, without defacing the
buildings or damaging its floorings,
The question of whether a shall become LESSORs property
penalty is reasonable or iniquitous can without compensation/reimbursement
be partly subjective and partly but the LESSOR reserves the right to
objective. Its resolution would depend require the removal of the said
on such factor as, but not necessarily alterations, additions or improvements
confined to, the type, extent and upon expiration of the lease.
purpose of the penalty, the nature of the
16
The foregoing provision in the Contract of Lease made on the leased store space should it choose to
mandates that before the petitioner can introduce any appropriate the same, the RTC relied on the provision
improvement on the leased premises, she should first of Article 1678 of the Civil Code which provides:
obtain respondents consent. In the case at bar, it was Art. 1678. If the lessee makes,
not shown that petitioner previously secured the in good faith, useful improvements
consent of the respondent before she made the which are suitable to the use for which
improvements on the leased space in SM Megamall. It the lease is intended, without altering
was not even alleged by the petitioner that she the form or substance of the property
obtained such consent or she at least attempted to leased, the lessor upon the termination
secure the same. On the other hand, the petitioner of the lease shall pay the lessee one-half
asserted that respondent allegedly misrepresented to of the value of the improvements at that
her that it would renew the terms of the contracts from time. Should the lessor refuse to
time to time after their expirations, and that the reimburse said amount, the lessee may
petitioner was so induced thereby that she expended remove the improvements, even though
the sum of P200,000.00 for the improvement of the the principal thing may suffer damage
store space leased. thereby. He shall not,
however, cause any more impairment
This argument was squarely addressed by this court upon the property leased than is
in Fernandez v. Court of Appeals, thus:
[33]
necessary.
The Court ruled that the stipulation of While it is true that under the above-quoted provision
the parties in their lease contract to be of the Civil Code, the lessor is under the obligation to
renewable at the option of both parties pay the lessee one-half of the value of the
stresses that the faculty to renew was improvements made should the lessor choose to
given not to the lessee alone nor to appropriate the improvements, Article 1678 however
the lessor by himself but to the two should be read together with Article 448 and Article
simultaneously; hence, both must agree 546 of the same statute, which provide:
to renew if a new contract is to come
about. Art. 448. The owner of the land
on which anything has been built, sown
Petitioners contention that or planted in good faith, shall have the
respondents had verbally agreed to right to appropriate as his own the
extend the lease indefinitely is works, sowing or planting, after
inadmissible to qualify the terms of the payment of the indemnity provided for
written contract under the parole in articles 546 and 548, or to oblige the
evidence rule, and unenforceable under one who built or planted to pay the
the statute of frauds.
[34]
price of the land, and the one who
sowed, the proper rent.However, the
builder or planter cannot be obliged to
Moreover, it is consonant with human experience that buy the land if its value is considerably
lessees, before occupying the leased premises, more than that of the building or
especially store spaces located inside malls and big trees. In such case, he shall pay
commercial establishments, would renovate the place reasonable rent, if the owner of the land
and introduce improvements thereon according to the does not choose to appropriate the
needs and nature of their business and in harmony with building or trees after proper
their trademark designs as part of their marketing ploy indemnity. The parties shall agree upon
to attract customers. Certainly, no inducement or the terms of the lease and in case of
misrepresentation from the lessor is necessary for this disagreement, the court shall fix the
purpose, for it is not only a matter of necessity that a terms thereof.
lessee should re-design its place of business but a
business strategy as well. xxxx
In ruling that the respondent is liable to reimburse Art. 546. Necessary expenses shall be
petitioner one half of the amount of improvements refunded to every possessor; but only
17
possessor in good faith may retain the power of the tenant to "improve" his
thing until he has been landlord out of his property.
reimbursed therefor.
Since petitioners interest in the store space is merely
Useful expenses shall be refunded only that of the lessee under the lease contract, she cannot
to the possessor in good faith with the therefore be considered a builder in good
same right of retention, the person who faith. Consequently, respondent may appropriate the
has defeated him in the possession improvements introduced on the leased premises
having the option of refunding the without any obligation to reimburse the petitioner for
amount of the expenses or of paying the the sum expended.
increase in value which the thing may
have acquired by reason thereof. Anent the claim for attorneys fees, we resolve to
Thus, to be entitled to reimbursement for likewise deny the award of the same. Attorneys fees
improvements introduced on the property, the may be awarded when a party is compelled to litigate
petitioner must be considered a builder in good or to incur expenses to protect its interest by reason of
faith. Further, Articles 448 and 546 of the Civil Code, unjustified act of the other.
[37]
The controversy originated from a civil case[3] pending d. The plaintiff agrees to pay [petitioner
before the Regional Trial Court, Branch Rogelio] the amount of P570,000.00
125, Caloocan City(RTC Caloocan) filed by subject to the terms hereunder set forth
Marceliano Borja (Borja) against Rogelio S. Acidre and subject strictly to the condition that
(Rogelio) for the latters breach of his obligation to [petitioner Rogelio] will finish the
construct a residential and commercial building. building above-described pursuant to
Rogelio is the sole proprietor of petitioner Diamond the agreements [Annex(es) A and B] set
Builders Conglomeration (DBC). forth in paragraph 1 hereof.
To put an end to the foregoing litigation, the e. Plaintiff shall pay [petitioner
parties entered into a Compromise Agreement[4] which Rogelio] the amount of P570,000.00 as
provided, in part: follows:
On May 29, 1992, Sheriff Perceverando Pangan of As a result, Country Bankers filed a complaint for sum
RTC Caloocan served Country Bankers a copy of the of money against the petitioners which, as previously
writ. Posthaste, Country Bankers, in writing, requested stated, the RTC Manila dismissed. It disposed of the
Sheriff Pangan for a 10-day grace period within which case, thus:
to settle the claim.[13]
WHEREFORE, and considering the
Subsequently, Rogelio filed an Urgent Omnibus foregoing, judgment is hereby rendered:
Motion[14] to suspend the Writ of Execution and to
resolve the Motion for Reconsideration dated June 3, 1. Dismissing the complaint for lack of
1992. Upon receipt of the Omnibus Motion, Country merit;
Bankers forthwith wrote Sheriff Pangan and requested
that the implementation of the Writ of Execution be
held in abeyance so as not to render moot and 2. On the counterclaim, ordering
academic the RTC Caloocans resolution on the [Country Bankers] to pay [petitioners]
Omnibus Motion.[15] attorneys fees of P50,000.00, plus the
costs of suit.
Nonetheless, on June 9, 1992, Country Bankers
was served a Notice of Levy/Sheriffs Sale[16] with a list SO ORDERED.
of its personal properties to be sold at the scheduled
public auction on June 15, 1992.
On appeal, the CA reversed and set aside the
The next day, or on June 10, 1992, Country decision of the RTC Manila, to wit:
Bankers verified with the RTC Caloocan the status of
petitioners Omnibus Motion. It was informed that the WHEREFORE, premises considered,
motion had yet to be acted upon. On the same date, the Appeal is GRANTED and the
Sheriff Pangan arrived at Country Bankers office, and Decision dated November 2, 1992 of
the latter was thus constrained to pay the amount of the Branch 7 of the Regional Trial Court of
surety bond.[17] Manila is hereby REVERSED and a
new one entered, ordering [petitioners]
Significantly, on June 22, 1992, twelve (12) days after to pay [Country Bankers] the sum of
the satisfaction of judgment in Civil Case No. C- THREE HUNDRED SEVENTY
14745, Rogelio filed a Petition for Certiorari and THOUSAND PESOS (P370,000.00), as
Prohibition with Preliminary Injunction and reimbursement or actual damages, plus
Restraining Order[18] with the CA, docketed as CA- interest thereon at the rate of 12% per
G.R. SP No. 28205. Although the appellate court annum computed from the date of
21
judicial demand, or from July 24, 1992,
the date of filing of the complaint until A compromise judgment is a decision rendered by a
the said amount has been fully paid. court sanctioning the agreement between the parties
concerning the determination of the controversy at
SO ORDERED. hand. Essentially, it is a contract, stamped with judicial
imprimatur, between two or more persons, who, for
preventing or putting an end to a lawsuit, adjust their
In reversing the trial court, the CA ruled that Country difficulties by mutual consent in the manner which
Bankers, as surety of Rogelios loan obligation, did not they agree on, and which each of them prefers in the
effect voluntary payment on the bond. The appellate hope of gaining, balanced by the danger of losing.
[22]
court found that what Country Bankers paid was an Upon court approval of a compromise agreement, it
obligation legally due and demandable. It declared that transcends its identity as a mere contract binding only
Country Bankers acted upon compulsion of a writ of upon the parties thereto, as it becomes a judgment that
execution, which appears to have been regularly, and is subject to execution in accordance with Rule 39 of
validly issued, and, by its very nature, is immediately the Rules of Court.[23]
enforceable.
Ordinarily, a judgment based on compromise is not
Hence, this appeal positing a sole issue for our appealable. It should not be disturbed except upon a
resolution, to wit: showing of vitiated consent or forgery. The reason for
the rule is that when both parties enter into an
Whether petitioners should indemnify agreement to end a pending litigation and request that
Country Bankers for the payment of the a decision be rendered approving said agreement, it is
surety bond. only natural to presume that such action constitutes an
implicit, as undeniable as an express, waiver of the
right to appeal against said decision. [24]Thus, a decision
In fine, petitioners contend that Country Bankers is not on a compromise agreement is final and executory, and
entitled to reimbursement when it voluntarily paid the is conclusive between the parties.[25]
surety bond considering it knew full well the remedies
availed of by petitioners to stay the execution of the It is beyond cavil that if a party fails or refuses to
compromise judgment. Thus, Country Bankers must abide by a compromise agreement, the other party may
bear the loss or damage arising from its voluntary act. either enforce the compromise or regard it as rescinded
and insist upon his original demand.[26] Following this
We deny the appeal and affirm the appellate courts mandatory rule, the RTC Caloocan granted Borjas
ruling. Country Bankers should be reimbursed for motion, and subsequently issued an order to the sheriff
the P370,000.00 it paid to Borja under the surety bond. to execute the compromise judgment. Notwithstanding
the foregoing, petitioners still maintain that since they
In impugning the CAs decision, petitioners invoke had taken steps to stay the execution of the
their pending Omnibus Motion to stay the execution of compromise judgment, Country Bankers, with full
the compromise judgment. Petitioners theory is that, knowledge of their active opposition to the execution
although the RTC Caloocan had already issued a writ thereof, should not have readily complied with the
of execution and Country Bankers had been served a RTC Caloocan Order.
Notice of Levy/Sheriffs Sale of its properties at the
impending public auction, the payment made by Petitioners argument contemplates a brazen defiance
Country Bankers to Borja is a voluntary act. of a validly issued court order, which had not been
Petitioners push their theory even further, and deign to restrained by the appellate court or this Court. The
suggest that Country Bankers should have itself argument is unacceptable.
intervened in the proceedings before the RTC
Caloocan to stay the writ of execution. The Compromise Agreement between Borja and
Rogelio explicitly provided that the latters failure to
We reject this preposterous suggestion. Petitioners complete construction of the building within the
ought to be reminded of the nature of a judgment on a stipulated period[27] shall cause the full implementation
compromise and a writ of execution issued in of the surety bond as a penalty for the default, and as
connection therewith. an award of damages to Borja. Furthermore, the
22
Compromise Agreement contained a default executory immediate payment of the full amount
clause in case of a violation or avoidance of the terms stated in the writ of execution and all
and conditions thereof. Therefore, the payment made lawful fees. The judgment obligor shall
by Country Bankers to Borja was proper, as failure to pay in case, certified bank check
pay would have amounted to contumacious payable to the judgment oblige, or any
disobedience of a valid court order. other form of payment acceptable to the
latter, the amount of the judgment debt
Clearly, even without the aforesaid default clause, the under proper receipt directly to the
compromise judgment remained executory as against judgment oblige or his authorized
Rogelio, as the principal obligor (co-debtor), and representative if present at the time of
Country Bankers as surety of the obligation. Section 4, payment. The lawful fees shall be
Rule 39 of the Rules of Court provides: handed under proper receipt to the
executing sheriff who shall turn over
SEC. 4. Judgments not stayed by the said amount within the same day to
appeal. Judgments in actions for the clerk of court of the court that
injunction, receivership, accounting and issued the writ.
support, and such other judgments as
are now or may hereafter be declared to
be immediately executory, shall be As Rogelios obligation under the compromise
enforceable after their rendition and agreement, and approved by the RTC Caloocan, had a
shall not be stayed by an appeal taken penal clause[33] which is monetary in nature,[34] the writ
therefrom, unless otherwise ordered by of execution availed of by Borja, and paid by Country
the trial court. On appeal therefrom, the Bankers, strictly complied with the rules on execution
appellate court in its discretion may of money judgments.
make an order suspending, modifying,
restoring or granting the injunction, It is true that the petitioners did not directly question
receivership, accounting, or award of the compromise judgment. What was pending before
support. the Caloocan RTC was petitioners Omnibus Motion
praying for a stay in the implementation of the writ of
The stay of execution shall be upon execution.However, the bottom line issue raised in the
such terms as to bind or otherwise as Omnibus Motion is, actually, a question on the
may be considered proper for the compromise judgment, since its resolution would
security or protection of the rights of require an inquiry into the stipulations contained in the
the adverse party. Compromise Agreement, particularly the provision on
immediate execution.
Other judgments in actions declared to be immediately Thus, when the RTC Manila ruled that the payment on
executory and not stayed by the filing of an appeal are the bond made by Country Bankers was voluntary, the
for: (1) compromise,[28] (2) forcible entry and unlawful lower court effectively disregarded the rule on the non-
detainer,[29] (3) direct contempt,[30] and (4) appealable nature and the immediately executory
[31]
expropriation. character of a judgment on a compromise.
Likewise, Section 9, paragraph (a),[32] of the same Rule Moreover, it has not escaped our attention that
outlines the procedure for execution of judgments for petitioners belatedly filed a Petition for Certiorari and
money, thus: Prohibition with prayer for a TRO with the CA,
ostensibly to stop the execution of the compromise
SEC. 9 Execution of judgments for judgment. Not only was the filing thereof late, it was
money, how enforced. done twelve (12) days after the satisfaction of the
compromise judgment. We are, therefore, perplexed
(a) Immediate payment on demand. The why, despite the urgency of the matter, petitioners
officer shall enforce an execution of a merely banked on a pending motion for
judgment for money by demanding reconsideration to stay the enforcement of an already
from the judgment obligor the
23
issued writ of execution. Petitioners total reliance
thereon was certainly misplaced. Evidently, it would not have been premature for
petitioners to have filed a petition before the CA, upon
Admittedly, the general rule is that certiorari will not the issuance by the RTC Caloocan of a writ of
lie unless a motion for reconsideration is first filed execution, because the RTC Caloocan already denied
before the respondent tribunal to allow it an their Opposition to Borjas Motion for Execution on the
opportunity to correct the imputed errors. surety bond. If, as petitioners insist, they had a
[35]
Nonetheless, the rule admits of exceptions, thus: meritorious challenge to the satisfaction of the writ of
execution, they should have immediately filed a
(a) where the order is a patent Petition for Certiorari with the CA and therein alleged
nullity, as where the court a quo has no the exceptional circumstance warranting the non-filing
jurisdiction; of a motion for reconsideration. Petitioners should not
have persisted on waiting for the resolution of their
(b) where the questions raised Omnibus Motion.
in the certiorari proceedings have been
duly raised and passed upon by the We have consistently ruled that an order for the
lower court, or are the same as those issuance of a writ of execution is ordinarily not
raised and passed upon in the lower appealable.The reason for this is that the merits of the
court; case should not be delved into anew after a
determination has been made thereon with finality.
[37]
(c) where there is an urgent Otherwise, there would be practically no end to
necessity for the resolution of the litigation since the losing party would always try to
question and any further delay would thwart execution by appealing from every order
prejudice the interests of the granting the writ. In this case, this aphorism should
Government or of the petitioner or the apply. Rogelio, after agreeing to an amicable
subject matter of the action is settlement with Borja to put an end to the case before
perishable; the RTC Caloocan, cannot flout compliance of the
court order of execution by refusing to reimburse
(d) where, under the Country Bankers, the surety of his obligation in the
circumstances, a motion for compromise agreement.
reconsideration would be useless;
Still, petitioners stubbornly refuse to pay Country
(e) where petitioner was Bankers, contending that the CA itself, in CA-G.R. SP
deprived of due process and there is No. 28205, declared that the payment effected was
extreme urgency for relief; voluntary.
The CA in its Decision[26] dated October 18, 2006 Before going into the substantive merits of the case,
reversed the trial court and ruled in favor of we shall first resolve the technical issue raised by
respondent in holding that the latter already fulfilled respondent in his Comment[34] dated February 8,
his loan obligation with petitioner. The CA found 2007 and Memorandum[35] dated November 6, 2007.
credence in the following pieces of evidence: (1)
certification dated September 10, 1996 signed by Dy; Respondent alleged that the petition should be
(2) deduction of the monthly installments from dismissed for failing to comply with Section 4, Rule
respondent's salary pursuant to the agreement between 45 of the Rules of Court in relation to Sections 4 and
him and petitioner; and (3) petitioner's admission of 5, Rule 7 of the Rules of Court.[36] Respondent
respondent's installment payments made in the amount alleged that the signature of Dy in the
of P230,275.22.[27] The CA held that Dy never denied Verification/Certification in the petition differs from
nor confirmed in open court the authenticity of her her signature in the letter dated November 11, 1998,
signature in the certification dated September 10, thus, inferred that someone not authorized signed the
1996.[28] Citing Permanent Savings and Loan Bank v. Verification/Certification.[37]
Velarde[29] and Consolidated Bank and Trust
Corporation (SOLIDBANK) v. Del Monte Motor Upon a review of the records, however, we found Dy's
Works, Inc.,[30] the CA held that Dy must declare signature in the petition to be the same with Dy's
under oath that she did not sign the document or that it signature in the Ex-Parte Manifestation of
is otherwise false or fabricated.[31] Compliance[38] dated February 22, 2005 which
petitioner filed with the CA. Respondent never
Thus, the CA reversed the trial court's ruling and held: objected to Dy's signature in petitioner's Ex-Parte
Manifestation of Compliance. Further, Dy did not
WHEREFORE, premises considered, the November refute that the signature in the petition is hers. Thus,
22, 2002 Decision of the Regional Trial Court of we find no reason to dismiss the petition outright
Makati City, Branch 148, in Civil Case No. 99-1295, is based on respondent's allegation.
31
x x x Moreover, it had been sufficiently established by
Review of factual findings witness Aida Valle (VALLE), Administrative manager
of plaintiff-appellee MULTI-INTERNATIONAL, that
Before going into the merits of the petition, we stress defendant-appellant MARTINEZ had been the only
the well-settled rule that only questions of law may be employee granted by plaintiff-appellee MULTI-
raised in a petition for review on certiorari under Rule INTERNATIONAL a car loan as such [sic]. With that,
45 of the Rules of Court, since "the Supreme Court is it can fairly be inferred that plaintiff-appellee MULT1-
not a trier of facts."[39] It is not our function to review, INTERNATlONAL's asseveration that the deductions
examine and evaluate or weigh the probative value of from the salary of defendant-appellant MARTINEZ
the evidence presented. had not been reflected in his payslips is for naught,
since indeed, no such "item" in the payslip is provided,
When supported by substantial evidence, the findings considering that it is only defendant-appellant
of fact of the CA are conclusive and binding on the MARTINEZ who had been granted such car loan x x
parties and are not reviewable by this Court, unless the x.[42]
case falls under any of the recognized exceptions in
jurisprudence.[40]
Thus, the conflicting factual findings of the trial court
In the present case, the factual findings of the trial and CA compel us to re-evaluate the facts of this case,
court and the CA on whether respondent has fully paid an exception to the rule that only questions of law may
his car loan are conflicting. The trial court found that be dealt with in a petition for certiorari under Rule 45.
no deductions were made from respondent's salary to
establish full payment of the car loan while the CA Admissibility of the
found otherwise. The trial court held, thus: certification dated
September 10, 1996
Culled from the evidence adduced and the testimony
of the witnesses, it appears that the defendant himself Respondent relies on the certification[43] dated
admitted on cross-examination that no deductions were September 10, 1996 to bolster his defense that he
made in his monthly salary. Thus, it was a mere already fully paid his car loan to petitioner. We affirm
presumption of fact on his part that he had been able to the findings of the CA that the certification is
fully pay off his car loan. The testimony of the admissible in evidence.
defendant creating merely an inference of payment
will not be regarded as conclusive on that issue. Thus, Section 22,[44] Rule 132 of the Rules of Court
payment cannot be presumed by a mere inference from explicitly authorizes the court to compare the
surrounding circumstances. At most, the agreement handwriting in issue with writings admitted or treated
that the payments for the car loan shall be deducted as genuine by the party against whom the evidence is
from the defendant's salary and bonus is only offered or proved to be genuine to the satisfaction of
affirmative of the capacity or ability of the defendant the judge. In Jimenez v. Commission on Ecumenical
to fulfill his part of the bargain. Mission and Relations of the United Presbyterian
Church in the USA,[45] we held:
But whether or not there was actual payment through
deductions from the defendant's salary and bonus It is also hornbook doctrine that the opinions of
remains to be proven by independent and credible handwriting experts, even those from the NBI and the
evidence. As the saying goes: "a proof that an act PC, are not binding upon courts. This principle holds
could have been done is no proof that it was actually true especially when the question involved is mere
done." Hence for failure to present evidence to prove handwriting similarity or dissimilarity, which can be
payment, defendant miserably failed in his defense and determined by a visual comparison of specimens of the
in effect admitted the allegations of plaintiff.[41] questioned signatures with those of the currently
existing ones.
The CA, on the other hand, found that respondent Handwriting experts are usually helpful in the
sufficiently established that deductions were made examination of forged documents because of the
from his salary: technical procedure involved in analyzing them. But
resort to these experts is not mandatory or
32
indispensable to the examination or the comparison of Q: If I show you Certification dated September 10,
handwriting. A finding of forgery does not depend 1996 will you be able to confirm if this is a
entirely on the testimonies of handwriting experts, Certification signed by the president?
because the judge must conduct an independent
examination of the questioned signature in order to A: It looked like the signature of the president but I
arrive at a reasonable conclusion as to its authenticity, think she will be the one to testify because she was
x x x[46] (Citations omitted) the one who signed.[52] (Emphasis supplied)
The documents containing the signature of Dy which Aside from supporting our finding that the signature in
have been submitted by petitioner as authentic are the the certification is genuine, the foregoing testimonies
following: (1) letter dated November 11, 1998;[47] (2) of Dy and Valle substantially comply with the other
termination letter dated January 22, 1999;[48] (3) modes of authenticating a private document under
promissory note dated June 17, 1994;[49] and (4) Section 20,[53] Rule 132 of the Rules of Court.
chattel mortgage signed on June 27, 1994.
[50] Examining and analyzing the signatures in these Dy never testified that any forgery or fraud attended
documents with Dy's signature in the certification, we the certification.[54] In fact, she did not deny the
find no substantial reason to doubt the latter's authenticity of her signature but actually admitted that
authenticity. In fact, the testimonies of Dy herself and the signature therein looks like hers. Additionally,
Valle support our finding. Valle, who is familiar with the signature of Dy because
of the requirements of her job, also positively testified
Dy testified on cross-examination as follows: that the signature in the certification looks like that of
Dy's.[55]
Q: Now, ms witness [sic], sometime in December 10,
1996, do you recall having executed a certification to The defenses of Dy that she does not have a copy or
Mr. Martinez? record of the certification in her file and that the
A: No. letterhead shows an old address are weak and do not
prove that the certification was not duly executed.
Q: Just to refresh your memory, would you please
identify if this is the signature you signed given [sic] to For having established the due execution and
Mr. Martinez? authentication of the certification dated September 10,
A: Yeah. If looks like my signature, but... 1996, the certification should be admitted in evidence
to prove that respondent partially paid the car loan in
Q: Is that your signature? the amount ofP337,650.00.
A: But I said it looks like my signature. I want you
to notice something because everytime... Insufficient evidence to prove
full payment of loan
Q: Just answer the question please. Is that your
signature? It is established that the one who pleads payment has
A: I said it looks like my signature. the burden of proving it. Even where the creditor
alleges non-payment, the general rule is that the debtor
xxx has the burden to prove payment, rather than the
creditor. The debtor has the burden of showing with
legal certainty that the obligation has been discharged
Q: Just answer the question please. by payment. Where the debtor introduces some
A: I said it looks like my signature.[51] (Emphasis evidence of payment, the burden of going forward
supplied) with the evidence—as distinct from the general burden
of proof—shifts to the creditor, who is then under a
duty of producing some evidence to show non-
On the other hand, Valle, on cross-examination payment.[56]
testified as follows:
It must be emphasized that both parties have not
33
presented any written agreement or contract governing
If indeed deductions were made on his salaries, bonuses and
respondent's obligation. Nevertheless, it has been commissions, respondent should have been confident in
established that respondent obtained a car loan answering the questions propounded on him during trial. Me
should have presented his payslips and shown that even if his
amounting to P648,288.00 from petitioner. Thus, the payslips did not reflect any deductions for his car loan,
burden is now on respondent to prove that the deductions were indeed made, by comparing the amount of
obligation has already been extinguished by payment. compensation he could have gotten based on his employment
contract and the amount he actually received. Respondent
merely made calculations on what he presumed he already paid.
Although not exclusive, a receipt of payment is the Further, respondent could have presented testimonies of persons
other than himself to prove payment of the loans. The letter
best evidence of the fact of payment.[57] We held that dated November 24, 1998 showed that respondent was aware
the fact of payment may be established not only by that he still had outstanding obligations with petitioner.
documentary evidence but also by parol evidence.[58] In Royal Cargo Corporation v. DFS Sports Unlimited, Inc., we
held that the defense of payment was not proven by the
Except for respondent's bare allegations that he has respondent's failure to present any supporting evidence such as
official receipts or the testimony of the person who made
fully paid the P648,288.00 car loan, there is nothing in payment or who had direct knowledge of the payment, among
the records which shows that full payment has indeed others.[62] Respondent's witness therein also assumed that
payment was made even in the absence of any receipt "once the
been made. Respondent did not present any receipt accounting department of respondent forwarded to her the
other than the certification dated September 10, 1996 original invoice which was stamped PAID". We held in this case
which only proves that respondent has already paid that such testimony and the invoices which were stamped paid,
are all self-serving and do not, by themselves, prove
P337,650.00 of the car loan. A balance of P310,638.00 respondent's claim of payment.[63]
still remained.
Nevertheless, even if the parties agreed to make deductions
from respondent's salary, bonuses and commissions, we agree
Even respondent's testimony lacks credence. He with the trial court that this is "only affirmative of the capacity or
ability of the [respondent] to fulfill his part of the bargain. But
alleged that the amortization of the car loan was whether or not there was actual payment through deductions
deducted from his salaries, bonuses and commissions. from [respondent]'s salary and bonus remains to be proven by
However, he could not even answer nor give an independent and credible evidence."[64]
estimate of how much bonuses and commissions he Finally, we find it questionable why respondent would agree on a
receives from petitioner.[59] setup where petitioner would not give him any written
acknowledgment receipt of his payments or accounting of his
loan.[65] Respondent should have insisted that receipts be
Respondent also alleged that although deductions were issued in his favor in the first place if it were true that the
made from his salaries, bonuses and commissions, his program for issuing the payslips could not reflect the deductions
from his salaries, bonuses and commissions. Since he was the
payslips do not reflect such deductions because "there only employee who was given a car loan, it would not have been
is no such car loan field" in the accounting program an inconvenience for the petitioner. His actions go against the
legal presumption that a person takes ordinary care of his
for the payroll.[60] Respondent admitted in his concerns.[66]
testimony that he only presumed that the deductions
Statement of account is
were being made from his salaries, bonuses and self-serving
commissions, to wit:
Similarly, we find that the statement of account, showing the
amount of P418,012.78 as respondent's outstanding loan
Q: So my question was that, whether or not your obligation to petitioner, is self-serving. Dy admitted that she
regular salary which was received twice a month, the prepared the statement of account.[67] However, she neither
monthly amortization| s] are being deducted from that? explained clearly, during her testimony, the breakdown nor
supported the amounts stated therein with documentary
[sic] evidence.[68]
A: There is no reflection in the payslip.
Although petitioner refers to the amount of P418,012.78 in the
statement to represent only the car loan obligation, the
Q: But do you know it was ever deducted from your statement itself shows that the amount also includes the cash
advances of respondent from the company. The trial court has
monthly salary? [sic] already ruled that judgment cannot be rendered on the issue
A: It must be deducted from my salary, [sic] regarding cash advances because this was not made subject of
petitioner's complaint and the same was not amended.[69]Such
issue was also not raised with us on appeal. Further, it was not
Q: You are assuming? explained why Valle was not the one who prepared the statement
A: That is the agreement. or was not asked to testify on the document when her duties
include supervising the accounting department and assisting in
the preparation of the employees' payroll.[70]
Q: That is the agreement but you don't know if it was
indeed deducted? Thus, having only proven payment to the extent of P337,650.00,
respondent is obligated to pay petitioner the balance of
A: Yes.[61] P310,638.00 with interest.
34
secured by a real estate mortgage executed
WHEREFORE, the instant petition is PARTIALLY GRANTED.
The Court of Appeals' Decision dated October 18, 2006 in CA on December 15, 1987 over the spouses Go Cincos
G.R. CV No. 82686 is SET ASIDE. The respondent land and 4-storey building located in Maasin, Southern
is ORDERED to pay petitioner the balance of the car loan in the
amount of P310,638.00 plus interest at the rate of six percent
Leyte.
(6%) per annum computed from January 23, 199971 until the Under the terms of the promissory note,
date of finality of this judgment. The total amount shall the P700,000.00 loan was subject to a monthly interest
thereafter earn interest at the rate of six percent (6%) per
annum[72]until fully paid. The trial court's Decision dated rate of 3% or 36% per annum and was payable within
November 22, 2002 is AFFIRMED in all other respects. a term of 180 days or 6 months, renewable for another
SO ORDERED. 180 days. As of July 16, 1989, Manuels outstanding
obligation with MTLC amounted to P1,071,256.66,
MANUEL GO CINCO and ARACELI S. GO G.R. No. 151903which amount included the principal, interest, and
CINCO,
penalties.[5]
Petitioners, Present:
To be able to pay the loan in favor of MTLC, the
*
CORONA, spouses Go Cinco applied for a loan with the
**
CARPIO-MORALES,
Philippine National Bank, Maasin Branch (PNB or the
- versus - Acting Chairperson,
bank) and offered as collateral the same properties
***
NACHURA,they previously mortgaged to MTLC. The PNB
BRION, and approved the loan application for P1.3
ABAD, JJ. [6]
Million through a letter dated July 8, 1989; the
release of the amount, however, was conditioned on
COURT OF APPEALS, ESTER
the cancellation of the mortgage in favor of MTLC.
SERVACIO and MAASIN Promulgated:
TRADERS LENDING
On July 16, 1989, Manuel went to the house of
CORPORATION, October 9, 2009
respondent Ester Servacio (Ester), MTLCs President,
Respondents.
to inform her that there was money with the PNB for
x ------------------------------------------------------------------------------------------x
the payment of his loan with MTLC. Ester then
proceeded to the PNB to verify the information, but
DECISION she claimed that the banks officers informed her that
Manuel had no pending loan application with
them. When she told Manuel of the banks response,
Manuel assured her there was money with the PNB
BRION, J.: and promised to execute a document that would allow
her to collect the proceeds of the PNB loan.
In December 1987, petitioner Manuel Cinco (Manuel) As the MTLC loan was already due, Ester
obtained a commercial loan in the amount instituted foreclosure proceedings against the spouses
of P700,000.00 from respondent Maasin Traders Go Cinco on July 24, 1989.
Lending Corporation (MTLC). The loan was evidenced
by a promissory note datedDecember 11, 1987,[4] and
35
To prevent the foreclosure of their properties, (c) P1,000,000.00 as moral
the spouses Go Cinco filed an action for specific damages;
performance, damages, and preliminary (d) P20,000.00 as exemplary
[8]
injunction before the Regional Trial Court (RTC), damages;
Branch 25, Maasin, Southern Leyte.The spouses Go (e) P22,000.00 as litigation
Cinco alleged that foreclosure of the mortgage was no expenses; and
longer proper as there had already been settlement of (f) 10% of the total amount as
Manuels obligation in favor of MTLC. They claimed attorneys fees plus costs.[11]
that the assignment of the proceeds of the PNB loan
amounted to the payment of the MTLC loan. Esters
refusal to sign the deed of release/cancellation of Through an appeal with the CA, MTLC and
mortgage and to collect the proceeds of the PNB loan Ester successfully secured a reversal of the RTCs
were, to the spouses Go Cinco, completely unjustified decision. Unlike the trial court, the appellate court
and entitled them to the payment of damages. found it significant that there was no explicit
agreement between Ester and the spouses Go Cinco
Ester countered these allegations by claiming for the cancellation of the MTLC mortgage in favor of
that she had not been previously informed of the PNB to facilitate the release and collection by Ester of
spouses Go Cincos plan to obtain a loan from the PNB the proceeds of the PNB loan. The CA read the SPA as
and to use the loan proceeds to settle Manuels loan merely authorizing Ester to withdrawthe proceeds of
with MTLC. She claimed that she had no explicit the loan. As Manuels loan obligation with MTLC
agreement with Manuel authorizing her to apply the remained unpaid, the CA ruled that no valid objection
proceeds of the PNB loan to Manuels loan with could be made to the institution of the foreclosure
MTLC; the SPA merely authorized her to collect the proceedings. Accordingly, it dismissed the spouses Go
proceeds of the loan. She thus averred that it was Cinco complaint. From this dismissal, the spouses Go
unfair for the spouses Go Cinco to require the release Cinco filed the present appeal by certiorari.
of the mortgage to MTLC when no actual payment of
the loan had been made. THE PETITION
In a decision dated August 16, 1994,[9] the RTC The spouses Go Cinco impute error on the part
ruled in favor of the spouses Go Cinco. The trial court of the CA for its failure to consider their acts as
found that the evidence sufficiently established the equivalent to payment that extinguished the MTLC
existence of the PNB loan whose proceeds were loan; their act of applying for a loan with the PNB was
available to satisfy Manuels obligation with MTLC, indicative of their good faith and honest intention to
and that Ester unjustifiably refused to collect the settle the loan with MTLC. They contend that the
amount. Creditors, it ruled, cannot unreasonably creditors have the correlative duty to accept the
prevent payment or performance of obligation to the payment.
damage and prejudice of debtors who may stand liable
for payment of higher interest rates.[10] After finding The spouses Go Cinco charge MTLC and Ester
MTLC and Ester liable for abuse of rights, the RTC with bad faith and ill-motive for unjustly refusing to
ordered the award of the following amounts to the collect the proceeds of the loan and to execute the
spouses Go Cinco: deed of release of mortgage. They assert that Esters
justifications for refusing the payment were flimsy
(a) P1,044,475.15 plus 535.63 per excuses so she could proceed with the foreclosure of
day hereafter, representing loss the mortgaged properties that were worth more than
of savings on interest, by way of the amount due to MTLC. Thus, they conclude that the
actual or compensatory acts of MTLC and of Ester amount to abuse of rights
damages, if defendant that warrants the award of damages in their (spouses
corporation insists on the Go Cincos) favor.
original 3% monthly interest
rate; In refuting the claims of the spouses Go Cinco,
(b) P100,000.00 as unrealized MTLC and Ester raise the same arguments they raised
profit; before the RTC and the CA. They claim that they were
not aware of the loan and the mortgage to PNB, and
36
that there was no agreement that the proceeds of the not, strictly speaking, a delivery of the sum of money
PNB loan were to be used to settle Manuels obligation due to MTLC, and Ester could not be compelled to
with MTLC. Since the MTLC loan remained unpaid, accept it as payment based on Article
they insist that the institution of the foreclosure 1233. Nonetheless, the SPA stood as an authority to
proceedings was proper. Additionally, MTLC and collect the proceeds of the already-approved PNB loan
Ester contend that the present petition raised questions that, upon receipt by Ester, would have constituted as
of fact that cannot be addressed in a Rule 45 petition. payment of the MTLC loan.[15] Had Ester presented the
SPA to the bank and signed the deed of
release/cancellation of mortgage, the delivery of the
THE COURTS RULING sum of money would have been effected and the
obligation extinguished.[16] As the records show, Ester
The Court finds the petition meritorious. refused to collect and allow the cancellation of the
Preliminary Considerations mortgage.
Our review of the records shows that there are no Under these facts, Manuel posits two
factual questions involved in this case; the ultimate things: first, that Esters refusal was based on
facts necessary for the resolution of the case already completely unjustifiable grounds; and second, that the
appear in the records. The RTC and the CA decisions refusal was equivalent to payment that led to the
differed not so much on the findings of fact, but on the extinguishment of the obligation.
conclusions derived from these factual findings. The
correctness of the conclusions derived from factual a. Unjust Refusal to Accept Payment
findings raises legal questions when the conclusions
are so linked to, or are inextricably intertwined with, After considering Esters arguments, we agree
the appreciation of the applicable law that the case with Manuel that Esters refusal of the payment was
requires, as in the present case.[12] The petition raises without basis.
the issue of whether the loan due the MTLC had been
extinguished; this is a question of law that this Court Ester refused to accept the payment because
can fully address and settle in an appeal by certiorari. the bank required her to first sign a deed of
release/cancellation of the mortgage before the
Payment as Mode of proceeds of the PNB loan could be released. As a prior
Extinguishing Obligations mortgagee, she claimed that the spouses Go Cinco
Obligations are extinguished, among others, by should have obtained her consent before offering the
payment or performance,[13] the mode most relevant to properties already mortgaged to her as security for the
the factual situation in the present case. Under Article PNB loan. Moreover, Ester alleged that the SPA
1232 of the Civil Code, payment means not only the merely authorized her to collect the proceeds of the
delivery of money but also the performance, in any loan; there was no explicit agreement that the MTLC
other manner, of an obligation. Article 1233 of the loan would be paid out of the proceeds of the PNB
Civil Code states that a debt shall not be understood to loan.
have been paid unless the thing or service in which the
obligation consists has been completely delivered or There is nothing legally objectionable in a
rendered, as the case may be. In contracts of loan, the mortgagors act of taking a second or subsequent
debtor is expected to deliver the sum of money due the mortgage on a property already mortgaged; a
creditor. These provisions must be read in relation with subsequent mortgage is recognized as valid by law and
the other rules on payment under the Civil Code, by commercial practice, subject to the prior rights of
[14]
which rules impliedly require acceptance by the previous mortgages. Section 4, Rule 68 of the 1997
creditor of the payment in order to extinguish an Rules of Civil Procedure on the disposition of the
obligation. proceeds of sale after foreclosure actually requires the
payment of the proceeds to, among others, the junior
In the present case, Manuel sought to pay Ester encumbrancers in the order of their priority.[17] Under
by authorizing her, through an SPA, to collect the Article 2130 of the Civil Code, a stipulation forbidding
proceeds of the PNB loan an act that would have led to the owner from alienating the immovable mortgaged is
payment if Ester had collected the loan proceeds as considered void. If the mortgagor-owner is allowed to
authorized. Admittedly, the delivery of the SPA was convey the entirety of his interests in the mortgaged
37
property, reason dictates that the lesser right to or her, together with the demand that the creditor
encumber his property with other liens must also be accept the same. When a creditor refuses the debtors
recognized. Ester, therefore, could not validly require tender of payment, the law allows the consignation of
the spouses Go Cinco to first obtain her consent to the the thing or the sum due. Tender and consignation
PNB loan and mortgage. Besides, with the payment of have the effect of payment, as by consignation, the
the MTLC loan using the proceeds of the PNB loan, thing due is deposited and placed at the disposal of the
the mortgage in favor of the MTLC would have judicial authorities for the creditor to collect.[19]
naturally been cancelled.
A sad twist in this case for Manuel was that he
We find it improbable for Ester to claim that could not avail of consignation to extinguish his
there was no agreement to apply the proceeds of the obligation to MTLC, as PNB would not release the
PNB loan to the MTLC loan. Beginning July 16, 1989, proceeds of the loan unless and until Ester had signed
Manuel had already expressed intent to pay his loan the deed of release/cancellation of mortgage, which
with MTLC and thus requested for an updated she unjustly refused to do. Hence, to compel Ester to
statement of account. Given Manuels express intent of accept the loan proceeds and to prevent their
fully settling the MTLC loan and of paying through mortgaged properties from being foreclosed, the
the PNB loan he would secure (and in fact secured), spouses Go Cinco found it necessary to institute the
we also cannot give credit to the claim that the SPA present case for specific performance and damages.
only allowed Ester to collect the proceeds of the PNB
loan, without giving her the accompanying authority, c. Effects of Unjust Refusal
although verbal, to apply these proceeds to the MTLC
loan. Even Esters actions belie her claim as she in fact
even went to the PNB to collect the proceeds. In sum, Under these circumstances, we hold that while
the surrounding circumstances of the case simply do no completed tender of payment and consignation took
not support Esters position. place sufficient to constitute payment, the spouses Go
Cinco duly established that they have legitimately
b. Unjust Refusal Cannot be Equated to secured a means of paying off their loan with MTLC;
Payment they were only prevented from doing so by the unjust
refusal of Ester to accept the proceeds of the PNB loan
While Esters refusal was unjustified and through her refusal to execute the release of the
unreasonable, we cannot agree with Manuels position mortgage on the properties mortgaged to MTLC. In
that this refusal had the effect of payment that other words, MTLC and Ester in fact prevented the
extinguished his obligation to MTLC. Article 1256 is spouses Go Cinco from the exercise of their right to
clear and unequivocal on this point when it provides secure payment of their loan. No reason exists under
that this legal situation why we cannot compel MTLC and
Ester:(1) to release the mortgage to MTLC as a
ARTICLE 1256. If the creditor condition to the release of the proceeds of the PNB
to whom tender of payment has been loan, upon PNBs acknowledgment that the proceeds of
made refuses without just cause to the loan are ready and shall forthwith be released; and
accept it, the debtor shall be released (2) to accept the proceeds, sufficient to cover the total
from responsibility by the consignation amount of the loan to MTLC, as payment for Manuels
of the thing or sum due. [Emphasis loan with MTLC.
supplied.]
We also find that under the circumstances, the
In short, a refusal without just cause is not equivalent spouses Go Cinco have undertaken, at the very
to payment; to have the effect of payment and the least, the equivalent of a tender of payment that cannot
consequent extinguishment of the obligation to pay, but have legal effect. Since payment was available and
the law requires the companion acts of tender of was unjustifiably refused, justice and equity demand
payment and consignation. that the spouses Go Cinco be freed from the
obligation to pay interest on the outstanding
Tender of payment, as defined in Far East amount from the time the unjust refusal took place;
[20]
Bank and Trust Company v. Diaz Realty, Inc.,[18] is the they would not have been liable for any interest
definitive act of offering the creditor what is due him from the time tender of payment was made if the
38
payment had only been accepted. Under Article 19 of damages will be given. [Emphasis
the Civil Code, they should likewise be entitled to supplied.]
damages, as the unjust refusal was effectively an
abusive act contrary to the duty to act with honesty and We agree, however, that there was basis for the award
good faith in the exercise of rights and the fulfillment of moral and exemplary damages and attorneys fees.
of duty.
Esters act of refusing payment was motivated by bad
For these reasons, we delete the amounts faith as evidenced by the utter lack of substantial
awarded by the RTC to the spouses Go Cinco reasons to support it. Her unjust refusal, in her behalf
(P1,044,475.15, plus P563.63 per month) and for the MTLC which she represents, amounted to
representing loss of savings on interests for lack of an abuse of rights; they acted in an oppressive manner
legal basis. These amounts were computed based on and, thus, are liable for moral and exemplary damages.
[22]
the difference in the interest rates charged by the We nevertheless reduce
MTLC (36% per annum) and the PNB (17% to 18% the P1,000,000.00 to P100,000.00 as the originally
per annum), from the date of tender of payment up to awarded amount for moral damages is plainly
the time of the promulgation of the RTC decision. The excessive.
trial court failed to consider the effects of a tender of
payment and erroneously declared that MTLC can We affirm the grant of exemplary damages by
charge interest at the rate of only 18% per annum the way of example or correction for the public good in
same rate that PNB charged, not the 36% interest rate light of the same reasons that justified the grant of
that MTLC charged; the RTC awarded the difference moral damages.
in the interest rates as actual damages.
As the spouses Go Cinco were compelled to
As part of the actual and compensatory damages, the litigate to protect their interests, they are entitled to
RTC also awarded P100,000.00 to the spouses Go payment of 10% of the total amount of awarded
Cinco representing unrealized profits. Apparently, if damages as attorneys fees and expenses of litigation.
the proceeds of the PNB loan (P1,203,685.17) had
been applied to the MTLC loan (P1,071,256.55), there WHEREFORE, we GRANT the petitioners
would have been a balance of P132,428.62 left, which petition for review on certiorari, and REVERSE the
amount the spouses Go Cinco could have invested in decision of June 22, 2001 of the Court of Appeals in
their businesses that would have earned them a profit CA-G.R. CV No. 47578, as well as the resolution
of at least P100,000.00. of January 25, 2002 that
followed. We REINSTATE the decision dated August
We find no factual basis for this award. The 16, 1994 of the Regional Trial Court, Branch 25,
spouses Go Cinco were unable to substantiate the Maasin, Southern Leyte, with the
amount they claimed as unrealized profits; there was following MODIFICATIONS:
only their bare claim that the excess could have been
invested in their other businesses. Without more, this (1) The respondents are
claim of expected profits is at best speculative and hereby directed to accept the
cannot be the basis for a claim for damages. In Lucas proceeds of the spouses Go Cincos
v. Spouses Royo,[21] we declared that: PNB loan, if still available, and to
consent to the release of the
In determining actual damages, the mortgage on the property given as
Court cannot rely on speculation, security for the loan upon PNBs
conjecture or guesswork as to the acknowledgment that the proceeds
amount. Actual and compensatory of the loan, sufficient to cover the
damages are those recoverable because total indebtedness to respondent
of pecuniary loss in business, trade, Maasin Traders Lending
property, profession, job or occupation Corporation computed as of June
and the same must be sufficiently 20, 1989, shall forthwith be
proved, otherwise, if the proof is released;
flimsy and unsubstantiated, no
39
(2) The award for loss of allowing the withdrawal since Salvoro had not reported for work.
savings and unrealized profit is Thus, Anna Marie sent two demand letters[8] dated April 23 and
deleted; April 25, 2003 to the PNB.
(3) The award for moral After a month, the PNB finally consolidated the savings accounts
damages is reduced and issued a passbook for Savings Account (SA) No. 6121200.
to P100,000.00; and [9] The PNB also confirmed that the total deposits amounted to
P-2,734,207.36. Anna Marie, her mother, and the PNB executed
(4) The awards for a Deed of Waiver and Quitclaim dated May 23, 2003[10] to settle
exemplary damages, attorneys all questions regarding the consolidation of the savings accounts.
After withdrawals, the balance of her consolidated savings
fees, and expenses of litigation are account was P250,741.82.
retained.
On July 30, 2003, the PNB sent letters to Anna Marie to inform
her that the PNB refused to honor its obligation under FXCTD
The awards under (3) and (4) above shall be deducted Nos. 993902 and 993992,[11] and that the PNB withheld the
from the amount of the outstanding loan due the release of the balance of P-250,741.82 in the consolidated
savings account.[12] According to the PNB, Anna Marie pre-
respondents as of June 20, 1989. Costs against the terminated, withdrew and/or debited sums against her deposits.
respondents.
Thus, Anna Marie filed before the RTC a complaint for sum of
money and damages against the PNB and Fernandez.[13]
SO ORDERED.
As to the two FXCTDs, Anna Marie contended that the PNB's
refusal to pay her time deposits is contrary to law. The PNB
cannot claim that the bank deposits have been paid since the
certificates of the time deposits are still with Anna Marie.[14]
[ GR No. 202514, Jul 25, 2016 ]
ANNA MARIE L. GUMABON v. PHILIPPINE NATIONAL BANK + As to the consolidated savings account, Anna Marie stated that
RESOLUTION the PNB had already acknowledged the account's balance in the
Deed of Waiver and Quitclaim amounting to P2,734,207.36. As of
January 26, 2004, the remaining balance was P250,741.82. PNB
BRION, J.: presented no concrete proof that this amount had been
withdrawn.
Before us is a petition for review on certiorari[1] under Rule 45
of the Rules of Court filed by Anna Marie Gumabon (Anna Marie) Anna Marie prayed that the PNB and Fernandez be held solidarily
assailing the December 16, 2011 decision[2] and June 26, 2012 liable for actual, moral, and exemplary damages, as well as
resolution[3] of the Court of Appeals (CA) in CA-G.R. CV. No. attorney's fees, costs of suit, and legal interests because of the
96289. The CA reversed the Regional Trial Court (RTC)'s PNB's refusal to honor its obligations.
ruling[4] in Civil Case No. Q-04-53432 favoring Anna Marie.
In its answer,[15] the PNB argued that: (1) Anna Marie is not
The Facts entitled to the balance of the consolidated savings account based
on solutio indebiti; (2) the PNB already paid the $10,058.01
On August 12, 2004, Anna Marie filed a complaint for recovery of covered by FXCTD No. 993902; (3) the PNB is liable to pay only
sum of money and damages before the RTC against the $10,718.87 of FXCTD No. 993992, instead of the full amount of
Philippine National Bank (PNB) and the PNB Delta branch $17,235.41; and (4) Anna Marie is guilty of contributory
manager Silverio Fernandez (Fernandez). The case stemmed negligence. The PNB's arguments are discussed below.
from the PNB's refusal to release Anna Marie's money in a
consolidated savings account and in two foreign exchange time First, Anna Marie is not entitled to the alleged balance of
deposits, evidenced by Foreign Exchange Certificates of Time P250,741.82. The PNB's investigation showed that Anna Marie
Deposit (FXCTD). withdrew a total of P251,246.81[16] from two of the eight
savings accounts and she used this amount to purchase
In 2001, Anna Marie, together with her mother Angeles and her manager's check no. 0000760633.[17] Hence, P251,246.81
siblings Anna Elena and Santiago, (the Gumabons) deposited should be deducted from the sum agreed upon in the Deed of
with the PNB Delta Branch $10,945.28 and $16,830.91, for Waiver and Quitclaim. The PNB offered photocopies of the PNB's
which they were issued FXCTD Nos. A-993902[5] and A-993992, miscellaneous ticket[18] and the manager's check as evidence to
[6] respectively. prove the withdrawals. The PNB argued that unjust enrichment
would result if Anna Marie would be allowed to collect P-
The Gumabons also maintained eight (8) savings accounts[7] in 250,741.82 from the consolidated savings account without
the same bank. Anna Marie decided to consolidate the eight (8) deducting her previous withdrawal of P251,246.81.
savings accounts and to withdraw P-2,727,235.85 from the
consolidated savings account to help her sister's financial needs. Second, Anna Marie is not entitled to receive $10,058.01 covered
by FXCTD No. 993902. Based on the PNB's records, Anna Marie
Anna Marie called the PNB employee handling her accounts, pre-terminated FXCTD No. 993902 on March 11, 2002, and used
Reino Antonio Salvoro (Salvoro), to facilitate the consolidation of the deposit, together with another deposit covered by FXCTD No.
the savings accounts and the withdrawal. When she went to the 993914 (for $8,111.35), to purchase a foreign demand draft (FX
bank on April 14, 2003, she was informed that she could not Demand Draft No. 4699831) payable to Anna Rose/Angeles
withdraw from the savings accounts since her bank records were Gumabon. The PNB presented a facsimile copy of Anna Rose's
missing and Salvoro could not be contacted. Statement of Account (SOA)[19] from the PNB Bank to prove
that the amount covered by FXCTD No. 993902 was already
On April 15, 2003, Anna Marie presented her two FXCTDs, but paid.
was also unable to withdraw against them. Fernandez informed
her that the bank would still verify and investigate before Third, Anna Marie is only entitled to receive $10,718.87 instead
of the full amount of $17,235.41 covered by FXCTD No. 993992
40
because: (a) the amount of $1,950.00 was part of the money The CA held that the PNB had paid the actual amounts claimed
used by Anna Marie to purchase the manager's check; (2) the by Anna Marie in her complaint. The CA noted Anna Marie's
amount of $2,566.54 was credited to Current Account No. 227- suspicious and exclusive dealings with Salvoro and the
810961-8 owned by Anna Marie's aunt, Lolita Lim; and (3) the Gumabons' instruction to Salvoro to make unauthorized and
amount of $2,000.00 was credited to Current Account No. unrecorded withdrawals. Hence, there are no entries of
2108107498 of Anna Marie and Savings Account No. 212- withdrawals reflected in Anna Marie's passbook.
5057333 of Anna Marie/or Angeles or Santiago/or Elena (all
surnamed Gumabon). Hence, these amounts should be deducted The CA also considered Anna Rose's SOA as proof that the PNB
from the amount payable to Anna Marie. had paid the remaining balance of $10,058.01 on FXCTD No.
993902. The CA held that the PNB verified the SOA and it was
Finally, the PNB alleged that Anna Marie was guilty of corroborated by the affidavit[25] of the PNB Branch Operations
contributory negligence in her bank dealings. Officer in New York. The CA stated that the RTC should have
allowed the taking of the deposition of the PNB bank officer.
In her reply,[20] Anna Marie argued that the best evidence of
her withdrawals is the withdrawal slips duly signed by her and The CA also relied on the PNB's investigation and concluded that
the passbooks pertaining to the accounts. PNB, however, failed the PNB had already paid the amounts claimed by Anna Marie
to show any of the withdrawal slips and/or passbooks, and also under FXCTD Nos. 993902 and 993992.
failed to present sufficient evidence that she used her accounts'
funds. As to Anna Marie's consolidated savings account, the CA gave
credence to the miscellaneous ticket and the manager's check
The RTC Ruling presented by the PNB to prove that it had already paid the
balance.
The RTC ruled in Anna Marie's favour.[21]
Anna Marie moved but failed to obtain reconsideration of the
The RTC held that the PNB had not yet paid the remaining CA's decision; hence, the present petition.[26]
balance of $10,058.01 under FXCTD No. 993902. Anna Marie's
SOA,[22] which the PNB relied upon, is a mere photocopy and The Petition
does not satisfy the best evidence rule. Moreover, there is no
indication on the stated amounts in the SOA that the funds have Anna Marie filed the present petition for review to question the
come from FXCTD No. 993902.[23] The PNB failed to obtain the CA's decision and resolution which reversed the RTC's ruling.
deposition of a PNC Bank officer or present any other evidence to
show that the amounts stated in the SOA came from FXCTD No. Anna Marie argues that: first, the CA should not have
993902. The RTC also held that the alleged pre-termination of disregarded the RTC's conclusive findings; second, the CA erred
FXCTD No. 993902 on March 11, 2002, is hard to believe since in considering the PNB New York bank officer's affidavit because
the certificate shows that the last entry was made on March 24, it was not formally offered as evidence; third, the CA erroneously
2003, with a reflected balance of $10,058.01. relied on a foreign demand draft[27] to prove the PNB's payment
of the amount due under FXCTD No. 993902; fourth, the CA
On FXCTD No. 993992, the RTC held that the PNB failed to prove erroneously considered the miscellaneous ticket and the
Anna Marie's alleged withdrawals. These alleged withdrawals are manager's check because these documents are mere photocopies
not reflected at the back of the certificate. Anna Marie's ledger and inadmissible under the best evidence rule; and fifth, the CA's
was also not presented as evidence to show that several conclusion about a purported "connivance" between Anna Marie
withdrawals had been made against FXCTD No. 993992. and Salvoro has no evidentiary basis.
On the consolidated savings account, the RTC held that the PNB In its comment, the PNB counters that: first, the CA can rectify
failed to prove that Anna Marie withdrew the balance of the RTC's factual findings since the RTC committed errors in its
P250,741.82. The RTC excluded PNB's evidence, i.e., photocopies appreciation of the evidence; second, the RTC completely
of the miscellaneous ticket and manager's check, to prove the ignored the PNB's several evidence proving its payment of Anna
alleged withdrawals, since these documents were just Marie's FXCTDs; third, Anna Marie did not refute the PNB's
photocopies and thus failed to satisfy the best evidence rule. allegations of payment; fourth, the CA has the right to review
even those exhibits which were excluded by the RTC; and fifth,
The RTC awarded damages to Anna Marie due to the PNB's the CA correctly ruled that the PNB should not be faulted about
mishandling of her account through its employee, Salvoro. The the unrecorded transactions, and that the PNB had done its duty
RTC also held that the PNB failed to establish Anna Marie's to its depositors when it conducted investigations and an internal
contributory negligence. audit of Anna Marie's accounts.
In conclusion, the RTC ordered the PNB to pay Anna Marie these The Issues
amounts:
(1) Actual damages of: The issue before this Court is whether Anna Marie is entitled to
(a) $10,058.01, as the outstanding balance of FXCTD No. the payment of the following amounts:
993902;
(b) $20,244.42, as the outstanding balance of FXCTD No. (a) $10,058.01 or the outstanding balance under FXCTD No.
993992;and 993902;
(c) P-250,741.82, as the outstanding balance of SA No. (b) $20,244.42 for FXCTD No. 993992;
6121200; (c) P250.741.82 for SA No. 6121200; and (3) Damages.
(2) P-100,000.00 as moral damages;
(3) P-50,000.00 as exemplary damages; Our Ruling
(4) P150,000.00 as attorney's fees; and
(5) Costs of suit. We grant the petition and reverse the CA 's ruling.
From this ruling, the PNB appealed before the CA. The core issue raised in the present petition is a question of fact.
As a general rule, a petition for review under Rule 45 of the
The CA Ruling Rules of Court covers only questions of law. Questions of fact are
not reviewable and cannot be passed upon by the Court in the
The CA reversed the RTC's ruling.[24] exercise of its power to review under Rule 45.[28]
41
There are, however, exceptions to the general rule. Questions of (a) relevance and (b) competence. Evidence is relevant if it has a
fact may be raised before this Court in any of these instances: relation to the fact in issue as to induce a belief in its existence
(1) when the findings are grounded entirely on speculations, or nonexistence.[34] On the other hand, evidence is competent if
surmises, or conjectures; (2) when the inference made is it is not excluded by the law or by the Rules of Court.[35]
manifestly mistaken, absurd, or impossible; (3) when there is a
grave abuse of discretion; (4) when the judgment is based on One of the grounds under the Rules of Court that determines the
misappreciation of facts; (5) when the findings of fact are competence of evidence is the best evidence rule. Section 3,
conflicting; (6) when in making its findings, the same are Rule 130 of the Rules of Court provides that the original copy of
contrary to the admissions of both appellant and appellee; (7) the document must be presented whenever the content of the
when the findings are contrary to those of the trial court; (8) document is under inquiry.[36]
when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in However, there are instances when the Court may allow the
the petition as well as in the petitioners main and reply briefs are presentation of secondary evidence in the absence of the original
not disputed by the respondent; and (10) when the findings of document. Section 3, Rule 130 of the Rules of Court enumerates
fact are premised on the supposed absence of evidence and these exceptions:
contradicted by the evidence on record.[29]
(a) when the original has been lost, or destroyed, or cannot be
The present case falls under two of the exceptions, particularly produced in court, without bad faith on the part of the offeror;
that the CA's findings are contrary to the RTC's findings, and that
the CA's findings of fact are premised on absent evidence and (b) when the original is in the custody or under the control of
contradicted by the evidence on record. the party against whom the evidence is offered, and the latter
fails to produce it after reasonable notice;
We note that the CA considered pieces of evidence which are
inadmissible under the Rules of Court, particularly the manager's (c) when the original consists of numerous accounts or other
check and the corresponding miscellaneous ticket, Anna Rose's documents which cannot be examined in court without great loss
SO A, and the affidavit of the PNB New York's bank officer. The of time and the fact sought to be established from them is only
inadmissibility of these documents is explained more fully in the the general result of the whole; and
following discussion.
(d) when the original is a public record in the custody of a public
PNB failed to establish the fact of officer or is recorded in a public office.
payment to Anna Marie in FXCTD
Nos. 993902 and 993992, and SA While the RTC cannot consider the excluded evidence to resolve
No. 6121200. the issues, such evidence may still be admitted on appeal
provided there has been tender of the excluded evidence under
It is a settled rule in evidence that the one who alleges payment Section 40 of Rule 132 of the Rules of Court.[37]
has the burden of proving it.[30] The burden of proving that the
debt had been discharged by payment rests upon the debtor The PNB cannot simply substitute the mere photocopies of the
once the debt's existence has been fully established by the subject documents for the original copies without showing the
evidence on record. When the debtor introduces some evidence court that any of the exceptions under Section 3 of Rule 130 of
of payment, the burden of going forward with the evidence - as the Rules of Court applies. The PNB's failure to give a justifiable
distinct from the burden of proof - shifts to the creditor. reason for the absence of the original documents and to maintain
Consequently, the creditor has a duty to produce evidence to a record of Anna Marie's transactions only shows the PNB's
show nonpayment.[31] dismal failure to fulfill its fiduciary duty to Anna Marie.[38] The
Court expects the PNB to "treat the accounts of its depositors
In the present case, both the CA and the RTC declared that the with meticulous care, always having in mind the fiduciary nature
PNB has the burden of proving payment. The lower courts, of their relationship."[39] The Court explained in Philippine
however, differed in resolving the question of whether the PNB Banking Corporation v. CA,[40] the fiduciary nature of the bank's
presented sufficient evidence of payment to shift the burden of relationship with its depositors, to wit:
evidence to Anna Marie. The RTC ruled that the PNB failed to do
so, after excluding PNB's evidence, i.e., miscellaneous ticket, The business of banking is imbued with public interest. The
manager's check, and the affidavit of the PNB New York's bank stability of banks largely depends on the confidence of the people
officer, based on the rules of evidence. The CA, on the other in the honesty and efficiency of banks. In Simex International
hand, considered the excluded evidence and found that the PNB (Manila) Inc. v. Court of Appeals we pointed out the depositor's
presented sufficient proof of payment. reasonable expectations from a bank and the bank's
corresponding duty to its depositor, as follows:
i. The PNB's alleged payment of the
amount covered by SA No. 6121200 In every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account consists
The PNB alleged that it had already paid the balance of the only of a few hundred pesos or of millions. The bank must record
consolidated savings account (SA No. 6121200) amounting to P- every single transaction accurately, down to the last centavo,
250,741.82. It presented the manager's check to prove that and as promptly as possible. This has to be done if the account
Anna Marie purchased the check using the amounts covered by is to reflect at any given time the amount of money the depositor
the Gumabon's two savings accounts which were later part of can dispose of as he sees fit, confident that the bank will deliver
Anna Marie's consolidated savings account. The PNB also it as and to whomever he directs, (emphasis and underscoring
presented the miscellaneous ticket to prove Anna Marie's supplied)
withdrawal from the savings accounts.
Consequently, the CA should not have admitted the subject
The RTC denied the admission of the manager's check and the documents even if the PNB tendered the excluded evidence.
miscellaneous ticket since the original copies were never
presented.[32] The PNB moved to tender the excluded evidence Notably, the PNB clearly admitted in the executed Deed of
and argued that even without the presentation of the original Waiver and Quitclaim that it owed Anna Marie P2,734,207.36
copies, the photocopies are admissible because they have been under the consolidated savings account. After a number of
identified by Fernandez.[33] uncontested transactions, the remaining balance of Anna Marie's
deposit became P250,741.82. The inevitable conclusion is that
Evidence, to be admissible, must comply with two qualifications: PNB's obligation to pay P250,741.82 under SA No. 6121200
42
subsists. Thus, the PNB failed to present sufficient and admissible
evidence to prove payment of the $10,058.01.This failure leads
ii. The PNB's alleged payment of the us to conclude that the PNB is still liable to pay the amount
amount covered by FXCTD No. 993902 covered by FXCTD No. 993902.
The PNB claimed that it had already paid the amount of iii. The PNB's alleged payment of
$10,058.01 covered by FXCTD No. 993902. It presented the the amount covered by FXCTD
foreign demand draft dated March 11, 2002 which Anna Marie No. 993992
allegedly purchased with the funds of FXCTD No. 993902. In
addition, the PNB also presented Anna Rose's SOA to show that The PNB alleged that Anna Marie's claim over FXCTD No. 993992
there was a fund transfer involving the contested amount. To should only be limited to $5,857.79. It presented the manager's
further support its claim, the PNB annexed the affidavit of the check, which admissibility we have heretofore discussed and
PNB New York's branch officer about the fund transfer. The PNB, settled, and the miscellaneous tickets.
however, failed to formally offer the affidavit as evidence.
We cannot absolve the PNB from liability based on these
Anna Marie moved for the exclusion of the photocopy of Anna miscellaneous tickets alone. As the RTC correctly stated, the
Rose's SOA for failing to conform to the best evidence rule. The transactions allegedly evidenced by these tickets were neither
RTC granted her motion and denied its admission. When the case posted at the back of Anna Marie's certificate, nor recorded on
reached the CA, the CA stated that the RTC should have her ledger to show that several withdrawals had been made on
considered the evidence in the light of the PNB's identification of the account.
the SOA as an exact copy of the original and the claim that it is
corroborated by the affidavit of the PNB New York's bank officer. At this point, we remind the PNB of the negotiability of a
certificate of deposit as it is a written acknowledgment by the
The PNB explained that its failure to present the original copy of bank of the receipt of a sum of money on deposit which the bank
Anna Rose's SOA was because the original was not in the PNB's promises to pay to the depositor, to the latter's order, or to some
possession. other person or the latter's order.[49] To discharge a debt, the
bank must pay to someone authorized to receive the payment.
We rule that the SOA is inadmissible because it fails to qualify as [50] A bank acts at its peril when it pays deposits evidenced by a
relevant evidence. As the RTC correctly stated, the SOA "does certificate of deposit, without its production and surrender after
not show which of the amount stated therein came from the proper indorsement.[51]
funds of Certificate of Time Deposit No. A-993902."[41]
Again, as the RTC had correctly stated, the PNB should not have
The affidavit of the PNB New York's bank officer is also allowed the withdrawals, if there were indeed any, without the
inadmissible in the light of the following self-explanatory presentation of the covering foreign certificates of time deposit.
provision of the Rules of Court: There are no irregularities on Anna Marie's certificates to justify
the PNB's refusal to pay the stated amounts in the certificates
"Sec. 34. Offer of evidence. - The court shall consider no when it was presented for payment.
evidence which has not been formally offered, x x x."[42]
Therefore, the PNB is liable for Anna Marie's claims since it failed
Formal offer means that the offeror shall inform the court of the to prove that it had already been discharged from its obligation.
purpose of introducing its exhibits into evidence. Without a
formal offer of evidence, courts cannot take notice of this PNB is liable to Anna Marie
evidence even if this has been previously marked and identified. for actual, Moral, and exemplary
[43] damages as well as attorney's fees
for its negligent acts as a
In Heirs of Pedro Pasag v. Parocha,[44] we reiterated the banking institution.
importance of a formal offer of evidence. Courts are mandated to
rest their factual findings and their judgment only and strictly Since the PNB is clearly liable to Anna Marie for her deposits, the
upon the evidence offered by the parties at the trial. The formal Court now determines PNB's liability for damages under existing
offer enables the judge to know the purpose or purposes for laws and jurisprudence.
which the proponent is presenting the evidence. It also affords
the opposing parties the chance to examine the evidence and to Section 2 of Republic Act No. 8791,[52] declares the State's
object to its admissibility. Moreover, it facilitates review as the recognition of the "fiduciary nature of banking that requires high
appellate court will not be required to review documents not standards of integrity and performance." It cannot be
previously scrutinized by the trial court. overemphasized that the banking business is impressed with
public interest. The trust and confidence of the public to the
In People v. Napat-a[45] People v. Mate[46] and Heirs of industry is given utmost importance.[53] Thus, the bank is under
Romana Saves, et al. v. Escolastico Saves, et al.[47] we obligation to treat its depositor's accounts with meticulous care,
recognized the exceptions from the requirement of a formal offer having in mind the nature of their relationship.[54] The bank is
of evidence, namely: (a) the evidence must have been duly required to assume a degree of diligence higher than that of a
identified by testimony duly recorded; and (b) the evidence must good father of a family.[55]
have been incorporated in the records of the case.
As earlier settled, the PNB was negligent for its failure to update
It is unmistakable that the PNB did not include the affidavit of and properly handle Anna Marie's accounts. This is patent from
the PNB New York's bank officer in its formal offer of evidence to the PNB's letter to Anna Marie, admitting the error and
corroborate Anna Rose's SOA. Although the affidavit was unauthorized withdrawals from her account. Moreover, Anna
included in the records and identified by Fernandez, it remains Marie was led to believe that the amounts she has in her
inadmissible for being hearsay. Jurisprudence dictates that an accounts would remain because of the Deed of Waiver and
affidavit is merely hearsay evidence when its affiant or maker did Quitclaim executed by her, her mother, and PNB. Assuming
not take the witness stand.[48] arguendo that Anna Marie made the contested withdrawals, due
diligence requires the PNB to record the transactions in her
In the present case, Fernandez is not the proper party to identify passbooks.
the affidavit executed by the PNB New York's bank officer since
he is not the affiant. Therefore the affidavit is inadmissible. The Court has established in a number of cases the standard of
care required from banks, and the bank's liability for the
43
damages sustained by the depositor. The bank is not absolved annum [changed to 6% per annum starting July 1, 2013] to be
from liability by the fact that it was the bank's employee who computed from default, i.e., from extrajudicial demand under
committed the wrong and caused damage to the depositor.[56] and subject to the provisions of Article 1169 of the Civil Code.
Article 2180 of the New Civil Code provides that the owners and
managers of an establishment are responsible for damages xxxx
caused by their employees while performing their functions.[57]
3. When the judgment of the court awarding a sum of money
In addition, we held in PNB v. Pike,[58] that although the bank's becomes final and executory, the rate of legal interest x x x shall
employees are the ones negligent, a bank is primarily liable for be 6% per annum frorn such finality until its satisfaction, x x x
the employees' acts because banks are expected to exercise the
highest degree of diligence in the selection and supervision of We note that pursuant to the Bangko Sentral ng Pilipinas-
their employees. Monetary Board Circular No. 799, the legal interest rate is 6%
per annum effective July 1, 2013. The new rate is applicable
Indeed, a great possibility exists that Salvoro was involved in the prospectively; thus, the 12% per annum shall still apply until
unauthorized withdrawals. Anna Marie entrusted her accounts to June 30, 2013.
and made her banking transactions only through him. Salvaro's
unexplained disappearance further confirms this Court's In the present case, Anna Marie filed her complaint on August
suspicions. The Court is alarmed that he was able to repeatedly 12, 2004. PNB is therefore liable for legal interest of 12% per
do these unrecorded transactions without the bank noticing it. annum from August 12, 2004 until June 30, 2013, and 6% per
This only shows that the PNB has been negligent in the annum from July 1, 2013, until its full satisfaction.
supervision of its employees.
WHEREFORE, the petition is GRANTED. The assailed December
As to contributory negligence, the Court agrees with the RTC that 16, 2011 decision and June 26, 2012 resolution of the Court of
the PNB failed to substantiate its allegation that Anna Marie was Appeals is hereby reversed. The October 26, 2010 decision of the
guilty of contributory negligence. Regional Trial Court is REINSTATED with MODIFICATIONS. Thus,
the Philippine National Bank is ORDERED to pay Anna Marie
Contributory negligence is conduct on the part of the injured Gumabon the following:
party, contributing as a legal cause to the harm he has suffered,
which falls below the standard to which he is required to conform (1) Actual damages of:
for his own protection.[59] Whether contributory negligence (a) $10,058.01, as the outstanding balance of FXCTD No.
transpired is a factual matter that must be proven. 993902;
In the present case, Anna Marie cannot be held responsible for (b) $ 20,244.42, as the outstanding balance of FXCTD No.
entrusting her account with Salvoro. As shown in the records, 993992; and
Salvoro was the bank's time deposit specialist. Anna Marie
cannot thus be faulted if she engaged the bank's services (c) P250/741.82, as the outstanding balance of SA No. 6121200;
through Salvoro for transactions related to her time deposits.
(2) Legal interest of twelve percent (12%) per annum of the
The Court also cannot accept the CA's conclusion that there was total actual damages from August 12, 2004 to June 30, 2013,
connivance between Anna Marie and Salvoro. This conclusion is and six percent (6%) per annum from July 1, 2013 until full
simply not supported by the records and is therefore baseless. satisfaction;
In these lights, we hold that Anna Marie is entitled to moral (3) P100,000.00 as moral damages;
damages of P-l 00,000.00. In cases of breach of contract, moral
damages are recoverable only if the defendant acted fraudulently (4) P50,000.00 as exemplary damages;
or in bad faith, or is guilty of gross negligence amounting to bad
faith, or in clear disregard of his contractual obligations.[60] (5) P150,000.00 as attorney's fees; and (7) Costs of suit.
Anna Marie was able to establish the mental anguish and serious
anxiety that she suffered because of the PNB's refusal to honor Let a copy of this Decision be furnished the Financial Consumers
its obligations. Protection Department of the Bangko Sentral ng Pilipinas, for
information and possible action in accordance with the Bangko
Anna Marie is likewise entitled to exemplary damages of P- Sentral ng Pilipinas' mandate to protect the banking public.
50,000.00. Article 2229 of the New Civil Code imposes
exemplary damages by way of example or correction for the SO ORDERED.
public good. To repeat, banks must treat the accounts of its
depositors with meticulous care and always have in mind the
fiduciary nature of its relationship with them.[61] Having failed
to observe these, the award of exemplary damages is justified.
A surety companys liability under the On May 23, 1989, [respondent] paid to
performance bond it issues is solidary. The death of the x x x JDS seven hundred ninety five
principal obligor does not, as a rule, extinguish the thousand pesos (P795,000.00) by way
obligation and the solidary nature of that liability. of downpayment.
performance of the same. x x x [P]ursuant to the obligees action or suit filed before the court, which is
[S]urety [C]ontract, SICI is liable for the non- not then acting as a probate court.
[14]
Petitioner states the issue for the Courts consideration set up to wipe out the obligations under the
in the following manner: performance bond. Consequently, petitioner as surety
cannot use his death to escape its monetary obligation
Death is a defense of Santos heirs under its performance bond.
which Stronghold could also adopt as
its defense against obligees claim. [7]
The liability of petitioner is contractual in nature,
because it executed a performance bond worded as
follows:
More precisely, the issue is whether petitioners
liability under the performance bond was KNOW ALL MEN BY THESE
automatically extinguished by the death of Santos, the PRESENTS:
principal.
That we, JDS CONSTRUCTION of
208-A San Buena Building, contractor,
of Shaw Blvd., Pasig, MMPhilippines,
The Courts Ruling as principal and the STRONGHOLD
INSURANCE COMPANY, INC. a
The Petition has no merit. corporation duly organized and existing
under and by virtue of the laws of the
Philippines with head office at Makati,
Sole Issue: as Surety, are held and firmly bound
Effect of Death on the Suretys Liability unto the REPUBLIC ASAHI GLASS
CORPORATION and to any individual,
firm, partnership, corporation or
Petitioner contends that the death of Santos, the bond association supplying the principal with
principal, extinguished his liability under the surety labor or materials in the penal sum of
bond. Consequently, it says, it is automatically SEVEN HUNDRED NINETY FIVE
released from any liability under the bond. THOUSAND (P795,000.00), Philippine
Currency, for the payment of which
As a general rule, the death of either the sum, well and truly to be made, we bind
creditor or the debtor does not extinguish the ourselves, our heirs, executors,
obligation. Obligations are transmissible to the heirs,
[8]
administrators, successors and assigns,
except when the transmission is prevented by the law, jointly and severally, firmly by these
the stipulations of the parties, or the nature of the presents.
obligation. Only obligations that are personal or are
[9] [10]
The CONDITIONS OF THIS
identified with the persons themselves are OBLIGATION are as follows;
extinguished by death. [11]
contract and any extension thereof that 3, Title I of this Book shall be
may be granted by the obligee, with observed. In such case the contract is
notice to the surety and during the life called a suretyship.
of any guaranty required under the
contract, and shall also perform well xxxxxxxxx
and truly and fulfill all the
undertakings, covenants, terms, Art. 1216. The creditor may
conditions, and agreements of any and proceed against any one of the
all duly authorized modifications of solidary debtors or some or all of
said contract that may hereinafter be them simultaneously. The demand
made, without notice to the surety made against one of them shall not be
except when such modifications an obstacle to those which may
increase the contract price; and such subsequently be directed against the
principal contractor or his or its sub- others, so long as the debt has not
contractors shall promptly make been fully collected.
payment to any individual, firm,
partnership, corporation or association
supplying the principal of its sub- Elucidating on these provisions, the Court in Garcia v.
contractors with labor and materials in Court of Appeals stated thus:
[18]
The defendant-spouses denied any liability, 1. Ordering defendants to pay the amount
claiming that they had already paid the plaintiff in full of P24,910.00 plus legal interest of 6% per annum
on four separate occasions. To substantiate this claim, from April 12, 1983 until the whole amount is fully
the defendants presented four (4) Temporary Charge paid;
Sales (TCS) Liquidation Receipts, as follows:
2. Ordering defendants to pay 20% of the amount due
April 19, 1983 Receipt No. 27331 for P8,000[5] to plaintiff as and for attorneys fees plus costs.
April 22, 1983 Receipt No. 27318 for
P9,000[6] SO ORDERED.[11]
April 27, 1983 Receipt No. 27339 for
P4,500[7] According to the trial court, it was unusual that
April 30, 1983 Receipt No. 27346 for P3,410[8] defendant Francisco Culaba forgot the name of the
collector to whom he made the payments and that he
Defendant Francisco Culaba testified that he made did not require the said collector to print his name on
the foregoing payments to an SMC supervisor who the receipts. The court also noted that although they
came in an SMC van. He was then showed a list of were part of a single booklet, the TCS Liquidation
customers accountabilities which included his account. Receipts submitted by the defendants did not appear to
The defendant, in good faith, then paid to the said have been issued in their natural sequence.
supervisor, and he was, in turn, issued genuine SMC Furthermore, they were part of the lost booklet
liquidation receipts. receipts, which the public was duly warned of through
For its part, SMC submitted a publishers the Notice of Loss the plaintiff caused to be published
affidavit[9] to prove that the entire booklet of TCSL in a daily newspaper. This confirmed the plaintiffs
Receipts bearing Nos. 27301-27350 were reported lost claim that the receipts presented by the defendants
by it, and that it caused the publication of the notice of were spurious ones.
loss in the July 9, 1983 issue of the Daily Express, as
follows:
The Case on Appeal
NOTICE OF LOSS
On appeal, the appellants interposed the following
OUR CUSTOMERS ARE HEREBY INFORMED assignment of errors:
THAT TEMPORARY CHARGE SALES
LIQUIDATION RECEIPTS WITH SERIAL NOS. I
27301-27350 HAVE BEEN LOST.
ANY TRANSACTION, THEREFORE, ENTERED THE TRIAL COURT ERRED IN FINDING THAT
INTO WITH THE USE OF THE ABOVE RECEIPTS THE RECEIPTS PRESENTED BY DEFENDANTS
WILL NOT BE HONORED. EVIDENCING HIS PAYMENTS TO PLAINTIFF
SAN MIGUEL CORPORATION, ARE SPURIOUS.
SAN MIGUEL CORPORATION
BEER DIVISION II
57
THE TRIAL COURT ERRED IN CONCLUDING The Court of Appeals affirmed the decision of the
THAT PLAINTIFF-APPELLEE HAS trial court, thus:
SUFFICIENTLY PROVED ITS CAUSE OF ACTION
AGAINST THE DEFENDANTS. In the face of the somewhat tenuous evidence
presented by the appellants, we cannot fault the lower
III court for giving more weight to appellees testimonial
and documentary evidence, all of which establish with
THE TRIAL COURT ERRED IN ORDERING some degree of preponderance the existence of the
DEFENDANTS TO PAY 20% OF THE AMOUNT account sued upon.
DUE TO PLAINTIFF AS ATTORNEYS FEES.[12]
ALL CONSIDERED, we cannot find any justification
The appellants asserted that while the trial courts to reject the factual findings of the lower court to
observations were true, it was the usual business which we must accord respect, for which reason, the
practice in previous transactions between them and judgment appealed from is hereby AFFIRMED in all
SMC. The SMC previously honored receipts not respects.
bearing the salesmans name. According to appellant
Francisco Culaba, he even lost some of the receipts, SO ORDERED.[15]
but did not encounter any problems.
Hence, the instant petition.
According to appellant Francisco, he could not be
faulted for paying the SMC collector who came in a The petitioners pose the following issues for the
van and was in uniform, and that any regular customer Courts resolution:
would, without any apprehension, transact with such
an SMC employee.Furthermore, the respective receipts I. WHETHER OR NOT THE RESPONDENT HAD
issued to him at the time he paid on the four occasions PROVEN BY PREPONDERANT EVIDENCE THAT
mentioned had not yet then been declared lost. Thus, IT HAD PROPERLY AND TIMELY NOTIFIED
the subsequent publication in a daily newspaper PETITIONER OF LOST BOOKLET OF RECEIPTS
declaring the booklets lost did not affect the validity
and legality of the payments made. Accordingly, by its II. WHETHER OR NOT RESPONDENT HAD
actuations, the SMC was estopped from questioning PROVEN BY PREPONDERANT EVIDENCE THAT
the legality of the payments and had no cause of action PETITIONER WAS REMISS IN THE PAYMENT OF
against the appellants. HIS ACCOUNTS TO ITS AGENT.[16]
Anent the issue of attorneys fees, the order of the
According to the petitioners, receiving receipts
trial court for payment thereof is without basis.
from the private respondents agents instead of its
According to the appellant, the provision for attorneys
salesmen was a usual occurrence, as they had been
fees is a contingent fee, already provided for in the
operating the store since 1979. Thus, on four occasions
SMCs contract with the law firm. To further order
in April 1983, when an agent of the respondent came
them to pay 20% of the amount due as attorneys fees is
to the store wearing an SMC uniform and driving an
double payment, tantamount to undue enrichment and
SMC van, petitioner Francisco Culaba, without
therefore improper.[13]
question, paid his accounts. He received the receipts
The appellee, for its part, contended that the without fear, as they were similar to what he used to
primary issue in the case at bar revolved around the receive before. Furthermore, the petitioners assert that,
basic and fundamental principles of agency. [14] It was common experience will attest that unless the attention
incumbent upon the defendants-appellants to exercise of the customers is called for, they would not take note
ordinary prudence and reasonable diligence to verify of the serial number of the receipts.
and identify the extent of the alleged agents authority.
The petitioners contend that the private
It was their burden to establish the true identity of the
respondent advertised its warning to the public only
assumed agent, and this could not be established by
after the damage was done, or on July 9, 1993. Its
mere representation, rumor or general reputation. As
belated notice showed its glaring lack of interest or
they utterly failed in this regard, the appellants must
concern for its customers welfare, and, in sum, its
suffer the consequences.
negligence.
58
Anent the second issue, petitioner Francisco petition for review under Rule 45. The jurisdiction of
Culaba avers that the agent to whom the accounts were the Court in such a case is limited to reviewing only
paid had all the physical and material attributes or errors of law, unless the factual findings being assailed
indications of a representative of the private are not supported by evidence on record or the
respondent, leaving no doubt that he was duly impugned judgment is based on a misapprehension of
authorized by the latter. Petitioner Francisco Culabas facts.[19]
testimony that he does not necessarily check the
A careful study of the records of the case reveal
contents of the receipts issued to him except for the
that the appellate court affirmed the trial courts factual
amount indicated if [the] same accurately reflects his
findings as follows:
actual payment is a common attitude of customers. He
could, thus, not be faulted for paying the private First. Receipts Nos. 27331, 27318, 27339 and
respondents agent on four occasions. Petitioner 27346 were included in the private respondents lost
Francisco Culaba asserts that he made the payment in booklet, which loss was duly advertised in a
good faith, to an agent who issued SMC receipts which newspaper of general circulation; thus, the private
appeared to be genuine. Thus, according to the respondent could not have officially issued them to the
petitioners, they had duly paid their obligation in petitioners to cover the alleged payments on the dates
accordance with Articles 1240 and 1242 of the New appearing thereon.
Civil Code.
Second. There was something amiss in the way
The private respondent, for its part, avers that the the receipts were issued to the petitioners, as one
burden of proving payment is with the debtor, in receipt bearing a higher serial number was issued
consonance with the express provision of Article 1233 ahead of another receipt bearing a lower serial number,
of the New Civil Code. The petitioners miserably supposedly covering a later payment. The petitioners
failed to prove the self-serving allegation that they failed to explain the apparent mix-up in these receipts,
already paid their liability to the private respondent. and no attempt was made in this regard.
Furthermore, under normal circumstances, an obligor
Third. The fact that the salesmans name was
would not just pay a substantial amount to someone
invariably left blank in the four receipts and that the
whom he saw for the first time, without even asking
petitioners could not even remember the name of the
for the latters name.
supposed impostor who received the said payments
strongly argue against the veracity of the petitioners
claim.
The Ruling of the Court
We find no cogent reason to reverse the said
findings.
The petition is dismissed.
The dismissal of the petition is inevitable even
The petitioners question the findings of the Court upon close perusal of the merits of the case.
of Appeals as to whether the payment of the petitioners
obligation to the private respondent was properly Payment is a mode of extinguishing an obligation.
[20]
made, thus, extinguishing the same. This is clearly a Article 1240 of the Civil Code provides that
factual issue, and beyond the purview of the Court to payment shall be made to the person in whose favor
delve into. This is in consonance with the well-settled the obligation has been constituted, or his successor-
rule that findings of fact of the trial court, especially in-interest, or any person authorized to receive it.[21] In
when affirmed by the Court of Appeals, are accorded this case, the payments were purportedly made to a
the highest degree of respect, and generally will not be supervisor of the private respondent, who was clad in
disturbed on appeal. Such findings are binding and an SMC uniform and drove an SMC van. He appeared
conclusive on the Court.[17] Furthermore, it is not the to be authorized to accept payments as he showed a
Courts function under Rule 45 of the Rules of Court, list of customers accountabilities and even issued SMC
as amended, to review, examine and evaluate or weigh liquidation receipts which looked genuine.
the probative value of the evidence presented.[18] Unfortunately for petitioner Francisco Culaba, he did
not ascertain the identity and authority of the said
To reiterate, the issue being raised by the supervisor, nor did he ask to be shown any
petitioners does not involve a question of law, but a identification to prove that the latter was, indeed, an
question of fact, not cognizable by this Court in a SMC supervisor. The petitioners relied solely on the
59
mans representation that he was collecting payments ALLIED BANKING G.R. No. 133179
for SMC. Thus, the payments the petitioners claimed CORPORATION,
they made were not the payments that discharged their Petitioner, Present:
obligation to the private respondent. QUISUMBING, J., Chairperson,
- versus - CARPIO MORALES,
The basis of agency is representation. [22] A person
TINGA,
dealing with an agent is put upon inquiry and must
VELASCO, JR., and
discover upon his peril the authority of the agent.[23] In
CHICO-NAZARIO,* JJ.
the instant case, the petitioners loss could have been
LIM SIO WAN, METROPOLITAN
avoided if they had simply exercised due diligence in
BANK AND TRUST CO., and Promulgated:
ascertaining the identity of the person to whom they
PRODUCERS BANK,
allegedly made the payments. The fact that they were
Respondents. March 27, 2008
parting with valuable consideration should have made
x----------------------------------------------------------------
them more circumspect in handling their business
-------------------------x
transactions. Persons dealing with an assumed agent
are bound at their peril to ascertain not only the fact of
DECISION
agency but also the nature and extent of authority, and
in case either is controverted, the burden of proof is
VELASCO, JR., J.:
upon them to establish it.[24]The petitioners in this case
failed to discharge this burden, considering that the
To ingratiate themselves to their valued
private respondent vehemently denied that the
depositors, some banks at times bend over backwards
payments were accepted by it and were made to its
that they unwittingly expose themselves to great risks.
authorized representative.
The Case
Negligence is the omission to do something which
a reasonable man, guided by those considerations This Petition for Review on Certiorari under
which ordinarily regulate the conduct of human affairs, Rule 45 seeks to reverse the Court of Appeals (CAs)
would do, or the doing of something, which a prudent Decision promulgated on March 18, 1998[1] in CA-
and reasonable man would not do.[25] In the case at bar, G.R. CV No. 46290 entitled Lim Sio Wan v. Allied
the most prudent thing the petitioners should have Banking Corporation, et al. The CA Decision
done was to ascertain the identity and authority of the modified the Decision dated November 15, 1993[2] of
person who collected their payments. Failing this, the the Regional Trial Court (RTC), Branch 63
petitioners cannot claim that they acted in good faith in Makati City rendered in Civil Case No. 6757.
when they made such payments. Their claim therefor The Facts
is negated by their negligence, and they are bound by
its consequences. Being negligent in this regard, the The facts as found by the RTC and affirmed by the CA
petitioners cannot seek relief on the basis of a are as follows:
supposed agency.[26]
On November 14, 1983, respondent Lim Sio Wan
WHEREFORE, the instant petition is hereby deposited with petitioner Allied Banking Corporation
DENIED. The assailed Decision dated April 16, 1996, (Allied) at its Quintin Paredes Branch in Manila a
and the Resolution dated July 19, 1996 of the Court of money market placement of PhP 1,152,597.35 for a
Appeals are AFFIRMED. Costs against the petitioners. term of 31 days to mature on December 15, 1983,[3] as
SO ORDERED. evidenced by Provisional Receipt No. 1356
dated November 14, 1983.[4]
Republic of the Philippines On December 5, 1983, a person claiming to be Lim
SUPREME COURT Sio Wan called up Cristina So, an officer of Allied, and
Manila instructed the latter to pre-terminate Lim Sio Wans
money market placement, to issue a managers check
representing the proceeds of the placement, and to give
SECOND DIVISION the check to one Deborah Dee Santos who would pick
up the check.[5]Lim Sio Wan described the appearance
of Santos so that So could easily identify her.[6]
60
On December 9, 1983, Lim Sio Wan deposited with
Later, Santos arrived at the bank and signed the Allied a second money market placement to mature
application form for a managers check to be issued. on January 9, 1984.[20]
[7]
The bank issued Managers Check No. 035669 for
PhP 1,158,648.49, representing the proceeds of Lim On December 14, 1983, upon the maturity date of the
Sio Wans money market placement in the name of Lim first money market placement, Lim Sio Wan went to
Sio Wan, as payee.[8] The check was cross-checked For Allied to withdraw it.[21] She was then informed that
Payees Account Only and given to Santos.[9] the placement had been pre-terminated upon her
instructions. She denied giving any instructions and
Thereafter, the managers check was deposited in the receiving the proceeds thereof. She desisted from
account of Filipinas Cement Corporation (FCC) at further complaints when she was assured by the banks
respondent Metropolitan Bank and Trust Co. manager that her money would be recovered.[22]
(Metrobank),[10] with the forged signature of Lim Sio
Wan as indorser.[11] When Lim Sio Wans second placement matured
on January 9, 1984, So called Lim Sio Wan to ask for
Earlier, on September 21, 1983, FCC had deposited a the latters instructions on the second placement. Lim
money market placement for PhP 2 million with Sio Wan instructed So to roll-over the placement for
respondent Producers Bank. Santos was the money another 30 days.[23]On January 24, 1984, Lim Sio Wan,
market trader assigned to handle FCCs account. realizing that the promise that her money would be
[12]
Such deposit is evidenced by Official Receipt No. recovered would not materialize, sent a demand letter
317568[13] and a Letter dated September 21, to Allied asking for the payment of the first placement.
[24]
1983 of Santos addressed to Angie Lazo of FCC, Allied refused to pay Lim Sio Wan, claiming that
acknowledging receipt of the placement.[14] The the latter had authorized the pre-termination of the
placement matured on October 25, 1983 and was placement and its subsequent release to Santos.[25]
rolled-over until December 5, 1983 as evidenced by a
Letter dated October 25, 1983.[15] When the placement Consequently, Lim Sio Wan filed with the RTC a
matured, FCC demanded the payment of the proceeds Complaint dated February 13, 1984[26] docketed as
of the placement.[16] On December 5, 1983, the same Civil Case No. 6757 against Allied to recover the
date that So received the phone call instructing her to proceeds of her first money market placement.
pre-terminate Lim Sio Wans placement, the managers Sometime in February 1984, she withdrew her second
check in the name of Lim Sio Wan was deposited in placement from Allied.
the account of FCC, purportedly representing the
proceeds of FCCs money market placement with Allied filed a third party complaint [27] against
Producers Bank.[17] In other words, the Allied check Metrobank and Santos. In turn, Metrobank filed a
was deposited with Metrobank in the account of FCC fourth party complaint[28] against FCC. FCC for its part
as Producers Banks payment of its obligation to FCC. filed a fifth party complaint[29] against Producers Bank.
Summonses were duly served upon all the parties
To clear the check and in compliance with the except for Santos, who was no longer connected with
requirements of the Philippine Clearing House Producers Bank.[30]
Corporation (PCHC) Rules and Regulations,
Metrobank stamped a guaranty on the check, which On May 15, 1984, or more than six (6) months after
reads: All prior endorsements and/or lack of funding the check, Allied informed Metrobank that the
endorsement guaranteed.[18] signature on the check was forged.[31] Thus, Metrobank
withheld the amount represented by the check from
The check was sent to Allied through the PCHC. Upon FCC.Later on, Metrobank agreed to release the amount
the presentment of the check, Allied funded the check to FCC after the latter executed an Undertaking,
even without checking the authenticity of Lim Sio promising to indemnify Metrobank in case it was
Wans purported indorsement. Thus, the amount on the made to reimburse the amount.[32]
face of the check was credited to the account of FCC.
[19]
Lim Sio Wan thereafter filed an amended
complaint to include Metrobank as a party-defendant,
along with Allied.[33] The RTC admitted the amended
complaint despite the opposition of Metrobank.
61
[34]
Consequently, Allieds third party complaint against appellee Metropolitan Bank and Trust
Metrobank was converted into a cross-claim and the Company forty (40%) of the amount of
latters fourth party complaint against FCC was P1,158,648.49 plus 12% interest per
converted into a third party complaint.[35] annum from March 16, 1984 until fully
paid. The moral damages, attorneys
After trial, the RTC issued its Decision, holding as fees and costs of suit adjudged shall
follows: likewise be paid by defendant-appellant
Allied Banking Corporation and
WHEREFORE, judgment is hereby defendant-appellee Metropolitan Bank
rendered as follows: and Trust Company in the same
proportion of 60-40. Except as thus
1. Ordering defendant Allied Banking modified, the decision appealed from is
Corporation to pay plaintiff the amount AFFIRMED.
of P1,158,648.49 plus 12% interest per
annum from March 16, 1984 until fully SO ORDERED.[37]
paid;
2. Ordering defendant Allied Bank to
pay plaintiff the amount of P100,000.00 Hence, Allied filed the instant petition.
by way of moral damages;
3. Ordering defendant Allied Bank to The Issues
pay plaintiff the amount of P173,792.20
by way of attorneys fees; and, Allied raises the following issues for our
4. Ordering defendant Allied Bank to consideration:
pay the costs of suit.
In the instant case, Lim Sio Wans money WHEREFORE, premises considered,
market placement in Allied Bank was pre-terminated the decision appealed from is
and withdrawn without her consent. Moreover, the MODIFIED. Judgment is rendered
proceeds of the placement were deposited in Producers ordering and sentencing defendant-
Banks account in Metrobank without any justification. appellant Allied Banking Corporation
In other words, there is no reason that the proceeds of to pay sixty (60%) percent and
Lim Sio Wans placement should be deposited in FCCs defendant-appellee Metropolitan Bank
account purportedly as payment for FCCs money and Trust Company forty (40%) of the
market placement and interest in Producers Bank. With amount of P1,158,648.49 plus 12%
such payment, Producers Banks indebtedness to FCC interest per annum from March 16,
was extinguished, thereby benefitting the former. 1984 until fully paid. The moral
Clearly, Producers Bank was unjustly enriched at the damages, attorneys fees and costs of
expense of Lim Sio Wan. Based on the facts and suit adjudged shall likewise be paid by
circumstances of the case, Producers Bank should defendant-appellant Allied Banking
reimburse Allied and Metrobank for the amounts the Corporation and defendant-appellee
two latter banks are ordered to pay Lim Sio Wan. Metropolitan Bank and Trust Company
in the same proportion of 60-40. Except
It cannot be validly claimed that FCC, and not as thus modified, the decision appealed
Producers Bank, should be considered as having been from is AFFIRMED.
unjustly enriched. It must be remembered that FCCs
money market placement with Producers Bank was SO ORDERED.
already due and demandable; thus, Producers Banks
payment thereof was justified. FCC was entitled to
such payment. As earlier stated, the fact that the Additionally and by way
indorsement on the check was forged cannot be raised of MODIFICATION, Producers Bank is hereby
against FCC which was not a part in any stage of the ordered to pay Allied and Metrobank the
negotiation of the check. FCC was not unjustly aforementioned amounts. The liabilities of the parties
enriched. are concurrent and independent of each other.
Assailed in this petition for review on certiorari under Respondent made the following payments, to wit: (1)
Rule 45 of the Rules of Court filed by petitioners P500,000.00 by way of downpayment; (2)
spouses Miniano B. Dela Cruz and Leta L. Dela Cruz P500,000.00 on May 30, 1996; (3) P500,000.00 paid
against respondent Ana Marie Concepcion are the on January 22, 1997; and (4) P500,000.00 bounced
Court of Appeals (CA) Decision1 dated March 31, check dated June 30, 1997 which was subsequently
2005 and Resolution2 dated May 24, 2006 in CA-G.R. replaced by another check of the same amount, dated
CV No. 83030. July 7, 1997. Respondent was, therefore, able to pay a
total of P2,000,000.00.5
The facts of the case are as follows:
Before respondent issued the P500,000.00 replacement
On March 25, 1996, petitioners (as vendors) entered check, she told petitioners that based on the
into a Contract to Sell3 with respondent (as vendee) computation of her accountant as of July 6, 1997, her
involving a house and lot in Cypress St., Phase I, Town unpaid obligation which includes interests and
and Country Executive Village, Antipolo City for a penalties was only P200,000.00.6 Petitioners agreed
consideration of P2,000,000.00 subject to the with respondent and said "if P200,000.00 is the correct
following terms and conditions: balance, it is okay with us."7
a) That an earnest money of P100,000.00 shall be paid Meanwhile, the title to the property was transferred to
immediately; respondent. Petitioners later reminded respondent to
pay P209,000.00 within three months.8 They claimed
b) That a full down payment of Four Hundred that the said amount remained unpaid, despite the
Thousand Pesos (P400,000.00) shall be paid on transfer of the title to the property to respondent.
February 29, 1996; Several months later, petitioners made further demands
stating the supposed correct computation of
c) That Five Hundred Thousand Pesos (P500,000.00) respondent’s liabilities.9 Despite repeated demands,
shall be paid on or before May 5, 1996; and petitioners failed to collect the amounts they claimed
from respondent. Hence, the Complaint for Sum of
d) That the balance of One Million Pesos Money With Damages10 filed with the Regional Trial
(P1,000,000.00) shall be paid on installment with Court (RTC)11 of Antipolo, Rizal. The case was
interest of Eighteen Percent (18%) per annum or One docketed as Civil Case No. 98-4716.
and a half percent (1-1/2 %) interest per month, based
on the diminishing balance, compounded monthly, In her Answer with Compulsory Counterclaim,12
effective May 6, 1996. The interest shall continue to respondent claimed that her unpaid obligation to
run until the whole obligation shall have been fully petitioners is only P200,000.00 as earlier confirmed by
paid. The whole One Million Pesos shall be paid petitioners and not P487,384.15 as later alleged in the
within three years from May 6, 1996; complaint. Respondent thus prayed for the dismissal of
the complaint. By way of counterclaim, respondent
68
prayed for the payment of moral damages and Aggrieved, petitioners come before the Court in this
attorney’s fees. During the presentation of the parties’ petition for review on certiorari under Rule 45 of the
evidence, in addition to documents showing the Rules of Court raising the following errors:
statement of her paid obligations, respondent presented
a receipt purportedly indicating payment of the I.
remaining balance of P200,000.00 to Adoracion
Losloso (Losloso) who allegedly received the same on "THE TRIAL COURT ERRED IN DISMISSING THE
behalf of petitioners.13 COMPLAINT ON THE GROUND THAT
PLAINTIFF FAILED TO FORMALLY OFFER
On March 8, 2004, the RTC rendered a Decision14 in THEIR EVIDENCE AS DEFENDANT JUDICIALLY
favor of respondent, the dispositive portion of which ADMITTED IN HER ANSWER WITH
reads: COMPULS[O]RY COUNTERCLAIM HER
OUTSTANDING OBLIGATION STILL DUE TO
WHEREFORE, premises considered, this case is PLAINTIFFS AND NEED NO PROOF.
hereby DISMISSED. The plaintiff is hereby ordered to
pay the defendant’s counterclaim, amounting to wit: II.
a) P300,000 as moral damages; and THE TRIAL COURT ERRED IN DISMISSING THE
COMPLAINT FOR ALLEGED FAILURE OF
b) P100,000 plus P2,000 per court appearance as PLAINTIFFS TO PRESENT COMPUTATION OF
attorney’s fees. THE AMOUNT BEING CLAIMED AS
DEFENDANT JUDICIALLY ADMITTED HAVING
SO ORDERED.15 RECEIVED THE DEMAND LETTER DATED
OCTOBER 22, 1997 WITH COMPUTATION OF
The RTC noted that the evidence formally offered by THE BALANCE DUE.
petitioners have not actually been marked as none of
the markings were recorded. Thus, it found no basis to III.
grant their claims, especially since the amount claimed
in the complaint is different from that testified to. The THE TRIAL COURT ERRED IN DISMISSING THE
court, on the other hand, granted respondent’s COMPLAINT ON THE GROUND THAT THE
counterclaim.16 DEFENDANT FULLY PAID THE CLAIMS OF
PLAINTIFFS BASED ON THE ALLEGED RECEIPT
On appeal, the CA affirmed the decision with OF PAYMENT BY ADORACION LOSLOSO FROM
modification by deleting the award of moral damages ANA MARIE CONCEPCION MAGLASANG
and attorney’s fees in favor of respondent.17 It agreed WHICH HAS NOTHING TO DO WITH THE
with the RTC that the evidence presented by JUDICIALLY ADMITTED OBLIGATION OF
petitioners cannot be given credence in determining APPELLEE."23
the correct liability of respondent.18 Considering that
the purchase price had been fully paid by respondent Invoking the rule on judicial admission, petitioners
ahead of the scheduled date agreed upon by the parties, insist that respondent admitted in her Answer with
petitioners were not awarded the excessive penalties Compulsory Counterclaim that she had paid only a
and interests.19 The CA thus maintained that total amount of P2 million and that her unpaid
respondent’s liability is limited to P200,000.00 as obligation amounts to P200,000.00.24 They thus
claimed by respondent and originally admitted by maintain that the RTC and the CA erred in concluding
petitioners.20 This amount, however, had already been that said amount had already been paid by respondent.
paid by respondent and received by petitioners’ Petitioners add that respondent’s total liability as
representative.21 Finally, the CA pointed out that the shown in the latter’s statement of account was
RTC did not explain in its decision why moral erroneously computed for failure to compound the
damages and attorney’s fees were awarded. monthly interest agreed upon.25 Petitioners also claim
Considering also that bad faith cannot be attributed to that the RTC and the CA erred in giving credence to
petitioners when they instituted the collection suit, the the receipt presented by respondent to show that her
CA deleted the grant of their counterclaims.22 unpaid obligation had already been paid having been
69
allegedly given to a person who was not armed with already paid the remaining balance of P200,000.00.
authority to receive payment.26 Petitioners now assail this, insisting that the court
should have maintained the judicial admissions of
The petition is without merit. respondent in her Answer with Compulsory
Counterclaim, especially as to their agreed stipulations
It is undisputed that the parties entered into a contract on interests and penalties as well as the existence of
to sell a house and lot for a total consideration of P2 outstanding obligations.
million. Considering that the property was payable in
installment, they likewise agreed on the payment of It is, thus, necessary to discuss the effect of failure of
interest as well as penalty in case of default. It is respondent to plead payment of its obligations.
likewise settled that respondent was able to pay the
total purchase price of P2 million ahead of the agreed Section 1, Rule 9 of the Rules of Court states that
term. Afterwhich, they agreed on the remaining "defenses and objections not pleaded either in a
balance by way of interest and penalties which is motion to dismiss or in the answer are deemed
P200,000.00. Considering that the term of payment waived." Hence, respondent should have been barred
was not strictly followed and the purchase price had from raising the defense of payment of the unpaid
already been fully paid by respondent, the latter P200,000.00. However, Section 5, Rule 10 of the
presented to petitioners her computation of her Rules of Court allows the amendment to conform to or
liabilities for interests and penalties which was agreed authorize presentation of evidence, to wit:
to by petitioners. Petitioners also manifested their
conformity to the statement of account prepared by Section 5. Amendment to conform to or authorize
respondent. presentation of evidence. – When issues not raised by
the pleadings are tried with the express or implied
In paragraph (9) of petitioners’ Complaint, they stated consent of the parties, they shall be treated in all
that: respects as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary
9) That the Plaintiffs answered the Defendant as to cause them to conform to the evidence and to raise
follows: "if P200,000 is the correct balance, it is okay these issues may be made upon motion of any party at
with us." x x x.27 any time, even after judgment; but failure to amend
does not affect the result of the trial of these issues. If
But in paragraph (17) thereof, petitioners claimed that evidence is objected to at the trial on the ground that it
defendant’s outstanding liability as of November 6, is not within the issues made by the pleadings, the
1997 was P487,384.15.28 Different amounts, however, court may allow the pleadings to be amended and shall
were claimed in their demand letter and in their do so with liberality if the presentation of the merits of
testimony in court. the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance
With the foregoing factual antecedents, petitioners to enable the amendment to be made.
cannot be permitted to assert a different computation
of the correct amount of respondent’s liability. The foregoing provision envisions two scenarios,
namely, when evidence is introduced in an issue not
It is noteworthy that in answer to petitioners’ claim of alleged in the pleadings and no objection was
her purported unpaid obligation, respondent admitted interjected; and when evidence is offered on an issue
in her Answer with Compulsory Counterclaim that she not alleged in the pleadings but this time an objection
paid a total amount of P2 million representing the was raised.29 When the issue is tried without the
purchase price of the subject house and lot. She then objection of the parties, it should be treated in all
manifested to petitioners and conformed to by respects as if it had been raised in the pleadings. 30 On
respondent that her only balance was P200,000.00. the other hand, when there is an objection, the
Nowhere in her Answer did she allege the defense of evidence may be admitted where its admission will not
payment. However, during the presentation of her prejudice him.31
evidence, respondent submitted a receipt to prove that
she had already paid the remaining balance. Both the Thus, while respondent judicially admitted in her
RTC and the CA concluded that respondent had Answer that she only paid P2 million and that she still
70
owed petitioners P200,000.00, respondent claimed With the evidence presented by the contending parties,
later and, in fact, submitted an evidence to show that the more important question to resolve is whether or
she already paid the whole amount of her unpaid not respondent’s obligation had already been
obligation. It is noteworthy that when respondent extinguished by payment.
presented the evidence of payment, petitioners did not
object thereto. When the receipt was formally offered We rule in the affirmative as aptly held by the RTC
as evidence, petitioners did not manifest their and the CA.
objection to the admissibility of said document on the
ground that payment was not an issue. Apparently, Respondent’s obligation consists of payment of a sum
petitioners only denied receipt of said payment and of money. In order to extinguish said obligation,
assailed the authority of Losloso to receive payment. payment should be made to the proper person as set
Since there was an implied consent on the part of forth in Article 1240 of the Civil Code, to wit:
petitioners to try the issue of payment, even if no
motion was filed and no amendment of the pleading Article 1240. Payment shall be made to the person in
has been ordered,32 the RTC cannot be faulted for whose favor the obligation has been constituted, or his
admitting respondent’s testimonial and documentary successor in interest, or any person authorized to
evidence to prove payment.33 receive it. (Emphasis supplied)
As stressed by the Court in Royal Cargo Corporation The Court explained in Cambroon v. City of Butuan, 36
v. DFS Sports Unlimited, Inc.,34 cited in Republic v. De Guzman,37 to whom payment
should be made in order to extinguish an obligation:
The failure of a party to amend a pleading to conform
to the evidence adduced during trial does not preclude Payment made by the debtor to the person of the
adjudication by the court on the basis of such evidence creditor or to one authorized by him or by the law to
which may embody new issues not raised in the receive it extinguishes the obligation. When payment
pleadings. x x x Although, the pleading may not have is made to the wrong party, however, the obligation is
been amended to conform to the evidence submitted not extinguished as to the creditor who is without fault
during trial, judgment may nonetheless be rendered, or negligence even if the debtor acted in utmost good
not simply on the basis of the issues alleged but also faith and by mistake as to the person of the creditor or
on the issues discussed and the assertions of fact through error induced by fraud of a third person.
proved in the course of the trial. The court may treat
the pleading as if it had been amended to conform to In general, a payment in order to be effective to
the evidence, although it had not been actually discharge an obligation, must be made to the proper
amended. x x x Clearly, a court may rule and render person. Thus, payment must be made to the obligee
judgment on the basis of the evidence before it even himself or to an agent having authority, express or
though the relevant pleading had not been previously implied, to receive the particular payment. Payment
amended, so long as no surprise or prejudice is thereby made to one having apparent authority to receive the
caused to the adverse party. Put a little differently, so money will, as a rule, be treated as though actual
long as the basic requirements of fair play had been authority had been given for its receipt. Likewise, if
met, as where the litigants were given full opportunity payment is made to one who by law is authorized to
to support their respective contentions and to object to act for the creditor, it will work a discharge. The
or refute each other's evidence, the court may validly receipt of money due on a judgment by an officer
treat the pleadings as if they had been amended to authorized by law to accept it will, therefore, satisfy
conform to the evidence and proceed to adjudicate on the debt.38
the basis of all the evidence before it. (Emphasis
supplied)35 Admittedly, payment of the remaining balance of
P200,000.00 was not made to the creditors themselves.
To be sure, petitioners were given ample opportunity Rather, it was allegedly made to a certain Losloso.
to refute the fact of and present evidence to prove Respondent claims that Losloso was the authorized
payment. agent of petitioners, but the latter dispute it.
71
Losloso’s authority to receive payment was embodied
in petitioners’ Letter39 addressed to respondent, dated NATIONAL POWER G.R. No. 168732
August 7, 1997, where they informed respondent of CORPORATION,
the amounts they advanced for the payment of the Petitioner,
1997 real estate taxes. In said letter, petitioners Present:
reminded respondent of her remaining balance, -versus-
together with the amount of taxes paid. Taking into
consideration the busy schedule of respondent, LUCMAN G. IBRAHIM, OMAR PUNO, C.J., Chairperson,
petitioners advised the latter to leave the payment to a G. MARUHOM, ELIAS G. SANDOVAL-GUTIERREZ, *
SO ORDERED. [5]
(b) ASSUMING THAT
RESPONDENTS ARE
ENTITLED TO JUST
Subsequently, both respondent Ibrahim and COMPENSATION BY WAY
NAPOCOR appealed to the CA. OF DAMAGES, NO
EVIDENCE WAS
In the Decision dated June 8, 2005, the CA set PRESENTED ANENT THE
aside the modified judgment and reinstated the original VALUATION OF
Decision dated August 7, 1996, amending it further by RESPONDENTS PROPERTY
deleting the award of moral damages and reducing the AT THE TIME OF ITS
amount of rentals and attorneys fees, thus: TAKING IN THE YEAR 1978
TO JUSTIFY THE AWARD OF
WHEREFORE, premises considered, ONE THOUSAND SQUARE
herein Appeals are hereby METERS (P1000.00/SQ. M.)
partially GRANTED, the Modified EVEN AS PAYMENT OF
Judgment is ordered SET ASIDE and BACK RENTALS IS ITSELF
rendered of no force and effect and the IMPROPER.
original Decision of the court a
quo dated 7 August 1996 is This case revolves around the propriety of paying just
hereby RESTORED with compensation to respondents, and, by extension, the
the MODIFICATION that the award basis for computing the same. The threshold issue of
of moral damages is DELETED and whether respondents are entitled to just compensation
the amounts of rentals and attorneys hinges upon who owns the sub-terrain area occupied
fees are REDUCED to P6,888,757.40 by petitioner.
and P50,000.00, respectively.
Petitioner maintains that the sub-terrain portion
In this connection, the Clerk of Court of where the underground tunnels were constructed does
RTC Lanao del Sur is hereby directed not belong to respondents because, even conceding the
to reassess and determine the additional fact that respondents owned the property, their right to
filing fee that should be paid by the subsoil of the same does not extend beyond what is
Plaintiff-Appellant IBRAHIM taking necessary to enable them to obtain all the utility and
into consideration the total amount of convenience that such property can normally give. In
damages sought in the complaint vis-- any case, petitioner asserts that respondents were still
75
able to use the subject property even with the existence and, consequently, require a definitive and categorical
of the tunnels, citing as an example the fact that one of classification, thus:
the respondents, Omar G. Maruhom, had established
his residence on a part of the property. Petitioner The Court of Appeals justified this by
concludes that the underground tunnels 115 meters saying there is no conflict of interest
below respondents property could not have caused between the owners of the surface
damage or prejudice to respondents and their claim to rights and the owners of the sub-
this effect was, therefore, purely conjectural and surface rights. This is rather strange
speculative.[7]
doctrine, for it is a well-known
principle that the owner of a piece of
The contention lacks merit. land has rights not only to its surface
but also to everything underneath and
Generally, in an appeal by certiorari under Rule 45 of the airspace above it up to a
the Rules of Court, the Court does not pass upon reasonable height. Under the aforesaid
questions of fact. Absent any showing that the trial and ruling, the land is classified as mineral
appellate courts gravely abused their discretion, the underneath and agricultural on the
Court will not examine the evidence introduced by the surface, subject to separate claims of
parties below to determine if they correctly assessed title. This is also difficult to
and evaluated the evidence on record. The [8]
understand, especially in its practical
jurisdiction of the Court in cases brought to it from the application.
CA is limited to reviewing and revising the errors of
law imputed to it, its findings of fact being as a rule Under the theory of the
conclusive and binding on the Court. respondent court, the surface owner
will be planting on the land while the
In the present case, petitioner failed to point to mining locator will be boring tunnels
any evidence demonstrating grave abuse of discretion underneath. The farmer cannot dig a
on the part of the CA or to any other circumstances well because he may interfere with the
which would call for the application of the exceptions mining operations below and the
to the above rule. Consequently, the CAs findings miner cannot blast a tunnel lest he
which upheld those of the trial court that respondents destroy the crops above. How deep
owned and possessed the property and that its substrata can the farmer, and how high can the
was possessed by petitioner since 1978 for the miner go without encroaching on each
underground tunnels, cannot be disturbed. Moreover, others rights? Where is the dividing
the Court sustains the finding of the lower courts that line between the surface and the sub-
the sub-terrain portion of the property similarly surface rights?
belongs to respondents. This conclusion is drawn from
Article 437 of the Civil Code which provides: The Court feels that the rights
over the land are indivisible and that the
ART. 437. The owner of a land itself cannot be half agricultural
parcel of land is the owner of its surface and half mineral. The classification
and of everything under it, and he can must be categorical; the land must be
construct thereon any works or make either completely mineral or completely
any plantations and excavations which agricultural.
he may deem proper, without detriment
to servitudes and subject to special laws
and ordinances. He cannot complain of Registered landowners may even be ousted of
the reasonable requirements of aerial ownership and possession of their properties in the
navigation. event the latter are reclassified as mineral lands
because real properties are characteristically
Thus, the ownership of land extends to the surface as indivisible. For the loss sustained by such owners, they
well as to the subsoil under it. In Republic of the are entitled to just compensation under the Mining
Philippines v. Court of Appeals, this principle was
[9]
Laws or in appropriate expropriation proceedings. [10]
tunnels in this case constitute an easement upon the computing the amount of just compensation in this
property of respondents which does not involve any action. The CA found that the award of damages is not
loss of title or possession. The manner in which the excessive because the P1000 per square meter as the
easement was created by petitioner, however, violates fair market value was sustained in a case involving a
the due process rights of respondents as it was without lot adjoining the property in question which case
notice and indemnity to them and did not go through involved an expropriation by [petitioner] of portion of
proper expropriation proceedings. Petitioner could Lot 1 of the subdivision plan (LRC) PSD 116159
have, at any time, validly exercised the power of which is adjacent to Lots 2 and 3 of the same
eminent domain to acquire the easement over subdivision plan which is the subject of the instant
respondents property as this power encompasses not controversy. [20]
instituted in court. The court must then see to it that sense when the owners are actually deprived or
the taking is for public use, that there is payment of dispossessed of their property, where there is a
just compensation and that there is due process of law. practical destruction or a material impairment of the
[16]
value of their property, or when they are deprived of
the ordinary use thereof. There is a taking in this
context when the expropriator enters private property
78
not only for a momentary period but for more complaint for expropriation. Hence,
permanent duration, for the purpose of devoting the many ruling of this Court have equated
property to a public use in such a manner as to oust the just compensation with the value of the
owner and deprive him of all beneficial enjoyment property as of the time of filing of the
thereof. Moreover, taking of the property for
[23]
complaint consistent with the above
purposes of eminent domain entails that the entry into provision of the Rules. So too, where
the property must be under warrant or color of legal the institution of the action precedes
authority.[24]
entry to the property, the just
Under the factual backdrop of this case, the last compensation is to be ascertained as of
element of taking mentioned, i.e., that the entry into the time of filing of the complaint.
the property is under warrant or color of legal
authority, is patently lacking. Petitioner justified its The general rule, however, admits of
nonpayment of the indemnity due respondents upon its an exception: where this Court fixed
mistaken belief that the property formed part of the the value of the property as of the
public dominion. date it was taken and not the date of
the commencement of the
This situation is on all fours with that in expropriation proceedings.
the Mangondato case. NAPOCOR in that case took the
property of therein respondents in 1979, using it to In the old case of Provincial
build its Aqua I Hydroelectric Plant Project, without Government of Rizal vs. Caro de
paying any compensation, allegedly under the Araullo, the Court ruled that x x x the
mistaken belief that it was public land. It was only in owners of the land have no right to
1990, after more than a decade of beneficial use, that recover damages for this unearned
NAPOCOR recognized therein respondents ownership increment resulting from the
and negotiated for the voluntary purchase of the construction of the public improvement
property. (lengthening of Taft Avenue from
Manila to Pasay) from which the land
In Mangondato, this Court held: was taken. To permit them to do so
would be to allow them to recover more
The First Issue: Date of Taking or Date than the value of the land at the time it
of Suit? was taken, which is the true measure of
the damages, or just compensation, and
The general rule in would discourage the construction of
determining just compensation in important public improvements.
eminent domain is the value of the
property as of the date of the filing of In subsequent cases, the Court,
the complaint, as follows: following the above doctrine,
invariably held that the time of
Sec. 4. Order of Condemnation. When taking is the critical date in
such a motion is overruled or when any determining lawful or just
party fails to defend as required by this compensation. Justifying this stance,
rule, the court may enter an order of Mr. Justice (later Chief Justice) Enrique
condemnation declaring that the Fernando, speaking for the
plaintiff has a lawful right to take the Court in Municipality of La Carlota vs.
property sought to be condemned, for The Spouses Felicidad Baltazar and
the public use or purpose described in Vicente Gan, said, x x x the owner as is
the complaint, upon the payment of just the constitutional intent, is paid what he
compensation to be determined as of is entitled to according to the value of
the date of the filing of the complaint. x the property so devoted to public use as
x x (Italics supplied). of the date of taking. From that time, he
had been deprived thereof. He had no
Normally, the time of the taking choice but to submit. He is not,
coincides with the filing of the however, to be despoiled of such a
79
right. No less than the fundamental law This Court has defined the elements of
guarantees just compensation. It would taking as the main ingredient in the
be injustice to him certainly if from exercise of power of eminent domain,
such a period, he could not recover the in the following words:
value of what was lost. There could be
on the other hand, injustice to the A number of circumstances must be
expropriator if by a delay in the present in taking of property for
collection, the increment in price purposes of eminent domain: (1) the
would accrue to the owner. The expropriator must enter a private
doctrine to which this Court has been property; (2) the entrance into private
committed is intended precisely to property must be for more than a
avoid either contingency fraught with momentary period; (3) the entry into
unfairness. the property should be under warrant
or color of legal authority; (4) the
Simply stated, the exception finds the property must be devoted to a public
application where the owner would use or otherwise informally
be given undue incremental appropriated or injuriously affected;
advantages arising from the use to and (5) the utilization of the property
which the government devotes the for public use must be in such a way to
property expropriated -- as for oust the owner and deprive him of all
instance, the extension of a main beneficial enjoyment of the property.
thoroughfare as was in the case in Caro (Italics supplied)
de Araullo. In the instant case,
however, it is difficult to conceive of In this case, the petitioners entrance in
how there could have been an extra- 1978 was without intent to expropriate
ordinary increase in the value of the or was not made under warrant or
owners land arising from the color of legal authority, for it believed
expropriation, as indeed the records the property was public land covered by
do not show any evidence that the Proclamation No. 1354. When the
valuation of P1,000.00 reached in private respondent raised his claim of
1992 was due to increments directly ownership sometime in 1979, the
caused by petitioners use of the petitioner flatly refused the claim for
land. Since the petitioner is claiming an compensation, nakedly insisted that the
exception to Rule 67, Section 4, it has property was public land and wrongly
the burden in proving its claim that its justified its possession by alleging it
occupancy and use -- not ordinary had already paid financial assistance
inflation and increase in land values -- to Marawi City in exchange for the
was the direct cause of the increase in rights over the property. Only in 1990,
valuation from 1978 to 1992. after more than a decade of beneficial
use, did the petitioner recognize private
respondents ownership and negotiate
Side Issue: When is there Taking of for the voluntary purchase of the
Property? property. A Deed of Sale with
provisional payment and subject to
But there is yet another cogent reason negotiations for the correct price was
why this petition should be denied and then executed. Clearly, this is not the
why the respondent Court should be intent nor the expropriation
sustained. An examination of the contemplated by law. This is a simple
undisputed factual environment would attempt at a voluntary purchase and
show that the taking was not really sale. Obviously, the petitioner neglected
made in 1978. and/or refused to exercise the power of
eminent domain.
80
Only in 1992, after the private plaintiff being agreeable to its sale, the
respondent sued to recover possession expropriation thereof, as sought by the
and petitioner filed its Complaint to defendant, is baseless. Expropriation
expropriate, did petitioner manifest its lies only when it is made necessary by
intention to exercise the power of the opposition of the owner to the sale
eminent domain. Thus the respondent or by the lack of any agreement as to
Court correctly held: the price. There being in the present
case a valid and subsisting contract,
If We decree that the fair market between the owner of the building and
value of the land be determined as of the city, for the purchase thereof at an
1978, then We would be sanctioning a agreed price, there is no reason for the
deceptive scheme whereby expropriation. (Italics supplied)
NAPOCOR, for any reason other
than for eminent domain would In the instant case, petitioner effectively
occupy anothers property and when repudiated the deed of sale it entered
later pressed for payment, first into with the private respondent when it
negotiate for a low price and then passed Resolution No. 92-121 on May
conveniently expropriate the 25, 1992 authorizing its president to
property when the land owner negotiate, inter alia, that payment shall
refuses to accept its offer claiming be effective only after Agus I HE
that the taking of the property for the project has been placed in operation. It
purpose of the eminent domain was only then that petitioners intent to
should be reckoned as of the date expropriate became manifest as private
when it started to occupy the respondent disagreed and, barely a
property and that the value of the month, filed suit.[25]
xxx N
achura,
xxx and
R
Commissioner Doromals report, eyes, JJ.
recommending P300.00 per square EAST WEST BANKING
meter, differs from the 2 commissioners CORPORATION, Promulgated:
only because his report was based on Respondent.
82
February 11, 2008 case. The trial court suspended the proceedings, and
x during the course of negotiations, a deed of
------------------------------------------------------------------ assignment dated August 16, 2000 was drafted by the
[3]
continuing obligations to respondent under the second consider the agreement as a compromise agreement,
deed of mortgage; and, e) the deed of assignment did there was no need for respondents signature on the
not have the effect of novating the original loan same, because with the delivery of the heavy
obligation. equipment which the latter accepted, the agreement
was consummated. Respondents approval may be
The issue for resolution is: Did the deed of inferred from its unqualified acceptance of the heavy
assignment which expressly provides that the transfer equipment.
and conveyance to respondent of the three units of
heavy equipment, and its acceptance thereof, shall Consent to contracts is manifested by the
be in full paymentof the petitioners total outstanding meeting of the offer and the acceptance of the thing
obligation to the latter operate to extinguish petitioners and the cause which are to constitute the contract; the
debt to respondent, such that the replevin suit could no offer must be certain and the acceptance absolute.
longer prosper? The acceptance of an offer must be made known to
[7]
the replevin suit as a collection case. A reading of the from that moment the parties are bound not only to the
original and amended complaints show that what the fulfillment of what has been expressly stipulated but
respondent initiated was a pure replevin suit, and not a also to all the consequences which, according to their
collection case. Recovery of the heavy equipment was nature, may be in keeping with good faith, usage and
the principal aim of the suit; payment of the total law. [9]
complaint for replevin should be dismissed, because On February 12, 2001, petitioners and
the chattel mortgage agreement upon which it is based respondent executed an Amendment to Amended Real
had been rendered ineffectual. Estate Mortgage consolidating their loans inclusive
[2]
86
of charges thereon which totaled P5,916,117.50. On unconscionable, and revolting to the conscience as
even date, the parties executed a Dacion in Payment they hardly allow any borrower any chance of survival
Agreement wherein
[3]
petitioners assigned the in case of default.
[10]
After pre-trial, the initial hearing of the case, By Decision of April 21, 2004, Branch 64 of
originally set on December 11, 2002, was reset several the Tarlac City RTC, finding on the basis of the
times due to, among other things, the parties efforts to pleadings that there was no pactum commissorium,
settle the case amicably. [15]
dismissed the complaint. [20]
Nevertheless, finding the error in nomenclature Both parties admit the execution and contents
to be mere semantics with no bearing on the merits of of the Memorandum of Agreement and Dacion in
the case, the Court of Appeals upheld the RTC
[24]
Payment.They differ, however, on whether both
decision that there was no pactum commissorium. [25]
contracts constitute pactum commissorium or dacion
en pago.
Their Motion for Reconsideration having [26]
the properties was by way of security, and not by way is proper if, while the pleadings on their face appear to
of satisfying the debt. The Dacion in Payment did
[34]
raise issues, the affidavits, depositions, and admissions
not extinguish petitioners obligation to respondent. On presented by the moving party show that such issues
the contrary, under the Memorandum of Agreement are not genuine. A genuine issue, as opposed to a
[47]
executed on the same day as the Dacion in Payment, fictitious or contrived one, is an issue of fact that
petitioners had to execute a promissory note requires the presentation of evidence. As mentioned
[48]
for P5,916,117.50 which they were to pay within one above, petitioners prayer for accounting requires the
year. [35]
presentation of evidence on the issue of partial
payment.
Respondent cites Solid Homes, Inc. v. Court of
Appeals where this Court upheld a Memorandum of
[36]
But neither is a judgment on the pleadings
Agreement/Dacion en Pago. That case did not
[37]
proper. A judgment on the pleadings may be rendered
involve the issue of pactum commissorium. [38]
only when an answer fails to tender an issue or
otherwise admits the material allegations of the
That the questioned contracts were freely and adverse partys pleadings. In the case at bar,
[49]
voluntarily executed by petitioners and respondent is respondents Answer with Counterclaim disputed
of no moment, pactum commissorium being void for petitioners claims that the Memorandum of Agreement
being prohibited by law. [39]
and Dation in Payment are illegal and that the extra
charges on the loans are unconscionable. Respondent
[50]
Respecting the charges on the loans, courts disputed too petitioners allegation of bad faith. [51]
3. The attorneys fees are reduced to The loans were payable within 12 months from the
25% of the principal amount only. execution of the promissory notes covering the
loans. As of 2000, respondents failed to settle their
Civil Case No. 9322 is REMANDED to the outstanding obligation, drawing them to verbally offer
court of origin only for the purpose of receiving to cede to Dao Heng one of the two mortgaged lots by
evidence on petitioners prayer for accounting. way of dacion en pago. To appraise the value of the
mortgaged lands, Dao Heng in fact commissioned an
SO ORDERED. appraiser whose fees were shouldered by it and
---- respondents.
NG BANK, INC., now G.R. No. 173856
DE ORO UNIVERSAL There appears to have been no further action taken by
Present: the parties after the appraisal of the properties.
QUISUMBING, J., Chairperson, Dao Heng was later to demand the settlement
CARPIO MORALES, of respondents obligation by letter of August 18,
TINGA, 2000 wherein it indicated that they had an outstanding
[1]
A and REYNALDO LAIGO, Promulgated: Dao Heng thereupon filed in September 2000 an
ts. application to foreclose the real estate mortgages
November 20, 2008 executed by respondents. The properties subject of the
mortgage were sold for P10,776,242 at a public
auction conducted on December 20, 2000 to Banco de
Oro Universal Bank (hereafter petitioner) which was
SECOND DIVISION the highest bidder.
4. Sometime in the middle of the year 2000, Even if a complaint states a cause of action,
defendant Dao Heng Bank as the however, a motion to dismiss for insufficiency of
creditor bank agreed to the full cause of action may be granted if the evidence
settlement of plaintiffs mortgage discloses facts sufficient to defeat the claim and
obligation of P9 Million through the enables the court to go beyond the disclosures in the
assignment of one of the two (2) complaint. In such instances, the court can dismiss a
mortgaged properties; complaint on this ground, even without a hearing, by
taking into account the discussions in said motion to
[5] As part of the agreement, defendant dismiss and the disposition thereto.
[10]
shall be delivered as full payment of the respondents allegation that it agreed to the settlement
mortgage obligation; Also as part of the of their obligation via the assignment of one of the
deal, plaintiffs for their part twomortgaged properties, alleged that there was no
paid P5,000.00 for the appraisal meeting of the minds thereon:
expense; As reported by the appraiser
commissioned by defendant Dao Heng, 4. Plaintiffs claim that defendant Dao
the appraised value of the mortgaged Heng Bank[s] foreclosure sale of the
properties were as follows: mortgaged properties was improper
because there was an agreement to
(a) Property No. 1 dacion one of the two (2) mortgaged
T.C.T. No. properties as full settlement of the loan
92257: P12,518,000. obligation and that defendant Dao Heng
00 Bank and Banco de Oro were already
L2A Blk 12 Don negotiating and colluding for the latters
Mariano Marcos acquisition of the mortgaged
Ave., Fairview, QC [properties] for the unsconscionably
low price of P10,776.242.00 are
(b) Property No. 2 clearly WITHOUT BASIS. Quite to
T.C.T. No. the contrary, there was no meeting of
146289: P8,055,000. the minds between defendant Dao Heng
00 L36 Blk 87 Bank and the plaintiffs to dacion any of
Regalado Ave. the mortgaged properties as full
Cor. Ipil settlement of the loan. Although there
St., Neopolitan, QC was a PROPOSAL and
NEGOTIATIONS to settle the loan by
[6] Sometime in December, year 2000, way of dacion, nothing came out of
the protest of plaintiffs notwithstanding said proposal, much less did the
and in blatant breach of the agreed negotiations mature into the execution
Dacion en Pago as the mode of full of a dacion en pago
payment of plaintiffs mortgage instrument. Defendant Dao Heng Bank
obligation, defendant Dao Heng Bank found the offer to settle by way of
proceeded to foreclose the mortgaged dacion not acceptable and thus, it opted
properties above-described and sold to foreclose on the mortgage.
said properties which were aggregately
valued at more than P20 Million for The law clearly provides that the debtor
only P10,776,242.00, an of a thing cannot compel the creditor to
unconscionably very low receive a different one, although the
price; (Underscoring supplied) latter may be of the same value, or
more valuable than that which is
due (Article 1244, New Civil
94
Code). The oblige is entitled to demand Being likened to that of a contract of sale, dacion en
fulfillment of the obligation or pago is governed by the law on sales. The partial
[15]
performance as stipulated (Palmares v. execution of a contract of sale takes the transaction out
Court of Appeals, 288 SCRA 422 at p. of the provisions of the Statute of Frauds so long as the
444 [1998]). The power to decide essential requisites of consent of the contracting
whether or not to foreclose on the parties, object and cause of the obligation concur and
mortgage is the sole prerogative of the are clearly established to be present. [16]
On 31 July 2009, the CA issued its assailed Decision, We reiterate our ruling in a line of cases that the
which affirmed the finding of the trial court. jurisdiction of this Court, in cases brought before it
According to the appellate court, petitioner could have from the CA, is limited to reviewing or revising errors
easily belied the existence of the pesadas and the of law.10 Factual findings of courts, when adopted and
purpose for which they were offered in evidence by confirmed by the CA, are final and conclusive on this
presenting his daughter Elena as witness; however, he Court except if unsupported by the evidence on
failed to do so. Thus, it gave credence to the testimony record.11 There is a question of fact when doubt arises
of respondent Guillermo in that the net proceeds from as to the truth or falsehood of facts; or when there is a
the copra deliveries were applied as installment need to calibrate the whole evidence, considering
payments for the loan.7 On 13 November 2009, the CA mainly the credibility of the witnesses and the
issued its assailed Resolution, which denied the probative weight thereof, the existence and relevancy
Motion for Reconsideration of petitioner. of specific surrounding circumstances, as well as their
relation to one another and to the whole, and the
Petitioner now assails before this Court the probability of the situation.12
aforementioned Decision and Resolution of the CA
and presents the following issues: Here, a finding of fact is required in the ascertainment
of the due execution and authenticity of the pesadas, as
Issues well as the determination of the true intention behind
the parties’ oral agreement on the application of the net
1. Whether the pesadas require authentication before proceeds from the copra deliveries as installment
they can be admitted in evidence, and payments for the loan.13 This function was already
exercised by the trial court and affirmed by the CA.
2. Whether the delivery of copra amounted to Below is a reproduction of the relevant portion of the
installment payments for the loan obtained by trial court’s Decision:
respondents from petitioner.
x x x The defendant further averred that if in the
Discussion receipts or "pesadas" issued by the plaintiff to those
who delivered copras to them there is a notation "pd"
As regards the first issue, petitioner asserts that the on the total amount of purchase price of the copras, it
pesadas should not have been admitted in evidence, means that said amount was actually paid or given by
since they were private documents that were not duly the plaintiff or his daughter Elena Tan Shuy to the
authenticated.8 He further contends that the pesadas seller of the copras. To prove his averments the
were fabricated in order to show that the goods defendant presented as evidence two (2) receipts or
delivered were copra and not corn. Finally, he argues pesadas issued by the plaintiff to a certain "Cariño"
97
(Exhibits "1" and "2" – defendant) showing the (a) By anyone who saw the document executed or
notation "pd" on the total amount of the purchase price written; or
for the copras. Such claim of the defendant was further
bolstered by the testimony of Apolinario Cariño which (b) By evidence of the genuineness of the signature or
affirmed that he also sell copras to the plaintiff Tan handwriting of the maker.
Shuy. He also added that he incurred indebtedness to
the plaintiff and whenever he delivered copras the Any other private document need only be identified as
amount of the copras sold were applied as payments to that which it is claimed to be. (21a)
his loan. The witness also pointed out that the plaintiff
did not give any official receipts to those who transact As reproduced above, the trial court found that the due
business with him (plaintiff). This Court gave weight execution and authenticity of the pesadas were
and credence to the documents receipts (pesadas) "established by the plaintiff’s daughter Elena Tan and
(Exhibits "3" to "64") offered as evidence by the sometimes by plaintiff’s son Vicente Tan." 16 The RTC
defendant which does not bear the notation "pd" or said:
paid on the total amount of the purchase price of
copras appearing therein. Although said "pesadas" On cross-examination, [Vicente] reiterated that he and
were private instrument their execution and her [sic] sister Elena Tan who acted as their cashier are
authenticity were established by the plaintiff’s helping their father in their business of buying copras
daughter Elena Tan and sometimes by plaintiff’s son and mais. That witness agreed that in the business of
Vicente Tan. x x x.14 (Emphasis supplied) buying copra and mais of their father, if a seller is
selling copra, a pesada is being issued by his sister.
In affirming the finding of the RTC, the CA reasoned The pesada that she is preparing consists of the date
thus: when the copra is being sold to the seller. Being
familiar with the penmanship of Elena Tan, the witness
In his last assigned error, plaintiff-appellant herein was shown a sample of the pesada issued by his sister
impugns the conclusion arrived at by the trial court, Elena Tan. x x x
particularly with respect to the giving of evidentiary
value to Exhs. "3" to "64" by the latter in order to xxx xxx xxx
prove the claim of defendant-appellee Guillermo that
he had fully paid the subject loan already. x x x. He clarified that in the "pesada" (Exh. "1")
prepared by Elena and also in Exh "2", there appears
The foregoing deserves scant consideration. on the lower right hand portion of the said pesadas the
letter "pd", the meaning of which is to the effect that
Here, plaintiff-appellant could have easily belied the the seller of the copra has already been paid during
existence of Exhs. "3" to "64", the pesadas or receipts, that day. He also confirmed the penmanship and
and the purposes for which they were offered in handwriting of his sister Ate Elena who acted as a
evidence by simply presenting his daughter, Elena Tan cashier in the pesada being shown to him. He was even
Shuy, but no effort to do so was actually done by the made to compare the xerox copies of the pesadas with
former given that scenario.15 (Emphasis supplied) the original copies presented to him and affirmed that
they are faithful reproduction of the
17
We found no clear showing that the trial court and the originals. (Emphasis supplied)
CA committed reversible errors of law in giving
credence and according weight to the pesadas In any event, petitioner is already estopped from
presented by respondents. According to Rule 132, questioning the due execution and authenticity of the
Section 20 of the Rules of Court, there are two ways of pesadas.1âwphi1 As found by the CA, Tan Shuy
proving the due execution and authenticity of a private "could have easily belied the existence of x x x the
document, to wit: pesadas or receipts, and the purposes for which they
were offered in evidence by simply presenting his
SEC. 20. Proof of private document. – Before any daughter, Elena Tan Shuy, but no effort to do so was
private document offered as authentic is received in actually done by the former given that scenario." The
evidence, its due execution and authenticity must be pesadas having been admitted in evidence, with
proved either: petitioner failing to timely object thereto, these
98
documents are already deemed sufficient proof of the bolstered by the testimony of Apolinario Cariño which
facts contained therein.18 We hereby uphold the factual affirmed that he also sell [sic] copras to the plaintiff
findings of the RTC, as affirmed by the CA, in that the Tan Shuy. He also added that he incurred indebtedness
pesadas served as proof that the net proceeds from the to the plaintiff and whenever he delivered copras the
copra deliveries were used as installment payments for amount of the copras sold were applied as payments to
the debts of respondents.19 his loan. The witness also pointed out that the plaintiff
did not give any official receipts to those who transact
Indeed, pursuant to Article 1232 of the Civil Code, an business with him (plaintiff). x x x
obligation is extinguished by payment or performance.
There is payment when there is delivery of money or Be that it may, this Court cannot however subscribe to
performance of an obligation.20 Article 1245 of the the averments of the defendant that he has fully paid
Civil Code provides for a special mode of payment the amount of his loan to the plaintiff from the
called dation in payment (dación en pago). There is proceeds of the copras he delivered to the plaintiff as
dation in payment when property is alienated to the shown in the "pesadas" (Exhibits "3" to "64").
creditor in satisfaction of a debt in money.21 Here, the Defendant claimed that based on the said "pesadas" he
debtor delivers and transmits to the creditor the has paid the total amount of P420,537.68 to the
former’s ownership over a thing as an accepted plaintiff. However, this Court keenly noted that some
equivalent of the payment or performance of an of the "pesadas" offered in evidence by the defendant
outstanding debt.22 In such cases, Article 1245 were not for copras that he delivered to the plaintiff
provides that the law on sales shall apply, since the but for "mais" (corn). The said pesadas for mais or
undertaking really partakes – in one sense – of the corn were the following, to wit:
nature of sale; that is, the creditor is really buying the
thing or property of the debtor, the payment for which xxx xxx xxx
is to be charged against the debtor’s obligation. 23
Dation in payment extinguishes the obligation to the To the mind of this Court the aforestated amount
extent of the value of the thing delivered, either as (P41,585.25) which the above listed pesadas show as
agreed upon by the parties or as may be proved, unless payment for mais or corn delivered by the defendant to
the parties by agreement – express or implied, or by the plaintiff cannot be claimed by the defendant to
their silence – consider the thing as equivalent to the have been applied also as payment to his loan with the
obligation, in which case the obligation is totally plaintiff because he does not testify on such fact. He
extinguished.24 even stressed during his testimony that it was the
proceeds from the copras that he delivered to the
The trial court found thus: plaintiff which will be applied as payments to his loan.
x x x Thus, equity dictates that the total amount of
x x x [T]he preponderance of evidence is on the side of P41,585.25 which corresponds to the payment for
the defendant. x x x The defendant explained that for "mais" (corn) delivered by the plaintiff shall be
the receipts (pesadas) from April 1998 to April 1999 deducted from the total amount of P420,537.68 which
he only gets the payments for trucking while the total according to the defendant based on the pesadas
amount which represent the total purchase price for the (Exhibits "3" to "64") that he presented as evidence, is
copras that he delivered to the plaintiff were all given the total amount of the payment that he made for his
to Elena Tan Shuy as installments for the loan he owed loan to the plaintiff. x x x
to plaintiff. The defendant further averred that if in the
receipts or "pesadas" issued by the plaintiff to those xxx xxx xxx
who delivered copras to them there is a notation "pd"
on the total amount of purchase price of the copras, it Clearly from the foregoing, since the total amount of
means that said amount was actually paid or given by defendant’s loan to the plaintiff is P420,000.00 and the
the plaintiff or his daughter Elena Tan Shuy to the evidence on record shows that the actual amount of
seller of the copras. To prove his averments the payment made by the defendant from the proceeds of
defendant presented as evidence two (2) receipts or the copras he delivered to the plaintiff is P378,952.43,
pesadas issued by the plaintiff to a certain "Cariño" the defendant is still indebted to the plaintiff in the
(Exhibits "1" and "2" – defendant) showing the amount of P41,047.53 (sic) (P420,000.00-
notation "pd" on the total amount of the purchase price 25
P378,952.43). (Emphasis supplied)
for the copras. Such claim of the defendant was further
99
In affirming this finding of fact by the trial court, the FAR EAST BANK AND TRUST COMPANY, INC.,
CA cited the above-quoted portion of the RTC’s now BANK OF THE PHILIPPINE
Decision and stated the following: ISLANDS, Respondent.
On February 23, 2006, the RTC issued the assailed While they acknowledged that bank deposits are
decision (a) finding the spouses Cortez, Grace and governed by the Civil Code provisions on loan, the
Dante liable for fraudulently diverting the amount due spouses Serfino allege that the provisions on voluntary
the spouses Serfino, but (b) absolving FEBTC from deposits should apply by analogy in this case,
any liability for allowing Grace to withdraw the particularly Article 1988 of the Civil Code, which
deposit. The RTC declared that FEBTC was not a states:
party to the compromise judgment; FEBTC was thus
not chargeable with notice of the parties’ agreement, as Article 1988. The thing deposited must be returned to
there was no valid court order or processes requiring it the depositor upon demand, even though a specified
to withhold payment of the deposit. Given the nature period or time for such return may have been fixed.
of bank deposits, FEBTC was primarily bound by its
contract of loan with Grace. There was, therefore, no This provision shall not apply when the thing is
legal justification for the bank to refuse payment of the judicially attached while in the depositary’s
account, notwithstanding the claim of the spouses possession, or should he have been notified of the
Serfino as stated in their three letters. opposition of a third person to the return or the
removal of the thing deposited. In these cases, the
THE PARTIES’ ARGUMENTS depositary must immediately inform the depositor of
the attachment or opposition.
101
Based on Article 1988 of the Civil Code, the We find no basis to support the spouses Serfino’s
depository is not obliged to return the thing to the claim of ownership of the deposit.
depositor if notified of a third party’s adverse claim.
"An assignment of credit is an agreement by virtue of
By allowing Grace to withdraw the deposit that is due which the owner of a credit, known as the assignor, by
them under the compromise judgment, the spouses a legal cause, such as sale, dation in payment,
Serfino claim that FEBTC committed an actionable exchange or donation, and without the consent of the
wrong that entitles them to the payment of actual debtor, transfers his credit and accessory rights to
and moral damages. another, known as the assignee, who acquires the
power to enforce it to the same extent as the assignor
FEBTC, on the other hand, insists on the correctness could enforce it against the debtor. It may be in the
of the RTC ruling. It claims that it is not bound by the form of sale, but at times it may constitute a dation in
compromise judgment, but only by its contract of loan payment, such as when a debtor, in order to obtain a
with its depositor. As a loan, the bank deposit is owned release from his debt, assigns to his creditor a credit
by the bank; hence, the spouses Serfino’s claim of he has against a third person."12 As a dation in
ownership over it is erroneous. payment, the assignment of credit operates as a
mode of extinguishing the obligation;13 the delivery
Based on these arguments, the case essentially and transmission of ownership of a thing (in this case,
involves a determination of the obligation of banks to the credit due from a third person) by the debtor to the
a third party who claims rights over a bank deposit creditor is accepted as the equivalent of the
standing in the name of another. performance of the obligation.14
THE COURT’S RULING The terms of the compromise judgment, however, did
not convey an intent to equate the assignment of
We find the petition unmeritorious and see no reason Magdalena’s retirement benefits (the credit) as the
to reverse the RTC’s ruling. equivalent of the payment of the debt due the spouses
Serfino (the obligation). There was actually no
Claim for actual damages not assignment of credit; if at all, the compromise
meritorious because there could be judgment merely identified the fund from which
no pecuniary loss that should be payment for the judgment debt would be sourced:
compensated if there was no
assignment of credit (c) That before the plaintiffs file a motion for
execution of the decision or order based [on this]
The spouses Serfino’s claim for damages against Compromise Agreement, the defendant, Magdalena
FEBTC is premised on their claim of ownership of the Cortez undertake[s] and bind[s] herself to pay in
deposit with FEBTC. The deposit consists of full the judgment debt out of her retirement
Magdalena’s retirement benefits, which the spouses benefits as Local [T]reasury Operation Officer in the
Serfino claim to have been assigned to them under the City of Bacolod, Philippines, upon which full
compromise judgment. That the retirement benefits payment, the plaintiffs waive, abandon and relinquish
were deposited in Grace’s savings account with absolutely any of their claims for attorney’s fees
FEBTC supposedly did not divest them of ownership stipulated in the Promissory Note (Annex "A" to the
of the amount, as "the money already belongs to the Complaint).15 [emphasis ours]
[spouses Serfino] having been absolutely assigned to
them and constructively delivered by virtue of the x x Only when Magdalena has received and turned over to
x public instrument[.]"11 By virtue of the assignment the spouses Serfino the portion of her retirement
of credit, the spouses Serfino claim ownership of the benefits corresponding to the debt due would the debt
deposit, and they posit that FEBTC was duty bound to be deemed paid.
protect their right by preventing the withdrawal of the
deposit since the bank had been notified of the In Aquitey v. Tibong,16 the issue raised was whether the
assignment and of their claim. obligation to pay the loan was extinguished by the
execution of the deeds of assignment. The Court ruled
in the affirmative, given that, in the deeds involved,
102
the respondent (the debtor) assigned to the petitioner Claim for moral damages not
(the creditor) her credits "to make good" the balance of meritorious because no duty exists
her obligation; the parties agreed to relieve the on the part of the bank to protect
respondent of her obligation to pay the balance of her interest of third person claiming
account, and for the petitioner to collect the same from deposit in the name of another
the respondent’s debtors.17 The Court concluded that
the respondent’s obligation to pay the balance of her Under Article 2219 of the Civil Code, moral damages
accounts with the petitioner was extinguished, pro are recoverable for acts referred to in Article 21 of the
tanto, by the deeds of assignment of credit executed by Civil Code.21 Article 21 of the Civil Code, in
the respondent in favor of the petitioner.18 conjunction with Article 19 of the Civil Code, is part
of the cause of action known in this jurisdiction as
In the present case, the judgment debt was not "abuse of rights." The elements of abuse of rights are:
extinguished by the mere designation in the (a) there is a legal right or duty; (b) exercised in bad
compromise judgment of Magdalena’s retirement faith; and (c) for the sole intent of prejudicing or
benefits as the fund from which payment shall be injuring another.1âwphi1
sourced. That the compromise agreement authorizes
recourse in case of default on other executable The spouses Serfino invoke American common law
properties of the spouses Cortez, to satisfy the that imposes a duty upon a bank receiving a notice
judgment debt, further supports our conclusion that of adverse claim to the fund in a depositor’s
there was no assignment of Magdalena’s credit with account to freeze the account for a reasonable
the GSIS that would have extinguished the obligation. length of time, sufficient to allow the adverse
claimant to institute legal proceedings to enforce
The compromise judgment in this case also did not his right to the fund.22 In other words, the bank has a
give the supposed assignees, the spouses Serfino, the duty not to release the deposits unreasonably early
power to enforce Magdalena’s credit against the GSIS. after a third party makes known his adverse claim to
In fact, the spouses Serfino are prohibited from the bank deposit. Acknowledging that no such duty is
enforcing their claim until after the lapse of one (1) imposed by law in this jurisdiction, the spouses
week from Magdalena’s receipt of her retirement Serfino ask the Court to adopt this foreign rule.23
benefits:
To adopt the foreign rule, however, goes beyond the
(d) That the plaintiffs shall refrain from having the power of this Court to promulgate rules governing
judgment based upon this Compromise Agreement pleading, practice and procedure in all courts. 24 The
executed until after one (1) week from receipt by the rule reflects a matter of policy that is better
defendant, Magdalena Cortez of her retirement addressed by the other branches of government,
benefits from the [GSIS] but fails to pay within the particularly, the Bangko Sentral ng Pilipinas, which is
said period the defendants’ judgment debt in this case, the agency that supervises the operations and activities
in which case [this] Compromise Agreement [may be] of banks, and which has the power to issue "rules of
executed upon any property of the defendants that are conduct or the establishment of standards of operation
subject to execution upon motion by the plaintiffs.19 for uniform application to all institutions or functions
covered[.]"25 To adopt this rule will have significant
An assignment of credit not only entitles the assignee implications on the banking industry and practices, as
to the credit itself, but also gives him the power to the American experience has shown. Recognizing that
enforce it as against the debtor of the assignor. the rule imposing duty on banks to freeze the deposit
upon notice of adverse claim adopts a policy adverse
Since no valid assignment of credit took place, the to the bank and its functions, and opens it to liability to
spouses Serfino cannot validly claim ownership of the both the depositor and the adverse claimant, 26 many
retirement benefits that were deposited with American states have since adopted adverse claim
FEBTC. Without ownership rights over the amount, statutes that shifted or, at least, equalized the burden.
they suffered no pecuniary loss that has to be Essentially, these statutes do not impose a duty on
compensated by actual damages. The grant of actual banks to freeze the deposit upon a mere notice of
damages presupposes that the claimant suffered a duly adverse claim; they first require either a court order or
proven pecuniary loss.20 an indemnity bond.27
103
In the absence of a law or a rule binding on the Court, On April 9, 1986, the appellees (the Julians) obtained a
it has no option but to uphold the existing policy that P60,000.00 loan from appellant Adelaida Pen. On May
recognizes the fiduciary nature of banking. It likewise 23, 1986 and on the (sic) May 27, 1986, they were
rejects the adoption of a judicially-imposed rule giving again extended loans in the amounts of P50,000.00
third parties with unverified claims against the deposit and P10,000.00, respectively by appellant Adelaida.
of another a better right over the deposit. As current The initial interests were deducted by appellant
laws provide, the bank’s contractual relations are with Adelaida, (1) P3,600.00 from the P60,000.00 loan; (2)
its depositor, not with the third party;28 "a bank is P2,400.00 from the P50,000.00 loan; and (3) P600.00
under obligation to treat the accounts of its depositors from the P10,000.00 loan. Two (2) promissory notes
with meticulous care and always to have in mind the were executed by the appellees in favor of appellant
fiduciary nature of its relationship with them." 29 In the Adelaida to evidence the foregoing loans, one dated
absence of any positive duty of the bank to an adverse April 9, 1986 and payable on June 15, 1986 for the
claimant, there could be no breach that entitles the P60,000.00 loan and another dated May 22, 1986
latter to moral damages. payable on July 22, 1986 for the P50,000.00 loan.
Both Joans were charged interest at 6% per month. As
WHEREFORE, in view of the foregoing, the petition security, on May 23, 1986, the appellees executed a
for review on certiorari is DENIED, and the decision Real Estate Mortgage over their property covered by
dated February 23, 2006 of the Regional Trial Court of TCT No. 327733 registered under the name of
Bacolod City, Branch 41, in Civil Case No. 95-9344 appellee Santos Julian, Jr. The owner's duplicate of
is AFFIRMED. Costs against the petitioners. TCT No. 327733 was delivered to the appellants.
It is notable that in reaching its conclusion that Linda's According to Article 1318 of the Civil Code, the
deed of sale had been executed simultaneously with requisites for any contract to be valid are,
the real estate mortgage, the CA first compared the namely: (a) the consent of the contracting parties;
unfilled deed of sale presented by Linda with the (b) the object; and (c) the consideration. There is a
notarized deed of sale adduced by Adelaida. The CA perfection of a contract when there is a meeting of the
justly deduced that the completion and execution of minds of the parties on each of these requisites.16 The
the deed of sale had been conditioned on the non- following passage has fittingly discussed the process
payment of the debt by Linda, and reasonably of perfection in Moreno, Jr. v. Private Management
pronounced that such circumstances rendered the Office:17
transaction pactum commissorium. The Court should
not disturb or undo the CA's conclusion in the absence To reach that moment of perfection, the parties must
of the clear showing of abuse, arbitrariness or agree on the same thing in the same sense, so that their
capriciousness on the part of the CA.10 minds meet as to all the terms. They must have a
distinct intention common to both and without doubt
The petitioners have theorized that their transaction or difference; until all understand alike, there can be
with the respondents was a valid dacion en pago by no assent, and therefore no contract. The minds of
highlighting that it was Linda who had offered to sell parties must meet at every point; nothing can be left
her property upon her default. Their theory cannot open for further arrangement. So long as there is any
stand scrutiny. Dacion en pago is in the nature of a uncertainty or indefiniteness, or future negotiations or
sale because property is alienated in favor of the considerations to be had between the parties, there is
creditor in satisfaction of a debt in money. 11 For a not a completed contract, and in fact, there is no
valid dacion en pago to transpire, however, the contract at all.18
attendance of the following elements must be
established, namely: (a) the existence of a money In a sale, the contract is perfected at the moment when
obligation; (b) the alienation to the creditor of a the seller obligates herself to deliver and to transfer
property by the debtor with the consent of the former; ownership of a thing or right to the buyer for a price
and (c) the satisfaction of the money obligation of the certain, as to which the latter agrees.19 The absence of
debtor.12 To have a valid dacion en pago, therefore, the the consideration from Linda's copy of the deed of sale
alienation of the property must fully extinguish the was credible proof of the lack of an essential requisite
debt. Yet, the debt of the respondents subsisted despite for the sale. In other words, the meeting of the minds
the transfer of the property in favor of Adelaida. of the parties so vital in the perfection of the contract
of sale did not transpire. And, even assuming that
The petitioners insist that the parties agreed that the Linda's leaving the consideration blank implied the
deed of sale would not yet contain the date and the authority of Adelaida to fill in that essential detail in
consideration because they had still to agree on the the deed of sale upon Linda's default on the loan, the
price.13 Their insistence is not supported by the conclusion of the CA that the deed of sale was
established circumstances. It appears that two days a pactum commisorium still holds, for, as earlier
after the loan fell due on October 15, 1986, 14 Linda mentioned, all the elements of pactum
offered to sell the mortgaged property;15 hence, the commisorium were present.
parties made the ocular inspection of the premises on
October 18, 1986. By that time, Adelaida had already Anent interest, the CA deleted the imposition of
become aware that the appraiser had valued the monetary interest but decreed compensatory interest of
property at P70,000.00. If that was so, there was no 12% per annum.
plausible reason for still leaving the consideration on
the deed of sale blank if the deed was drafted by Interest that is the compensation fixed by the parties
Adelaida on October 20, 1986, especially considering for the use or forbearance of money is referred to as
that they could have conveniently communicated with monetary interest.1âwphi1 On the other hand, interest
each other in the meanwhile on this significant aspect
107
that may be imposed by law or by the courts as penalty June 30, 2013, and 6% per annum from July 1, 2013
or indemnity for damages is called compensatory until full payment.
interest. In other words, the right to recover interest
arises only either by vi11ue of a contract or as Without pronouncement on costs of suit.
damages for delay or failure to pay the principal loan
on which the interest is demanded.20 SO ORDERED.
the prevailing jurisprudence. The rate of 12% per business under the name
annum imposed by the CA was the rate set in and style KEN MARKETING, Promulgated:
accordance with Eastern Shipping Lines, Inc., v. Court KEN APPLIANCE DIVISION,
of Appeals.22 In the meanwhile, Bangko Sentral ng INC. and BENJAMIN E. GO,
Pilipinas Monetary Board Resolution No. 796 dated Respondents. December 19, 2007
May 16, 2013, amending Section 2 of Circular No.
905, Series of 1982, and Circular No. 799, Series of
2013, has lowered to 6% per annum the legal rate of x-------------------------------------
interest for a loan or forbearance of money, goods or - - - - - - -- - - - - - - x
credit starting July 1, 2013. This revision is expressly
recognized in Nacar v. Gallery Frames.23 It should be DECISION
noted, however, that imposition of the legal rate of
interest at 6% per annum is prospective in application. CORONA, J.:
Accordingly, the legal rate of interest on the This petition for review on certiorari seeks to set
[1]
outstanding obligation of P43,492.15 as of June 28, aside the decision of the Court of Appeals (CA) in
[2]
1990, as the CA found, should be as follows: (a) from CA-G.R. SP No. 83112 and its resolution denying [3]
the time of demand on October 13, 1994 until June 30, reconsideration.
2013, the legal rate of interest was 12% per On October 7, 2001, respondents Ng Sheung
annum conformably with Eastern Shipping Ngor, Ken Appliance Division, Inc. and Benjamin E.
[4]
lines; and (b) following Nacar, from July 1, 2013 until Go filed an action for annulment and/or reformation of
full payment, the legal interest is 6% per annum. documents and contracts against petitioner Equitable
[5]
the MODIFICATION that the amount of P43,492.l5 Equitable induced them to avail of its peso and dollar
due from the respondents shall earn legal interest of credit facilities by offering low interest rates so they
[7]
12% per annum reckoned from October 13, 1994 until accepted Equitable's proposal and signed the bank's
108
pre-printed promissory notes on various dates [m]illion [p]esos as moral and
beginning 1996. They, however, were unaware that the exemplary damages;
documents contained identical escalation clauses
granting Equitable authority to increase interest rates E) Ordering [Equitable, Aimee
without their consent. [8]
Yu and Bejan Lionel Apas],
jointly and severally, to pay
Equitable, in its answer, asserted that respondents [respondents'] attorney's fees in
knowingly accepted all the terms and conditions the sum of P300,000; litigation
contained in the promissory notes. In fact, they [9]
expenses in the sum of P50,000
continuously availed of and benefited from Equitable's and the cost of suit;
credit facilities for five years. [10]
because the business reputation of respondents was 2) 8% per annum for the
(allegedly) severely damaged when Equitable froze dollar loans. The basis for
their accounts, the trial court awarded moral and
[16]
the payment of the dollar
exemplary damages to them. [17]
obligation is the conversion
rate of P26.50 per dollar
The dispositive portion of the February 5, 2004 RTC availed of at the time of
decision provided:
[18]
incurring of the obligation in
WHEREFORE, premises considered, accordance with Article
judgment is hereby rendered: 1250 of the Civil Code of
the Philippines;
A) Ordering [Equitable] to
reinstate and return the amount H) Dismissing [Equitable's]
of [respondents'] deposit placed counterclaim except the
on hold status; payment of the aforestated
unpaid principal loan
B) Ordering [Equitable] to pay obligations and interest.
[respondents] the sum of P12
[m]illion [p]esos as moral SO ORDERED. [19]
damages;
above-entitled case is DENIED due shopping because the bank filed its petition for
course. As of February 27, 2004, the certiorari in the CA several hours before withdrawing
Decision dated February 5, 2004, is its petition for relief in the RTC. Moreover, [38]
considered final and executory in so Equitable failed to disclose, both in the statement of
far as [Equitable, Aimee Yu and material dates and certificate of non-forum shopping
Bejan Lionel Apas] are concerned. (attached to its petition for certiorari in the CA), that it
(emphasis supplied)
[22]
had a pending petition for relief in the RTC. [39]
On March 24, 2004, the RTC issued an omnibus meritorious because the RTC committed grave abuse
order denying Equitable's motion for reconsideration of discretion in issuing the March 24, 2004 omnibus
for lack of merit and ordered the issuance of a writ
[25]
order which was based on an erroneous assumption.
of execution in favor of respondents. According to
[26]
The March 1, 2004 order denying its notice of appeal
the RTC, because respondents did not move for the for non payment of appeal fees was erroneous because
reconsideration of the previous order (denying due it had in fact paid the required fees. Thus, the RTC,
[43]
in order. [28]
S T
H R
O I
P A
P L
I
N C
G O
U
R
Forum shopping exists when two or more actions T
involving the same transactions, essential facts and
circumstances are filed and those actions raise C
identical issues, subject matter and causes of action. O
The test is whether, in two or more pending cases,
[45]
M
there is identity of parties, rights or causes of actions M
and reliefs.
[46]
I
T
Equitable's petition for relief in the RTC and its T
petition for certiorari in the CA did not have identical E
causes of action. The petition for relief from the denial D
of its notice of appeal was based on the RTCs
judgment or final order preventing it from taking an G
appeal by fraud, accident, mistake or excusable R
negligence. On the other hand, its petition for
[47]
A
certiorari in the CA, a special civil action, sought to V
correct the grave abuse of discretion amounting to lack E
of jurisdiction committed by the RTC. [48]
A
In a petition for relief, the judgment or final B
order is rendered by a court with competent U
jurisdiction. In a petition for certiorari, the order is S
rendered by a court without or in excess of its E
jurisdiction.
O
Moreover, Equitable substantially complied with the F
rule on non-forum shopping when it moved to
withdraw its petition for relief in the RTC on the same D
day (in fact just four hours and forty minutes after) it I
filed the petition for certiorari in the CA. Even if S
Equitable failed to disclose that it had a pending C
111
R 4
E
T O
I R
O D
N E
R
I S
N
Section 1, Rule 65 of the Rules of Court
I provides:
S
S Section 1. Petition for
U Certiorari. When any tribunal, board
I or officer exercising judicial or quasi-
N judicial function has acted without or
G in excess of its or his jurisdiction,
or with grave abuse of discretion
I amounting to lack or excess of
T jurisdiction, and there is no appeal,
S nor any plain, speedy or adequate
remedy in the ordinary course of law,
M a person aggrieved thereby may file a
A verified petition in the proper court,
R alleging the facts with certainty and
C praying that judgment be rendered
H annulling or modifying the proceedings
of such tribunal, board or officer, and
1 granting such incidental reliefs as law
, and justice may require.
Q
The March 1, 2004 and March 24, 2004 orders U
of the RTC were obviously intended to prevent E
Equitable, et al. from appealing the February 5, 2004 S
decision. Not only that. The execution of the decision T
was undertaken with indecent haste, effectively I
obviating or defeating Equitable's right to avail of O
possible legal remedies. No matter how we look at it, N
the RTC committed grave abuse of discretion in S
rendering those orders.
O
With regard to whether Equitable had a plain, speedy F
and adequate remedy in the ordinary course of law, we
hold that there was none. The RTC denied due course L
to its notice of appeal in the March 1, 2004 order. It A
affirmed that denial in the March 24, 2004 omnibus W
order. Hence, there was no way Equitable could have
possibly appealed the February 5, 2004 decision. [52]
I
Although Equitable filed a petition for relief from the N
March 24, 2004 order, that petition was not a plain,
speedy and adequate remedy in the ordinary course of I
law. A petition for relief under Rule 38 is an
[53]
T
equitable remedy allowed only in exceptional S
circumstances or where there is no other available or
adequate remedy. [54]
P
E
Thus, we grant Equitable's petition for certiorari and T
consequently give due course to its appeal. I
T
I
O
113
N E
F
O V
R A
L
R I
E D
V
I The RTC upheld the validity of the promissory
E notes despite respondents assertion that those
W documents were contracts of adhesion.
The jurisdiction of this Court in Rule 45 petitions is A contract of adhesion is a contract whereby almost all
limited to questions of law. There is a question of
[55]
of its provisions are drafted by one party. The [58]
law when the doubt or controversy concerns the participation of the other party is limited to affixing his
correct application of law or jurisprudence to a certain signature or his adhesion to the contract. For this
[59]
set of facts; or when the issue does not call for the reason, contracts of adhesion are strictly construed
probative value of the evidence presented, the truth or against the party who drafted it. [60]
That was not the case here. As the trial court noted, if
T the terms and conditions offered by Equitable had been
H truly prejudicial to respondents, they would have
E walked out and negotiated with another bank at the
first available instance. But they did not. Instead, they
P continuously availed of Equitable's credit facilities for
R five long years.
O
M While the RTC categorically found that respondents
I had outstanding dollar- and peso-denominated loans
S with Equitable, it, however, failed to ascertain the total
S amount due (principal, interest and penalties, if any) as
O of July 9, 2001. The trial court did not explain how it
R arrived at the amounts of US$228,200 and P1,000,000.
Y In Metro Manila Transit Corporation v. D.M.
[62]
W
E
R
114
I
T
Y
E
S O
C F
A
L C
A O
T N
I T
O R
N A
C
C T
L S
A
U Escalation clauses are not void per se. However, one
S which grants the creditor an unbridled right to adjust
E the interest independently and upwardly, completely
depriving the debtor of the right to assent to an
V important modification in the agreement is void.
I Clauses of that nature violate the principle of
O mutuality of contracts. Article 1308 of the Civil
[66] [67]
E
D For this reason, we have consistently held that a valid
escalation clause provides:
T
H 1. that the rate of interest will
E only be increased if the
applicable maximum rate of
P interest is increased by law or
R by the Monetary Board; and
I
N 2. that the stipulated rate of
C interest will be reduced if
I the applicable maximum rate of
P interest is reduced by law or by
L the Monetary Board (de-
E escalation clause). [69]
O
F The RTC found that Equitable's promissory notes
uniformly stated:
M
U If subject promissory note is extended,
T the interest for subsequent extensions
U shall be at such rate as shall be
A determined by the bank. [70]
L
115
Equitable dictated the interest rates if the term D
(or period for repayment) of the loan was extended. E
Respondents had no choice but to accept them. This F
was a violation of Article 1308 of the Civil Code. L
Furthermore, the assailed escalation clause did not A
contain the necessary provisions for validity, that is, it T
neither provided that the rate of interest would be I
increased only if allowed by law or the Monetary O
Board, nor allowed de-escalation. For these reasons, N
the escalation clause was void.
With regard to the proper rate of interest, in New Extraordinary inflation exists when there is an unusual
Sampaguita Builders v. Philippine National Bank we [71]
decrease in the purchasing power of currency (that is,
held that, because the escalation clause was annulled, beyond the common fluctuation in the value of
the principal amount of the loan was subject to the currency) and such decrease could not be reasonably
original or stipulated rate of interest. Upon maturity, foreseen or was manifestly beyond the contemplation
the amount due was subject to legal interest at the rate of the parties at the time of the obligation.
of 12% per annum. [72]
Extraordinary deflation, on the other hand, involves an
Consequently, respondents should pay Equitable the inverse situation.[73]
interest rates of 12.66% p.a. for their dollar- Article 1250 of the Civil Code provides:
denominated loans and 20% p.a. for their peso-
denominated loans from January 10, 2001 to July 9,
2001. Thereafter, Equitable was entitled to legal Article 1250. In case an extraordinary
interest of 12% p.a. on all amounts due. inflation or deflation of the currency
stipulated should intervene, the value
of the currency at the time of the
T establishment of the obligation shall
H be the basis of payment, unless there
E is an agreement to the contrary.
R
E
For extraordinary inflation (or deflation) to
W affect an obligation, the following requisites must be
A proven:
S 1. that there was an official
declaration of extraordinary
N inflation or deflation from the
O Bangko Sentral ng Pilipinas
(BSP); [74]
E
X 2. that the obligation was
T contractual in nature; and
[75]
R
A 3. that the parties expressly
O agreed to consider the effects
R of the extraordinary inflation or
D deflation. [76]
I
N
A Despite the devaluation of the peso, the BSP never
R declared a situation of extraordinary
Y inflation. Moreover, although the obligation in this
instance arose out of a contract, the parties did not
116
agree to recognize the effects of extraordinary inflation E
(or deflation). The RTC never mentioned that there
[77]
D
was a such stipulation either in the promissory note or B
loan agreement. Therefore, respondents should pay A
their dollar-denominated loans at the exchange rate S
fixed by the BSP on the date of maturity. [78]
I
S
A prove:
W
A
R 1. That he or she suffered
D besmirched reputation, or
physical, mental or
O psychological suffering
F sustained by the claimant;
M
P
L In culpa contractual or breach of contract,
A moral damages are recoverable only if the defendant
R acted fraudulently or in bad faith or in wanton
Y disregard of his contractual obligations. The breach [83]
C has the right to set-off the deposits in its hands for the
K payment of a depositor's indebtedness. [88]
117
2. ordering respondents Ng Sheung
Respondents indeed defaulted on their obligation. For Ngor, doing business under the name
this reason, Equitable had the option to exercise its and style of Ken Marketing, Ken
legal right to set-off or compensation. However, the Appliance Division, Inc. and Benjamin
RTC mistakenly (or, as it now appears, deliberately) E. Go to pay petitioner Equitable PCI
concluded that Equitable acted fraudulently or in bad Bank interest at:
faith or in wanton disregard of its contractual a) 12.66% p.a. with respect to
obligations despite the absence of proof. The their dollar-denominated loans
undeniable fact was that, whatever damage from January 10, 2001 to July 9,
respondents sustained was purely the consequence of 2001;
their failure to pay their loans. There was therefore b) 20% p.a. with respect to
absolutely no basis for the award of moral damages to their peso-denominated
them. loans from January 10, 2001 to
July 9, 2001; [91]
Neither was there reason to award exemplary damages. c) pursuant to our ruling
Since respondents were not entitled to moral damages, in Eastern Shipping Lines v.
neither should they be awarded exemplary damages. Court of Appeals, the total
[92]
This is a Petition for Review respondent that the former shall assess and collect
on Certiorari under Rule 45 of the Rules of Court, of Value Added Tax (VAT) on its monthly rentals. In
the Decision of the Court of Appeals (CA),
[1]
response, respondent contended that VAT may not be
dated September 3, 2001, in CA-G.R. CV No. 67784, imposed as the rentals fixed in the contract of lease
and its Resolution dated November 19, 2001. The
[2]
were supposed to include the VAT therein, considering
assailed Decision affirmed with modification the that their contract was executed on May 1, 1997 when
Decision of
[3]
the Regional Trial Court the VAT law had long been in effect. [8]
case the assessment should hereafter be No. 98-411 before the RTC of Makati.
increased or any new tax, charge or
burden be imposed by authorities on the On March 10, 1998, petitioners in turn filed an
lot and building where the leased action for ejectment, rescission and damages against
119
respondent for failure of the latter to vacate the The trial court denied petitioners their right to pass on
premises after the demand made by the former. to respondent the burden of paying the VAT since it
Before respondent could file an answer, petitioners
[11]
was not a new tax that would call for the application of
filed a Notice of Dismissal. They subsequently
[12]
the sixth clause of the contract. The court, likewise,
refiled the complaint before the Metropolitan Trial denied their right to collect the demanded increase in
Court of Makati; the case was raffled to Branch 139 rental, there being no extraordinary inflation or
and was docketed as Civil Case No. 53596. devaluation as provided for in the seventh clause of the
contract. Because of the payment made by respondent
Petitioners later moved for the dismissal of the of the rental adjustment demanded by petitioners, the
declaratory relief case for being an improper remedy court ordered the restitution by the latter to the former
considering that respondent was already in breach of of the amounts paid, notwithstanding the well-
the obligation and that the case would not end the established rule that in an action for declaratory relief,
litigation and settle the rights of the parties. The trial other than a declaration of rights and obligations,
court, however, was not persuaded, and consequently, affirmative reliefs are not sought by or awarded to the
denied the motion. parties.
Petitioners elevated the aforesaid case to the Court of
After trial on the merits, on May 9, 2000, the Appeals which affirmed with modification the RTC
RTC ruled in favor of respondent and against decision.The fallo reads:
petitioners. The pertinent portion of the decision reads:
WHEREFORE, premises considered,
WHEREFORE, premises the present appeal is DISMISSED and
considered, this Court renders judgment the appealed decision in Civil Case No.
on the case as follows: 98-411 is hereby AFFIRMED with
MODIFICATION in that the order for
1) declaring that plaintiff is not the return of the balance of the rental
liable for the payment of Value-Added deposits and of the amounts
Tax (VAT) of 10% of the rent for [the] representing the 10% VAT and rental
use of the leased premises; adjustment, is hereby DELETED.
person interested in a deed, will, contract or other declaratory relief should be dismissed in view of the
written instrument, executive order or resolution, to pendency of a separate action for unlawful
determine any question of construction or validity detainer. However, we cannot apply the same ruling to
arising from the instrument, executive order or the instant case. In Panganiban, the unlawful detainer
regulation, or statute, and for a declaration of his rights case had already been resolved by the trial court before
and duties thereunder. The only issue that may be the dismissal of the declaratory relief case; and it was
raised in such a petition is the question of construction petitioner in that case who insisted that the action for
or validity of provisions in an instrument or declaratory relief be preferred over the action for
statute. Corollary is the general rule that such an action unlawful detainer. Conversely, in the case at bench, the
must be justified, as no other adequate relief or remedy trial court had not yet resolved the rescission/ejectment
is available under the circumstances. [15]
case during the pendency of the declaratory relief
121
petition. In fact, the trial court, where the rescission denotes that it is directory in nature. It
case was on appeal, itself initiated the suspension of is generally permissive only and
the proceedings pending the resolution of the action for operates to confer discretion.In this
declaratory relief. case, despite the applicability of the
rule under Sec. 99 of the NIRC, as
We are not unmindful of the doctrine enunciated amended by R.A. 7716, granting the
in Teodoro, Jr. v. Mirasol where the declaratory relief
[18]
lessor the option to pass on to the lessee
action was dismissed because the issue therein could the 10% VAT, to existing contracts of
be threshed out in the unlawful detainer suit. Yet, lease as of January 1, 1996, the original
again, in that case, there was already a breach of lessor, Ponciano L. Almeda did not
contract at the time of the filing of the declaratory charge the lessee-appellee the 10% VAT
relief petition. This dissimilar factual milieu proscribes nor provided for its additional
the Court from applying Teodoro to the instant case. imposition when they renewed the
contract of lease in May 1997. More
Given all these attendant circumstances, the Court is significantly, said lessor did not
disposed to entertain the instant declaratory relief actually collect a 10% VAT on the
action instead of dismissing it, notwithstanding the monthly rental due from the lessee-
pendency of the ejectment/rescission case before the appellee after the execution of the May
trial court. The resolution of the present petition would 1997 contract of lease. The inevitable
write finis to the parties dispute, as it would settle once implication is that the lessor intended
and for all the question of the proper interpretation of not to avail of the option granted him
the two contractual stipulations subject of this by law to shift the 10% VAT upon the
controversy. lessee-appellee. x x x.[19]
Now, on the substantive law issues. In short, petitioners are estopped from shifting to
respondent the burden of paying the VAT.
Petitioners repeatedly made a demand on
respondent for the payment of VAT and for rental Petitioners reliance on the sixth condition of the
adjustment allegedly brought about by extraordinary contract is, likewise, unavailing. This provision clearly
inflation or devaluation. Both the trial court and the states that respondent can only be held liable for new
appellate court found no merit in petitioners claim. We taxes imposed after the effectivity of the contract of
see no reason to depart from such findings. lease, that is, after May 1997, and only if they pertain
to the lot and the building where the leased premises
As to the liability of respondent for the payment of are located.Considering that RA 7716 took effect in
VAT, we cite with approval the ratiocination of the 1994, the VAT cannot be considered as a new tax in
appellate court, viz.: May 1997, as to fall within the coverage of the sixth
stipulation.
Clearly, the person primarily liable for
the payment of VAT is the lessor who Neither can petitioners legitimately demand rental
may choose to pass it on to the lessee or adjustment because of extraordinary inflation or
absorb the same. Beginning January 1, devaluation.
1996, the lease of real property in the
ordinary course of business, whether Petitioners contend that Article 1250 of the
for commercial or residential use, when Civil Code does not apply to this case because the
the gross annual receipts contract stipulation speaks of extraordinary inflation or
exceed P500,000.00, is subject to 10% devaluation while the Code speaks of extraordinary
VAT. Notwithstanding the mandatory inflation or deflation. They insist that the doctrine
payment of the 10% VAT by the lessor, pronounced in Del Rosario v. The Shell Company,
the actual shifting of the said tax Phils. Limited should apply.
[20]
[E]xtraordinary inflation exists when To secure payment of the ₱6,000,000.00 loan, Central Surety
there is a decrease or increase in the executed in favor of Premiere Bank a Deed of Assignment with
Pledge4 covering Central Surety’s Membership Fee Certificate
purchasing power of the Philippine No. 217 representing its proprietary share in Wack Wack Golf
currency which is unusual or beyond the and Country Club Incorporated (Wack Wack Membership). In
both PN No. 714-Y and Deed of Assignment, Constancio T.
common fluctuation in the value of said Castañeda, Jr. and Engracio T. Castañeda, president and vice-
currency, and such increase or decrease president of Central Surety, respectively, represented Central
could not have been reasonably foreseen Surety and solidarily bound themselves to the payment of the
obligation.
or was manifestly beyond the
contemplation of the parties at the time Parenthetically, Central Surety had another commercial loan with
Premiere Bank in the amount of ₱40,898,000.00 maturing on
of the establishment of the obligation.
[24]
October 10, 2001. This loan was, likewise, evidenced by a PN
numbered 376-X5 and secured by a real estate mortgage over
123
Condominium Certificate of Title No. 8804, Makati City. PN No.
376-X was availed of through a renewal of Central Surety’s prior Kindly extend to us your favorable approval.
loan, then covered by PN No. 367-Z.6 As with the ₱6,000,000.00
loan and the constituted pledge over the Wack Wack Very truly yours,
Membership, the ₱40,898,000.00 loan with real estate mortgage
was transacted by Constancio and Engracio Castañeda on behalf (sgd.)
of Central Surety. ENGRACIO T. CASTANEDA
Vice-President8
It appears that on August 22, 2000, Premiere Bank sent a letter
to Central Surety demanding payment of the ₱6,000,000.00 Accordingly, by September 20, 2000, Central Surety issued Bank
loan, to wit: of Commerce (BC) Check No. 081149 dated September 22, 2000
in the amount of ₱6,000,000.00 and payable to Premiere Bank.
August 22, 2000 The check was received by Premiere Bank’s Senior Account
Manager, Evangeline Veloira, with the notation "full payment of
CENTRAL SURETY AND INSURANCE CO. loan-Wack Wack," as reflected in Central Surety’s Disbursement
2nd Floor Universalre Bldg. Voucher.10 However, for undisclosed reasons, Premiere Bank
No. 106 Paseo de Roxas, Legaspi Village returned BC Check No. 08114 to Central Surety, and in its letter
Makati City dated September 28, 2000, demanded from the latter, not just
payment of the ₱6,000,000.00 loan, but also the ₱40,898,000.00
Attention: Mr. Constancio T. Castaneda, Jr. loan which was originally covered by PN No. 367-Z.11 In the
President same letter, Premiere Bank threatened foreclosure of the loans’
respective securities, the pledge and real estate mortgage,
Mr. Engracio T. Castaneda should Central Surety fail to pay these within ten days from date,
Vice President thus:
-------------------------------------------------
Gentlemen: 28 September 2000
This has reference to your overdue loan of ₱6.0 Million.
CENTRAL SURETY & INSURANCE CO.
We regret to inform you that despite efforts to restructure the By: Constancio T. Castañeda Jr. – President
same, you have failed up to this time, to submit the required Engracio T. Castañeda – Vice President
documents and come up with equity necessary to implement the 2nd Floor Universalre Bldg. No. 106
restructuring scheme. Paseo de Roxas, Legaspi Village, Makati City
In view thereof, we regret that unless the above loan is settled RE: YOUR COMMERCIAL LOAN OF ₱40,898,000.00 &
on or before five (5) days from the date hereof, we shall exercise ₱6,000,000.00 WITH PREMIERE DEVELOPMENT BANK
our option to have the Stock Certificate No. 217 with Serial No. UNDER ACCOUNT NOS. COM-367-Z AND COM 714-Y
1793 duly issued by Wack Wack Golf and Country Club, Inc.
transferred in the name of Premiere Development Bank in **************************************************
accordance with the terms and conditions of the Deed of
Assignment with Pledge executed in favor of Premiere Dear Sirs:
Development Bank.
We write on behalf of our client, Premiere Development Bank, in
We shall appreciate your prompt compliance. connection with your above-captioned loan account.
Very truly yours, While our client has given you all the concessions, facilities and
opportunities to service your loans, we regret to inform you that
(sgd.) you have failed to settle the same despite their past due status.
IGNACIO R. NEBRIDA, JR.
Senior Asst. Vice President/ In view of the foregoing and to protect the interest of our client,
Business Development Group - Head7 please be advised that unless the outstanding balances of your
loan accounts as of date plus interest, penalties and other fees
Posthaste, Central Surety responded and sent the following letter and charges are paid in full or necessary arrangements
dated August 24, 2000: acceptable to our client is made by you within ten (10) days from
date hereof, we shall be constrained much to our regret, to file
24 August 2000 foreclosure proceedings against the collateral of the loan
mortgaged to the Bank or pursue such action necessary in the
Mr. Ignacio R. Nebrida, Jr. premises.
Senior Asst. Vice President/
Business Development Group – Head We trust, therefore, that you will give this matter your
Premiere Bank preferential attention.
EDSA cor. Magallanes Avenue
Makati City Very truly yours,
Sir: (sgd.)
PACITA M. ARAOS12
With reference to this 6.0 Million loan account, we have informed (italics supplied)
Ms. Evangeline Veloira that we are intending to settle the
account by the end of September. As of 14 August 2000 we The very next day, on September 29, 2000, Central Surety,
made payment to your bank as per receipt attached. through its counsel, wrote Premiere Bank and re-tendered
payment of the check:
As you may know, present conditions have been difficult for the
insurance industry whose performance is so closely linked to the 29 September 2000
nation’s economic prosperity; and we are now asking for some
consideration and leeway on your very stiff and immediate PREMIERE BANK
demands. EDSA cor. Magallanes Avenue
124
Makati City
4) Account No.: COM 714-Y ₱1,619,187.22
Attention: Mr. Ignacio R. Nebrida, Jr.
Senior Asst. Vice President/ TOTAL ₱8,600,000.00
Business Development Group – Head
We are enclosing Xerox copy each of four (4) official receipts
Re : Promissory Note No. 714-Y covering the above payments. The originals are with us which
your clients or their duly authorized representative may pick-up
Sir: anytime during office hours.
This is further to our client’s letter to you dated 24 August 2000, We shall appreciate the settlement in full of the accounts of your
informing you that it would settle its account by the end of client or necessary arrangements for settlement thereof be made
September 2000. as soon as possible to put the accounts on up to-date status.
3. Corollarily, whether the release of the Wack Wack Membership 5) when there is an agreement as to the debts which are to be
pledge is in order. paid first, the debtor cannot vary this agreement.26
The debtor’s right to apply payment is not mandatory. This is In case I/We have several obligations with [Premiere Bank],
clear from the use of the word "may" rather than the word I/We hereby empower [Premiere Bank] to apply without notice
"shall" in the provision which reads: "He who has various debts and in any manner it sees fit, any or all of my/our deposits and
of the same kind in favor of one and the same creditor, may payments to any of my/our obligations whether due or not. Any
declare at the time of making the payment, to which of the same such application of deposits or payments shall be conclusive and
must be applied." binding upon us.
Indeed, the debtor’s right to apply payment has been considered This proviso is representative of all the other Promissory Notes
merely directory, and not mandatory,21 following this Court’s involved in this case. It is in the exercise of this express
earlier pronouncement that "the ordinary acceptation of the authority under the Promissory Notes, and following Bangko
terms ‘may’ and ‘shall’ may be resorted to as guides in Sentral ng Pilipinas Regulations, that Premiere Bank applied
ascertaining the mandatory or directory character of statutory payments made by Central Surety, as it deemed fit, to the
provisions."22 several debts of the latter.
Article 1252 gives the right to the debtor to choose to which of All debts were due; There was no
several obligations to apply a particular payment that he tenders waiver on the part of petitioner
to the creditor. But likewise granted in the same provision is the
right of the creditor to apply such payment in case the debtor Undoubtedly, at the time of conflict between the parties material
fails to direct its application. This is obvious in Art. 1252, par. 2, to this case, Promissory Note No. 714-Y dated August 20, 1999,
viz.: "If the debtor accepts from the creditor a receipt in which in the amount of ₱6,000,000.00 and secured by the pledge of
an application of payment is made, the former cannot complain the Wack Wack Membership, was past the due and demand
of the same." It is the directory nature of this right and the stage. By its terms, Premiere Bank was entitled to declare said
subsidiary right of the creditor to apply payments when the Note and all sums payable thereunder immediately due and
debtor does not elect to do so that make this right, like any other payable, without need of "presentment, demand, protest or
right, waivable. notice of any kind." The subsequent demand made by Premiere
Bank was, therefore, merely a superfluity, which cannot be
Rights may be waived, unless the waiver is contrary to law, equated with a waiver of the right to demand payment of all the
public order, public policy, morals or good customs, or prejudicial matured obligations of Central Surety to Premiere Bank.
to a third person with a right recognized by law.23
Moreover, this Court may take judicial notice that the standard
A debtor, in making a voluntary payment, may at the time of practice in commercial transactions to send demand letters has
payment direct an application of it to whatever account he become part and parcel of every collection effort, especially in
chooses, unless he has assigned or waived that right. If the light of the legal requirement that demand is a prerequisite
debtor does not do so, the right passes to the creditor, who may before default may set in, subject to certain well-known
make such application as he chooses. But if neither party has exceptions, including the situation where the law or the
exercised its option, the court will apply the payment according obligations expressly declare it unnecessary.28
to the justice and equity of the case, taking into consideration all
its circumstances.24 Neither can it be said that Premiere Bank waived its right to
apply payments when it specifically demanded payment of the
Verily, the debtor’s right to apply payment can be waived and ₱6,000,000.00 loan under Promissory Note No. 714-Y. It is an
even granted to the creditor if the debtor so agrees.25 This was elementary rule that the existence of a waiver must be positively
demonstrated since a waiver by implication is not normally
127
countenanced. The norm is that a waiver must not only be
voluntary, but must have been made knowingly, intelligently, Atty. Opinion: Q. But you accepted this payment of Six Million
and with sufficient awareness of the relevant circumstances and (₱6,000,000.00) later on when together with this was paid
likely consequences. There must be persuasive evidence to show another check for 1.8 Million?
an actual intention to relinquish the right. Mere silence on the
part of the holder of the right should not be construed as a Witness: A. We accepted.
surrender thereof; the courts must indulge every reasonable
presumption against the existence and validity of such waiver.29 Atty. Opinion: Q. And you applied this to four (4) other accounts
three (3) other accounts or to four (4) accounts mentioned in
Besides, in this case, any inference of a waiver of Premiere Exhibit "J." Is that correct?
Bank’s, as creditor, right to apply payments is eschewed by the
express provision of the Promissory Note that: "no failure on the Atty. Tagalog: We can stipulate on that. Your Honor.
part of [Premiere Bank] to exercise, and no delay in exercising
any right hereunder, shall operate as a waiver thereof." Court: This was stipulated?
Thus, we find it unnecessary to rule on the applicability of the Atty. Tagalog: Yes, Your Honor. In fact, there is already
equitable principle of waiver that the Court of Appeals ascribed to stipulation that we confirm that those are the applications of
the demand made by Premiere Bank upon Central Surety to pay payments made by the defendant Bank on those loan accounts.
the amount of ₱6,000,000.00, in the face of both the express
provisions of the law and the agreements entered into by the Atty. Opinion: Q. Were these accounts due already when you
parties. After all, a diligent creditor should not needlessly be made this application, distribution of payments?
interfered with in the prosecution of his legal remedies.30
Witness: A. Yes sir.35
When Central Surety directed the application of its payment to a
specific debt, it knew it had another debt with Premiere Bank, Conversely, in its evidence-in-chief, Central Surety did not
that covered by Promissory Note 367-Z, which had been renewed present any witness to testify on the payment of its obligations.
under Promissory Note 376-X, in the amount of ₱40.898 Million. In fact, the record shows that after marking its evidence, Central
Central Surety is aware that Promissory Note 367-Z (or 376-X) Surety proceeded to offer its evidence immediately. Only on the
contains the same provision as in Promissory Note No 714-Y rebuttal stage did Central Surety present a witness; but even
which grants the Premiere Bank authority to apply payments then, no evidence was adduced of payment of any other
made by Central Surety, viz.: obligation. In this light, the Court is constrained to rule that all
obligations of Central Surety to Premiere Bank were due; and
In case I/We have several obligations with [Premiere Bank], thus, the application of payments was warranted.
I/We hereby empower [Premiere Bank] to apply without notice
and in any manner it sees fit, any or all of my/our deposits and Being in receipt of amounts tendered by Central Surety, which
payments to any of my/our obligations whether due or not. Any were insufficient to cover its more onerous obligations, Premiere
such application of deposits or payments shall be conclusive and Bank cannot be faulted for exercising the authority granted to it
binding upon us.31 under the Promissory Notes, and applying payment to the
obligations as it deemed fit. Subject to the caveat that our ruling
Obviously, Central Surety is also cognizant that Promissory Note herein shall be limited only to the transactions entered into by
367-Z contains the proviso that: the parties to this case, the Court will not disturb the finding of
the lower court that Premiere Bank rightly applied the payments
the bank shall be entitled to declare this Note and all sums that Central Surety had tendered. Corollary thereto, and upon
payable hereunder to be immediately due and payable, without the second issue, the tender of the amount of ₱6,000,000.00 by
need of presentment, demand, protest or notice of nay kind, all Central Surety, and the encashment of BC Check No. 08114 did
of which I/We hereby expressly waive, upon occurrence of any of not totally extinguish the debt covered by PN No. 714-Y.
the following events: x x x (ii) My/Our failure to pay any
amortization or installment due hereunder; (iii) My/Our failure to Release of the pledged
pay money due under any other document or agreement
evidencing obligations for borrowed money x x x.32 Wack Wack Membership
by virtue of which, it follows that the obligation under Promissory Contract of Adhesion
Note 367-Z had become past due and demandable, with further
notice expressly waived, when Central Surety defaulted on its To the extent that the subject promissory notes were prepared
obligations under Promissory Note No. 714-Y. by the Premiere Bank and presented to Central Surety for
signature, these agreements were, indeed, contracts of
Mendoza v. Court of Appeals33 forecloses any doubt that an adhesion. But contracts of adhesion are not invalid per se.
acceleration clause is valid and produces legal effects. In fact, in Contracts of adhesion, where one party imposes a ready-made
Selegna Management and Development Corporation v. United form of contract on the other, are not entirely prohibited. The
Coconut Planters Bank,34 we held that: one who adheres to the contract is, in reality, free to reject it
entirely; if he adheres, he gives his consent.
Considering that the contract is the law between the parties,
respondent is justified in invoking the acceleration clause In interpreting such contracts, however, courts are expected to
declaring the entire obligation immediately due and payable. observe greater vigilance in order to shield the unwary or weaker
That clause obliged petitioners to pay the entire loan on January party from deceptive schemes contained in ready-made
29, 1999, the date fixed by respondent. covenants.36 Thus, Article 24 of the Civil Code pertinently
states:
It is worth noting that after the delayed payment of
₱6,000,000.00 was tendered by Central Surety, Premiere Bank In all contractual, property or other relations, when one of the
returned the amount as insufficient, ostensibly because there parties is at a disadvantage on account of his moral dependence,
was, at least, another account that was likewise due. Obviously, ignorance, indigence, mental weakness, tender age or other
in its demand of 28 September 2000, petitioner sought payment, handicap, the courts must be vigilant for his protection.
not just of the ₱6,000,000.00, but of all these past due accounts.
There is extant testimony to support this claim, as the transcript
of stenographic notes on the testimony of Atty. Araos reveals:
128
But in this case, Central Surety does not appear so weak as to be
placed at a distinct disadvantage vis-à-vis the bank. As found by
the lower court:
August 20, 1999 PN 714-Y ₱ 6 M
Considering that [Central Surety] is a known business entity, the
[Premiere Bank] was right in assuming that the [Central Surety]
could not have been cheated or misled in agreeing thereto, it
could have negotiated with the bank on a more favorable term
considering that it has already established a certain reputation August 29, 1999 Deed of Assignment with Pledge ₱ 15 M
with the [Premiere Bank] as evidenced by its numerous As security for PN 714-Y and/or such Promissory Note/s
transactions. It is therefore absurd that an established company which the ASSIGNOR / PLEDGOR shall hereafter execute in favor
such as the [Central Surety] has no knowledge of the law of the ASSIGNEE/PLEDGEE
regarding bank practice in loan transactions.
A tally of the facts shows the following transactions between October 10, 2000 Promissory Note 376-X (PN 367-Z)
Premiere Bank and Central Surety: ₱40,898,000.00
From the foregoing, it is more than apparent that when, on
Date Instrument Amount covered Stipulation August 29, 1999, the parties executed the Deed of Assignment
with Pledge (of the Wack Wack Membership), to serve as security
for an obligation in the amount of ₱15,000,000.00 (when the
August 20, 1999 PN 714-Y
actual loan covered by PN No. 714-Y was only ₱6,000,000.00),
P6M
the intent of the parties was for the Wack Wack Membership to
serve as security also for future advancements. The subsequent
August 29, 1999 Deed of Assignment with Pledge ₱ 15 M loan was nothing more than a fulfillment of the intention of the
As security for PN 714-Y and/or such Promissory Note/s parties. Of course, because the subsequent loan was for a much
which the ASSIGNOR / PLEDGOR shall hereafter execute in favor greater amount (₱40,898,000.00), it became necessary to put up
of the ASSIGNEE/PLEDGEE another security, in addition to the Wack Wack Membership.
From these transactions and the proviso in the Deed of Thus, the subsequent surety agreement and the specific security
Assignment with Pledge, it is clear that the security, which for PN No. 367-X were, like the Wack Wack Membership, meant
peculiarly specified an amount at ₱15,000,000.00 (notably to secure the ballooning debt of the Central Surety.
greater than the amount of the promissory note it secured), was
intended to guarantee not just the obligation under PN 714-Y, The above-quoted provision in the Deed of Assignment, also
but also future advances. Thus, the said deed is explicit: known as the "dragnet clause" in American jurisprudence, would
subsume all debts of respondent of past and future origins. It is
As security for the payment of loan obtained by the a valid and legal undertaking, and the amounts specified as
ASSIGNOR/PLEDGOR from the ASSIGNEE/PLEDGEE in the consideration in the contracts do not limit the amount for which
amount of FIFTEEN MILLION PESOS (15,000,000.00) Philippine the pledge or mortgage stands as security, if from the four
Currency in accordance with the Promissory Note attached hereto corners of the instrument, the intent to secure future and other
and made an integral part hereof as Annex "A" and/or such indebtedness can be gathered. A pledge or mortgage given to
Promissory Note/s which the ASSIGNOR/PLEDGOR shall hereafter secure future advancements is a continuing security and is not
execute in favor of the ASSIGNEE/PLEDGEE, the discharged by the repayment of the amount named in the
ASSIGNOR/PLEDGOR hereby transfers, assigns, conveys, mortgage until the full amount of all advancements shall have
endorses, encumbers and delivers by way of first pledge unto the been paid.37
ASSIGNEE/PLEDGEE, its successors and assigns, that certain
Membership fee Certificate Share in Wack Wack Golf and Country Our ruling in Prudential Bank v. Alviar38 is instructive:
Club Incorporate covered by Stock Certificate No. 217 with Serial
No. 1793 duly issue by Wack Wack Golf and Country Club A "blanket mortgage clause," also known as a "dragnet clause" in
Incorporated on August 27, 1996 in the name of the ASSIGNOR." American jurisprudence, is one which is specifically phrased to
(Emphasis made in the Petition.) subsume all debts of past or future origins. Such clauses are
"carefully scrutinized and strictly construed." Mortgages of this
Then, a Continuing Guaranty/Comprehensive Surety Agreement character enable the parties to provide continuous dealings, the
was later executed by Central Surety as follows: nature or extent of which may not be known or anticipated at the
time, and they avoid the expense and inconvenience of executing
Date Instrument Amount Stipulation a new security on each new transaction. A "dragnet clause"
Notarized, Sept. 22, 1999Continuing Guaranty/Comprehensive operates as a convenience and accommodation to the borrowers
Surety Agreement ₱40,898,000.00 In consideration of the as it makes available additional funds without their having to
loan and/or any credit accommodation which you (petitioner) execute additional security documents, thereby saving time,
have extended and/or will extend to Central Surety and travel, loan closing costs, costs of extra legal services, recording
Insurance Co. fees, et cetera. Indeed, it has been settled in a long line of
And on October 10, 2000, Promissory Note 376-X was entered decisions that mortgages given to secure future advancements
into, a renewal of the prior Promissory Note 367-Z, in the are valid and legal contracts, and the amounts named as
amount of ₱40,898,000.00. In all, the transactions that consideration in said contracts do not limit the amount for which
transpired between Premiere Bank and Central Surety manifest the mortgage may stand as security if from the four corners of
themselves, thusly: the instrument the intent to secure future and other
indebtedness can be gathered.
Date Instrument Amount covered Stipulation
The "blanket mortgage clause" in the instant case states:
129
first security instrument, and that when the lender accepted a
That for and in consideration of certain loans, overdraft and other different security he did not accept the offer.
credit accommodations obtained from the Mortgagee by the
Mortgagor and/or ________________ hereinafter referred to, In another case, it was held that a mortgage with a "dragnet
irrespective of number, as DEBTOR, and to secure the payment clause" is an "offer" by the mortgagor to the bank to provide the
of the same and those that may hereafter be obtained, the security of the mortgage for advances of and when they were
principal or all of which is hereby fixed at Two Hundred Fifty made. Thus, it was concluded that the "offer" was not accepted
Thousand (₱250,000.00) Pesos, Philippine Currency, as well as by the bank when a subsequent advance was made because (1)
those that the Mortgagee may extend to the Mortgagor and/or the second note was secured by a chattel mortgage on certain
DEBTOR, including interest and expenses or any other obligation vehicles, and the clause therein stated that the note was secured
owing to the Mortgagee, whether direct or indirect, principal or by such chattel mortgage; (2) there was no reference in the
secondary as appears in the accounts, books and records of the second note or chattel mortgage indicating a connection between
Mortgagee, the Mortgagor does hereby transfer and convey by the real estate mortgage and the advance; (3) the mortgagor
way of mortgage unto the Mortgagee, its successors or assigns, signed the real estate mortgage by her name alone, whereas the
the parcels of land which are described in the list inserted on the second note and chattel mortgage were signed by the mortgagor
back of this document, and/or appended hereto, together with all doing business under an assumed name; and (4) there was no
the buildings and improvements now existing or which may allegation by the bank, and apparently no proof, that it relied on
hereafter be erected or constructed thereon, of which the the security of the real estate mortgage in making the advance.
Mortgagor declares that he/it is the absolute owner free from all
liens and incumbrances. . . . Indeed, in some instances, it has been held that in the absence
of clear, supportive evidence of a contrary intention, a mortgage
xxxx containing a "dragnet clause" will not be extended to cover
future advances unless the document evidencing the subsequent
In the case at bar, the subsequent loans obtained by advance refers to the mortgage as providing security therefor.
respondents were secured by other securities, thus: PN
BD#76/C-345, executed by Don Alviar was secured by a "hold- It was therefore improper for petitioner in this case to seek
out" on his foreign currency savings account, while PN BD#76/C- foreclosure of the mortgaged property because of non-payment
430, executed by respondents for Donalco Trading, Inc., was of all the three promissory notes. While the existence and
secured by "Clean-Phase out TOD CA 3923" and eventually by a validity of the "dragnet clause" cannot be denied, there is a need
deed of assignment on two promissory notes executed by to respect the existence of the other security given for PN
Bancom Realty Corporation with Deed of Guarantee in favor of BD#76/C-345. The foreclosure of the mortgaged property should
A.U. Valencia and Co., and by a chattel mortgage on various only be for the ₱250,000.00 loan covered by PN BD#75/C-252,
heavy and transportation equipment. The matter of PN and for any amount not covered by the security for the second
BD#76/C-430 has already been discussed. Thus, the critical promissory note. As held in one case, where deeds absolute in
issue is whether the "blanket mortgage" clause applies even to form were executed to secure any and all kinds of indebtedness
subsequent advancements for which other securities were that might subsequently become due, a balance due on a note,
intended, or particularly, to PN BD#76/C-345. after exhausting the special security given for the payment of
such note, was in the absence of a special agreement to the
Under American jurisprudence, two schools of thought have contrary, within the protection of the mortgage, notwithstanding
emerged on this question. One school advocates that a "dragnet the giving of the special security. This is recognition that while
clause" so worded as to be broad enough to cover all other debts the "dragnet clause" subsists, the security specifically executed
in addition to the one specifically secured will be construed to for subsequent loans must first be exhausted before the
cover a different debt, although such other debt is secured by mortgaged property can be resorted to.
another mortgage. The contrary thinking maintains that a
mortgage with such a clause will not secure a note that The security clause involved in the case at bar shows that, by its
expresses on its face that it is otherwise secured as to its terms:
entirety, at least to anything other than a deficiency after
exhausting the security specified therein, such deficiency being As security for the payment of loan obtained by the
an indebtedness within the meaning of the mortgage, in the ASSIGNOR/PLEDGOR from the ASSIGNEE/PLEDGEE in the
absence of a special contract excluding it from the arrangement. amount of FIFTEEN MILLION PESOS (15,000,000.00) Philippine
Currency in accordance with the Promissory Note attached
The latter school represents the better position. The parties hereto and made an integral part hereof as Annex "A" and/or
having conformed to the "blanket mortgage clause" or "dragnet such Promissory Note/s which the ASSIGNOR/PLEDGOR shall
clause," it is reasonable to conclude that they also agreed to an hereafter execute in favor of the ASSIGNEE/PLEDGEE, the
implied understanding that subsequent loans need not be ASSIGNOR/ PLEDGOR hereby transfers, assigns, conveys,
secured by other securities, as the subsequent loans will be endorses, encumbers and delivers by way of first pledge unto the
secured by the first mortgage. In other words, the sufficiency of ASSIGNEE/PLEDGEE, its successors and assigns, that certain
the first security is a corollary component of the "dragnet Membership fee Certificate Share in Wack Wack Golf and Country
clause." But of course, there is no prohibition, as in the mortgage Club Incorporated covered by Stock Certificate No. 217 with
contract in issue, against contractually requiring other securities Serial No. 1793 duly issue by Wack Wack Golf and Country Club
for the subsequent loans. Thus, when the mortgagor takes Incorporated on August 27, 1996 in the name of the ASSIGNOR."
another loan for which another security was given it could not be
inferred that such loan was made in reliance solely on the it is comparable with the security clause in the case of
original security with the "dragnet clause," but rather, on the Prudential, viz.:
new security given. This is the "reliance on the security test."
That for and in consideration of certain loans, overdraft and
Hence, based on the "reliance on the security test," the California other credit accommodations obtained from the Mortgagee by
court in the cited case made an inquiry whether the second loan the Mortgagor and/or ________________ hereinafter referred
was made in reliance on the original security containing a to, irrespective of number, as DEBTOR, and to secure the
"dragnet clause." Accordingly, finding a different security was payment of the same and those that may hereafter be obtained,
taken for the second loan no intent that the parties relied on the the principal or all of which is hereby fixed at Two Hundred Fifty
security of the first loan could be inferred, so it was held. The Thousand (₱250,000.00) Pesos, Philippine Currency, as well as
rationale involved, the court said, was that the "dragnet clause" those that the Mortgagee may extend to the Mortgagor and/or
in the first security instrument constituted a continuing offer by DEBTOR, including interest and expenses or any other obligation
the borrower to secure further loans under the security of the owing to the Mortgagee, whether direct or indirect, principal or
130
secondary as appears in the accounts, books and records of the
Mortgagee, the Mortgagor does hereby transfer and convey by This is contrary to the express agreement of the parties,
way of mortgage unto the Mortgagee, its successors or assigns, something which Central Surety wants this Court to undo. We
the parcels of land which are described in the list inserted on the reiterate that, as a rule, courts cannot intervene to save parties
back of this document, and/or appended hereto, together with all from disadvantageous provisions of their contracts if they
the buildings and improvements now existing or which may consented to the same freely and voluntarily.39
hereafter be erected or constructed thereon, of which the
Mortgagor declares that he/it is the absolute owner free from all Attorney’s Fees
liens and incumbrances. . . .
The final issue is the propriety of attorney’s fees. The trial court
and there is no substantive difference between the terms utilized based its award on the supposed malice of Central Surety in
in both clauses securing future advances. instituting this case against Premiere Bank. We find no malice on
the part of Central Surety; indeed, we are convinced that Central
To recall, the critical issue resolved in Prudential was whether the Surety filed the case in the lower court in good faith, upon the
"blanket mortgage" clause applies even to subsequent honest belief that it had the prerogative to choose to which loan
advancements for which other securities were intended. We then its payments should be applied.
declared that the special security for subsequent loans must first
be exhausted in a situation where the creditor desires to Malicious prosecution, both in criminal and civil cases, requires
foreclose on the "subsequent" loans that are due. However, the the presence of two elements, to wit: (a) malice and (b) absence
"dragnet clause" allows the creditor to hold on to the first of probable cause. Moreover, there must be proof that the
security in case of deficiency after foreclosure on the special prosecution was prompted by a sinister design to vex and
security for the subsequent loans. humiliate a person; and that it was initiated deliberately,
knowing that the charge was false and baseless. Hence, the
In Prudential, we disallowed the petitioner’s attempt at multiple mere filing of what turns out to be an unsuccessful suit does not
foreclosures, as it foreclosed on all of the mortgaged properties render a person liable for malicious prosecution, for the law could
serving as individual securities for each of the three loans. This not have meant to impose a penalty on the right to litigate.40
Court then laid down the rule, thus: Malice must be proved with clear and convincing evidence, which
we find wanting in this case.
where deeds absolute in form were executed to secure any and
all kinds of indebtedness that might subsequently become due, a WHEREFORE, the instant petition is PARTIALLY GRANTED. The
balance due on a note, after exhausting the special security assailed Decision of the Court of Appeals in CA-G.R. CV No.
given for the payment of such note, was, in the absence of a 85930 dated July 31, 2006, as well as its Resolution dated
special agreement to the contrary, within the protection of the January 4, 2007, are REVERSED and SET ASIDE. The Decision of
mortgage, notwithstanding the giving of the special security. This the Regional Trial Court of Makati City, Branch 132, in Civil Case
is recognition that while the "dragnet clause" subsists, the No. 00-1536, dated July 12, 2005, is REINSTATED with the
security specifically executed for subsequent loans must first be MODIFICATION that the award of attorney’s fees to petitioner is
exhausted before the mortgaged property can be resorted to. DELETED. No pronouncement as to costs.
However, this does not prevent the creditor from foreclosing on SO ORDERED.
the security for the first loan if that loan is past due, because
there is nothing in law that prohibits the exercise of that right. [G.R. No. 116805. June 22, 2000]
Hence, in the case at bench, Premiere Bank has the right to MARIO S. ESPINA, petitioner, vs. THE COURT OF APPEALS and
foreclose on the Wack Wack Membership, the security RENE G. DIAZ, respondents. batas
corresponding to the first promissory note, with the deed of
assignment that originated the "dragnet clause." This conforms DECISION
to the doctrine in Prudential, as, in fact, acknowledged in the
decision’s penultimate paragraph, viz.: PARDO, J.:
Petitioner, however, is not without recourse. Both the Court of The case before the Court is an appeal from a decision of the
Appeals and the trial court found that respondents have not yet Court of Appeals[1] reversing that of the Regional Trial Court,
paid the ₱250,000.00 and gave no credence to their claim that Antipolo, Rizal,[2] affirming in all respects the decision of the
they paid the said amount when they paid petitioner Municipal Trial Court, Antipolo, Rizal,[3] ordering respondent
₱2,000,000.00. Thus, the mortgaged property could still be Rene G. Diaz to vacate the condominium unit owned by
properly subjected to foreclosure proceedings for the unpaid petitioner and to pay back current rentals, attorney's fees and
₱250,000.00 loan, and as mentioned earlier, for any deficiency costs.
after D/A SFDX#129, security for PN BD#76/c-345, has been
exhausted, subject of course to defenses which are available to The facts, as found by the Court of Appeals, are as follows:
respondents.
"Mario S. Espina is the registered owner of a Condominium Unit
In any event, even without this Court’s prescription in Prudential, No. 403, Victoria Valley Condominium, Valley Golf Subdivision,
the release of the Wack Wack Membership as the pledged Antipolo, Rizal. Such ownership is evidenced by Condominium
security for Promissory Note 714-Y cannot yet be done as sought Certificate of Title No. N-10 (p. 31, Rollo).
by Central Surety. The chain of contracts concluded between
Premiere Bank and Central Surety reveals that the Wack Wack "On November 29, 1991, Mario S. Espina, the private respondent
Membership, which stood as security for Promissory Note 714-Y, as seller, and Rene G. Diaz, the petitioner as buyer, executed a
and which also stands as security for subsequent debts of Central Provisional Deed of Sale, whereby the former sold to the latter
Surety, is a security in the form of a pledge. Its return to Central the aforesaid condominium unit for the amount of P100,000.00
Surety upon the pretext that Central Surety is entitled to pay to be paid upon the execution of the contract and the balance to
only the obligation in Promissory Note No. 714-Y, will result in be paid through PCI Bank postdated checks as follows:
the extinguishment of the pledge, even with respect to the
subsequent obligations, because Article 2110 of the Civil Code "1...........P400,000.00
provides: ..............Check No. 301245
..............January 15, 1992
(I)f the thing pledged is returned by the pledgor or owner, the
pledge is extinguished. Any stipulation to the contrary is void. "2...........P200,000.00
131
..............Check No. 301246 On July 20, 1994, the Court of Appeals promulgated its decision
..............February 1, 1992 reversing the appealed decision and dismissing the complaint for
unlawful detainer with costs against petitioner Espina.
"3...........P200,000.00
..............Check No. 301247 On August 8, 1994, petitioner filed a motion for reconsideration
..............February 22, 1992 of the decision of the Court of Appeals.[5]
"4...........P200,000.00 On August 19, 1994, the Court of Appeals denied the motion.[6]
..............Check No. 301248
..............March 14, 1992 haideem Hence, this appeal via petition for review on certiorari.[7]
"5...........P200,000.00 The basic issue raised is whether the Court of Appeals erred in
..............Check No. 301249 ruling that the provisional deed of sale novated the existing
..............April 4, 1992 contract of lease and that petitioner had no cause of action for
ejectment against respondent Diaz.
"6...........P200,000.00
..............Check No. 301250 We resolve the issue in favor of petitioner.
..............April 25, 1992
According to respondent Diaz, the provisional deed of sale that
.............................(pp. 59-61, Rollo). was subsequently executed by the parties novated the original
existing contract of lease. The contention cannot be sustained.
"Subsequently, in a letter dated January 22, 1992, petitioner Respondent originally occupied the condominium unit in question
informed private respondent that his checking account with PCI in 1987 as a lessee.[8] While he occupied the premises as
Bank has been closed and a new checking account with the same lessee, petitioner agreed to sell the condominium unit to
drawee bank is opened for practical purposes. The letter further respondent by installments.[9] The agreement to sell was
stated that the postdated checks issued will be replaced with new provisional as the consideration was payable in installments.
ones in the same drawee bank (p. 63, Rollo). Esmsc
"On January 25, 1992, petitioner through Ms. Socorro Diaz, wife The question is, did the provisional deed of sale novate the
of petitioner, paid private respondent Mario Espina P200,000.00, existing lease contract? The answer is no. The novation must be
acknowledged by him as partial payment for the condominium clearly proved since its existence is not presumed.[10] "In this
unit subject of this controversy (p.64, Rollo). light, novation is never presumed; it must be proven as a fact
either by express stipulation of the parties or by implication
"On July 26, 1992, private respondent sent petitioner a "Notice derived from an irreconcilable incompatibility between old and
of Cancellation" of the Provisional Deed of Sale (p. 48, Rollo). new obligations or contracts."[11] Novation takes place only if
the parties expressly so provide, otherwise, the original contract
"However, despite the Notice of Cancellation from private remains in force. In other words, the parties to a contract must
respondent, the latter accepted payment from petitioner per expressly agree that they are abrogating their old contract in
Metrobank Check No. 395694 dated and encashed on October favor of a new one.[12] Where there is no clear agreement to
28, 1992 in the amount of P 100,000.00 (p. 64, Rollo). create a new contract in place of the existing one, novation
cannot be presumed to take place, unless the terms of the new
"On February 24, 1993, private respondent filed a complaint contract are fully incompatible with the former agreement on
docketed as Civil Case No. 2104 for Unlawful Detainer against every point.[13] Thus, a deed of cession of the right to
petitioner before the Municipal Trial Court of Antipolo, Branch 1. repurchase a piece of land does not supersede a contract of lease
over the same property.[14] In the provisional deed of sale in
"On November 12, 1993, the trial court rendered its decision, the this case, after the initial down payment, respondent's checks in
dispositive portion of which reads: payment of six installments all bounced and were dishonored
upon presentment for the reason that the bank account was
WHEREFORE, in view of the foregoing consideration, judgment is closed.[15] Consequently, on July 26, 1992, petitioner
hereby rendered ordering the defendant and all persons claiming terminated the provisional deed of sale by a notarial notice of
rights under him to vacate unit 403 of the Victoria Golf Valley cancellation.[16] Nonetheless, respondent Diaz continued to
Condominium, Valley Golf Subdivision, Antipolo, Rizal; to pay the occupy the premises, as lessee, but failed to pay the rentals due.
total arrears of P126,000.00, covering the period July 1991 up to On October 28, 1992, respondent made a payment of
the filing (sic) complaint, and to pay P7,000.00 every month P100,000.00 that may be applied either to the back rentals or for
thereafter as rentals unit (sic) he vacates the premises; to pay the purchase of the condominium unit. On February 13, 1993,
the amount of P5,000.00 as and attorney's fees; the amount of petitioner gave respondent a notice to vacate the premises and
P300.00 per appearance, and costs of suit. Chiefx to pay his back rentals.[17] Failing to do so, respondent's
possession became unlawful and his eviction was proper. Hence,
However, the plaintiff may refund to the defendant the balance on February 24, 1993, petitioner filed with the Municipal Trial
from (sic) P400,000.00 after deducting all the total obligations of Court, Antipolo, Rizal, Branch 01 an action for unlawful detainer
the defendant as specified in the decision from receipt of said against respondent Diaz.[18]
decision.
Now respondent contends that the petitioner's subsequent
SO ORDERED.' (Decision, Annex "B"; p. 27, Rollo) acceptance of such payment effectively withdrew the cancellation
of the provisional sale. We do not agree. Unless the application
"From the said decision, petitioner appealed to the Regional Trial of payment is expressly indicated, the payment shall be applied
Court Branch 71, Antipolo, Rizal. On April 29, 1994, said to the obligation most onerous to the debtor.[19] In this case,
appellate court affirmed in all respects the decision of the trial the unpaid rentals constituted the more onerous obligation of the
court."[4] respondent to petitioner. As the payment did not fully settle the
unpaid rentals, petitioner's cause of action for ejectment
On June 14, 1994, petitioner filed with the Court of Appeals a survives. Thus, the Court of Appeals erred in ruling that the
petition for review. payment was "additional payment" for the purchase of the
property.
132
WHEREFORE, the Court GRANTS the petition for review on BDC-0408
certiorari, and REVERSES the decision of the Court of Appeals.
[20] Consequently, the Court REVIVES the decision of the 1,000,000.00
Regional Trial Court, Antipolo, Rizal, Branch 71,[21] affirming in
toto the decision of the Municipal Trial Court, Antipolo, Rizal, 13 August 1997
Branch 01.[22]
BDC-0422
No costs.
1,100,000.00
SO ORDERED.
18 August 1997
G.R. No. 200299, August 17, 2016 - SPOUSES JUAN CHUY
TAN AND MARY TAN (DECEASED) SUBSTITUTED BY THE BDC-0432
SURVIVING HEIRS, JOEL TAN AND ERIC TAN, Petitioners, v.
CHINA BANKING CORPORATION, Respondent. 1,960.000.00
PHILIPPINE SUPREME COURT DECISIONS
21 August 1997
THIRD DIVISION
BDC-0438
G.R. No. 200299, August 17, 2016
1,490.000.00
SPOUSES JUAN CHUY TAN AND MARY TAN (DECEASED)
SUBSTITUTED BY THE SURVIVING HEIRS, JOEL TAN AND ERIC 2 September 1997
TAN, Petitioners, v. CHINA BANKING CORPORATION,
Respondent. BDC-0455
DECISION 2,200,000.00
For resolution of the Court is the instant Petition for Review on BDC-0506
Certiorari1 filed by petitioner Spouses Juan Chuy Tan and Mary
Tan (deceased) substituted by the surviving heirs, Joel Tan and 1,700,000.00
Eric Tan, seeking to reverse and set aside the Decision2 dated 14
October 2011 and Resolution3 dated 24 January 2012 of the 20 November 1997
Court of Appeals (CA) in CA-G.R. CV. No. 87450. The assailed
decision and resolution affirmed with modification the 29 DLS-0316
December 2003 Decision4 of the Regional Trial Court (RTC) of
Makati City, Branch 142 by ordering that the penalty surcharge 2,800,000.00
of 24% per annum as stipulated in the contract of loan is
reduced to 12% per annum. 18 June 1997
DLS-0324
The Facts
5,500,000.00
Petitioner Lorenze Realty and Development Corporation (Lorenze
Realty) is a domestic corporation duly authorized by Philippine 18 June 1997
laws to engage in real estate business. It is represented in this
action by petitioners Joel Tan and Eric Tan as substitutes for their DLS-0325
deceased parents, Spouses Juan Chuy Tan and Mary Tan
(Spouses Tan). 2,675,000.00
chanRoblesvirtualLawlibrary DLS-0403
DATE
4,000,000.00
PROMISSORY NOTE NOS.
28 August 1997
PRINCIPAL AMOUNT
BDC-0449
27 June 1997
1,550,000.00
BDC-0345
20 November 1997
P1,600,000.00
BDC-0340
30 July 1997
1,550,000.00
133
351,300.00
8 September 1997
Publication Fee
BDC-0466
25,970.00
1,262,500.00
Sheriffs Fee
31 September 1997
2,000.00
BDC-0479
Posting Fee
662,500.00
700.00
10 July 1997
DLS 0379 After deducting from the total amount of loan obligation the
P85,000,000.00 proceeds of the public sale, there remains a
33,000,000.00 balance in the amount of P29,258,179.81. In its effort to collect
the deficiency obligation, China Bank demanded from Lorenze
TOTAL Realty for the payment of the remaining loan but such demand
just went to naught.
The promissory note covering the second loan contained exactly Acting on the respondent's motion for reconsideration, the RTC
the same terms and conditions as the first promissory note. reversed itself. Citing Article 1253 of the Civil Code, it held that
"if the debt produces interest, payment of the principal shall not
When the second loan matured on December 15, 1992, the be deemed to have been made until the interests have been
petitioner had only paid twenty-nine thousand nine hundred sixty covered." It also sustained the contention of the respondent that
136
the chattel mortgage was revived when the petitioner executed The petitioner denies having stipulated upon and consented to
the promissory note covering the second loan. the twenty-six per cent (26%) per annum interest charge, ten
percent (10%) monthly penalty and twenty-five percent (25%)
The RTC ordered: attorney's fees. According to the petitioner, he signed the
"the defendant to pay the plaintiff the following: a) P25,040.00, promissory note in blank.
plus interest thereon at the rate of 26% per annum and penalties
of 10% per month thereon from due date of the second The petitioner likewise disclaims receiving any demand letter
promissory note until fully paid, b) 25% of the defendant's from the respondent for the alleged balance of the second loan
outstanding obligation as and for attorney's fees, c) costs of this after he had paid fifty-six thousand four-hundred forty pesos
suit;" (Php56,440.00) as of September 1994, and further argues that
the chattel mortgage could not cover the second loan as it was
"the foreclosure of the chattel mortgage dated December 16, annulled and voided upon full payment of the first loan.
1991 and the sale of the mortgaged property at a public auction,
with the proceeds thereof to be applied as and in payment of the The Respondent's Case[21]
amounts awarded in a and b above."
The CA Ruling[20] The respondent claims that the daily payments were properly
credited against the interest and not against the principal
The CA affirmed the RTC's ruling with modification. because the petitioner incurred delay in the full payment of the
second loan.
The CA observed that the disparity in the amount loaned and the
amount paid by the petitioner supports the respondent's view It argues that pursuant to the terms and conditions of the
that the daily payments were properly applied first for the promissory note, the interest and penalties became due and
payment of interests and not for the principal. demandable when the petitioner failed to pay in full upon
maturity. The respondent relies on Article 1253 of the Civil Code
According to the CA, if the respondent truly condoned the which provides that if the debt produces interest, payment of the
payment of interests as claimed by the petitioner, the latter did principal shall not be deemed to have been made until the
not have to pay an amount in excess of the principal. The CA interests have been covered.
believed the petitioner knew his payments were first applied to
the interests due. The respondent likewise maintains that the chattel mortgage
could validly secure the second loan invoking its provision which
The CA held that Article 1253 of the Civil Code is clear that if provided that it covers "obligations...which may hereafter be
debt produces interest, payment of the principal shall not be incurred."
deemed made until the interests have been covered. It ruled that
even if the official receipts issued by the respondent did not Issues
mention that the payments were for the interests, the omission
is irrelevant as it is deemed by law to be for the payment of The petitioner raises the following issues for our resolution:
interests first, if any, and then for the payment of the principal "WHETHER THE HONORABLE COURT OF APPEALS ERRED IN
amount. AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT
ORDERING THE PETITIONER TO PAY THE RESPONDENT THE
The CA, however, reduced the monthly penalty from ten percent AMOUNT OF PHP24,040.00 PLUS INTEREST AND PENALTY FROM
(10%) to two percent (2%) pursuant to Article 1229 of the Civil DUE DATE UNTIL FULLY PAID; AND
Code which gives the courts the power to decrease the penalty
when the principal obligation has been partly or irregularly "WHETHER THE HONORABLE COURT OF APPEALS ERRED IN
complied with by the debtor. AFFIRMING THE DECISION OF THE REGIONAL TRIAL COURT
ORDERING THE FORECLOSURE AND SALE OF THE MORTGAGED
The dispositive portion of the CA decision provides: PROPERTY."[22]
"WHEREFORE, premises considered, the Petition is hereby In simpler terms, did the respondent act lawfully when it credited
DENIED for lack of merit. The Order dated 07 May 2007 of the the daily payments against the interest instead of the principal?
Regional Trial Court, Branch 222, Quezon City is hereby Could the chattel mortgage cover the second loan?
AFFIRMED with MODIFICATION that the penalty charge should
only be two (2%) per month until fully paid." The Court's Ruling
The CA denied the petitioner's Motion for Reconsideration dated
May 17, 2010 on November 25, 2010 for failing to raise new We find the petition partly meritorious.
matters. Hence, this present petition.
We rule that: (1) the respondent acted pursuant to law and
The Petition jurisprudence when it credited the daily payments against the
interest instead of the principal; and (2) the chattel mortgage
The petitioner seeks the reversal of the CA's decision and could not cover the second loan.
resolution. He argues that he has fully paid his obligation. Thus,
the respondent has no right to foreclose the chattel mortgage. Rebuttable presumptions; Article 1176 vis-a-vis Article 1253
The petitioner insists that his daily payments should be deemed There is a need to analyze and harmonize Article 1176 and
to have been credited against the principal, as the official Article 1253 of the Civil Code to determine whether the daily
receipts issued by the respondent were silent with respect to the payments made after the second loan's maturity should be
payment of interest and penalties. He cites Article 1176 of the credited against the interest or against the principal.
Civil Code which ordains that [t]he receipt of the principal by the
creditor without reservation with respect to the interest, shall Article 1176 provides that:
give rise to the presumption that the interest has been paid. The "The receipt of the principal by the creditor, without reservation
petitioner invokes Article 1235 of the Civil Code which states that with respect to the interest, shall give rise to the presumption
"[w]hen the obligee accepts the performance of an obligation, that said interest has been paid.
knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed xxx."
fully complied with." On the other hand, Article 1253 states:
137
"If the debt produces interest, payment of the principal shall not resolves this doubt by presuming that the creditor waives the
be deemed to have been made until the interests have been payment of interest because he accepts payment for the
covered." principal without any reservation.
The above provisions appear to be contradictory but they in fact
support, and are in conformity with, each other. Both provisions On the other hand, the presumption under Article 1253 resolves
are also presumptions and, as such, lose their legal efficacy in doubts involving payment of interest-bearing debts. It is a given
the face of proof or evidence to the contrary. under this Article that the debt produces interest. The doubt
pertains to the application of payment; the uncertainty is on
Thus, the settlement of the first issue depends on which of these whether the amount received by the creditor is payment for the
presumptions prevails under the given facts of the case. principal or the interest. Article 1253 resolves this doubt by
providing a hierarchy: payments shall first be applied to the
There are two undisputed facts crucial in resolving the first issue: interest; payment shall then be applied to the principal only after
(1) the petitioner failed to pay the full amount of the second loan the interest has been fully-paid.
upon maturity; and (2) the second loan was subject to interest,
and in case of default, to penalty and attorney's fees. Correlating the two provisions, the rule under Article 1253 that
payments shall first be applied to the interest and not to the
But before proceeding any further, we first tackle the petitioner's principal shall govern if two facts exist: (1) the debt produces
denial of the genuineness and due execution of the second interest (e.g., the payment of interest is expressly stipulated)
promissory note. He denies that he stipulated upon and and (2) the principal remains unpaid.
consented to the interest, penalty and attorney's fees because he
purportedly signed the promissory note in blank.[23] The exception is a situation covered under Article 1176, i.e.,
when the creditor waives payment of the interest despite the
This allegation deserves scant consideration. It is self-serving presence of (1) and (2) above. In such case, the payments shall
and unsupported by evidence. obviously be credited to the principal.
As aptly observed by the RTC and the CA, the promissory notes Since the doubt in the present case pertains to the application of
securing the first and second loan contained exactly the same the daily payments, Article 1253 shall apply. Only when there is
terms and conditions. They were mirror-image of each other a waiver of interest shall Article 1176 become relevant.
except for the date and amount of principal Thus, we see
sufficient basis to believe that the petitioner knew or was aware Under this analysis, we rule that the respondent properly
of such terms and conditions even assuming that the entries on credited the daily payments to the interest and not to the
the interest and penalty charges were in blank when he signed principal because: (1) the debt produces interest, i.e., the
the promissory note. promissory note securing the second loan provided for payment
of interest; (2) a portion of the second loan remained unpaid
Moreover, we find it significant that the petitioner does not deny upon maturity; and (3) the respondent did not waive the
the genuineness and due execution of the first promissory note. payment of interest.
Only when he failed to pay the second loan did he impugn the
validity of the interest, penalty and attorney's fees. The CA and There was no waiver of interest
the RTC also noted that the petitioner is a schooled individual, an
engineer by profession, who, because of these credentials, will The fact that the official receipts did not indicate whether the
not just sign a document in blank without appreciating the payments were made for the principal or the interest does not
import of his action.[24] prove that the respondent waived the interest.
These considerations strongly militate against the petitioner's We reiterate that the petitioner made the daily payments after
claim that he did not consent to and stipulated on the interest the second loan had already matured and a portion of the
and penalty charges of the second loan. Thus, he did not only fail principal remained unpaid. As stipulated, the principal is subject
to fully pay the second loan upon maturity; the loan was also to 26% annual interest.
subject to interest, penalty and attorney's fees.
All these show that the petitioner was already in default of the
Article 1176 in relation to Article 1253 principal when he started making the daily payments. The
stipulations providing for the 10% monthly penalty and the
Article 1176 falls under Chapter I (Nature and Effect of additional 25% attorney's fees on the unpaid amount also
Obligations) while Article 1253 falls under Subsection I became effective as a result of the petitioner's failure to pay in
(Application of Payments), Chapter IV (Extinguishment of full upon maturity.
Obligations) of Book IV (Obligations and Contracts) of the Civil
Code. In other words, the so-called interest for default[25] (as
distinguished from the stipulated monetary interest of 26% per
The structuring of these provisions, properly taken into account, annum) in the form of the 10% monthly penalty accrued and
means that Article 1176 should be treated as a general became due and demandable. Thus, when the petitioner started
presumption subject to the more specific presumption under making the daily payments, two types of interest were at the
Article 1253. Article 1176 is relevant on questions pertaining to same time accruing, the 26% stipulated monetary interest and
the effects and nature of obligations in general, while Article the interest for default in the form of the 10% monthly penalty.
1253 is specifically pertinent on questions involving application of
payments and extinguishment of obligations. Article 1253 covers both types of interest. As noted by learned
civilist, Arturo M. Tolentino, no distinction should be made
A textual analysis of the above provisions yields the results we because the law makes no such distinction. He explained:
discuss at length below: "Furthermore, the interest for default arises because of non-
performance by the debtor, and to allow him to apply payment
The presumption under Article 1176 does not resolve the to the capital without first satisfying such interest, would be to
question of whether the amount received by the creditor is a place him in a better position than a debtor who has not incurred
payment for the principal or interest. Under this article the in delay. The delay should worsen, not improve, the position of a
amount received by the creditor is the payment for the principal, debtor."[26] [Emphasis supplied.]
but a doubt arises on whether or not the interest is waived The petitioner failed to specify which of the two types of interest
because the creditor accepts the payment for the principal the respondent allegedly waived. The respondent waived neither.
without reservation with respect to the interest. Article 1176
138
In Swagman Hotels and Travel Inc. v. Court of Appeals,[27] we interest. Even under this assumption, it is doubtful whether the
applied Article 1253 of the Civil Code in resolving whether the petitioner had indeed fully paid the second loan.
debtor has waived the payments of interest when he issued
receipts describing the payments as "capital repayment." We Excessive interest, penalty and attorney's fees
held that,
"Under Article 1253 of the Civil Code, if the debt produces Notwithstanding the foregoing, we find the stipulated rates of
interest, payment of the principal shall not be deemed to have interest, penalty and attorney's fees to be exorbitant, iniquitous,
been made until the interest has been covered. In this case, the unconscionable and excessive. The courts can and should reduce
private respondent would not have signed the receipts describing such astronomical rates as reason and equity demand.
the payments made by the petitioner as "capital repayment" if
the obligation to pay the interest was still subsisting. Article 1229 of the Civil Code provides:
"The judge shall equitably reduce the penalty when the principal
"There was therefore a novation of the terms of the three obligation has been partly or irregularly complied with by the
promissory notes in that the interest was waived..."[28] debtor. Even if there has been no performance, the penalty may
[Emphasis supplied.] also be reduced by the courts if it is iniquitous or
The same ruling was made in an older case[29] where the unconscionable."
creditor issued a receipt which specifically identified the payment Article 2227 of the Civil Code ordains:
as referring to the principal. We held that the interest allegedly "Liquidated damages, whether intended as an indemnity or a
due cannot be recovered, in conformity with Article 1110 of the penalty, shall be equitably reduced if they are iniquitous or
Old Civil Code, a receipt from the creditor for the principal, that unconscionable.
contains no stipulation regarding interest, extinguishes the More importantly, Article 1306 of the Civil Code is emphatic:
obligation of the debtor with regard thereto when the receipt "The contracting parties may establish such stipulations, clauses,
issued by the creditor showed that no reservation whatever was terms and conditions as they may deem convenient, provided
made with respect to the interest. they are not contrary to law, morals, good customs, public order,
or public policy."
In both of these cases, it was clearly established that the Thus, stipulations imposing excessive rates of interest and
creditors accepted the payment of the principal. The creditors penalty are void for being contrary to morals, if not against the
were deemed to have waived the payment of interest because law.[33]
they issued receipts expressly referring to the payment of the
principal without any reservation with respect to the interest. As Further, we have repeatedly held that while Central Bank Circular
a result, the interests due were deemed waived. It was No. 905-82, which took effect on January 1, 1983, effectively
immaterial whether the creditors intended to waive the interest removed the ceiling on interest rates for both secured and
or not. The law presumed such waiver because the creditors unsecured loans, regardless of maturity, nothing in the said
accepted the payment of the principal without reservation with circular could possibly be read as granting carte blanche
respect to the interest. authority to lenders to raise interest rates to levels that would be
unduly burdensome, to the point of oppression on their
In the present case, it was not proven that the respondent borrowers.[34]
accepted the payment of the principal. The silence of the receipts
on whether the daily payments were credited against the unpaid In exercising this power to determine what is iniquitous and
balance of the principal or the accrued interest does not mean unconscionable, courts must consider the circumstances of each
that the respondent waived the payment of interest. There is no case since what may be iniquitous and unconscionable in one
presumption of waiver of interest without any evidence showing may be totally just and equitable in another.[35]
that the respondent accepted the daily installments as payments
for the principal. In the recent case of MCMP Construction Corp. v. Monark
Equipment Corp.,[36] we reduced the interest rate of twenty-
Ideally, the respondent could have been more specific by four percent (24%) per annum to twelve percent (12%) per
indicating on the receipts that the daily payments were being annum; the penalty and collection charge of three percent (3%)
credited against the interest. Its failure to do so, however, per month, or thirty-six percent (36%) per annum, to six percent
should not be taken against it. The respondent had the right to (6%) per annum; and the amount of attorney's fees from
credit the daily payments against the interest applying Article twenty-five percent (25%) of the total amount due to five
1253. percent (5%).
It bears stressing that the petitioner was already in default. Applying the foregoing principles, we hereby reduce the
Under the promissory note, the petitioner waived demand in case stipulated rates as follows: the interest of twenty-six percent
of non-payment upon due date.[30] The stipulated interest and (26%) per annum is reduced to two percent (2%) per annum;
interest for default have both accrued. The only logical result, the penalty charge of ten percent (10%) per month, or one-
following Article 1253 of the Civil Code, is that the daily hundred twenty percent (120%) per annum is reduced to two
payments were first applied against either or both the stipulated percent (2%) per annum; and the amount of attorney's fees
interest and interest for default. from twenty-five percent (25%) of the total amount due to two
percent (2%) of the total amount due.
Moreover, Article 1253 is viewed as having an obligatory
character and not merely suppletory. It cannot be dispensed with We believe the markedly reduced rates are reasonable, equitable
except by mutual agreement. The creditor may oppose an and just under the circumstances.
application of payment made by the debtor contrary to this rule.
[31] It is not entirely the petitioner's fault that he honestly, albeit
wrongly, believed that the second loan had been fully paid. The
In any case, the promissory note provided that "interest not paid respondent is partly to blame for issuing receipts not indicating
when due shall be added to, and become part of the principal that the daily payments were being applied against the interest.
and shall likewise bear interest at the same rate, compounded
monthly."[32] Moreover, the reduction of the rates is justified in the context of
its computation period. In Trade & Investment Dev't Corp. of the
Hence, even if we assume that the daily payments were applied Phil. v. Roblett Industrial Construction Corp.,[37] we equitably
against the principal, the principal had also increased by the reduced the interest rate because the case was decided with
amount of unpaid interest and the interest on such unpaid finality sixteen years after the filing of the complaint. We noted
139
that the amount of the loan swelled to a considerably It is obvious therefore that the debt referred in the law is a
disproportionate sum, far exceeding the principal debt. current, not an obligation that is yet merely contemplated.[45]
"x x x in consideration of the credit accommodation granted by
It is the same in the present case where the complaint was filed the MORTGAGEE to the MORTGAGOR(S) in the amount of FIFTY-
almost twenty-years ago.[38] THREE THOUSAND ONLY PESOS (P53,000.00) xxx and all other
obligations of every kind already incurred or which may hereafter
The Chattel Mortgage could not cover the second loan. be incurred, for or accommodation of the MORTGAGOR(S), as
well as the faithful performance of the terms and conditions of
The chattel mortgage could not validly cover the second loan. this mortgage x x x."[46] [Emphasis supplied.]
The order for foreclosure was without legal and factual basis. The only obligation specified in the chattel mortgage contract
was the first loan which the petitioner later fully paid. By virtue
In Acme Shoe, Rubber and Plastic Corp. v. Court of Appeals,[39] of Section 3 of the Chattel Mortgage Law,[47] the payment of
the debtor executed a chattel mortgage, which had a provision to the obligation automatically rendered the chattel mortgage
this effect: terminated; the chattel mortgage had ceased to exist upon full
"In case the MORTGAGOR executes subsequent promissory note payment of the first loan. Being merely an accessory in nature, it
or notes either as a renewal of the former note, as an extension cannot exist independently of the principal obligation.
thereof, or as a new loan, or is given any other kind of
accommodations such as overdrafts, letters of credit, The parties did not execute a fresh chattel mortgage nor did they
acceptances and bills of exchange, releases of import shipments amend the chattel mortgage to comply with the Chattel Mortgage
on Trust Receipts, etc., this mortgage shall also stand as security Law which requires that the obligation must be specified in the
for the payment of the said promissory note or notes and/or affidavit of good faith. Simply put, there no longer was any
accommodations without the necessity of executing a new chattel mortgage that could cover the second loan upon full
contract and this mortgage shall have the same force and effect payment of the first loan. The order to foreclose the motor
as if the said promissory note or notes and/or accommodations vehicle therefore had no legal basis.
were existing on the date thereof."[40] [Emphasis supplied.]
In due time, the debtor settled the loan covered by the chattel WHEREFORE, in view of the foregoing findings and legal
mortgage. Subsequently, the debtor again borrowed from the premises, we PARTIALLY GRANT the petition. We MODIFY the
creditor. Due to financial constraints, the subsequent loan was May 17, 2010 Decision and the November 25, 2010 Resolution of
not settled at maturity. the Court of Appeals in CA G.R. SP No. 102144.
On the issue whether the chattel mortgage could be foreclosed ACCORDINGLY, petitioner Nunelon R. Marquez is ORDERED to
due to the debtor's failure to settle the subsequent loan, we held pay:
that, Twenty-five thousand forty pesos (P25,040.00) representing the
"[c]ontracts of security are either personal or real, x x x In amount of the unpaid balance of the second loan;
contracts of real security, such as a pledge, a mortgage or an
antichresis, that fulfillment is secured by an encumbrance of Interest of two percent (2%) per annum on the unpaid balance
property — in pledge, the placing of movable property in the to be computed from December 15, 1992[48] until full payment;
possession of the creditor; in chattel mortgage, by the execution
of the corresponding deed substantially in the form prescribed by Penalty of two percent (2%) per annum on the unpaid balance to
law; x x x — upon the essential condition that if the principal be computed from December 15, 1992;
obligation becomes due and the debtor defaults, then the
property encumbered can be alienated for the payment of the Attorney's Fees of two percent (2%) of the total amount to be
obligation, but that should the obligation be duly paid, then the recovered.
contract is automatically extinguished proceeding from the The total amount to be recovered shall further be subject to the
accessory character of the agreement. As the law so puts it, once legal interest rate of six percent (6 %) per annum from the
the obligation is complied with, then the contract of security finality of this Decision until fully paid.[49]
becomes, ipso facto, null and void."[41]
Respondent Elisan Credit Corporation, on the other hand, is
While a pledge, real estate mortgage, or antichresis may ORDERED to return/deliver the seized motor vehicle with Plate
exceptionally secure after-incurred obligations so long as these No. UV-TDF-193, subject of the chattel mortgage, to the
future debts are accurately described, a chattel mortgage, possession of the petitioner; in the event its delivery is no longer
however, can only cover obligations existing at the time the possible, to pay the petitioner the amount of P30,000.00
mortgage is constituted. Although a promise expressed in a corresponding to the value of the said vehicle.
chattel mortgage to include debts that are yet to be contracted
can be a binding commitment that can be compelled upon, the No pronouncement as to costs.
security itself, however, does not come into existence or arise
until after a chattel mortgage agreement covering the newly SO ORDERED.
contracted debt is executed either by concluding a fresh chattel
mortgage or by amending the old contract conformably with the [G.R. No. 138588. August 23, 2001]
form prescribed by the Chattel Mortgage Law. Refusal on the
part of the borrower to execute the agreement so as to cover the FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ REALTY
after-incurred obligation can constitute an act of default on the INC., respondent.
part of the borrower of the financing agreement whereon the
promise is written but, of course, the remedy of foreclosure can DECISION
only cover the debts extant at the time of constitution and during
the life of the chattel mortgage sought to be foreclosed."[42] PANGANIBAN, J.:
[Emphasis supplied.]
We noted that the Chattel Mortgage Law[43] requires the parties For a valid tender of payment, it is necessary that there be a
to the contract to attach an affidavit of good faith and execute an fusion of intent, ability and capability to make good such offer,
oath that - which must be absolute and must cover the amount due. Though
" x x x (the) mortgage is made for the purpose of securing the a check is not legal tender, and a creditor may validly refuse to
obligation specified in the conditions thereof, and for no other accept it if tendered as payment, one who in fact accepted a fully
purposes, and that the same is a just and valid obligation, and funded check after the debtors manifestation that it had been
one not entered into for the purposes of fraud."[44] given to settle an obligation is estopped from later on
denouncing the efficacy of such tender of payment.
140
tender of payment, he filed this case at the Regional Trial Court
The Case of Davao City.
The foregoing principle is used by this Court in resolving the In its responsive pleading, the defendant set up the following
Petition for Review[1] on Certiorari before us, challenging the special/affirmative defenses: that sometime in December 1986,
January 26, 1999 Decision[2] of the Court of Appeals[3] (CA) in FEBTC purchased from the PaBC the account of the plaintiffs for
CA-GR CV No. 45349. The dispositive portion of the assailed a total consideration of P1,828,875.00; that despite such
Decision reads as follows: purchase, PaBC Davao Branch continued to collect interests and
penalty charges on the loan from January 6, 1987 to July 8,
WHEREFORE, the judgment appealed from is hereby MODIFIED, 1988; that it was therefore not FEBTC which collected the
to read as follows: interest rates mentioned in the complaint, but PaBC; that it is
not true that FEBTC was trying to impose [exorbitant] rates of
WHEREFORE, JUDGMENT IS HEREBY RENDERED, ORDERING: interest; that as a matter of fact, after the transfer of plaintiffs
account, it sought to negotiate with the plaintiffs, and in fact,
1. The plaintiffs to pay Far East Bank & Trust Company the negotiations were made for a settlement and possible reduction
principal sum of P1,067,000.00 plus interests thereon computed of charges; that FEBTC has no knowledge of the rates of interest
at 12% per annum from July 9, 1988 until fully paid; imposed and collected by PaBC prior to the purchase of the
account from the latter, hence it could not be held responsible
2. The parties to negotiate for a new lease over the subject for those transactions which transpired prior to the purchase;
premises; and and that the defendant acted at the opportune time for the
settlement of the account, albeit exercising prudence in the
3. The defendant to pay the plaintiff the sum of fifteen thousand handling of such account. The rest of the affirmative defenses
(P15,000.00) pesos as and for attorneys fees plus the costs of are bare denials.
litigation.
After trial, the court a quo rendered judgment on August 6,
All other claims of the parties against each other are DENIED.[4] 1993, the dispositive portion of which reads as follows:
Likewise assailed is the May 4, 1999 CA Resolution,[5] which WHEREFORE, judgment is hereby rendered as follows:
denied petitioners Motion for Reconsideration.
1. The plaintiff and defendant shall jointly compute the interest
The Facts due on the P1,057,000.00 loan from April 18, 1985 until
November 14, 1988 at 12% per annum (IBAA Salazar Case
The court a quo summarized the antecedents of the case as Supra).
follows:
2. That the parties shall then add the result of the joint
Sometime in August 1973, Diaz and Company got a loan from computation mentioned in paragraph one of the dispositive
the former PaBC [Pacific Banking Corporation] in the amount of portion to the P1,057,000.00 principal.
P720,000.00, with interest at 12% per annum, later increased to
14%, 16%, 18% and 20%. The loan was secured by a real 3. The result of the addition of the P1,057,000.00 principal and
estate mortgage over two parcels of land owned by the plaintiff the interests arrived at shall then be compared with the
Diaz Realty, both located in Davao City. In 1981, Allied Banking P1,450,000.00 deposit and if P1,450,000.00 is not enough, then
Corporation rented an office space in the building constructed on the plaintiff shall pay the difference/deficiency between the
the properties covered by the mortgage contract, with the P1,450,000.00 deposit and what the parties jointly computed[;]
conformity of mortgagee PaBC, whereby the parties agreed that conversely, if the P1,450,000.00 is more than what the parties
the monthly rentals shall be paid directly to the mortgagee for have arrived [at] after the computation, the defendant shall
the lessors account, either to partly or fully pay off the aforesaid return the difference or the excess to the plaintiffs.
mortgage indebtedness. Pursuant to such contract, Allied Bank
paid the monthly rentals to PaBC instead of to the plaintiffs. On 4. The defendant shall cancel the mortgage.
July 5, 1985, the Central Bank closed PaBC, placed it under
receivership, and appointed Renan Santos as its liquidator. 5. Paragraph eight of the Lease Contract between Allied Bank
Sometime in December 1986, appellant FEBTC purchased the and the plaintiffs in which the defendants predecessor, Pacific
credit of Diaz & Company in favor of PaBC, but it was not until Banking gave its conformity (Exh. H) is hereby cancelled, so that
March 23, 1988 that Diaz was informed about it. the rental should now be paid to the plaintiffs.
According to the plaintiff as alleged in the complaint and testified 6. The defendant shall pay the plaintiffs the sums:
to by Antonio Diaz (President of Diaz & Company and Vice-
President of Diaz Realty), on March 23, 1988, he went to office of 6-A. Fifteen thousand pesos as attorneys fees.
PaBC which by then housed FEBTC and was told that the latter
had acquired PaBC; that Cashier Ramon Lim told him that as of 6-B. Three [h]undred [t]housand [p]esos (P300,000.00) as
such date, his loan was P1,447,142.03; that he (Diaz) asked the exemplary damages.
defendant to make an accounting of the monthly rental
payments made by Allied Bank; that on December 14, 1988,[6] 6-C. The cost of suit.
Diaz tendered to FEBTC the amount of P1,450,000.00 through an
Interbank check, in order to prevent the imposition of additional SO ORDERED.
interests, penalties and surcharges on its loan; that FEBTC did
not accept it as payment; that instead, Diaz was asked to deposit Upon a motion for reconsideration filed by defendant FEBTC and
the amount with the defendants Davao City Branch Office, after due notice and hearing, the court a quo issued an order on
allegedly pending the approval of Central Bank Liquidator Renan October 12, 1993, modifying the aforequoted decision, such that
Santos; that in the meantime, Diaz wrote the defendant, asking its dispositive portion as amended would now read as follows:
that the interest rate be reduced from 20% to 12% per annum,
but no reply was ever made; that subsequently, the defendant IN VIEW WHEREOF, the decision rendered last August 6, is
told him to change the P1,450,000.00 deposit into a money modified, accordingly, to wit:
market placement, which he did; that the money market
placement expired on April 14, 1989; that when there was still
no news from the defendant whether or not it [would] accept his
141
1. The plaintiff and defendant shall jointly compute the interest C.
due on the P1,167,000.00 loan from April 18, 1985 until
November 14, 1988 at 12% per annum. Whether or not the Court of Appeals correctly found that the
transaction between petitioner and PaBC was an ineffective
2. That the parties shall then add the result of the joint novation and that the consent of private respondent was
computation mentioned in paragraph one above to the necessary therefor.
P1,067,000.00 principal.
D.
3. The result of the addition of the P1,067,000.00 principal and
the interests arrived at shall then be compared with the Whether or not the Court of Appeals erred in refusing to apply
P1,450,000.00 money market placement put up by the plaintiff the rate of interest freely stipulated upon by the parties to the
with the defendant bank if the same is still existing or has not respondents obligation.
yet matured.
E.
4. The defendant shall cancel the mortgage.
Whether or not the Court of Appeals committed an irreconcilable
5. Paragraph eight of the lease contract between Allied Bank and error in ordering the parties to re-negotiate the terms of the
the plaintiff in which the defendant[s predecessor], Pacific contract while finding at the same time that the mortgage
Banking gave its conformity (Exh. H) is hereby cancelled and contract containing the lease was valid.
deleted, so that the rental should now be paid to the plaintiff.
F.
6. The defendant shall pay the plaintiff the sums:
Whether or not the petition, as argued by private respondent,
6.A Fifteen [t]housand [p]esos as attorneys fees; raises questions of fact not reviewable by certiorari.[8]
6.B Cost of suit.[7] In the main, the Court will determine (1) the efficacy of the
alleged tender of payment made by respondent, (2) the effect of
The CA Ruling the transfer to petitioner of respondents account with PaBC, (3)
the interest rate applicable, and (4) the status of the Real Estate
The CA sustained the trial courts finding that there was a valid Mortgage.
tender of payment in the sum of P1,450,000, made by Diaz
Realty Inc. in favor of Far East Bank and Trust Company. The The Courts Ruling
appellate court reasoned that petitioner failed to effectively rebut
respondents evidence that it so tendered the check to liquidate The Petition[9] is not meritorious.
its indebtedness, and that petitioner had unilaterally treated the
same as a deposit instead. First Issue: Tender of Payment
The CA further ruled that in the computation of interest charges, Petitioner resolutely argues that the CA erred in upholding the
the legal rate of 12 percent per annum should apply, reckoned validity of the tender of payment made by respondent. What the
from July 9, 1988, until full and final payment of the whole latter had tendered to settle its outstanding obligation, it points
indebtedness. It explained that while petitioners purchase of out, was a check which could not be considered legal tender.
respondents account from Pacific Banking Corporation (PaBC)
was valid, the 20 percent interest stipulated in the Promissory We disagree. The records show that petitioner bank purchased
Note should not apply, because the account transfer was without respondents account from PaBC in December 1986, and that the
the knowledge and the consent of respondent-obligor. latter was notified of the transaction only on March 23, 1988.
Thereafter, Antonio Diaz, president of respondent corporation,
The appellate court, however, sustained petitioners assertion inquired from petitioner on the status and the amount of its
that the trial court should not have cancelled the real estate obligation. He was informed that the obligation summed up to
mortgage contract, inasmuch as the principal obligation upon P1,447,142.03. On November 14, 1988, petitioner received from
which it was anchored was yet to be extinguished. As to the respondent Interbank Check No. 81399841 dated November 13,
lease contract, the CA held that the same was subject to 1988, bearing the amount of P1,450,000, with the notation Re:
renegotiation by the parties. Full Payment of Pacific Bank Account now turn[ed] over to Far
East Bank.[10] The check was subsequently cleared and honored
Lastly, the court a quo upheld the trial courts award of attorneys by Interbank, as shown by the Certification it issued on January
fees, pointing to petitioners negligence in not immediately 20, 1992.[11]
informing respondent of the purchase and transfer of its credit,
and in failing to negotiate in order to avoid litigation. True, jurisprudence holds that, in general, a check does not
constitute legal tender, and that a creditor may validly refuse it.
Issues [12] It must be emphasized, however, that this dictum does not
prevent a creditor from accepting a check as payment. In other
Petitioner submits for our resolution the following issues: words, the creditor has the option and the discretion of refusing
or accepting it.
A.
In the present case, petitioner bank did not refuse respondents
Whether or not the Court of Appeals correctly ruled that the check. On the contrary, it accepted the check which, it insisted,
validity of the tender of payment was not properly raised in the was a deposit. As earlier stated, the check proved to be fully
trial court and could not thus be raised in the appeal. funded and was in fact honored by the drawee bank. Moreover,
petitioner was in possession of the money for several months.
B.
In further contending that there was no valid tender of payment,
Whether or not the Court of Appeals erred in failing to apply petitioner emphasizes our pronouncement in Roman Catholic
settled jurisprudential principles militating against the private Bishop of Malolos, Inc. v. Intermediate Appellate Court,[13] as
respondents contention that a valid tender of payment had been follows:
made by it.
142
Tender of payment involves a positive and unconditional act by respondents credit did not involve any changes in the original
the obligor of offering legal tender currency as payment to the agreement between PaBC and respondent; neither did it vary the
obligee for the formers obligation and demanding that the latter rights and the obligations of the parties. Thus, no novation by
accept the same. conventional subrogation could have taken place.
Finally, petitioner points out that, in any case, tender of payment WHEREFORE, the Petition is hereby DENIED. The assailed
extinguishes the obligation only after proper consignation, which Decision of the Court of Appeals is AFFIRMED with the following
respondent did not do. modifications: Respondent Diaz Realty Inc. is ORDERED to pay
Far East Bank and Trust Co. its principal loan obligation in the
The argument does not persuade. For a consignation to be amount of P1,067,000, with interest thereon computed at 20
necessary, the creditor must have refused, without just cause, to percent per annum until November 14, 1988, less any interest
accept the debtors payment.[15] However, as pointed out payments made to PaBC, petitioners assignor. Thereafter,
earlier, petitioner accepted respondents check. interest shall be computed at 12 percent per annum until fully
paid.
To iterate, the tender was made by respondent for the purpose
of settling its obligation. It was incumbent upon petitioner to SO ORDERED.
refuse, or accept it as payment. The latter did not have the right
or the option to accept and treat it as a deposit. Thus, by [G.R. No. 156846. February 23, 2004]
accepting the tendered check and converting it into money,
petitioner is presumed to have accepted it as payment. To hold TEDDY G. PABUGAIS, petitioner, vs. DAVE P. SAHIJWANI,
otherwise would be inequitable and unfair to the obligor. respondent.
Art. 1260. Once the consignation has been duly made, the debtor The antecedent facts are as follows:
may ask the judge to order the cancellation of the obligation.
On February 11, 1999, petitioner-spouses Jaime and Marina
Before the creditor has accepted the consignation, or before a Benos ("the Benos spouses") and respondent-spouses Gregorio
judicial confirmation that the consignation has been properly and Janice Gail Lawilao ("the Lawilao spouses") executed a Pacto
made, the debtor may withdraw the thing or the sum deposited, de Retro Sale5 where the Benos spouses sold their lot covered
allowing the obligation to remain in force. by Tax Declaration No. 25300 and the building erected thereon
for P300,000.00, one half of which was to be paid in cash to the
The amount consigned with the trial court can no longer be Benos spouses and the other half to be paid to the bank to pay
withdrawn by petitioner because respondents prayer in his off the loan of the Benos spouses which was secured by the
answer that the amount consigned be awarded to him is same lot and building. Under the contract, the Benos spouses
equivalent to an acceptance of the consignation, which has the could redeem the property within 18 months from date of
effect of extinguishing petitioners obligation. execution by returning the contract price, otherwise, the sale
would become irrevocable without necessity of a final deed to
Moreover, petitioner failed to manifest his intention to comply consolidate ownership over the property in the name of the
with the Agreement And Undertaking by delivering the necessary Lawilao spouses.
documents and the lot subject of the sale to respondent in
exchange for the amount deposited. Withdrawal of the money After paying the P150,000.00, the Lawilao spouses immediately
consigned would enrich petitioner and unjustly prejudice took possession of the property and leased out the building
respondent. thereon. However, instead of paying the loan to the bank, Janice
Lawilao restructured it twice. Eventually, the loan became due
The withdrawal of the amount deposited in order to pay and demandable.
attorneys fees to petitioners counsel, Atty. De Guzman, Jr.,
violates Article 1491 of the Civil Code which forbids lawyers from On August 14, 2000, a son of the Benos spouses paid the bank
acquiring by assignment, property and rights which are the P159,000.00 representing the principal and interest. On the
object of any litigation in which they may take part by virtue of same day, the Lawilao spouses also went to the bank and offered
their profession.[27] Furthermore, Rule 10 of the Canons of to pay the loan, but the bank refused to accept the payment. The
Professional Ethics provides that the lawyer should not purchase Lawilao spouses then filed with the Municipal Circuit Trial Court a
any interest in the subject matter of the litigation which he is petition6 docketed as Civil Case No. 310 for consignation against
conducting. The assailed transaction falls within the prohibition the bank and simultaneously deposited the amount of
because the Deed assigning the amount of P672,900.00 to Atty. P159,000.00. Upon the bank’s motion, the court dismissed the
De Guzman, Jr., as part of his attorneys fees was executed petition for lack of cause of action.
during the pendency of this case with the Court of Appeals. In his
Motion to Intervene, Atty. De Guzman, Jr., not only asserted Subsequently, the Lawilao spouses filed with the Municipal Circuit
ownership over said amount, but likewise prayed that the same Trial Court a complaint docketed as Civil Case No. 314, for
be released to him. That petitioner knowingly and voluntarily consolidation of ownership. This complaint is the precursor of the
assigned the subject amount to his counsel did not remove their instant petition. The Benos spouses moved to dismiss on grounds
145
of lack of jurisdiction and lack of cause of action but it was ownership thereof immediately vested in them (Lawilao
denied and the parties went to trial. spouses).
On November 14, 2002, the Municipal Circuit Trial Court The issue for resolution is whether the Lawilao spouses can
rendered judgment in favor of the Benos spouses, the dispositive consolidate ownership over the subject property.
portion of which states:
The petition is impressed with merit.
IN THE LIGHT of all the foregoing considerations, for lack of legal
and factual basis to demand consolidation of ownership over the In ruling for respondents, the Court of Appeals held that: (1) the
subject property, the above-entitled case is hereby ordered pacto de retro sale was perfected because the parties voluntarily
dismissed. agreed upon the object thereof and the price; (2) the Lawilao
spouses acquired possession over the property immediately after
No pronouncement as to damages on the ground that no execution of the pacto de retro sale; (3) the pacto de retro sale
premium should be assessed on the right to litigate. does not provide for automatic rescission in case the Lawilao
spouses fail to pay the full price; (4) the Benos spouses did not
No costs. rescind the contract after the Lawilao spouses failed to pay the
P150,000.00 loan; (5) Janice Lawilao offered to pay the loan and
SO ORDERED.7 deposited P150,000.00 to the bank although the period for
payment had expired thus, complying with Article 1592 of the
The Lawilao spouses appealed before the Regional Trial Court Civil Code allowing payment even after expiration of the period
which reversed the Municipal Circuit Trial Court and declared the as long as no demand for rescission of the contract had been
ownership of the subject property consolidated in favor of the made either judicially or by a notarial act; (6) the title and
Lawilao spouses.8 ownership of the Lawilao spouses became absolute when the
Benos spouses failed to repurchase the lot within the redemption
The Benos spouses appealed to the Court of Appeals which period; and (7) the payment by the Benos spouses’ son of
affirmed the Regional Trial Court on December 5, 2005. The P159,000.00 to the bank does not amount to a repurchase as it
dispositive portion of the Decision reads: violates Article 1616 of the Civil Code requiring the vendor to
return to the vendee the price of the sale, the expenses of the
WHEREFORE, the petition for review is DISMISSED for lack of contract and other necessary and useful expenses.11
sufficient merit. The decision rendered by the Regional Trial
Court, Branch 35, Bontoc, Mountain Province in Civil Case No. Contrary to the aforesaid findings, the evidence shows that the
1091 on 1 July 2003, reversing the decision of the Municipal Lawilao spouses did not make a valid tender of payment and
Circuit Trial Court of Bauko-Sabangan, Mountain Province in consignation of the balance of the contract price. As correctly
(Civil Case No.) 314, is AFFIRMED. found by the Regional Trial Court:
4.1. It was likewise error for said lower courts not to have ruled The Lawilao spouses did not appeal said finding, and it has
that the contract between the parties is actually an equitable become final and binding on them. Although they had repeatedly
mortgage.10 alleged in their pleadings that the amount of P159,000.00 was
still with the trial court which the Benos spouses could withdraw
The Benos spouses argue that consolidation is not proper anytime, they never made any step to withdraw the amount and
because the Lawilao spouses violated the terms of the contract thereafter consign it. Compliance with the requirements of
by not paying the bank loan; that having breached the terms of tender and consignation to have the effect of payment are
the contract, the Lawilao spouses cannot insist on the mandatory. Thus –
performance thereof by the Benos spouses; that the contract
was actually an equitable mortgage as shown by the inadequacy Tender of payment is the manifestation by debtors of their desire
of the consideration for the subject property; and that to comply with or to pay their obligation. If the creditor refuses
respondent-spouses’ remedy should have been for recovery of the tender of payment without just cause, the debtors are
the loan or foreclosure of mortgage. discharged from the obligation by the consignation of the sum
due. Consignation is made by depositing the proper amount to
The Lawilao spouses, on the other hand, assert that the Pacto de the judicial authority, before whom the tender of payment and
Retro Sale reflected the parties’ true agreement; that the Benos the announcement of the consignation shall be proved. All
spouses cannot vary its terms and conditions because they did interested parties are to be notified of the consignation.
not put in issue in their pleadings its ambiguity, mistake or Compliance with these requisites is mandatory.13 (Emphasis
imperfection as well as its failure to express the parties’ true supplied)
intention; that the Benos spouses admitted its genuineness and
due execution; and that the delivery of the property to the In the instant case, records show that the Lawilao spouses filed
Lawilao spouses after the execution of the contract shows that the petition for consignation against the bank in Civil Case No.
the agreement was a sale with a right of repurchase and not an 310 without notifying the Benos spouses. The petition was
equitable mortgage. dismissed for lack of cause of action against the bank. Hence,
the Lawilao spouses failed to prove their offer to pay the balance
The Lawilao spouses also claim that they complied with their of the purchase price and consignation. In fact, even before the
obligation when they offered to pay the loan to the bank and filing of the consignation case, the Lawilao spouses never notified
filed a petition for consignation; and that because of the failure the Benos spouses of their offer to pay.
of the Benos spouses to redeem the property, the title and
146
Thus, as far as the Benos are concerned, there was no full and jurisprudence that a right in law may be enforced and a wrong
complete payment of the contract price, which gives them the way be remedied but always through the appropriate action.17
right to rescind the contract pursuant to Articles 1191 in relation
to Article 1592 of the Civil Code, which provide: The issue of rescission having been put in issue in the answer
and the same having been litigated upon without objections by
Art. 1191. The power to rescind obligations is implied in the Lawilao spouses on grounds of jurisdiction, the Municipal
reciprocal ones, in case one of the obligors should not comply Circuit Trial Court should have ruled on the same and wrote finis
with what is incumbent upon him. to the controversy.
The injured party may choose between the fulfillment and the Thus, as a necessary consequence of its ruling that the Lawilao
rescission of the obligation, with the payment of damages in spouses breached the terms of the Pacto de Retro Sale, the
either case. He may also seek rescission, even after he has Municipal Circuit Trial Court should have rescinded the Pacto de
chosen fulfillment, if the latter should become impossible. Retro Sale and directed the Benos spouses to return
P150,000.00 to the Lawilao spouses, pursuant to our ruling in
The court shall decree the rescission claimed, unless there be Cannu v. Galang,18 to wit:
just cause authorizing the fixing of a period.
Petitioners maintain that inasmuch as respondents-spouses
This is understood to be without prejudice to the rights of third Galang were not granted the right to unilaterally rescind the sale
persons who have acquired the thing, in accordance with Articles under the Deed of Sale with Assumption of Mortgage, they
1385 and 1388 of the Mortgage Law. should have first asked the court for the rescission thereof before
they fully paid the outstanding balance of the mortgage loan with
Art. 1592. In the sale of immovable property, even though it the NHMFC. They claim that such payment is a unilateral act of
may have been stipulated that upon failure to pay the price at rescission which violates existing jurisprudence.
the time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of the In Tan v. Court of Appeals, this court said:
period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act. After . . . [T]he power to rescind obligations is implied in reciprocal
the demand, the court may not grant him a new term. ones in case one of the obligors should not comply with what is
incumbent upon him is clear from a reading of the Civil Code
In the instant case, while the Benos spouses did not rescind the provisions. However, it is equally settled that, in the absence of a
Pacto de Retro Sale through a notarial act, they nevertheless stipulation to the contrary, this power must be invoked judicially;
rescinded the same in their Answer with Counterclaim where it cannot be exercised solely on a party’s own judgment that the
they stated that: other has committed a breach of the obligation. Where there is
nothing in the contract empowering the petitioner to rescind it
14. Plaintiffs did not perform their obligation as spelled out in the without resort to the courts, the petitioner’s action in unilaterally
Pacto de Retro Sale (ANNEX "A"), particularly the assumption of terminating the contract in this case is unjustified.
the obligation of defendants to the Rural Bank of Bontoc.
Defendants were the ones who paid their loan through their son, It is evident that the contract under consideration does not
ZALDY BENOS. As a result, ANNEX "A" is rendered null and of no contain a provision authorizing its extrajudicial rescission in case
effect. Therefore, the VENDEE a retro who is one of plaintiffs one of the parties fails to comply with what is incumbent upon
herein cannot consolidate her ownership over the property him. This being the case, respondents-spouses should have
subject of the null and ineffective instrument. asked for judicial intervention to obtain a judicial declaration of
rescission. Be that as it may, and considering that respondents-
15. Since plaintiffs did not perform their corresponding obligation spouses’ Answer (with affirmative defenses) with Counterclaim
under ANNEX "A", defendants have been all too willing to return seeks for the rescission of the Deed of Sale with Assumption of
the amount of ON[E] HUNDRED FIFTY THOUSAND PESOS Mortgage, it behooves the court to settle the matter once and for
(P150,000.00) and reasonable interest thereon to plaintiffs. But all than to have the case re-litigated again on an issue already
plaintiffs refused to accept the same. heard on the merits and which this court has already taken
cognizance of. Having found that petitioners seriously breached
With the filing of this answer, defendants pray that this serves as the contract, we, therefore, declare the same is rescinded in
a notice of tender of payment, and they shall consign the amount favor of respondents-spouses.
with the proper court as soon as it is legally feasible.14
As a consequence of the rescission or, more accurately,
They also prayed that the Municipal Circuit Trial Court render resolution of the Deed of Sale with Assumption of Mortgage, it is
judgment "[d]eclaring the Pacto de Retro Sale rescinded or the duty of the court to require the parties to surrender whatever
ineffective or void for lack of, or insufficient consideration."15 they may have received from the other. The parties should be
restored to their original situation.
In Iringan v. Court of Appeals,16 we ruled that "even a
crossclaim found in the Answer could constitute a judicial The record shows petitioners paid respondents-spouses the
demand for rescission that satisfies the requirement of the law." amount of P75,000.00 out of the P120,000.00 agreed upon.
Similarly, the counterclaim of the Benos spouses in their answer They also made payments to NHMFC amounting to P55,312.47.
satisfied the requisites for the judicial rescission of the subject As to the petitioners’ alleged payment to CERF Realty of
Pacto de Retro Sale. P46,616.70, except for petitioner Leticia Cannu’s bare allegation,
we find the same not to be supported by competent evidence. As
The Municipal Circuit Trial Court thus correctly dismissed the a general rule, one who pleads payment has the burden of
complaint for consolidation of ownership filed by the Lawilao proving it. However, since it has been admitted in respondents-
spouses for their failure to comply with the conditions of the spouses’ Answer that petitioners shall assume the second
Pacto de Retro Sale. Nevertheless, it refused to declare the mortgage with CERF Realty in the amount of P35,000.00, and
rescission of the Pacto de Retro Sale as prayed for in the that Adelina Timbang, respondents-spouses’ very own witness,
counterclaim of the Benos spouses, stating that: testified that same has been paid, it is but proper to return this
amount to petitioners. The three amounts total P165,312.47 --
How about the other obligations and/or rights owing to either the sum to be returned to petitioners.
party by virtue of the Pacto de Retro Sale? This, the court opines
that it can not delve into without overstepping the limits of his WHEREFORE, the petition is GRANTED. The Decision dated
functions there being appropriate remedies. It is hornbook in our December 5, 2005 and Resolution dated March 17, 2006 of the
147
Court of Appeals in CA-G.R. SP No. 78845, affirming the loan documents and TCT No. 37017, while petitioners were
Judgment dated July 1, 2003 of the Regional Trial Court of unable to pay the loan/consideration for the property.
Bontoc, Mountain Province, Branch 35, in Civil Case No. 1091,
are REVERSED and SET ASIDE. The Decision dated November AFPMBAI made oral and written demands for petitioners to pay
14, 2002 of the Municipal Circuit Trial Court of Bauko, Mountain the loan/ consideration for the property.10
Province in Civil Case No. No. 314 dismissing respondents’
complaint for consolidation of ownership and damages is In July 2003, petitioners filed a Complaint11 for consignation of
REINSTATED WITH THE MODIFICATION that the Pacto de Retro loan payment, recovery of title and cancellation of mortgage
Sale dated February 11, 1999 is declared rescinded and annotation against AFPMBAI, PDIC and the Register of Deeds of
petitioners are ordered to return the amount of P150,000.00 to Puerto Princesa City. The case was docketed as Civil Case No.
respondents. No costs. 3812 and raffled to Branch 47 of the Regional Trial Court (RTC)
of Puerto Princesa City (Puerto Princesa RTC). Petitioners alleged
SO ORDERED. in their Complaint that as a result of the Rural Bank’s closure and
G.R. No. 171298 April 15, 2013 PDIC’s claim that their loan papers could not be located, they
were left in a quandary as to where they should tender full
SPOUSES OSCAR and THELMA CACAYORIN, Petitioners, payment of the loan and how to secure cancellation of the
vs. mortgage annotation on TCT No. 37017. Petitioners prayed,
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, thus:
INC., Respondent.
a. That after the filing of this complaint an order be made
DECISION allowing the consignation x x x of Php77,418.00.
DEL CASTILLO, J.: b. For the court to compute and declare the amount of interest to
be paid by the plaintiffs and thereafter to allow the consignation
Consignation is necessarily judicial. Article 1258 of the Civil Code of the interest payments in order to give way for the full
specifically provides that consignation shall be made by discharge of the loan.
depositing the thing or things due at the disposal of judicial
authority. The said provision clearly precludes consignation in c. To order the AFPMBAI to turn over to the custody of the court
venues other than the courts. the loan records and title (T.C.T. No. 37017) of the plaintiffs if
the same are in their possession.
Assailed in this Petition for Review on Certiorari1 are the
September 29, 2005 Decision2 of the Court of Appeals (CA) d. To declare the full payment of the principal loan and interest
which granted the Petition for Certiorari in CA-G.R. SP No. 84446 and ordering the full discharge from mortgage of the property
and its January 12, 2006 Resolution3 denying petitioners' Motion covered by T.C.T. No. 37017.
for Reconsideration.4
e. To order the Register of Deeds of Puerto Princesa City to
Factual Antecedents cancel the annotation of real estate mortgage under Entry No.
3364 at the back of T.C.T. No. 37017.
Petitioner Oscar Cacayorin (Oscar) is a member of respondent
Armed Forces and Police Mutual Benefit Association, Inc. f. Thereafter, to turn over to the plaintiffs their title free from the
(AFPMBAI), a mutual benefit association duly organized and aforesaid mortgage loan.12
existing under Philippine laws and engaged in the business of
developing low-cost housing projects for personnel of the Armed AFPMBAI filed a Motion to Dismiss13 claiming that petitioners’
Forces of the Philippines, Philippine National Police, Bureau of Complaint falls within the jurisdiction of the Housing and Land
Fire Protection, Bureau of Jail Management and Penology, and Use Regulatory Board (HLURB) and not the Puerto Princesa RTC,
Philippine Coast Guard. He filed an application with AFPMBAI to as it was filed by petitioners in their capacity as buyers of a
purchase a piece of property which the latter owned, specifically subdivision lot and it prays for specific performance of
Lot 5, Block 8, Phase I, Kalikasan Mutual Homes, San Pedro, contractual and legal obligations decreed under Presidential
Puerto Princesa City (the property), through a loan facility. Decree No. 95714 (PD 957). It added that since no prior valid
tender of payment was made by petitioners, the consignation
On July 4, 1994, Oscar and his wife and co-petitioner herein, case was fatally defective and susceptible to dismissal.
Thelma, on one hand, and the Rural Bank of San Teodoro (the
Rural Bank) on the other, executed a Loan and Mortgage Ruling of the Regional Trial Court
Agreement5 with the former as borrowers and the Rural Bank as
lender, under the auspices of Pag-IBIG or Home Development In an October 16, 2003 Order,15 the trial court denied
Mutual Fund’s Home Financing Program. AFPMBAI’s Motion to Dismiss, declaring that since title has been
transferred in the name of petitioners and the action involves
The Rural Bank issued an August 22, 1994 letter of guaranty6 consignation of loan payments, it possessed jurisdiction to
informing AFPMBAI that the proceeds of petitioners’ approved continue with the case. It further held that the only remaining
loan in the amount of ₱77,418.00 shall be released to AFPMBAI unsettled transaction is between petitioners and PDIC as the
after title to the property is transferred in petitioners’ name and appointed receiver of the Rural Bank.
after the registration and annotation of the parties’ mortgage
agreement. AFPMBAI filed a Motion for Reconsideration,16 which the trial
court denied in its March 19, 2004 Order.17
On the basis of the Rural Bank’s letter of guaranty, AFPMBAI
executed in petitioners’ favor a Deed of Absolute Sale,7 and a Ruling of the Court of Appeals
new title – Transfer Certificate of Title No. 370178 (TCT No.
37017) – was issued in their name, with the corresponding AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a
annotation of their mortgage agreement with the Rural Bank, Petition for Certiorari18 raising the issue of jurisdiction. On
under Entry No. 3364.9 September 29, 2005, the CA rendered the assailed Decision
decreeing as follows:
Unfortunately, the Pag-IBIG loan facility did not push through
and the Rural Bank closed and was placed under receivership by WHEREFORE, premises considered, this Petition is GRANTED. The
the Philippine Deposit Insurance Corporation (PDIC). Meanwhile, Assailed 16 October 2003 and 19 March 2004 Orders of the
AFPMBAI somehow was able to take possession of petitioners’
148
public respondent judge are hereby ordered VACATED and SET loan. This made [sic] the plaintiffs in quandary as to where or
ASIDE. whom they will pay their loan, which they intend to pay in full, so
as to cancel the annotation of mortgage in their title.
SO ORDERED.19
7.0 – It was discovered that the loan papers of the plaintiffs,
The CA held that Civil Case No. 3812 is a case for specific including the duplicate original of their title, were in the
performance of AFPMBAI’s contractual and statutory obligations possession of defendant AFPMBAI. It was unclear though why the
as owner/developer of Kalikasan Mutual Homes, which makes PD said documents including the title were in the possession of
957 applicable and thus places the case within the jurisdiction of AFPMBAI. These papers should have been in RBST’s possession
the HLURB. It said that since one of the remedies prayed for is and given to PDIC after its closure in the latter’s capacity as
the delivery to petitioners of TCT No. 37017, the case is receiver.
cognizable exclusively by the HLURB.
8.0 – Plaintiffs are now intending to pay in full their real estate
Petitioners moved for reconsideration which was denied by the loan but could not decide where to pay the same because of
CA in its January 12, 2006 Resolution. RBST [sic] closure and PDIC’s failure to locate the loan records
and title. This court’s intervention is now needed in order to
Hence, the instant Petition. determine to [sic] where or whom the loan should be paid.
Issue 9.0 – Plaintiffs hereby respectfully prays [sic] for this court to
allow the deposit of the amount of Php77,418.00 as full payment
The sole issue that must be resolved in this Petition is: Does the of their principal loan, excluding interest, pursuant to the Loan
Complaint in Civil Case No. 3812 fall within the exclusive and Mortgage Agreement on 4 July 1994.23
jurisdiction of the HLURB?
From the above allegations, it appears that the petitioners’ debt
Petitioners’ Arguments is outstanding; that the Rural Bank’s receiver, PDIC, informed
petitioners that it has no record of their loan even as it took over
Petitioners assert that the elements which make up a valid case the affairs of the Rural Bank, which on record is the petitioners’
for consignation are present in their Complaint. They add that creditor as per the July 4, 1994 Loan and Mortgage Agreement;
since a deed of absolute sale has been issued in their favor, and that one way or another, AFPMBAI came into possession of the
possession of the property has been surrendered to them, not to loan documents as well as TCT No. 37017; that petitioners are
mention that title has been placed in their name, the HLURB lost ready to pay the loan in full; however, under the circumstances,
jurisdiction over their case. And for this same reason, petitioners they do not know which of the two – the Rural Bank or AFPMBAI
argue that their case may not be said to be one for specific – should receive full payment of the purchase price, or to whom
performance of contractual and legal obligations under PD 957 as tender of payment must validly be made.
nothing more was left to be done in order to perfect or
consolidate their title. Under Article 1256 of the Civil Code,24 the debtor shall be
released from responsibility by the consignation of the thing or
Petitioners thus pray that the herein assailed Decision and sum due, without need of prior tender of payment, when the
Resolution of the CA be set aside, and that the trial court be creditor is absent or unknown, or when he is incapacitated to
ordered to continue with the proceedings in Civil Case No. 3812. receive the payment at the time it is due, or when two or more
persons claim the same right to collect, or when the title to the
Respondent's Arguments obligation has been lost. Applying Article 1256 to the petitioners’
case as shaped by the allegations in their Complaint, the Court
Respondent, on the other hand, insists in its Comment20 that finds that a case for consignation has been made out, as it now
jurisdiction over petitioners’ case lies with the HLURB, as it appears that there are two entities which petitioners must deal
springs from their contractual relation as seller and buyer, with in order to fully secure their title to the property: 1) the
respectively, of a subdivision lot. The prayer in petitioners’ Rural Bank (through PDIC), which is the apparent creditor under
Complaint involves the surrender or delivery of the title after full the July 4, 1994 Loan and Mortgage Agreement; and 2)
payment of the purchase price, which respondent claims are AFPMBAI, which is currently in possession of the loan documents
reciprocal obligations in a sale transaction covered by PD 957. and the certificate of title, and the one making demands upon
Respondent adds that in effect, petitioners are exacting specific petitioners to pay. Clearly, the allegations in the Complaint
performance from it, which places their case within the present a situation where the creditor is unknown, or that two or
jurisdiction of the HLURB. more entities appear to possess the same right to collect from
petitioners. Whatever transpired between the Rural Bank or PDIC
Our Ruling and AFPMBAI in respect of petitioners’ loan account, if any, such
that AFPMBAI came into possession of the loan documents and
The Court grants the Petition. TCT No. 37017, it appears that petitioners were not informed
thereof, nor made privy thereto.
The Complaint makes out a case for consignation.
Indeed, the instant case presents a unique situation where the
The settled principle is that "the allegations of the Complaint buyer, through no fault of his own, was able to obtain title to real
determine the nature of the action and consequently the property in his name even before he could pay the purchase
jurisdiction of the courts. This rule applies whether or not the price in full. There appears to be no vitiated consent, nor is there
plaintiff is entitled to recover upon all or some of the claims any other impediment to the consummation of their agreement,
asserted therein as this is a matter that can be resolved only just as it appears that it would be to the best interests of all
after and as a result of the trial."21 parties to the sale that it be once and for all completed and
terminated. For this reason, Civil Case No. 3812 should at this
Does the Complaint in Civil Case No. 3812 make out a case for juncture be allowed to proceed.
consignation? It alleges that:
Moreover, petitioners’ position is buttressed by AFPMBAI’s own
6.0 – Not long after however, RBST22 closed shop and defendant admission in its Comment25 that it made oral and written
Philippine Deposit Insurance Corporation (PDIC) was appointed demands upon the former, which naturally aggravated their
as its receiver. The plaintiffs, through a representative, made a confusion as to who was their rightful creditor to whom payment
verbal inquiry to the PDIC regarding the payment of their loan should be made – the Rural Bank or AFPMBAI. Its subsequent
but were told that it has no information or record of the said filing of the Motion to Dismiss runs counter to its demands to
149
pay. If it wanted to be paid with alacrity, then it should not have
moved to dismiss Civil Case No. 3812, which was brought We resolve the Petition for Review on Certiorari under Rule 45 of
precisely by the petitioners in order to be able to finally settle the Rules of Court, assailing the May 28, 2012 Decision1 and the
their obligation in full. February 21, 2013 Resolution2 of the Court of Appeals (CA) in
CA-G.R. SP No. 98112.
Finally, the lack of prior tender of payment by the petitioners is
not fatal to their consignation case. They filed the case for the The Antecedent Facts
exact reason that they were at a loss as to which between the
two – the Rural Bank or AFPMBAI – was entitled to such a tender Respondent Lilibeth S. Chan owns a three-story commercial
of payment. Besides, as earlier stated, Article 1256 authorizes building located along A. Linao Street, Paco, Manila covered by
consignation alone, without need of prior tender of payment, Transfer Certificate of Title (TCT) No. 208782.3 On May 10,
where the ground for consignation is that the creditor is 2000, she leased said commercial building to petitioner Philippine
unknown, or does not appear at the place of payment; or is National Bank (PNB) for a period of five years from December
incapacitated to receive the payment at the time it is due; or 15, 1999 to December 14, 2004, with a monthly rental of
when, without just cause, he refuses to give a receipt; or when ₱76,160.00.4 When the lease expired, PNB continued to occupy
two or more persons claim the same right to collect; or when the the property on a month-to-month basis with a monthly rental of
title of the obligation has been lost. ₱116,788.44. PNB vacated the premises on March 23, 2006.5
Consignation is necessarily judicial; hence, jurisdiction lies with Meanwhile, on January 22, 2002, respondent obtained a
the RTC, not with the HLURB. ₱l,500,000.00 loan from PNB which was secured by a Real Estate
Mortgage constituted over the leased property.6 In addition,
On the question of jurisdiction, petitioners’ case should be tried respondent executed a Deed of Assignment7 over the rental
in the Puerto Princesa RTC, and not the HLURB. Consignation is payments in favor of PNB.
necessarily judicial,26 as the Civil Code itself provides that
consignation shall be made by depositing the thing or things due The amount of the respondent's loan was subsequently increased
at the disposal of judicial authority, thus: to ₱7,500,000.00. Consequently, PNB and the respondent
executed an "Amendment to the Real Estate Mortgage by
Art. 1258. Consignation shall be made by depositing the things Substitution of Collateral" on March 31, 2004, where the
due at the disposal of judicial authority, before whom the tender mortgage over the leased property was released and substituted
of payment shall be proved, in a proper case, and the by a mortgage over a parcel of land located in Paco, Manila,
announcement of the consignation in other cases. covered by TCT No. 209631.8
The consignation having been made, the interested parties shall On August 26, 2005, respondent filed a Complaint for Unlawful
also be notified thereof. (Emphasis and underscoring supplied) Detainer before the Metropolitan Trial Court (MeTC), Branch 7,
Manila against PNB, alleging that the latter failed to pay its
The above provision clearly precludes consignation in venues monthly rentals from October 2004 until August 2005:9
other than the courts.1âwphi1 Elsewhere, what may be made is
a valid tender of payment, but not consignation. The two, In its defense, PNB claimed that it applied the rental proceeds
however, are to be distinguished. from October 2004 to January 15, 2005 as payment for
respondent's outstanding loan which became due and
Tender of payment must be distinguished from consignation. demandable in October 2004.10 As for the monthly rentals from
Tender is the antecedent of consignation, that is, an act January 16, 2005 to February 2006, PNB explained that it
preparatory to the consignation, which is the principal, and from received a demand letter11 from a certain Lamberto Chua
which are derived the immediate consequences which the debtor (Chua) who claimed to be the new owner of the leased property
desires or seeks to obtain. Tender of payment may be and requested that the rentals be paid directly to him, reckoned
extrajudicial, while consignation is necessarily judicial, and the from January 15, 2005 until PNB decides to vacate the premises
priority of the first is the attempt to make a private settlement or a new lease contract with Chua is executed. PNB thus
before proceeding to the solemnities of consignation. (8 Manresa deposited the rentals in a separate non-drawing savings account
325).27 for the benefit of the rightful party.12
While it may be true that petitioners’ claim relates to the terms The MeTC held a hearing on April 25, 2006 where the parties
and conditions of the sale of AFPMBAI’s subdivision lot, this is agreed to apply the rental proceeds from October 2004 to
overshadowed by the fact that since the Complaint in Civil Case January 15, 2005 to the respondent's outstanding loan.13 PNB,
No. 3812 pleads a case for consignation, the HLURB is without too, consigned the amount of ₱l,348,643.92, representing ti1ie
jurisdiction to try it, as such case may only be tried by the rentals due from January 16, 2005 to February 2006, with the
regular courts. court on May 31, 2006.14
WHEREFORE, premises considered, the Petition is GRANTED. The Ruling of the Metropolitan Trial Court
September 29, 2005 Decision and January 12, 2006 Resolution
of the Court of Appeals in CA-G.R. SP No. 84446 are ANNULLED In its August 9, 2006 Decision,15 the MeTC ordered PNB to pay
and SET ASIDE. The October 16, 2003 and March 19, 2004 respondent accrued rentals in the amount of ₱l,348,643.92,16
Orders of the Regional Trial Court of Puerto Princesa City, Branch with interest at 6% per annum from January 16, 2005 up to
47, are REINSTATED, and the case is REMANDED to the said March 23, 2006, when PNB finally vacated the leased propeity.17
court for continuation of the proceedings. The MeTC likewise directed PNB to pay attorney's fees in the
amount of ₱20,000.00 and the cost of suit.
SO ORDERED.
PNB appealed the August 9, 2006 MeTC Decision to the Regional
March 13, 2017 Trial Court (RTC), Branch 14, Manila, insisting that respondent is
G.R. No. 206037 not entitled to the disputed rental proceeds amounting to
₱l,348,643.92. According to PNB, the money should be applied to
PHILIPPINE NATIONAL BANK, Petitioner offset respondent's outstanding loan pursuant to the
vs
LILIBETH S. CHAN, Respondent Deed of Assignment the latter executed in its favor. PNB also
DECISION argued that it is not liable to pay any interest on the lease
DEL CASTILLO, J.: rentals since it did not incur any delay in the payment of rent.18
150
(2) From January 16, 2005 to October 31, 2006: New Principal +
While the appeal was pending before the RTC, PNB initiated Interest + Penalties - Interest Earned by PN'B from the Savings
foreclosure proceedings on the mortgaged property covered by Account = Outstanding Obligation as of October 31, 2006
TCT No. 209631.19 The property was sold on October 31, 2006
for ₱l5,311,000.00 to PNB as the highest bidder. Notably, the (3) Outstanding Obligation as of October 31, 2006 –
Certificate of Sale provides that respondent's indebtedness ₱15,311,000.00 = Deficiency38
amounted to ₱ll,211,283.53 as of May 15, 2005, "exclusive of
penalties, expenses, charges and the ten (10) percent attorney's As regards the payment of legal interest, the CA noted that PNB
fees, plus sheriff fees and other lawful expenses of foreclosure merely opened a non-drawing savings account wherein it
and sale."20 deposited the monthly rentals from January 16, 2005 to
February 2006. Such deposit of the rentals in a savings account,
In light of this development, respondent filed a Memorandum21 however, is not the consignation contemplated by law. Thus, the
before the RTC, claiming that PNB had no right to retain foe CA found PNB liable to pay the 6% legal interest rate prescribed
₱l,348,643.92 consigned with the court. She insisted that her under Article 2209 of the Civil Code for having defaulted in the
loan was fully paid when PNB bought the mortgaged property at payment of its monthly rentals to the respondent.39
₱15,3ll,000.00.22
Finally, the CA deleted the award of atton1ey's fees, pursuant to
PNB filed a Rejoinder23 and argued that respondent's the general rule that attorney's fees cannot be recovered as part
outstanding obligation as of October 31, 2006 was of damages because of the public policy that no premium should
₱18,016,300.71 while the bid price was only ₱l5,31l,000.00. be placed on the right to litigate.40
Thus, PNB claimed that it is entitled to a deficiency claim
amounting to ₱2,705,300.71 to which the rental proceeds of PNB filed a partial Motion for Reconsideration, but the CA denied
₱l,348,643.92 can be applied.24 the motion in its Resolution dated February 21, 2013. As a
consequence, PNB filed the present Petition for Review on
Ruling of the Regional Trial Court Certiorari before the Court, assailing the CA's May 28, 2012
Decision and February 21, 2013 Resolution.
The RTC affirmed the MeTC ruling in its December 7, 2006
Decision.25 It found that respondent's obligation to PNB "has Issues
already been paid, notwithstanding the belated claim of [the
latter] that there remains a deficiency."26 The RTC noted that In the present Petition, PNB raises the following issues for the
the ₱11,211,283.53 amount of indebtedness stated in the Notice Court's resolution: first, whether PNB properly consigned the
of Extra-Judicial Sale27 dated August 9, 2006 as of May 15, 2006 disputed rental payments in the amount of ₱l,348,643.92 with
plus penalties, expenses, charges, attorney's fees and expenses the Office of the Clerk of Court of the MeTC of Manila;41 second,
could have been easily covered by the ₱l5,31l,000.00 bid whether PNB incurred delay in the payment of rentals to the
price.28 respondent, making it liable to pay legal interest to the latter;42
and third, whether PNB is entitled to the disputed rental
In addition, the RTC held that PNB incurred delay "when despite proceeds in order to cover the alleged deficiency in payment of
demand, it refused to pay and vacate the premises.29 " As such, the respondent's liability after the foreclosure proceedings.43
the RTC ruled that the respondent is entitled to legal interest at
6% per annum and attorney's fees for having been compelled to The Court's Ruling
litigate to protect her interests.30
We DENY the Petition for Review on Certiorari as we find no
The respondent then moved for the issuance of a Writ of reversible error committed by the CA in issuing its assailed
Execution which was granted by the HTC in its December 18, Decision and Resolution.
2006 Order.31 According to the Sheriff's Report of Execution32
dated January 2, 2007, the amount of ₱l,348,643.92, "Consignation is the act of depositing the thing due with the
representing the monthly rentals from January 16, 2005 up to court or judicial authorities whenever the creditor cannot accept
March 23, 2006, was turned over to the respondent on or refuses to accept payment. [ I]t generally requires a prior
December 20, 2006.33 tender of payment."44
PNB filed a motion for reconsideration of the December 7, 2006 Under Article 1256 of the Civil Code, consignation alone is
Decision and for the quashal of the Writ of Execution, but the sufficient even without a prior tender of payment a) when the
RTC denied the motion in its Order dated February 6, 2007.34 creditor is absent or unknown or does not appear at the place of
Following the denial, PNB filed a Petition for Review under Rule payment; b) when he is incapacitated to receive the payment at
42 of the Rules of Court before the CA, challenging the RTC's the time it is due; c) when, without just cause, he refuses to give
December 7, 2006 Decision and February 6, 2007 Order. a receipt; d) when two or more persons claim the same right to
collect; and e) when the title of the obligation has been lost.
Ruling of the Court of Appeals
For consignation to be valid, the debtor must comply with the
The CA pointed out that PNB' s entitlement to the rental proceeds following requirements under the law:
in the amount of ₱1,348,643.92 is dependent on whether there is
a deficiency in payment after the foreclosure sale.35 It, however, 1) there was a debt due;
found no sufficient evidence on record that the amount of
respondent's liability as of October 31, 2006 is indeed 2) valid prior tender of payment, unless the consignation was
₱18,016,300.71, as PNB claims.36 Consequently, the CA made because of some legal cause provided in Article 1256;
remanded the case the MeTC for the proper reception of
evidence and determination, if any, of the deficiency on the 3) previous notice of the consignation has been given to the
foreclosure sale with the following guidelines:37 persons interested in the performance of the obligation;
(1) From October 2004 to January 15, 2005: Principal+ 4) the amount or thing due was placed at the disposal of the
Interest+ Penalties - Monthly Rentals (from October 2004 to court; and,
January 15, 2005 by virtue of the Deed of Assignment) =New
Principal 5) after the consignation had been made, the persons interested
were notified thereof:45
151
"Failure in any of the requirements is enough ground to render a
consignation ineffective."46 This is clearly an error. It is settled that a mortgagee has the
light to recover the deficiency resulting from the difference
In the present case, the records show that: first, PNB had the between the amount obtained in the sale at public auction and
obligation to pay respondent a monthly rental of ₱l16,788.44, the outstanding obligation of the mortgagor at the time of the
amounting to ₱l,348,643.92, from January 16, 2005 to March 23, foreclosure proceedings.59 The RTC failed to consider that the
2006;47 second, PNB had the option to pay the monthly rentals amount of indebtedness indicated in the Notice of Extra-Judicial
to respondent or to apply the same as payment for respondent's Sale60 dated August 9, 2006 was computed by PNB as of May
loan with the bank, but PNB did neither;48 third, PNB instead 15, 2006. Surely, the respondent's liability would have
opened a non-drawing savings account at its Paco Branch under significantly increased by the time the foreclosure sale was held
Account No. 202- 565327-3, where it deposited the subject on October 31, 2006.
monthly rentals, due to the claim of Chua of the same right to
collect the rent;49 and fourth, PNB consigned the amount of It also appears that the RTC merely assumed that the bid price
Pl,348,643.92 with the Office of the Clerk of Court of the MeTC of would cover the deficiency in payment, without actually making a
Manila on determination of whether such a deficiency exists and how much
it really is.
May 31, 2006.50
In these lights, we uphold the CA's ruling remanding the case to
Note that PNB's deposit of the subject monthly rentals in a non- the MeTC for the proper reception of evidence and computation
drawing savings account is not the consignation contemplated by of respondent's total indebtedness as of October 31, 2006, in
law, precisely because it does not place the same at the disposal order to determine whether there exists a deficiency in payment
of the court.51 Consignation is necessarily judicial; it is not as PNB insists.
allowed in venues other than the courts.52 Consequently, PNB's
obligation to pay rent for the period of January 16, 2005 up to WHEREFORE, we DENY the Petition for Review on Certiorari and
March 23, 2006 remained subsisting, as the deposit of the AFFIRM the Decision dated May 28, 2012 and the Resolution
rentals cannot be considered to have the effect of payment. dated February 21, 2013 of the Court of Appeals in CA-G.R. SP
No. 98112.
It is important to point out that PNB's obligation to pay the
subject monthly rentals had already fallen due and demandable SO ORDERED.
before PNB consigned the rental proceeds with the MeTC on May [G.R. No. 116896. May 5, 1997]
31, 2006. Although it is true that consignment has a retroactive PHILIPPINE NATIONAL CONSTRUCTION CORPORATION
effect, such payment is deemed to have been made only at the petitioner, vs. COURT OF APPEALS, MA. TERESA S. RAYMUNDO-
time of the deposit of the thing in court or when it was placed at ABARRA, JOSE S. RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S.
the disposal of the judicial authority.53 Based on these premises, RAYMUNDO, and AMADOR S. RAYMUNDO, respondents.
PNB's payment of the monthly rentals can only be considered to
have been made not earlier than May 31, 2006. DECISION
Given its belated consignment of the rental proceeds in court, DAVIDE, JR., J.:
PNB clearly defaulted in the payment of monthly rentals to the
respondent for the period January 16, 2005 up to March 23, This petition for review on certiorari has its roots in Civil Case
2006, when it finally vacated the leased property, As such, it is No. 53444, which was sparked by the petitioner's refusal to pay
liable to pay interest in accordance with Article 2209 of the Civil the rentals as stipulated in the contract of lease[1] on an
Code.1âwphi1 undivided portion of 30,000 square meters of a parcel of land
owned by the private respondents.
Article 2209 provides that if the debtor incurs delay in the
performance of an obligation consisting of the payment of a sum The lease contract, executed on 18 November 1985, reads in
of money, he shall be liable to pay the interest agreed upon, and part as follows:
in the absence of stipulation, the legal interest at 6% per annum.
There being no stipulated interest in this case, PNB is liable to 1. TERM OF LEASE - This lease shall be for a period of five (5)
pay legal interest at 6% per annum, from January 16, 2005 up to years, commencing on the date of issuance of the industrial
May 30, 2006 clearance by the Ministry of Human Settlements, renewable for a
like or other period at the option of the LESSEE under the same
As for the issue on PNB' s entitlement to the subject rental terms and conditions.
proceeds to cover the deficiency in payment after the foreclosure
sale of the mortgaged property, we agree with the CA's finding 2. RATE OF RENT - LESSEE shall pay to the LESSOR rent at the
that there is no sufficient evidence on record to show that such a monthly rate of TWENTY THOUSAND PESOS (P20,000.00),
deficiency exists.54 Unfortunately, the Statement of Account55 Philippine Currency, in the manner set forth in Paragraph 3
submitted by PNB is not enough to prove this claim, considering below. This rate shall be increased yearly by Five Percent (5%)
that it is unsupported by any corroborating evidence. Besides, based on the agreed monthly rate of P20,000.00 as follows:
the copy of the document in our records, both in the CA rollo and
the Supreme Court rollo,56 consists of illegible pages. Monthly Rate Period Applicable
We likewise agree with the CA's conclusion that the RTC seriously P21,000.00 Starting on the 2nd year
erred when it categorically stated that the loan was folly paid by
virtue of the foreclosure sale without determining the extent of P22,000.00 Starting on the 3rd year
the respondent's liability as of October 1, 2006, the date of the
foreclosure sale.57 Specifically, the RTC held that: P23,000.00 Starting on the 4th year
x x x In this regard, the amount of the indebtedness was clearly P24,000.00 Starting on the 5th year
stated in the Notice of Extra-Judicial Sale dated August 9, 2006
as ₱l1,211,283.53, as of May 15, [2006], exclusive of penalties, 3. TERMS OF PAYMENT - The rent stipulated in Paragraph 2
expenses, charges, attorney's fees and expenses. And since the above shall be paid yearly in advance by the LESSEE. The first
property was sold to the bank as the winning bidder at annual rent in the amount of TWO HUNDRED FORTY THOUSAND
₱15,311,000,00, obviously, the difference could have easily PESOS (P240,000.00), Philippine currency, shall be due and
covered the said penalties, etc."58 payable upon the execution of this Agreement and the
152
succeeding annual rents shall be payable every twelve (12) represented by Atty. Elpidio de Vega, and with his conformity in
months thereafter during the effectivity of this Agreement. open court, the hearing was reset, intransferable to September
26 and October 17, 1988. (p. 98, rec.) On September 26, 1988
4. USE OF LEASED PROPERTY - It is understood that the Property during the hearing, defendant's counsel filed a motion for
shall be used by the LESSEE as the site, grounds and premises of postponement (urgent) as he had "sore eyes", a medical
a rock crushing plant and field office, sleeping quarters and certificate attached.
canteen/mess hall. The LESSORS hereby grant to the LESSEE the
right to erect on the Leased Property such structure(s) and/or Counsel for plaintiffs objected to the postponement and the court
improvement(s) necessary for or incidental to the LESSEE's considered the evidence of the government terminated or
purposes. 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.).
11. TERMINATION OF LEASE - This Agreement may be On October 18, 1988 in the meantime, the defendant filed a
terminated by mutual agreement of the parties. Upon the motion for reconsideration of the order of the court on
termination or expiration of the period of lease without the same September 26, 1988 (p. 107, rec.) The motion was not asked to
being renewed, the LESSEE shall vacate the Leased Property at be set for hearing (p. 110 rec.) There was also no proof of notice
its expense. and service to counsel for plaintiff. The court in the interest of
justice set the hearing on the motion on November 29, 1988. (p.
On 7 January 1986, petitioner obtained from the Ministry of 120, rec.) but despite notice, again defendant's counsel was
Human Settlements a Temporary Use Permit[2] for the proposed absent (p. 120-A, dorsal side, rec.) without reason. The court
rock crushing project. The permit was to be valid for two years reset the motion to December 16, 1988, in the interest of justice.
unless sooner revoked by the Ministry. The motion for reconsideration was denied by the court. A
second motion for reconsideration was filed and counsel set for
On 16 January 1986, private respondents wrote petitioner hearing the motion on January 19, 1989. During the hearing,
requesting payment of the first annual rental in the amount of counsel for the government was absent. The motion was deemed
P240,000 which was due and payable upon the execution of the abandoned but the court at any rate, after a review of the
contract. They also assured the latter that they had already incidents and the grounds relied upon in the earlier motion of
stopped considering the proposals of other aggregates plants to defendant, found no reason to disturb its previous order.[8]
lease the property because of the existing contract with
petitioner.[3] On 12 April 1989, the trial court rendered a decision ordering
petitioner to pay the private respondents the amount of
In its reply-letter, petitioner argued that under paragraph 1 of P492,000 which represented the rentals for two years, with legal
the lease contract, payment of rental would commence on the interest from 7 January 1986 until the amount was fully paid,
date of the issuance of an industrial clearance by the Ministry of plus attorney's fees in the amount of P20,000 and costs.[9]
Human Settlements, and not from the date of signing of the
contract. It then expressed its intention to terminate the Petitioner then appealed to the Court of Appeals alleging that the
contract, as it had decided to cancel or discontinue with the rock trial court erred in ordering it to pay the private respondent the
crushing project "due to financial, as well as technical, amount of P492,000 and in denying it the right to be heard.
difficulties."[4]
Upon the affirmance of the trial court's decision[10] and the
The private respondents refused to accede to petitioner's request denial of its motion for reconsideration, petitioner came to this
for the pretermination of the lease contract. They insisted on the Court ascribing to the respondent Court of Appeals the same
performance of petitioner's obligation and reiterated their alleged errors and reiterating their arguments.
demand for the payment of the first annual rental.[5]
First. Petitioner invites the attention of this Court to paragraph 1
Petitioner objected to the claim of the private respondents and of the lease contract, which reads: "This lease shall be for a
argued that it was "only obligated to pay ... the amount of period of five (5) years, commencing on the date of issuance of
P20,000.00 as rental payments for the one-month period of the industrial clearance by the Ministry of Human
lease, counted from 07 January 1986 when the Industrial Permit Settlements...." It then submits that the issuance of an industrial
was issued by the Ministry of Human Settlements up to 07 clearance is a suspensive condition without which the rights
February 1986 when the Notice of Termination was served"[6] on under the contract would not be acquired. The Temporary Use
private respondents. Permit is not the industrial clearance referred to in the contract;
for the said permit requires that a clearance from the National
On 19 May 1986, the private respondents instituted with the Production Control Commission be first secured, and besides,
Regional Trial Court of Pasig an action against petitioner for there is a finding in the permit that the proposed project does
Specific Performance with Damages.[7] The case was docketed not conform to the Zoning Ordinance of Rodriguez, (formerly
as Civil Case No. 53444 at Branch 160 of the said court. After the Montalban), Rizal, where the leased property is located. Without
filing by petitioner of its Answer with Counterclaim, the case was the industrial clearance the lease contract could not become
set for trial on the merits. effective and petitioner could not be compelled to perform its
obligation under the contract.
What transpired next was summarized by the trial court in this
wise: Petitioner is now estopped from claiming that the Temporary Use
Permit was not the industrial clearance contemplated in the
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). contract. In its letter dated 24 April 1986, petitioner states:
Defendant asked for postponement of the reception of its
evidence scheduled on August 10, 1988 and as prayed for, was We wish to reiterate PNCC Management's previous stand that it
reset to August 25, 1988 (p. 91 rec.) Counsel for defendant is only obligated to pay your clients the amount of P20,000.00 as
again asked for postponement, through representative, as he rental payments for the one-month period of the lease, counted
was presently indisposed. The case was reset, intransferable to from 07 January 1986 when the Industrial Permit was issued by
September 15 and 26, 1988 (p. 94 rec.) On September 2, 1988, the Ministry of Human Settlements up to 07 February 1986 when
the office of the Government Corporate Counsel entered its the Notice of Termination was served on your clients.[11]
appearance for defendant (p. 95, rec.) and the original counsel (Underscoring Supplied).
later withdrew his appearance. On September 15, 1988 the
Government Corporate Counsel asked for postponement,
153
The "Industrial Permit" mentioned in the said letter could only light of certain prevailing conditions, and once these conditions
refer to the Temporary Use Permit issued by the Ministry of cease to exist the contract also ceases to exist.[19] This theory
Human Settlements on 7 January 1986. And it can be gleaned is said to be the basis of Article 1267 of the Civil Code, which
from this letter that petitioner has considered the permit as provides:
industrial clearance; otherwise, petitioner could have simply told
the private respondents that its obligation to pay rentals has not ART. 1267. When the service has become so difficult as to be
yet arisen because the Temporary Use Permit is not the industrial manifestly beyond the contemplation of the parties, the obligor
clearance contemplated by them. Instead, petitioner recognized may also be released therefrom, in whole or in part.
its obligation to pay rental counted from the date the permit was
issued. This article, which enunciates the doctrine of unforeseen events,
is not, however, an absolute application of the principle of rebus
Also worth noting is the earlier letter of petitioner; thus: sic stantibus, which would endanger the security of contractual
relations. The parties to the contract must be presumed to have
[P]lease be advised of PNCC Management's decision to cancel or assumed the risks of unfavorable developments. It is therefore
discontinue with the rock crushing project due to financial as well only in absolutely exceptional changes of circumstances that
as technical difficulties. In view thereof, we would like to equity demands assistance for the debtor.[20]
terminate our Lease Contract dated 18 November, 1985. Should
you agree to the mutual termination of our Lease Contract, In this case, petitioner wants this Court to believe that the
kindly indicate your conformity hereto by affixing your signature abrupt change in the political climate of the country after the
on the space provided below. May we likewise request Messrs. EDSA Revolution and its poor financial condition rendered the
Rene, Jose and Antonio, all surnamed Raymundo and Mrs. performance of the lease contract impractical and inimical to the
Socorro A. Raymundo as Attorney-in-Fact of Amador S. corporate survival of the petitioner.
Raymundo to sign on the spaces indicated below.[12]
This Court cannot subscribe to this argument. As pointed out by
It can be deduced from this letter that the suspensive condition - private respondents:[21]
issuance of industrial clearance - has already been fulfilled and
that the lease contract has become operative. Otherwise, It is a matter of record that petitioner PNCC entered into a
petitioner did not have to solicit the conformity of the private contract with private respondents on November 18, 1985. Prior
respondents to the termination of the contract for the simple thereto, it is of judicial notice that after the assassination of
reason that no juridical relation was created because of the non- Senator Aquino on August 21, 1983, the country has experienced
fulfillment of the condition. political upheavals, turmoils, almost daily mass demonstrations,
unprecedented, inflation, peace and order deterioration, the
Moreover, the reason of petitioner in discontinuing with its Aquino trial and many other things that brought about the hatred
project and in consequently cancelling the lease contract was of people even against crony corporations. On November 3,
financial as well as technical difficulties, not the alleged 1985, Pres. Marcos, being interviewed live on U.S. television
insufficiency of the Temporary Use Permit. announced that there would be a snap election scheduled for
February 7, 1986.
Second. Invoking Article 1266 and the principle of rebus sic
stantibus, petitioner asserts that it should be released from the On November 18, 1985, notwithstanding the above, petitioner
obligatory force of the contract of lease because the purpose of PNCC entered into the contract of lease with private respondents
the contract did not materialize due to unforeseen events and with open eyes of the deteriorating conditions of the country.
causes beyond its control, i.e., due to abrupt change in political
climate after the EDSA Revolution and financial difficulties. Anent petitioners alleged poor financial condition, the same will
neither release petitioner from the binding effect of the contract
It is a fundamental rule that contracts, once perfected, bind both of lease. As held in Central Bank v. Court of Appeals,[22] cited
contracting parties, and obligations arising therefrom have the by the private respondents, mere pecuniary inability to fulfill an
force of law between the parties and should be complied with in engagement does not discharge a contractual obligation, nor
good faith.[13] But the law recognizes exceptions to the principle does it constitute a defense to an action for specific performance.
of the obligatory force of contracts. One exception is laid down in
Article 1266 of the Civil Code, which reads: "The debtor in With regard to the non-materialization of petitioners particular
obligations to do shall also be released when the prestation purpose in entering into the contract of lease, i.e., to use the
becomes legally or physically impossible without the fault of the leased premises as a site of a rock crushing plant, the same will
obligor." 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
Petitioner cannot, however, successfully take refuge in the said general principle, the motive or particular purpose of a party in
article, since it is applicable only to obligations "to do", and not entering into a contract does not affect the validity or existence
to obligations "to give".[14] An obligation "to do" includes all of the contract; an exception is when the realization of such
kinds of work or service; while an obligation "to give" is a motive or particular purpose has been made a condition upon
prestation which consists in the delivery of a movable or an which the contract is made to depend.[24] The exception is not
immovable thing in order to create a real right, or for the use of apply here.
the recipient, or for its simple possession, or in order to return it
to its owner.[15] Third. According to petitioner, the award of P492,000
representing the rent for two years is excessive, considering that
The obligation to pay rentals[16] or deliver the thing in a it did not benefit from the property. Besides, the temporary
contract of lease[17] falls within the prestation to give; hence, it permit, conformably with the express provision therein, was
is not covered within the scope of Article 1266. At any rate, the deemed automatically revoked for failure of petitioner to use the
unforeseen event and causes mentioned by petitioner are not the same within one year from the issuance thereof. Hence, the rent
legal or physical impossibilities contemplated in said article. payable should only be for one year.
Besides, petitioner failed to state specifically the circumstances
brought about by the abrupt change in the political climate in the Petitioner cannot be heard to complain that the award is
country except the alleged prevailing uncertainties in excessive. The temporary permit was valid for two years but was
government policies on infrastructure projects. automatically revoked because of its non-use within one year
from its issuance. The non-use of the permit and the non-entry
The principle of rebus sic stantibus[18] neither fits in with the into the property subject of the lease contract were both
facts of the case. Under this theory, the parties stipulate in the imputable to petitioner and cannot, therefore, be taken
154
advantage of in order to evade or lessen petitioners monetary The case is an appeal[1] from the decision of the Court of
obligation. The damage or prejudice to private respondents is Appeals[2] reversing the decision of the Regional Trial Court of
beyond dispute. They unquestionably suffered pecuniary losses Makati, Metro Manila,[3] ruling in favor of respondent Santiago
because of their inability to use the leased premises. Thus, in A. Guerrero and dismissing petitioners' complaint.
accordance with Article 1659 of the Civil Code,[25] they are First, the facts.
entitled to indemnification for damages; and the award of
P492,000 is fair and just under the circumstances of the case. Private respondent Santiago A. Guerrero (hereinafter referred to
as "Guerrero") was President and Chairman of[4] Guerrero
Finally, petitioner submits that the trial court gravely abused its Transport Services", a single proprietorship.[5]
discretion in denying petitioner the right to be heard.
Sometime in 1972, Guerrero Transport Services won a bid for
We disagree. The trial court was in fact liberal in granting several the operation of a fleet of taxicabs within the Subic Naval Base,
postponements[26] to petitioner before it deemed terminated in Olongapo. As highest bidder, Guerrero was to "provide radio-
and waived the presentation of evidence in petitioners behalf. controlled taxi service within the U. S. Naval Base, Subic Bay,
utilizing as demand requires... 160 operational taxis consisting of
It must be recalled that private respondents rested their case on four wheel, four-door, four passenger, radio controlled, meter
7 September 1987 yet.[27] Almost a year after, or on 10 August controlled, sedans, not more than one year..."[6]
1988 when it was petitioners turn to present evidence,
petitioners counsel asked for postponement of the hearing to 25 On September 22, 1972, with the advent of martial law,
August 1988 due to conflict of schedules,[28] and this was President Ferdinand E. Marcos issued Letter of Instruction No. 1
granted.[29] At the rescheduled hearing, petitioners counsel, (hereinafter referred to as "the LOI"). We reproduce the text, as
through a representative, moved anew for postponement, as he follows:
was allegedly indisposed.[30] The case was then reset
intransferable to September 15 and 26, 1988.[31] On 2 "Letter of Instruction No. 1
September 1988, the Office of the Government Corporate
Counsel, through Atty. Elpidio J. Vega, entered its appearance for "SUBJECT: SEIZURE AND CONTROL OF ALL PRIVATELY OWNED
the petitioner,[32] and later the original counsel withdrew his NEWSPAPERS, MAGAZINES, RADIO AND TELEVISION FACILITIES
appearance.[33] On 15 September 1988, Atty. Vega requested AND ALL OTHERMEDIA OF COMMUNICATION.
for postponement to enable him to go over the records of the
case.[34] With his conformity, the hearing was reset "To: 1.The Press Secretary
intransferable to September 26 and October 17, 1988.[35] In the
morning of 26 September 1988, the court received Atty. Vegas Office of the President
Urgent Motion for Postponement on the ground that he was
afflicted with conjunctivitis or sore eyes.[36] This time, private Manila
respondents objected; and upon their motion, the court deemed
terminated and waived the presentation of evidence for the " 2. The Secretary
petitioner.[37] Nevertheless, before the court considered the
case submitted for decision, it required the parties to submit Department of National Defense
their respective memoranda within thirty days.[38] But petitioner
failed to file one. Camp E. Aguinaldo, Q.C.
Likewise, the court was liberal in respect to petitioners motion for "In view of the present national emergency which has been
reconsideration. Notwithstanding the lack of request for hearing brought about by the activities of those who are actively engaged
and proof of notice and service to private respondents, the court in a criminal conspiracy to seize political and state power in the
set the hearing of the said motion on 29 November 1988.[39] Philippines and to take over the Government by force and
Upon the denial of the said motion for lack of merit,[40] violence the extent of which has now assumed the proportion of
petitioner filed a second motion for reconsideration. But during an actual war against our people and their legitimate
the hearing of the motion on a date selected by him, Atty. Vega Government, and pursuant to Proclamation No. 1081 dated
was absent for no reason at all, despite due notice.[41] September 21, 1972, and in my capacity as commander in chief
of all the armed forces of the Philippines and in order to prevent
From the foregoing narration of procedural antecedents, it the use of privately owned newspapers, magazines, radio and
cannot be said that the petitioner was deprived of its day in television facilities and all other media of communications, for
court. The essence of due process is simply an opportunity to be propaganda purposes against the government and its duly
heard.[42] To be heard does not only mean oral arguments in constituted authorities or for any purpose that tend to undermine
court; one may be heard also through pleadings. Where the faith and confidence of the people in our government and
opportunity to be heard, either through oral arguments or aggravate the present national emergency, you are hereby
pleadings, is accorded, there is no denial of procedural due ordered forthwith to take over and control or cause the taking
process.[43] over and control of all such newspapers, magazines, radio and
television facilities and all other media of communications,
WHEREFORE, the instant petition is DENIED and the challenged wherever they are, for the duration of the present national
decision of the Court of Appeals is AFFIRMED in toto. emergency, or until otherwise ordered by me or by my duly
designated representative.
No pronouncements as to costs.
"In carrying out the foregoing order you are hereby also directed
SO ORDERED. to see to it that reasonable means are employed by you and your
men and that injury to persons and property must be carefully
[G.R. No. 124221. August 4, 2000] avoided."
VICTORINO MAGAT, JR. substituted by heirs, OLIVIA D. MAGAT, On September 25, 1972, pursuant to the aforequoted Letter of
and minors MA. DULCE MAGAT, MA. MAGNOLIA MAGAT, RONALD Instruction, the Radio Control Office issued Administrative
MAGAT and DENNIS MAGAT, petitioners, vs. COURT OF APPEALS Circular No. 4 (hereinafter referred to as "the Admin. Circular"),
and SANTIAGO A. GUERRERO, respondents. herein quoted in full:
"In view of the existence of a state of emergency and the Unable to get a letter of credit from the Central Bank due to the
declaration by the President of martial law in the entire country refusal of the Philippine government[18] to issue a permit to
under Proclamation No. 1081 dated September 21, 1972, import the transceivers,[19] Guerrero commenced operation of
effective immediately the acceptance and processing by the radio the taxi cabs within Subic Naval Base, using radio units borrowed
control office of applications for radio stations constructions from the U.S. government (through the Subic Naval Base
permits and for permits to possess, own, transfer, purchase and authorities).[20] Victorino thus canceled his order with his
sale of radio transmitters and transreceivers as well as Japanese supplier.
manufacturers and dealers permits of said equipment is hereby
suspended. "Exempted from this circular are applications for On May 22, 1973, Victorino filed with the Regional Trial Court,
radio station construction permits and for permits to possess, Makati a complaint for damages arising from breach of contract
own, transfer, purchase and sell radio transmitters and against Guerrero.[21]
transceivers for the following radio stations:
On June 7, 1973, Guerrero moved to dismiss the complaint on
"1. Aeronautical Stations; the ground that it did not state a cause of action.[22]
" 2. Aeronautical Fixed Stations; On June 16, 1973, the trial court[23] granted the motion and
dismissed the complaint.[24]
" 3. Aircraft Stations;
On July 11, 1973, Victorino filed a petition for review on
"4. Coastal Stations; and certiorari with this Court assailing the dismissal of the complaint.
[25]
"5. Ship Stations.
On April 20, 1983, this Court[26] ruled that the complaint
"This circular shall be strictly observed until lifted upon proper sufficiently averred a cause of action. We set aside the order of
instructions from higher authorities." dismissal and remanded the case to the trial court for further
proceedings, to wit:[27]
On September 25, 1972, Guerrero and Victorino D. Magat
(hereinafter referred to as Victorino), as General Manager of "ACCORDINGLY, the questioned order of dismissal is hereby set
Spectrum Electronic Laboratories, a single proprietorship, aside and the case ordered remanded to the court of origin for
executed a letter-contract for the purchase of transceivers at a further proceedings. No costs.
quoted price of US$77,620.59, FOB Yokohoma. Victorino was to
deliver the transceivers within 60 to 90 days after receiving "SO ORDERED."
notice from Guerrero of the assigned radio frequency,[7] "taking
note of Government Regulations."[8] On November 27, 1984, the trial court[28] ordered that the case
be archived for failure of Victorino to prosecute.[29]
The contract was signed and Victorino contacted his Japanese
supplier, Koide & Co., Ltd. and placed an order for the On March 11, 1985, petitioners, Olivia, Dulce, Ma. Magnolia,
transceivers. Ronald and Dennis Magat (hereinafter referred to as "heirs of
Victorino"), moved to reinstate the case and to substitute
On September 29, 1972, Navy Exchange Officer, A. G. Mason Victorino in its prosecution. Apparently, Victorino died on
confirmed that Guerrero won the bid for the commercial February 18, 1985.[30]
transportation contract.[9]
On April 29, 1985, the trial court granted the motion.[31]
On October 4, 1972, middle man and broker[10] Isidro Q.
Aligada of Reliance Group Engineers, Inc. (hereinafter referred to On July 12, 1991, the trial court decided in favor of the heirs of
as "Aligada"), wrote Victorino, informing him that a radio Victorino and ordered Guerrero to pay temperate, moral and
frequency was not yet assigned to Guerrero and that government exemplary damages, and attorney's fees, disposing of the case in
regulations might complicate the importation of the transceivers. this wise :[32]
However, in the same letter, Victorino was advised to advise his
supplier "to proceed (with) production pending frequency "WHEREFORE, judgment is rendered for the substituted plaintiffs
information." Victorino was also assured of Guerrero's financial and against the defendant
capability to comply with the contract.[11]
"1. Ordering defendant to pay substituted plaintiffs the sum of
On October 6, 1972, Guerrero informed Aligada of the frequency -P25,000.00 for temperate damages for injury to plaintiff's
number[12] assigned by Subic Naval Base authorities. Aligada business dealings with foreign and local businessmen;
was instructed to "proceed with the order thru Spectrum
Electronics Laboratories."[13] "2. P50,000.00 as moral damages;
On October 7, 1972, Aligada informed Magat of the assigned "3. P25,000.00 as exemplary damages; and
frequency number. Aligada also advised Victorino to "proceed
with the order upon receipt of letter of credit."[14] "4. P20,000.00 as attorney's fees.
On January 10, 1973, Guerrero applied for a letter of credit with "SO ORDERED."
the Metropolitan Bank and Trust Company.[15] This application
was not pursued.[16] On August 21, 1991, Guerrero appealed to the Court of Appeals.
[33]
On March 27, 1973, Victorino, represented by his lawyer, Atty.
Sinesio S. Vergara, informed Guererro that the order with the On October 4, 1995, the Court of Appeals rendered the decision
Japanese supplier has not been canceled. Should the contract be appealed from, disposing as follows:[34]
canceled, the Japanese firm would forfeit 30% of the deposit and
charge a cancellation fee in an amount not yet known, Guerrero "WHEREFORE, judgment is hereby rendered DISMISSING the
to bear the loss. Further, should the contract be canceled, complaint.
156
There was no bad faith.[47] Bad faith does not simply connote
"No pronouncements as to costs. bad judgment or negligence. It imports a dishonest purpose or
some moral obliquity and conscious doing of wrong. It means a
" SO ORDERED." breach of a known duty through some motive or interest or ill
will that partakes of the nature of fraud.[48] Guerrero honestly
On October 26, 1995, the heirs of Victorino filed with the Court relied on the representations of the Radio Control Office and the
of Appeals a motion for reconsideration.[35] Office of the President.
On March 12, 1996, the Court of Appeals denied the motion for True, Guerrero borrowed equipment from the Subic Naval Base
reconsideration.[36] authorities at zero cost.[49] This does not automatically translate
to bad faith. Guerrero was faced with the danger of the
Hence, this appeal.[37] cancellation of his contract with Subic Naval Base. He borrowed
equipment as a prudent and swift alternative. There was no
The issue is whether the contract between Victorino and proof that he resorted to this option with a deliberate and
Guerrero for the purchase of radio transceivers was void. Stated malicious intent to dishonor his contract with Victorino. An award
differently, whether the transceivers subject of the contract were of damages surely cannot be based on mere hypotheses,
banned/ contraband items prohibited by the LOI and the conjectures and surmises. Good faith is presumed, the burden of
Administrative Circular to import. proving bad faith rests on the one alleging it.[50] Petitioners did
not effectively discharge the burden in this case.
The contract was valid; the radio transceivers were not
contraband. To recover moral damages in an action for breach of contract,
the breach must be palpably wanton, reckless, malicious, in bad
"Contraband" generally refers to "any property which is unlawful faith, oppressive or abusive.[51] This is not the case here.
to produce or possess." It refers to goods which are exported
and imported into a country against its laws.[38] Exemplary damages also cannot be awarded. Guerrero did not
act in a wanton, fraudulent, reckless, oppressive or malevolent
In declaring the contract void ab initio, the Court of Appeals manner.[52]
ruled that the importation of the transceivers meant the
inevitable passing of such goods through Philippine Ports, where Neither can actual damages be awarded. True, indemnification
the LOI and the Administrative Circular have to be observed and for damages contemplates not only actual loss suffered
applied with full force and effect.[39] The Court of Appeals (damnum emergens) but unrealized profits (lucrum cessans) as
declared that the proposed importation of such goods was well.[53] However, to be entitled to adequate compensation for
contrary to law, hence, the nullity of the contract.[40] pecuniary loss, the loss must be actually suffered and duly
proved.[54] To recover actual damages, the amount of loss must
We do not agree. The contract was not void ab initio. Nowhere in not only be capable of proof, but must be proven with a
the LOI and Admin. Circular is there an express ban on the reasonable degree of certainty. The claim must be premised
importation of transceivers. upon competent proof or upon the best evidence obtainable,[55]
such as receipts[56] or other documentary proof.
The LOI and Administrative Circular did not render "radios and
transceivers" illegal per se. The Administrative Circular merely Only the testimony of Aligada was presented to substantiate
ordered the Radio Control Office to suspend the "acceptance and petitioners' claim for unrealized profits.[57] Aligada testified that
processing .... of applications... for permits to possess, own, as a result of the cancellation of the contract, Victorino had to
transfer, purchase and sell radio transmitters and suspend transactions with his Japanese supplier for six (6)
transceivers..."[41] Therefore, possession and importation of the months. Aligada stated that the volume of Victorino's business
radio transmitters and transceivers was legal provided one had with Subic Naval Base also diminished significantly. Aligada
the necessary license for it.[42] Transceivers were not prohibited approximated that Victorino's unrealized business opportunities
but merely regulated goods. The LOI and Administrative Circular amounted to P400,000.00.[58] Being a witness for Victorino's
did not render the transceivers outside the commerce of man. heirs and standing to gain from the contract's fulfillment,
They were valid objects of the contract.[43] Aligada's testimony is self-serving. It is also hearsay. We fail to
see how this "evidence" proves actual damages with a
Affirming the validity of the contract, we next discuss whether "reasonable degree of certainty."[59] If proof is "flimsy", we
the contract was breached. cannot award actual damages.[60]
Guerrero testified that a permit to import the transceivers from WHEREFORE, we AFFIRM the decision of the Court of Appeals
Japan was denied by the Radio Control Board. He stated that he, promulgated on October 11, 1995, in CA-G. R. CV No. 34952,
together with Aligada, Victorino and a certain John Dauden dismissing the complaint.
personally went to the Radio Control Office, and were denied a
permit to import. They also went to the Office of the President, No costs.
where Secretary Ronaldo B. Zamora explained that radios were
"banned like guns because of martial law."[44] Guerrero testified SO ORDERED.
that this prevented him from securing a letter of credit from the FIRST DIVISION
Central Bank.[45] This testimony was not rebutted. [ G.R. No. 160033, July 01, 2015 ]
TAGAYTAY REALTY CO., INC., PETITIONER, VS. ARTURO G.
The law provides that "[w]hen the service (required by the GACUTAN, RESPONDENT.
contract) has become so manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in whole DECISION
or in part."[46] Here, Guerrero's inability to secure a letter of BERSAMIN, J.:
credit and to comply with his obligation was a direct consequence
of the denial of the permit to import. For this, he cannot be The Court reiterates the right of the installment buyer of a
faulted. subdivision lot to withhold payment of his amortizations for the
duration that the subdivision developer has not complied with its
Even if we assume that there was a breach of contract, damages contractual undertaking to build the promised amenities in the
cannot be awarded. Damnum absque injuria. subdivision.
The Case
157
penalty interest and, thereafter, to execute and deliver to
On appeal by the subdivision developer is the decision complainant the absolute deed of sale covering the sale of
promulgated on May 29, 2003,[1] whereby the Court of Appeals property subj,ct of this complaint, together with the valid title
(CA) upheld the ruling in favor of the installment buyer issued on over the said lot.[14]
December 6, 2001 by the Office of the President (OP).[2] By The petitioner appealed, but the HLURB Board of Commissioners
such ruling, the OP affirmed the July 14, 1997 decision[3] affirmed the ruling of the HLURB Arbiter on July 14, 1997.[15]
rendered by the Housing and Land Use Regulatory Board Upon the denial of its motion for reconsideration, the petitioner
(HLURB) Board of Commissioners adopting the HLURB Arbiter's appealed to the OP.[16]
decision dated March 22, 1995.[4]
On December 6, 2001, the OP upheld the decision of the HLURB
Antecedents Board of Commissioners.[17] The OP later denied the petitioner's
motion for reconsideration.[18]
On September 6, 1976, the respondent entered into a contract to
sell with the petitioner for the purchase on installment of a On appeal, the CA affirmed the OP through the assailed decision
residential lot with an area of 308 square meters situated in the promulgated on May 29, 2003,[19] disposing:
Foggy Heights Subdivision then being developed by the WHEREFORE, premises considered and finding no reversible error
petitioner.[5] Earlier, on June 30, 1976, the petitioner executed in the challenged Decision and Order dated December 6, 2001,
an express undertaking in favor of the respondent, as follows:[6] and July 1, 2002, respectively, of the Office of the President in
We hereby undertake to complete the development of the roads, OP Case No. 98-C-8261 said Decision and Order are AFFIRMED
curbs, gutters, drainage system, water and electrical systems, as and UPHELD, and the petition is DISMISSED for lack of merit.
well as all the amenities to be introduced in FOGGY HEIGHTS
SUBDIVISION, such as, swimming pool, pelota court, tennis SO ORDERED.[20]
and/or basketball court, bath house, children's playground and a The CA denied the petitioner's motion for reconsideration.[21]
clubhouse within a period of two years from 15 July 1976, on the
understanding that failure on their part to complete such Issues
development within the stipulated period shall give the VENDEE
the option to suspend payment of the monthly amortization on In this appeal by petition for review on certiorari, the petitioner
the lot/s he/she purchased until completion of such development contends that the CA erred in affirming the incorrect findings of
without incurring penalty interest. the OP in a way probably not in accord with law; and in declaring
that the respondent was not guilty of laches.
It is clearly understood, however, that the period or periods
during which we cannot pursue said development by reason of The petitioner submits that the CA, by observing that the
any act of God, any act or event constituting force majeure or petitioner did not fulfill its obligation to finish the subdivision
fortuitous event, or any restriction, regulation, or prohibition by project and that it had itself admitted not having finished the
the government or any of its branches or instrumentalities, shall project, did not consider that it must be discharged because
suspend the running of said 2-year period and the running extraordinary and unforeseeable circumstances had rendered its
thereof shall resume upon the cessation of the cause of the duty to perform its obligation so onerous that to insist on the
stoppage or suspension of said development. performance would have resulted in its economic ruin; that the
In his letter dated November 12, 1979,[7] the respondent Court should consider the practical circumstances surrounding
notified the petitioner that he was suspending his amortizations the construction of the luxurious amenities of the project; that
because the amenities had not been constructed in accordance the luxurious amenities of the project would only be exposed to
with the undertaking. Despite receipt of the respondent's other the elements, resulting in wastage and loss of resources,
communications requesting updates on the progress of the because none of the lot buyers had constructed any house in the
construction of the amenities so that he could resume his subdivision; that delaying the construction for that reason was
amortization,[8] the petitioner did not reply. Instead, on June reasonable on its part considering that no one would have
10, 1985, the petitioner sent to him a statement of account benefited from the amenities anyway, and was also a sound
demanding the balance of the price, plus interest and penalty.[9] business practice because the construction would be at great
He refused to pay the interest and penalty. cost to it as the developer; that another justification for the non-
construction was its having suffered extreme economic hardships
On October 4, 1990, the respondent sued the petitioner for during the political and economic turmoil of the 1980s that the
specific performance in the HLURB, praying that the petitioner be parties did not foresee at the time they entered into their
ordered to accept his payment of the balance of the contract contract; that under Article 1267 of the Civil Code, equity
without interest and penalty, and to deliver to him the title of the demanded a certain economic equilibrium between the prestation
property.[10] and the counter-prestation, and did not permit the unlimited
impoverishment of one party for the benefit of the other by the
In its answer,[11] the petitioner sought to be excused from excessive rigidity of the principle of the obligatory force of
performing its obligations under the contract, invoking Article contracts; that as the debtor, it should be partially excused or
1267 of the Civil Code as its basis. It contended that the altogether released from its obligations due to the extraordinary
depreciation of the Philippine Peso since the time of the obstacles to the prestation, which could be overcome only by a
execution of the contract, the increase in the cost of labor and sacrifice that would be absolutely disproportionate, or with very
construction materials, and the increase in the value of the lot in grave risks, or by violating some important duties; and that the
question were valid justifications for its release from the CA thereby erred in closing its eyes to the realities, and in opting
obligation to construct the amenities. not to apply the principles of equity in favor of applying the
terms of the agreement even if doing so would cause the
In its positiOn paper,[12] the petitiOner stated that it had economic ruin of one of the parties.
purposely suspended the construction of the amenities which
would have deteriorated at any rate because its lot buyers had The petitioner further submits that the CA erred in declaring that
not constructed their houses in the subdivision. it was apparent that there was no "unreasonable failure" on the
part of the respondent because he had made timely written
On March 22, 1995, the HLURB Arbiter ruled m favor of the demands on November 12, 1979, February 11, 1983, March 20,
respondent,[13] to wit: 1984, June 24, 1985 and November 16, 1988. It urges that the
WHEREFORE, premises considered, respondents are hereby CA's error consisted in its confusing laches as the failure to
ordered to accept the payment of the balance of the contract assert a right, notwithstanding that jurisprudence has considered
price in the amount of Eight Thousand Five Hundred Eighty laches to be the unreasonable failure to assert a claim that, by
Seven and 80/100 Pesos (P8,587.80) without regular and exercising due diligence, could or should be done earlier; that
158
laches was not, in legal significance, mere delay, but a delay that advertisement, within one year from the date of the issuance of
worked a disadvantage to another; that the letters of the the license for the subdivision or condominium project or such
respondent could hardly be construed as motivated by prudence other period of time as maybe fixed by the Authority.
and good faith; that the economy had worsened between 1979 Pursuant to Section 30 of Presidential Decree No. 957,[22] the
and 1988, and such worsening became a factor that raised the amenities, once constructed, are to be maintained by the
cost of real estate development by leaps and bounds; and that developer like the petitioner until a homeowners' association has
the respondent, whose actuations smacked of bad faith and been organized to manage the amenities.
opportunism at its expense, had then appeared out of nowhere
to seize the opportunity presented by the real estate boom of the There is no question that the petitioner did not comply with its
early 1990s, despite having been silent and having failed to act legal obligation to complete the construction of the subdivision
for a long time, evincing his belief of not having any right at all. project, including the amenities, within one year from the
issuance of the license. Instead, it unilaterally opted to suspend
In his comment, the respondent asserts that the submissions of the construction of the amenities to avoid incurring maintenance
the petitioner did not warrant the non-construction of the expenses. In so opting, it was not driven by any extremely
amemt1es; that Article 1159 of the Civil Code provides that difficult situation that would place it at any disadvantage, but by
obligations arising from contracts have the force of law between its desire to benefit from cost savings. Such cost-saving strategy
the contracting parties and should be complied with in good dissuaded the lot buyers from constructing their houses in the
faith; that neither party could unilaterally and upon his own subdivision, and from residing therein.
exclusive volition escape his obligations under the contract
unless for causes sufficient in law and pronounced adequate by a Considering that the petitioner's unilateral suspension of the
competent tribunal; that correlative to Article 1159 is Article construction of the amenities was intended to save itself from
1308 of the Civil Code which holds that the validity or compliance costs, its plea for relief from its contractual obligations was
of a contract cannot be left to the will of one party; that a party properly rejected because it would thereby gain a position of
could not revoke or renounce a contract without the consent of advantage at the expense of the lot owners like the respondent.
the other, nor could a party have a contract set aside on the Its invocation of Article 1267 of the Civil Code, which provides
ground that he had made a bad bargain; that he was not liable that "(w)hen the service has become so difficult as to be
for the interest because it was not expressly stipulated in the manifestly beyond the contemplation of the parties, the obligor
contract pursuant to Article 1956 of the Civil Code; that no may also be released therefrom in whole or in part," was
penalty should be imposed on him by virtue of the undertaking factually unfounded. For Article 1267 to apply, the following
clearly stating that the two-year period for the completion of the conditions should concur, namely: (a) the event or change in
amenities would be suspended only if the development could not circumstances could not have been foreseen at the time of the
be pursued "by reason of any act God, any act or event execution of the contract; (b) it makes the performance of the
constituting force majeure or fortuitous event; or any restriction, contract extremely difficult but not impossible; (c) it must not be
regulation, or prohibition by the government or any of its due to the act of any of the parties; and (d) the contract is for a
branches or instrumentalities;" that the reason given by the future prestation.[23] The requisites did not concur herein
petitioner that "the contemplated amenities could not be because the difficulty of performance under Article 1267 of the
constructed as they would have only been left exposed to the Civil Code should be such that one party would be placed at a
elements and would have come to naught on account of the fact disadvantage by the unforeseen event.[24] Mere inconvenience,
that there are no persons residing thereat" did not justify or or unexepected impediments, or increased expenses did not
excuse the non construction of the amenities; that the petitioner suffice to relieve the debtor from a bad bargain.[25]
could not seek refuge in Article 1267 of the Civil Code by merely
alleging inflation without laying down the legal and factual basis And, secondly, the unilateral suspension of the construction had
to justify the release from its obligation; that his written preceded the worsening of economic conditions in 1983; hence,
extrajudicial demands negated the defense of laches; that he did the latter could not reasonably justify the petitioner's plea for
not fail to assert his right, or abandon it; and that his written release from its statutory and contractual obligations to its lot
extrajudicial demands wiped out the period that had already buyers, particularly the respondent. Besides, the petitioner had
lapsed and started the prescriptive period anew. the legal obligation to complete the amenities within one year
from the issuance of the license (under Section 20 of Presidential
In short, was the petitioner released from its obligation to Decree No. 957), or within two years from July 15, 1976 (under
construct the amenities in the Foggy Heights Subdivision? the express undertaking of the petitioner). Hence, it should have
complied with its obligation by July 15, 1978 at the latest, long
Ruling of the Court before the worsening of the economy in 1983.
b.) The balance of TWENTY THREE THOUSAND FIVE HUNDRED The 1% monthly penalty sought to be charged on the arrears for
SIXTY TWO ONLY PESOS (P23,562.00) in eighty four (84) failure to pay the amortizations on time until the arrears would
consecutive monthly installments of FOUR HUNDRED FIFTEEN & be fully paid was also stipulated in paragraph 2.b, second
95/100 PESOS (P415.95) each installment, including interest at sentence, of the contract to sell, supra. But such stipulation
the rate of twelve (12%) percent per annum on all outstanding could not be enforced against the respondent because the
balances, the first of such monthly installment to be paid on or petitioner waived the penalty should the subdivision development
before the 6th day of each month, beginning October, 1976. It is not be completed by July 15, 1978. The waiver should stand
understood that unpaid installments or installments in arrears considering that the suspension of the amortization payment in
shall earn a penalty interest of one (1%) percent per month until 1979 was excusable on account of the failure to construct the
fully paid.[27] (Bold underscoring supplied for emphasis of the amenities by July 15, 1978, and considering further that the
relevant portion) petitioner did not contest the suspension of payment of the
monthly amortization.[31]
xxxx
Accordingly, the parties agreed to an 84-month or seven-year Under Tamayo v. Huang,[32] the buyer has the option to
term of installment on the net contract price of P23,562.00 at the demand the reimbursement of the total amounts paid, or to
monthly rate of P415.95, the monthly rate being inclusive of the await the further development of the subdivision; when the
12% interest per annum. Such monthly installment of P415.95 buyer opts for the latter alternative, he may suspend the
included the principal and the annual interest, the latter being payment of his installments until the time when the developer
legally termed the amortization interest. The annual interest was has fulfilled its obligation to him; should the developer persist in
designed to compensate the petitioner for waiting seven years refusing to complete the facilities, the National Housing Authority
before receiving the total principal amount. As such, the total may take over or cause the development and completion of the
cost of the lot purchased by the respondent for the seven-year subdivision at the expense of the developer.[33]
term would be P39,097.80, which amount would be inclusive of
the contract price of the lot and the amortization interest.[28] In this case, the respondent initially opted to suspend the
payment of his amortizations, but then offered to complete the
The imposition of the annual or amortization interest on the price payment upon realizing that the petitioner did not anymore
for the purchase of a lot on installment was valid and intend to build the amenities. His payments from October 6,
enforceable. As the Court has explained in Relucio v. Brillante- 1976 to October 6, 1979 corresponded to 36 monthly
Garfin:[29] amortizations totaling P14,974.20, leaving 48 installments
x x x The contract price of P10,800.00 may thus be seen to be unpaid totaling P19,965.60.[34]
the cash price of the subdivision lots, that is, the amount payable
if the price of the lots were to be paid in cash and in full at the 3.
execution of the contract; it is not the amount that the vendor
will have received in the aggregate after fifteen (15) years if the Claim of respondent was not barred by laches
vendee shall have religiously paid the monthly installments. The
installment price, upon the other hand, of the subdivision lots- Laches is the failure of or neglect for an unreasonable and
the sum total of the monthly installments (i.e., P16,101.00) unexplained length of time to do that which by exercising due
typically, as in the instant case, has an interest component which diligence could or should have been done earlier, or to assert a
compensates the vendor for waiting fifteen (15) years before right within a reasonable time. It warrants a presumption that
receiving the total principal amount of P10,600.00. Economically the party entitled thereto has either abandoned it or declined to
or financially, P10,600.00 delivered in full today is simply worth assert it.[35]
much more than a long series of small payments totalling, after
fifteen (15) years, P10,600.00. For the vendor, upon receiving The CA correctly declared that laches did not set in to bar the
the full cash price, could have deposited that amount in a bank, claim of the respondent because he had made periodic written
for instance, and earned interest income which at six percent demands upon the petitioner that indicated that he had not
(6%) per year and for fifteen (15) years, would precisely total abandoned or declined to assert the claim. In 1979, he
P5,501.00 (the difference between the installment price of manifested the intention to avail himself of his right to suspend
P16,101.00 and the cash price of P10,600.00) To suppose, as the payment of his amortizations pursuant to the undertaking.
private respondent argues, that mere prompt payment of the Since then until 1984, he had continuously requested the
monthly installments as they fell due would obviate application of petitioner for updates on the progress of the construction of the
the interest charge of six percent (6%) per annum, is to ignore amenities so that he could resume his amortizations. The
that simple economic fact. That economic fact is, of course, petitioner did not respond to his requests. His efforts to have the
recognized by law, which authorizes the payment of interest petitioner construct the amenities so that he would already pay
when contractually stipulated for by the parties or when implied for the lot demonstrated his prudence and alacrity in insisting on
in recognized commercial custom or usage. his rights, negating any hint of bad faith or of lack of diligence on
his part.
Vendor and vendee are legally free to stipulate for the payment
of either the cash price of a subdivision lot or its installment WHEREFORE, the Court AFFIRMS the judgment promulgated on
price. Should the vendee opt to purchase a subdivision lot via the May 29, 2003 subject to the MODIFICATIONS, as follows: (1) the
installment payment system, he is in effect paying interest on respondent shall pay to the petitioner the amount of P19,965.60;
the cash price, whether the fact and rate of such interest (2) the petitioner shall execute the deed of absolute sale
payment is disclosed in the contract or not. The contract for the covering the property, and shall deliver the property to the
purchase and sale of a piece of land on the installment payment respondent together with the pertinent certificate of title in
system in the case at bar is not only quite lawful; it also reflects accordance with the terms of their contract; and (3) the
a very wide spread usage or custom in our present day petitioner shall pay the costs of suit.
commercial life.[30]
In view of the foregoing, the respondent's insistence on SO ORDERED.
condoning his liability for the contractually-stipulated 12% SECOND DIVISION
160
Affirmative Defense, they averred that private respondent gave
[G.R. No. 116792. March 29, 1996] them his express verbal authorization to debit the questioned
amount. They claimed that private respondent later refused to
BANK OF THE PHILIPPINE ISLANDS and GRACE ROMERO, execute a written authority.9
petitioners, vs. COURT OF APPEALS and EDVIN F. REYES,
respondents. In a Decision dated January 20, 1993, the trial court dismissed
the complaint of private respondent for lack of cause of action.10
DECISION
Private respondent appealed to the respondent Court of Appeals.
PUNO, J.: On August 16, 1994, the Sixteenth Division of respondent court
in AC-G.R. CV No. 41543 reversed the impugned decision, viz:
Petitioners seek a review of the Decision1 of respondent Court of
Appeals in CA-G.R. CV No. 41543 reversing the Decision2 of the WHEREFORE, the judgment appealed from is set aside, and
Regional Trial Court of Quezon City, Branch 79, and ordering another one entered ordering defendant (petitioner) to credit
petitioners to credit private respondents Savings plaintiffs (private respondents) S.A. No. 3 185-0172-56 with
P10,556.00 plus interest at the applicable rates for express teller
Account No. 3185-0172-56 with P10,556.00 plus interest. savings accounts from February 19,1991, until compliance
herewith. The claim and counterclaim for damages are dismissed
The facts reveal that on September 25, 1985, private respondent for lack of merit.
Edvin F. Reyes opened Savings Account No. 3 185-0172-56 at
petitioner Bank of the Philippine Islands (BPI) Cubao, Shopping SO ORDERED.11
Center Branch. It is a joint AND/OR account with his wife, Sonia
S. Reyes. Petitioners now contend that respondent Court of Appeals erred:
Petitioners contested the complaint and counter-claimed for Q: What was his response if any?
moral and exemplary damages. By way of Special and
161
A: Dont you worry about it, there is no personal problem. Article 1279 states that in order that compensation may be
proper, it is necessary:
xxx xxx xxx
(1) That each one of the obligors be bound principally, and that
Q: And so what was his response? he be at the same time a principal creditor of the other;
A: He said that dont you worry about it. (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
xxx xxx xxx same quality if the latter has been stated;
Q: You said that you asked him the advice and he did not (3) That the two debts be due;
answer, what advice are you referring to?
(4) That they be liquidated and demandable;
A: In our conversation, he promised me that he will give me
written confirmation or authorization.13 (5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in
The conversation was promptly relayed to Romero who testified: due time to the debtor.
xxx xxx xxx The elements of legal compensation are all present in the case at
bar. The obligors bound principally are at the same time creditors
Q: x x x Was there any opportunity wherein said Mrs. Bernardo of each other. Petitioner bank stands as a debtor of the private
was able to convey to you the contents of their conversation? respondent, a depositor. At the same time, said bank is the
creditor of the private respondent with respect to the dishonored
A: This was immediately relayed to me as manager of the Bank U.S. Treasury Warrant which the latter illegally transferred to his
of the Philippine Islands, sir. joint account. The debts involved consist of a sum of money.
They are due, liquidated, and demandable. They are not claimed
Q: What, if any was the content of her conversation, if you by a third person.
know?
It is true that the joint account of private respondent and his wife
A: Mr. Reyes instructed Mrs. Bernardo to debit his account with was debited in the case at bar. We hold that the presence of
the bank. His account was maintained jointly with his wife then private respondents wife does not negate the element of
he promised to drop by to give us a written confirmation, sir. 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
xxx xxx xxx 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
Q: You said that you authorized the debiting of the account on petitioner bank to make the debit is clear and cannot be
February 19, 1991, is that correct? doubted. To frustrate the application of legal compensation on
the ground that the parties are not all mutually obligated would
A: I did not authorize, we merely followed the instruction of Mr. result in unjust enrichment on the part of the private respondent
Reyes, sir.14 and his wife who herself out of honesty has not objected to the
debit.
We are not disposed to believe private respondents allegation
that he did not give any verbal authorization. His testimony is The rule as to mutuality is strictly applied at law. But not in
uncorroborated. Nor does he inspire credence. His past and equity, where to allow the same would defeat a clear right or
fraudulent conduct is an evidence against him.15 He concealed permit irremediable injustice.22
from petitioner bank the death of Fernandez on December 28,
1989.16 As of that date, he knew that Fernandez was no longer IN VIEW HEREOF, the Decision of respondent Court of Appeals in
entitled to receive any pension. Nonetheless, he still received the CA-G.R. CV No. 41543 dated August 16,1994 is ANNULLED and
U.S. Treasury Warrant of Fernandez, and on January 4, 1990 SET ASIDE and the Decision of the trial court in Civil Case No. Q-
deposited the same in Savings Account No. 3185-0128-82. To 91-8451 dated January 20, 1993 is REINSTATED. Costs against
pre-empt a refund, private respondent closed his joint account private respondent.
with Fernandez (Savings Account No. 31-85- 0128-82) on March
8, 1990 and transferred its balance to his joint account with his SO ORDERED.
wife (Savings Account No. 3 185-0172-56). Worse, private
respondent declared under the penalties of perjury in the THIRD DIVISION
withdrawal slip17 dated March 8, 1990 that his co-depositor, [G.R. No. 108052. July 24, 1996]
Fernandez, is still living. By his acts, private respondent has PHILIPPINE NATIONAL BANK, petitioner, vs. THE COURT OF
stripped himself of credibility. APPEALS and RAMON LAPEZ,[1] doing business under the name
and style SAPPHIRE SHIPPING, respondents.
More importantly, the respondent court erred when it failed to DECISION
rule that legal compensation is proper. Compensation shall take PANGANIBAN, J.:
place when two persons, in their own right, are creditors and Does a local bank, while acting as local correspondent bank,
debtors of each other.18 Article 1290 of the Civil Code provides have the right to intercept funds being coursed through it by its
that when all the requisites mentioned in Article 1279 are foreign counterpart for transmittal and deposit to the account of
present, compensation takes effect by operation of law, and an individual with another local bank, and apply the said funds to
extinguishes both debts to the concurrent amount, even though certain obligations owed to it by the said individual?
the creditors and debtors are not aware of the compensation.
Legal compensation operates even against the will of the Assailed in this petition is the Decision of respondent Court of
interested parties and even without the consent of them.19 Since Appeals[2] in CA-G.R. CV No. 27926 rendered on June 16, 1992
this compensation takes place ipso jure, its effects arise on the affirming the decision of the Regional Trial Court, Branch 107 of
very day on which all its requisites concur.20 When used as a Quezon City, the dispositive portion of which read:[3]
defense, it retroacts to the date when its requisites are
fulfilled.21 "WHEREFORE, judgment is hereby rendered:
162
1) In the main complaint, ordering the defendant (herein Two issues were raised before the trial court, namely, first,
petitioner PNB) to pay the plaintiff (private respondent herein) whether the herein petitioner was legally justified in making the
the sum of US$2,627.11 or its equivalent in Philippine currency compensation or set-off against the two remittances coursed
with interest at the legal rate from January 13, 1987, the date of through it in favor of private respondent to recover on the double
judicial demand; credits it erroneously made in 1980 and 1981, based on the
principle of solutio indebiti, and second, whether or not
2) The plaintiff's supplemental complaint is hereby dfismissed petitioner's claim is barred by the statute of limitations. The trial
(sic); court's ratiocination, as quoted by the appellate Court, follows:
[5]
3) The defendant's counterclaims are likewise dismissed.
"'Article 1279 of the Civil Code provides:
The Facts
"'In order that compensation may prosper, it is necessary:
The factual antecedents as quoted by the respondent Court are
reproduced hereinbelow, the same being undisputed by the (1) That each one of the obligors be bound principally, and that
parties:[4] he be at the same time a principal creditor of the other;
"The body of the decision reads: (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
"'After a close scrutiny and analysis of the pleadings as well as same quality if the latter has been stated;
the evidence of both parties, the Court makes the following
conclusions: (3) That the two debts be due;
"'(a) The defendant applied/appropriated the amounts of (4) That they be liquidated and demandable;
$2,627.11 and P34,340.38 from remittances of the plaintiff's
principals (sic) abroad. These were admitted by the defendant, (5) That over neither of them there by any retention or
subject to the affirmative defenses of compensation for what is controversy, commenced by third persons and communicated in
owing to it on the principle of solution (sic) indebiti; due time to the debtor."'
"'(b) The first remittance was made by the NCB of Jeddah for the "'In the case of the $2,627.11, requisites Nos. 2 through 5 are
benefit of the plaintiff, to be credited to his account at Citibank, apparently present, for both debts consist in a sum of money,
Greenhills Branch; the second was from Libya, and was intended are both due, liquidated and demandable, and over neither of
to be deposited at the plaintiff's account with the defendant, No. them is there a retention or controversy commenced by third
830-2410; persons and communicated in due time to the debtor. The
question, however, is, where both of the obligors bound
(c) The plaintiff made a written demand upon the defendant for principally, and was each one of them a debtor and creditor of
remittance of the equivalent of P2,627.11 by means of a letter the other at the same time?
dated December 4, 1986 (Exh. D). This was answered by the
defendant on December 22, 1986 (Exh. 13), inviting the plaintiff "'Analyzing now the relationship between the parties, it appears
to come for a conference; that:
"'(d) There were indeed two instances in the past, one in "'(a) With respect to the plaintiff's being a depositor of the
November 1980 and the other in January 1981 when the defendant bank, they are creditor and debtor respectively
plaintiff's account No. 830-2410 was doubly credited with the (Guingona, et al. vs. City Fiscal, et al., 128 SCRA 577);
equivalents of $5,679.23 and $5,885.38, respectively, which
amounted to an aggregate amount of P87,380.44. The "'(b) As to the relationship created by the telexed fund transfers
defendant's evidence on this point (Exhs. 1 thru 11, 14 and 15; from abroad: A contract between a foreign bank and local bank
see also Annexes C and E to defendant's Answer), were never asking the latter to pay an amount to a beneficiary is a
refuted nor impugned by the plaintiff. He claims, however, that stipulation pour autrui. (Bank of America NT & SA vs. IAC, 145
plaintiffs claim has prescribed. SCRA 419).
"'(e) Defendant PNB made a demand upon the plaintiff for refund "'A stipulation pour autrui is a stipulation in favor of a third
of the double or duplicated credits erroneously made on person (Florentino vs. Encarnacion, 79 SCRA 193; Bonifacio
plaintiff's account, by means of a letter (Exh. 12) dated October Brothers vs. Mora, 20 SCRA 261; Uy Tam vs. Leonard, 30 Phils.
23, 1986 or 5 years and 11 months from November 1980, and 5 475).
years and 9 months from January 1981. Such letter was
answered by the plaintiff on December 2, 1986 (Annex C, "'Thus between the defendant bank (as the local correspondent
Complaint). This plaintiff's letter was likewise replied to by the of the National Commercial Bank of Jeddah) and the plaintiff as
defendant through Exh. 13; beneficiary, there is created an implied trust pursuant to Art.
1453 of the Civil Code, quoted as follows:
"'(f) The deduction of P34,340.38 was made by the defendant
not without the knowledge and consent of the plaintiff, who was "'When the property is conveyed to a person in reliance upon his
issued a receipt No. 857576 dated February 18, 1987 (Exh. E) by declared intention to hold it for, or transfer it to another or the
the defendant. grantor, there is an implied trust in favor of the person whose
benefit is contemplated (sic).
"'There is no question that the two erroneous double payments
made to plaintiff's accounts in 1980 and 1981 created an extra- "'c) By the principle of solutio indebiti (Art. 2154, Civil Code), the
contractual obligation on the part of the plaintiff in favor of the plaintiff who unduly received something (sic) by mistake (i.e.,
defendant, under the principle of solutio indebiti, as follows: the 2 double credits, although he had no right to demand it),
became obligated to the defendant to return what he unduly
"'If something is received when there is no right to demand it, received. Thus, there was created between them a relationship of
and it was unduly delivered throughg (sic) mistake, the obligor and obligee, or of debtor and creditor under a quasi-
obligation to return it arises."' (Article 2154, Civil Code of the contract.
Phil.)
163
"In view of the foregoing, the Court is of the opinion that the This conclusion is borne by the fact that the receipt is in the
parties are not both principally bound with respect to the hands of the plaintiff, indicating that such receipt was handed
$2,627.11 from Jeddah neither are they at the same time over to the plaintiff when he "paid" or allowed the deduction
principal creditor of the other. Therefore, as matters stand, the from the amount of $28,392.38 from Libya.
parties' obligations are not subject to compensation or set off
under Art. 1279 of the Civil Code, for the reason that the "'At any rate, the plaintiff in his Memorandum, stated that the
defendant is not a principal debtor nor is the plaintiff a principal subsequent fund transfer from Brega Petroleum Marketing
creditor insofar as the amount of $2,627.11 is concerned. They Company of Libya (from where the P34,340.38 was deducted)
are debtor and creditor only with respect to the double was intended for credit and deposit in plaintiff's account at the
payments; but are trustee-beneficiary as to the fund transfer of defendant's Bank CA No. 830-2410 (per par. 1, page 2,
$2,627.11. Memorandum for the plaintiff). Such being the case, the Court
believes that insofar as the amount of P34,340.38 is concerned,
"'Only the plaintiff is principally bound as a debtor of the all the requirements of Art. 1279 of the Civil Code are present,
defendant to the extent of the double credits. On the other hand, and the said amount may properly be the subject of
the defendant was an implied trustee, who was obliged to deliver compensation or set-off. And since all the requisites of Art. 1279
to the Citibank for the benefit of the plaintiff the sum of of the Civil Code are present (insofar as the amount of
$2,627.11. P34,392.38 is concerned), compensation takes place by
operation of law (Art. 1286, Ibid.), albeit only partial with
"'Thus while it may be concluded that the plaintiff owes the respect to plaintiff's indebtedness of P7,380.44.
defendant the equivalent of the sums of $5,179.23 and
$5,885.38 erroneously doubly credited to his account, the "Now, on the question of prescription, the Court believes that
defendant's actuation in intercepting the amount of $2,627.11 Art. 1149 as cited by the plaintiff is not applicable in this case.
supposed to be remitted to another bank is not only improper; it Rather, the applicable law is Art. 1145, which fixes the
will also erode the trust and confidence of the international prescriptive period for actions upon a quasi-contract (such as
banking community in the banking system of the country, solutio indebiti) at six years.
something we can ill afford at this time when we need to attract
and invite deposits of foreign currencies."' In the dispositive portion of its decision, the trial court ruled that
the herein petitioner was obligated to pay private respondent the
"It would have been different has the telex advice from NCB of amount of US$2,627.11 or its peso equivalent, with interest at
Jeddah been for deposit of $2,627.11 to plaintiffs account No. the legal rate. The court dismissed all other claims and
830-2410 with the defendant bank. However, the defendant counterclaims.
alleged this for the first time in its Memorandum (Pls. see par.
16, p. 6 of defendant's Memorandum). There was neither any On appeal to the respondent Court, petitioner bank continued to
allegation thereof in its pleadings, nor was there any evidence to insist that it validly retained the US$2,627.11 in payment of the
prove such fact. On the contrary, the defendant admitted that private respondent's indebtedness by way of compensation or
the telex advice was for credit of the amount of $2,627.11 to set-off, as provided under Art. 1279 of the Civil Code.
plaintiffs account with Citibank, Greenhills, San Juan,
MetroManila (Pls. see par. of defendant's Answer with The respondent Court of Appeals rejected such argument,
Compulsory Counterclaim, in relation to plaintiff's Complaint). saying:
Hence, it is submitted that the set-off or compensation of
$2,627.11 against the double payments to plaintiff's account is "The telegraphic money transfer was sent by the IBN, plaintiff's
not in accordance with law. principal in Jeddah, Saudi Arabia, thru the National Commercial
Bank of Jeddah, Saudi Arabia (NCB, for short), for the
"'On this point, the Court finds the plaintiff's theory of agency to credit/account of Plaintiff with the Citibank, Greenhills Branch,
be untenable. For one thing, there was no express contract of San Juan, Metro Manila, coursed thru the PNB's head office, the
agency. On the other hand, were we to infer that there was an NCB's corresponden(t) bank in the Philippines.
implied agency, the same would not be between the plaintiff and
defendant, but rather, between the National Commercial Bank of "The credit account, or simply account means that the amount
Jeddah as principal on the one hand, and the defendant as agent stated in the telegraphic money transfer is to be credited in the
on the other. Thus, in case of violation of the agency, the cause account of plaintiff with the Citibank, and, in that sense,
of action would accrue to the NCB and not to the plaintiff. presupposes a creditor-debtor relationship between the plaintiff,
as creditor and the Citibank, as debtor. Withal the telegraphic
"'The P34,340.38 subject of the supplemental complaint is quite money transfer, no such creditor-debtor relationship could have
another thing. The plaintiff's Exh. "E", which is a receipt issued to been created between the plaintiff and defendant.
the plaintiff by the defendant for the amount of P34,340.00 in
"full settlement of accounts receivables with RICB Fund Transfer "The telegraphic money transfer, or simply telegraphic transfer(,)
Department, PNB-Escolta base on Legal Department Memo dated was purchased by the IBN from the NCB in Saudi Arabia, and
February 28, 1987" seems to uphold the defendant's theory that since the PNB is the NCB's corresponden(t) bank in the
the said amount was voluntarily delivered by the plaintiff to the Philippines, there is created between the two banks a sort of
defendant as alleged in the last paragraph of defendant's communication exchange for the corresponden(t) bank to
memorandum. The same is in accordance with the defendant's transmit and/or remit and/or pay the value of the telegraphic
answer, as follows: transfer in accordance with the dictate of the correspondence
exchange. Some such responsibility of the corresponden(t) bank
"The retention and application of the amount of P34,340.38 was is akin to Section 7 of the Rules and Regulations Implementing
done in a manner consonant with basic due process considering E.O. 857, as amended by E.O. 925, "x x x to take charge of the
that plaintiff was not only furnished documented proof of the prompt payment" of the telegraphic transfer, that is, by
cause but was also given the opportunity to con(tro)vert such transmitting the telegraphic money transfer to the Citibank so
Proof. 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
"Moreover, plaintiff, through counsel, communicated his the remittance arrangement that it has with the NCB. With its
unequivocal and unconditional consent to the retention and responsibility as defined as well as by the nature of its banking
application of the amount in question." (Pls. see paragraphs 8-9, business and the responsibility attached to it, and through which
defendant's Answer with Compulsory Counterclaim to Plaintiff's the industry, trade and commerce of all countries and
Supplemental Complaint)." communities are carried on, the PNB's liability as
corresponden(t) bank continues until it has completgely (sic)
164
performed and discharged it(s) obligation thereunder." minutes flat by means of an exchange of checks with private
(underscoring ours) respondent for the same amount. The litigation could have ended
there, but it did not. Instead, this plainly unmeritorious case had
Hence, the respondent Court affirmed the trial court's holding in to clog our docket and take up the valuable time of this Court.
toto.
WHEREFORE, the instant petition is herewith DENIED for being
Dissatisfied, petitioner bank comes before this Court seeking a plainly unmeritorious, and the assailed Decision is AFFIRMED in
review of the assailed Decision. toto. Costs against petitioner.
Petitioner's arguments revolve around one single issue:[6] Narvasa, C.J., (Chairman), Davide, Jr., and Francisco, JJ.,
concur.
"WHILE THE RESPONDENT COURT CORRECTLY FOUND PRIVATE
RESPONDENT LEGALLY BOUND (UNDER THE PRINCIPLE OF Melo, J., no part, being a member of the CA division which
SOLUTIO INDEBITI) TO RETURN TO PNB THE SUM OF decided the case under review.
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 [1] Deceased and substituted by Teresita V. Lapez; Rollo, p. 51.
SAME AMOUNT. SUCH COURSE OF ACTION IS IN CONSONANCE
WITH SPEEDY AND SUBSTANTIAL JUSTICE, AND WOULD [2] Second Division, composed of J. Artemon D. Luna, ponente,
PREVENT THE UNNECESSARY FILING OF A SUBSEQUENT SUIT and JJ. Jose A.R. Melo (now Associate Justice of this Court) and
BY PNB FOR THE COLLECTION OF THE SAME AMOUNT FROM Segundino G. Chua, concurring.
PRIVATE RESPONDENT."
[3] Rollo, p. 9.
The Court's Ruling
[4] Id., pp. 10-11.
We note that in framing the issue in the manner aforecited, the
petitioner implicitly admits the correctness of the respondent [5] Id., pp. 12-14.
Court's affirmance of the trial court's ruling finding herein
petitioner liable to private respondent for the sum of [6] Id., p. 5.
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 [7] Id., p. 6.
court and that of the appellate court, we find no reversible error
whatsoever in either ruling, and see no need to add to the SYLLABI/SYNOPSIS
extensive discussions already made regarding the non-existence
of all the requisites for legal compensation to take place. FIRST DIVISION
But petitioner has adopted a novel theory, contending that since [G.R. No. 120236. July 20, 1999]
respondent Court found that private respondent is "an obligor of
PNB and the latter, as aforesaid, has become an obligor of E.G.V. REALTY DEVELOPMENT CORPORATION and CRISTINA
private respondent (resulting in legal compensation), the CONDOMINIUM CORPORATION, petitioners, vs. COURT OF
(h)onorable respondent court should have ordered private APPEALS and UNISHPERE INTERNATIONAL, INC. respondents.
respondent to pay PNB what the latter is bound by the trial
court's decision to return the former.[7] DECISION
Petitioner CCC denied any liability for the losses claimed to have On September 18, 1989, respondent Unisphere filed a second
been incurred by respondent Unisphere, stating that the goods motion for extension of time to file its memorandum on appeal
lost belonged to Amtrade, a third party. for another twenty (20) days.
As a consequence of the denial, respondent Unisphere withheld The motion was likewise granted on September 26, 1989.
payment of its monthly dues starting November 1982.
On October 9, 1989, respondent Unisphere filed its memorandum
On September 13, 1983, respondent Unisphere received a letter on appeal.
from petitioner CCC demanding payment of past dues.
After the petitioners filed their reply thereto, the SEC en banc
On December 5, 1984, petitioner E.G.V. Realty executed a Deed issued the Order dated February 23, 1990 which is quoted
of Absolute Sale over Unit 301 in favor of respondent Unisphere. hereunder:
Thereafter, Condominium Certificate of Title No. 7010 was issued
in respondent Unispheres name bearing the annotation of a lien Before this Commission en banc is an appeal from the Order
in favor of petitioner E.G.V. Realty for the unpaid condominium dated July 17, 1989 of the Hearing Officer in SEC Case No. 3119
dues in the amount of P13,142.67. entitled E.G.V. Realty Development Corporation and Cristina
Condominium Corporation vs. Unisphere International , Inc.
On January 28, 1987, petitioners E.G.V. Realty and CCC jointly
filed a petition with the Securities and Exchange Commission The records of the case show that respondent-appellant received
(SEC) for the collection of the unpaid monthly dues in the a copy of the above order on July 18, 1989 and filed its Notice of
amount of P13,142.67 against respondent Unisphere. Appeal on July 21, 1989. On August 15, 1989, respondent asked
for an extension of thirty (30) days to file its Memorandum on
In its answer, respondent Unisphere alleged that it could not be Appeal which was granted on August 17, 1989.
deemed in default in the payment of said unpaid dues because
its tardiness was occasioned by the petitioners' failure to comply On September 18, 1989, respondent asked for an additional
with what was incumbent upon them, that is, to provide security period of twenty (20) days until October 8, 1989 to file his
for the building premises in order to prevent, if not to stop, the Appeal which was also granted.
robberies taking place therein. It asserted as counterclaim that
the amount of P12,295.00 representing the total value of its loss Respondent filed his Memorandum on October 13, 1989, five
due to the two robberies be awarded to it by way of damages for days after the due date.
the latters failure to secure the premises.
The penultimate paragraph of Section 6 of Presidential Decree
On January 11, 1989, SEC Hearing Officer Antero F.L. Villaflor, no. 902-A (as amended) clearly provides:
Jr. rendered a decision which dispositively read as follows:
x x x The decision, ruling or order of any such Commissioner,
WHEREFORE, respondent is hereby ordered to pay petitioner the bodies, boards, committees, and/or officer as may be appealed
sum of P13,142.67 within fifteen (15) days from receipt of this to the Commission sitting en banc within thirty (30) days after
Decision. Further, petitioner is hereby ordered to pay respondent receipt by the appellant of notice of such decision, ruling or
within fifteen (15) days from receipt of this Decision, the sum of order. The Commission shall promulgate rules or procedure to
P12,295.00. govern the proceedings, hearings and appeals of cases falling
within its jurisdiction.
Let copy of this Decision be furnished the Register of Deeds of
Makati, Metro Manila for the purpose of cancellation of the lien in Pursuant to the above provision, the Commission promulgated
favor of Cristina Condominium found at the back of Title for the Revised Rules of Procedure of the Securities and Exchange
unpaid monthly dues in the sum of P13,142.67, upon full Commisison, Section 3, Rule XVI of said Rules reiterates the
payment of respondent of said amount unto petitioner. thirty (30)-day period provided for under the above provision:
SO ORDERED.[1] Appeal may be taken by filing with the Hearing Officer who
promulgated the decision, order or ruling within thirty (30) days
Both parties filed their respective motions for reconsideration. from notice thereof, and serving upon the adverse party, a notice
of appeal and a memorandum on appeal and paying the
On July 17, 1989, the decision of Hearing Officer Villaflor was corresponding docket fee therefor. The appeal shall be
modified and amended by Hearing Officer Enrique L. Flores, Jr. to considered perfected upon the filing of the memorandum on
read as follows: appeal and payment of the docket fee within the period
hereinabove fixed.
WHEREFORE, respondents motion for reconsideration should be,
as it is, hereby DENIED and the petitioners motion for The Commission en banc notes that respondent had, extensions
reconsideration is hereby GRANTED. included, a total of eighty (80) days to file its Appeal
memorandum but failed to do so.
Accordingly, the decision dated January 11, 1989, is partially
reconsidered to the effect that petitioners are not made liable for WHEREFORE, premises considered, the instant appeal is hereby
the value of the items/articles burglarized from respondents dismissed for having been filed out of time.
condominium unit.
SO ORDERED.[3]
SO ORDERED.[2]
166
Respondent Unisphere moved for a reconsideration of the above- within fifteen (15) days from notice thereof. Records bear out
quoted order but the same was denied, and so was it its second that respondent Unisphere complied with the foregoing rules
motion for reconsideration. when it filed a notice of appeal with the SEC en banc on
September 6, 1990 and with the Court of Appeals on September
On September 6, 1990, respondent Unisphere filed a notice of 10, 1990. Clearly therefore, respondent Unisphere complied with
appeal to the SEC en banc in order to question the latters ruling the proper mode of appeal as mandated by the rules.
to the Court of Appeals pursuant to Rule 43 of the Rules of Court,
as amended by Republic Act No. 5434. With respect to the second contention, petitioners asseverate
that the February 23, 1990 order of the SEC en banc has already
On September 10, 1990, it filed a notice of appeal to the Court of become final and unappealable, therefore can no longer be
Appeals. reversed, amended or modified. They maintain that respondent
Unisphere received a copy of said order on February 26, 1990
The Court of Appeals reversed the SEC en bancs Order of August and that ten (10) days thereafter, it filed its motion for
21, 1990 in its Decision dated February 17, 1995 which reconsideration. Said motion was denied by the SEC on May 14,
dispositively reads as follows: 1990 which was received by respondent Unisphere on May 15,
1990. Consequently, they assert that respondent Unisphere had
WHEREFORE, the instant petition is GRANTED and the assailed only the remaining five (5) days or on May 20, 1990 within which
Order dated August 21, 1989 is hereby REVERSED and SET to file a notice of appeal. However, instead of appealing
ASIDE. Another judgment is entered declaring that the appeal therefrom, respondent Unisphere filed a second motion for
memorandum before the SEC (en banc) of appellant Unisphere reconsideration on May 25, 1990 with the SEC en banc.
was filed on time and that the amount of P13,142.67, the unpaid Petitioners contend that no second motion for reconsideration is
monthly dues of Unisphere to the Corporation should be offset by allowed by SEC Rules unless with express prior to leave of the
the losses suffered by the Unisphere in the amount of hearing officer. Said second motion for reconsideration was
P12,295.00. Unisphere is hereby ordered to pay the Cristina likewise denied on August 21, 1990. Fifteen (15) days later or on
Condominium Corporation the amount of P847.67 representing September 5, 1990, respondent Unisphere filed its notice of
the balance after offsetting the amount of P12,295.00 against appeal.
the said P13,142.67, with 12% interest per annum from January
28, 1987 when the Joint Petition of the petitioners-appellees was Section 8, Rule XII of the Revised Rules of Procedure of the SEC
filed before the SEC (for collection and damages) until fully paid. provides that:
No pronouncement as to costs. SEC. 8. Reconsideration.-- Within thirty (30) days from receipt of
the order or decision of the Hearing Officer, the aggrieved party
SO ORDERED.[4] may file a motion for reconsideration of such order or decision
together with proof of service thereof upon the adverse party. No
Petitioners moved for reconsideration of the said decision but the more than one motion for reconsideration shall be allowed unless
same was denied by the appellate court on May 15, 1995. with the express prior leave of the Hearing Officer.
Hence, the instant petition for review interposed by petitioners Respondent Unispheres non-observance of the foregoing rule
E.G.V. Realty and CCC challenging the decision of the Court of rendered the February 23, 1990 and the May 14, 1990 orders of
Appeals on the following grounds: (a) the Court of Appeals did the SEC en banc final and unappealable. Its failure to perfect its
not acquire jurisdiction over respondent Unispheres appeal appeal in the manner and within the period fixed by law rendered
because the latter failed to comply with the prescribed mode of the decision sought to be appealed final, with the result that no
appeal; (b) even if the jurisdictional infirmity is brushed aside, court can exercise appellate jurisdiction to review the decision.
the SEC en banc Order dated February 23, 1990 has already [6] Contrary to petitioners view, the appeal to the Court of
attained finality; and (c) the ruling of the Court of Appeals on the Appeals in this case should have been perfected within fifteen
offsetting of the parties claims is unfounded. (15) days from receipt of the order denying the motion for
reconsideration on May 15, 1990. But instead of appealing,
A perusal of the foregoing issues readily reveals that petitioners respondent Unisphere filed a prohibited second motion for
raise two (2) aspects of the case for consideration, that is, the reconsideration without express prior leave of the hearing officer.
procedural aspect and the substantive aspect. Consequently, when it subsequently filed its notice of appeal on
September 6, 1990, it was already eighty-two (82) days late.
We will discuss the procedural aspect first. Petitioners contend Therefore, the appeal before the Court of Appeals could have
that (a) the Court of Appeals did not acquire jurisdiction over the been dismissed outright for being time-barred. Rules of
appeal because respondent failed to comply with the prescribed procedure are intended to ensure the proper administration of
mode of appeal; and (b) assuming that the Court of Appeals has justice and the protection of substantive rights in judicial and
jurisdiction, the assailed SEC en banc Order of February 23, 1990 quasi-judicial proceedings. Blatant violation of such rules smacks
had already become final and executory. of a dilatory tactic which we simply cannot countenance.
Anent the first contention, petitioners claim that respondent Now, we go to the substantive aspect.
Unisphere erred in merely filing a notice of appeal as in ordinary
civil cases from the regular courts instead of a petition for review It is petitioners assertion that the ruling of the Court of Appeals
with the Court of Appeals. to offset the alleged losses as a result of the robberies in the
amount of P12,295.00 from the unpaid monthly dues of
Contrary to petitioners contention, respondent Unisphere P13,142.67 is unfounded because respondent Unisphere is not
complied with the prescribed mode of appeal. At the time the the owner of the goods lost but a third party, Amtrade.
appeal was elevated to the Court of Appeals in 1990, the rule Respondent Unisphere, on its part, claims that this issue is
governing recourse to the Court of Appeals from the decision, factual, hence, not a proper issue to raise before this Court.
resolution or final order of a quasi-judicial body was Rule 43 of
the Revised Rules of Court, as amended by Republic Act No. Actually, the issue for our consideration is whether or not set-off
5434 as embodied in Batas Pambansa Blg. 129 and its Interim or compensation has taken place in the instant case. The Court
Rules and Guidelines.[5] The rule provided for a uniform of Appeals dissertation on the matter is commendably
procedure for appeals from the specified administrative tribunals, instructive, but, lamentably, it reached a different conclusion. We
SEC included, to the Court of Appeals by filing a notice of appeal quote pertinent portions of the assailed decision:
with the appellate court and with the court, officer, board,
commission or agency that made or rendered the assailed ruling
167
Compensation or offset under the New Civil Code takes place From the undisputed facts, plaintiff was remissed (sic) within its
only when two persons or entities in their own rights, are obligation to provide safety to respondent inside its unit. This
creditors and debtors of each other. (Art. 1278). xxx was demonstrated by the fact that two robbery incidents befell
respondents under the negligent eye of plaintiffs hired security
A distinction must be made between a debt and a mere claim. A guards. It can be safely pronounced that plaintiff has not
debt is an amount actually ascertained. It is a claim which has complied with what was incumbent upon it to do in a proper
been formally passed upon by the courts or quasi-judicial bodies manner.
to which it can in law be submitted and has been declared to be
a debt. A claim, on the other hand, is a debt in embryo. It is Since it has been determined and proven by the evidence
mere evidence of a debt and must pass thru the process presented before the hearing office of respondent SEC that
prescribed by law before it develops into what is properly called a Unisphere indeed suffered losses because of the robbery
debt. (Vallarta vs. CA, 163 SCRA 587). Absent, however, any incidents and since it (Unisphere) did not refute its liability to the
such categorical admission by an obligor or final adjudication, no corporation for the unpaid monthly dues in the amount of
compensation or off-set can take place. Unless admitted by a P13,142. 67, this amount should be set-off against the
debtor himself, the conclusion that he is in truth indebted to aforestated losses of Unisphere.[7]
another cannot be definitely and finally pronounced, no matter
how convinced he may be from the examination of the pertinent We fully agree with the appellate courts dissertation on the
records of the validity of that conclusion the indebtedness must nature and character of a set-off or compensation. However, we
be one that is admitted by the alleged debtor or pronounced by cannot subscribe to its conclusion that a set-off or compensation
final judgment of a competent court or in this case by the took place in this case.
Commission (Villanueva vs. Tantuico, 182 SCRA 263).
In Article 1278 of the Civil Code, compensation is said to take
There can be no doubt that Unisphere is indebted to the place when two persons, in their own right, are creditors and
Corporation for its unpaid monthly dues in the amount of debtors of each other. Compensation is a mode of extinguishing
P13,142.67. This is admitted. But whether the Corporation is to the concurrent amount, the obligations of those persons who
indebted to Unisphere is vigorously disputed by the former. in their own right are reciprocally debtors an creditors of each
other and the offsetting of two obligations which are reciprocally
It appears quite clear that the offsetting of debts does not extend extinguished if they are of equal value, or extinguished to the
to unliquidated, disputed claims arising from tort or breach of concurrent amount if of different values.[8] Article 1279 of the
contract. (Compania General de Tobacos vs. French and Unson, same Code provides:
39 Phil. 34; Lorenzo and Martinez vs. herrero, 17 Phil. 29).
Article 1279. In order that compensation may be proper, it is
It must be noted that Unisphere just stopped paying its monthly necessary:
dues to the Corporation on September 23, 1983 without notifying
the latter. It was only on February 24, 1984, or five months (1) That each one of the obligors be bound principally, and that
after, that it informed the corporation of its suspension of he be at the same time a principal creditor of the other;
payment of the condominium dues to offset the losses it suffered
because of the robberies. (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
In resisting the finding which underscores their negligence, same quality if the latter has been stated;
E.G.V. Realty and Cristina condominium corporation, would have
this Court appreciate in their favor the admission of Mr. Alfonso (3) That the two debts be due;
Zamora of Unisphere that there was no such agreement among
the unit owners that any member who incurred losses will be (4) That they be liquidated and demandable;
indemnified from the common contribution. (TSN, July 7, 1987,
p. 60). (5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in
The herein appellees further argue that the cause of action for due time to the debtor.
reimbursement of the value of the items lost because of the
robberies should be against the security agency and not the Absent any showing that all of these requisites exist,
Corporation. compensation may not take place.
On the other hand, Unisphere invokes ART. 1170 of the Civil While respondent Unisphere does not deny its liability for its
Code which provides: unpaid dues to petitioners, the latter do not admit any
responsibility for the loss suffered by the former occasioned by
ART. 1170.- Those who in the performance of their obligations the burglary. At best, what respondent Unisphere has against
are guilty of fraud, negligence, or delay and those who in any petitioners is just a claim, not a debt. Such being the case, it is
manner contravene the tenor thereof, are liable for damages. not enforceable in court. It is only the debts that are enforceable
in court, there being no apparent defenses inherent in them.[9]
There is weight in the initial factual findings of the SEC Hearing Respondent Unispheres claim for its loss has not been passed
Officer with respect to the losses suffered by Unisphere in the upon by any legal authority so as to elevate it to the level of a
amount of P12,295.00: debt. So we held in Alfonso Vallarta v. Court of Appeals, et al.,
[10] that:
Plaintiff likewise does not dispute the fact of robbery that
occurred on November 28, 1981 and July 26, 1982 inside 301 Compensation or offset takes place by operation of law when two
Cristina Condominium. (2) persons, in their own right, are creditor and debtor of each
other. For compensation to take place, a distinction must be
Plaintiff admits that it had secured the services of Jimenez made between a debt and a mere claim. A debt is a claim which
Protective and Security Agency to safeguard the Condominium has been formally passed upon by the highest authority to which
premises under its instructions and supervision, but which failed it can in law be submitted and has been declared to be a debt. A
to detect the robbery incidents that occurred twice at Unit 301 of claim, on the other hand, is a debt in embryo. It is mere
respondent, canting (sic) away bulk items. evidence of a debt and must pass thru the process prescribed by
law before it develops into what is properly called a debt.[11]
xxx xxx xxx
168
Tested by the foregoing yardstick, it has not been sufficiently essential elements of Estafa as charged. The recommendation
established that compensation or set-off is proper here as there was approved by Rizal Provincial Prosecutor Mauro Castro on
is lack of evidence to show that petitioners E.G.V. Realty and May 18, 1993.
CCC and respondent Unisphere are mutually debtors and
creditors to each other. METROBANK then appealed to the Department of Justice (DOJ).
On June 1, 1994, Undersecretary Ramon. S. Esguerra reversed
Considering the foregoing disquisition, therefore, we find that the findings of the Provincial Prosecutor of Rizal and ordered the
respondent Court of Appeals committed reversible error in ruling latter to file the appropriate information against the TONDAS as
that compensation or set-off is proper in the instant case. charged in the complaint.
WHEREFORE, for all the foregoing , the instant petition is hereby The TONDAS immediately sought a reconsideration of the DOJ
GRANTED. The Decision of the Court of Appeals dated February Resolution but their motion was denied by the then acting Justice
17, 1995 is REVERSED and SET ASIDE. The Order of the Secretary Demetrio G. Demetria in a Letter-Resolution dated
Securities and Exchange Commission dated August 21, 1990 April 7, 1995. A second motion for reconsideration by the
reiterating the Hearing Officers Decision dated January 11, 1989, TONDAS was likewise denied by then Justice Secretary Teofisto
as amended by the Order of July 17, 1989, is hereby Guingona on July 12, 1995.
REINSTATED.
Subsequently, the TONDAS filed with the Court of Appeals a
SO ORDERED. special civil action for certiorari and prohibition with application
THIRD DIVISION for a temporary restraining order or a writ of preliminary
injunction,[7] which was docketed as CA-G.R. SP No. 38113.
[G.R. No. 134436. August 16, 2000] They contended therein that the Secretary of Justice acted
without or in excess of jurisdiction in issuing the aforementioned
METROPOLITAN BANK and TRUST COMPANY, petitioner, vs. Resolution dated July 12, 1995 denying with finality their motion
JOAQUIN TONDA and MA. CRISTINA TONDA, respondents. for the reconsideration of the Resolution dated April 7, 1995 of
the Acting Secretary of Justice, which in turn denied their motion
DECISION for the reconsideration of Resolution No. 417, s. 94, dated June
1, 1994, directing to file the appropriate Information against the
GONZAGA_REYES, J.: TONDAS.
This is a petition for review on certiorari under Rule 45 of the The Court of Appeals granted the TONDAS' petition and ordered
Rules of Court seeking to set aside the Decision[1] of the Court the criminal complaint against them dismissed. The Court of
of Appeals[2] dated June 29, 1998 in CA-G.R. SP No. 38113 Appeals held that METROBANK had failed to show a prima facie
which: (1) reversed Resolution No. 417, s. 1994,[3] dated June case that the TONDAS violated the Trust Receipts Law in relation
1, 1994 of the Department of Justice[4] directing to file the to Art. 315 (1) (b) of the Revised Penal Code in the face of
appropriate Information against herein respondents Joaquin P. convincing proof that "that the amount of P2.8 Million
Tonda and Ma. Cristina V. Tonda for violation of P.D. 115 in representing the outstanding obligation of the TONDAS under the
relation to Article 315 (1) (b) of the Revised Penal Code; and (2) trust receipts account had already been settled by them in
effectively set aside the Resolutions dated April 7, 1995[5] and compliance with the loan restructuring proposal; and that in the
July 12 1995[6] of the Department of Justice denying the absence of a loan restructuring agreement, METROBANK could
motions for reconsideration. still validly apply the amount as payment thereof." The relevant
portions of the Court of Appeals decision are quoted as follows:
Spouses Joaquin G. Tonda and Ma. Cristina U. Tonda, hereinafter
referred to as the TONDAS, applied for and were granted "Petitioners admitted that in 1991 their company, the Honey
commercial letters of credit by petitioner Metropolitan Bank and Tree Apparel Corporation (HTAC), had some financial reversals
Trust Company, hereinafter referred to as METROBANK for a making it difficult for them to comply with their loan obligations
period of eight (8) months beginning June 14, 1990 to February with Metrobank. They were then constrained to propose a loan
1, 1991 in connection with the importation of raw textile restructuring agreement with the private respondent to enable
materials to be used in the manufacturing of garments. The them to finally settle all outstanding obligations with the latter.
TONDAS acting both in their capacity as officers of Honey Tree In a letter dated 23 September 1991, petitioner Joaquin Tonda
Apparel Corporation (HTAC) and in their personal capacities, submitted a proposed Loan Restructuring Scheme to Metrobank.
executed eleven (11) trust receipts to secure the release of the In said letter, petitioner Tonda proposed to immediately pay in
raw materials to HTAC. The imported fabrics with a principal full the outstanding principal charges under the trust receipts
value of P2,803,000.00 were withdrawn by HTAC under the 11 account and the remaining obligations under a separate schedule
trust receipts executed by the TONDAS. Due to their failure to of payment. Petitioners attached with said letter an itemized
settle their obligations under the trust receipts upon maturity, proposal (Attachment "A"), part of which reads:
METROBANK through counsel, sent a letter dated August 10,
1992, making its final demand upon the TONDAS to settle their 1. Trust Receipts - The new management and. Mr. Joaquin G.
past due TR/LC accounts on or before August 15, 1992. They Tonda will pay immediately the entire principal of the
were informed that by said date, the obligations would amount to outstanding Trust Receipts amounting to P2,803,097.14. While
P4,870,499.13. Despite repeated demands therefor, the TONDAS the interest accrued up to September 13, 1991 amounting to
failed to comply with their obligations stated in the trust receipts P409,601.57 plus the additional interest shall be re-structured
agreements, i.e. the TONDAS failed to account to METROBANK together with item no. 2 below. A joint sharing account in the
the goods and/or proceeds of sale of the merchandise, subject of name of Joaquin G. Tonda and Wang Tien En equal to Trust
the trust receipts. Receipt amount of 1.8 Million will be opened at Metrobank
Makati. (emphasis supplied)
Consequently, on November 9, 1992, Metrobank, through its
account officer Eligio Labog, Jr., filed with the Provincial It would appear that the aforestated amount of 1.8 Million was
Prosecutor of Rizal a complaint/affidavit against the TONDAS for erroneously written since the intention of the petitioners was to
violation of P.D. No. 115 (Trust Receipts Law) in relation to open an account of P2.8 Million to pay the entire principal of the
Article 315 (1) (b) of the Revised Penal Code. On February 12, outstanding trust receipts account. In fact, also on 23 September
1993, the assigned Assistant Prosecutor of Rizal submitted a 1991, petitioner Joaquin Tonda and Wang Tien En deposited four
Memorandum to the Provincial Prosecutor recommending that different checks with a total amount of P2,800,000.00 with
the complaint in I.S. No. 92-8703 be dismissed on the ground Metrobank. The checks were received by a certain Flor C.
that the complainants had failed to establish the existence of the Naanep. Notably, the petitioners had obtained a written
169
acknowledgement of receipt of the checks totaling P2.8 Million obligation of the petitioners under the trust receipts account had
from the Metrobank officer in order to show proof of compliance already been settled by the petitioners. The money remains
with the loan restructuring proposal. If the petitioners had deposited under the savings account of the petitioners awaiting a
intended it to be a simple deposit, then a deposit slip with a final agreement with Metrobank regarding the loan restructuring
machine validation by the private respondent bank would have arrangement. Meanwhile, Metrobank has the right to use the
otherwise been sufficient. deposited amount in connection with any of its banking business.
In a letter dated 22 October 1991, Metrobank wrote to the With convincing proof that the amount of P2.8 Million deposited
petitioners informing them that the bank had accepted their under petitioners' savings account with Metrobank was indeed
proposal subject to certain conditions, the first of which referred intended to be applied as payment for the outstanding
to the immediate payment of the amount of P2.8 Million, obligations of HTAC under the trust receipts, Metrobank,
representing the outstanding trust receipts account. The therefore, had failed to show a prima facie case that the
petitioners appeared to have offered a counter proposal such petitioners had violated the Trust Receipts Law (P.D. No. 115) in
that no final agreement had yet been reached. relation to Art. 315 of the Revised Penal Code. Besides, there is
absolutely no evidence suggesting that Metrobank has been
However, the succeeding negotiations between petitioners and damaged by the proposal and the deposit made by the
Metrobank, after the initial offer of 23 September 1991 was petitioners. As noted by the prosecutor:
made, dealt with the other outstanding obligations while the
matter regarding the trust receipts account remained It is clear from the evidence that complainant bank had, all the
unchanged; therefore, it was settled between the parties that the while, been informed of the steps undertaken by the respondents
amount of P2.8 Million should be paid to cover all outstanding relative to the trust receipts and other financial obligations vis-a-
obligations under the trust receipts account. Despite the inability vis HTAC's financial difficulties. Hardly therefore, could it be said
of both parties to reach a mutually agreeable loan restructured that respondents were unfaithfully, deceptively, deceitfully and
agreement, the amount of P2.8 Million which was deposited on fraudulently dealing with complainant bank to warrant an
23 September 1991 by the petitioners appears to remain intact indictment for Estafa.[8]
and untouched as Metrobank had failed to show evidence that
the money has been withdrawn from the savings account of the Hence, this recourse to this Court where petitioner submits for
petitioners. the consideration of this Court the following issues:
Applying the above-mentioned ruling in this case, if the parties In response to the foregoing, the TONDAS maintain that
therefore fail to reach an agreement regarding the restructuring METROBANK has no legal standing to file the present petition
of HTAC's loan, Metrobank can validly apply the amount without the conformity or authority of the prosecutor as it deals
deposited by the petitioners as payment of the principal solely with the criminal aspect of the case, a separate action to
obligation under the trust receipts account. recover civil liability having already been instituted; that the
issues raised in the present petition are purely factual; and that
On the basis of all the evidence before Us, this Court is convinced the subject trust receipts obligations have been extinguished by
that the amount of P2.8 Million representing the outstanding payment or legal compensation.
170
partially guaranteed by a bond; or by denying having received
We find for petitioner bank. such money, goods, or other property.
Preliminarily, we shall resolve the issues raised by the TONDAS Based on the foregoing, it is plain to see that the Trust Receipts
regarding the standing of METROBANK to file the instant petition Law declares the failure to turn over the goods or the proceeds
and whether the same raises questions of law. realized from the sale thereof, as a criminal offense punishable
under Article 315 (1) (b) of the Revised Penal Code. The law is
The general rule is that it is only the Solicitor General who is violated whenever the entrustee or the person to whom the trust
authorized to bring or defend actions on behalf of the People or receipts were issued in favor of fails to: (1) return the goods
the Republic of the Philippines once the case is brought before covered by the trust receipts; or (2) return the proceeds of the
this Court or the Court of Appeals. However, an exception has sale of the said goods. The foregoing acts constitute estafa
been made that "if there appears to be grave error committed by punishable under Article 315 (1) (b) of the Revised Penal Code.
the judge or lack of due process, the petition will be deemed filed Given that various trust receipts were executed by the TONDAS
by the private complainants therein as if it were filed by the and that as entrustees, they did not return the proceeds from
Solicitor General."[10] In that case, the Court gave due course to the goods sold nor the goods themselves to METROBANK, there
the petition and allowed the petitioners to argue their case in lieu is no dispute that that the TONDAS failed to comply with the
of the Solicitor General. We accord the same treatment to the obligations under the trust receipts despite several demands
instant petition on account of the grave errors committed by the from METROBANK.
Court of Appeals. We add that no information having been filed
yet in court, there is, strictly speaking, no case yet for the People Finding favorably for the TONDAS, however, and ordering the
or the Republic of the Philippines. In answer to the second issue dismissal of the complaint against them, the Court of Appeals
raised by the TONDAS, while the jurisdiction of the Supreme held that: (1) the TONDAS opened a savings account of P2.8
Court in a petition for review on certiorari under Rule 45 of the Million to pay the entire principal of the outstanding trust
Revised Rules of Court is limited to reviewing only errors of law, receipts account; (2) the TONDAS obtained from a METROBANK
not of fact, one exception to the rule is when the factual findings officer[12] a written acknowledgement of receipt of checks
complained of are devoid of support by the evidence on record or totaling P2.8 Million in order to show proof of compliance with
the assailed judgment is based on misappreciation of facts[11], the loan restructuring proposal; (3) it was settled between the
as will be shown to have happened in the instant case. parties that the amount of 2.8 Million should be paid to cover all
outstanding obligations under the trust receipts account; (4) the
In the main, the issue is whether or not the dismissal by the money remains deposited under the savings account of
Court of Appeals of the charge for violation of the Trust Receipts petitioners awaiting a final agreement with METROBANK
Law in relation to Art. 315(1) (b) of the Revised Penal Code regarding the loan restructuring arrangement; and that (5) there
against the TONDAS is warranted by the evidence at hand and is no evidence suggesting that METROBANK has been damaged
by law. by the proposal and the deposit or that the TONDAS employed
fraud and deceit in their dealings with the bank.
The Court of Appeals gravely erred in reversing the Department
of Justice on the finding of probable cause to hold the TONDAS The foregoing findings and conclusions are palpably erroneous.
for trial. The documentary evidence presented during the
preliminary investigation clearly show that there was probable First, the amount of P2.8 million was not directly paid to
cause to warrant a criminal prosecution for violation of the Trust METROBANK to settle the trust receipt accounts, but deposited in
Receipts Law. a joint account of Joaquin G. Tonda and a certain Wang Tien En.
In a letter dated February 28, 1992, signed by HTAC's Vice
The relevant penal provision of P.D. 115 provides: President for Finance, METROBANK was informed that the
amount "may be applied anytime to the payment of the trust
SEC. 13. Penalty Clause. - The failure of an entrustee to turn receipts account upon implementation of the parties of the terms
over the proceeds of the sale of the goods, documents or of the restructuring."[13] The parties failed to agree on the
instruments covered by a trust receipt to the extent of the terms of the loan restructuring agreement as the offer by the
amount owing to the entruster or as appears in the trust receipt TONDAS to restructure the loan was followed by a series of
or to return said goods, documents or instruments if they were counter-offers which yielded nothing. It is axiomatic that
not sold or disposed of in accordance with the terms of the trust acceptance of an offer must be unqualified and absolute[14] to
receipt shall constitute the crime of estafa, punishable under the perfect a contract. The alleged payment of the trust receipts
provisions of Article Three Hundred and Fifteen, Paragraph One accounts never became effectual on account of the failure of the
(b), of Act Numbered Three Thousand Eight Hundred and Fifteen, parties to finalize a loan restructuring arrangement.
as amended, otherwise known as the Revised Penal Code. If the
violation or offense is committed by a corporation, partnership, Second, the handwritten note by the METROBANK officer
association or other judicial entities, the penalty provided for in acknowledging receipt of the checks amounting to P2.8 Million
this Decree shall be imposed upon the directors, officers, made no reference to the TONDAS' trust receipt obligations, and
employees or other officials or persons therein responsible for we cannot presume that it was anything more than an ordinary
the offense, without prejudice to the civil liabilities arising from bank deposit. The Court of Appeals citing the case of Tan Tiong
the criminal offense. Tick vs. American Apothecories[15] implied that in making the
deposit, the TONDAS are entitled to set off, by way of
Section 1 (b), Article 315 of the Revised Penal Code under which compensation, their obligations to METROBANK. However, Article
the violation is made to fall, states: 1288 of the Civil Code provides that "compensation shall not be
proper when one of the debts consists in civil liability arising
"x x x Swindling (estafa). - Any person who shall defraud another from a penal offense" as in the case at bar. The raison d'etre for
by any of the mans mentioned herein below x x x: this is that, "if one of the debts consists in civil liability arising
from a penal offense, compensation would be improper and
xxxxxxxxx inadvisable because the satisfaction of such obligation is
imperative."[16]
b. By misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the Third, reliance on the negotiations for the settlement of the trust
offender in trust or on commission, or for administration, or receipts obligations between the TONDAS and METROBANK is
under any other obligation involving the duty to make delivery of simply misplaced. The negotiations pertain and affect only the
or to return the same, even though such obligation be totally or civil aspect of the case but does not preclude prosecution for the
offense already committed. It has been held that "[a]ny
171
compromise relating to the civil liability arising from an offense Preliminary investigation is an executive, not a judicial function.
does not automatically terminate the criminal proceeding against [23] Such investigation is not part of the trial, hence, a full and
or extinguish the criminal liability of the malefactor."[17] All told, exhaustive presentation of the parties' evidence is not required,
the P2.8 Million deposit could not be considered as having settled but only such as may engender a well-grounded belief that an
the trust receipts obligations of the TONDAS to the end of offense has been committed and that the accused is probably
extinguishing any incipient criminal culpability arising therefrom. guilty thereof.[24]
Hence, it has been held in Office of the Court Administrator vs. Section 4, Rule 112 of the Rules of Court recognizes the
Soriano[18] that: authority of the Secretary of Justice to reverse the resolution of
the provincial or city prosecutor or chief state prosecutor upon
xxx it is too well-settled for any serious argument that whether petition by a proper party.[25] Judicial review of the resolution of
in malversation of public funds or estafa, payment, the Secretary of Justice is limited to a determination of whether
indemnification, or reimbursement of, or compromise as to, the there has been a grave abuse of discretion amounting to lack or
amounts or funds malversed or misappropriated, after the excess of jurisdiction considering that the full discretionary
commission of the crime, affects only the civil liability of the authority has been delegated to the executive branch in the
offender but does not extinguish his criminal liability or relieve determination of probable cause during a preliminary
him from the penalty prescribed by law for the offense investigation. Courts are not empowered to substitute their
committed, because both crimes are public offenses against the judgment for that of the executive branch; it may, however, look
people that must be prosecuted and penalized by the into the question of whether such exercise has been made in
Government on its own motion, though complete reparation grave abuse of discretion.[26]
should have been made of the damage suffered by the offended
parties. xxx." Verily, there was no grave abuse of discretion on the part of the
Secretary of Justice in directing the filing of the Information
As to the statement of the Court of Appeals that there is no against the TONDAS, end the Court of Appeals overstepped its
evidence that METROBANK has been damaged by the proposal boundaries in reversing the same without basis in law and in
and the deposit, it must be clarified that the damage can be evidence. We emphasize that for purposes of preliminary
traced from the non-fulfillment of an entrustee's obligation under investigation, it is enough that there is evidence showing that a
the trust receipts. The nature of trust receipt agreements and the crime has been committed and that the accused is probably
damage caused to trade circles and the banking community in guilty thereof.[27] By reason of the abbreviated nature of
case of violation thereof was explained in Vintola vs. IBAA[19] preliminary investigations, a dismissal of the charges as a result
and echoed in People vs. Nitafan[20], as follows: thereof is not equivalent to a judicial pronouncement of acquittal,
[28] a converso, the finding of a prima facie case to hold the
"[t]rust receipt arrangements do not involve a simple loan accused for trial is not equivalent to a finding of guilt.
transaction between a creditor and a debtor-importer. Apart from
a loan feature, the trust receipt arrangement has a security WHEREFORE, the petition is hereby GRANTED. The assailed
feature that is covered by the trust receipt itself. The second Decision is REVERSED and SET ASIDE.
feature is what provides the much needed financial assistance to
traders in the importation or purchase of goods or merchandise SO ORDERED.
through the use of those goods or merchandise as collateral for FIRST DIVISION
the advancements made by the bank. The title of the bank to the G.R. No. 147477 June 27, 2006
security is the one sought to be protected and not the loan which HERMENEGILDO M. TRINIDAD, Petitioner,
is a separate and distinct agreement." vs.
ESTRELLA ACAPULCO, Respondent
xxx xxx xxx. DECISION
AUSTRIA-MARTINEZ, J.:
"Trust receipts are indispensable contracts in international and Before this Court is a Petition for Review under Rule 45 of the
domestic business transactions. The prevalent use of trust Rules of Court assailing the Decision1 of the Court of Appeals
receipts, the danger of their misuse and/or misappropriation of (CA) in CA-G.R. CV No. 42518 promulgated on February 16,
the goods or proceeds realized from the sale of goods, 2001, which affirmed the Decision2 of the Regional Trial Court
documents or instruments held in trust for entruster-banks, and (RTC) Cebu City, Branch 6 dated March 23, 1992.
the need for regulation of trust receipt transactions to safeguard The facts are as follows:
the rights and enforce the obligations of the parties involved are
the main thrusts of P.D. 115. As correctly observed by the On May 6, 1991, respondent Estrella Acapulco filed a Complaint
Solicitor General, P.D. 115, like Bata Pambansa Blg. 22, punishes before the RTC seeking the nullification of a sale she made in
the act "not as an offense against property, but as an offense favor of petitioner Hermenegildo M. Trinidad. She alleged:
against public order. x x x The misuse of trust receipts therefore Sometime in February 1991, a certain Primitivo Cañete
should be deterred to prevent any possible havoc in trade circles requested her to sell a Mercedes Benz for P580,000.00. Cañete
and the banking community. (citing Lozano vs. Martinez, 146 also said that if respondent herself will buy the car, Cañete was
SCRA 323 [1986]; Rollo, p. 57) It is in the context of upholding willing to sell it for P500,000.00. Petitioner borrowed the car
public interest that the law now specifically designates a breach from respondent for two days but instead of returning the car as
of a trust receipt agreement to be an act that "shall" make one promised, petitioner told respondent to buy the car from Cañete
liable foe estafa." for P500,000.00 and that petitioner would pay respondent after
petitioner returns from Davao. Following petitioner’s instructions,
The finding that there was no fraud and deceit is likewise respondent requested Cañete to execute a deed of sale covering
misplaced Considering that the offense is punished as a malum the car in respondent’s favor for P500,000.00 for which
prohibitum regardless of the existence of intent or malice. A respondent issued three checks in favor of Cañete. Respondent
mere failure to deliver the proceeds of the sale or the goods if thereafter executed a deed of sale in favor of petitioner even
not sold, constitutes a criminal offense that causes prejudice not though petitioner did not pay her any consideration for the sale.
only to another, but more to the public interest.[21] When petitioner returned from Davao, he refused to pay
respondent the amount of P500,000.00 saying that said amount
Finally, it is worthy of mention that a preliminary investigation would just be deducted from whatever outstanding obligation
proper - whether or not there is reasonable ground to believe respondent had with petitioner. Due to petitioner’s failure to pay
that the accused is guilty of the offense and therefore, whether respondent, the checks that respondent issued in favor of Cañete
or not he should be subjected to the expense, rigors and bounced, thus criminal charges were filed against her.3
embarrassment of trial - is the function of the prosecutor.[22] Respondent then prayed that the deed of sale between her and
172
petitioner be declared null and void; that the car be returned to was whether or not there was dacion en pago; that dacion en
her; and that petitioner be ordered to pay damages.4 pago however is not present in this case as the parties did not
give their consent thereto; that there can also be no legal
In his Answer petitioner contended that: it is not true that he compensation as one of the obligations of this case did not entail
borrowed the car and that any demand was made to return it; he payment of a monetary debt but the delivery of a car; and that
also did not give any instructions to respondent to buy the car the admission of petitioner that the sale price of the car was not
from Cañete because as early as September 28, 1990, Cañete paid entitled respondent to file the action for rescission of sale.14
has already sold the car to respondent for P500,000.00; at the
time respondent executed the deed of sale in his favor on March Petitioner now comes before this Court claiming that:
4, 1991, respondent was already in possession of the deed of
sale from Cañete; the amount of P500,000.00 was fully paid by >1. THE HONORABLE APPELLATE COURT ERRED IN HOLDING
way of dation in payment to partially extinguish respondent’s THAT THE ANSWER DID NOT ALLEGE FACTS AMOUNTING TO
obligation with petitioner; the contract entered into was a true EXTINGUISHMENT OF OBLIGATION BY LEGAL COMPENSATION;
sale of a motor vehicle and the mode of payment was that of
dation in payment agreed upon at the time of the sale.5 >2. THE HONORABLE APPELLATE COURT ERRED IN GIVING
UNDUE RELIANCE TO PETITIONER’S CONCLUSION IN HIS
The parties filed their respective pre-trial briefs. Petitioner raised ANSWER THAT HIS OBLIGATION WAS DEEMED EXTINGUISHED
as issue: whether or not there is valid dation in payment;6 while BECAUSE OF DATION IN PAYMENT INSTEAD OF DISREGARDING
respondent put forth the questions: whether or not she is SAID CONCLUSION AND SIMPLY APPRECIATING THE FACTS
indebted to petitioner in the amount of P566,000.00, and ALLEGED AND PROVED AND DRAWING FOR ITSELF THE
whether the car was ceded by her to petitioner in order to JURIDICAL IMPLICATION OF SAID FACTS;
partially pay off her obligation of P566,000.00 to petitioner as
dation in payment.7 >3. ASSUMING THAT LEGAL COMPENSATION HAD NOT BEEN
ALLEGED IN THE ANSWER, STILL THE HONORABLE APPELLATE
On September 6, 1991, the trial court came out with its Pre-Trial COURT ERRED IN HOLDING THAT LEGAL COMPENSATION AS A
Order limiting the issue to whether there is dacion en pago MANNER OF EFFECTING PAYMENT HAD TO BE SPECIFICALLY
between petitioner and respondent.8 ALLEGED, THE SAME BEING ONLY EVIDENTIARY;
Trial ensued and on March 23, 1992, the RTC rendered its >4. ASSUMING THAT LEGAL COMPENSATION HAD TO BE
Decision finding that no dacion en pago is present in this case as ALLEGED AND THAT THE ANSWER FAILED TO DO SO,
common consent was not proven.9 The fallo of said decision NEVERTHELESS THE HONORABLE APPELLATE COURT ERRED IN
reads: IGNORING THE EVIDENCE PRESENTED WITHOUT OBJECTION
FROM RESPONDENT SHOWING THAT PARITES’(SIC) MUTUAL
WHEREFORE, judgment is hereby rendered in favor of the MONETARY OBLIGATIONS TO EACH OTHER HAD BEEN
plaintiff (Acapulco) and against the defendant (Trinidad), to wit: EXTINGUISHED TO THE CONCURRENT AMOUNT OF P500,00.00;
1. Declaring the deed of sale executed by plaintiff in favor of >5. THE HONORABLE APPELLATE COURT ERRED IN HOLDING
defendant as null and void for being fictitious and/or simulated; THAT LEGAL COMPENSATION COULD BE EFFECTED ONLY
THROUGH THE CONSENT OF THE PARTIES;
2. The defendant is ordered to return the Mercedes Benz car in
question to plaintiff in the same condition when it was delivered >6. THE HONORABLE APPELLATE COURT ERRED IN HOLDING
to him by plaintiff; THAT NON-PAYMENT OF THE PURCHASE PRICE MADE THE
CONTRACT OF SALE FICTITIOUS, HENCE NULL AND VOID;
3. Defendant is ordered to pay plaintiff the amount of
P100,000.00 as moral damages; P20,000.00 as exemplary >7. IN VIEW OF THE RESPONDENT’S ADMISSION THAT SHE
damages and attorney’s fees of P20,000.00 as well as litigation OWED PETITIONER P566,000.00, THE HONORABLE APPELLATE
expenses in the amount of P5,000.00 and costs. COURT ERRED IN NOT ORDERING RESPONDENT TO PAY THE
SAME WITH LEGAL INTEREST;
SO ORDERED.10
>8. THE HONORABLE APPELLATE COURT ERRED IN ASSESSING
Petitioner filed a Motion for Reconsideration arguing that contrary DAMAGES AGAINST THE PETITIONER.15
to the findings of the trial court that there was no common
consent, the offer to deliver the car to him actually came from Petitioner argues that: the purchase price of the car had been
respondent after petitioner told her that he was going to file automatically offset by respondent’s own monetary obligation of
estafa cases against her for her failure to pay her debt to P566,000.00, even if he and respondent had not agreed to
petitioner.11 offsetting following Article 129016 of the Civil Code; Bank of the
Philippine Islands v. Court of Appeals17 also held that
Petitioner also filed a Supplemental Motion and for the first time compensation shall take place when two persons, in their own
averred that assuming that respondent did not agree to having right, are creditors and debtors of each other; legal
the purchase price charged against the P566,000.00 she owed compensation takes place by operation of law and may be taken
petitioner, nonetheless, with or without her consent and/or up even though it is not raised in the pleadings or during trial; it
knowledge, the obligations parties owed to each other were is the duty of courts to grant the relief to which the parties are
extinguished by operation of law or through legal compensation entitled as shown by the allegations and the facts proven at the
in the amount of P500,000.00.12 trial; here, while petitioner claimed dation in payment, there was
more than enough testimony and admissions to prove elements
The RTC issued an Order dated October 18, 1992 denying the of legal compensation; failure to pay the agreed purchase price
Motion for Reconsideration and Supplemental Motion of petitioner does not make the contract of sale fictitious and null and void;
stating that the claim of dacion en pago is inexistent in this case the CA erred in not ordering respondent to pay petitioner the
and the defense of legal compensation was not alleged or balance of her partially extinguished indebtedness and in
pleaded in petitioner’s Answer.13 assessing damages against him as there was no basis
therefor.18
Petitioner appealed to the CA which affirmed the Decision of the
trial court, finding that the issue of legal compensation was filed In her Comment, respondent counters that: it was only in the
too late as it was brought up only in the supplemental motion for Supplemental Motion for Reconsideration of the decision of the
reconsideration; that the parties agreed that the issue to be tried trial court that petitioner changed his theory and started claiming
173
legal compensation as a defense; the CA did not commit any This Court holds otherwise.
error in rejecting the belated new defense of petitioner as it
would be offensive to the basic rule of fair play, justice and due Compensation takes effect by operation of law even without the
process; Article 1279 of the Civil Code also states that for legal consent or knowledge of the parties concerned when all the
compensation to be proper both debts should consist of sum of requisites mentioned in Article 1279 of the Civil Code are
money; in this case, one of the obligations does not entail present.26 This is in consonance with Article 1290 of the Civil
payment of money but delivery of a car.19 Code which provides that:
Petitioner merely reiterated his arguments in his Article 1290. When all the requisites mentioned in article 1279
Memorandum,20 while respondent in hers, further averred that: are present, compensation takes effect by operation of law, and
she is not the owner of the car, but was only in possession extinguishes both debts to the concurrent amount, even though
thereof in order to sell it at a price of P580,000.00 with the creditors and debtors are not aware of the compensation.
P80,000.00 going to her; both the trial court and the CA failed to
make a finding as to the exact amount respondent owed Since it takes place ipso jure,27 when used as a defense, it
petitioners.21 retroacts to the date when all its requisites are fulfilled.28
Stripped to its basics, what petitioner is contending is that legal Article 1279 provides that in order that compensation may be
compensation should be appreciated, though not expressly proper, it is necessary:
stated in his Answer to the Complaint before the trial court, as
his allegations therein and the facts proven at the trial show the (1) that each one of the obligors be bound principally, and that
presence of legal compensation. He further argues that, in any he be at the same time a principal creditor of the other;
case, legal compensation takes place by operation of law even
without the consent of the interested parties. (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
The Court resolves to grant the petition. same quality if the latter has been stated;
Our rules recognize the broad discretionary power of an appellate (3) that the two debts be due;
court to waive the lack of proper assignment of errors and to
consider errors not assigned.22 The interest of justice dictates (4) that they be liquidated and demandable;
that the Court consider and resolve issues even though not
particularly raised if it is necessary for the complete adjudication (5) that over neither of them there be any retention or
of the rights and obligations of the parties and it falls within the controversy, commenced by third persons and communicated in
issues already found by them.23 While it is true that petitioner due time to the debtor.
failed to raise the issue of legal compensation at the earliest
opportunity, this should not preclude the courts from Here, petitioner’s stance is that legal compensation has taken
appreciating the same especially in this case, where ignoring the place and operates even against the will of the parties because:
same would only result to unnecessary and circuitous filing of (a) respondent and petitioner were personally both creditor and
cases. debtor of each other; (b) the monetary obligation of respondent
was P566,000.00 and that of the petitioner was P500,000.00
Indeed, the doctrine that higher courts are precluded from showing that both indebtedness were monetary obligations the
entertaining matters neither alleged in the pleadings nor raised amount of which were also both known and liquidated; (c) both
during the proceedings below but ventilated for the first time monetary obligations had become due and demandable—
only in a motion for reconsideration or on appeal, is subject to petitioner’s obligation as shown in the deed of sale and
exceptions, such as when: respondent’s indebtedness as shown in the dishonored checks;
and (d) neither of the debts or obligations are subject of a
(a) grounds not assigned as errors but affecting jurisdiction over controversy commenced by a third person.
the subject matter; (b) matters not assigned as errors on appeal
but are evidently plain or clerical errors within contemplation of While the proceedings in the RTC focused on ascertaining the
law; (c) matters not assigned as errors on appeal but presence of the elements of dacion en pago, it was likewise
consideration of which is necessary in arriving at a just decision proven that petitioner owed respondent the amount of
and complete resolution of the case or to serve the interests of P500,000.00 while respondent owed petitioner P566,000.00; that
justice or to avoid dispensing piecemeal justice; (d) matters not both debts are due, liquidated and demandable, and; that
specifically assigned as errors on appeal but raised in the trial neither of the debts or obligations are subject of a controversy
court and are matters of record having some bearing on the commenced by a third person.
issue submitted which the parties failed to raise or which the
lower court ignored; (e) matters not assigned as errors on Respondent in her cross-examination categorically admitted that
appeal but closely related to an error assigned; and (f) matters she is indebted to petitioner as follows:
not assigned as errors on appeal but upon which the
determination of a question properly assigned, is dependent.24 Q But you will admit that you have borrowed several times from
Mr. Trinidad some money?
In this case, petitioner raised the issue of dacion en pago in his
Answer to respondent’s Complaint. The trial court thus focused A Yes.
on ascertaining whether the elements of dacion en pago are
present in the case at bar, i.e.: whether there is consent, object Q And in fact the total amount of money that you have borrowed
certain and cause or consideration, with common consent as an from Mr. Trinidad reaches to P566,000.00, right?
essential prerequisite to have the effect of totally extinguishing
the debt or obligation.25 As respondent’s consent was not A Yes.
adequately proven by petitioner, the trial court held that there
could be no dacion en pago. Petitioner thereafter filed a Motion Q And in fact you have issued checks to cover for this account?
for Reconsideration and a Supplemental Motion for
Reconsideration where, for the first time, he raised the issue of A Yes.
legal compensation. In striking down petitioner’s claim of legal
compensation, the trial court reasoned that it was raised too late. Q There were several checks you have issued, right?
This was affirmed by the CA.
A Yes.
174
Similarly, in order that exemplary damages may be awarded, it
Q And all of these checks bounced? must be shown that the wrongful act was accompanied by bad
faith or done in a wanton, fraudulent, reckless or malevolent
A Yes.29 manner.42 Exemplary damages are also allowed only in addition
to moral damages such that no exemplary damage can be
xxxx awarded unless the claimant first establishes his clear right to
moral damages.43 As moral damages are improper in the
Q x x x It is now very clear, Mrs. Acapulco, that at the time you present case, so is the award of exemplary damages.
executed a deed of absolute sale of the car in favor of
Hermenegildo Trinidad you have an outstanding account with The decision of the trial court also does not mention the reason
him in the amount of P566,000.00? for the award of attorney’s fees and the award was simply
contained in the dispositive portion of the decision. Again, the
A Yes.30 trial court erred on this score as it must explicitly state in the
body of its decision and not only in the dispositive portion thereof
Ignoring this admission would only result in added burden to the legal reason for the award of attorney’s fees.44
petitioner as well as the courts as petitioner will be forced to file
a separate case for collection of sum of money just so he could WHEREFORE, the petition is GRANTED. The decision of the Court
enforce his right to collect from respondent. This is precisely of Appeals dated February 16, 2001 is REVERSED and SET
what compensation seeks to avoid as its aim is to prevent ASIDE. The P500,000.00 which Hermenegildo M. Trinidad owed
unnecessary suits and payments through the mutual extinction Estrella Acapulco is offset against the P566,000.00 which
of concurring debts by operation of law.31 Acapulco owed Trinidad. Acapulco is ordered to pay Trinidad the
amount of P66,000.00 plus interest at 12% per annum from May
The claim of respondent that there could be no legal 20, 1992 until full payment.
compensation in this case as one of the obligations consists of
delivery of a car and not a sum of money must also fail. SO ORDERED.
Respondent sold the car to petitioner on March 4, 1991 for THIRD DIVISION
P500,000.00 while she filed her complaint for nullification of the
sale only on May 6, 1991. As legal compensation takes place ipso G.R. No. 171897, October 14, 2015
jure, and retroacts to the date when its requisites are fulfilled,
legal compensation has already taken place at the time of the PHILIPPINE TRUST COMPANY, Petitioner, v. FLORO ROXAS AND
sale. At such time, petitioner owed respondent the sum of EUFEMIA ROXAS, Respondents.
P500,000.00 which is the price of the vehicle.
DECISION
Consequently, by operation of law, the P500,000.00 which
petitioner owed respondent is off-set against the P566,000.00 JARDELEZA, J.:
owed by respondent to petitioner, leaving a balance of
P66,000.00, which respondent should pay with 12% interest per We consider whether the principle of legal compensation may be
annum from date of judicial or extrajudicial deed.32 Since there applied to offset the judgment debt of petitioner Philippine Trust
was no extrajudicial deed in this case, the interest shall be Company ("PTC") and the loan obligation of private respondents
resolved from the date petitioner filed its Supplemental Motion Floro and Eufemia Roxas ("Spouses Roxas").
for Reconsideration invoking for the first time legal I
compensation, that is, May 20, 1992.33
The Spouses Roxas procured loans from PTC in the amount of
Finally, the Court agrees with petitioner that the trial court erred Php 2,523,200 to finance their real estate business.1 These loans
in awarding damages in favor of respondent. were secured by real estate mortgages on the Spouses Roxas'
real properties. On April 10, 1979, the Spouses Roxas, PTC, and
In order that moral damages may be awarded, there must be Roben Construction and Furnishing Group, Inc. entered into "a
pleading and proof of moral suffering, mental anguish, fright and contract of building construction," under which PTC granted an
the like, and while no proof of pecuniary loss is necessary in additional loan of Php 900,000 to the Spouses Roxas to enable
order that moral damages may be awarded, it is nevertheless them to finish their ongoing housing projects located at
essential that the claimant should satisfactorily show the Cabcaben, Mariveles, Bataan. This was superseded by a new
existence of the factual basis of damages and its causal "contract of building construction" executed by and among PTC,
connection to defendant’s acts.34 Claims must be substantiated Spouses Roxas, and Rosendo P. Dominguez, Jr. ("Dominguez").
by clear and convincing proof35 and there must be clear Dominguez substituted Roben Construction as the contractor
testimony on the anguish and other forms of mental sufferings as under the same terms and conditions of the contract dated April
mere allegations will not suffice.36 Allegations of besmirched 10, 1979. The new contract stipulated that the money loaned
reputation, embarrassment and sleepless nights are insufficient from PTC shall be devoted to the funding of the housing projects,
for it must be shown that the proximate cause thereof was the the rentals of which when finished, would then be used to
unlawful act or omission of the opposing party.37 liquidate the loan. It also provided that PTC may only release the
proceeds of the loan for the purchase of materials and supplies
Indeed, for a court to arrive upon a judicious approximation of when requested by Dominguez and with the conformity of the
emotional or moral injury, competent and substantial proof of Spouses Roxas.2 Invoices covering materials previously
the suffering experienced must be laid before it.38 There must purchased with the funds should also be submitted to PTC before
be definite findings as to what the supposed moral damages any subsequent release of funds is made.3 PTC, however,
suffered consisted of.39 The award of moral damages must be released to Dominguez the sum of Php 870,000 out of the Php
solidly anchored on a definite showing that the claiming party 900,000 although the Spouses Roxas had agreed only to the
actually experienced emotional and mental sufferings.40 release of not more than Php 450,000, as evidenced by a
promissory note dated April 11, 1979.4
In this case, respondent merely testified that after petitioner
refused the payment of the car as well as its return, she was Due to financial difficulties, however, the Spouses Roxas did not
very much worried, which if converted into monetary amount is finish the housing project. As a result, they did not receive
equivalent to P200,000.00.41 We deem such testimony monthly rentals from prospective lessees of the houses, which
insufficient to warrant the award of moral damages. led to missed amortization payments in their loans from PTC.5
175
On March 28, 1980, Dominguez filed a complaint against PTC PTC filed a Petition for Certiorari15 under Rule 65 with the Court
and the Spouses Roxas with the Court of First Instance (CFI) of of Appeals seeking the annulment of the trial court's order
Manila,6 Branch XL for breach of the contract of building issuing the writ of execution and its subsequent orders denying
construction. This was docketed as Civil Case No. 130783. The PTC's motions for reconsideration. On November 17, 2005, the
Spouses Roxas in turn filed Civil Case No. 130892 with the CFI of Court of Appeals dismissed the petition for lack of merit. It found
Manila against Dominguez and the insurance company that that not all requisites of legal compensation under Article 1279 of
issued his performance bond. These two cases were later the Civil Code were present and that the defense of legal
consolidated.7 compensation was belatedly raised by PTC, considering that it
was raised for the first time at the execution stage.16 The Court
When the Spouses Roxas filed their answer in Civil Case No. of Appeals denied PTC's motion for reconsideration on March 9,
130783, they included a cross-claim against PTC.8 In response, 2006.17
PTC filed a counterclaim against the Spouses Roxas on their
unpaid loan obligation amounting to Php 3,053,738.509 plus PTC then filed this Petition for Review on Certiorari18 under Rule
interest and the amount of Php 245,720 as attorney's fees; and, 45, arguing that the Court of Appeals erred in not finding that all
in default of such payments, the foreclosure of the real estate the requisites of legal compensation were present and in ruling
mortgages executed by the Spouses Roxas in favor of PTC. After that the defense of compensation was belatedly raised. PTC
trial on the merits, the trial court rendered a decision in favor of claims it did not raise legal compensation as a defense before the
Dominguez. It denied PTC's counterclaim for lack of sufficient Bataan RTC because the judgment debt was not yet due at the
proof, without prejudice to the filing of a collection suit against time it filed its answer. Furthermore, it had already set up as a
the Spouses Roxas. Both PTC and the Spouses Roxas appealed to compulsory counterclaim the loan obligation of the Spouses
the Court of Appeals, docketed as CA-G.R. CV No. 30340. To this Roxas in Civil Case No. 130783, which was pending with the
date, the same remains pending.10 former CFI of Manila. But because the Manila court denied PTC's
counterclaims, PTC argues there is a change in the situation of
In a parallel development, while Civil Case No. 130783 was still the parties that makes execution inequitable.
pending in the trial court, PTC, on August 31, 1981, filed with the
provincial sheriff of Bataan a petition for extrajudicial foreclosure In response, the Spouses Roxas assert that the execution of the
of the same real estate mortgages, The Spouses Roxas opposed Bataan RTC decision is proper because the prevailing party is
the petition and filed a verified complaint against PTC for entitled to a writ of execution as a matter of right once a
damages with preliminary injunction in the Regional Trial Court judgment becomes final.19 Moreover, the decision in Civil Case
of Bataan docketed as Civil Case No. 4809 ("Main Case"). The No. 130873 is not a supervening event that warrants the stay of
complaint sought to restrain and enjoin the sheriff from execution.20 The Spouses Roxas also dispute the applicability of
proceeding with the foreclosure sale while Civil Case No. 130783 legal compensation because both the demandability of the loan
is still pending.11 On December 26, 1988, the Bataan RTC as well as the exact amount due had been put in issue in Civil
rendered a Decision in favor of the Spouses Roxas, the Case No. 130873, which is now pending appeal with the Court of
dispositive portion of which reads as follows:cralawlawlibrary Appeals as CA-G.R. CV No. 30340.21 The Spouses Roxas
maintain that PTC is deemed to have waived compensation as a
WHEREFORE, the Court hereby renders judgment (a) Ordering defense because it did not raise compensation either in a motion
the issuance of a writ of permanent injunction perpetually to dismiss or as an affirmative defense in its answer to the Main
enjoining defendant Philippine Trust Company and defendant Case.22 Finally, the Spouses Roxas point out that the orders of
provincial sheriff of Bataan or any of his deputies from the Bataan RTC were challenged by PTC through a Rule 65
foreclosing extrajudicially the real estate mortgage(s) executed petition. Thus, it was incumbent upon PTC to prove lack or grave
in its favor by plaintiffs covering the real properties subject of abuse of discretion on the part of the Bataan RTC, which PTC
this action;ChanRoblesVirtualawlibrary ultimately failed to do.23
(b) Condemning said defendant bank to pay to plaintiffs: (1) The petition has no merit.
Ordinary damages for breach of the provisions of the contract of
building construction (Exhs. "B" & "26"), in the sum of One II
Hundred Thousand Pesos (P100,000.00); (2) Moral damages for
the improvident extrajudicial foreclosure of plaintiffs' A
mortgage(s) after it had elected judicial foreclosure thereof, in
the amount of Three Hundred Thousand Pesos (P300,000.00) for We agree with the Court of Appeals that it was too late for PTC
both plaintiffs; (3) Exemplary damages by way of example or to set up legal compensation as a defense because the Main Case
correction for the public good in the sum of Fifty Thousand Pesos had already reached the execution stage. The rule is that once a
(P50,000.00); (4) Attorney's fees in the amount of Fifty decision becomes final and executory, execution shall issue as a
Thousand Pesos (P50,000.00); and (5) Double costs of suit matter of right,24 and the issuance of a writ of execution is the
court's ministerial duty, compellable by mandamus.25 This is in
SO ORDERED.12chanrobleslaw accordance with the doctrine of immutability of final judgments,
which states that a judgment that has become final and
The Court of Appeals affirmed the decision of the Bataan RTC. executory is immutable and unalterable, and may no longer be
The decision became final and executory, prompting the Spouses modified in any respect, even if the modification is meant to
Roxas to file a Motion for Execution. PTC responded by filing an correct what is perceived to be an erroneous conclusion of fact or
Opposition to the Motion for Execution, where it raised for the law, and regardless of whether the modification is attempted to
first time legal compensation to offset the judgment debt due to be made by the court rendering it or by the highest Court of the
the Spouses Roxas. land.26 Although there are recognized exceptions to this
doctrine, one of which is where there is a supervening event that
On January 25, 1994, the trial court denied PTC's Opposition and renders execution inequitable or unjust,27 none obtains in this
issued a writ of execution, holding that PTC is deemed to have case.
waived legal compensation as a defense because it failed to
invoke the same as an affirmative defense in its answer. PTC First, there is nothing unjust or inequitable in the issuance of the
filed a motion for reconsideration of the order, which was denied writ of execution in this case because execution will have no
by the trial court on April 19, 1994.13 PTC filed another motion effect on the unpaid loan obligation of the Spouses Roxas to PTC.
for reconsideration, which was again denied by the trial court on The Spouses Roxas' unpaid loan obligation to PTC is the subject
June 7, 1994.14 of a separate case now pending before the Court of Appeals, CA-
G.R. CV No. 30340. Thus, there exists a proper forum where PTC
may be allowed to recover whatever is due from the Spouses
176
Roxas. What is inequitable is to allow PTC to recover its credit in case, Civil Case No. 130873. It was presumably an informed
full in CA-G.R. CV No. 30340 while concurrently being allowed to choice arrived at by PTC and its counsel, with full knowledge of
offset its judgment debt in this case. In such instance, there the consequences of its failure to plead this specific
would effectively be double recovery on the part of PTC—which claim/defense in the Main Case. Unfortunately for PTC, its
we cannot sanction because of the fundamental proscription counterclaim in the other case was disallowed. Having adopted
against unjust enrichment.28 the wrong legal strategy, PTC cannot now expediently change its
theory of the case or its defense at the execution stage of the
Second, it would be more unjust to stay the execution of a Main Case. Following the doctrine of election of remedies,35
decision that had become final and executory twenty three (23) PTC's choice of setting up the Spouses Roxas' unpaid loan
years ago. There should be an end to litigation, for public policy obligation as a counterclaim in Civil Case No. 130873, which has
dictates that once a judgment becomes final, executory, and gone to judgment on the merits but is pending appeal, precludes
unappealable, the prevailing party should not be denied the fruits it from raising compensation of the same loan obligation for the
of his victory by some subterfuge devised by the losing party.29 purpose of opposing the writ of execution in the Main Case.
Unjustified delay in the enforcement of a judgment sets at Equitable in nature, the doctrine of election of remedies is
naught the role and purpose of the courts to resolve justiciable designed to mitigate possible unfairness to both parties. It rests
controversies with finality.30 To accept PTC's contentions would on the moral premise that it is fair to hold people responsible for
not only be unfair to private respondents but, more importantly, their choices. The purpose of the doctrine is not to prevent any
would defeat a vital poliey consideration behind the doctrine of recourse to any remedy, but to prevent a double redress for a
immutability of final judgments. single wrong.36
B III
The Bataan RTC and the Court of Appeals also correctly ruled Even if we assume that legal compensation was not waived and
that PTC should have raised the argument on legal compensation was otherwise timely raised, we find that not all requisites of
at the trial stage. The 1964 Rules of Court, which was then in legal compensation are present in this case. Under Article 1279,
effect at the time the Main Case was filed by the Spouses Roxas in order for legal compensation to take place, the following
in 1980, provides that:cralawlawlibrary requisites must concur: (a) that each one of the obligors be
bound principally, and that he be at the same time a principal
RULE 9. Effect of Pleadings creditor of the other; (b) that both debts consist in a sum of
money, or if the things due are consumable, they be of the same
Sec. 2. Defenses and objections not pleaded deemed waived.— kind, and also of the same quality if the latter has been stated;
Defenses and objections not pleaded either in a motion to (c) that the two debts be due; (d) that they be liquidated and
dismiss or in the answer are deemed waived; except the failure demandable; and (e) that over neither of them there be any
to state a cause of action which may be alleged in a later retention or controversy, commenced by third persons and
pleading, if one is permitted, or by motion for judgment on the communicated in due time to the debtor.
pleadings, or at the trial on the merits; but in the last instance,
the motion shall be disposed of as provided in section 5 of Rule Here, the fourth requisite is absent. A debt is liquidated when its
10 in the light of any evidence which may have been received. existence and amount are determined.37 Compensation can only
Whenever it appears that the court has no jurisdiction over the take place between certain and liquidated debts; it cannot
subject-matter, it shall dismiss the action.31 (Emphasis extend to unliquidated, disputed claims.38 Since the loan
added)chanrobleslaw obligation, including its amount and demandability, is still being
disputed in CA-G.R. CVNo. 30340, PTC's credit cannot be
Although legal compensation takes place by operation of law, it considered liquidated as of yet. Consequently, no legal
must be alleged and proved as a defense by the debtor who compensation could have taken place between PTC's loan credit
claims its benefits. Only after it is proved will its effects retroact and the Spouses Roxas' judgment credit.
to the moment when all the requisites under Article 1279 of the
Civil Code have concurred.32 IV
PTC's contention that it could not have raised legal compensation Finally, we observe that PTC appears to have willfully engaged in
as a defense because it was not yet a debtor of the Spouses forum shopping. PTC, in its own words, opposed the execution of
Roxas when it filed its answer is unconvincing. Under Rule 8, the Bataan RTC decision because '"the Decision promulgated on
Section 2 of the 1964 Rules of Court, "[a] party may set forth September 4, 1990 by the RTC of Manila, Branch 40 [in Civil
two or more statements of a claim or defense alternatively or Case No. 130783] denied Petitioner's counterclaims."39 Forum
hypothetically, either in one cause of action or defense or in shopping is committed by a party who, having received an
separate causes of action or defenses."33 Thus, the defense of adverse judgment in one forum, seeks another opinion in
compensation would have been proper and allowed under the another court, other than by appeal or the special civil action of
rules even if PTC disclaimed any liability at the time it filed its certiorari. More accurately, forum shopping is the institution of
answer. In Marquez v. Valencia,34 we held that when a two or more suits in different courts, either simultaneously or
defendant failed to set up such alternative defenses and chosen successively, in order to ask the courts to rule on the same or
or elected to rely on one only, the overruling thereof was a related causes and/or to grant the same or substantially the
complete determination of the controversy between the parties, same reliefs.40
which bars a subsequent action based upon an unpleaded
defense. Unmistakably, the rationale behind this is the The relief PTC now seeks is compensation of its judgment debt
proscription against the splitting of causes of action. with the Spouses Roxas' loan obligation. In the other case, Civil
Case No. 130783 (now CA-G.R. CV No. 30340), PTC asks for the
In any case, even if PTC were excused from pleading payment of the same loan obligation of the Spouses Roxas.
compensation as a defense in its answer, we note that PTC still Essentially, PTC is seeking the same relief in both cases: the
failed to raise this defense in its motion for reconsideration of the extinguishment of the Spouses Roxas' loan obligation. Under
Bataan RTC decision and in its subsequent appeal. Hence, there Article 1231 of the Civil Code, payment and compensation are
can be no other conclusion than that PTC is already estopped modes of extinguishing an obligation. Although legally distinct,
from raising the issue of legal compensation. both must be pleaded in the same case if the obligation sought
to be extinguished and the parties thereto arc identical;
It is fairly clear to us that the reason why PTC did not raise legal otherwise, it would constitute splitting of causes of action.
compensation as a defense in the Main Case is because it was
banking on a favorable ruling on its counterclaim in the other
177
Forum shopping exists when the elements of litis pendentia are writ of attachment filed by Allied Bank against Marphil's surety,
present, viz.: (a) identity of parties, or at least such parties as petitioner Ireneo Lim (Lim).
those representing the same interests in both actions; (b)
identity of rights assered and relief prayed for, the relief being Facts
founded on the same facts; and (c) the identity of the two
preceding particulars is such that any judgment rendered in the Marphil is a domestic company engaged in the exportation of
other action, will, regardless of which party is successful, amount cuttlefish, cashew nuts and similar agricultural products.[6] To
to res judicata in the action under consideration.41 finance its purchase and export of these products, Allied Bank
granted Marphil a credit line from which Marphil availed of
We find that the elements of litis pendentia—and, as a several loans evidenced by promissory notes (PN).[7] These
consequence, forum shopping—exist in this case. PTC's claim for loans were in the nature of advances to finance the exporter's
legal compensation is founded on the same unpaid loan working capital requirements and export bills.[8] The loans were
obligation now being litigated in CA-G.R. CV No. 30340. Although secured by three (3) Continuing Guaranty or Continuing Surety
that case originated from a complaint filed by Dominguez for (CG/CS) Agreements[9] executed by Lim, Lim Shiao Tong and
breach of contract, PTC counterclaimed the entire unpaid loan Enrique Ching.[10] Apart from the CG/CS Agreements,
obligation, plus interest, owed to it by the Spouses Roxas. In irrevocable letters of credits also served as collaterals for the
other words, PTC had squarely put in issue the matter of the loans obtained to pay export bills.[11] In turn, Allied Bank
Spouses Roxas' indebtedness arising from the loans the latter required Marphil, through its authorized signatories Lim and
obtained from PTC. It is immaterial that PTC's cause of action in Rebecca Lim So, to execute a Letter of Agreement[12] where
the other case was set forth by way of a counterclaim, since the they undertake to reimburse Allied Bank in the event the export
latter partakes of the nature of a complaint by the defendant bills/drafts covering the letters of credit are refused by the
against the plaintiff.42 On the other hand, while the Main Case drawee. Upon negotiations of export bills/drafts that Allied Bank
originally involved a different subject matter and cause of action purchases from Marphil, the amount of the face value of the
(i.e., the injunction against PTC's extrajudicial foreclosure and letters of credit is credited in favor of the latter.[13]
the Spouses Roxas' claim for damages) as that embraced in CA-
G.R. CV No. 30340, the primary issue raised by PTC in its The transaction involved in this petition is the export of cashew
Opposition to the Motion for Execution, and subsequently in the nuts to Intan Trading Ltd. Hongkong (Intan) in Llong Kong. Upon
petition for certiorari with the Court of Appeals and the present application of Intan, Nanyang Commercial Bank (Nanyang Bank),
petition, pertained to the same loan obtained by the Spouses a bank based in China, issued irrevocable letters of credit. These
Roxas. Thus, with respect to the Spouses Roxas' indebtedness to were Letter of Credit (L/C) No. 22518 and L/C No. 21970, with
PTC, there is a clear identity of parties, of subject matter, and of Marphil as beneficiary and Allied Bank as correspondent bank.
cause of action. Consequently, once a final decision in CA-G.R. [14] These covered two (2) separate purchase contracts/orders
CV No. 30340 is rendered, it will constitute res judicata and bar for cashew nuts made by Intan.
further litigation on the same loan obligation, including any
dispute on the applicability or non-applicability of legal The first order of cashew nuts was covered by L/C No. 22518.
compensation. After the first shipment was made, Marphil presented export
documents including drafts to Allied Bank. The latter credited
Forum shopping is an act of malpractice that is prohibited and Marphil's: credit line the peso equivalent of the face value of L/C
condemned because it trifles with the courts and abuses their No. 22518 (in the amount of P1,986,702.70 and this amount was
processes, and degrades the administration of justice and adds deducted from the existing loans of Marphil.[15] There were no
to the already congested court dockets.43 Under Section 5 of problems encountered for the shipment covered by L/C No.
Rule 8, willful and deliberate forum shopping is a ground for 22518. It was the second order covered by L/C No. 21970 that
summary dismissal of the case and constitutes direct contempt encountered problems.
of court, as well as a cause for administrative sanctions. The
litigation could have ended promptly if PTC had simply paid its When Intan placed a second order for cashew nuts, Marphil
judgment debt and awaited the final decision in the other case to availed additional loans in their credit line evidenced by PN No.
recover whatever is due from the Spouses Roxas. Instead, this 0100-88-02463[16] (PN No. 2463) for P500,000.00 and PN No.
plainly unmeritorious case had to clog our docket and take up 0100-88-02730[17] (PNNo. 2730) for P500,000.00. Similar to
the valuable time of this Court. the previous transaction, Intan applied for and opened L/C No.
21970 with Nanyang Bank in the amount of US$185,000.00, with
WHEREFORE, the petition for review is DENIED for lack of merit. Marphil as the beneficiary and Allied Bank as correspondent
The Decision dated November 17, 2005 and Resolution dated bank.[18] After receiving the export; documents including the
March 9, 2006 of the Court of Appeals in CA-G.R. SP No. 35203 draft issued by Marphil, Allied Bank credited Marphil in the
are hereby AFFIRMED. Costs against petitioner. amount of P1,913,763.45, the peso value of the amount in the
letter of credit.[19]
On September 14, 1990, Allied Bank filed a Complaint with Meanwhile, Allied Bank and Philippine National Bank (PNB) jointly
Petition for Writ of Preliminary Attachment[30] (Collection Case) filed a Motion for Substitution of Party with Notice of Change of
against Lim and Lim Shao Tong which was raffled to Branch 145 Address[47] on October 22, 2013 informing this Court that the
of RTC Makati. Allied Bank sued them as sureties under the Securities and Exchange Commission approved a merger
CG/CS Agreements for the loan obligations of Marphil under between Allied Bank and PNB, with the latter as the surviving
three (3) promissory notes, PN Nos. 2463, 2730 and 4202, in the corporation. They prayed that Allied Bank be dropped and
total amount of P2,505,391.36. It also prayed for the issuance of substituted by PNB as party respondent in this petition. This was
a writ of preliminary attachment on the ground that Lim was granted by this Court in a Resolution[48] dated December 4,
guilty of fraud in contracting his obligations. 2013.
On March 15, 1994, Branch 145 of RTC Makati granted ex parte Whether the writ of preliminary attachment should be dissolved.
the prayer for preliminary attachment in the Collection Case.[34] Ruling
On May 7, 1991, Allied Bank filed a Motion to Consolidate/Be We partly grant the petition.
Accepted[35] with Branch 61 of RTC Makati, which was granted
by Order dated June 25, 1991.[36] The two civil cases were At the outset, Allied Bank did not appeal from the decisions of
jointly heard before Branch 61 of RTC Makati. the RTC and CA respecting the nullification of PN No. 4202, and
the extinguishment by payment of PN Nos. 2730 and 2463. Allied
On April 23, 2007, the RTC rendered the Omnibus Decision.[37] Bank (now PNB) can thus no longer seek their modification or
The RTC granted Marphil's complaint for declaratory relief, and reversal, but may only oppose the arguments of petitioners on
declared PN No. 4202 void. However, it held Marphil and/or grounds consistent with the judgment of the RTC and CA.[49]
Ireneo Lim jointly and severally liable for any balance due on Bearing this in mind, we proceed to dispose of the issues.
their obligation under PN Nos. 2463 and 2730, and additionally
for the amount of P1,913,763.45 with interest rate fixed at 12% I. Validity of the debit memo
per annum until fully paid.[38]
a. Allied Bank as correspondent bank in L/C No. 21970
On May 9, 2007, petitioners filed a Notice of Appeal[39] with the
RTC. Allied Bank did not appeal the RTC decision. Records were Both the RTC and CA found that Allied Bank is not a confirming
then forwarded to the CA, which began proceedings.[40] bank which undertakes Nanyang Bank's obligation as issuing
bank, but at most, buys the drafts drawn by Marphil as exporter
The CA rendered its Decision[41] on January 12, 2009 modifying at a discount.
the RTC decision. The CA declared PN Nos. 2463 and 2730 fully
paid, but held petitioners liable for the amount of P1,913,763.45, Marphil, however, argues that the RTC and CA erred in ruling
the amount equal to the face value of L/C No. 21970.[42] that Allied Bank is not a confirming bank. It insists that Allied
Bank as correspondent bank assumed the risk when it confirmed
The CA found that Allied Bank is not directly liable for the L/C No. 21970. It invokes the ruling in Feati Bank & Trust
P1,913,763.45 under L/C No. 21970 because it was not a Company v. Court of Appeals[50] on the rule of strict compliance
confirming bank and did not undertake to assume the obligation in letters of credit stating that "[a] correspondent bank which
of Nanyang Bank to Marphil as its own. At most, it could only be departs from what has been stipulated under the letter of credit,
a discounting bank which bought drafts under the letter of credit. as when it accepts a faulty tender, acts on its own risks and it
Following the ruling in Bank of America, NT & SA v. Court of may not thereafter be able to recover from the buyer or the
Appeals,[43] it held that Allied Bank, as the negotiating bank, issuing bank x x x."[51] Thus, Marphil claims that Allied Bank
has the ordinary right of recourse against the exporter in the had no authority to debit the amount equivalent to the face value
event of dishonor by the issuing bank. A negotiating bank has a of L/C No. 21970 since the latter is directly liable for it.
179
We affirm the RTC and CA's findings that Allied Bank did not act In any event, we find that Allied Bank may seek reimbursement
as confirming bank in L/C No. 21970. of the amount credited to Marphil's account on an independent
obligation it undertook under the Letter Agreement.
As noted by the CA, Feati is not in all fours with this case. The
correspondent bank in that case refused to negotiate the letter of b. Allied Bank's right to reimbursement under the Letter
credit precisely because of the beneficiary's non-compliance with Agreement
its terms. Here, it is Nanyang Bank, the issuing bank, which
refused to make payment on L/C No. 21970 because there was To recall, Marphil and Allied Bank executed the Letter Agreement
no strict compliance by Marphil.[52] dated June 24, 1988 the subject of which is the draft equivalent
to the face value of L/C No. 21970.
Further, while we said in Feati that a correspondent bank may be
held liable for accepting a faulty tender under the rule of strict In the Letter Agreement, Marphil expressly bound itself to refund
compliance, its liability is necessarily defined by the role it the amount paid by Allied Bank in purchasing the export bill or
assumed under the terms of the letter of credit. In order to draft, in case of its dishonor by the drawee bank:
consider a correspondent bank as a confirming bank, it must Purchase of the Draft shall be with recourse to me/us in the
have assumed a direct obligation to the seller as if it had issued event of non-payment for any reason whatsoever. Notice of
the letter of credit itself.[53] We said that "[i]f the dishonor, non-acceptance, non-payment, protest and
[correspondent bank] was a confirming bank, then a categorical presentment for payment are hereby waived.
declaration should have been stated in the letter of credit that
the [correspondent bank] is to honor all drafts drawn in xxx
conformity with the letter of credit."[54] Thus, if we were to hold
Allied Bank liable to Marphil (which would result in a finding that If, for any reason, my/our Draft is not finally honored or retired
the former's debit from the latter's account is wrong) based on by the drawee, I/we hereby further undertake and bind
the rule of strict compliance, it must be because Allied Bank myself/ourselves to refund to you, on demand, the full amount of
acted as confirming bank under the language of L/C No. 21970. this negotiation, together with the corresponding interest thereon
as well as your or your correspondent's charges and expenses
In finding that Allied Bank, as correspondent bank, did not act as thereon, if any; and to compensate you fully for any damages
confirming bank; the CA reviewed the instructions of Nanyang that you might incur arising out of any suit, action or
Bank to Allied Bank in L/C No. 21970. It found that based on the proceedings, whether judicial or extra-judicial that might be
instructions, there is nothing to support Marphil's argument that instituted by the buyer or importer on the ground of lack of
Allied Bank undertook, as its own, Nanyang Bank's obligations in faithful performance of the contract between said buyer or
the letter of credit: importer and myself/ourselves. Likewise, should my/our Draft be
In the case of [Bank of America], the functions assumed by a dishonored for any cause whatsoever, I/we hereby authorize
correspondent bank are classified according to the obligations you, at your discretion and without any responsibility on your
taken up by it. In the case of a notifying bank, the correspondent part to sell, or cause to be sold, either publicly or privately, the
bank assumes no liability except to notify and/or transmit to the underlying goods, wherever they may be found, and, from the
beneficiary the existence of the L/C. A negotiating bank is a proceeds thereof, I/we hereby empower you to collect all
correspondent bank which buys or discounts a draft under the expenses incident thereto, together with your commission,
L/C. Its liability.is dependent upon the stage of the negotiation. interest and other charges, as well as to reimburse yourself
If before negotiation, it has no liability with respect to the seller therefrom x x x the full amount of this negotiation, interest,
but after negotiation, a contractual relationship will then prevail charges and other expenses thereon, returning to me/us only
between the negotiating bank and the seller. A confirming bank whatever amount that may remain thereafter; and, should there
is a correspondent bank which assumes a direct obligation to the be any deficiency still in your favor, notwithstanding the sale
seller and its liability is a primary one as if the correspondent made as herein authorized, I/we likewise bind myself/ourselves
bank itself had issued the L/C. to pay the said deficiency to you upon demand.[59]
The case of Velasquez v. Solidbank Corporation[60] is instructive
In the instant case, the letter of Nanyang to Allied provided the as to the nature of obligations arising from this form of
following instructions: 1) the negotiating bank is kindly undertaking. In that case, we ruled that the obligation under a
requested to forward all documents to Nanyang in one lot; 2) in letter of undertaking, where the drawer undertakes to pay the
reimbursement for the negotiation(s), Nanyang shall remit cover full amount of the draft in case of dishonor, is independent from
to Allied upon receipt of documents in compliance with the terms the liability under the sight draft.[61] The letter of undertaking of
and conditions of the credit; 3) the drafts drawn must be marked this tenor is a separate contract the consideration for which is
"drawn under Nanyang Commercial Bank"; and 4) to advise the promise to pay the bank the value of the sight draft if it was
beneficiary. dishonored for any reason.[62] The liability provided is direct and
primary, without need to establish collateral facts such as the
From the above-instructions, it is clear that Allied did not violation of the letter of credit connected to it.[63]
undertake to assume the obligation of Nanyang to Marphil as its
own, as if it had itself issued the L/C. At most, it can only be a Similarly, the Letter of Agreement is a contract between Marphil
discounting bank which bought the drafts under the L/C. and Allied Bank where the latter agreed to purchase the draft
Following then the rules laid down in the case of Bank of and credit the former its value on the undertaking that Allied
America, a negotiating bank has a right of recourse against the Bank will be reimbursed in case the draft is dishonored. This
issuing bank, and until reimbursement is obtained, the drawer of obligation is direct, and is independent, not only from the
the draft continues to assume a contingent liability thereon. x x obligation under the draft, but also from the obligation under L/C
x[55] No. 21970. In this connection, the CA is incorrect to say that the
In this regard, this issue of whether Allied Bank confirmed L/C Letter Agreement bolsters the bank's claim that it did not
No. 21970 and assumed direct obligation on it is a question of undertake direct obligation under the letter of credit. The Letter
fact that was resolved by both RTC and CA in the negative. This Agreement simply creates a separate obligation on Marphil's part
Court is not a trier of facts and does not normally undertake the to refund the amount of the proceeds, in case of dishonor.[64]
re-examination of the evidence.[56] This is especially true where As an independent obligation, Marphil is bound to fulfill this
the trial court's factual findings are adopted and affirmed by the obligation to reimburse Allied Bank.
CA.[57] Factual findings of the trial court affirmed by the CA are
final and conclusive and may not be reviewed on appeal.[58] However, a conflict arose because instead of waiting for Marphil's
Here, there is no reason to deviate from these findings of the own initiative to return the amount, Allied Bank on its own
RTC and CA. debited from the former's credit line.
180
c. Allied Banti 's right to debit Marphil's account II. Obligation of P1,913,763.45 to Allied Bank
We now proceed to determine whether Allied Bank may Marphil next argues that the RTC and CA erroneously held it
unilaterally debit the amount it credited to Marphil's account. liable to Allied for P1,913,763.45 as a new obligation.
In the case of Associated Bank v. Tan,[65] we upheld the right of We rule that there is no new obligation created when1 both the
a collecting bank to debit a client's account for; the value of a RTC and CA held petitioners liable for the P1,913,763.45. This
dishonored check it previously credited by virtue of the principle was a prior and existing obligation of Marphil separate from the
of legal compensation. Since the relationship between banks and amount covered by the draft under L/C No. 21970. In filing the
depositors has been held to be that of creditor and debtor in a Declaratory Relief Case, Marphil asked the court not only to
simple loan, legal compensation may take place when the determine the status of its obligations evidenced by PN Nos.
conditions in Article 1279 of the Civil Code are present: (1) that 2463, 2730 and 4202, but also to determine the status of its
each one of the obligors be bound principally, and that he be at existing loans with Allied Bank, regardless of the counterclaim of
the same time a principal creditor of the other; (2) that both the latter.
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 To recall, the arrangement between Marphil and Allied Bank is
quality if the latter has been stated; (3) that the two debts be that advances were made by the bank in the form of loans to
due; (4) that they be liquidated and demandable; and (5) that finance the exportation busiriess of Marphil. When Allied Bank
over neither of them there be any retention or controversy, purchases the drafts for the letters of credit from Marphil, it
commenced by third persons and communicated in due time to credits the amount to the latter's credit line and deducts; from
the debtor.[66] the total amount of Marphil's existing loans from Allied Bank.
This is what Allied Bank did in this case; it credited to Marphil's
In this case, when Allied Bank credited the amount of account the amount of P1,913,763.45 upon purchase of the
P1,913,763.45 to Marphil's account, it became the debtor of draft. However, when L/C No. 21970 was dishonored by Nanyang
Marphil. However, once Nanyang Bank dishonored the export Bank, it reversed the credit memo thereby leaving the parties in
documents and draft for L/C No. 21970, Marphil became the their situation prior to the credit memo — that Marphil has
debtor of Allied Bank for the amount by virtue of its obligation to existing loan obligations arising from the advances made by
reimburse the bank under the Letter Agreement. This obligation Allied Bank. Simply put, Marphil is liable for the amount of
consisting of sum of money became demandable upon notice of P1,913,763.45 because this is the only amount not proven to be
the dishonor by Nanyang Bank. Thus, legal compensation may paid in the many loans obtained by Marphil in the credit line.
take place between the two debts.
The CA imposed the legal interest rate of twelve percent (12%)
In Associated Bank, we nevertheless emphasized that while the on this loan obligation. Notably, the CA made no factual
bank has the right to set off, the exercise of such right must be determination that the amount of P1,913,763.45 was subject to
consistent with the required degree of diligence from banks, i.e., any stipulated interest between the parties. Likewise, Allied Bank
highest degree of care. Thus, the question that needs to be neither claimed for the application of a stipulated interest nor
resolved now is whether Allied Bank properly exercised its right questioned the imposition of legal interest on the loan, as it no
to set off.[67] longer appealed the decision. Considering this, we are
constrained to uphold that the amount of P1,913,763.45, as a
We rule that Allied Bank properly exercised its right to set off. loan obligation, is only subject to the legal interest applicable as
Firstly, having signed the Letter Agreement, Marphil expressly of the time of this decision. This is in line with our ruling in Nacar
undertook that in case of dishonor of the draft for the letter of v. Gallery Frames[68] that in the absence of a stipulated
the credit, it will refund to Allied Bank whatever the latter has interest, a loan obligation shall earn legal interest from the time
credited in its favor. This places Marphil on its guard that the of default, i.e., from judicial or extrajudicial demand.[69]
dishonor will create an obligation to refund the amount credited.
Secondly, prior to debiting the amount, Allied Bank informed We, however, modify the rate of legal interest imposed by the CA
Marphil twice of Nanyang Bank's refusal to honor the tender of also in conformity with Nacar. The amount of P1,913,763.45
documents on L/C No. 21970. Thirdly, it immediately informed shall earn legal interest at the rate of six percent (6%) per
Marphil that it was debiting the amount of the dishonored draft annum computed from the time of judicial demand, i.e. from the
from the credit line. date of the filing of the counterclaim in the Declaratory Relief
Case on May 7, 1990, until the date of finality of this judgment.
Most importantly, the debiting of the account was not the The total amount shall thereafter earn interest at the rate of six
proximate cause of the loss to Marphil brought about by the percent (6%) per annum from such finality of judgment until its
reshipment of goods back to Manila. The proximate cause of the satisfaction.[70]
loss is the subsequent dishonor of the documents by Nanyang
Bank, which came before the debiting of the account. The III. Forum Shopping
P1,913,763.45 subject of the debit memo was already the costs
incurred in relation to the financing and shipping of the goods to Marphil argues that in determining that Allied Bank committed
Hong Kong, and do not refer to the loss incurred when the goods forum shopping upon filing the Collection Case, the RTC and CA
were shipped back to Manila. Thus, the debiting of Marphil's should have considered the counterclaim filed in the Declaratory
account did not result in additional losses for Marphil. Relief Case, and not the main petition itself. Marphil contends
that Allied Bank is collecting on the same three promissory notes
In sum, we affirm that Allied Bank is not a confirming bank under in its counterclaim in the two cases.
L/C No. 21970. In any case, whether Allied Bank is directly liable
as confirming bank will not affect Marphil's obligation to Forum shopping exists "when a party repetitively avails of
reimburse Allied Bank the amount;of P1,913,763.45 because its several judicial remedies in different courts, simultaneously or
liability to refund the amount arose under an independent successively, all substantially founded on the same transactions
contract, i.e. the Letter Agreement. And while Allied Bank is the and the same essential facts and circumstances, and all raising
debtor of Marphil for the amount it credited under the draft, the substantially the same issues either pending in or already
obligation under the Letter Agreement made Allied Bank the resolved adversely by some other court."[71] Forum shopping is
creditor of Marphil for the same amount. Being debtor and proscribed by the rules because of the vexation caused to the
creditor of each other, Allied Bank was entitled to legal courts and parties-litigants by the filing of similar cases to claim
compensation by debiting the amount, which did not result in the same reliefs.[72] The rule against forum shopping aims to
any loss to Marphil. avoid the grave evil that may result in the rendition by two
181
competent tribunals of two separate and contradictory decisions. Defendants in conspiracy with Marphil and with one another,
[73] Thus, any violation of the rule against forum shopping committed fraud in contracting the obligations upon which the
results in the dismissal of a case, or can result in holding of first, second and third causes of action are brought (Sec. 1, par.
direct contempt against the actor.[74] (d) Rule 57, Rules of Court) when:
a.)
There is forum shopping when the elements of litis pendentia are There is a preconceived intention not to pay their obligations as
present, or when a final judgment in one case amounts to res further manifested by the premature and unjust filing of a
judicata in the other.[75] It must be shown that the following complaint by Marphil against the plaintiff in Civil Case No. 90-
elements are present: (a) identity of parties, or at least such 640 before RTC, Makati, Branch 61;
parties representing the same interests in both actions; (b) b.)
identity of rights asserted and reliefs prayed for, the relief being To induce plaintiff to grant the credit accommodation, defendants
founded on the, same facts; and (c) the identity of the two and Marphil represented to the plaintiff that they would present
preceding particulars, such that any judgment rendered in the the proper and sufficient documents to the issuing bank when in
other action will, regardless of which party is successful, amounts truth and in fact, there were discrepancies noted in the
to res judicata in the action under consideration.[76] documents presented to the issuing bank by Marphil.
c.)
We rule that there is no forum shopping, albeit for a reason Further, defendants and Marphil committed misrepresentation in
different from that explained by the CA. shipping the cashew nuts at a volume less than that which was
required by the foreign buyer.[82] (Emphasis supplied.)
The CA concluded that there is no forum shopping because the Subsequently, Branch 145 of RTC Makati issued the writ of
cases involve different causes of action: the first case is a preliminary attachment ex parte. When the case reached it, the
petition for declaratory relief while the second case is one of CA summarily disposed of the issue of the propriety of the writ
collection of sum of money. We find this analysis too sweeping by stating that petitioners did not file any motion to discharge.
and erroneous. The CA failed to take into account that it was However, the records show that Lim filed his Motion to Discharge
Allied Bank who is being charged with violating the rule on forum Attachment[83] dated May 20, 1994 before Branch 61 of RTC
shopping. As such, the cause of action that should have been Makati where Lim raised that no ground exists for the writ of
considered is the counterclaim of Allied Bank in the Declaratory attachment, making it irregularly and improperly issued.
Relief Case, which is essentially a collection suit against the
principal debtor Marphil. Subsequently, it also filed another We grant the petition as to the dissolution of the writ of
Collection Case seeking to collect also on the surety Lim under preliminary attachment.
the same three (3) promissory notes. These cases are the
actions that the CA should have considered in deciding whether A writ of preliminary attachment is "a provisional remedy issued
Allied Bank committed forum shopping. upon order of the court where an action is pending to be levied
upon the property or properties of the defendant therein, the
We rule that Allied Bank did not commit forum shopping when it same to be held thereafter by the sheriff as security for the
initiated the Collection Case against Lim despite the pendency of satisfaction of whatever judgment might be secured in said
the counterclaim in the Declaratory Relief Case, because there is action by the attaching creditor against the defendant."[84]
no identity of parties and cause1 of action. Section 1, Rule 57 of the Revised Rules of Court provides for the
grounds upon which the writ may issue. For this case, it is
In Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank grounded under Section 1 (d) of Rule 57 of the Revised Rules of
General Insurance Co., Inc.,[77] we explained that while a Court:
surety contract is merely ancillary to a principal obligation, the Sec. 1. Grounds upon which attachment may issue. — At the
surety's liability is direct, primary and absolute. The surety's commencement of the action or at any time before entry of
obligation is joint and solidary with that of the principal, and he judgment, a plaintiff or any proper party may have the property
becomes liable for the debt and duty of the principal, even of the adverse party attached as security for the satisfaction of
without possessing a direct or personal interest in the principal any judgment that may be recovered in the following cases:
obligation. As such, a surety may be sued separately or together
with principal.[78] We emphasized this in Ong v. Philippine xxx
Commercial International Bank[79] where we held that the right
to collect payment from the surety exists independently of its (d)
right to proceed directly against the principal debtor.[80] In fact, In an action against a party who has been guilty of a fraud in
the creditor bank may go against the surety alone without prior contracting the debt or incurring the obligation upon which the
demand for payment on the principal debtor.[81] action is brought, or in the performance thereof;
In this case, the writ of preliminary attachment was improperly GONZAGA-REYES, J.:
or irregularly issued because there is no ground for the
attachment.
183
This is a petition for review on certiorari under Rule 45 of the arrangement with the PARTY OF THE SECOND PART regarding
Rules of Court. The petition seeks to reverse and set aside the his claims;
Decision[1] dated February 10, 2000 of the Court of Appeals and
its Resolution[2] dated April 7, 2000 denying petitioners Motion WHEREAS, the PARTY OF THE SECOND PART, with his own
for Reconsideration thereto. The appellate court decision resources and due to his association with the OFFSHORE BANK,
reversed the Decision[3] dated November 11, 1997 of the has offered to the PARTY OF THE FIRST PART to assume the
Regional Trial Court of Makati, Branch 145 in Civil Case No. 96- payment of the aforesaid indebtedness, upon certain terms and
1211. conditions, which offer, the PARTY OF THE FIRST PART has
accepted;
The facts of the case, as stated in the Decision of the Court of
Appeals dated February 10, 2000, are as follows: WHEREAS, the parties herein have come to an agreement on the
nature, form and extent of their mutual prestations which they
The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for now record herein with the express conformity of the third
brevity), is a private bank registered and organized to do parties concerned;
business under the laws of the Republic of Vanuatu but not in the
Philippines. Its business consists primarily in receiving fund NOW, THEREFORE, for and in consideration of the foregoing and
placements by way of deposits from institutions and individual the mutual covenants stipulated herein, the PARTY OF THE FIRST
investors from different parts of the world and thereafter PART and the PARTY OF THE SECOND PART have agreed, as they
investing such deposits in money market placements and do hereby agree, as follows:
potentially profitable capital ventures in Hongkong, Europe and
the United States for the purpose of maximizing the returns on 1. The PARTY OF THE SECOND PART hereby undertakes to pay
those investments. the PARTY OF THE FIRST PART the amount of US DOLLARS ONE
HUNDRED FIFTY THOUSAND ((US$150,000) payable in Philippine
Enticed by the lucrative prospects of doing business with Anglo- Currency at the fixed exchange rate of Philippine Pesos 21 to
Asean, Abelardo Licaros, a Filipino businessman, decided to make US$1 without interest on or before July 15, 1993.
a fund placement with said bank sometime in the 1980s. As it
turned out, the grim outcome of Licaros foray in overseas fund For this purpose, the PARTY OF THE SECOND PART shall execute
investment was not exactly what he envisioned it to be. More and deliver a non negotiable promissory note, bearing the
particularly, Licaros, after having invested in Anglo-Asean, aforesaid material consideration in favor of the PARTY OF THE
encountered tremendous and unexplained difficulties in FIRST PART upon execution of this MEMORANDUM OF
retrieving, not only the interest or profits, but even the very AGREEMENT, which promissory note shall form part as ANNEX A
investments he had put in Anglo-Asean. hereof.
Confronted with the dire prospect of not getting back any of his 2. For and in consideration of the obligation of the PARTY OF THE
investments, Licaros then decided to seek the counsel of Antonio SECOND PART, the PARTY OF THE FIRST does hereby;
P. Gatmaitan, a reputable banker and investment manager who
had been extending managerial, financial and investment a. Sell, assign, transfer and set over unto the PARTY OF THE
consultancy services to various firms and corporations both here SECOND PART that certain debt now due and owing to the PARTY
and abroad. To Licaros relief, Gatmaitan was only too willing OF THE FIRST PART by the OFFSHORE BANK, to the amount of
enough to help. Gatmaitan voluntarily offered to assume the US Dollars One Hundred Fifty Thousand plus interest due and
payment of Anglo-Aseans indebtedness to Licaros subject to accruing thereon;
certain terms and conditions. In order to effectuate and formalize
the parties respective commitments, the two executed a b. Grant the PARTY OF THE SECOND PART the full power and
notarized MEMORANDUM OF AGREEMENT on July 29, 1988 (Exh. authority, for his own use and benefit, but at his own cost and
B; also Exhibit 1), the full text of which reads: expense, to demand, collect, receive, compound, compromise
and give acquittance for the same or any part thereof, and in the
Memorandum of Agreement name of the PARTY OF THE FIRST PART, to prosecute, and
withdraw any suit or proceedings therefor;
KNOW ALL MEN BY THESE PRESENTS:
c. Agree and stipulate that the debt assigned herein is justly
This MEMORANDUM OF AGREEMENT made and executed this owing and due to the PARTY OF THE FIRST PART from the said
29th day of July 1988, at Makati by and between: OFFSHORE BANK, and that the PARTY OF THE FIRST PART has
not done and will not cause anything to be done to diminish or
ABELARDO B. LICAROS, Filipino, of legal age and holding office discharge said debt, or to delay or prevent the PARTY OF THE
at Concepcion Building, Intramuros, Manila hereinafter referred SECOND PART from collecting the same; and;
to as THE PARTY OF THE FIRST PART,
d. At the request of the PARTY OF SECOND PART and the latters
and own cost and expense, to execute and do all such further acts
and deeds as shall be reasonably necessary for proving said debt
ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 and to more effectually enable the PARTY OF THE SECOND PART
Mangyan St., La Vista, hereinafter referred to as the PARTY OF to recover the same in accordance with the true intent and
THE SECOND PART, meaning of the arrangements herein.
As security for the payment of this Promissory Note, I hereby d) Costs of the suit.[4]
ASSIGN, CEDE and TRANSFER, Seventy Percent (70%) of ALL
CASH DIVIDENDS, that may be due or owing to me as the After trial on the merits, the court a quo rendered judgment in
registered owner of ___________________ (__________) favor of petitioner Licaros and found respondent Gatmaitan liable
shares of stock in the Prudential Life Realty, Inc. under the Memorandum of Agreement and Promissory Note for
P3,150,000.00 plus 12% interest per annum from July 16, 1993
This assignment shall likewise include SEVENTY PERCENT (70%) until the amount is fully paid. Respondent was likewise ordered
of cash dividends that may be declared by Prudential Life Realty, to pay attorneys fees of P200,000.00.[5]
Inc. and due or owing to Prudential Life Plan, Inc., of which I am
a stockholder, to the extent of or in proportion to my aforesaid Respondent Gatmaitan appealed the trial courts decision to the
shareholding in Prudential Life Plan, Inc., the latter being the Court of Appeals. In a decision promulgated on February 10,
holding company of Prudential Life Realty, Inc. 2000, the appellate court reversed the decision of the trial court
and held that respondent Gatmaitan did not at any point become
In the event that I decide to sell or transfer my aforesaid shares obligated to pay to petitioner Licaros the amount stated in the
in either or both the Prudential Life Plan, Inc. or Prudential Life promissory note. In a Resolution dated April 7, 2000, the Court
Realty, Inc. and the Promissory Note remains unpaid or of Appeals denied petitioners Motion for Reconsideration of its
outstanding, I hereby give Mr. Abelardo B. Licaros the first option February 10, 2000 Decision.
to buy the said shares.
Hence this petition for review on certiorari where petitioner prays
Manila, Philippines for the reversal of the February 10, 2000 Decision of the Court of
Appeals and the reinstatement of the November 11, 1997
July _____, 1988 decision of the Regional Trial Court.
(SGD.) The threshold issue for the determination of this Court is whether
the Memorandum of Agreement between petitioner and
Antonio P. Gatmaitan respondent is one of assignment of credit or one of conventional
subrogation. This matter is determinative of whether or not
7 Mangyan St., La Vista, QC respondent became liable to petitioner under the promissory
note considering that its efficacy is dependent on the
Signed in the Presence of Memorandum of Agreement, the note being merely an annex to
the said memorandum.[6]
(SGD.)
An assignment of credit has been defined as the process of
_________________ __________________ transferring the right of the assignor to the assignee who would
then have the right to proceed against the debtor. The
Francisco A. Alba assignment may be done gratuitously or onerously, in which
case, the assignment has an effect similar to that of a sale.[7]
President, Prudential Life Plan, Inc..
On the other hand, subrogation has been defined as the transfer
Thereafter, Gatmaitan presented to Anglo-Asean the of all the rights of the creditor to a third person, who substitutes
Memorandum of Agreement earlier executed by him and Licaros him in all his rights. It may either be legal or conventional. Legal
185
subrogation is that which takes place without agreement but by the agreement as one of conventional subrogation. And it is basic
operation of law because of certain acts. Conventional in the interpretation of contracts that the intention of the parties
subrogation is that which takes place by agreement of parties.[8] must be the one pursued (Rule 130, Section 12, Rules of Court).
The general tenor of the foregoing definitions of the terms Given our finding that the Memorandum of Agreement (Exh. B;
subrogation and assignment of credit may make it seem that also Exh. 1), is not one of assignment of credit but is actually a
they are one and the same which they are not. A noted expert in conventional subrogation, the next question that comes to mind
civil law notes their distinctions thus: is whether such agreement was ever perfected at all. Needless to
state, the perfection or non-perfection of the subject agreement
Under our Code, however, conventional subrogation is not is of utmost relevance at this point. For, if the same
identical to assignment of credit. In the former, the debtors Memorandum of Agreement was actually perfected, then it
consent is necessary; in the latter it is not required. Subrogation cannot be denied that Gatmaitan still has a subsisting
extinguishes the obligation and gives rise to a new one; commitment to pay Licaros on the basis of his promissory note.
assignment refers to the same right which passes from one If not, Licaros suit for collection must necessarily fail.
person to another. The nullity of an old obligation may be cured
by subrogation, such that a new obligation will be perfectly valid; Here, it bears stressing that the subject Memorandum of
but the nullity of an obligation is not remedied by the assignment Agreement expressly requires the consent of Anglo-Asean to the
of the creditors right to another.[9] subrogation. Upon whom the task of securing such consent
devolves, be it on Licaros or Gatmaitan, is of no significance.
For our purposes, the crucial distinction deals with the necessity What counts most is the hard reality that there has been an
of the consent of the debtor in the original transaction. In an abject failure to get Anglo-Aseans nod of approval over
assignment of credit, the consent of the debtor is not necessary Gatmaitans being subrogated in the place of Licaros. Doubtless,
in order that the assignment may fully produce legal effects.[10] the absence of such conformity on the part of Anglo-Asean,
What the law requires in an assignment of credit is not the which is thereby made a party to the same Memorandum of
consent of the debtor but merely notice to him as the assignment Agreement, prevented the agreement from becoming effective,
takes effect only from the time he has knowledge thereof.[11] A much less from being a source of any cause of action for the
creditor may, therefore, validly assign his credit and its signatories thereto.[13]
accessories without the debtors consent.[12] On the other hand,
conventional subrogation requires an agreement among the Aside for the whereas clause cited by the appellate court in its
three parties concerned the original creditor, the debtor, and the decision, we likewise note that on the signature page, right
new creditor. It is a new contractual relation based on the mutual under the place reserved for the signatures of petitioner and
agreement among all the necessary parties. Thus, Article 1301 of respondent, there is, typewritten, the words WITH OUR
the Civil Code explicitly states that (C)onventional subrogation of CONFORME. Under this notation, the words ANGLO-ASEAN BANK
a third person requires the consent of the original parties and of AND TRUST were written by hand.[14] To our mind, this
the third person. provision which contemplates the signed conformity of Anglo-
Asean Bank, taken together with the aforementioned
The trial court, in finding for the petitioner, ruled that the preambulatory clause leads to the conclusion that both parties
Memorandum of Agreement was in the nature of an assignment intended that Anglo-Asean Bank should signify its agreement and
of credit. As such, the court a quo held respondent liable for the conformity to the contractual arrangement between petitioner
amount stated in the said agreement even if the parties thereto and respondent. The fact that Anglo-Asean Bank did not give
failed to obtain the consent of Anglo-Asean Bank. On the other such consent rendered the agreement inoperative considering
hand, the appellate court held that the agreement was one of that, as previously discussed, the consent of the debtor is
conventional subrogation which necessarily requires the needed in the subrogation of a third person to the rights of a
agreement of all the parties concerned. The Court of Appeals creditor.
thus ruled that the Memorandum of Agreement never came into
effect due to the failure of the parties to get the consent of In this petition, petitioner assails the ruling of the Court of
Anglo-Asean Bank to the agreement and, as such, respondent Appeals that what was entered into by the parties was a
never became liable for the amount stipulated. conventional subrogation of petitioners rights as creditor of the
Anglo-Asean Bank which necessarily requires the consent of the
We agree with the finding of the Court of Appeals that the latter. In support, petitioner alleges that: (1) the Memorandum
Memorandum of Agreement dated July 29, 1988 was in the of Agreement did not create a new obligation and, as such, the
nature of a conventional subrogation which requires the consent same cannot be a conventional subrogation; (2) the consent of
of the debtor, Anglo-Asean Bank, for its validity. We note with Anglo-Asean Bank was not necessary for the validity of the
approval the following pronouncement of the Court of Appeals: Memorandum of Agreement; (3) assuming that such consent
was necessary, respondent failed to secure the same as was
Immediately discernible from above is the common feature of incumbent upon him; and (4) respondent himself admitted that
contracts involving conventional subrogation, namely, the the transaction was one of assignment of credit.
approval of the debtor to the subrogation of a third person in
place of the creditor. That Gatmaitan and Licaros had intended to Petitioner argues that the parties to the Memorandum of
treat their agreement as one of conventional subrogation is Agreement could not have intended the same to be a
plainly borne by a stipulation in their Memorandum of conventional subrogation considering that no new obligation was
Agreement, to wit: created. According to petitioner, the obligation of Anglo-Asean
Bank to pay under Contract No. 00193 was not extinguished and
WHEREAS, the parties herein have come to an agreement on the in fact, it was the basic intention of the parties to the
nature, form and extent of their mutual prestations which they Memorandum of Agreement to enforce the same obligation of
now record herein with the express conformity of the third Anglo-Asean Bank under its contract with petitioner. Considering
parties concerned (emphasis supplied), that the old obligation of Anglo-Asean Bank under Contract No.
00193 was never extinguished under the Memorandum of
which third party is admittedly Anglo-Asean Bank. Agreement, it is contended that the same could not be
considered as a conventional subrogation.
Had the intention been merely to confer on appellant the status
of a mere assignee of appellees credit, there is simply no sense We are not persuaded.
for them to have stipulated in their agreement that the same is
conditioned on the express conformity thereto of Anglo-Asean It is true that conventional subrogation has the effect of
Bank. That they did so only accentuates their intention to treat extinguishing the old obligation and giving rise to a new one.
186
However, the extinguishment of the old obligation is the effect of credit was intended, it is enough to say that respondent
the establishment of a contract for conventional subrogation. It is apparently used the word assignment in his testimony in the
not a requisite without which a contract for conventional general sense. Respondent is not a lawyer and as such, he is not
subrogation may not be created. As such, it is not determinative so well versed in law that he would be able to distinguish
of whether or not a contract of conventional subrogation was between the concepts of conventional subrogation and of
constituted. assignment of credit. Moreover, even assuming that there was
an admission on his part, such admission is not conclusive on
Moreover, it is of no moment that the subject of the this court as the nature and interpretation of the Memorandum of
Memorandum of Agreement was the collection of the obligation Agreement is a question of law which may not be the subject of
of Anglo-Asean Bank to petitioner Licaros under Contract No. stipulations and admissions.[18]
00193. Precisely, if conventional subrogation had taken place
with the consent of Anglo-Asean Bank to effect a change in the Considering the foregoing, it cannot then be said that the
person of its creditor, there is necessarily created a new consent of the debtor Anglo-Asean Bank is not necessary to the
obligation whereby Anglo-Asean Bank must now give payment to validity of the Memorandum of Agreement. As above stated, the
its new creditor, herein respondent. Memorandum of Agreement embodies a contract for conventional
subrogation and in such a case, the consent of the original
Petitioner next argues that the consent or conformity of Anglo- parties and the third person is required.[19] The absence of such
Asean Bank is not necessary to the validity of the Memorandum conformity by Anglo-Asean Bank prevented the Memorandum of
of Agreement as the evidence on record allegedly shows that it Agreement from becoming valid and effective. Accordingly, the
was never the intention of the parties thereto to treat the same Court of Appeals did not err when it ruled that the Memorandum
as one of conventional subrogation. He claims that the of Agreement was never perfected.
preambulatory clause requiring the express conformity of third
parties, which admittedly was Anglo-Asean Bank, is a mere Having arrived at the above conclusion, the Court finds no need
surplusage which is not necessary to the validity of the to discuss the other issues raised by petitioner.
agreement.
WHEREFORE, the instant petition is DENIED and the Decision of
As previously discussed, the intention of the parties to treat the the Court of Appeals dated February 10, 2000 and its Resolution
Memorandum of Agreement as embodying a conventional dated April 7, 2000 are hereby AFFIRMED.
subrogation is shown not only by the whereas clause but also by
the signature space captioned WITH OUR CONFORME reserved Melo, (Chairman), Vitug, and Panganiban, JJ., concur.
for the signature of a representative of Anglo-Asean Bank. These
provisions in the aforementioned Memorandum of Agreement Sandoval-Gutierrez, J., on leave.
may not simply be disregarded or dismissed as superfluous.
FIRST DIVISION
It is a basic rule in the interpretation of contracts that (t)he
various stipulations of a contract shall be interpreted together, [G.R. No. 154127. December 8, 2003]
attributing to the doubtful ones that sense which may result from
all of them taken jointly.[15] Moreover, under our Rules of Court, ROMEO C. GARCIA, petitioner, vs. DIONISIO V. LLAMAS,
it is mandated that (i)n the construction of an instrument where respondent.
there are several provisions or particulars, such a construction is,
if possible, to be adopted as will give effect to all.[16] Further, DECISION
jurisprudence has laid down the rule that contracts should be so
construed as to harmonize and give effect to the different PANGANIBAN, J.:
provisions thereof.[17]
Novation cannot be presumed. It must be clearly shown either by
In the case at bench, the Memorandum of Agreement embodies the express assent of the parties or by the complete
certain provisions that are consistent with either a conventional incompatibility between the old and the new agreements.
subrogation or assignment of credit. It has not been shown that Petitioner herein fails to show either requirement convincingly;
any clause or provision in the Memorandum of Agreement is hence, the summary judgment holding him liable as a joint and
inconsistent or incompatible with a conventional subrogation. On solidary debtor stands.
the other hand, the two cited provisions requiring consent of the
debtor to the memorandum is inconsistent with a contract of The Case
assignment of credit. Thus, if we were to interpret the same as
one of assignment of credit, then the aforementioned stipulations Before us is a Petition for Review[1] under Rule 45 of the Rules
regarding the consent of Anglo-Asean Bank would be rendered of Court, seeking to nullify the November 26, 2001 Decision[2]
inutile and useless considering that, as previously discussed, the and the June 26, 2002 Resolution[3] of the Court of Appeals (CA)
consent of the debtor is not necessary in an assignment of credit. in CA-GR CV No. 60521. The appellate court disposed as follows:
Petitioner next argues that assuming that the conformity of UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment
Anglo-Asean was necessary to the validity of the Memorandum of appealed from, insofar as it pertains to [Petitioner] Romeo
Agreement, respondent only had himself to blame for the failure Garcia, must be, as it hereby is, AFFIRMED, subject to the
to secure such conformity as was, allegedly, incumbent upon him modification that the award for attorneys fees and cost of suit is
under the memorandum. DELETED. The portion of the judgment that pertains to x x x
Eduardo de Jesus is SET ASIDE and VACATED. Accordingly, the
As to this argument regarding the party responsible for securing case against x x x Eduardo de Jesus is REMANDED to the court of
the conformity of Anglo-Asean Bank, we fail to see how this origin for purposes of receiving ex parte [Respondent] Dionisio
question would have any relevance on the outcome of this case. Llamas evidence against x x x Eduardo de Jesus.[4]
Having ruled that the consent of Anglo-Asean was necessary for
the validity of the Memorandum of Agreement, the determinative The challenged Resolution, on the other hand, denied petitioners
fact is that such consent was not secured by either petitioner or Motion for Reconsideration.
respondent which consequently resulted in the invalidity of the
said memorandum. The Antecedents
With respect to the argument of petitioner that respondent The antecedents of the case are narrated by the CA as follows:
himself allegedly admitted in open court that an assignment of
187
This case started out as a complaint for sum of money and note cannot be any clearer, and that the check issued by de
damages by x x x [Respondent] Dionisio Llamas against x x x Jesus did not discharge the loan since the check bounced.[5]
[Petitioner] Romeo Garcia and Eduardo de Jesus. Docketed as
Civil Case No. Q97-32-873, the complaint alleged that on 23 On July 7, 1998, the Regional Trial Court (RTC) of Quezon City
December 1996[,] [petitioner and de Jesus] borrowed (Branch 222) disposed of the case as follows:
P400,000.00 from [respondent]; that, on the same day, [they]
executed a promissory note wherein they bound themselves WHEREFORE, premises considered, judgment on the pleadings is
jointly and severally to pay the loan on or before 23 January hereby rendered in favor of [respondent] and against [petitioner
1997 with a 5% interest per month; that the loan has long been and De Jesus], who are hereby ordered to pay, jointly and
overdue and, despite repeated demands, [petitioner and de severally, the [respondent] the following sums, to wit:
Jesus] have failed and refused to pay it; and that, by reason of
the[ir] unjustified refusal, [respondent] was compelled to engage 1) P400,000.00 representing the principal amount plus 5%
the services of counsel to whom he agreed to pay 25% of the interest thereon per month from January 23, 1997 until the same
sum to be recovered from [petitioner and de Jesus], plus shall have been fully paid, less the amount of P120,000.00
P2,000.00 for every appearance in court. Annexed to the representing interests already paid by x x x de Jesus;
complaint were the promissory note above-mentioned and a
demand letter, dated 02 May 1997, by [respondent] addressed 2) P100,000.00 as attorneys fees plus appearance fee of
to [petitioner and de Jesus]. P2,000.00 for each day of [c]ourt appearance, and;
Resisting the complaint, [Petitioner Garcia,] in his [Answer,] 3) Cost of this suit.[6]
averred that he assumed no liability under the promissory note
because he signed it merely as an accommodation party for x x x Ruling of the Court of Appeals
de Jesus; and, alternatively, that he is relieved from any liability
arising from the note inasmuch as the loan had been paid by x x The CA ruled that the trial court had erred when it rendered a
x de Jesus by means of a check dated 17 April 1997; and that, in judgment on the pleadings against De Jesus. According to the
any event, the issuance of the check and [respondents] appellate court, his Answer raised genuinely contentious issues.
acceptance thereof novated or superseded the note. Moreover, he was still required to present his evidence ex parte.
Thus, respondent was not ipso facto entitled to the RTC
[Respondent] tendered a reply to [Petitioner] Garcias answer, judgment, even though De Jesus had been declared in default.
thereunder asserting that the loan remained unpaid for the The case against the latter was therefore remanded by the CA to
reason that the check issued by x x x de Jesus bounced, and that the trial court for the ex parte reception of the formers evidence.
[Petitioner] Garcias answer was not even accompanied by a
certificate of non-forum shopping. Annexed to the reply were the As to petitioner, the CA treated his case as a summary
face of the check and the reverse side thereof. judgment, because his Answer had failed to raise even a single
genuine issue regarding any material fact.
For his part, x x x de Jesus asserted in his [A]nswer with
[C]ounterclaim that out of the supposed P400,000.00 loan, he The appellate court ruled that no novation -- express or implied
received only P360,000.00, the P40,000.00 having been advance -- had taken place when respondent accepted the check from De
interest thereon for two months, that is, for January and Jesus. According to the CA, the check was issued precisely to pay
February 1997; that[,] in fact[,] he paid the sum of P120,000.00 for the loan that was covered by the promissory note jointly and
by way of interests; that this was made when [respondents] severally undertaken by petitioner and De Jesus. Respondents
daughter, one Nits Llamas-Quijencio, received from the Central acceptance of the check did not serve to make De Jesus the sole
Police District Command at Bicutan, Taguig, Metro Manila (where debtor because, first, the obligation incurred by him and
x x x de Jesus worked), the sum of P40,000.00, representing the petitioner was joint and several; and, second, the check -- which
peso equivalent of his accumulated leave credits, another had been intended to extinguish the obligation -- bounced upon
P40,000.00 as advance interest, and still another P40,000.00 as its presentment.
interest for the months of March and April 1997; that he had
difficulty in paying the loan and had asked [respondent] for an Hence, this Petition.[7]
extension of time; that [respondent] acted in bad faith in
instituting the case, [respondent] having agreed to accept the Issues
benefits he (de Jesus) would receive for his retirement, but
[respondent] nonetheless filed the instant case while his Petitioner submits the following issues for our consideration:
retirement was being processed; and that, in defense of his
rights, he agreed to pay his counsel P20,000.00 [as] attorneys I
fees, plus P1,000.00 for every court appearance.
Whether or not the Honorable Court of Appeals gravely erred in
During the pre-trial conference, x x x de Jesus and his lawyer did not holding that novation applies in the instant case as x x x
not appear, nor did they file any pre-trial brief. Neither did Eduardo de Jesus had expressly assumed sole and exclusive
[Petitioner] Garcia file a pre-trial brief, and his counsel even liability for the loan obligation he obtained from x x x Respondent
manifested that he would no [longer] present evidence. Given Dionisio Llamas, as clearly evidenced by:
this development, the trial court gave [respondent] permission to
present his evidence ex parte against x x x de Jesus; and, as a) Issuance by x x x de Jesus of a check in payment of the full
regards [Petitioner] Garcia, the trial court directed [respondent] amount of the loan of P400,000.00 in favor of Respondent
to file a motion for judgment on the pleadings, and for Llamas, although the check subsequently bounced[;]
[Petitioner] Garcia to file his comment or opposition thereto.
b) Acceptance of the check by the x x x respondent x x x which
Instead, [respondent] filed a [M]otion to declare [Petitioner] resulted in [the] substitution by x x x de Jesus or [the
Garcia in default and to allow him to present his evidence ex superseding of] the promissory note;
parte. Meanwhile, [Petitioner] Garcia filed a [M]anifestation
submitting his defense to a judgment on the pleadings. c) x x x de Jesus having paid interests on the loan in the total
Subsequently, [respondent] filed a [M]anifestation/[M]otion to amount of P120,000.00;
submit the case for judgement on the pleadings, withdrawing in
the process his previous motion. Thereunder, he asserted that d) The fact that Respondent Llamas agreed to the proposal of x x
[petitioners and de Jesus] solidary liability under the promissory x de Jesus that due to financial difficulties, he be given an
extension of time to pay his loan obligation and that his
188
retirement benefits from the Philippine National Police will answer Novation may also be extinctive or modificatory. It is extinctive
for said obligation. when an old obligation is terminated by the creation of a new
one that takes the place of the former. It is merely modificatory
II when the old obligation subsists to the extent that it remains
compatible with the amendatory agreement.[13] Whether
Whether or not the Honorable Court of Appeals seriously erred in extinctive or modificatory, novation is made either by changing
not holding that the defense of petitioner that he was merely an the object or the principal conditions, referred to as objective or
accommodation party, despite the fact that the promissory note real novation; or by substituting the person of the debtor or
provided for a joint and solidary liability, should have been given subrogating a third person to the rights of the creditor, an act
weight and credence considering that subsequent events showed known as subjective or personal novation.[14] For novation to
that the principal obligor was in truth and in fact x x x de Jesus, take place, the following requisites must concur:
as evidenced by the foregoing circumstances showing his
assumption of sole liability over the loan obligation. 1) There must be a previous valid obligation.
Whether or not judgment on the pleadings or summary judgment 3) The old contract must be extinguished.
was properly availed of by Respondent Llamas, despite the fact
that there are genuine issues of fact, which the Honorable Court 4) There must be a valid new contract.[15]
of Appeals itself admitted in its Decision, which call for the
presentation of evidence in a full-blown trial.[8] Novation may also be express or implied. It is express when the
new obligation declares in unequivocal terms that the old
Simply put, the issues are the following: 1) whether there was obligation is extinguished. It is implied when the new obligation
novation of the obligation; 2) whether the defense that petitioner is incompatible with the old one on every point.[16] The test of
was only an accommodation party had any basis; and 3) whether incompatibility is whether the two obligations can stand together,
the judgment against him -- be it a judgment on the pleadings or each one with its own independent existence.[17]
a summary judgment -- was proper.
Applying the foregoing to the instant case, we hold that no
The Courts Ruling novation took place.
The Petition has no merit. The parties did not unequivocally declare that the old obligation
had been extinguished by the issuance and the acceptance of the
First Issue: check, or that the check would take the place of the note. There
is no incompatibility between the promissory note and the check.
Novation As the CA correctly observed, the check had been issued
precisely to answer for the obligation. On the one hand, the note
Petitioner seeks to extricate himself from his obligation as joint evidences the loan obligation; and on the other, the check
and solidary debtor by insisting that novation took place, either answers for it. Verily, the two can stand together.
through the substitution of De Jesus as sole debtor or the
replacement of the promissory note by the check. Alternatively, Neither could the payment of interests -- which, in petitioners
the former argues that the original obligation was extinguished view, also constitutes novation[18] -- change the terms and
when the latter, who was his co-obligor, paid the loan with the conditions of the obligation. Such payment was already provided
check. for in the promissory note and, like the check, was totally in
accord with the terms thereof.
The fallacy of the second (alternative) argument is all too
apparent. The check could not have extinguished the obligation, Also unmeritorious is petitioners argument that the obligation
because it bounced upon presentment. By law,[9] the delivery of was novated by the substitution of debtors. In order to change
a check produces the effect of payment only when it is encashed. the person of the debtor, the old one must be expressly released
from the obligation, and the third person or new debtor must
We now come to the main issue of whether novation took place. assume the formers place in the relation.[19] Well-settled is the
rule that novation is never presumed.[20] Consequently, that
Novation is a mode of extinguishing an obligation by changing its which arises from a purported change in the person of the debtor
objects or principal obligations, by substituting a new debtor in must be clear and express.[21] It is thus incumbent on petitioner
place of the old one, or by subrogating a third person to the to show clearly and unequivocally that novation has indeed taken
rights of the creditor.[10] Article 1293 of the Civil Code defines place.
novation as follows:
In the present case, petitioner has not shown that he was
Art. 1293. Novation which consists in substituting a new debtor expressly released from the obligation, that a third person was
in the place of the original one, may be made even without the substituted in his place, or that the joint and solidary obligation
knowledge or against the will of the latter, but not without the was cancelled and substituted by the solitary undertaking of De
consent of the creditor. Payment by the new debtor gives him Jesus. The CA aptly held:
rights mentioned in articles 1236 and 1237.
x x x. Plaintiffs acceptance of the bum check did not result in
In general, there are two modes of substituting the person of the substitution by de Jesus either, the nature of the obligation being
debtor: (1) expromision and (2) delegacion. In expromision, the solidary due to the fact that the promissory note expressly
initiative for the change does not come from -- and may even be declared that the liability of appellants thereunder is joint and
made without the knowledge of -- the debtor, since it consists of [solidary.] Reason: under the law, a creditor may demand
a third persons assumption of the obligation. As such, it logically payment or performance from one of the solidary debtors or
requires the consent of the third person and the creditor. In some or all of them simultaneously, and payment made by one
delegacion, the debtor offers, and the creditor accepts, a third of them extinguishes the obligation. It therefore follows that in
person who consents to the substitution and assumes the case the creditor fails to collect from one of the solidary debtors,
obligation; thus, the consent of these three persons are he may still proceed against the other or others. x x x [22]
necessary.[11] Both modes of substitution by the debtor require
the consent of the creditor.[12] Moreover, it must be noted that for novation to be valid and
legal, the law requires that the creditor expressly consent to the
189
substitution of a new debtor.[23] Since novation implies a waiver
of the right the creditor had before the novation, such waiver or Judgment on the Pleadings
must be express.[24] It cannot be supposed, without clear proof,
that the present respondent has done away with his right to The next issue illustrates the usual confusion between a
exact fulfillment from either of the solidary debtors.[25] judgment on the pleadings and a summary judgment. Under
Section 3 of Rule 35 of the Rules of Court, a summary judgment
More important, De Jesus was not a third person to the may be rendered after a summary hearing if the pleadings,
obligation. From the beginning, he was a joint and solidary supporting affidavits, depositions and admissions on file show
obligor of the P400,000 loan; thus, he can be released from it that (1) except as to the amount of damages, there is no
only upon its extinguishment. Respondents acceptance of his genuine issue regarding any material fact; and (2) the moving
check did not change the person of the debtor, because a joint party is entitled to a judgment as a matter of law.
and solidary obligor is required to pay the entirety of the
obligation. A summary judgment is a procedural device designed for the
prompt disposition of actions in which the pleadings raise only a
It must be noted that in a solidary obligation, the creditor is legal, not a genuine, issue regarding any material fact.[35]
entitled to demand the satisfaction of the whole obligation from Consequently, facts are asserted in the complaint regarding
any or all of the debtors.[26] It is up to the former to determine which there is yet no admission, disavowal or qualification; or
against whom to enforce collection.[27] Having made himself specific denials or affirmative defenses are set forth in the
jointly and severally liable with De Jesus, petitioner is therefore answer, but the issues are fictitious as shown by the pleadings,
liable[28] for the entire obligation.[29] depositions or admissions.[36] A summary judgment may be
applied for by either a claimant or a defending party.[37]
Second Issue:
On the other hand, under Section 1 of Rule 34 of the Rules of
Accommodation Party Court, a judgment on the pleadings is proper when an answer
fails to render an issue or otherwise admits the material
Petitioner avers that he signed the promissory note merely as an allegations of the adverse partys pleading. The essential question
accommodation party; and that, as such, he was released as is whether there are issues generated by the pleadings.[38] A
obligor when respondent agreed to extend the term of the judgment on the pleadings may be sought only by a claimant,
obligation. who is the party seeking to recover upon a claim, counterclaim
or cross-claim; or to obtain a declaratory relief. [39]
This reasoning is misplaced, because the note herein is not a
negotiable instrument. The note reads: Apropos thereto, it must be stressed that the trial courts
judgment against petitioner was correctly treated by the
PROMISSORY NOTE appellate court as a summary judgment, rather than as a
judgment on the pleadings. His Answer[40] apparently raised
P400,000.00 several issues -- that he signed the promissory note allegedly as
a mere accommodation party, and that the obligation was
RECEIVED FROM ATTY. DIONISIO V. LLAMAS, the sum of FOUR extinguished by either payment or novation. However, these are
HUNDRED THOUSAND PESOS, Philippine Currency payable on or not factual issues requiring trial. We quote with approval the CAs
before January 23, 1997 at No. 144 K-10 St. Kamias, Quezon observations:
City, with interest at the rate of 5% per month or fraction
thereof. Although Garcias [A]nswer tendered some issues, by way of
affirmative defenses, the documents submitted by [respondent]
It is understood that our liability under this loan is jointly and nevertheless clearly showed that the issues so tendered were not
severally [sic]. valid issues. Firstly, Garcias claim that he was merely an
accommodation party is belied by the promissory note that he
Done at Quezon City, Metro Manila this 23rd day of December, signed. Nothing in the note indicates that he was only an
1996.[30] accommodation party as he claimed to be. Quite the contrary,
the promissory note bears the statement: It is understood that
By its terms, the note was made payable to a specific person our liability under this loan is jointly and severally [sic].
rather than to bearer or to order[31] -- a requisite for Secondly, his claim that his co-defendant de Jesus already paid
negotiability under Act 2031, the Negotiable Instruments Law the loan by means of a check collapses in view of the dishonor
(NIL). Hence, petitioner cannot avail himself of the NILs thereof as shown at the dorsal side of said check.[41]
provisions on the liabilities and defenses of an accommodation
party. Besides, a non-negotiable note is merely a simple contract From the records, it also appears that petitioner himself moved
in writing and is evidence of such intangible rights as may have to submit the case for judgment on the basis of the pleadings
been created by the assent of the parties.[32] The promissory and documents. In a written Manifestation,[42] he stated that
note is thus covered by the general provisions of the Civil Code, judgment on the pleadings may now be rendered without further
not by the NIL. evidence, considering the allegations and admissions of the
parties.[43]
Even granting arguendo that the NIL was applicable, still,
petitioner would be liable for the promissory note. Under Article In view of the foregoing, the CA correctly considered as a
29 of Act 2031, an accommodation party is liable for the summary judgment that which the trial court had issued against
instrument to a holder for value even if, at the time of its taking, petitioner.
the latter knew the former to be only an accommodation party.
The relation between an accommodation party and the party WHEREFORE, this Petition is hereby DENIED and the assailed
accommodated is, in effect, one of principal and surety -- the Decision AFFIRMED. Costs against petitioner.
accommodation party being the surety.[33] It is a settled rule
that a surety is bound equally and absolutely with the principal SO ORDERED.
and is deemed an original promissor and debtor from the SECOND DIVISION
beginning. The liability is immediate and direct.[34]
[G.R. No. 147950. December 11, 2003]
Third Issue:
CALIFORNIA BUS LINES, INC., petitioner, vs. STATE
Propriety of Summary Judgment INVESTMENT HOUSE, INC., respondent.
190
injunction to enforce the management takeover clause and a writ
DECISION of preliminary attachment over the buses it sold to CBLI.[10] On
December 27, 1982,[11] the trial court granted Deltas prayer for
QUISUMBING, J.: issuance of a writ of preliminary mandatory injunction and
preliminary attachment on account of the fraudulent disposition
In this petition for review, California Bus Lines, Inc., assails the by CBLI of its assets.
decision,[1] dated April 17, 2001, of the Court of Appeals in CA-
G.R. CV No. 52667, reversing the judgment[2], dated June 3, On September 15, 1983, pursuant to the Memorandum of
1993, of the Regional Trial Court of Manila, Branch 13, in Civil Agreement, Delta executed a Deed of Sale[12] assigning to SIHI
Case No. 84-28505 entitled State Investment House, Inc. v. five (5) of the sixteen (16) promissory notes[13] from California
California Bus Lines, Inc., for collection of a sum of money. The Bus Lines, Inc. At the time of assignment, these five promissory
Court of Appeals held petitioner California Bus Lines, Inc., liable notes, identified and numbered as 80-53, 80-54, 80-55, 80-56,
for the value of five promissory notes assigned to respondent and 80-57, had a total value of P16,152,819.80 inclusive of
State Investment House, Inc. interest at 14% per annum.
The facts, as culled from the records, are as follows: SIHI subsequently sent a demand letter dated December 13,
1983,[14] to CBLI requiring CBLI to remit the payments due on
Sometime in 1979, Delta Motors CorporationM.A.N. Division the five promissory notes directly to it. CBLI replied informing
(Delta) applied for financial assistance from respondent State SIHI of Civil Case No. 0023-P and of the fact that Delta had
Investment House, Inc. (hereafter SIHI), a domestic corporation taken over its management and operations.[15]
engaged in the business of quasi-banking. SIHI agreed to extend
a credit line to Delta for P25,000,000.00 in three separate credit As regards Deltas remaining obligation to SIHI, Delta offered its
agreements dated May 11, June 19, and August 22, 1979.[3] On available bus units, valued at P27,067,162.22, as payment in
several occasions, Delta availed of the credit line by discounting kind.[16] On December 29, 1983, SIHI accepted Deltas offer,
with SIHI some of its receivables, which evidence actual sales of and Delta transferred the ownership of its available buses to
Deltas vehicles. Delta eventually became indebted to SIHI to the SIHI, which in turn acknowledged full payment of Deltas
tune of P24,010,269.32.[4] remaining obligation.[17] When SIHI was unable to take
possession of the buses, SIHI filed a petition for recovery of
Meanwhile, from April 1979 to May 1980, petitioner California possession with prayer for issuance of a writ of replevin before
Bus Lines, Inc. (hereafter CBLI), purchased on installment basis the RTC of Manila, Branch 6, docketed as Civil Case No. 84-
35 units of M.A.N. Diesel Buses and two (2) units of M.A.N. 23019. The Manila RTC issued a writ of replevin and SIHI was
Diesel Conversion Engines from Delta. To secure the payment of able to take possession of 17 bus units belonging to Delta. SIHI
the purchase price of the 35 buses, CBLI and its president, Mr. applied the proceeds from the sale of the said 17 buses
Dionisio O. Llamas, executed sixteen (16) promissory notes in amounting to P12,870,526.98 to Deltas outstanding obligation.
favor of Delta on January 23 and April 25, 1980.[5] In each Deltas obligation to SIHI was thus reduced to P20,061,898.97.
promissory note, CBLI promised to pay Delta or order, On December 5, 1984, Branch 6 of the RTC of Manila rendered
P2,314,000 payable in 60 monthly installments starting August judgment in Civil Case No. 84-23019 ordering Delta to pay SIHI
31, 1980, with interest at 14% per annum. CBLI further this amount.
promised to pay the holder of the said notes 25% of the amount
due on the same as attorneys fees and expenses of collection, Thereafter, Delta and CBLI entered into a compromise
whether actually incurred or not, in case of judicial proceedings agreement on July 24, 1984,[18] in Civil Case No. 0023-P, the
to enforce collection. In addition to the notes, CBLI executed injunction case before the RTC of Pasay. CBLI agreed that Delta
chattel mortgages over the 35 buses in Deltas favor. would exercise its right to extrajudicially foreclose on the chattel
mortgages over the 35 bus units. The RTC of Pasay approved
When CBLI defaulted on all payments due, it entered into a this compromise agreement the following day, July 25, 1984.[19]
restructuring agreement with Delta on October 7, 1981, to cover Following this, CBLI vehemently refused to pay SIHI the value of
its overdue obligations under the promissory notes.[6] The the five promissory notes, contending that the compromise
restructuring agreement provided for a new schedule of agreement was in full settlement of all its obligations to Delta
payments of CBLIs past due installments, extending the period to including its obligations under the promissory notes.
pay, and stipulating daily remittance instead of the previously
agreed monthly remittance of payments. In case of default, Delta On December 26, 1984, SIHI filed a complaint, docketed as Civil
would have the authority to take over the management and Case No. 84-28505, against CBLI in the Regional Trial Court of
operations of CBLI until CBLI and/or its president, Mr. Dionisio Manila, Branch 34, to collect on the five (5) promissory notes
Llamas, remitted and/or updated CBLIs past due account. CBLI with interest at 14% p.a. SIHI also prayed for the issuance of a
and Delta also increased the interest rate to 16% p.a. and added writ of preliminary attachment against the properties of CBLI.
a documentation fee of 2% p.a. and a 4% p.a. restructuring fee. [20]
On December 23, 1981, Delta executed a Continuing Deed of On December 28, 1984, Delta filed a petition for extrajudicial
Assignment of Receivables[7] in favor of SIHI as security for the foreclosure of chattel mortgages pursuant to its compromise
payment of its obligations to SIHI per the credit agreements. In agreement with CBLI. On January 2, 1985, Delta filed in the RTC
view of Deltas failure to pay, the loan agreements were of Pasay a motion for execution of the judgment based on the
restructured under a Memorandum of Agreement dated March compromise agreement.[21] The RTC of Pasay granted this
31, 1982.[8] Delta obligated itself to pay a fixed monthly motion the following day.[22]
amortization of P400,000 to SIHI and to discount with SIHI
P8,000,000 worth of receivables with the understanding that In view of Deltas petition and motion for execution per the
SIHI shall apply the proceeds against Deltas overdue accounts. judgment of compromise, the RTC of Manila granted in Civil Case
No. 84-28505 SIHIs application for preliminary attachment on
CBLI continued having trouble meeting its obligations to Delta. January 4, 1985.[23] Consequently, SIHI was able to attach and
This prompted Delta to threaten CBLI with the enforcement of physically take possession of thirty-two (32) buses belonging to
the management takeover clause. To pre-empt the take-over, CBLI.[24] However, acting on CBLIs motion to quash the writ of
CBLI filed on May 3, 1982, a complaint for injunction[9], preliminary attachment, the same court resolved on January 15,
docketed as Civil Case No. 0023-P, with the Court of First 1986,[25] to discharge the writ of preliminary attachment. SIHI
Instance of Rizal, Pasay City, (now Regional Trial Court of Pasay assailed the discharge of the writ before the Intermediate
City). In due time, Delta filed its amended answer with Appellate Court (now Court of Appeals) in a petition for certiorari
applications for the issuance of a writ of preliminary mandatory and prohibition, docketed as CA-G.R. SP No. 08378. On July 31,
191
1987, the Court of Appeals granted SIHIs petition in CA-GR SP
No. 08378 and ruled that the writ of preliminary attachment II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
issued by Branch 34 of the RTC Manila in Civil Case No. 84- COMPROMISE AGREEMENT BETWEEN DELTA AND THE
28505 should stay.[26] The decision of the Court of Appeals PETITIONER IN THE PASAY CITY CASE DID NOT SUPERSEDE
attained finality on August 22, 1987.[27] AND DISCHARGE THE PROMISSORY NOTES.
Meanwhile, pursuant to the January 3, 1985 Order of the RTC of III. THE COURT OF APPEALS ERRED IN UPHOLDING THE
Pasay, the sheriff of Pasay City conducted a public auction and CONTINUING VALIDITY OF THE PRELIMINARY ATTACHMENT AND
issued a certificate of sheriffs sale to Delta on April 2, 1987, EXONERATING THE RESPONDENT OF MALEFACTIONS IN
attesting to the fact that Delta bought 14 of the 35 buses for PRESERVING AND ASSERTING ITS RIGHTS THEREUNDER.[36]
P3,920,000.[28] On April 7, 1987, the sheriff of Manila, by virtue
of the writ of execution dated March 27, 1987, issued by Branch Essentially, the issues are (1) whether the Restructuring
6 of the RTC of Manila in Civil Case No. 84-23019, sold the same Agreement dated October 7, 1981, between petitioner CBLI and
14 buses at public auction in partial satisfaction of the judgment Delta Motors, Corp. novated the five promissory notes Delta
SIHI obtained against Delta in Civil Case No. 84-23019. Motors, Corp. assigned to respondent SIHI, and (2) whether the
compromise agreement in Civil Case No. 0023-P superseded
Sometime in May 1987, Civil Case No. 84-28505 was raffled to and/or discharged the subject five promissory notes. The issues
Branch 13 of the RTC of Manila in view of the retirement of the being interrelated, they shall be jointly discussed.
presiding judge of Branch 34. Subsequently, SIHI moved to sell
the sixteen (16) buses of CBLI which had previously been CBLI first contends that the Restructuring Agreement did not
attached by the sheriff in Civil Case No. 84-28505 pursuant to merely change the incidental elements of the obligation under all
the January 4, 1985, Order of the RTC of Manila.[29] SIHIs sixteen (16) promissory notes, but it also increased the
motion was granted on December 16, 1987.[30] On November obligations of CBLI with the addition of new obligations that were
29, 1988, however, SIHI filed an urgent ex-parte motion to incompatible with the old obligations in the said notes.[37] CBLI
amend this order claiming that through inadvertence and adds that even if the restructuring agreement did not totally
excusable negligence of its new counsel, it made a mistake in the extinguish the obligations under the sixteen (16) promissory
list of buses in the Motion to Sell Attached Properties it had notes, the July 24, 1984, compromise agreement executed in
earlier filed.[31] SIHI explained that 14 of the buses listed had Civil Case No. 0023-P did.[38] CBLI cites paragraph 5 of the
already been sold to Delta on April 2, 1987, by virtue of the compromise agreement which states that the agreement
January 3, 1985 Order of the RTC of Pasay, and that two of the between it and CBLI was in full and final settlement, adjudication
buses listed had been released to third party, claimant Pilipinas and termination of all their rights and obligations as of the date
Bank, by Order dated September 16, 1987[32] of Branch 13 of of (the) agreement, and of the issues in (the) case. According to
the RTC of Manila. CBLI, inasmuch as the five promissory notes were subject
matters of the Civil Case No. 0023-P, the decision approving the
CBLI opposed SIHIs motion to allow the sale of the 16 buses. On compromise agreement operated as res judicata in the present
May 3, 1989,[33] Branch 13 of the RTC of Manila denied SIHIs case.[39]
urgent motion to allow the sale of the 16 buses listed in its
motion to amend. The trial court ruled that the best interest of Novation has been defined as the extinguishment of an
the parties might be better served by denying further sales of obligation by the substitution or change of the obligation by a
the buses and to go direct to the trial of the case on the merits. subsequent one which terminates the first, either by changing
[34] the object or principal conditions, or by substituting the person of
the debtor, or subrogating a third person in the rights of the
After trial, judgment was rendered in Civil Case No. 84-28505 on creditor.[40]
June 3, 1993, discharging CBLI from liability on the five
promissory notes. The trial court likewise favorably ruled on Novation, in its broad concept, may either be extinctive or
CBLIs compulsory counterclaim. The trial court directed SIHI to modificatory.[41] It is extinctive when an old obligation is
return the 16 buses or to pay CBLI P4,000,000 representing the terminated by the creation of a new obligation that takes the
value of the seized buses, with interest at 12% p.a. to begin place of the former; it is merely modificatory when the old
from January 11, 1985, the date SIHI seized the buses, until obligation subsists to the extent it remains compatible with the
payment is made. In ruling against SIHI, the trial court held that amendatory agreement.[42] An extinctive novation results either
the restructuring agreement dated October 7, 1981, between by changing the object or principal conditions (objective or real),
Delta and CBLI novated the five promissory notes; hence, at the or by substituting the person of the debtor or subrogating a third
time Delta assigned the five promissory notes to SIHI, the notes person in the rights of the creditor (subjective or personal).[43]
were already merged in the restructuring agreement and cannot Novation has two functions: one to extinguish an existing
be enforced against CBLI. obligation, the other to substitute a new one in its place.[44] For
novation to take place, four essential requisites have to be met,
SIHI appealed the decision to the Court of Appeals. The case was namely, (1) a previous valid obligation; (2) an agreement of all
docketed as CA-G.R. CV No. 52667. On April 17, 2001, the Court parties concerned to a new contract; (3) the extinguishment of
of Appeals decided CA-G.R. CV No. 52667 in this manner: the old obligation; and (4) the birth of a valid new obligation.
[45]
WHEREFORE, based on the foregoing premises and finding the
appeal to be meritorious, We find defendant-appellee CBLI liable Novation is never presumed,[46] and the animus novandi,
for the value of the five (5) promissory notes subject of the whether totally or partially, must appear by express agreement
complaint a quo less the proceeds from the attached sixteen (16) of the parties, or by their acts that are too clear and unequivocal
buses. The award of attorneys fees and costs is eliminated. The to be mistaken.[47]
appealed decision is hereby REVERSED. No costs.
The extinguishment of the old obligation by the new one is a
SO ORDERED.[35] necessary element of novation which may be effected either
expressly or impliedly.[48] The term "expressly" means that the
Hence, this appeal where CBLI contends that contracting parties incontrovertibly disclose that their object in
executing the new contract is to extinguish the old one.[49]
I. THE COURT OF APPEALS ERRED IN DECLARING THAT THE Upon the other hand, no specific form is required for an implied
RESTRUCTURING AGREEMENT BETWEEN DELTA AND THE novation, and all that is prescribed by law would be an
PETITIONER DID NOT SUBSTANTIALLY NOVATE THE TERMS OF incompatibility between the two contracts.[50] While there is
THE FIVE PROMISSORY NOTES. really no hard and fast rule to determine what might constitute
192
to be a sufficient change that can bring about novation, the a. PN Nos. 16 to 26 (11 units)
touchstone for contrariety, however, would be an irreconcilable
incompatibility between the old and the new obligations. Past Due as of September 30, 1981 P1,411,434.00
There are two ways which could indicate, in fine, the presence of b. PN Nos. 52 to 57 (24 units)
novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. The first is Past Due as of September 30, 1981 P1,105,353.00
when novation has been explicitly stated and declared in
unequivocal terms. The second is when the old and the new WHEREAS, the parties agreed to restructure the above-
obligations are incompatible on every point. The test of mentioned past due installments under the following terms and
incompatibility is whether the two obligations can stand together, conditions:
each one having its independent existence.[51] If they cannot,
they are incompatible and the latter obligation novates the first. a. PN Nos. 16 to 26 (11 units) 37 months
[52] Corollarily, changes that breed incompatibility must be
essential in nature and not merely accidental. The incompatibility PN Nos. 52 to 57 (24 units) 46 months
must take place in any of the essential elements of the
obligation, such as its object, cause or principal conditions b. Interest Rate: 16% per annum
thereof; otherwise, the change would be merely modificatory in
nature and insufficient to extinguish the original obligation.[53] c. Documentation Fee: 2% per annum
The necessity to prove the foregoing by clear and convincing d. Penalty previously incurred and Restructuring fee: 4% p.a.
evidence is accentuated where the obligation of the debtor
invoking the defense of novation has already matured.[54] e. Mode of Payment: Daily Remittance
With respect to obligations to pay a sum of money, this Court NOW, THEREFORE, for and in consideration of the foregoing
has consistently applied the well-settled rule that the obligation premises, the parties hereby agree and covenant as follows:
is not novated by an instrument that expressly recognizes the
old, changes only the terms of payment, and adds other 1. That the past due installment referred to above plus the
obligations not incompatible with the old ones, or where the new current and/or falling due amortization as of October 1, 1981 for
contract merely supplements the old one.[55] Promissory Notes Nos. 16 to 26 and 52 to 57 shall be paid by
CBL and/or LLAMAS in accordance with the following schedule of
In Inchausti & Co. v. Yulo[56] this Court held that an obligation payments:
to pay a sum of money is not novated in a new instrument
wherein the old is ratified, by changing only the term of payment Daily payments of P11,000.00 from
and adding other obligations not incompatible with the old one.
In Tible v. Aquino[57] and Pascual v. Lacsamana[58] this Court October 1 to December 31, 1981
declared that it is well settled that a mere extension of payment
and the addition of another obligation not incompatible with the Daily payments of P12,000.00 from
old one is not a novation thereof.
January 1, 1982 to March 31, 1982
In this case, the attendant facts do not make out a case of
novation. The restructuring agreement between Delta and CBLI Daily payments of P13,000.00 from
executed on October 7, 1981, shows that the parties did not
expressly stipulate that the restructuring agreement novated the April 1, 1982 to June 30, 1982
promissory notes. Absent an unequivocal declaration of
extinguishment of the pre-existing obligation, only a showing of Daily payments of P14,000.00 from
complete incompatibility between the old and the new obligation
would sustain a finding of novation by implication.[59] However, July 1, 1982 to September 30, 1982
our review of its terms yields no incompatibility between the
promissory notes and the restructuring agreement. Daily payments of P15,000.00 from
The five promissory notes, which Delta assigned to SIHI on October 1, 1982 to December 31, 1982
September 13, 1983, contained the following common
stipulations: Daily payments of P16,000.00 from
1. They were payable in 60 monthly installments up to July 31, January 1, 1983 to June 30, 1983
1985;
Daily payments of P17,000.00 from
2. Interest: 14% per annum;
July 1, 1983
3. Failure to pay any of the installments would render the entire
remaining balance due and payable at the option of the holder of 2. CBL or LLAMAS shall remit to DMC on or before 11:00 a.m.
the notes; everyday the daily cash payments due to DMC in accordance
with the schedule in paragraph 1. DMC may send a collector to
4. In case of judicial collection on the notes, the maker (CBLI) receive the amount due at CBLs premises. All delayed
and co-maker (its president, Mr. Dionisio O. Llamas, Jr) were remittances shall be charged additional 2% penalty interest per
solidarily liable of attorneys fees and expenses of 25% of the month.
amount due in addition to the costs of suit.
3. All payments shall be applied to amortizations and penalties
The restructuring agreement, for its part, had the following due in accordance with paragraph of the restructured past due
provisions: installments above mentioned and PN Nos. 16 to 26 and 52 to
57.
WHEREAS, CBL and LLAMAS admit their past due installment on
the following promissory notes: 4. DMC may at anytime assign and/or send its representatives to
monitor the operations of CBL pertaining to the financial and field
193
operations and service and maintenance matters of M.A.N. units. The addition of other obligations likewise did not extinguish the
Records needed by the DMC representatives in monitoring said promissory notes. In Young v. CA[63], this Court ruled that a
operations shall be made available by CBL and LLAMAS. change in the incidental elements of, or an addition of such
element to, an obligation, unless otherwise expressed by the
5. Within thirty (30) days after the end of the terms of the PN parties will not result in its extinguishment.
Nos. 16 to 26 and 52 to 57, CBL or LLAMAS shall remit in lump
sum whatever balance is left after deducting all payments made In fine, the restructuring agreement can stand together with the
from what is due and payable to DMC in accordance with promissory notes.
paragraph 1 of this agreement and PN Nos. 16 to 26 and 52 to
57. Neither is there merit in CBLIs argument that the compromise
agreement dated July 24, 1984, in Civil Case No. 0023-P
6. In the event that CBL and LLAMAS fail to remit the daily superseded and/or discharged the five promissory notes. Both
remittance agreed upon and the total accumulated unremitted Delta and CBLI cannot deny that the five promissory notes were
amount has reached and (sic) equivalent of Sixty (60) days, DMC no longer subject of Civil Case No. 0023-P when they entered
and Silverio shall exercise any or all of the following options: into the compromise agreement on July 24, 1984.
(a) The whole sum remaining then unpaid plus 2% penalty per Having previously assigned the five promissory notes to SIHI,
month and 16% interest per annum on total past due Delta had no more right to compromise the same. Deltas limited
installments will immediately become due and payable. In the authority to collect for SIHI stipulated in the September 13,
event of judicial proceedings to enforce collection, CBL and 1985, Deed of Sale cannot be construed to include the power to
LLAMAS will pay to DMC an additional sum equivalent to 25% of compromise CBLIs obligations in the said promissory notes. An
the amount due for attorneys fees and expenses of collection, authority to compromise, by express provision of Article
whether actually incurred or not, in addition to the cost of suit; 1878[64] of the Civil Code, requires a special power of attorney,
which is not present in this case. Incidentally, Deltas authority to
(b) To enforce in accordance with law, their rights under the collect in behalf of SIHI was, by express provision of the
Chattel Mortgage over various M.A.N. Diesel bus with Nos. CU Continuing Deed of Assignment,[65] automatically revoked when
80-39, 80-40, 80-41, 80-42, 80-43, 80-44 and 80-15, and/or SIHI opted to collect directly from CBLI.
(c) To take over management and operations of CBL until such As regards CBLI, SIHIs demand letter dated December 13, 1983,
time that CBL and/or LLAMAS have remitted and/or updated requiring CBLI to remit the payments directly to SIHI effectively
their past due account with DMC. revoked Deltas limited right to collect in behalf of SIHI. This
should have dispelled CBLIs erroneous notion that Delta was
7. DMC and SILVERIO shall insure to CBL continuous supply of acting in behalf of SIHI, with authority to compromise the five
spare parts for the M.A.N. Diesel Buses and shall make available promissory notes.
to CBL at the price prevailing at the time of purchase, an
inventory of spare parts consisting of at least ninety (90%) But more importantly, the compromise agreement itself provided
percent of the needs of CBL based on a moving 6-month that it covered the rights and obligations only of Delta and CBLI
requirement to be prepared and submitted by CBL, and and that it did not refer to, nor cover the rights of, SIHI as the
acceptable to DMC, within the first week of each month. new creditor of CBLI in the subject promissory notes. CBLI and
Delta stipulated in paragraph 5 of the agreement that:
8. Except as otherwise modified in this Agreement, the terms
and conditions stipulated in PN Nos. 16 to 26 and 52 to 57 shall 5. This COMPROMISE AGREEMENT constitutes the entire
continue to govern the relationship between the parties and that understanding by and between the plaintiffs and the defendants
the Chattel Mortgage over various M.A.N. Diesel Buses with Nos. as well as their lawyers, and operates as full and final
CM No. 80-39, 80-40, 80-41, 80-42, 80-43, 80-44 and CM No. settlement, adjudication and termination of all their rights and
80-15 as well as the Deed of Pledge executed by Mr. Llamas shall obligations as of the date of this agreement, and of the issues in
continue to secure the obligation until full payment. this case.[66]
9. DMC and SILVERIO undertake to recall or withdraw its Even in the absence of such a provision, the compromise
previous request to Notary Public Alberto G. Doller and to agreement still cannot bind SIHI under the settled rule that a
instruct him not to proceed with the public auction sale of the compromise agreement determines the rights and obligations of
shares of stock of CBL subject-matter of the Deed of Pledge of only the parties to it.[67] Therefore, we hold that the
Shares. LLAMAS, on the other hand, undertakes to move for the compromise agreement covered the rights and obligations only
immediate dismissal of Civil Case No. 9460-P entitled Dionisio O. of Delta and CBLI and only with respect to the eleven (11) other
Llamas vs. Alberto G. Doller, et al., Court of First Instance of promissory notes that remained with Delta.
Pasay, Branch XXIX.[60]
CBLI next maintains that SIHI is estopped from questioning the
It is clear from the foregoing that the restructuring agreement, compromise agreement because SIHI failed to intervene in Civil
instead of containing provisions absolutely incompatible with the Case No. 0023-P after CBLI informed it of the takeover by Delta
obligations of the judgment, expressly ratifies such obligations in of CBLIs management and operations and the resultant
paragraph 8 and contains provisions for satisfying them. There impossibility for CBLI to comply with its obligations in the subject
was no change in the object of the prior obligations. The promissory notes. CBLI also adds that SIHIs failure to intervene
restructuring agreement merely provided for a new schedule of in Civil Case No. 0023-P is proof that Delta continued to act in
payments and additional security in paragraph 6 (c) giving Delta SIHIs behalf in effecting collection under the notes.
authority to take over the management and operations of CBLI in
case CBLI fails to pay installments equivalent to 60 days. Where The contention is untenable. As a result of the assignment, Delta
the parties to the new obligation expressly recognize the relinquished all its rights to the subject promissory notes in favor
continuing existence and validity of the old one, there can be no of SIHI. This had the effect of separating the five promissory
novation.[61] Moreover, this Court has ruled that an agreement notes from the 16 promissory notes subject of Civil Case No.
subsequently executed between a seller and a buyer that 0023-P. From that time, CBLIs obligations to SIHI embodied in
provided for a different schedule and manner of payment, to the five promissory notes became separate and distinct from
restructure the mode of payments by the buyer so that it could CBLIs obligations in eleven (11) other promissory notes that
settle its outstanding obligation in spite of its delinquency in remained with Delta. Thus, any breach of these independent
payment, is not tantamount to novation. [62] obligations gives rise to a separate cause of action in favor of
SIHI against CBLI. Considering that Deltas assignment to SIHI of
194
these five promissory notes had the effect of removing the said sanction CBLIs argument and to apply Article 1484 (3) to this
notes from Civil Case No. 0023-P, there was no reason for SIHI case would work injustice to SIHI by depriving it of its right to
to intervene in the said case. SIHI did not have any interest to collect against CBLI who has not paid its obligations.
protect in Civil Case No. 0023-P.
That SIHI later on levied on execution and acquired in the
Moreover, intervention is not mandatory, but only optional and ensuing public sale in Civil Case No. 84-23019 the buses Delta
permissive.[68] Notably, Section 2,[69] Rule 12 of the then 1988 earlier extrajudicially foreclosed on April 2, 1987, in Civil Case
Revised Rules of Procedure uses the word may in defining the No. 0023-P, did not operate to render the compromise
right to intervene. The present rules maintain the permissive agreement and the foreclosure binding on SIHI. At the time SIHI
nature of intervention in Section 1, Rule 19 of the 1997 Rules of effected the levy on execution to satisfy its judgment credit
Civil Procedure, which provides as follows: against Delta in Civil Case No. 84-23019, the said buses already
pertained to Delta by virtue of the April 2, 1987 auction sale.
SEC. 1. Who may intervene.A person who has a legal interest in CBLI no longer had any interest in the said buses. Under the
the matter in litigation, or in the success of either of the parties, circumstances, we cannot see how SIHIs belated acquisition of
or an interest against both, or is so situated as to be adversely the foreclosed buses operates to hold the compromise
affected by a distribution or other disposition of property in the agreementand consequently Article 1484(3)applicable to SIHI as
custody of the court or of an officer thereof may, with leave of CBLI contends. CBLIs last contention must, therefore, fail. We
court, be allowed to intervene in the action. The court shall hold that the writ of execution to enforce the judgment of
consider whether or not the intervention will unduly delay or compromise in Civil Case No. 0023-P and the foreclosure sale of
prejudice the adjudication of the rights of the original parties, April 2, 1987, done pursuant to the said writ of execution
and whether or not the intervenor's rights may be fully protected affected only the eleven (11) other promissory notes covered by
in a separate proceeding.[70] the compromise agreement and the judgment on compromise in
Civil Case No. 0023-P.
Also, recall that Delta transferred the five promissory notes to
SIHI on September 13, 1983 while Civil Case No. 0023-P was In support of its third assignment of error, CBLI maintains that
pending. Then as now, the rule in case of transfer of interest there was no basis for SIHIs application for a writ of preliminary
pendente lite is that the action may be continued by or against attachment.[76] According to CBLI, it committed no fraud in
the original party unless the court, upon motion, directs the contracting its obligation under the five promissory notes
person to whom the interest is transferred to be substituted in because it was financially sound when it issued the said notes on
the action or joined with the original party.[71] The non-inclusion April 25, 1980.[77] CBLI also asserts that at no time did it falsely
of a necessary party does not prevent the court from proceeding represent to SIHI that it would be able to pay its obligations
in the action, and the judgment rendered therein shall be without under the five promissory notes.[78] According to CBLI, it was
prejudice to the rights of such necessary party.[72] not guilty of fraudulent concealment, removal, or disposal, or of
fraudulent intent to conceal, remove, or dispose of its properties
In light of the foregoing, SIHIs refusal to intervene in Civil Case to defraud its creditors;[79] and that SIHIs bare allegations on
No. 0023-P in another court does not amount to an estoppel that this matter were insufficient for the preliminary attachment of
may prevent SIHI from instituting a separate and independent CBLIs properties.[80]
action of its own.[73] This is especially so since it does not
appear that a separate proceeding would be inadequate to The question whether the attachment of the sixteen (16) buses
protect fully SIHIs rights.[74] Indeed, SIHIs refusal to intervene was valid and in accordance with law, however, has already been
is precisely because it considered that its rights would be better resolved with finality by the Court of Appeals in CA-G.R. SP No.
protected in a separate and independent suit. 08376. In its July 31, 1987, decision, the Court of Appeals
upheld the legality of the writ of preliminary attachment SIHI
The judgment on compromise in Civil Case No. 0023-P did not obtained and ruled that the trial court judge acted with grave
operate as res judicata to prevent SIHI from prosecuting its abuse of discretion in discharging the writ of attachment despite
claims in the present case. As previously discussed, the the clear presence of a determined scheme on the part of CBLI
compromise agreement and the judgment on compromise in Civil to dispose of its property. Considering that the said Court of
Case No. 0023-P covered only Delta and CBLI and their Appeals decision has already attained finality on August 22,
respective rights under the 11 promissory notes not assigned to 1987, there exists no reason to resolve this question anew.
SIHI. In contrast, the instant case involves SIHI and CBLI and Reasons of public policy, judicial orderliness, economy and
the five promissory notes. There being no identity of parties and judicial time and the interests of litigants as well as the peace
subject matter, there is no res judicata. and order of society, all require that stability be accorded the
solemn and final judgments of courts or tribunals of competent
CBLI maintains, however, that in any event, recovery under the jurisdiction.[81]
subject promissory notes is no longer allowed by Article 1484(3)
[75] of the Civil Code, which prohibits a creditor from suing for Finally, in the light of the justness of SIHIs claim against CBLI,
the deficiency after it has foreclosed on the chattel mortgages. we cannot sustain CBLIs contention that the Court of Appeals
SIHI, being the successor-in-interest of Delta, is no longer erred in dismissing its counterclaim for lost income and the value
allowed to recover on the promissory notes given as security for of the 16 buses over which SIHI obtained a writ of preliminary
the purchase price of the 35 buses because Delta had already attachment. Where the party who requested the attachment
extrajudicially foreclosed on the chattel mortgages over the said acted in good faith and without malice, the claim for damages
buses on April 2, 1987. resulting from the attachment of property cannot be sustained.
[82]
This claim is likewise untenable.
WHEREFORE, the decision dated April 17, 2001, of the Court of
Article 1484(3) finds no application in the present case. The Appeals in CA-G.R. CV No. 52667 is AFFIRMED. Petitioner
extrajudicial foreclosure of the chattel mortgages Delta effected California Bus Lines, Inc., is ORDERED to pay respondent State
cannot prejudice SIHIs rights. As stated earlier, the assignment Investment House, Inc., the value of the five (5) promissory
of the five notes operated to create a separate and independent notes subject of the complaint in Civil Case No. 84-28505 less
obligation on the part of CBLI to SIHI, distinct and separate from the proceeds from the sale of the attached sixteen (16) buses.
CBLIs obligations to Delta. And since there was a previous No pronouncement as to costs.
revocation of Deltas authority to collect for SIHI, Delta was no
longer SIHIs collecting agent. CBLI, in turn, knew of the SO ORDERED.
assignment and Deltas lack of authority to compromise the
subject notes, yet it readily agreed to the foreclosure. To FIRST DIVISION
195
In their Pre-Trial Brief, the spouses Tibong maintained that they
G.R. No. 166704 December 20, 2006 have never obtained any loan from Agrifina without the benefit of
a written document.8
AGRIFINA AQUINTEY, petitioner,
vs. On August 17, 2000, the trial court issued a Pre-Trial Order
SPOUSES FELICIDAD AND RICO TIBONG, respondents. where the following issues of the case were defined:
b). FIFTEEN PERCENT (15%) of the total accumulated obligations May 11, 1989
as attorney's fees.
6%
c). Actual expenses representing the filing fee and other charges
and expenses to be incurred during the prosecution of this case. August 11, 1989
Further prays for such other relief and remedies just and 4,000.00
equitable under the premises.4
June 8, 1989
Agrifina appended a copy of the Counter-Affidavit executed by
Felicidad in I.S. No. 93-334, as well as copies of the promissory -
notes and acknowledgment receipts executed by Felicidad
covering the loaned amounts.5 -
6% Debtors
- P50,000.00
- Corazon Dalisay
- 8,000.00
- No date
6% Rita Chomacog
5% Antoinette Manuel
According to Agrifina, Felicidad was able to pay only her loans October 19, 1990
amounting to P122,600.00.14
March 30, 1991
In July 1990, Felicidad gave to Agrifina City Trust Bank Check
No. 126804 dated August 25, 1990 in the amount of P50,000.00 Rosemarie Bandas
as partial payment.15 However, the check was dishonored for
having been drawn against insufficient funds.16 Agrifina then 8,000.00
filed a criminal case against Felicidad in the Office of the City
Prosecutor. An Information for violation of Batas Pambansa August 8, 1990
Bilang 22 was filed against Felicidad, docketed as Criminal Case
No. 11181-R. After trial, the court ordered Felicidad to pay February 3, 1991
P50,000.00. Felicidad complied and paid the face value of the
check.17 Fely Cirilo
February 28, 1991 1. P472,000 as actual obligation with the stipulated interest of
6% per month from May 11, 1999 until the said obligation is fully
Merlinda Gelacio paid. However, the amount of P50,000 shall be deducted from
the total accumulated interest for the same was already paid by
17,200.00 the defendant as admitted by the plaintiff in her complaint,
Total SO ORDERED.46
P284,659.00 The trial court ruled that Felicidad's obligation had not been
novated by the deeds of assignment and the promissory notes
Agrifina narrated that Felicidad showed to her the way to the executed by Felicidad's borrowers. It explained that the
debtors' houses to enable her to collect from them. One of the documents did not contain any express agreement to novate and
debtors, Helen Cabang, did not execute any promissory note but extinguish Felicidad's obligation. It declared that the deeds and
conformed to the Deed of Assignment of Credit which Felicidad notes were separate contracts which could stand alone from the
executed in favor of Agrifina.27 Eliza Abance conformed to the original indebtedness of Felicidad. Considering, however,
deed of assignment for and in behalf of her sister, Fely Cirilo.28 Agrifina's admission that she was able to collect from Felicidad's
Edna Papat-iw was not able to affix her signature on the deed of debtors the total amount of P301,000.00, this should be
assignment nor sign the promissory note because she was in deducted from the latter's accountability.47 Hence, the balance,
Taipei, Taiwan.29 exclusive of interests, amounted to P472,000.00.
Following the execution of the deeds of assignment and On appeal, the CA affirmed with modification the decision of the
promissory notes, Agrifina was able to collect the total amount of RTC and stated that, based on the promissory notes and
P301,000.00 from Felicidad's debtors.30 In April 1990, she tried acknowledgment receipts signed by Felicidad, the appellants
to collect the balance of Felicidad's account, but the latter told secured loans from the appellee in the total principal amount of
her to wait until her debtors had money.31 When Felicidad only P637,000.00, not P773,000.00 as declared by the trial
reneged on her promise, Agrifina filed a complaint in the Office of court. The CA found that, other than Agrifina's bare testimony
the Barangay Captain for the collection of P773,000.00. that she had lost the promissory notes and acknowledgment
However, no settlement was arrived at.32 receipts, she failed to present competent documentary evidence
to substantiate her claim that Felicidad had, likewise, borrowed
The Case for Respondents the amounts of P100,000.00, P34,000.00, and P2,000.00. Of the
P637,000.00 total account, P585,659.00 was covered by the
Felicidad testified that she and her friend Agrifina had been deeds of assignment and promissory notes; hence, the balance
engaged in the money-lending business.33 Agrifina would lend of Felicidad's account amounted to only P51,341.00. The fallo of
her money with monthly interest,34 and she, in turn, would re- the decision reads:
lend the money to borrowers at a higher interest rate. Their
business relationship turned sour when Agrifina started WHEREFORE, in view of the foregoing, the decision dated
complaining that she (Felicidad) was actually earning more than January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil
Agrifina.35 Before the respective maturity dates of her debtors' Case No. 4370-R is hereby MODIFIED. Defendants-appellants are
loans, Agrifina asked her to pay her account since Agrifina hereby ordered to pay the balance of the total indebtedness in
needed money to buy a house and lot in Manila. However, she the amount of P51,341.00 plus the stipulated interest of 6% per
told Agrifina that she could not pay yet, as her debtors' loan month from May 11, 1999 until the finality of this decision.
payments were not yet due.36 Agrifina then came to her store
every afternoon to collect from her, and persuaded her to go to SO ORDERED.48
Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested
that she indorse the accounts of her debtors to Agrifina so that The appellate court sustained the trial court's ruling that
the latter would be the one to collect from her debtors and she Felicidad's obligation to Agrifina had not been novated by the
would no longer have any obligation to Agrifina.38 She then deeds of assignment and promissory notes executed in the
executed deeds of assignment in favor of Agrifina covering the latter's favor. Although Agrifina was subrogated as a new
sums of money due from her debtors. She signed the deeds creditor in lieu of Felicidad, Felicidad's obligation to Agrifina
prepared by Atty. A-ayo in the presence of Agrifina.39 Some of under the loan transaction remained; there was no intention on
the debtors signed the promissory notes which were likewise their part to novate the original obligation. Nonetheless, the
prepared by the lawyer. Thereafter, Agrifina personally collected appellate court held that the legal effects of the deeds of
from Felicidad's debtors.40 Felicidad further narrated that she assignment could not be totally disregarded. The assignments of
received P250,000.00 from one of her debtors, Rey Rivera, and credits were onerous, hence, had the effect of payment, pro
remitted the payment to Agrifina.41 tanto, of the outstanding obligation. The fact that Agrifina never
repudiated or rescinded such assignments only shows that she
Agrifina testified, on rebuttal, that she did not enter into a re- had accepted and conformed to it. Consequently, she cannot
lending business with Felicidad. When she asked Felicidad to collect both from Felicidad and her individual debtors without
consolidate her loans in one document, the latter told her to seek running afoul to the principle of unjust enrichment. Agrifina's
198
primary recourse then is against Felicidad's individual debtors on petitioner amounting to P585,659.00 had been effectively
the basis of the deeds of assignment and promissory notes. extinguished. Respondents point out that this is in accordance
with Article 1291, paragraph 2, of the Civil Code. Thus, the
The CA further declared that the deeds of assignment executed original debtors of respondents had been substituted as
by Felicidad had the effect of payment of her outstanding petitioner's new debtors.
obligation to Agrifina in the amount of P585,659.00. It ruled that,
since an assignment of credit is in the nature of a sale, the Respondents counter that petitioner had been subrogated to
assignors remained liable for the warranties as they are their right to collect the loan accounts of their debtors. In fact,
responsible for the existence and legality of the credit at the time petitioner, as the new creditor of respondents' former debtors
of the assignment. had been able to collect the latter's loan accounts which
amounted to P301,000.00. The sums received by respondents'
Both parties moved to have the decision reconsidered,49 but the debtors were the same loans which they obliged to pay to
appellate court denied both motions on December 21, 2004.50 petitioner under the promissory notes executed in petitioner's
favor.
Agrifina, now petitioner, filed the instant petition, contending
that Respondents aver that their obligation to petitioner cannot stand
or exist separately from the original debtors' obligation to
1. The Honorable Court of Appeals erred in ruling that the deeds petitioner as the new creditor. If allowed to collect from them as
of assignment in favor of petitioner has the effect of payment of well as from their original debtors, petitioner would be enriching
the original obligation even as it ruled out that the original herself at the expense of respondents. Thus, despite the fact that
obligation and the assigned credit are distinct and separate and petitioner had collected P172,600.00 from respondents and
can stand independently from each other; P301,000.00 from the original debtors, petitioner still sought to
collect P773,000.00 from them in the RTC. Under the deeds of
2. The Honorable Court of Appeals erred in passing upon issues assignment executed by Felicidad and the original debtors'
raised for the first time on appeal; and promissory notes, the original debtors' accounts were assigned
to petitioner who would be the new creditor. In fine, respondents
3. The Honorable Court of Appeals erred in resolving fact not in are no longer liable to petitioner for the balance of their loan
issue.51 account inclusive of interests. Respondents also insist that
petitioner failed to prove that she (petitioner) was merely
Petitioner avers that the appellate court erred in ruling that authorized to collect the accounts of the original debtors so as to
respondents' original obligation amounted to only P637,000.00 to facilitate the payment of respondents' loan obligation.
(instead of P773,000.00) simply because she lost the promissory
notes/receipts which evidenced the loans executed by The Issues
respondent Felicidad Tibong. She insists that the issue of
whether Felicidad owed her less than P773,000.00 was not raised The threshold issues are: (1) whether respondent Felicidad
by respondents during pre-trial and in their appellate brief; the Tibong borrowed P773,000.00 from petitioner; and (2) whether
appellate court was thus proscribed from taking cognizance of the obligation of respondents to pay the balance of their loans,
the issue. including interest, was partially extinguished by the execution of
the deeds of assignment in favor of petitioner, relative to the
Petitioner avers that respondents failed to deny, in their verified loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and
answer, that they had secured the P773,000.00 loan; hence, Fely Cirilo in the total amount of P371,000.00.
respondents are deemed to have admitted the allegation in the
complaint that the loans secured by respondent from her The Ruling of the Court
amounted to P773,000.00. As gleaned from the trial court's pre-
trial order, the main issue is whether or not she should be made We have carefully reviewed the brief of respondents as
to pay this amount. appellants in the CA, and find that, indeed, they had raised the
issue of whether they received P773,000.00 by way of loans
Petitioner further maintains that the CA erred in deducting the from petitioner. They averred that, as gleaned from the
total amount of P585,659.00 covered by the deeds of assignment documentary evidence of petitioner in the RTC, the total amount
executed by Felicidad and the promissory notes executed by the they borrowed was only P673,000.00. They asserted that
latter's debtors, and that the balance of respondents' account petitioner failed to adduce concrete evidence that they received
was only P51,341.00. Moreover, the appellate court's ruling that P773,000.00 from her.55
there was no novation runs counter to its holding that the
primary recourse was against Felicidad's debtors. Petitioner avers We agree, however, with petitioner that the appellate court erred
that of the 11 deeds of assignment and promissory notes, only in reversing the finding of the RTC simply because petitioner
two bore her signature.52 She insists that she is not bound by failed to present any document or receipt signed by Felicidad.
the deeds which she did not sign. By assigning the obligation to
pay petitioner their loan accounts, Felicidad's debtors merely Section 10, Rule 8 of the Rules of Civil Procedure requires a
assumed the latter's obligation and became co-debtors to defendant to "specify each material allegation of fact the truth of
petitioner. Respondents were not released from their obligation which he does not admit and, whenever practicable, x x x set
under their loan transactions, and she had the option to demand forth the substance of the matters upon which he relies to
payment from them or their debtors. Citing the ruling of this support his denial.56
Court in Magdalena Estates, Inc. v. Rodriguez,53 petitioner
insists that the first debtor is not released from responsibility Section 11, Rule 8 of the same Rules provides that allegations of
upon reaching an agreement with the creditor. The payment by a the complaint not specifically denied are deemed admitted.57
third person of the first debtor's obligation does not constitute
novation, and the creditor can still enforce the obligation against The purpose of requiring the defendant to make a specific denial
the original debtor. Petitioner also cites the ruling of this Court in is to make him disclose the matters alleged in the complaint
Guerrero v. Court of Appeals.54 which he succinctly intends to disprove at the trial, together with
the matter which he relied upon to support the denial. The
In their Comment on the petition, respondents aver that by parties are compelled to lay their cards on the table.58
virtue of respondent Felicidad's execution of the deeds of
assignment, and the original debtors' execution of the A denial is not made specific simply because it is so qualified by
promissory notes (along with their conformity to the deeds of the defendant. A general denial does not become specific by the
assignment with petitioner's consent), their loan accounts with use of the word "specifically." When matters of whether the
199
defendant alleges having no knowledge or information sufficient be enriching herself at their expense. Neither can petitioner
to form a belief are plainly and necessarily within the defendant's collect from respondents more than P103,500.00 which she had
knowledge, an alleged "ignorance or lack of information" will not already collected from Nimo, Cantas, Rivera, Donguis, Fernandez
be considered as a specific denial. Section 11, Rule 8 of the Rules and Ramirez.
also provides that material averments in the complaint other
than those as to the amount of unliquidated damages shall be There is no longer a need for the Court to still resolve the issue
deemed admitted when not specifically denied.59 Thus, the of whether respondents' obligation to pay the balance of their
answer should be so definite and certain in its allegations that loan account to petitioner was partially extinguished by the
the pleader's adversary should not be left in doubt as to what is promissory notes executed by Juliet Tibong, Corazon Dalisay,
admitted, what is denied, and what is covered by denials of Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and
knowledge as sufficient to form a belief.60 Antoinette Manuel because, as admitted by petitioner, she was
able to collect the amounts under the notes from said debtors
In the present case, petitioner alleged the following in her and applied them to respondents' accounts.
complaint:
Under Article 1231(b) of the New Civil Code, novation is
2. That defendants are indebted to the plaintiff in the principal enumerated as one of the ways by which obligations are
amount of SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS extinguished. Obligations may be modified by changing their
(P773,000.00) Philippine Currency with a stipulated interest object or principal creditor or by substituting the person of the
which are broken down as follows. The said principal amounts debtor.63 The burden to prove the defense that an obligation has
was admitted by the defendants in their counter-affidavit been extinguished by novation falls on the debtor.64 The nature
submitted before the court. Such affidavit is hereby attached as of novation was extensively explained in Iloilo Traders Finance,
Annex "A;"61 Inc. v. Heirs of Sps. Oscar Soriano, Jr.,65 as follows:
Considering all the foregoing, we find that respondents still have Gutierrez, however, disowned the savings account as well as his
a balance on their account to petitioner in the principal amount signatures on the dorsal portions thereof. He also denied having
of P33,841.00, the difference between their loan of P773,000.00 withdrawn any amount from said savings account. Further
less P585,659.00, the payment of respondents' other debtors investigation revealed that said savings account had actually
amounting to P103,500.00, and the P50,000.00 payment made been opened by petitioner; the forged checks were deposited
by respondents. and endorsed by him under Gutierrez’s name. A bank teller from
the Banco de Oro, Winnie P. Donable Dela Cruz, positively
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The identified petitioner as the person who opened the savings
Decision and Resolution of the Court of Appeals are AFFIRMED account using Gutierrez’s name.4
with MODIFICATION in that the balance of the principal account
of the respondents to the petitioner is P33,841.00. No costs. In the meantime, the PCIB credited the amount of ₱581,229.00
to Caltex on March 29, 1998. However, the City Prosecutor of
SO ORDERED. Makati City was not informed of this development. After the
requisite preliminary investigation, the City Prosecutor filed two
Austria-Martinez, and Chico-Nazario, JJ., concur. (2) Informations for estafa through falsification of commercial
Panganiban, C.J., retired as of December 7, 2006. documents on June 29, 1998 against petitioner before the
Ynares-Santiago, J., working Chairperson. Regional Trial Court (RTC) of Makati City, Branch 63. The
Informations are worded as follows:
THIRD DIVISION That on or about the 24th day of September 1997 in the City of
Makati, Metro Manila, Philippines, a place within the jurisdiction
G.R. No. 160451 February 9, 2007 of this Honorable Court, the above-named accused, a private
individual, with intent to defraud and intent to gain, without the
EDUARDO G. RICARZE, Petitioner, knowledge and consent of Caltex Philippines, Inc. through its
vs. duly authorized officers/representatives, and by means of
COURT OF APPEALS, PEOPLE OF THE PHILIPPINES, CALTEX falsification of commercial document, did then and there willfully,
PHILIPPINES, INC., PHILIPPINE COMMERCIAL AND INDUSTRIAL unlawfully and feloniously defraud Caltex Phils., Inc., in the
BANK (PCIBANK), Respondents. following manner, to wit: said accused, having obtained
possession of PCIBank check no. 72922 dated September 15,
DECISION 1997 payable to Dante R. Gutierrez, in the amount of
Php1,790,757.50 with intent to defraud or cause damage to
CALLEJO, SR., J.: complainant Caltex Phils., Inc., willfully, unlawfully and
feloniously affixed or caused to be affixed signatures purporting
Before the Court is a petition for review on certiorari of the to be those of Ramon Romano and Victor Goquingco, Caltex
Decision1 of the Court of Appeals in CA-G.R. SP No. 68492, and authorized officers/signatories, and of payee Dante R. Gutierrez,
its Resolution2 which denied the Motion for Reconsideration and causing it to appear that Ramon Romano and Victor Goquingco
the Supplemental Motion for Reconsideration thereof. have participated in the issuance of PCIBank check no. 72922
and that Dante R. Gutierrez had endorsed it, when in truth and
The Antecedents in fact, as said accused well knew, such was not the case, since
said check previously stolen from Payables Section of CALTEX,
Petitioner Eduardo G. Ricarze was employed as a collector- was neither duly signed by Ramon Romano and Victor Goquingco
messenger by City Service Corporation, a domestic corporation nor endorsed by Dante R. Gutierrez, after the check, a
engaged in messengerial services. He was assigned to the main commercial document, was falsified in the manner above set
office of Caltex Philippines, Inc. (Caltex) in Makati City. His forth, the said accused purporting himself to be the payee, Dante
202
R. Gutierrez, deposited the check with Banco De Oro under Petitioner filed a Motion to Expunge the Opposition of SRMO.10
Account No. 2004-0047245-7, thereby appropriating the In his Rejoinder, he averred that the substitution of PCIB as
proceeds of the falsified but cleared check, to the damage and private complainant cannot be made by mere oral motion; the
prejudice of complainant herein represented by Ramon Romano, Information must be amended to allege that the private
in the amount of Php1,790,757.50. complainant was PCIB and not Caltex after the preliminary
investigation of the appropriate complaint of PCIB before the
Criminal Case No. 98-1612 Makati City Prosecutor.
That on or about the 15th day of October 1997 in the City of In response, the PCIB, through SRMO, averred that as provided
Makati, Metro Manila, Philippines, a place within the jurisdiction in Section 2, Rule 110 of the Revised Rules of Criminal
of this Honorable Court, the above-named accused, a private Procedure, the erroneous designation of the name of the
individual, with intent to defraud and intent to gain, without the offended party is a mere formal defect which can be cured by
knowledge and consent of Caltex Philippines, Inc. through its inserting the name of the offended party in the Information. To
duly authorized officers/representatives, and by means of support its claim, PCIB cited the ruling of this Court in Sayson v.
falsification of commercial document, did then and there willfully, People.11
unlawfully and feloniously defraud Caltex Phils., Inc., in the
following manner, to wit: said accused, having obtained On July 18, 2001, the RTC issued an Order granting the motion
possession of PCIBank check no. 74001 dated October 13, 1997 of the private prosecutor for the substitution of PCIB as private
payable to Dante R. Gutierrez, in the amount of Php5,790,570.25 complainant for Caltex. It however denied petitioner’s motion to
with intent to defraud or cause damage to complainant Caltex have the formal offer of evidence of SRMO expunged from the
Phils., Inc., willfully, unlawfully and feloniously affixed or caused record.12 Petitioner filed a motion for reconsideration which the
to be affixed signatures purporting to be those of Ramon RTC denied on November 14, 2001.13
Romano and Victor Goquingco, Caltex authorized
officers/signatories, and of payee Dante R. Gutierrez, causing it Petitioner filed a Petition for Certiorari under Rule 65 of the Rules
to appear that Ramon Romano and Victor Goquingco have of Court with Urgent Application for Temporary Restraining Order
participated in the issuance of PCIBank check no. 74001 and that with the Court of Appeals (CA,) praying for the annulment of the
Dante R. Gutierrez had endorsed it, when in truth and in fact, as RTC’s Orders of July 18, 2001 and November 14, 2001. The
said accused well knew, such was not the case, since said check petitioner averred that:
previously stolen from Payables Section of CALTEX, was neither
duly signed by Ramon Romano and Victor Goquingco nor I
endorsed by Dante R. Gutierrez, after the check, a commercial
document, was falsified in the manner above set forth, the said RESPONDENT JUDGE GRIEVEOUSLY (SIC) ERRED IN RENDERING
accused purporting himself to be the payee, Dante R. Gutierrez, ITS ORDER ISSUED WITH GRAVE ABUSE OF DISCRETION
deposited the check with Banco De Oro under Account No. 2004- TANTAMOUNT TO LACK OF OR IN EXCESS OF JURISDICTION BY
0047245-7, thereby appropriating the proceeds of the falsified ALLOWING THE SUBSTITUTION OF PRIVATE COMPLAINANT,
but cleared check, to the damage and prejudice of complainant AFTER THE ACUSED WAS ALREADY ARRAIGNED AND
herein represented by Ramon Romano, in the amount of PROSECUTION HAS ALREADY TERMINATED PRESENTING ITS
Php5,790,570.25.5 EVIDENCE THEREBY PATENTLY VIOLATING THE STRICT
CONDITION IMPOSED UPON BY RULE 110 SEC. 14 RULES ON
Petitioner was arraigned on August 18, 1998, and pleaded not CRIMINAL ROCEDURE.
guilty to both charges.6 Pre-trial ensued and the cases were
jointly tried. The prosecution presented its witnesses, after which II
the Siguion Reyna, Montecillio and Ongsiako Law Offices (SRMO)
as private prosecutor filed a Formal Offer of Evidence.7 Petitioner AND AS A COROLLARY GROUND RESPONDENT JUDGE
opposed the pleading, contending that the private complainant COMMITTED GRAVE ABUSE OF DISCRETION IN EXCESS OF
was represented by the ACCRA Law Offices and the Balgos and JURISDICTION IN RENDERING AN ORDER RECOGNIZING THE
Perez Law Office during trial, and it was only after the APPEARANCE OF A NEW PROSECUTOR WITHOUT WRITTEN OR
prosecution had rested its case that SRMO entered its EVEN ORAL WITHDRAWAL OF THE COUNSEL ON RECORD.14
appearance as private prosecutor representing the PCIB. Since
the ACCRA and Balgos and Perez Law Offices had not withdrawn According to petitioner, damage or injury to the offended party is
their appearance, SRMO had no personality to appear as private an essential element of estafa. The amendment of the
prosecutor. Under the Informations, the private complainant is Informations substituting the PCIBank for Caltex as the offended
Caltex and not PCIB; hence, the Formal Offer of Evidence filed by party would prejudice his rights since he is deprived of a defense
SRMO should be stricken from the records. available before the amendment, and which would be unavailable
if the Informations are amended. Petitioner further insisted that
Petitioner further averred that unless the Informations were the ruling in the Sayson case did not apply to this case.
amended to change the private complainant to PCIB, his right as
accused would be prejudiced. He pointed out, however, that the On November 5, 2002, the appellate court rendered judgment
Informations can no longer be amended because he had already dismissing the petition. The fallo reads:
been arraigned under the original Informations.8 He insisted that
the amendments of the Informations to substitute PCIB as the WHEREFORE, premises considered, the petition to annul the
offended party for Caltex would place him in double jeopardy. orders dated July 18, 2001 and November 14, 2001 of the
Regional Trial Court, Branch 63, Makati City in Criminal Case
PCIB, through SRMO, opposed the motion. It contended that the Nos. 98-1611 and 98-1612 is hereby DENIED and consequently
PCIB had re-credited the amount to Caltex to the extent of the DISMISSED.
indemnity; hence, the PCIB had been subrogated to the rights
and interests of Caltex as private complainant. Consequently, the SO ORDERED.15
PCIB is entitled to receive any civil indemnity which the trial
court would adjudge against the accused. Moreover, the re- The appellate court declared that when PCIB restored the
credited amount was brought out on cross-examination by amount of the checks to Caltex, it was subrogated to the latter’s
Ramon Romano who testified for the Prosecution. PCIB pointed right against petitioner. It further declared that in offenses
out that petitioner had marked in evidence the letter of the against property, the designation of the name of the offended
ACCRA Law Office to PCIBank dated October 10, 1997 and the party is not absolutely indispensable for as long as the criminal
credit memo sent by PCIB to Caltex.9 act charged in the complaint or information can be properly
203
identified. The appellate court cited the rulings of this Court in offender in order to deter him and others from committing the
People v. Ho16 and People v. Reyes.17 same or similar offense, to isolate him from society, reform and
rehabilitate him or, in general, to maintain social order.21
On October 17, 2003, the CA issued a Resolution denying
petitioner’s Motion for Reconsideration and Supplemental Motion On the other hand, the sole purpose of the civil action is for the
for Reconsideration.18 resolution, reparation or indemnification of the private offended
party for the damage or injury he sustained by reason of the
Hence, petitioner filed the instant petition which is anchored on delictual or felonious act of the accused.22 Under Article 104 of
the following grounds: the Revised Penal Code, the following are the civil liabilities of
the accused:
I. THE PEOPLE V. YU CHAI HO 53 PHILIPPINES 874 IS
INAPPLICABLE TO THE CASE AT BAR CONSIDERING THE PACTS ART. 104. What is included in civil liability. – The civil liability
ARE SUBSTANTIALLY DIFFERENT. established in Articles 100, 101, 102 and 103 of this Code
includes:
II. LIKEWISE, THE CASE OF PEOPLE VS. REYES CA, 50 (2) OG
665, NOVEMBER 11, 1953 HAS NO MATERIAL BEARING TO THE 1. Restitution;
PRESENT CASE.
2. Reparation of the damage caused;
III. THE SUBSTITUTION OF PCIBANK WILL SUBSTANTIALLY
PREJUDICE THE RIGHTS OF THE PETITIONER HENCE, IT IS 3. Indemnification for consequential damages.
PROHIBITED BY SEC. 14 OF RULE 110.
On the other hand, Section 14, Rule 110 of the Revised Rules of
IV. THERE IS NO VALID SUBROGATION BETWEEN CALTEX AND Criminal Procedure states:
PCIBANK. ASSUMING THERE IS, THE CIVIL CASE SHOULD BE
DISMISSED TO PROSECUTE. Section 14. Amendment or substitution. – A complaint or
information may be amended, in form or in substance, without
V. THE TWIN INFORMATIONS UPON WHICH PETITIONER WAS leave of court, at any time before the accused enters his plea.
INDICTED, ARRAIGNED, PRE-TRIAL HELD AND PUBLIC After the plea and during the trial, a formal amendment may
PROSECUTOR TERMINATED THE PRESENTATION OF ITS only be made with leave of court and when it can be done
EVIDENCE IN CHIEF ARE DEFECTIVE AND VOID, HENCE THE without causing prejudice to the rights of the accused.
DISMISSAL IS IN ORDER.
However, any amendment before plea, which downgrades the
VI. PETITIONER TIMELY OBJECTED TO THE APPEARANCE OF nature of the offense charged in or excludes any accused from
PRIVATE PROSECUTOR FOR PCIBANK. the complaint or information, can be made only upon motion by
the prosecutor, with notice to the offended party and with leave
VII. THE FINDINGS OF MATERIAL FACTS ARE NOT SUPORTED BY of court. The court shall state its reasons in resolving the motion
THE RECORD NOR EVIDENCE AND BASED ON MISAPPRECIATION and copies of its order shall be furnished all parties, especially
OF FACTS. the offended party.
VIII. PETITIONER’S SUPPLEMENTAL MOTION FOR Thus, before the accused enters his plea, a formal or substantial
RECONSIDERATION DID NOT VIOLATE THE OMNIBUS MOTION amendment of the complaint or information may be made
RULE UNDER SEC. 8, RULE 15 OF THE 1997 RULES OF CIVIL without leave of court. After the entry of a plea, only a formal
PROCEDURE.19 amendment may be made but with leave of court and if it does
not prejudice the rights of the accused. After arraignment, a
The Court’s Ruling substantial amendment is proscribed except if the same is
beneficial to the accused.23
Petitioner argues that the substitution of Caltex by PCIB as
private complainant at this late stage of the trial is prejudicial to A substantial amendment consists of the recital of facts
his defense. He argues that the substitution is tantamount to a constituting the offense charged and determinative of the
substantial amendment of the Informations which is prohibited jurisdiction of the court. All other matters are merely of form.24
under Section 14, Rule 110 of the Rules of Court. The following have been held to be mere formal amendments:
(1) new allegations which relate only to the range of the penalty
Under Section 5, Rule 11020 of the Revised Rules of Rules, all that the court might impose in the event of conviction; (2) an
criminal actions covered by a complaint or information shall be amendment which does not charge another offense different or
prosecuted under the direct supervision and control of the public distinct from that charged in the original one; (3) additional
prosecutor. Thus, even if the felonies or delictual acts of the allegations which do not alter the prosecution’s theory of the
accused result in damage or injury to another, the civil action for case so as to cause surprise to the accused and affect the form
the recovery of civil liability based on the said criminal acts is of defense he has or will assume; (4) an amendment which does
impliedly instituted, and the offended party has not waived the not adversely affect any substantial right of the accused; and (5)
civil action, reserved the right to institute it separately or an amendment that merely adds specifications to eliminate
instituted the civil action prior to the criminal action, the vagueness in the information and not to introduce new and
prosecution of the action (including the civil) remains under the material facts, and merely states with additional precision
control and supervision of the public prosecutor. The prosecution something which is already contained in the original information
of offenses is a public function. Under Section 16, Rule 110 of the and which adds nothing essential for conviction for the crime
Rules of Criminal Procedure, the offended party may intervene in charged.25
the criminal action personally or by counsel, who will act as
private prosecutor for the protection of his interests and in the The test as to whether a defendant is prejudiced by the
interest of the speedy and inexpensive administration of justice. amendment is whether a defense under the information as it
A separate action for the purpose would only prove to be costly, originally stood would be available after the amendment is made,
burdensome and time-consuming for both parties and further and whether any evidence defendant might have would be
delay the final disposition of the case. The multiplicity of suits equally applicable to the information in the one form as in the
must be avoided. With the implied institution of the civil action in other. An amendment to an information which does not change
the criminal action, the two actions are merged into one the nature of the crime alleged therein does not affect the
composite proceeding, with the criminal action predominating the essence of the offense or cause surprise or deprive the accused
civil. The prime purpose of the criminal action is to punish the
204
of an opportunity to meet the new averment had each been held case is one of legal subrogation that occurs by operation of law,
to be one of form and not of substance.26 and without need of the debtor’s knowledge.
In the case at bar, the substitution of Caltex by PCIB as private Contrary to petitioner’s asseverations, the case of People v. Yu
complaint is not a substantial amendment. The substitution did Chai Ho32 relied upon by the appellate court is in point. The
not alter the basis of the charge in both Informations, nor did it Court declared –
result in any prejudice to petitioner. The documentary evidence
in the form of the forged checks remained the same, and all such We do not however, think that the fiscal erred in alleging that
evidence was available to petitioner well before the trial. Thus, the commission of the crime resulted to the prejudice of Wm. H.
he cannot claim any surprise by virtue of the substitution. Anderson & Co. It is true that originally the International Banking
Corporation was the prejudiced party, but Wm. H. Anderson &
Petitioner next argues that in no way was PCIB subrogated to the Co. compensated it for its loss and thus became subrogated to
rights of Caltex, considering that he has no knowledge of the all its rights against the defendant (article 1839, Civil Code).
subrogation much less gave his consent to it. Alternatively, he Wm. H. Anderson & Co., therefore, stood exactly in the shoes of
posits that if subrogation was proper, then the charges against the International Banking Corporation in relation to the
him should be dismissed, the two Informations being "defective defendant's acts, and the commission of the crime resulted to
and void due to false allegations." the prejudice of the firm previously to the filing of the
information in the case. The loss suffered by the firm was the
Petitioner was charged of the crime of estafa complex with ultimate result of the defendant's unlawful acts, and we see no
falsification document. In estafa one of the essential elements valid reason why this fact should not be stated in the
"to prejudice of another" as mandated by article 315 of the information; it stands to reason that, in the crime of estafa, the
Revise Penal Code. damage resulting therefrom need not necessarily occur
simultaneously with the acts constituting the other essential
The element of "to the prejudice of another" being as essential elements of the crime.
element of the felony should be clearly indicated and charged in
the information with TRUTH AND LEGAL PRECISION. Thus, being subrogated to the right of Caltex, PCIB, through
counsel, has the right to intervene in the proceedings, and under
This is not so in the case of petitioner, the twin information filed substantive laws is entitled to restitution of its properties or
against him alleged the felony committed " to the damage and funds, reparation, or indemnification.
prejudice of Caltex." This allegation is UNTRUE and FALSE for
there is no question that as early as March 24, 1998 or THREE Petitioner’s gripe that the charges against him should be
(3) LONG MONTHS before the twin information were filed on dismissed because the allegations in both Informations failed to
June 29, 1998, the prejudice party is already PCIBank since the name PCIB as true offended party does not hold water.
latter Re-Credit the value of the checks to Caltex as early as
March 24, 1998. In effect, assuming there is valid subrogation as Section 6, Rule 110 of the Rules on Criminal Procedure states:
the subject decision concluded, the subrogation took place an
occurred on March 24, 1998 THREE (3) MONTHS before the twin Sec. 6. Sufficiency of complaint or information. – A complaint or
information were filed. information is sufficient if it states the name of the accused; the
designation of the offense by the statute; the acts or omissions
The phrase "to the prejudice to another" as element of the felony complained of as constituting the offense; the name of the
is limited to the person DEFRAUDED in the very act of offended party; the approximate time of the commission of the
embezzlement. It should not be expanded to other persons which offense; and the place wherein the offense was committed.
the loss may ultimately fall as a result of a contract which
contract herein petitioner is total stranger. When the offense is committed by more than one person, all of
them shall be included in the complaint or information.
In this case, there is no question that the very act of commission
of the offense of September 24, 1997 and October 15, 1997 On the other hand, Section 12 of the same Rule provides:
respectively, Caltex was the one defrauded by the act of the
felony. Section. 12. Name of the offended party. –The complaint or
information must state the name and surname of the person
In the light of these facts, petitioner submits that the twin against whom or against whose property the offense was
information are DEFECTIVE AND VOID due to the FALSE committed, or any appellation or nickname by which such person
ALLEGATIONS that the offense was committed to the prejudice of has been or is known. If there is no better way of identifying
Caltex when it truth and in fact the one prejudiced here was him, he must be described under a fictitious name.
PCIBank.
(a) In offenses against property, if the name of the offended
The twin information being DEFECTIVE AND VOID, the same party is unknown, the property must be described with such
should be dismissed without prejudice to the filing of another particularity as to properly identify the offense charged.
information which should state the offense was committed to the
prejudice of PCIBank if it still legally possible without prejudicing (b) If the true name of the person against whom or against
substantial and statutory rights of the petitioner.27 whose property the offense was committed is thereafter
disclosed or ascertained, the court must cause such true name to
Petitioner’s argument on subrogation is misplaced. The Court be inserted in the complaint or information and the record.
agrees with respondent PCIB’s comment that petitioner failed to
make a distinction between legal and conventional subrogation. (c) If the offended party is a juridical person, it is sufficient to
Subrogation is the transfer of all the rights of the creditor to a state its name, or any name or designation by which it is known
third person, who substitutes him in all his rights.28 It may or by which it may be identified, without need of averring that it
either be legal or conventional. Legal subrogation is that which is a juridical person or that it is organized in accordance with
takes place without agreement but by operation of law because law. (12a)
of certain acts.29 Instances of legal subrogation are those
provided in Article 130230 of the Civil Code. Conventional In Sayson v. People,33 the Court held that in case of offenses
subrogation, on the other hand, is that which takes place by against property, the designation of the name of the offended
agreement of the parties.31 Thus, petitioner’s acquiescence is party is not absolutely indispensable for as long as the criminal
not necessary for subrogation to take place because the instant act charged in the complaint or information can be properly
identified:
205
The rules on criminal procedure require the complaint or EDGAR LEDONIO, petitioner,
information to state the name and surname of the person against vs.
whom or against whose property the offense was committed or CAPITOL DEVELOPMENT CORPORATION, respondent.
any appellation or nickname by which such person has been or is
known and if there is no better way of Identifying him, he must DECISION
be described under a fictitious name (Rule 110, Section 11,
Revised Rules of Court; now Rule 110, Section 12 of the 1985 CHICO-NAZARIO, J.:
Rules on Criminal Procedure.] In case of offenses against
property, the designation of the name of the offended party is Before this Court is a Petition for Review on Certiorari1 under
not absolutely indispensable for as long as the criminal act Rule 45 of the Revised Rules of Court praying that (1) the
charged in the complaint or information can be properly Decision,2 dated 20 March 2001, of the Court of Appeals in CA-
identified. Thus, Rule 110, Section 11 of the Rules of Court G.R. CV No. 43604, affirming in toto the Decision,3 dated 6
provides that: August 1993, of the Quezon City Regional Trial Court (RTC),
Branch 91, in Civil Case No. Q-90-5247, be set aside; and (2)
Section 11. Name of the offended party- the Complaint4 in Civil Case No. Q-90-5247 be dismissed.
Since petitioner did not pay any of the loans covered by the [Herein petitioner]'s disclaimer of the promissory note[s] does
promissory notes when they became due, respondent -- through not inspire belief. He is a holder of a degree in Bachelor of
its Vice President Nina P. King and its counsel King, Capuchino, Science in Chemical Engineering and has been a manufacturer of
Banico & Associates -- sent petitioner several demand letters.8 garments since 1979. As a matter of fact, [petitioner]'s
Despite receiving the said demand letters, petitioner still failed testimony that he was made to sign blank sheets of paper is
and refused to settle his indebtedness, thus, prompting contrary to his admission in paragraphs 12 and 13 of his Answer
respondent to file the Complaint with the RTC, docketed as Civil that as a condition to his removal of his machines [from] the
Case No. Q-90-5247. leased premises, he was made to sign blank promissory note
forms with respect to the amount, interest and promisee. It thus
In his Answer filed with the RTC, petitioner sought the dismissal appears incredulous that a businessman like [petitioner] would
of the Complaint averring that respondent had no cause of action simply sign blank sheets of paper or blank promissory notes just
against him. He denied obtaining any loan from Ms. Picache and [to] be able to vacate the leased premises.
questioned the genuineness and due execution of the promissory
notes, for they were the result of intimidation and fraud; hence, Moreover, the credibility of [petitioner]'s testimony leaves much
void. He asserted that there had been no transaction or privity of to be desired. He contradicted his earlier testimony that he only
contract between him, on one hand, and Ms. Picache and met Patrocinio Picache once, which took place in the office of
respondent, on the other. The assignment by Ms. Picache of the Mission Realty and Management Corporation, by stating that he
promissory notes to respondent was a mere ploy and simulation saw Patrocinio Picache a second time when she went to his
to effect the unjust enforcement of the invalid promissory notes house. Likewise, his claim that the electric power in the leased
and to insulate Ms. Picache from any direct counterclaims, and premises was cut off only two months after he occupied the
he never consented or agreed to the said assignment. same is belied by his own evidence. The contract of lease
submitted by [petitioner] is dated February 24, 1988 and took
Petitioner then presented his own narration of events leading to effect on March 1, 1988. His letter to Mission Realty and
the filing of Civil Case No. Q-90-5247. According to him, on 24 Management Corporation dated September 21, 1988, complained
February 1988, he entered into a Contract of Lease9 of real of the electric power disconnection that took place on September
property located in Quezon City with Mission Realty & 6, 1988, that is, six (6) months after he had occupied the leased
Management Corporation (MRMC), of which Ms. Picache is an premises, and did not even give a hint of his intention to vacate
incorporator and member of the Board of Directors.10 Petitioner the premises because of said incident. It appears that
relocated the plant and machines used in his garments business [petitioner] was already advised to pay his rental arrearages in a
to the leased property. After a month or two, a foreign investor letter dated August 9, 1988 (Exh. "2") and was notified of the
was interested in doing business with him and sent a termination of the lease contract in a letter dated September 19,
representative to conduct an ocular inspection of petitioner's 1988 (Exh. "4"). However, in a letter dated September 26, 1988,
plant at the leased property. During the inspection, a group of [petitioner] requested for time to look for a place to transfer.
Meralco employees entered the leased property to cut off the
electric power connections of the plant. The event gave an The RTC also sustained the validity and enforceability of the
unfavorable impression to the foreign investor who desisted from Assignment of Credit executed by Ms. Picache in favor of
further transacting with petitioner. Upon verification with respondent, even in the absence of petitioner's consent to the
Meralco, petitioner discovered that there were unpaid electric said assignment, based on the following reasoning –
bills on the leased property amounting to hundreds of thousands
of pesos. These electric bills were supposedly due to the The promissory notes (Exhs. "A" and "B") were assigned by Ms.
surreptitious electrical connections to the leased property. Patrocinio Picache to [herein respondent] by virtue of a notarized
Petitioner claimed that he was never informed or advised by Assignment of Credit dated April 1, 1989 for a consideration of
MRMC of the existence of said unpaid electric bills. It took P60,000.00 (Exh. "C"). The fact that the assignment of credit
Meralco considerable time to restore electric power to the leased does not bear the conformity of [herein petitioner] is of no
property and only after petitioner pleaded that he was not moment. In C & C Commercial Corporation vs. Philippine
responsible for the illegal electrical connections and/or the National Bank, 175 SCRA 1, 11, the Supreme Court held thus:
unpaid electric bills, for he was only a recent lessee of the leased
property. Because of the work stoppage and loss of business "x x x Article 1624 of the Civil Code provides that 'an assignment
opportunities resulting from the foregoing incident, petitioner of credits and other incorporeal rights shall be perfected in
purportedly suffered damages amounting to United States accordance with the provisions of Article 1475' which in turn
$60,000.00, for which petitioner verbally attempted to recover states that 'the contract of sale is perfected at the moment there
compensation from MRMC. is a meeting of the minds upon the thing which is the object of
the contract and upon the price.' The meeting of the minds
Having failed to obtain compensation from MRMC, petitioner contemplated here is that between the assignor of the credit and
decided to vacate and pull out his machines from the leased his assignee, there being no necessity for the consent of the
property but he can only do so, unhampered and uninterrupted debtor, contrary to petitioner's claim. It is sufficient that the
by MRMC security personnel, if he signed, as he did, blank assignment be brought to his knowledge in order to be binding
promissory note forms. Petitioner alleged that when he signed upon him. This may be inferred from Article 1626 of the Civil
the promissory note forms, the allotted spaces for the principal Code which declares that 'the debtor who, before having
amount of the loans, interest rates, and names of the promisee/s knowledge of the assignment, pays his creditor shall be released
were in blank; and that Ms. Picache took advantage of from the obligation.'"
petitioner's signatures on the blank promissory note forms by
filling up the blanks. [Petitioner] does not deny having been notified of the
assignment of credit by Patrocinio Picache to the [respondent].
To raise even more suspicions of fraud and spuriousness of the Thus, [respondent] sent several demand letters to the
promissory notes and their subsequent assignment to [petitioner] in connection with the loan[s] (Exhs. "D", "E", "F"
respondent, petitioner called attention to the fact that Ms. and "G"). [Petitioner] acknowledged receipt of [respondent]'s
Picache is an incorporator and member of the Board of Directors letter of demand dated June 13, 1989 (Exh. "F") and assured
of both MRMC and respondent.11 [respondent] that he would settle his account, as per their
telephone conversation (Exhs. "H" and "9"). Such
207
communications between [respondent] and [petitioner] show much less a reversal, of the Court of Appeals Decision, dated 20
that the latter had been duly notified of the said assignment of March 2001.
credit. x x x.
Comes now petitioner to this Court, via a Petition for Review on
Given its aforequoted findings, the RTC proceeded to a Certiorari under Rule 45 of the Revised Rules of Court, raising
determination of petitioner's liabilities to respondent, taking into the sole issue16 of whether or not the Court of Appeals
account the provisions of the promissory notes, thus – committed grave abuse of discretion in affirming in toto the RTC
Decision, dated 6 August 1993. Petitioner's main argument is
x x x Consequently, [herein respondent] is entitled to recover that the Court of Appeals erred when it ruled that there was an
from [herein petitioner] the principal amount of P30,000.00 for assignment of credit and that there was no novation/subrogation
the promissory note dated November 9, 1988. As said note did in the case at bar. Petitioner asserts the position that consent of
not provide for any interest, [respondent] may only recover the debtor to the assignment of credit is a basic/essential
interest at the legal rate of 12% per annum from April 18, 1990, element in order for the assignee to have a cause of action
the date of the filing of the complaint. With respect to the against the debtor. Without the debtor's consent, the recourse of
promissory note dated November 10, 1988, the same provided the assignee in case of non-payment of the assigned credit, is to
for interest at 36% per annum and that interest not paid when recover from the assignor. Petitioner further argues that even if
due shall be added to and shall become part of the principal and there was indeed an assignment of credit, as alleged by the
shall bear the same rate of interest as the principal. Likewise, respondent, then there had been a novation of the original loan
both promissory notes provided for a penalty of 20% of the total contracts when the respondent was subrogated in the rights of
outstanding balance thereon and attorney's fees equivalent to Ms. Picache, the original creditor. In support of said argument,
20% of the sum sought to be recovered in case of litigation. petitioner invokes the following provisions of the Civil Code –
In Garcia vs. Court of Appeals, 167 SCRA 815, it was held that ART. 1300. Subrogation of a third person in the rights of the
penalty interests are in the nature of liquidated damages and creditor is either legal or conventional. The former is not
may be equitably reduced by the courts if they are iniquitous or presumed, except in cases expressly mentioned in this Code; the
unconscionable, pursuant to Articles 1229 and 2227 of the Civil latter must be clearly established in order that it may take effect.
Code. Considering that the promissory note dated November 10,
1988 already provided for interest at 36% per annum on the ART. 1301. Conventional subrogation of a third person requires
principal obligation, as well as for the capitalization of the unpaid the consent of the original parties and the third person.
interest, the penalty charge of 20% of the total outstanding
balance of the obligation thus appears to be excessive and According to petitioner, the assignment of credit constitutes
unconscionable. The interest charges are enough punishment for conventional subrogation which requires the consent of the
[petitioner]'s failure to comply with his obligation under the original parties to the loan contract, namely, Ms. Picache (the
promissory note dated November 10, 1988. creditor) and petitioner (the debtor); and the third person, the
respondent (the assignee). Since petitioner never gave his
With respect to the attorney's fees, the court is likewise consent to the assignment of credit, then the subrogation of
empowered to reduce the same if they are unreasonable or respondent in the rights of Ms. Picache as creditor by virtue of
unconscionable, notwithstanding the express contract therefor. said assignment is without force and effect.
(Insular Bank of Asia and America vs. Spouses Salazar, 159
SCRA 133, 139). Thus, an award of P10,000.00 as and for This Court finds no merit in the present Petition.
attorney's fees appears to be enough.
Before proceeding to a discussion of the points raised by
Consequently, the fallo of the RTC Decision reads – petitioner, this Court deems it appropriate to emphasize that the
findings of fact of the Court of Appeals and the RTC in this case
WHEREFORE, in view of the foregoing, judgment is hereby shall no longer be disturbed. It is axiomatic that this Court will
rendered in favor of the [herein respondent] and against [herein not review, much less reverse, the factual findings of the Court
petitioner] ordering the latter as follows: of Appeals, especially where, as in this case, such findings
coincide with those of the trial court, since this Court is not a
1. To pay [respondent], on the promissory note dated November trier of facts.17
9, 1988, the amount of P30,000.00 with interest thereon at the
legal rate of 12% per annum from April 18, 1990 until fully paid The jurisdiction of this Court in a Petition for Review on Certiorari
and a penalty of 20% on the total amount; under Rule 45 of the Revised Rules of Court is limited to
reviewing only errors of law, not of fact, unless it is shown, inter
2. To pay [respondent], on the promissory note dated November alia, that: (a) the conclusion is grounded entirely on
10, 1988, the amount of P30,000.00 with interest thereon at speculations, surmises and conjectures; (b) the inference is
36% per annum compounded at the same rate until fully paid; manifestly mistaken, absurd and impossible; (c) there is grave
abuse of discretion; (d) the judgment is based on a
3. To pay [respondent] the amount of P10,000.00, as and for misapplication of facts; (e) the findings of fact of the trial court
attorney's fees; and and the appellate court are contradicted by the evidence on
record and (f) the Court of Appeals went beyond the issues of
4. To pay the costs of the suit.13 the case and its findings are contrary to the admissions of both
parties.18 None of these circumstances are present in the case
Aggrieved by the RTC Decision, dated 6 August 1993, petitioner at bar. After a perusal of the records, this Court can only
filed an appeal with the Court of Appeals, which was docketed as conclude that the factual findings of the Court of Appeals,
CA-G.R. CV No. 43604. The appellate court, in a Decision,14 affirming those of the RTC, are amply supported by evidence and
dated 20 March 2001, found no cogent reason to depart from the are, resultantly, conclusive on this Court.19
conclusions arrived at by the RTC in its appealed Decision, dated
6 August 1993, and affirmed the latter Decision in toto. The Therefore, the following facts are already beyond cavil: (1)
Court of Appeals likewise denied petitioner's Motion for petitioner obtained two loans totaling P60,000.00 from Ms.
Reconsideration in a Resolution,15 dated 16 July 2001, stating Picache, for which he executed promissory notes, dated 9
that the grounds relied upon by petitioner in his Motion were November 1988 and 10 November 1988; (2) he failed to pay any
mere reiterations of the issues and matters already considered, of the said loans; (3) Ms. Picache executed on 1 April 1989 an
weighed and passed upon; and that no new matter or substantial Assignment of Credit covering petitioner's loans in favor of
argument was adduced by petitioner to warrant a modification, respondent for the consideration of P60,000.00; (4) petitioner
had knowledge of the assignment of credit; and (5) petitioner
208
still failed to pay his indebtedness despite repeated demands by parties concerned – the original creditor, the debtor, and the new
respondent and its counsel. Petitioner's persistent assertions that creditor. It is a new contractual relation based on the mutual
he never acquired any loan from Ms. Picache, or that he signed agreement among all the necessary parties.24
the promissory notes in blank and under duress, deserve scant
consideration. They were already found by both the Court of Article 1300 of the Civil Code provides that conventional
Appeals and the RTC to be implausible and inconsistent with subrogation must be clearly established in order that it may take
petitioner's own evidence. effect. Since it is petitioner who claims that there is conventional
subrogation in this case, the burden of proof rests upon him to
Now this Court turns to the questions of law raised by petitioner, establish the same25 by a preponderance of evidence.26
all of which hinges on the contention that a conventional
subrogation occurred when Ms. Picache assigned the debt, due In Licaros v. Gatmaitan,27 this Court ruled that there was
her from the petitioner, to the respondent; and without conventional subrogation, not just an assignment of credit; thus,
petitioner's consent as debtor, the said conventional subrogation consent of the debtor is required for the effectivity of the
should be deemed to be without force and effect. subrogation. This Court arrived at such a conclusion in said case
based on its following findings –
This Court cannot sustain petitioner's contention and hereby
declares that the transaction between Ms. Picache and We agree with the finding of the Court of Appeals that the
respondent was an assignment of credit, not conventional Memorandum of Agreement dated July 29, 1988 was in the
subrogation, and does not require petitioner's consent as debtor nature of a conventional subrogation which requires the consent
for its validity and enforceability. of the debtor, Anglo-Asean Bank, for its validity. We note with
approval the following pronouncement of the Court of Appeals:
An assignment of credit has been defined as an agreement by
virtue of which the owner of a credit (known as the assignor), by "Immediately discernible from above is the common feature of
a legal cause - such as sale, dation in payment or exchange or contracts involving conventional subrogation, namely, the
donation - and without need of the debtor's consent, transfers approval of the debtor to the subrogation of a third person in
that credit and its accessory rights to another (known as the place of the creditor. That Gatmaitan and Licaros had intended to
assignee), who acquires the power to enforce it, to the same treat their agreement as one of conventional subrogation is
extent as the assignor could have enforced it against the plainly borne by a stipulation in their Memorandum of
debtor.20 Agreement, to wit:
On the other hand, subrogation, by definition, is the transfer of "WHEREAS, the parties herein have come to an agreement on
all the rights of the creditor to a third person, who substitutes the nature, form and extent of their mutual prestations which
him in all his rights. It may either be legal or conventional. Legal they now record herein with the express conformity of the third
subrogation is that which takes place without agreement but by parties concerned" (emphasis supplied),
operation of law because of certain acts. Conventional
subrogation is that which takes place by agreement of parties.21 which third party is admittedly Anglo-Asean Bank.
Although it may be said that the effect of the assignment of Had the intention been merely to confer on appellant the status
credit is to subrogate the assignee in the rights of the original of a mere "assignee" of appellee's credit, there is simply no
creditor, this Court still cannot definitively rule that assignment sense for them to have stipulated in their agreement that the
of credit and conventional subrogation are one and the same. same is conditioned on the "express conformity" thereto of
Anglo-Asean Bank. That they did so only accentuates their
A noted authority on civil law provided a discourse22 on the intention to treat the agreement as one of conventional
difference between these two transactions, to wit – subrogation. And it is basic in the interpretation of contracts that
the intention of the parties must be the one pursued (Rule 130,
Conventional Subrogation and Assignment of Credits. – In the Section 12, Rules of Court).
Argentine Civil Code, there is essentially no difference between
conventional subrogation and assignment of credit. The xxxx
subrogation is merely the effect of the assignment. In fact it is
expressly provided (article 769) that conventional redemption Aside for the 'whereas clause" cited by the appellate court in its
shall be governed by the provisions on assignment of credit. decision, we likewise note that on the signature page, right
under the place reserved for the signatures of petitioner and
Under our Code, however, conventional subrogation is not respondent, there is, typewritten, the words "WITH OUR
identical to assignment of credit. In the former, the debtor's CONFORME." Under this notation, the words "ANGLO-ASEAN
consent is necessary; in the latter, it is not required. Subrogation BANK AND TRUST" were written by hand. To our mind, this
extinguishes an obligation and gives rise to a new one; provision which contemplates the signed conformity of Anglo-
assignment refers to the same right which passes from one Asean Bank, taken together with the aforementioned
person to another. The nullity of an old obligation may be cured preambulatory clause leads to the conclusion that both parties
by subrogation, such that the new obligation will be perfectly intended that Anglo-Asean Bank should signify its agreement and
valid; but the nullity of an obligation is not remedied by the conformity to the contractual arrangement between petitioner
assignment of the creditor's right to another. (Emphasis and respondent. The fact that Anglo-Asean Bank did not give
supplied.) such consent rendered the agreement inoperative considering
that, as previously discussed, the consent of the debtor is
This Court has consistently adhered to the foregoing distinction needed in the subrogation of a third person to the rights of a
between an assignment of credit and a conventional creditor.
subrogation.23 Such distinction is crucial because it would
determine the necessity of the debtor's consent. In an None of the foregoing circumstances are attendant in the present
assignment of credit, the consent of the debtor is not necessary case. The Assignment of Credit, dated 1 April 1989, executed by
in order that the assignment may fully produce the legal effects. Ms. Picache in favor of respondent, was a simple deed of
What the law requires in an assignment of credit is not the assignment. There is nothing in the said Assignment of Credit
consent of the debtor, but merely notice to him as the which imparts to this Court, whether literally or deductively, that
assignment takes effect only from the time he has knowledge a conventional subrogation was intended by the parties thereto.
thereof. A creditor may, therefore, validly assign his credit and The terms of the Assignment of Credit only convey the
its accessories without the debtor's consent. On the other hand, straightforward intention of Ms. Picache to "sell, assign, transfer,
conventional subrogation requires an agreement among the and convey" to respondent the debt due her from petitioner, as
209
evidenced by the two promissory notes of the latter, dated 9 "We have said that article 1527 deals with the individual phase
November 1988 and 10 November 1988, for the consideration of or aspect which presupposes the existence of a relationship with
P60,000.00. By virtue of the same document, Ms. Picache gave third parties, that is, with the person of the debtor. Let us see in
respondent full power "to sue for, collect and discharge, or sell what way.
and assign" the very same debt. The Assignment of Credit was
signed solely by Ms. Picache, witnessed by two other persons. No "The above-mentioned article states that a debtor who, before
reference was made to securing the conforme of petitioner to the having knowledge of the assignment, should pay the creditor
transaction, nor any space provided for his signature on the said shall be released from the obligation.
document.
"In the first place, the necessity for the notice to the debtor in
Perhaps more in point to the case at bar is Rodriguez v. Court of order that the assignment may fully produce its legal effects may
Appeals, 28 in which this Court found that – be inferred from the above. It refers to a notice and not to a
petition for the consent which is not necessary. We say that the
The basis of the complaint is not a deed of subrogation but an notice is not necessary in order that the legal effects may be fully
assignment of credit whereby the private respondent became the produced, because if it should be omitted, such omission will not
owner, not the subrogee of the credit since the assignment was imply that the assignment will not exist legally, but that its
supported by HK $1.00 and other valuable considerations. effects will be limited to the parties thereto; at least, they will
not reach the debtor.
xxxx
"* * * * * * * *
The petitioner further contends that the consent of the debtor is
essential to the subrogation. Since there was no consent on his "Let us go to the legal effects produced by the failure to give the
part, then he allegedly is not bound. notice. In the beginning, we have said that the contract does not
lose its efficacy with respect to the parties who made it; but
Again, we find for the respondent. The questioned deed of article 1527 determines specifically one of the consequences
assignment is neither one of subrogation nor a power of attorney arising from the failure to give notice, for it evidently takes for
as the petitioner alleges. The deed of assignment clearly states granted that the debtor who, before having knowledge of the
that the private respondent became an assignee and, therefore, assignment, should pay the creditor shall be released from the
he became the only party entitled to collect the indebtedness. As obligation. So that if the creditor assigned his credit, acting in
a result of the Deed of Assignment, the plaintiff acquired all bad faith and taking advantage of the fact that the debtor does
rights of the assignor including the right to sue in his own name not know anything about the assignment because the latter has
as the legal assignee. Moreover, in assignment, the debtor's not been notified, and collects its amount, the debtor shall be
consent is not essential for the validity of the assignment (Art. free from the obligation, inasmuch as it has been legally
1624 in relation to Art. 1475, Civil Code), his knowledge thereof extinguished by a payment which fully redounds to his benefit.
affecting only the validity of the payment he might make (Article The assignee can take advantage of all civil and criminal actions
1626, Civil Code). against the assignor, but he can ask nothing from the debtor,
because the latter did not know of the assignment, nor was he
Since the Assignment of Credit, dated 1 April 1989, is just as its bound to know it; the assignor should blame himself for his
title suggests, then petitioner's consent as debtor is not failure to have the notice made.
necessary in order that the assignment may fully produce legal
effects. The duty to pay does not depend on the consent of the "* * * * * * * *
debtor; otherwise, all creditors would be prevented from
assigning their credits because of the possibility of the debtors' "Hence, there not having been any notice to the debtor, the
refusal to give consent.29 Moreover, this Court had already existence of his knowledge of the assignment should be proved
noted previously that there does not appear to be anything in by him who is interested therein; and the debtor is not bound to
Philippine statutes or jurisprudence which prohibits a creditor, prove his ignorance."
without the consent of the debtor, from making an assignment of
his credit and the rights accessory thereto; and, certainly, an In a more recent case, Aquintey v. Spouses Tibong,32 this Court
assignment of credit and its accessory rights does not at all stated: "The law does not require any formal notice to bind the
obliterate the obligation of the debtor to pay, but merely puts the debtor to the assignee, all that the law requires is knowledge of
assignee in the place of the assignor.30 Hence, the obligation of the assignment. Even if the debtor had not been notified, but
petitioner to pay his debt subsists despite the assignment came to know of the assignment by whatever means, the debtor
thereof; only, his obligation after he came to know of the said is bound by it."
assignment would be to pay the debt to the respondent (the
assignee), instead of Ms. Picache (the original creditor). Since his consent is immaterial, the only other matter which this
Court must determine is whether petitioner had knowledge of the
It bears to emphasize that even if the consent of petitioner as Assignment of Credit, dated 1 April 1989, between Ms. Picache
debtor is unnecessary for the validity and enforceability of the and respondent. Both the Court of Appeals and the RTC ruled in
assignment of credit, nonetheless, the petitioner must have the affirmative, and so must this Court. Petitioner does not deny
knowledge, acquired either by formal notice or some other having knowledge of the assignment of credit by Ms. Picache to
means, of the assignment so that he may pay the debt to the the respondent. In 1989, when petitioner's loans became
proper party, which shall now be the assignee. This much can be overdue, it was respondent and its counsel who sent several
gathered from a reading of Article 1626 of the Civil Code demand letters to him. It can be reasonably presumed that
providing that, "The debtor who, before having knowledge of the petitioner received said letters for they were sent by registered
assignment, pays his creditor shall be released from the mail, and the return cards were signed by petitioner's agent.
obligation." Petitioner expressly acknowledged receipt of respondent's
demand letter, dated 13 June 1989, to which he replied with
This Court, in Sison v. Yap Tico,31 presented and adopted another letter, dated 21 June 1989, stating that he would settle
Manresa's analysis of Article 1626 of the Civil Code (then Article his account with respondent but also requesting consideration of
1527 of the old Civil Code) – the losses he suffered from the electric power disconnection at
the property he leased from MRMC. It further appears that
Manresa, in commenting upon the provisions of article 1527 of petitioner had never questioned why it was respondent seeking
the Civil Code, after discussing the articles of the Mortgage Law, payment of the loans and not the original creditor, Ms. Picache.
says: All these circumstances tend to establish that respondent already
knew of the assignment of credit made by Ms. Picache in favor of
210
respondent and explains his acceptance of all the demands for month, secured by a real estate mortgage over a property
payment of the loans made upon him by the respondent. belonging to Leticia Makalintal Yaptinchay, who issued a special
power of attorney in favor of Leticia Medel, authorizing her to
Finally, assuming arguendo that this Court considers petitioner a execute the mortgage. Servando and Leticia executed a
third person to the Assignment of Credit, dated 1 April 1989, the promissory note in favor of Veronica to pay the sum of
fact that the said document was duly notarized makes it legally P300,000.00, after a month, or on July 11, 1986. However, only
enforceable even as to him. According to Article 1625 of the Civil the sum of P275,000.00, was given to them out of the proceeds
Code – of the loan.
Like the previous loans, Servando and Medel failed to pay the
ART. 1625. An assignment of credit, right or action shall produce third loan on maturity.
no effect as against third persons, unless it appears in a public On July 23, 1986, Servando and Leticia with the latter's
instrument, or the instrument is recorded in the Registry of husband, Dr. Rafael Medel, consolidated all their previous unpaid
Property in case the assignment involves real property. loans totaling P440,000.00, and sought from Veronica another
loan in the amount of P60,000.00, bringing their indebtedness to
Notarization converted the Assignment of Credit, dated 1 April a total of P500,000.00, payable on August 23, 1986. They
1989, a private document, into a public document,33 thus, executed a promissory note, reading as follows:
complying with the mandate of the afore-quoted provision and Baliwag, Bulacan July 23, 1986
making it enforceable even as against third persons.
G.R. No. 159709 Payment will be made in full at the maturity date.
BERSAMIN, J.:
On November 7, 1985, Servando Franco and Leticia Medel I, WE further agree that in the event the present rate of interest
(hereafter Servando and Leticia) obtained a loan from Veronica on loan is increased by law or the Central Bank of the
R. Gonzales (hereafter Veronica), who was engaged in the Philippines, the holder shall have the option to apply and collect
money lending business under the name Gonzales Credit the increased interest charges without notice although the
Enterprises, in the amount of P50,000.00, payable in two original interest have already been collected wholly or partially
months. Veronica gave only the amount of P47,000.00, to the unless the contrary is required by law.
borrowers, as she retained P3,000.00, as advance interest for
one month at 6% per month. Servado and Leticia executed a
promissory note for P50,000.00, to evidence the loan, payable
on January 7, 1986. It is also a special condition of this contract that the parties
herein agree that the amount of peso-obligation under this
On November 19, 1985, Servando and Leticia obtained from agreement is based on the present value of peso, and if there be
Veronica another loan in the amount of P90,000.00, payable in any change in the value thereof, due to extraordinary inflation or
two months, at 6% interest per month. They executed a deflation, or any other cause or reason, then the peso-obligation
promissory note to evidence the loan, maturing on January 19, herein contracted shall be adjusted in accordance with the value
1986. They received only P84,000.00, out of the proceeds of the of the peso then prevailing at the time of the complete fulfillment
loan. of obligation.
On maturity of the two promissory notes, the borrowers failed to
pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica
still another loan in the amount of P300,000.00, maturing in one
211
Demand and notice of dishonor waived. Holder may accept plus 12% interest per annum from November 7, 1985 and 1%
partial payments and grant renewals of this note or extension of per month as penalty, until the entire amount is paid in full.
payments, reserving rights against each and all indorsers and all
parties to this note.
On February 20, 1990, Veronica R. Gonzales, joined by her 4. Ordering the defendants to pay plaintiffs, jointly and severally,
husband Danilo G. Gonzales, filed with the Regional Trial Court of the amount of P50,000.00 as attorney's fees;
Bulacan, Branch 16, at Malolos, Bulacan, a complaint for
collection of the full amount of the loan including interests and
other charges.
5. All counterclaims are hereby dismissed.
In his answer to the complaint filed with the trial court on April 5,
1990, defendant Servando alleged that he did not obtain any With costs against the defendants.
loan from the plaintiffs; that it was defendants Leticia and Dr.
Rafael Medel who borrowed from the plaintiffs the sum of
P500,000.00, and actually received the amount and benefited
therefrom; that the loan was secured by a real estate mortgage In due time, both plaintiffs and defendants appealed to the Court
executed in favor of the plaintiffs, and that he (Servando Franco) of Appeals.
signed the promissory note only as a witness.
SO ORDERED.
WHEREFORE, in the light of all the foregoing, the Court hereby
grants the Motion for Execution of Judgment.
SO ORDERED.[4] On March 19, 2003, the CA affirmed the RTC through its assailed
decision, ruling that the execution was proper because of
Servandos failure to comply with the terms of the compromise
agreement, stating:[13]
Upon the finality of the decision in Medel v. Court of Appeals, the
respondents moved for execution.[5] Servando Franco opposed,
[6] claiming that he and the respondents had agreed to fix the
entire obligation at P775,000.00.[7] According to Servando, their Petitioner cannot deny the fact that there was no full compliance
agreement, which was allegedly embodied in a receipt dated with the tenor of the compromise agreement. Private
February 5, 1992,[8] whereby he made an initial payment of respondents on their part did not disregard the payments made
P400,000.00 and promised to pay the balance of P375,000.00 on by the petitioner. They even offered that whatever payments
February 29, 1992, superseded the July 23, 1986 promissory made by petitioner, it can be deducted from the principal
note. obligation including interest. However, private respondents posit
that the payments made cannot alter, modify or revoke the
decision of the Supreme Court in the instant case.
Ruling
WHEREFORE, premises considered, the instant petition is hereby The petition lacks merits.
DENIED DUE COURSE and consequently DISMISSED for lack of
merit.
THE 9 DECEMBER 1991 DECISION OF BRANCH 16 OF THE A novation arises when there is a substitution of an obligation by
REGIONAL TRIAL COURT OF MALOLOS, BULACAN WAS NOT a subsequent one that extinguishes the first, either by changing
NOVATED BY THE COMPROMISE AGREEMENT BETWEEN THE the object or the principal conditions, or by substituting the
PARTIES ON 5 FEBRUARY 1992. person of the debtor, or by subrogating a third person in the
rights of the creditor.[16] For a valid novation to take place,
there must be, therefore: (a) a previous valid obligation; (b) an
agreement of the parties to make a new contract; (c) an
II extinguishment of the old contract; and (d) a valid new contract.
[17] In short, the new obligation extinguishes the prior
THE LIABILITY OF THE PETITIONER TO RESPONDENTS SHOULD agreement only when the substitution is unequivocally declared,
BE BASED ON THE DECEMBER 1991 DECISION OF BRANCH 16 or the old and the new obligations are incompatible on every
OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN AND point. A compromise of a final judgment operates as a novation
NOT ON THE COMPROMISE AGREEMENT EXECUTED IN 1992. of the judgment obligation upon compliance with either of these
two conditions.[18]
The petitioners insist that the RTC could not validly enforce a
judgment based on a promissory note that had been already The receipt dated February 5, 1992, excerpted below, did not
novated; that the promissory note had been impliedly novated create a new obligation incompatible with the old one under the
when the principal obligation of P500,000.00 had been fixed at promissory note, viz:
P750,000.00, and the maturity date had been extended from
August 23, 1986 to February 29, 1992.
February 5, 1992
Issue (Sgd)
V. Gonzalez[19]
214
enforced against Servando, who, in order to escape liability,
should have presented evidence to prove that his obligation had
already been cancelled by the new obligation or that another
To be clear, novation is not presumed. This means that the debtor had assumed his place. In case of change in the person of
parties to a contract should expressly agree to abrogate the old the debtor, the substitution must be clear and express,[29] and
contract in favor of a new one. In the absence of the express made with the consent of the creditor.[30] Yet, these
agreement, the old and the new obligations must be circumstances did not obtain herein, proving precisely that
incompatible on every point.[20] According to California Bus Servando remained a solidary debtor against whom the entire or
Lines, Inc. v. State Investment House, Inc.:[21] part of the obligation might be enforced.
The extinguishment of the old obligation by the new one is a Lastly, the extension of the maturity date did not constitute a
necessary element of novation which may be effected either novation of the previous agreement. It is settled that an
expressly or impliedly. The term expressly means that the extension of the term or period of the maturity date does not
contracting parties incontrovertibly disclose that their object in result in novation.[31]
executing the new contract is to extinguish the old one. Upon the
other hand, no specific form is required for an implied novation,
and all that is prescribed by law would be an incompatibility II
between the two contracts. While there is really no hard and fast
rule to determine what might constitute to be a sufficient change Total liability to be reduced by P400,000.00
that can bring about novation, the touchstone for contrariety,
however, would be an irreconcilable incompatibility between the
old and the new obligations.
The petitioners argue that Servandos remaining liability
amounted to only P375,000.00, the balance indicated in the
There is incompatibility when the two obligations cannot stand February 5, 1992 receipt. Accordingly, the balance was not yet
together, each one having its independent existence. If the two due because the respondents did not yet make a demand for
obligations cannot stand together, the latter obligation novates payment.
the first.[22] Changes that breed incompatibility must be
essential in nature and not merely accidental. The
incompatibility must affect any of the essential elements of the
obligation, such as its object, cause or principal conditions The petitioners cannot be upheld.
thereof; otherwise, the change is merely modificatory in nature
and insufficient to extinguish the original obligation.[23]
5. The Honorable Court has no jurisdiction over this case, Witness further testified that he found the photocopy of the Deed
of Sale in the records of Maryden Domingo. The Promissory Note
6. As per the allegations in the complaint, JOHN DOE is an and Chattel Mortgage were executed by the defendants Maryden
indispensable party to this case so with his whereabouts and Amador Domingo. There was no assumption of obligation of
unknown, service by publication should first be made before the [spouses Domingo]. Witness however admitted that Far East
proceeding with the trial of this case; Bank did not turn over to [BPI] all the records pertaining to the
account of the [spouses Domingo].[9] (Citations omitted.)
7. Defendant Maryden Domingo once obtained a car loan from Amador himself testified for the defense. The MeTC provided the
Far East Bank and Trust Company but the car was later sold to following summary of Amador's testimony:
Carmelita S. Gonzales with the bank's conformity and the buyer
subsequently assumed payment of the balance of the mortgaged For his defense, defendant Amador Domingo testified that his
loan. wife and co-defendant Mercy Maryden Domingo died on
During trial, the prosecution presented as witness Vicente November 27, 2003. He admitted that his wife bought a car and
Magpusao, a former employee of FEBTC and now an Account was mortgaged to Far East Bank and Trust Company. He
Analyst of BPI. His testimony was summed up by the MeTC as identified the Chattel Mortgage and the Promissory Note he
follows: executed together with his wife. In connection with the execution
Vicente Magpusao, [BPI's] Account Analyst and formerly of this Promissory Note, he recalled that his wife issued forty-
connected with Far East Bank and Trust Company testified that eight (48) checks. The twelve (12) checks were cleared by the
on September 27, 1993, [the spouses Domingo] for bank and his wife was able to obtain a discount for prompt
consideration executed and delivered to Makati Auto Center, Inc. payments up to October 1994. While they were still paying for
a Promissory Note in the sum of P629,856.00 payable in monthly the car, Carmelita Gonzales got interested to buy the car and is
installments in accordance with the schedule of payment willing to assume the mortgage. After furnishing the bank [with]
indicated in said Promissory Note. In order to secure the the Deed of Sale duly notarized, Carmelita Gonzales
payment of the obligation, the [spouses Domingo] executed in subsequently issued a check payable to Far East Bank and Trust
favor of said Makati Auto Center, Inc. on the same date a Chattel Company and the remaining postdated checks were returned to
Mortgage over one (1) unit of 1993 Mazda (323) with Motor No. them. Based on the application of payment prepared by [BPI's]
B6-270146 and with Serial No. BG1062M9100287. With notice to witness, Carmelita Gonzales made payments from November 14,
[the spouses Domingo], said Makati Auto Center, Inc. assigned 1995 to December 1995.
to Far East Bank and Trust Co. the Chattel Mortgage as shown by
the Deed of Assignment executed by [Makati Auto Center, Inc.]. Aside from these payments on May 19, 1997, Carmelita Gonzales
Far East Bank and Trust Co. on the other hand, has been merged issued a check to Far East Bank in the amount of P385,431.60.
with and/or absorbed by herein plaintiff [BPI]. The [spouses In 1996, he received a phone call from a certain Marvin Orence
216
asking for their assistance to locate the car which Carmelita specific or particular form; the only requirement being that it
Gonzales bought from them. His lawyer went to Land must be given by the creditor in one way or another. To the RTC,
Transportation Office for assistance. From the time Ms. Gonzales the following circumstances demonstrated the implied consent of
started to pay, they never received any demand letter from Far BPI to the novation: (1) BPI had knowledge of the Deed of Sale
East Bank. Thereafter, on February 29, 1997, they received a and Assumption of Mortgage executed between Mercy and
demand letter from Espino Law Office [on] behalf of [FEBTC]. His Carmelita, but did not interpose any objection to the same; and
lawyer made a reply on March 31, 1997 stating therein that the (2) BPI (through FEBTC) returned the personal checks of the
motor vehicle for which the loan was obtained had been sold to spouses Domingo and accepted the payments made by
Carmelita Gonzales as of July 5, 1994 with the knowledge and Carmelita. The RTC also noted that BPI made a demand for
approval of their client. After three years, they received another payment upon the spouses Domingo only after 30 months from
demand letter dated October 31, 2000 from Labaguis Law Office. the time Carmelita assumed payments for the installments due.
His lawyer made the same reply on March 7, 2000 and another The RTC reasoned that if the spouses Domingo truly remained as
letter on November 24, 2000. debtors, BPI would not have wasted time in demanding
payments from them. Ultimately, the RTC decreed:
Witness further testified that this malicious complaint probably WHEREFORE, premises considered, the judgment appealed from
triggered the early demise of his wife who has a high blood is hereby reversed. The complaint filed by [BPI] before [MeTC]
pressure. His wife died of aneurism. As damages, he is asking for Branch 9, Manila, is hereby DISMISSED and ordering [BPI] to
the amount of P200,000.00 as moral damages, P75,000.00 as pay defendant/appellant Amador Domingo the following, to wit:
attorney's fees and P5,000.00 appearance fee.
a) One Hundred Thousand (P100,000.00) Pesos as moral
On cross-examination, witness elaborates that when his wife damages;
presented to Far East Bank the Deed of Sale with Assumption of
Mortgage, the bank made no objection and returned all their b) Fifty Thousand (P50,000.00) Pesos as exemplary damages;
postdated checks. His wife was the one who deal[t] with
Carmelita Gonzales but he always provide[d] assistance with c) Fifty Thousand (P50,000.00) Pesos as attorney's fees;
respect to paper works. Aside from the aforesaid Deed of Sale,
there is no other document which shows the conformity of the d) Twenty-Five Thousand (P25,000.00) [Pesos] as litigation
bank. They were only verbally assured by Mr. Orence that their expenses;
papers are in order.[10]
On June 10, 2004, the MeTC rendered a Decision in favor of BPI e) Costs of this suit.[14]
as the bank was able to establish by preponderance of evidence Aggrieved by the foregoing RTC judgment, BPI filed a Petition for
a valid cause of action against the spouses Domingo. According Review with the Court of Appeals, docketed as CA-G.R. SP No.
to the MeTC, novation is never presumed and must be clearly 88836. The Court of Appeals promulgated its Decision on July 11,
shown by express agreement or by acts of equal import. To 2005, affirming the finding of the RTC that novation took place.
effect a subjective novation by a change in the person of the The Court of Appeals, relying on the declaration in Babst v. Court
debtor, it is necessary that the old debtor be released expressly of Appeals[15] that consent of the creditor to the substitution of
from the obligation and the third person or new debtor assumes debtors need not always be express and may be inferred from
his place. Without such release, there is no novation and the the acts of the creditor, ruled that:
third person who assumes the debtor's obligation merely In this case, there is no doubt that FEBTC had the intention to
becomes a co-debtor or surety. The MeTC found Amador's bare release private respondent [Amador] and his wife from the
testimony as insufficient evidence to prove that he and his wife obligation when the latter sold the subject vehicle to [Carmelita].
Mercy had been expressly released from their obligations and This intention can be inferred from the following acts of FEBTC:
that Carmelita Gonzales (Carmelita) assumed their place as the 1) it returned the postdated checks issued by private respondent
new debtor within the context of subjective novation; and if at [Amador's] wife in favor of FEBTC; 2) it accepted the payments
all, Carmelita only became the spouses Domingo's co-debtor or made by [Carmelita]; 3) it did not interpose any objection
surety. While finding that BPI was entitled to the reliefs prayed despite knowledge of the existence of the Deed of Sale with
for, the MeTC made no adjudication as to the entitlement of the Assumption of Mortgage; and 4) it did not demand payment from
bank to the Writ of Replevin, and instead awarded monetary private respondent [Amador] and his wife for thirty (30) long
reliefs as were just and equitable. The dispositive portion of the months.
MeTC decision reads:
xxxx
WHEREFORE, premises considered, judgment is hereby rendered
in favor of [BPI], ordering defendant Amador Domingo: As correctly found by the RTC, the testimony of private
To pay [BPI] the sum of P275,562.00 plus interest thereon at the respondent [Amador] as regards the return of the said checks to
rate of 36% per annum from November 15, 2000 until fully paid; them by FEBTC was not rebutted by petitioner BPI.
To pay [BPI] the sum equivalent to 25% of the total amount due If indeed the said checks were not returned to private
as atorney's fees; and respondent [Amador's] wife, the least thing that petitioner BPI or
FEBTC could have done was to deposit them. Should the checks
To pay the costs of suit.[11] thereafter bounce, then petitioner BPI or FEBTC could have filed
a separate case against private respondent [Amador's] wife. This
Acting on Amador's Motion for Reconsideration, the MeTC issued was never done by petitioner BPI or FEBTC. Hence, it is safe to
an Order[12] dated September 6, 2004 affirming its earlier conclude that the said checks were indeed returned to private
judgment but reducing the attorney's fees awarded, thus: respondent [Amador's] wife.[16]
The Court of Appeals rejected the other arguments of BPI:
WHEREFORE, premises considered the Decision of this Court Petitioner BPI further argues that as regards the payment made
dated June 10, 2014 stands, subject to the modification that the by the alleged new debtor, Carmelita Gonzales, it appears that
attorney's fees of twenty-five percent (25%) is ordered reduced the only payment made by her was a PNB Check No. 00190322
to ten percent (10%) of the total amount due.[13] dated May 19, 1997 which was dishonored due to Account
Dissatisfied, Amador appealed his case before the Regional Trial Closed.
Court (RTC) of Manila, Branch 26, wherein it was docketed as
Civil Case No. 04-111100. In its Decision dated February 10, Careful scrutiny of the records of the case reveals otherwise. As
2005, the RTC held that in novation, consent of the creditor to found by the MeTC in its decision dated June 10, 2004, Carmelita
the substitution of the debtor need not be by express agreement, Gonzales made several payments on the said loan obligation, as
it can be merely implied. The consent is not required to be in any
217
testified to by witness Vicente Magpusao, petitioner BPFs Account BPI comes to this Court via the present Petition for
Analyst, thus: Review/Appeal by Certiorari raising the sole issue of whether or
xxx. Based on the subsidiary leger, (Exhibit "2"), there were not there had been a novation of the loan obligation with chattel
three (3) checks that bounced and these are payments from the mortgage of the spouses Domingo to BPI so that the spouses
new buyer. They only have one (1) photocopy of these checks in Domingo were released from said obligation and Carmelita was
the amount of P325,431.60 (Exhibit 4) while the other two are substituted as debtor.
missing. He was not aware who owns Cargo and Hardware
Corporation but the check was issued by a certain Miss Gonzales. The Court answers in the negative and grants the Petition.
xxx.
xxxx In De Cortes v. Venturanza,[20] the Court discussed some
principles and jurisprudence underlying the concept and nature
Petitioner BPI further argues that it was not its obligation to of novation as a mode of extinguishing obligations:
interpose any objection to the Deed of Sale with Assumption of According to Manresa, novation is the extinguishment of an
Mortgage. Rather it should be the vendee, [Carmelita], who obligation by the substitution or change of the obligation by a
should secure the approval and consent of petitioner BPI to the subsequent one which extinguishes or modifies the first, either
Deed of Sale. by changing the object or principal conditions, or by substituting
the person of the debtor, or by subrogating a third person to the
This argument is untenable. rights of the creditor (8 Manresa 428, cited in IV Civil Code of the
Philippines by Tolentino 1962 ed., p. 352). Unlike other modes of
The Deed of Sale with Assumption of Mortgage between private extinction of obligations, novation is a juridical act with a dual
respondent [Amador's] wife and [Carmelita] was executed way function - it extinguishes an obligation and creates a new one in
back on July 5, 1994. The check that was issued by [Carmelita] lieu of the old.
was dated May 19, 1997. The position of petitioner BPI is not
possible because when the Deed of Sale with Assumption of Article 1293 of the New Civil Code provides:
Mortgage was executed and the said check was issued, private "Novation which consists in substituting a new debtor in the
respondent [Amador's] wife and [Carmelita] were still dealing place of the original one, may be made even without the
with FEBTC, considering the fact that the merger of petitioner knowledge or against the will of the latter, but not without the
BPI and FEBTC was formalized on April 10, 2000. consent of the creditor." (emphasis supplied)
Under this provision, there are two forms of novation by
Nevertheless, FEBTC interposed no objection to the Deed of Sale substituting the person of the debtor, and they are: (1)
with Assumption of Mortgage, hence, it consented to it. expromision and (2) delegacion. In the former, the initiative for
the change does not come from the debtor and may even be
From the foregoing, it is clear that novation took place so that made without his knowledge, since it consists in a third person
private respondent Domingo is no longer the debtor of petitioner assuming the obligation. As such, it logically requires the consent
BPI.[17] (Citations omitted.) of the third person and the creditor. In the latter, the debtor
The Court of Appeals, however, deleted the damages awarded to offers and the creditor accepts a third person who consents to
Amador for the following reasons: the substitution and assumes the obligation, so that the
As to the second issue, petitioner BPI argues that the RTC intervention and the consent of these three persons are
awarded moral and exemplary damages and attorney's fees to necessary (8 Manresa 436-437, cited in IV Civil Code of the
respondent [Amador] only in the dispositive portion of the Philippines by Tolentino, 1962 ed., p. 360). In these two modes
assailed decision without any basis in fact and in law. of substitution, the consent of the creditor is an indispensable
requirement (Garcia vs. Khu Yek Chiong, 65 Phil. 466, 468).
This Court finds the argument tenable. (Emphases supplied.)
The Court also emphasized in De Cortes the indispensability of
In the case of Solid Homes, Inc. vs. Court of Appeals, it was held the creditor's consent to the novation, whether expromision or
that: delegacion, given that the "substitution of one debtor for another
"It is basic that the claim for actual, moral and punitive damages may delay or prevent the fulfillment of the obligation by reason
as well as exemplary damages and attorney's fees must each be of the financial inability or insolvency of the new debtor; hence,
independently identified and justified." the creditor should agree to accept the substitution in order that
Furthermore, Section 14, paragraph 1 of Article VIII, of the 1987 it may be binding on him."[21]
Constitution lays down the standard in rendering decisions, to
wit: it must be express therein clearly and distinctly the facts and Both the RTC and the Court of Appeals found that there was
law on which it is based. novation by delegacion in the case at bar. The Deed of Sale with
Assumption of Mortgage was executed between Mercy
Perusal of the assailed decision reveals that the award of moral (representing herself and her husband Amador) and Carmelita,
and exemplary damages as well as attorney's fees and litigation thus, their consent to the substitution as debtors and third
expenses were only touched in the dispositive portion, which is in person, respectively, are deemed undisputed. It is the existence
clear disregard of the established rules laid down by the of the consent of BPI (or its absorbed corporation FEBTC) as
Constitution and existing jurisprudence. Therefore, their deletion creditor that is being challenged herein.
is in order.
As a general rule, since novation implies a waiver of the right the
As regards the award of litigation expenses and costs of the suit, creditor had before the novation, such waiver must be express.
the same should also be deleted considering that "no premium [22] The Court explained the rationale for the rule in Testate
should be placed on the right to litigate."[18] (Citations omitted.) Estate of Lazaro Mota v. Serra[23]:
The Court of Appeals ultimately adjudged: It should be noted that in order to give novation its legal effect,
WHEREFORE, premises considered, the assailed decision dated the law requires that the creditor should consent to the
February 10, 2005 of the Regional Trial Court, Branch 26, Manila substitution of a new debtor. This consent must be given
in Civil Case No. 04-111100 is hereby AFFIRMED with expressly for the reason that, since novation extinguishes the
MODIFICATION in that the award of moral and exemplary personality of the first debtor who is to be substituted by a new
damages as well as attorney's fees, litigation expenses and costs one, it implies on the part of the creditor a waiver of the right
of suit, is hereby deleted.[19] that he had before the novation, which waiver must be express
In its Resolution dated August 19, 2005, the Court of Appeals under the principle that renuntiatio non praesumitor, recognized
denied the Motion for Partial Reconsideration of BPI. by the law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably shown by him
who holds the right.
218
However, in Asia Banking Corporation v. Elser,[24] the Court Irrefragably, there is no express consent of BPI to the
qualified thus: substitution of debtors. The Court of Appeals and the RTC
The aforecited article 1205 [now 1293] of the Civil Code does not inferred the consent of BPI from the following facts: (1) BPI had
state that the creditor's consent to the substitution of the new a copy of the Deed of Sale and Assumption of Mortgage executed
debtor for the old be express, or given at the time of the between Mercy and Carmelita in its file, indicating its knowledge
substitution, and the Supreme Court of Spain, in its judgment of of said agreement, and still it did not interpose any objection to
June 16, 1908, construing said article, laid down the doctrine the same; (2) BPI (through FEBTC) returned the spouses
that "article 1205 of the Civil Code does not mean or require that Domingo's checks and accepted Carmelita's payments; and (3)
the creditor's consent to the change of debtors must be given BPI did not demand any payment from the spouses Domingo not
simultaneously with the debtor's consent to the substitution; its until 30 months after Carmelita assumed the payment of balance
evident purpose being to preserve the creditor's full right, it is on the Promissory Note.
sufficient that the latter's consent be given at any time and in
any form whatever, while the agreement of the debtors The Court disagrees with the inferences made by the Court of
subsists." The same rule is stated in the Enciclopedia Juridica Appeals and the RTC.
Española, volume 23, page 503, which reads: "The rule that this
kind of novation, like all others, must be express, is not First, that BPI (or FEBTC) had a copy of the Deed of Sale and
absolute; for the existence of the consent may well be inferred Assumption of Mortgage executed between Mercy and Carmelita
from the acts of the creditor, since volition may as well be in its file does not mean that it had consented to the same. The
expressed by deeds as by words." The understanding between very Deed itself states:
Henry W. Elser and the principal director of Yangco, Rosenstock That the VENDEE [Carmelita] assumes as he/she had assumed to
& Co., Inc., with respect to Luis R. Yangco's stock in said pay the aforecited mortgage in accordance with the original
corporation, and the acts of the board of directors after Henry W. terms and conditions of said mortgage, and the parties hereto
Elser had acquired said shares, in substituting the latter for Luis [Mercy and Carmelita] have agreed to seek the conformity of the
R. Yangco, are a clear and unmistakable expression of its MORTGAGEE [FEBTC].[30]
consent. When this court said in the case of Estate of Mota vs. This brings the Court back to the original question of whether
Serra (47 Phil., 464), that the creditor's express consent is there is proof of the conformity of BPI.
necessary in order that there may be a novation of a contract by
the substitution of debtors, it did not wish to convey the The Court notes that the documents of BPI concerning the car
impression that the word "express" was to be given an loan and chattel mortgage are still in the name of the spouses
unqualified meaning, as indicated in the authorities or cases, Domingo. No new promissory note or chattel mortgage had been
both Spanish and American, cited in said decision. executed between BPI (or FEBTC) and Carmelita. Even the
Hence, based on the aforequoted ruling in Asia Banking, the account itself is still in the names of the spouses Domingo.
existence of the creditor's consent may also be inferred from the
creditor's acts, but such acts still need to be "a clear and The absence of objection on the part of BPI (or FEBTC) cannot be
unmistakable expression of [the creditor's] consent."[25] presumed as consent. Jurisprudence requires presentation of
proof of consent, not mere absence of objection. Amador cannot
In Ajax Marketing and Development Corporation v. Court of rely on Babst which involved a different factual milieu. Relevant
Appeals,[26] the Court further clarified that: portions of the Court's ruling in Babst are reproduced below:
The well settled rule is that novation is never presumed. In the case at bar, Babst, MULTI and ELISCON all maintain that
Novation will not be allowed unless it is clearly shown by express due to the failure of BPI to register its objection to the take-over
agreement, or by acts of equal import. Thus, to effect an by DBP of ELISCON's assets, at the creditors' meeting held in
objective novation it is imperative that the new obligation June 1981 and thereafter, it is deemed to have consented to the
expressly declare that the old obligation is thereby extinguished, substitution of DBP for ELISCON as debtor.
or that the new obligation be on every point incompatible with
the new one. In the same vein, to effect a subjective novation by We find merit in the argument. Indeed, there exist clear
a change in the person of the debtor it is necessary that the old indications that BPI was aware of the assumption by DBP of the
debtor be released expressly from the obligation, and the third obligations of ELISCON. In fact, BPI admits that—
person or new debtor assumes his place in the relation. There is "[T]he Development Blank of the Philippines (DBP), for a time,
no novation without such release as the third person who has had proposed a formula for the settlement of Eliscon's past
assumed the debtor's obligation becomes merely a co-debtor or obligations to its creditors, including the plaintiff [BPI], but the
surety. (Citations omitted.) formula was expressly rejected by the plaintiff as not acceptable
The determination of the existence of the consent of BPI to the (long before the filing of the complaint at bar)."
substitution of debtors, in accordance with the standards set in The Court of Appeals held that even if the account officer who
the preceding jurisprudence, is a question of fact because it attended the June 1981 creditors' meeting had expressed
requires the Court to review the evidence on record. It is an consent to the assumption by DBP of ELISCON's debts, such
established rule that the jurisdiction of the Court in cases consent would not bind BPI for lack of a specific authority
brought before it from the Court of Appeals via a petition for therefor. In its petition, ELISCON counters that the mere
review on certiorari under Rule 45 of the Rules of Court is presence of the account officer at the meeting necessarily meant
generally limited to reviewing errors of law as the former is not a that he was authorized to represent BPI in that creditors'
trier of facts. Thus, the findings of fact of the Court of Appeals meeting. Moreover, BPI did not object to the substitution of
are conclusive and binding upon the Court in the latter's exercise debtors, although it objected to the payment formula submitted
of its power to review for it is not the function of the Court to by DBP.
analyze or weigh evidence all over again.[27] However, several
of the recognized exceptions[28] to this rule are present in the Indeed, the authority granted by BPI to its account officer to
instant case that justify a factual review, i.e., the inference is attend the creditors' meeting was an authority to represent the
manifestly mistaken, the judgment is based on misapprehension bank, such that when he failed to object to the substitution of
of facts, and the findings of the Court of Appeals and the RTC are debtors, he did so on behalf of and for the bank. Even granting
contrary to those of the MeTC. arguendo that the said account officer was not so empowered,
BPI could have subsequently registered its objection to the
The burden of establishing a novation is on the party who asserts substitution, especially after it had already learned that DBP had
its existence.[29] Contrary to the findings of the Court of Appeals taken over the assets and assumed the liabilities of ELISCON. Its
and the RTC, Amador failed to discharge such burden as he was failure to do so can only mean an acquiescence in the
unable to present proof of the clear and unmistakable consent of assumption by DBP of ELISCON's obligations. As repeatedly
BPI to the substitution of debtors. pointed out by ELISCON and MULTI, BPI's objection was to the
proposed payment formula, not to the substitution itself.[31]
219
In Babst, there was a clear opportunity for BPI, as creditor My wife and Mrs. Gonzales went to Far East Bank and Trust
therein, to o ject to the substitution of debtors given that its Company and she informed the bank that somebody is interested
representative attended a creditor's meeting, during which, said in buying the car and assume the mortgage and the bank
representative already objected to the proposed payment informed her that the bank is agreeable and with no objection.
formula made by DBP, as the new debtor. Hence, the silence of Atty. Ganitano:
BPI during the same meeting as to the matter of substitution of Objection, your Honor. May we object to the answer of the
debtors could already be interpreted as its acquiescence to the witness, it would be hearsay. The witness testified that it was his
same. In contrast, there was no clear opportunity for BPI (or wife and the would-be buyer who went to the bank.
FEBTC) to have expressed its objection to the substitution of Atty. Rivera:
debtors in the case at bar. Then, we are just offering it as part of the narration not
necessarily to prove the truth of the statement, your Honor.
Second, the consent of BPI to the substitution of debtors cannot Court:
be deduced from its acceptance of payments from Carmelita, The witness may continue.
absent proof of its clear and unmistakable consent to release the Atty. Rivera:
spouses Domingo from their obligation. Since the spouses So, after that meeting with the bank occurred, what happened
Domingo remained as debtors of BPI, together with Carmelita, next in connection with this intention of Mrs. Gonzales to
the fact that BPI demanded payment from the spouses Dokningo purchase the car?
30 months after accepting payment from Carmelita is Witness:
insignificant. After furnishing the bank with the Deed of Absolute Sale duly
notarized, [Ms.] Carmelita Gonzales subsequently issued a check
The acceptance by a creditor of payments from a third person, payable to Far East Bank and Trust Company, Sir.
who has assumed the obligation, will result merely to the Atty. Rivera:
addition of debtors and not novation. The creditor may therefore 1.
enforce the obligation against both debtors.[32] As the Court Q.
pronounced in Magdalena Estates, Inc. v. Rodriguez,[33] "[t]he How about the postdated checks that your wife issued to Far East
mere fact that the creditor receives a guaranty or accepts Bank and Trust Company?
payments from a third person who has agreed to assume the
obligation, when there is no agreement that the first debtor shall A.
be released from responsibility, does not constitute a novation, The remaining postdated checks were returned to us, Sir.
and the creditor can still enforce the obligation against the 2.
original debtor." The Court reiterated in Quinto v. People[34] Q.
that "[n]ot too uncommon is when a stranger to a contract Do you remember what were those postdated checks that were
agrees to assume an obligation; and while this may have the returned by the bank?
effect of adding to the number of persons liable, it does not
necessarily imply the extinguishment of the liability of the first A.
debtor. Neither would the fact alone that the creditor receives Those were the checks we issued in advance, Sir.
guaranty or accepts payments from a third person who has 3.
agreed to assume the obligation, constitute an extinctive Q.
novation absent an agreement that the first debtor shall be What were the dates of these checks?
released from responsibility."
A.
Absent proof that BPI gave its clear and unmistakable consent to October 30, 1994 to 1997, Sir.
release the spouses Domingo from the obligation to pay the car xxxx
loan, Carmelita is simply considered an additional debtor. Atty. Rivera:
Consequently, BPI can still enforce the obligation against the 1.
spouses Domingo even 30 months after it had started accepting Q.
payments from Carmelita. Aside from this evidence that you have enumerated, were you
able to talk to any representative from Far East Bank relative to
And third, there is no sufficient or competent evidence to the approval of the change in the personality of the debtor from
establish the return of the checks to the spouses Domingo and your wife to...
the assurance made by FEBTC that the spouses Domingo were A.
already released from their obligation. As I remember, sometime in 1996, I received a call from a
certain Marvin Orence asking for our assistance to locate the car
During his direct examination, Amador testified as follows: that Mrs. Carmelita Gonzales bought from us and informed us
Atty. Rivera: that we have nothing to worry except that we provide them
1. assistance to locate the car and I informed our lawyer, Atty.
Q. Rivera, about this and Atty. Rivera went to the Land
Do you remember who was this person who became interested Transportation Office for assistance.[35]
to buy this car? Amador continued to testify on cross-examination, thus:
A. CROSS EXAMINATION BY ATTY. GANITANO
Carmelita S. Gonzales, Sir. 1.
2. Q..
Q. You testified that out of the 48 checks you paid to Far East Bank
What did you tell Mrs. Gonzales when she expressed interest in & Trust Company, only 12 checks were made good. What
buying this car, this Mazda vehicle? happened to the 36 checks?
A.
A. When my wife brought the transaction to Far East Bank and
We told her that the car was mortgaged and she told us that she presented the Deed of Absolute Sale, the bank have no objection
is willing to assume the mortgage, Sir. to the sale of the car and afterwards, the bank returned all the
3. postdated checks prepared by my wife that was in the possession
Q. of the bank, Sir.
With that willingness, what happened next on the part of Mrs. 1.
Gonzales to assume the mortgage? Q.
A. Do you have with you those 36 checks that were allegedly
returned by Far East Bank?
220
A. 4.
AThese checks have already been discarded, Sir. Q.
2. I'm just asking what was the means of communication, was it
Q. only thru phone call?
So, you cannot present those 36 checks anymore?
A. A.
No, Sir. Yes, Sir, thru phone call. I think twice or three times.
3. Atty. Rivera:
Q. We would like to manifest, your Honor, as early as 1997, just to
Who was the alleged buyer of the mortgaged car again? stress this point, as early as March 1997, the name of Marvin
Witness: Oronce...
Carmelita S. Gonzales, Sir. Atty. Ganitano:
Atty. Ganitano: The witness is under cross, your Honor.
1. Court:
Q. You just ask that in re-direct, counsel.
To whom did this Carmelita Gonzales transacted with respect to Atty. Rivera:
the sale of mortgaged vehicle? Yes, you Honor.[36]
A. Amador admitted that it was his wife Mercy, together with
To my wife, Mercy Maryden Domingo, Sir. Carmelita, who directly transacted with FEBTC regarding the sale
2. of the subject vehicle to and assumption of mortgage by
Q. Carmelita. Amador had no personal knpwledge of what had
Not with you, Mr. Witness? happened when Mercy and Carmelita went to the bank so his
A. testimony on the matter was hearsay, which, if not excluded,
Well, I always provide assistance to my wife with regards to deserves no credence.
paper works, Sir.
3. The Court explained in Da Jose v. Angeles[37] that:
Q. Evidence is hearsay when its probative force depends on the
Q When was this Deed of Sale executed, was it before when your competency and credibility of some persons other than the
wife and the buyer went to the bank or after they went to the witness by whom it is sought to be produced. The exclusion of
bank? hearsay evidence is anchored on three reasons: (1) absence of
A. cross-examination; (2) absence of demeanor evidence; and (3)
A I think it was simultaneous, Sir. absence of oath. Basic under the rules of evidence is that a
4. witness can only testify on facts within his or her personal
Q. knowledge. This personal knowledge is a substantive prerequisite
When you say "simultaneous", Mr. Witness, I'm showing to you in accepting testimonial evidence establishing the truth of a
this Deed of Sale with Assumption of Mortgage and you said it disputed fact, x x x. (Citations omitted.)
was with the conformity of the bank. Will you please tell us in The Court of Appeals and the RTC substantively based their
this Deed of Sale with Assumption of Mortgage if you could find finding that BPI (or FEBTC) consented to the substitution of
any entry which indicate that the bank agreed to the sale with debtors on the return of the checks to the spouses Domingo, but
assumption of mortgage? the proof of the issuance of the checks, their delivery to the
Witness: bank, and the return of the checks flimsily consists of Amador's
None, Sir. unsubstantiated testimony. Amador recounted that the postdated
Atty. Ganitano: checks which he and Mercy executed in favor of FEBTC were
Aside from this Deed of Sale with Assumption of Mortgage, do returned to them, however, he failed to provide the details
you have any document which shows that the bank indeed surrounding the return. Amador only stated that when Mercy
conformed to the sale of the mortgaged vehicle with assumption provided FEBTC with a copy of the Deed of Sale and Assumption
of mortgage? of Mortgage, the bank returned the checks to them
Witness: "subsequently" or "afterwards." Amador did not say how the
We were verbally assured that our papers are in order, Sir. checks were returned and to whom. The checks were not
Atty. Ganitano: presented during the trial since according to Amador, they were
So, there is no document, Mr. Witness, it was only made orally? already "discarded," although once more, any other detail
Witness: surrounding the discarding of the checks is sorely lacking. Aside
Yes, Sir, we were verbally assured that our papers are in order. from Amador's bare testimony, no other supporting evidence of
Atty. Ganitano: the return of the checks to the spouses Domingo was submitted
1. during trial. For the foregoing reasons, the Court accords little
Q. weight and credence to Amador's testimony on the return of the
Were you present when your wife and the would be buyer went checks.
to the bank?
A. It is worthy to stress that Amador, as the party asserting
No, Sir. novation, bears the burden of proving its existence. Amador
2. cannot simply rely on the failure of BPI to produce the checks if
Q. these were not actually returned to the spouses Domingo. There
How did you know that there was an assurance from the bank? is simply not enough evidence to establish the prima facie
existence of novation to shift the burden of evidence to BPI to
A. controvert the same.
I received a phone call from Mr. Oronce. I asked about the
transaction and he told me that there is nothing to worry The verbal assurances purportedly given by a Mr. Marvin Orence
because our documents or papers were in order, Sir. or Oronce (Orence/Oronce) of FEBTC to Amador over the
3. telephone that the spouses Domingo's documents were in order
Q. do not constitute the clear and unmistakable consent of the bank
Do I get you right, Mr. Witness, that the confirmation was only to the substitution of debtors. Once again, except for Amador's
through phone call? bare testimony, there is no other evidence of such telephone
conversations taking place and the subject of such telephone
A. conversations. In addition, Mr. Orence/Oronce's identity, position
It was Mr. Oronce who called me, Sir.
221
at FEBTC, and authority to represent and bind the bank, were exorbitant. Following the guidelines set forth in Eastern Shipping
not even clearly established. Lines, Inc. v. Court of Appeals[39] and Nacar v. Gallery Frames,
[40] the Court imposes instead legal interest in the following
The letter dated March 31, 1997 of Atty. Ricardo J.M. Rivera rates: (1) legal interest of 12% per annum from date of
(Rivera), counsel for the spouses Domingo, addressed to Atty. extrajudicial demand on January 29, 1997 until June 30, 2013;
Cresenciano L. Espino, counsel for FEBTC, does not serve as and (2) legal interest of 6% per annum from July 1, 2013 until
supporting evidence for Amador's testimony regarding the return fully paid.
of the checks and the verbal assurances given by Mr.
Orence/Oronce. The contents of such letter are rriere hearsay Incidentally, Amador passed away on June 5, 2010 during the
because the events stated therein did not personally happen to pendency of the instant petition, and is survived by his children,
Aity. Rivera or in his presence, and he merely relied on what his namely: Joann D. Moya, Annabelle G. Domingo, Cristina G.
clients, the spouses Domingo, told him. Domingo, Amador G. Domingo, Jr., Gloria Maryden D.
Macatangay, Dante Amador G. Domingo, Gregory Amador A.
The Court is therefore convinced that there is no novation by Domingo, and Ina Joy A. Domingo.[41] To prevent future
delegacion in this case and Amador remains a debtor of BPI. The litigation in the enforcement of the award, the Court clarifies that
Court reinstates the MeTC judgment ordering Amador to pay for Amador's heirs are not personally responsible for the debts of
the P275,562.00 lance on the Promissory Note, 10% attorney's their predecessor. The extent of liability of Amador's heirs to BPI
fees, and costs of suit; but modifies the rate of interest imposed is limited to the value of the estate which they inherited from
and the date when such interest began to run. Amador. In this jurisdiction, "it is the estate or mass of the
property left by the decedent, instead of the heirs directly, that
In Ruiz v. Court of Appeals,[38] the Court equitably reduced the becomes vested and charged with his rights and obligations
interest te of 3% per month or 36% per annum stipulated in the which survive after his death."[42] To rule otherwise would
promissory notes jrein to 1% per month or 12% per annum, unduly deprive Amador's heirs of their properties.
based on the following ratiocination:
We affirm the ruling of the appellate court, striking down as WHEREFORE, in view of the foregoing, the Petition is GRANTED.
invalid the 10% compounded monthly interest, the 10% The Decision dated July 11, 2005 and Resolution dated August
surcharge per month stipulated in the promissory notes dated 19, 2005 of the Court of Appeals in CA-G.R. SP No. 88836,
May 23, 1995 and December 1, 1995, and the 1% compounded affirming with modification the Decision dated February 10, 2005
monthly interest stipulated in the promissory note dated April 21, of the RTC of Manila, Branch 26 in Civil Case No. 04-111100, is
1995. The legal rate of interest of 12% per annum shall apply REVERSED and SET ASIDE. The Decision dated June 10, 2004
after the maturity dates of the notes until full payment of the and Order dated September 6, 2004 of the MeTC of Manila,
entire amount due. Also, the only permissible rate of surcharge is Branch 9 in Civil Case No. 168949-CV, is REINSTATED with
1% per month, without compounding. We also uphold the award MODIFICATIONS. The heirs of respondent Amador Domingo are
of the appellate court of attorney's fees, the amount of which ORDERED to pay petitioner Bank of the Philippine Islands the
having been reasonably reduced from the stipulated 25% (in the following:
March 22, 1995 promissory note) and 10% (in the other three
promissory notes) of the entire amount due, to a fixed amount of (1) the P275,562.00 balance on the Promissory Note, plus legal
P50,000.00. However, we equitably reduce the 3% per month or interest of 12% from January 29, 1997 to June 30, 2013 and 6%
36% per annum interest present in all four (4) promissory notes from July 1, 2013 until fully paid; (2) attorney's fees of 10%;
to 1% per month or 12% per annum interest. and (3) costs of suit. However, the liability of Amador Domingo's
heirs is limited to the value of the inheritance they received from
The foregoing rates of interests and surcharges are in accord the deceased.
with Medel vs. Court of Appeals, Garcia vs. Court of Appeals,
Bautista vs. Pilar Development Corporation, and the recent case SO ORDERED.
of Spouses Solangon vs. Salazar. This Court invalidated a
stipulated 5.5% per month or 66% per annum interest on a
P500,000.00 loan in Medel and a 6% per month or 72% per FIRST DIVISION
annum interest on a P60,000.00 loan in Solangon for being [ G.R. No. 209370, March 25, 2015 ]
excessive, iniquitous, unconscionable and exorbitant. In both FORT BONIFACIO DEVELOPMENT CORPORATION, PETITIONER,
cases, we reduced the interest rate to 12% per annum. We held VS. VALENTIN L. FONG, RESPONDENT.
that while the Usury Law has been suspended by Central Bank
Circular No. 905, s. 1982, effective on January 1, 1983, and DECISION
parties to a loan agreement have been given wide latitude to PERLAS-BERNABE, J.:
agree on any interest rate, still stipulated interest rates are
illegal if they are unconscionable. Nothing in the said circular Assailed in this petition for review on certiorari[1] are the
grants lenders carte blanche authority to raise interest rates to Decision[2] dated May 17, 2013 and the Resolution[3] dated
levels which will either enslave their borrowers or lead to a September 2, 2013 rendered by the Court of Appeals (CA) in CA-
hemorrhaging of their assets. On the other hand, in Bautista vs. G.R. CV. No. 93407, which affirmed the Decision[4] dated
Pilar Development Corp., this Court upheld the validity of a 21% January 28, 2009 of the Regional Trial Court of Mandaluyong
per annum interest on a P142,326.43 loan, and in Garcia vs. City, Branch 214 (RTC) in Civil Case No. MC06-2928, finding
Court of Appeals, sustained the agreement of the parties to a petitioner Fort Bonifacio Development Corporation (FBDC) liable
24% per annum interest on an P8,649,250.00 loan. It is on the to respondent Valentin L. Fong (Fong), as proprietor of VF
basis of these cases that we reduce the 36% per annum interest Industrial Sales, for the amount of P1,577,115.90 with legal
to 12%. An interest of 12% per annum is deemed fair and interest computed from February 13, 2006.
reasonable. While it is true that this Court invalidated a much
higher interest rate of 66% per annum in Medel and 72% in The Facts
Solangon it has sustained the validity of a much lower interest
rate of 21% in Bautista and 24% in Garcia. We still find the 36% On June 5, 2000, FBDC, a domestic corporation engaged in the
per annum interest rate in the case at bar to be substantially real estate development business,[5] entered into a Trade
greater than those upheld by this Court in the two (2) aforecited Contract[6] with MS Maxco Company, Inc. (MS Maxco), then
cases. (Citations omitted.) operating under the name "L&M Maxco, Specialist Engineering
On the strength of the foregoing jurisprudence, the Court Construction," for the execution of the structural and partial
likewise finds the interest rate of 3% per month or 36% per architectural works of one of its condominium projects in Taguig
annum stipulated in the Promissory Note herein for the balance City, the Bonifacio Ridge Condominium (Project).[7] Records
of P275,562.00 as excessive, iniquitous, unconscionable, and
222
show that FBDC had the right to withhold five percent (5%) of and enforceability.[34] What the law requires is not the consent
the contract price as retention money.[8] of the debtor, but merely notice to him, as the assignment takes
effect only from the time of his knowledge thereof.[35] With
Under the Trade Contract, FBDC had the option to hire other respect to third persons without notice of the assignment, the
contractors to rectify any errors committed by MS Maxco by same becomes effective only if the assignment appears in a
reason of its negligence, act, omission, or default, as well as to public instrument.[36]
deduct or set-off any amount from the contract price in such
cases.[9] Hence, when MS Maxco incurred delays and failed to Also, the RTC observed that FBDC did not dispute the
comply with the terms of the Trade Contract, FBDC took over genuineness and due execution of the Deed of Assignment
and hired other contractors to complete the unfinished between MS Maxco and Fong. As such, FBDC became bound
construction.[10] Unfortunately, corrective work had to likewise thereby upon its receipt of Fong's April 18, 2005 letter informing
be done on the numerous defects and irregularities caused by MS it of the assignment. Effectively, Fong became subrogated to the
Maxco, which cost P11,567,779.12.[11] Pursuant to the Trade right of MS Maxco to collect from FBDC the credit assigned to
Contract, FBDC deducted the said amount from MS Maxco's him.[37] Likewise, FBDC was bound to recognize the
retention money.[12] assignment, which appears in a public instrument.[38]
The Trade Contract likewise provided that MS Maxco is prohibited With respect to the garnishment of the retention money, the RTC
from assigning or transferring any of its rights, obligations, or held that it could not adversely affect Fong's rights as assignee
liabilities under the said Contract without the written consent of of MS Maxco, considering that the amount indicated in the Deed
FBDC.[13] of Assignment was no longer MS Maxco's property, but Fong's.
Effectively, when MS Maxco assigned the sum of P1,577,115.90
Sometime in April 2005, FBDC received a letter[14] dated April to Fong, the said amount can no longer be considered MS
18, 2005 (April 18, 2005 letter) from the counsel of Fong Maxco's property that could be garnished or attached by its
informing it that MS Maxco had already assigned its receivables creditors. As records show that the garnishment of the retention
from FBDC to him (Fong) by virtue of a notarized Deed of money was made on July 30, 2005 and January 26, 2006, or
Assignment[15] dated February 28, 2005.[16] Under the Deed of after FBDC was notified of MS Maxco's assignment in favor of
Assignment, MS Maxco assigned the amount of P1,577,115.90 to Fong on April 18, 2005, for all intents and purposes, FBDC must
Fong as payment of the former's obligation to the latter, which be considered to have paid MS Maxco's other creditors out of its
amount was to be taken from the retention money with FBDC. own funds.[39]
[17] In its letter-reply[18] dated October 11, 2005, FBDC
acknowledged the five percent (5%) retention money of MS Finally, with regard to the provision in the Trade Contract
Maxco, but asserted that the same was not yet due and requiring the written consent of FBDC before MS Maxco may
demandable and that it was already the subject of validly assign or transfer any of its rights, obligations, or
garnishment[19] by MS Maxco's other creditors. liabilities thereunder, the RTC held that Fong was not bound
thereby. It ruled that Fong did not automatically become party to
Despite Fong's repeated requests,[20] FBDC refused to deliver to the provisions of the Trade Contract by virtue of its being the
Fong the amount assigned by MS Maxco. Finally, in a letter[21] assignee of MS Maxco, as the said provisions are matters which
dated January 31, 2006, FBDC informed Fong that after the exclusively pertain to the parties thereto.[40]
rectification of the defects in the Project, as well as the
garnishment made by MS Maxco's creditors, nothing was left of In any event, however, the RTC recognized FBDC's right of
its retention money with FBDC from which Fong's claims may be recourse against its co-defendant MS Maxco for the latter's
satisfied. This prompted Fong, doing business under the name breach of undertaking under the Trade Contract.[41]
"VF Industrial Sales" to file the instant civil case,[22] before the
RTC, against MS Maxco or FBDC for the payment of the sum of Aggrieved, FBDC appealed[42] to the CA, assailing the RTC's
P1,577,115.90, with legal interest due, costs of suit, and conclusion that the Deed of Assignment was binding upon it and
litigation expenses.[23] that it was liable to satisfy Fong's claims.
In so ruling, the RTC held that the instant case was one of The Issues Before the Court
assignment of credit under Article 1624[33] of the Civil Code,
hence, did not require FBDC's consent as debtor for its validity
223
The issues for the Court's resolution are whether or not the CA The practical efficacy of the assignment, although valid between
erred in ruling that FBDC was bound by the Deed of Assignment Fong and MS Maxco, remains contingent on FBDC's consent.
between MS Maxco and Fong, and even assuming that it was, Without the happening of said condition, only MS Maxco, and not
whether or not FBDC was liable to pay Fong the amount of ? Fong, can collect on the credit. Note, however, that this finding
1,577,115.90, representing a portion of MS Maxco's retention does not preclude any recourse that Fong may take against MS
money. Maxco. After all, an assignment of credit for a consideration and
covering a demandable sum of money is considered as a sale of
The Court's Ruling personal property.[57] To this, Article 1628 of the Civil Code
provides:
The petition is meritorious.
Art. 1628. The vendor in good faith shall be responsible for the
Obligations arising from contracts have the force of law between existence and legality of the credit at the time of the sale, unless
the contracting parties and should be complied with in good it should have been sold as doubtful; but not for the solvency of
faith.[50] As such, the stipulations in contracts are binding on the debtor, unless it has been so expressly stipulated or unless
them unless the contract is contrary to law, morals, good the insolvency was prior to the sale and of common knowledge.
customs, public order or public policy.[51]
Even in these cases he shall only be liable for the price received
The same principle on obligatory force applies by extension to and for the expenses specified in No. 1 of Article 1616.[58]
the contracting party's assignees, in turn, by virtue of the
principle of relativity of contracts which is fleshed out in Article The vendor in bad faith shall always be answerable for the
1311 of the Civil Code, viz.: payment of all expenses, and for damages.
Art. 1311. Contracts take effect only between the parties, their WHEREFORE, the petition is GRANTED. The assailed Decision
assigns and heirs, except in case where the rights and dated May 17, 2013 and the Resolution dated September 2,
obligations arising from the contract are not transmissible by 2013 rendered by the Court of Appeals in CA-G.R. CV. No. 93407
their nature, or by stipulation or by provision of law. The heir is are hereby REVERSED and SET ASIDE, and a new one is entered
not liable beyond the value of the property he received from the DISMISSING the instant complaint against petitioner Fort
decedent. Bonifacio Development Corporation.
Case law states that when a person assigns his credit to another
person, the latter is deemed subrogated to the rights as well as BERSAMIN, J.:
to the obligations of the former.[52] By virtue of the Deed of
Assignment, the assignee is deemed subrogated to the rights This appeal seeks the review and reversal of the amended
and obligations of the assignor and is bound by exactly the same decision promulgated on January 9, 2012,[1] whereby the Court
conditions as those which bound the assignor.[53] Accordingly, of Appeals (CA) disposed thusly:
an assignee cannot acquire greater rights than those pertaining
to the assignor.[54] The general rule is that an assignee of a WHEREFORE, premises considered, judgment is rendered:
non-negotiable chose in action acquires no greater right than
what was possessed by his assignor and simply stands into the 1. Granting the appeal of plaintiff-appellant and herein movant
shoes of the latter.[55] Ortigas and Company Limited Partnership, and reversing the
Decision of the court a quo dated December 14, 2009;
Applying the foregoing, the Court finds that MS Maxco, as the
Trade Contractor, cannot assign or transfer any of its rights, 2. Rescinding the June 24, 1994 Deed of Sale between Ortigas
obligations, or liabilities under the Trade Contract without the and Company Limited Partnership and Amethyst Pearl
written consent of FBDC, the Client, in view of Clause 19.0 on Corporation in view of the material breached (sic) thereof by
"Assignment and Sub-letting" of the Trade Contract between AMETHYST;
FBDC and MS Maxco which explicitly provides that:
3. Ordering ASB Realty Corporation, by way of mutual
19.0 ASSIGNMENT AND SUB-LETTING restitution, the RECONVEYANCE to ORTIGAS of the subject
property covered by TCT No. PT-105797 upon payment by
19.1 The Trade Contractor [Ms Maxco] shall not, without written ORTIGAS to ASB of the amount of Two Million Twenty Four
consent of the Client [FBDC], assign or transfer any of his rights, Thousand Pesos (PhP 2,024,000.00) plus legal interest at the
obligations or liabilities under this Contract. The Trade Contractor rate of 6% per annum from the time of the finality of this
shall not, without the written consent of the Client, sub-let any judgment until the same shall have been fully paid; and
portion of the Works and such consent, if given, shall not relieve
the Trade Contractor from any liability or obligation under this 4. Ordering the Register of Deeds of Pasig City to cancel TCT No.
Contract.[56] (Emphases supplied) PT-105797 and issue a new title over the subject property under
the name of ORTIGAS & COMPANY LIMITED PARTNERSHIP.
Fong, as mere assignee of MS Maxco's rights under the Trade
Contract it had previously entered with FBDC, i.e., the right to No pronouncement as to cost.
recover any credit owing to any unutilized retention money, is
equally bound by the foregoing provision and hence, cannot SO ORDERED.[2]
validly enforce the same without FBDC's consent.
The petitioner also assails the resolution promulgated on July 26,
Without any proof showing that FBDC had consented to the 2012,[3] whereby the CA denied its Motion for Reconsideration.
assignment, Fong cannot validly demand from FBDC the delivery
of the sum of P1,577,115.90 that was supposedly assigned to Antecedents
him by MS Maxco as a portion of its retention money with FBDC.
224
On June 29, 1994, respondent Ortigas & Company Limited c. Defendant likewise failed to submit the final plans and
Partnership (Ortigas) entered into a Deed of Sale with Amethyst specifications of its proposed building not later than six (6)
Pearl Corporation (Amethyst) involving the parcel of land with an months from June 29, 1994 and to complete construction of the
area of 1,012 square meters situated in Barrio Oranbo, Pasig City same within four (4) years from December 31, 1991. (see pars.
and registered under Transfer Certificate of Title (TCT) No. 65118 L and M, ibid).
of the Register of Deeds of Rizal[4] for the consideration of
P2,024,000.00. The Deed of Sale[5] contained the following d. Being situated in a first-class office building area, it was
stipulations, among others: agreed that no advertisements or any kind of commercial signs
COVENANTS, CONDITIONS AND RESTRICTIONS shall be allowed on the lot or the improvements therein but this
was violated by defendant when it put up commercial signs and
This lot has been segregated by ORTIGAS from its subdivisions to advertisements all over the area, (see par. F, ibid).
form part of a zonified BUILDING AREA pursuant to its controlled 6. Any of the afore-described violations committed by the
real estate development project and subdivision scheme, and is defendant empower the plaintiff to sue under parangraph "N.
subject to the following covenants which form part of the Unilateral Cancellation", plaintiff may have the Deed of Absolute
consideration of ORTIGAS' sale to VENDEE and its assigns, Sale (Annex "A") cancelled and the property reverted to it by
namely: paying the defendant the amount it has paid less the items
indicated therein.[15]
xxxx For reliefs, Ortigas prayed for the reconveyance of the subject
property, or, alternatively, for the demolition of the structures
B. BUILDING WORKS AND ARCHITECTURE: and improvements thereon, plus the payment of penalties,
attorney's fees and costs of suit.[16]
1. The building to be constructed on the lot shall be of reinforced
concrete, cement hollow blocks and other high-quality materials During the pendency of the proceedings in the RTC, the
and shall be of the following height of not more than: fourteen petitioner amended its Articles of Incorporation to change its
(14) storeys plus one penthouse. name to St. Francis Square Realty Corporation.[17]
xxxx After trial on the merits, the RTC rendered its decision on
December 14, 2009,[18] and dismissed the complaint,
L. SUBMISSION OF PLANS: pertinently holding as follows:
Ortigas sold the property [to] Amethyst on 29 June 1994.
The final plans and specifications of the said building shall be Amethyst was supposed to finish construction on 31 December
submitted to ORTIGAS for approval not later than six (6) months 1995. Yet, up to the time the property was transferred to ASB on
from date hereof. Should ORTIGAS object to the same, it shall 28 December 1996, Ortigas never initiated any action against
notify and specify to the VENDEE in writing the amendments Amethyst to enforce said provision. Ortigas is therefore guilty of
required to conform with its building restrictions and VENDEE laches or negligence or omission to assert a right within a
shall submit the amended plans within sixty (60) days from reasonable time, warranting a presumption that the party
receipt of said notice. entitled to assert it either has abandoned it or declined to assert
it. (Tijam v. Sibonghanoy, L-21450, 15 April 1968, 23 SCRA 29).
M. CONSTRUCTION AND COMPLETION OF BUILDING:
It is worth mentioning that the restrictions annotated in TCT No.
The VENDEE shall finish construction of its building within four 94175 (in the name of Amethyst Pearl Corporation) and TCT No.
(4) years from December 31, 1991.[6] PT-105797 (in the name of ASB) repeatedly and consistently
As a result, the Register of Deeds of Rizal cancelled TCT No. refer to the VENDEE. The term VENDEE in the said restrictions
65118 and issued TCT No. PT-94175 in the name of Amethyst. obviously refer to Amethyst Pearls Corporation considering the
[7] The conditions contained in the Deed of Sale were also fact that the date referred to in Paragraph N thereof
annotated on TCT No. PT-94175 as encumbrances.[8] (Construction and Completion of Building), which is four (4)
years from December 31, 1991, obviously refer to the plaintiffs
On December 28, 1996, Amethyst assigned the subject property VENDEE Amethyst Pearl Corporation. Definitely, it cannot refer to
to its sole stockholder, petitioner ASB Realty Corporation (the the defendant ASB which is not a vendee of the plaintiff.
petitioner), under a so-called Deed of Assignment in Liquidation Therefore, all references to VENDEE in the restrictions evidently
in consideration of 10,000 shares of the petitioner's outstanding refer to Amethyst Pearl Corporation, the VENDEE in the sale from
capital stock.[9] Thus, the property was transferred to the the plaintiff. Such explanation is more consistent with logic than
petitioner free from any liens or encumbrances except those duly the plaintiffs convoluted assertions that the said restrictions
annotated on TCT No. PT-94175.[10] The Register of Deeds of apply to the defendant ASB.
Rizal cancelled TCT No. PT-94175 and issued TCT No. PT-105797
in the name of the petitioner with the same encumbrances Reconveyance of the property to Ortigas necessarily implies
annotated on TCT No. PT-94175.[11] rescission of the sale or transfer from Amethyst to ASB and from
Ortigas to Amethyst. But Amethyst was not made a party to the
On July 7, 2000, Ortigas filed its complaint for specific case. Reconveyance of the property to the original seller
performance against the petitioner,[12] which was docketed as (Ortigas) applies only on the sale to the original vendee
Civil Case No. 67978 of the Regional Trial Court (RTC) in Pasig (Amethyst) and not to subsequent vendees to whom the
City.[13] Ortigas amended the complaint, and alleged,[14] property was sold (Ayala Corp. v. Rosa Diana Realty and Dev.
among others, that: Corp., G.R. No. 134284, Dec. 1, 2000, 346 SCRA 663).
5. Defendant has violated the terms of the Deed of Absolute Sale
(Annex "A") in the following manner: The non-compliance by the plaintiff with the requisites of its own
a. While the lot may be used only "for office and residential restrictions further proves that it had no intention whatsoever to
purposes", defendant introduced constructions on the property enforce or implement the same. If at all, this evinces an
which are commercial in nature, like restaurants, retail stores afterthought of the plaintiff to belatedly and unjustifiably single
and the like (see par. A, Deed of Absolute Sale, Annex "A"). out the defendant for alleged non compliance of the said
restrictions which are not applicable to it anyway.
b. The commercial structures constructed by defendant on the
property extend up to the boundary lines of the lot in question WHEREFORE, foregoing premises considered, the present
violating the setbacks established in the contract (see par. B.A., complaint is hereby dismissed for lack of basis.
ibid).
SO ORDERED.[19]
225
Ortigas appealed to the CA, which initially affirmed the RTC Consequently, while it may be true that ASB was bound by the
under the decision promulgated on September 6, 2011,[20] restrictions annotated on its title, specifically the restriction on
ruling thusly: building completion, ORTIGAS is now effectively estopped from
x x x x ORTIGAS can no longer enforce the said restrictions as enforcing the same by virtue of its inaction and silence.
against ASB.
xxxx
The "Covenants, Conditions and Restrictions" of ORTIGAS with
respect to the property clearly states the following purpose: In this case, ORTIGAS acquiesced to the conveyance of the
"This lot has been segregated by ORTIGAS from its subdivisions property from AMETHYST to ASB with nary a demand,
to form part of a zonified BUILDING AREA pursuant to its reservation or complaint for the enforcement of the restriction on
controlled real estate development project and subdivision building construction. It allowed the four-year period within
scheme. x x x" which to construct a building to lapse before it decided that it
However, it appears from the circumstances obtaining in this wanted, after all, to enforce the restriction, which cannot be
case that ORTIGAS failed to pursue the aforequoted purpose. It allowed lest the property rights of the registered owner, ASB, be
never filed a complaint against its vendee, AMETHYST, transgressed. Such a silence or inaction, which in effect led ASB
notwithstanding that it required the latter to complete to believe that ORTIGAS no longer sought the enforcement of the
construction of the building within four (4) years from the restrictions on the contract, therefore bars ORTIGAS from
execution of the Deed of Sale. Neither did it make a demand to enforcing the restriction it imposed on the subject property.
enforce the subject restriction. Moreover, while it imposed a
restriction on the registration and issuance of title in the name of xxxx
the vendee under Paragraph "P" on "Registration of Sale", to wit:
WHEREFORE, premises considered, the instant appeal is DENIED.
"P. REGISTRATION OF SALE: The assailed Decision is hereby AFFIRMED.
The VENDEE hereby agrees that, for the time being, this Deed SO ORDERED.[21]
will not be registered and that its title shall not be issued until Acting on Ortigas' Motion for Reconsideration, however, the CA
the satisfactory construction of the contemplated Office Building promulgated its assailed amended decision on January 9, 2012,
and VENDEE's compliance with all conditions therein. x x x" [22] whereby it reversed the decision promulgated on September
6, 2011. It observed and ruled as follows:
AMETHYST was nonetheless able to procure the title to the It is not disputed that AMETHYST failed to finish construction
property in its name, and subsequently, assigned the same to within the period stated in the 1994 Deed of Sale. As correctly
ASB. pointed out by ORTIGAS, in accordance with Article 1144 of the
Civil Code, the prescriptive period within which to enforce
Besides, records show that there are registered owner- remedies under the 1994 Deed of sale is ten (10) years from the
corporations of several properties within the Ortigas area, where time the right of action accrues.
the subject property is located, that have likewise failed to
comply with the restriction on building construction ORTIGAS, therefore, had ten (10) years from 31 December 1995
notwithstanding the fact of its annotation on the titles covering or until 31 December 2005 within which to file suit to enforce the
their properties. In fact, the tax declarations covering these restriction. ORTIGAS filed the present complaint on 07 July 2000
properties in the respective names of UNIMART INC., CHAILEASE well within the prescriptive period for filing the same.
DEVELOPMENT CO. INC., CANOGA PARK DEVELOPMENT
CORPORATION, and MAKATI SUPERMARKET CORPORATION ASB contends that it could not have complied with the particular
reveal that no improvements or buildings have been erected restriction to finish construction of the building as the period to
thereon. finish the same had already lapsed by the time ASB acquired the
property by way of a Deed of Assignment in Liquidation between
Notwithstanding such blatant non-compliance, however, records AMETHYST and ASB on 28 December 1996. We hold, however,
are bereft of evidence to prove that ORTIGAS took steps to that the mere assignment or transfer of the subject property
demand observance of the said restriction from these from AMETHYST to ASB does not serve to defeat the vested right
corporations, or that it opted to institute any case against them of ORTIGAS to avail of remedies to enforce the subject restriction
in order to enforce its rights as seller. Thus, while ORTIGAS within the applicable prescriptive period.
effectively tolerated the non-compliance of these other
corporations, it nonetheless proceeded with the filing of the xxxx
Complaint a quo against ASB, seeking the rescission of the
original Deed of Sale on the ground of non-compliance of the As to the argument that the inaction of ORTIGAS with respect to
very same restriction being violated by other property owners other non-compliant properties in the Ortigas area is tantamount
similarly situated. to consenting to such non-compliance, it must be mentioned that
it is the sole prerogative and discretion of Ortigas to initiate any
On the basis of the foregoing acts or omissions of ORTIGAS, and action against the violators of the deed restrictions. This Court
the factual milieu of the present case, it cannot be pretended cannot interfere with the exercise of such prerogative/discretion.
that it failed to actively pursue the attainment of its objective of Furthermore, We cannot sustain estoppel in doubtful inference.
having a "controlled real estate development project and Absent the conclusive proof that its essential elements are
subdivision scheme". The Court thus concurs with the present, estoppel must fail. Estoppel, when misapplied, becomes
ratiocinations of the RTC when it posited that the restrictions an effective weapon to accomplish an injustice, inasmuch as it
imposed by ORTIGAS on ASB have been "rendered obsolete and shuts a man's mouth from speaking the truth.[23]
inexistent" for failure of ORTIGAS to enforce the same uniformly By its resolution promulgated on July 26, 2012, the CA denied
and indiscriminately against all non-complying property owners. the petitioner's Motion for Reconsideration[24] for being filed out
If the purpose of ORTIGAS for imposing the restrictions was for of time.[25]
its "controlled real estate development project and subdivision
scheme", then it should have sought compliance from all Issues
property owners that have violated the restriction on building
completion. As things stand, ASB would appear to have been Hence, this appeal in which ASB submits: (1) that its Motion for
singled out by ORTIGAS, rendering the present action highly Reconsideration vis-a-vis the CA's amended decision was filed on
suspect and a mere afterthought. time; and (2) that the amended decision promulgated on
January 9, 2012 by CA be reversed and set aside, and the
decision promulgated on September 6, 2011 be reinstated.[26]
226
obligation against Amethyst; and (3) the petitioner was placed
The petitioner essentially seeks the resolution of the issue of under corporate rehabilitation by the Securities and Exchange
whether or not Ortigas validly rescinded the Deed of Sale due to Commission (SEC) by virtue of which a stay order was issued on
the failure of Amethyst and its assignee, the petitioner, to fulfil May 4, 2000.[35]
the covenants under the Deed of Sale.
In contrast, Ortigas contends that it had the sole discretion
Ruling of the Court whether or not to commence any action against a party who
violated a restriction in the Deed of Sale;[36] and that it could
The petition for review is meritorious. not be estopped because the Deed of Sale with Amethyst and the
deeds of sale with its other buyers contained a uniform provision
1. to the effect that "any inaction, delay or tolerance by OCLP
(Ortigas) in respect to violation of any of the covenants and
Petitioner's motion for reconsideration vis-a-vis the amended restrictions committed by these buyers shall not bar or estop the
decision of the CA was timely filed institution of an action to enforce them."[37]
In denying the petitioner's Motion for Reconsideration, the CA In asserting its right to rescind, Ortigas insists that the petitioner
concluded as follows: was bound by the covenants of the Deed of Sale annotated on
Per allegation of material dates, the Motion for Reconsideration TCT No. PT-10597 in the name of the petitioner;[38] and that
filed by Balgos Gumara & Jalandoni, co-counsel with Jose, the petitioner's privity to the Deed of Sale was by virtue of its
Mendoza & Associates, on January 30, 2012 appears to have being the successor-in-interest or assignee of Amethyst.[39]
been filed on time. However, per registry return attached at the
back of p. 212 of the Rollo, the Motion for Reconsideration was After evaluating the parties' arguments and the records of the
filed three (3) days late considering that the Amended Decision case, the Court holds that Ortigas could not validly demand the
was received by defendant appellee's counsel of record, Jose, reconveyance of the property, or the demolition of the structures
Mendoza & Associates, on January 12, 2012.[27] thereon through rescission.
The conclusion of the CA was unwarranted because the petitioner
established that its filing of the Motion for Reconsideration was The Deed of Assignment in Liquidation executed between
timely. Amethyst and the petitioner expressly stated, in part, that:
x x x x [T]he ASSIGNOR hereby assigns, transfers and conveys
It is basic that the party who asserts a fact or the affirmative of unto the ASSIGNEE, its successors and assigns, free from any
an issue has the burden of proving it.[28] Here, that party was lien or encumbrance except those that are duly annotated on the
the petitioner. To comply with its burden, it attached to its Transfer Certificate of Title (TCT), one parcel of real property
petition for review on certiorari: (1) the affidavit executed by (with improvements). x x x.
Noel S.R. Rose, Senior Partner of Jose, Mendoza & Associates
attesting that he had requested the postmaster of the xxxx
Mandaluyong City Post Office to certify the date when Jose,
Mendoza & Associates had received the copy of the amended The ASSIGNEE in turn in consideration of the foregoing
decision of the CA;[29] and (2) the certification issued on August assignment of assets to it, hereby surrenders to ASSIGNOR,
15, 2012 by Postmaster Rufino C. Robles, and Letter Carrier, Jojo Amethyst Pearl Corporation, Stock Certificate Nos. (006, 007,
Salvador, both of the Mandaluyong Central Post Office, certifying 008, 009, 010, 011), covering a total of TEN THOUSAND SHARES
that Registered Letter No. MVC 457 containing the copy of the (10,000) registered in the name of the ASSIGNEE and its
amended decision had been delivered to and received on January nominees in the books of ASSIGNOR, receipt of which is hereby
18, 2012 by Jose, Mendoza & Associates, through Ric Ancheta. acknowledged, and in addition hereby releases ASSIGNOR from
[30] It thereby sought to prove that it had received the copy of any and all claims.[40]
the amended decision only on January 18, 2012, not January 12, The express terms of the Deed of Assignment in Liquidation,
2012 as stated in the registry return card on record. Thus, it had supra, indicate that Amethyst transferred to the petitioner only
until February 2, 2012, or 15 days from January 18, 2012, within the tangible asset consisting of the parcel of land covered by TCT
which to file the same. In contrast, Ortigas relied only on the No. PT-94175 registered in the name of Amethyst. By no means
copy of the registry return to refute the petitioner's assertion. did Amethyst assign the rights or duties it had assumed under
[31] Under the circumstances, the filing on January 30, 2012 of the Deed of Sale. The petitioner thus became vested with the
the Motion for Reconsideration was timely. ownership of the parcel of land "free from any lien or
encumbrance except those that are duly annotated on the [title]"
2. from the time Amethyst executed the Deed of Assignment in
Liquidation.
Ortigas' action for rescission could not prosper
Although the Deed of Sale stipulated that:
The petitioner reiterates that although the restrictions and 3. The lot, together with any improvements thereon, or any
covenants imposed by Ortigas under the Deed of Sale with rights thereto, shall not be transferred, sold or encumbered
Amethyst, particularly with regard to the construction of the before the final completion of the building as herein provided
building, were similarly imposed on Ortigas' other buyers and unless it is with the prior express written approval of ORTIGAS.
annotated on the latter's respective certificates of title,[32] [41]
Ortigas never took to task such other buyers and Amethyst for
failing to construct the buildings within the periods contractually xxxx
imposed.[33] It maintains, therefore, that Ortigas slept on its
rights because it did not take any action against Amethyst during The VENDEE hereby agrees that, for the time being, this Deed
the period prescribed in the Deed of Sale.[34] It argues that will not be registered and that its title shall not be issued until
even assuming that it was bound by the terms of the Deed of the satisfactory construction of the contemplated Office Building
Sale, certain circumstances occurred in the interim that rendered and VENDEE's compliance with all conditions herein. x x x[42]
it impossible for the petitioner to comply with the covenants Ortigas apparently recognized without any reservation the
embodied in the Deed of Sale, namely: (1) the delay in the issuance of the new certificate of title in the name of Amethyst
petitioner's possession of the property resulted from the and the subsequent transfer by assignment from Amethyst to the
complaint for forcible entry it had filed in the Metropolitan Trial petitioner that resulted in the issuance of the new certificate of
Court in Pasig City; (2) at the time the property was transferred title under the name of the petitioner. As such, Ortigas was
to the petitioner, the period within which to construct the estopped from assailing the petitioner's acquisition and
building had already expired without Ortigas enforcing the ownership of the property.
227
consent of the creditor. Payment by the new debtor gives him
The application of estoppel was appropriate. The doctrine of the rights mentioned in articles 1236 and 1237.
estoppel was based on public policy, fair dealing, good faith and Therefore, the obligation to pay the mortgage indebtedness
justice, and its purpose was to forbid a party to speak against his remains with the original debtors Galas and Pingol. x x x
own act or omission, representation, or commitment to the injury To be clear, contractual obligations, unlike contractual rights or
of another to whom the act, omission, representation, or benefits, are generally not assignable. But there are recognized
commitment was directed and who reasonably relied thereon. means by which obligations may be transferred, such as by sub-
The doctrine sprang from equitable principles and the equities in contract and novation. In this case, the substitution of the
the case, and was designed to aid the law in the administration petitioner in the place of Amethyst did not result in the novation
of justice where without its aid injustice would result. Estoppel of the Deed of Sale. To start with, it does not appear from the
has been applied by the Court wherever and whenever special records that the consent of Ortigas to the substitution had been
circumstances of the case so demanded.[43] obtained despite its essentiality to the novation. Secondly, the
petitioner did not expressly assume Amethyst's obligations under
Yet, the query that persists is whether or not the covenants the Deed of Sale, whether through the Deed of Assignment in
annotated on TCT No. PT-10597 bound the petitioner to the Liquidation or another document. And, thirdly, the consent of the
performance of the obligations assumed by Amethyst under the new obligor (i.e., the petitioner), which was as essential to the
Deed of Sale. novation as that of the obligee (i.e., Ortigas), was not obtained.
[50]
We agree with Ortigas that the annotations on TCT No. PT-10597
bound the petitioner but not to the extent that rendered the Even if we would regard the petitioner as the assignee of
petitioner liable for the non-performance of the covenants Amethyst as far as the Deed of Sale was concerned, instead of
stipulated in the Deed of Sale. being the buyer only of the subject property, there would still be
no express or implied indication that the petitioner had assumed
Section 39 of Act No. 496 (The Land Registration Act) requires Amethyst's obligations. In short, the burden to perform the
that every person receiving a certificate of title in pursuance of a covenants under the Deed of Sale, or the liability for the non-
decree of registration, and every subsequent purchaser of performance thereof, remained with Amethyst. As held in an
registered land who takes a certificate of title for value in good American case:
faith shall hold the same free of all encumbrances except those The mere assignment of a bilateral executory contract may not
noted on said certificate. An encumbrance in the context of the be interpreted as a promise by the assignee to the assignor to
provision is "anything that impairs the use or transfer of assume the performance of the assignor's duties, so as to have
property; anything which constitutes a burden on the title; a the effect of creating a new liability on the part of the assignee to
burden or charge upon property; a claim or lien upon the other party to the contract assigned. The assignee of the
property."[44] It denotes "any right to, or interest in, land which vendee is under no personal engagement to the vendor where
may subsist in another to the diminution of its value, but there is no privity between them. (Champion v. Brown, 6 Johns.
consistent with the passing of the fee by conveyance."[45] An Ch. 398; Anderson v. N. Y. & H. R. R. Co., 132 App. Div. 183,
annotation, on the other hand, is "a remark, note, case 187, 188; Hugel v. Habel, 132 App. Div. 327, 328.) The assignee
summary, or commentary on some passage of a book, statutory may, however, expressly or impliedly, bind himself to perform
provision, court decision, of the like, intended to illustrate or the assignor's duties. This he may do by contract with the
explain its meaning."[46] The purpose of the annotation is to assignor or with the other party to the contract. It has been held
charge the purchaser or title holder with notice of such burden (Epstein v. Gluckin, 233 N. Y. 490) that where the assignee of
and claims.[47] Being aware of the annotation, the purchaser the vendee invokes the aid of a court of equity in an action for
must face the possibility that the title or the real property could specific performance, he impliedly binds himself to perform on
be subject to the rights of third parties.[48] his part and subjects himself to the conditions of the judgment
appropriate thereto. "He who seeks equity must do equity." The
By acquiring the parcel of land with notice of the covenants converse of the proposition, that the assignee of the vendee
contained in the Deed of Sale between the vendor (Ortigas) and would be bound when the vendor began the action, did not follow
the vendee (Amethyst), the petitioner bound itself to from the decision in that case. On the contrary, the question was
acknowledge and respect the encumbrance. Even so, the wholly one of remedy rather than right and it was held that
petitioner did not step into the shoes of Amethyst as a party in mutuality of remedy is important only so far as its presence is
the Deed of Sale. Thus, the annotation of the covenants essential to the attainment of the ends of justice. This holding
contained in the Deed of Sale did not give rise to a liability on the was necessary to sustain the decision. No change was made in
part of the petitioner as the purchaser/successor-in-interest the law of contracts nor in the rule for the interpretation of an
without its express assumption of the duties or obligations assignment of a contract.
subject of the annotation. As stated, the annotation was only the
notice to the purchaser/successor-in-interest of the burden, A judgment requiring the assignee of the vendee to perform at
claim or lien subject of the annotation. In that respect, the Court the suit of the vendor would operate as the imposition of a new
has observed in Garcia v. Villar:[49] liability on the assignee which would be an act of oppression and
The sale or transfer of the mortgaged property cannot affect or injustice, unless the assignee had, expressly or by implication,
release the mortgage; thus the purchaser or transferee is entered into a personal and binding contract with the assignor or
necessarily bound to acknowledge and respect the encumbrance. with the vendor to assume the obligations of the assignor.[51]
Is rescission the proper remedy for Ortigas to recover the subject
xxxx property from the petitioner?
x x x However, Villar, in buying the subject property with notice The Civil Code uses rescission in two different contexts, namely:
that it was mortgaged, only undertook to pay such mortgage or (1) rescission on account of breach of contract under Article
allow the subject property to be sold upon failure of the 1191; and (2) rescission by reason of lesion or economic
mortgage creditor to obtain payment from the principal debtor prejudice under Article 1381. Cogently explaining the differences
once the debt matures. Villar did not obligate herself to replace between the contexts of rescission in his concurring opinion in
the debtor in the principal obligation, and could not do so in law Universal Food Corp. v. Court of Appeals,[52] the eminent
without the creditors consent. Article 1293 of the Civil Code Justice J.B.L. Reyes observed:
provides: x x x The rescission on account of breach of stipulations is not
Art. 1293. Novation which consists in substituting a new debtor predicated on injury to economic interests of the party plaintiff
in the place of the original one, may be made even without the but on the breach of faith by the defendant, that violates the
knowledge or against the will of the latter, but not without the reciprocity between the parties. It is not a subsidiary action, and
Article 1191 may be scanned without disclosing anywhere that
228
the action for rescission thereunder is subordinated to anything; In view of the outcome, we consider to be superfluous any
other than the culpable breach of his obligations by the discussion of the other matters raised in the petition, like the
defendant. This rescission is in principal action retaliatory in effects of the petitioner's corporate rehabilitation and whether
character, it being unjust that a party be held bound to fulfill his Ortigas was guilty of laches.
promises when the other violates his, as expressed in the old
Latin aphorism: "Non servanti fidem, non est fides servanda." WHEREFORE, the Court GRANTS the petition for review on
Hence, the reparation of damages for the breach is purely certiorari; ANNULS and REVERSES the amended decision
secondary. promulgated on January 9, 2012 and the resolution promulgated
on July 26, 2012 by the Court of Appeals in C.A.-G.R. CV No.
On the contrary, in the rescission by reason of lesion or economic 94997; DISMISSES Civil Case No. 67978 for lack of cause of
prejudice, the cause of action is subordinated to the existence of action; and ORDERS respondent ORTIGAS & COMPANY LIMITED
that prejudice, because it is the raison d'etre as well as the PARTNERSHIP to pay the costs of suit.
measure of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot be SO ORDERED.
maintained or continued, as expressly provided in Articles 1383
and 1384. But the operation of these two articles is limited to the
cases of rescission for lesion enumerated in Article 1381 of the Show opinions
Civil Code of the Philippines, and does not apply to cases under DIVISION
Article 1191. [ GR No. 213582, Jun 28, 2016 ]
Based on the foregoing, Ortigas' complaint was predicated on NYMPHA S. ODIAMAR v. LINDA ODIAMAR VALENCIA +
Article 1191 of the Civil Code, which provides: RESOLUTION
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him. PERLAS-BERNABE, J.:
The injured party may choose between the fulfillment and the Before the Court, is a petition for review on certiorari[2] assailing
rescission of the obligation, with the payment of damages in the Decision[3] dated March 16, 2012 and the Resolution[4]
either case. He may also seek rescission, even after he has dated July 14, 2014 of the Court of Appeals (CA) in C.A. G.R. CV
chosen fulfillment, if the latter should become impossible. No. 93624, which affirmed the Decision[5] dated May 5, 2009 of
the Regional Trial Court of San Jose, Camarines Sur, Branch 58
The court shall decree the rescission claimed, unless there be (RTC) in Civil Case No. T-962 ordering petitioner Nympha S.
just cause authorizing the fixing of a period. Odiamar (petitioner) to pay respondent Linda Odiamar Valencia
(respondent) the amount of P1,710,049.00 plus twelve percent
This is understood to be without prejudice to the rights of third (12%) interest, attorney's fees, litigation expenses, and the
persons who have acquired the thing, in accordance with articles costs of suit.
1385 and 1388 and the Mortgage Law.
Rescission under Article 1191 of the Civil Code is proper if one of Facts
the parties to the contract commits a substantial breach of its
provisions. It abrogates the contract from its inception and On August 20, 2003, respondent filed a complaint[6] for sum of
requires the mutual restitution of the benefits received;[53] money and damages against petitioner, alleging that the latter
hence, it can be carried out only when the party who demands owed her P2,100,000.00. Petitioner purportedly issued China
rescission can return whatever he may be obliged to restore. Bank Check No. GHB1147212[7] (the check) for the said amount
to guarantee the payment of the debt, but upon presentment,
Considering the foregoing, Ortigas did not have a cause of action the same was dishonored.[8] Respondent lamented that
against the petitioner for the rescission of the Deed of Sale. petitioner refused to pay despite repeated demands, and that
Under Section 2, Rule 2 of the Rules of Court, a cause of action is had she invested the money loaned to petitioner or deposited the
the act or omission by which a party violates a right of another. same in a bank, it would have earned interest at the rate of 36%
The essential elements of a cause of action are: (1) a right in per annum or three percent (3%) per month.[9]
favor of the plaintiff by whatever means and under whatever law
it arises or is created; (2) an obligation on the part of the For her part, petitioner sought the dismissal[10] of the complaint
defendant not to violate such right; and (3) an act or omission on the ground that it was her deceased parents who owed
on the part of the defendant in violation of the right of the respondent money. Accordingly, respondent's claim should be
plaintiff or constituting a breach of the obligation of the filed in the proceedings for the settlement of their estates.
defendant to the plaintiff for which the latter may maintain an Petitioner averred that respondent had, in fact, participated in
action for recovery of damages or other relief. It is only upon the the settlement proceedings and had issued a certification[11]
occurrence of the last element that the cause of action arises, stating that it was petitioner's deceased parents who were
giving the plaintiff the right to file an action in court for the indebted to respondent for P2,000,000.00. She further
recovery of damages or other relief.[54] maintained that as administratix of her parents' estates, she
agreed to pay such indebtedness on installment but respondent
The second and third elements were absent herein. The refused to accept her payments.[12]
petitioner was not privy to the Deed of Sale because it was not
the party obliged thereon. Not having come under the duty not Respondent countered[13] that petitioner personally borrowed
to violate any covenant in the Deed of Sale when it purchased almost half of the P2,100,000.00 from her, as evidenced by the
the subject property despite the annotation on the title, its check which she issued after agreeing to settle the same in
failure to comply with the covenants in the Deed of Sale did not installments.[14] While respondent conceded that petitioner
constitute a breach of contract that gave rise to Ortigas' right of made several installment payments from December 29, 2000
rescission. It was rather Amethyst that defaulted on the until May 31, 2003, she pointed out that the latter failed to make
covenants under the Deed of Sale; hence, the action to enforce any succeeding payments.[15] Moreover, respondent denied
the provisions of the contract or to rescind the contract should be participating in the proceedings for the settlement of the estates
against Amethyst. In other words, rescission could not anymore of petitioner's parents, clarifying that petitioner was the one who
take place against the petitioner once the subject property prepared the certification alluded to and that she (respondent)
legally came into the juridical possession of the petitioner, who signed it on the belief that petitioner would make good her
was a third party to the Deed of Sale.[55] promise to pay her (respondent).[16]
229
In an Order[17] dated October 3, 2003, the RTC denied there was no novation with respect to the object of the contract,
petitioner's motion to dismiss, thus prompting her to file an following the rule that an obligation is not novated by an
answer.[18] She asserted that respondent merely persuaded her instrument which expressly recognizes the old obligation and
to issue the check to guarantee her deceased parents' loan. She changes only the terms of paying the same, as in this case where
further claimed that the check was blank when she issued it and the parties merely modified the terms of payment of the
that despite having no authority to fill up the same, respondent P2,100,000.00.[34]
wrote the amount and date thereon.[19] She also maintained
that from December 29, 2000 to May 31, 2003, she made, in Dissatisfied, petitioner moved for reconsideration,[35] which
almost daily installments, payments to respondent ranging from was, however, denied in a Resolution[36] dated July 14, 2014;
P500.00 to P10,000.00, and that while she tried to make hence, this petition.
succeeding payments, respondent refused to accept the same,
demanding, instead, the payment of the entire balance.[20] As The Issue Before the Court
counterclaim, petitioner prayed that moral damages, attorney's
fees, litigation expenses, and exemplary and punitive damages The primary issue for the Court's resolution is whether or not
be awarded to her.[21] petitioner should be held liable to respondent for the entire debt
in the amount of P2,100,000.00.
The RTC Ruling
The Court's Ruling
In a Decision[22] dated May 5, 2009, the RTC ruled in favor of
respondent and ordered petitioner to pay: (a) P1,710,049.00 At the outset, it must be emphasized that the fact of petitioner's
which represents the unpaid portion of the P2,100,000.00 debt; liability to respondent is well-established. As correctly pointed
(b) twelve percent (12%) interest computed from the time out by the RTC and the CA, while respondent acknowledged that
judicial demand was made on August 20, 2003 until fully paid; petitioner's deceased parents owed her money, petitioner also
(c) P10,000.00 as attorney's fees; (d) litigation expenses admitted obtaining loans from respondent, viz.:
amounting to P19,662.78; and (e) the costs of suit.[23] From [respondent's] recollection, the amount due from
[petitioner's] parents is P700,000.00. Aside from her parents'
The RTC refused to give credence to petitioner's contention that loans, however, [petitioner] herself admitted having obtained
it was her deceased parents who borrowed money from personal loans from the respondent while her parents were still
respondent, observing that while the latter acknowledged that alive. She testified:
the former's deceased parents owed her P700,000.00 out of the ATTY. PASA:
P2,100,000.00, petitioner likewise admitted that she obtained You also know that [respondent] was also in [lending]?
personal loans from respondent.[24] Hence, according to the [PETITIONER]:
RTC, petitioner cannot deny her liability to respondent. Further, Yes, Madam.
by assuming the liability of her deceased parents and agreeing to Q:
pay their debt in installments - which she in fact paid from Because she was in lending you have borrowed money also? (sic)
December 29, 2000 to May 31, 2003 in amounts of P500.00 to A:
P10,000.00, and which payments respondent did actually accept Yes, Madam.
- a mixed novation took place and petitioner was substituted in Q:
their place as debtor. Thus, the liabilities of the estates of Separate from your father?
petitioner's deceased parents were extinguished and transferred A:
to petitioner.[25] Yes, Madam.
xxxx
Anent the sum due, the RTC surmised that petitioner and her
deceased parents owed respondent the sum of P2,000,000.00 as Q:
principal and since petitioner undertook to pay the same in You borrowed money from [respondent] separate from your
installments, P100,000.00 was added as interest; hence, father prior to his death?
petitioner issued the check for P2,100,000.00.[26] Based on the A:
receipts submitted by petitioner, the genuineness and due Yes, Madam.[37]
execution of which were not put in issue, petitioner had paid a Having admitted that she obtained loans from respondent
total of P389,951.00 in installments, leaving an unpaid balance without showing that the same had already been paid or
of P1,710,049.00, subject to interest of twelve percent (12%) otherwise extinguished, petitioner cannot now aver otherwise. It
per annum from the time judicial demand was made on August is settled that judicial admissions made by the parties in the
20, 2003, in the absence of any written stipulation on interest. pleadings or in the course of the trial or other proceedings in the
[27] same case are conclusive and do not require further evidence to
prove them.[38] They are legally binding on the party making it,
Aggrieved, petitioner appealed[28] to the CA, arguing that [39] except when it is shown that they have been made through
novation did not take place and no interest was due respondent. palpable mistake or that no such admission was actually made,
[29] [40] neither of which was shown to exist in this case.
Accordingly, petitioner is bound by her admission of liability and
The CA Ruling the only material question remaining is the extent of such
liability.
In a Decision[30] dated March 16, 2012, the CA affirmed the
ruling of the RTC.[31] It agreed that petitioner cannot deny her Based on the records of this case, respondent, for her part,
liability to respondent in view of her admission that she borrowed admitted that petitioner's deceased parents owed her
money from the latter several times.[32] The CA also found P700,000.00 of the P2,100,000.00 debt and that petitioner owed
petitioner's claim that she issued a blank check incredible, her P1,400,000.00 only:
pointing out that petitioner testified in court that she personally ATTY. VILLEGAS:
wrote the amount thereon after she and respondent agreed that Q
the loans she and her deceased parents obtained amounted to When was the first time that the [petitioner] obtained cash
P2,100,000.00.[33] advances from you?
A
Anent the issue of novation, the CA concurred with the RTC that About 1996, sir and then she made several others and she kept
novation took place insofar as petitioner was substituted in place on borrowing money from me.
of petitioner's late parents, considering that petitioner undertook Q
to pay her deceased parents' debt. However, the CA opined that
230
Do you mean to say that she obtained part of her loan while her place so as to release the estates of the petitioner's deceased
father was still alive? parents from their obligation, which, thus, rendered petitioner
A solely liable for the entire P2,100,000.00 debt; and (b) the
Yes, when he was still alive she already borrowed. P100,000.00 of the P2,100,000,00 debt was in the nature of
Q accrued monetary interests.
Are you telling us that this 2.1 Million Pesos was entirely
borrowed from you by the [petitioner]? On the first matter, while it is observed that petitioner had
A indeed admitted that she agreed to settle her late parents' debt,
There were loans which were obtained by her father, some by which was supposedly evinced by (a) the P2,100,000.00 check
her mother and since they died already[,] when we summarized she issued therefor, and (b) several installment payments she
the amount that was the total amount that she owes me, sir. made to respondent from December 29, 2000 to May 31, 2003,
Q there was no allegation, much less any proof to show, that the
How much is the amount owe[d] to you by the [petitioner's] estates of her deceased parents were released from liability
father? thereby. In S.C. Megaworld Construction and Development
A Corporation v. Parada,[43] the Court held that to constitute
I could no longer recall, sir because that was already long time novation by substitution of debtor, the former debtor must be
ago but it was part of the summary that we made, sir. expressly released from the obligation and the third person or
Q new debtor must assume the former's place in the contractual
Could it be P200,000.00? relations.[44] Moreover, the Court ruled that the "fact that the
A creditor accepts payments from a third person, who has assumed
More or less, that much, sir. the obligation, will result merely in the addition of debtors and
Q not novation."[45] At its core, novation is never presumed, and
What about the defendant's mother? How much was her the animus novandi, whether totally or partially, must appear by
obligation to you? express agreement of the parties, or by their acts that are too
A clear and unequivocal to be mistaken.[46] Here, the intent to
P500,000.00, more or less, but I cannot exactly recall. novate was not satisfactorily proven by respondent. At best,
Q petitioner only manifested her desire to shoulder the debt of her
So, the defendant's parents owed you more than P700,000.00 is parents, which, as above-discussed, does not amount to
it not? novation. Thus, the courts a quo erred in holding petitioner liable
A for the debts obtained by her deceased parents on account of
Yes, sir. novation by substitution of the debtor.
xxxx
COURT: Similarly, both courts faultily concluded that the principal sum
Q loaned by petitioner and her deceased parents amounted to
Is it the impression of the Court that the x x x amount of P2,000,000.00 and the P100,000.00 was added as interest
P700,000.00 is not a personal indebtedness of [petitioner] but because petitioner undertook to pay the loan in installments.
that of her parents? Is that the impression x x x the Court is
getting? It is fundamental that for monetary interest to be due, there
A must be an express written agreement therefor.[47] Article 1956
Yes, Your Honor. of the Civil Code provides that "[n]o interest shall be due unless
xxxx it has been expressly stipulated in writing." In this relation, case
ATTY. VILLEGAS: law states that the lack of a written stipulation to pay interest on
Q the loaned amount bars a creditor from charging monetary
Tell us, how much really to your recollection is the indebtedness interest[48] and the collection of interest without any stipulation
of the [petitioner's] parents? therefor in writing is prohibited by law.[49]
A
To the best of my recollection, that is the amount. More or less Here, respondent herself admitted that there was no written
[P]700,000[.00] for both spouses, sir.[41] (Emphases supplied) agreement that interest would be due on the sum loaned, only
ATTY. PASA: that there was an implicit understanding that the same would be
Q subject to interest since she also borrowed the same from banks
Madam witness, during the last hearing you stated that the which, as a matter of course, charged interest. Respondent also
[petitioner's] parents were indebted [to] you for about testified on cross examination that the P2,100,000.00
P700,000.00? corresponds only to the principal and does not include interest,
A viz.:
Yes, Madam. [Atty. Villegas]: Now, are these loans interest bearing?
Q [Respondent]: Yes, sir, because the money I loaned to them I
How about the [petitioner], how much did she [owe] you? have also obtained as a loan from the bank.
A Q:
More or less 1.4 [Million] Madam.[42] (Emphasis supplied) This 2.1 Million Pesos are included (sic) the interest that you
Applying the same principle on judicial admissions above, it is charge[d] to the [petitioner's] parents and to the petitioner, is it
therefore incontrovertible that petitioner's debt to respondent not?
amounted to only P1,400,000.00 and not P2,100,000.00. Thus, A:
respondent only remains liable to petitioner for such amount. That is the basis of the interest bearing, 2.1 Million Pesos at 3
Considering that petitioner had already paid P389,951.00 in percent per month.
installments as evidenced by the receipts submitted by petitioner Q:
- the genuineness and due execution of which were not put in Are you telling us that when you summarized and computed the
issue - the unpaid balance of petitioner's P1,400,000.00 debt to entire total obligations of the [petitioner and her parents] you
respondent stands at P1,010,049.00. On the other hand, the computed the interest and come out (sic) with 2.1 Million Pesos?
remaining P700,000.00 of the total P2,100,000.00 debt to A:
respondent is properly for the account of the estates of Interest has not yet been included in the 2.1 Million Pesos.
petitioner's deceased parents and, hence, should be claimed in Q:
the relevant proceeding therefor. This agreement of yours to pay interest is not in writing, is it not
(sic)?
At this juncture, the Court finds it apt to correct the mistaken A:
notions that: (a) novation by substitution of the debtor took It is not in writing, sir.[50]
231
All told, having established that no novation took place and that In her answer, Ang maintained that the amount due pursuant to
no interest was actually due, and factoring in the payments the Deed is ₱150,000.00 and not just ₱42,096.79. She argued
already made for her account, petitioner is, thus, ordered to pay that she cannot be compelled to accept the amount because it is
respondent the amount of P1,010,049.00, which is the remaining not what was agreed upon.
balance of her principal debt to the latter in the original amount
of P1,400,000.00. On May 19, 2005, Figuera conveyed all her rights, assets,
interests, liabilities, and causes of action over EIDC in favor of
WHEREFORE, the petition is PARTLY GRANTED. The Decision the Enhance Visa Services, Inc. (EVSI) through a "Deed of
dated March 16, 2012 and the Resolution dated July 14, 2014 of Assignment Coupled with Interest." Thus, on June 14, 2005,
the Court of Appeals (CA) in C.A. G.R. CV No. 93624 are hereby EVSI substituted Figuera, on motion, as plaintiff.
AFFIRMED with MODIFICATION in that petitioner Nympha S.
Odiamar is ORDERED to pay respondent Linda Odiamar Valencia The RTC Ruling
the amount of P1,010,049.00, which is the remaining balance of
her principal debt to the latter in the original amount of The RTC ruled in Ang’s favor in its decision dated December 28,
P1,400,000.00. 2007.
SO ORDERED. The RTC held that the unambiguous language of the Deed
mandates Ang, as the Assignor, to pay the December 2004 utility
bills. Figuera, however, paid the utility bills without Ang’s
consent.
SECOND DIVISION The RTC explained that for the tender of payment and
consignation to be valid, Figuera must tender the full amount of
June 29, 2016 ₱150,000.00 rather than just ₱42,096.79. Ang is not obliged to
accept an amount less than what is agreed upon in the Deed.
G.R. No. 204264
Figuera appealed the RTC decision to the CA and argued that by
JENNEFER FIGUERA, as substituted by ENHANCE VISA operation of law, legal subrogation and compensation had taken
SERVICES, INC., represented by MA. EDEN R. DUMONT, place. Consequently, Figuera’s obligation to the extent of the
Petitioner, amount of ₱107,903.21 is extinguished.
vs.
MARIA REMEDIOS ANG, Respondent. The CA Ruling
DECISION In its June 29, 2012 decision, the CA affirmed the RTC’s ruling.
BRION, J.: The CA held that there is nothing in the Deed that grants Figuera
the option to pay the utility bills and to deduct the payment from
We resolve the petition for review on certiorari1under Rule 45 of the agreed consideration in the Deed; thus, the amount of
the Rules of Court filed by petitioner Jennefer Figuera2 (Figuera) ₱150,000.00 remains as the due consideration from Figuera.
assailing the June 29, 2012 decision3 and the September 28, Moreover, Figuera failed to prove that Ang consented to the
2012 resolution4 of the Court of Appeals (CA) of Cebu City in CA- payment of the bills.
G.R. CV. No. 02480.
The CA added that Figuera’s payment of ₱42,096.79 cannot be
The Facts considered as a valid tender of payment or a valid consignation
because it is insufficient to cover the consideration due to Ang.
Maria Remedios A.ng (Ang) is the registered owner of a single
proprietorship business named "Enhance Immigration and As for the other issues and arguments which Figuera failed to
Documentation Consultants" (EIDC). raise before the RTC, the CA held that these issues cannot be
raised for the first time on appeal.
On December 16, 2004, Ang executed a "Deed of Assignment of
Business Rights" (Deed) transferring all of her business rights Figuera sought reconsideration of the CA’s decision which the CA
over the EIDC to Figuera for One Hundred Fifty Thousand Pesos denied for lack of merit in its September 28, 2012 resolution.
(₱150,000.00).
The Parties’ Arguments
In addition to the assignment of rights, the parties also agreed
that Ang shall pay the bills for electricity, telephone, office In the present petition for review, Figuera challenges the CA’s
rentals, and the employees’ salaries up to the month of decision and resolution affirming the RTC ruling.
December 2004.5
Figuera argues that the CA committed errors of law based on the
Without Ang’s consent, Figuera paid all the utility bills amounting following grounds: First, Figuera was eager to pay the utility bills
to ₱107,903.21 as of December 2004. On January 17, 2005, being the EIDC’s new owner.
Figuera tendered only the amount of ₱42,096.79 to Ang, after
deducting the amount paid for the utility bills from the Second, Figuera had been subrogated to the rights of Ang’s
₱150,000.00 consideration of the Deed. creditor’s (i.e., the Telephone Company, electric company, office
space lessor, and company employees) upon payment of the
Ang refused to accept Figuera’s payment. Figuera mailed the utility bills even if the payment was made without Ang’s
Formal Tender of Payment and gave Ang five (5) days to accept knowledge. Consequently, Ang became Figuera’s debtor.
the amount. Despite the lapse of the 5-day period, however, Ang
still refused to accept the payment. Third, Figuera and Ang became debtors and creditors of one
another for a sum of money that is liquidated, due, demandable,
Thus, Figuera filed a complaint for specific performance before and without controversy.
the Regional Trial Court (RTC), Branch 9 of Cebu City against
Ang. Figuera consigned the amount of ₱42,096.79 to the RTC. Fourth, Figuera and Ang’s obligations amounting to ₱107,903.21
were compensated against each other by operation of law.
232
Fifth, Figuera’s tender of the amount of ₱42,096.79 to Ang is a
valid tender of payment. Ang contends that the CA correctly dismissed Figuera’s argument
that her debt amounting to ₱107,903.21 is extinguished through
Sixth, Figuera validly consigned the amount of ₱42,096.79. legal subrogation and compensation. Figuera’s argument, Ang
insists, was not raised before the trial court and cannot be raised
Finally, Figuera presented the foregoing issues before the RTC for the first time on appeal.
and did not raise them for the first time on appeal.
We disagree. The Court grants to consider and resolve the issues
In her comment,6Ang argued that: first, a petition for review on the application of legal subrogation and compensation, even
under Rule 45 of the Rules of Court only allows questions of law. though it was raised for the first time on appeal.
Figuera’s contention that legal subrogation and compensation
took place requires proof that should have been established As a general rule, points of law, theories, and arguments not
during the trial. brought before the trial court cannot be raised for the first time
on appeal and will not be considered by this Court; otherwise, a
Second, Figuera admitted that the RTC was correct in ruling that denial of the respondent’s right to due process will result.9
there was nothing in the Deed that grants her the option to pay
the utilities nor allows any deduction from the agreed In the interest of justice, however, the Court may consider and
consideration upon her payment of the utility bills. resolve issues not raised before the trial court if it is necessary
for the complete adjudication of the rights and obligations of the
Third, legal subrogation cannot take place because the situation parties, and it falls within the issues found by the parties.10
of the parties under the Deed is not among the instances
provided by law for subrogation to take place. Thus, an appellate court is clothed with authority to review
rulings even if they are not assigned as errors in the appeal in
Fourth and last, Figuera should not be allowed to raise issues the following instances:
regarding legal subrogation and compensation because these
were raised for the first time on appeal. (a) grounds not assigned as errors but affecting jurisdiction over
the subject matter;
The Issue
(b) matters not assigned as errors on appeal but are evidently
The main issue to be resolved in this case is whether or not there plain or clerical errors within contemplation of law;
was a valid tender of payment and consignation.
(c) matters not assigned as errors on appeal but consideration of
Our Ruling which is necessary in arriving at a just decision and complete
resolution of the case or to serve the interests of justice or to
We grant the petition and reverse the CA’s ruling. avoid dispensing piecemeal justice;
The questions raised in this petition are (d) matters not specifically assigned as errors on appeal but
raised in the trial court and are matters of record having some
one of law which the Court can properly bearing on the issue submitted which the parties failed to raise
or which the lower court ignored;
review.
(e) matters not assigned as errors on appeal but closely related
It is a settled rule that the Court cannot review questions of fact to an error assigned; and
on a petition for review under Rule 45 of the Rules of Court. A
question of fact exists when the truth or falsity of the parties’ (f) matters not assigned as errors on appeal but upon which the
factual allegations is in dispute. A question of law, on the other determination of a question properly assigned, is dependent.11
hand, exists when the application of the law on the stated facts is
in controversy.7 Figuera’s position falls under two of these exceptions, namely –
that the determination of the question newly raised is necessary
The parties’ description of the questions raised does not in arriving at a just decision and complete resolution of the case,
determine whether these questions are of fact or of law. The true and that the resolution of a question properly assigned is
test is whether the appellate court can resolve the issue without dependent on those which were not assigned as errors on
reviewing or evaluating the evidence, in which case, it is a appeal.
question of law; otherwise, it is a question of fact.8
For the CA to rule on whether there was a valid tender of
Contrary to Ang’s allegation, the question involved in the present payment and consignation, it must first determine the amount
case is a question of law which the Court can properly pass upon. that Figuera should have tendered. To do so, the appellate court
There is no dispute regarding the existence of the Deed and its must examine whether the principles of legal subrogation and
consideration, and the provision that mandates Ang to pay the compensation, as Figuera argued, should be applied.
EIDC’s bills until December 2004. Ang also did not refute
Figuera’s payment amounting to ₱107,903.21 to Ang’s creditors To recall, Figuera claims that the consideration for the
and Figuera’s tender of payment to Ang amounting to assignment worth ₱150,000.00 should be reduced by
₱42,096.79. ₱107,903.21, representing the amount that she paid for the
EIDC’s utility bills. Figuera argues that her payment of the utility
The CA can assess Figuera’s contention that legal subrogation bills subrogated her to the rights of Ang’s creditors against Ang.
and compensation had taken place even without requiring
Figuera to present further evidence. The issue on the validity of Article 1291 of the New Civil Code12 provides that the
Figuera’s tender of payment and consignation can be resolved subrogation of a third person to the rights of the creditor is one
through the application of the relevant laws. of the means to modify obligations. Subrogation, sometimes
referred to as substitution, is "an arm of equity that may guide
The Court may properly address the or even force one to pay a debt for which an obligation was
incurred but which was in whole or in part paid by another."13 It
questions raised even though they are transfers to the person subrogated the credit, with all the rights
appertaining thereto, either against the debtor or against third
raised for the first time on appeal. persons.14
233
amount of ₱107, 903.21 through Figuera’s subrogation to the
Subrogation of a third person in the rights of a creditor may rights of Ang’s creditors against the latter.
either be legal or conventional.15 There is legal subrogation
when: (a) a creditor pays another preferred creditor, even Second, both debts consist of a sum of money, which are both
without the debtor’s knowledge; (b) a third person who is not due, liquidated, and demandable.
interested in the obligation pays with the express or tacit
approval of the debtor; and (c) a person interested in the Finally, neither party alleged that there was any claim raised by
fulfilment of the obligation pays, even without the knowledge of third persons against said obligation.
the debtor.16
In effect, even without the knowledge and consent of Ang or
In the present case, Figuera based her claim on the third type of Figuera, their obligation as to the amount of ₱107,903.21 had
subrogation. She claims that as the EIDC’s new owner, she is already been extinguished. Consequently, Figuera owes Ang the
interested in fulfilling Ang's obligation to pay the utility bills. remaining due amount of ₱42,096.79.
Since the payment of the bills was long overdue prior to the
assignment of business rights to Figuera, the failure to settle the While the RTC and the CA correctly held that there was nothing
bills would eventually result in "the disconnection of the in the Deed that grants Figuera an option to pay the utility bills
electricity and telephone services, ejectment from the office and to deduct the amount from the consideration, we stress that
premises, and resignation by some, if not all, of the company’s although not expressly written, laws are deemed incorporated in
employees with the possibility of subsequent labor claims for every contract entered within our territories. Thus, the Court
sums of money."17 These utilities are obviously necessary for reads into the Deed the provisions of law on subrogation and
the continuation of Figuera’s business transactions. compensation.
A person interested in the fulfilment of the obligation is one who With the determination of the amount of Figuera's obligation to
stands to be benefited or injured in the enforcement of the Ang, the question left to be resolved is: Was there a valid tender
obligation. The Court agrees with Figuera that it became of payment and consignation?
absolutely necessary for her to pay the bills since Ang did not do
so when the obligation became due. Tender of payment is the act of offering to the creditor what is
due him, together with the demand for the creditor to accept it.
We note that both the RTC and the CA held that Figuera failed to To be valid, the tender of payment must be a "fusion of intent,
prove that Ang had consented to the payment of the EIDC bills; ability, and capability to make good such offer, which must be
therefore, Figuera cannot deduct the amount she paid for the absolute and must cover the amount due."21
utility bills from the ₱150,000.00 consideration.
As earlier discussed, the remaining amount due in Figuera's
A clear reading, however, of Article 1302 of the New Civil Code obligation is P42,096.79. Thus, Figuera's tender of the remaining
would lead to a different conclusion. The consent or approval of amount to Ang is valid and Ang offered no valid justification in
the debtor is required only if a third person who is not interested refusing to accept the tender of payment. Due to the creditor's
in the fulfilment of the obligation pays such. On the other hand, refusal, without any just cause, to the valid tender of payment,
no such requirement exists in cases of payment by a creditor to the debtor is released from her obligation by the consignation of
another creditor who is preferred, and by a person interested in the thing or sum due. 22
the fulfilment of the obligation. Notably, Article 1302 (1) and (3)
does not require the debtor’s knowledge. WHEREFORE, the Court GRANTS the petition for review on
certiorari. The decision dated June 29, 2012 and resolution dated
Therefore, legal subrogation took place despite the absence of September 28, 2012 of the Court of Appeals in CA-G.R. CV. No.
Ang’s consent to Figuera’s payment of the EIDC bills. Figuera is 02480 are hereby REVERSED.
now deemed as Ang’s creditor by operation of law.
SO ORDERED.
On Figuera’s argument that legal compensation took place, and
in effect, extinguished her obligation to Ang to the extent of the Show opinions
amount Figuera paid for the EIDC bills, Article 1278 of the New DIVISION
Civil Code is instructive. [ GR Nos. 187822-23, Aug 03, 2016 ]
EVER ELECTRICAL MANUFACTURING v. PHILIPPINE BANK OF
Article 1278 of the New Civil Code states that there is COMMUNICATIONS +
compensation when two persons, in their own right, are creditors RESOLUTION
and debtors of one another.1âwphi1 These elements must concur
for legal compensation to apply: (1) each one of the debtors is
bound principally, and that the debtor is at the same time a REYES, J.:
principal creditor of the other; (2) both debts consist of a sum of
money, or if the things due be consumable, they be of the same Before the Court is a Petition for Review on Certiorari[1] under
kind and also of the same quality if the latter has been stated; Rule 45 of the Rules of Court filed by Ever Electrical
(3) both debts are due; (4) both debts are liquidated and Manufacturing, Inc. (Ever), its President Vicente Go (Vicente)
demandable; and (5) there be no retention or controversy over and Board Director George Go (collectively, the petitioners)
both debts commenced by third persons and communicated in questioning the Decision[2] dated November 28, 2008 and
due time to the debtor.18 When all these elements are present, Resolution[3] dated May 6, 2009 of the Court of Appeals (CA) in
compensation takes effect by operation of law and extinguishes CA-G.R. SP Nos. 84631 and 87444.
both debts to the corresponding amount, even though both
parties are without knowledge of the compensation.19 It Antecedent Facts
operates even against the will of the interested parties and even
without their consent.20 Ever is a duly organized domestic corporation with a history of
transacting with respondent Philippine Bank of Communications
We find that all the elements of legal compensation are present (PBCom), a domestic commercial bank.[4] The parties had been
in this case. involved in litigation for collection of a sum of money where
PBCom was able to get a favorable Partial Judgment[5] dated
First, in the assignment of business rights, Figuera stood as July 23, 2001 issued by the Regional Trial Court (RTC) of Manila,
Ang’s debtor for the consideration amounting to ₱150,000.00. Branch 24, in Civil Case No. 01-100899.
Figuera, on the other hand, became Ang’s creditor for the
234
On December 13, 2002, Ever, represented by Vicente, took out a actually held on September 16, 2004 where PBCom won as the
loan from PBCom in the amount of P65,000,000.00 for its highest bidder.[18]
working capital.[6] As security, Ever mortgaged two parcels of
land covered by Transfer Certificates of Title (TCT) Nos. T-61475 Ruling of the CA
and T-61476 with areas of 10,025 square meters and 9,117 sq
m, respectively, located at National Road, Barangay Makiling, The petitioners then filed with the CA two petitions for
Calamba, Laguna.[7] On December 27, 2002, Ever executed certiorari[19] questioning the validity of the writ of execution,
Promissory Note No. 8200013327,[8] which stated that the loan levy on execution and the auction sale. The petitions were
had a maturity date of December 27, 2010, and an interest rate consolidated.[20]
of 8.5937% per annum for 10 years.
While the case was pending, TCT Nos. 61475 and 61476 were
On February 14, 2003, the parties entered into a compromise cancelled and TCT Nos. 060-2012023698 and 060-2012023699
agreement whereby Vicente voluntarily undertook to pay for were issued by the RD of Calamba, Laguna, in favor of Star Asset
Ever's loan with PBCom. Under the terms of the compromise Management NPL, Inc. The pendency of the instant case was
agreement, Vicente would make partial payments as stated in annotated at the back of the new titles.[21]
the promissory note with a caveat that any failure on his part to
pay the installment due would make the whole amount In the Decision[22] dated November 28, 2008, the CA dismissed
immediately demandable. The compromise agreement reads as the petitions for lack of merit after finding that the evidence
follows: supported the conclusion of the RTC that Vicente failed to make
WHEREAS, [VICENTE] has offered to assume full liability and to installment payments for the period covering. January 21, 2004
undertake the full payment of all the past due accounts of to March 31, 2004 in direct contravention of the terms of the
[EVER] and to exempt from any and all obligations/liabilities his compromise agreement. The liability amounted to P1,125,000.00
co-defendants-sureties GEORGE C. GO and NG MENG TAM including interests and penalty charges. The CA stated that the
arising from and subject of the above-captioned litigation, petitioners did not deny the allegation, and merely asserted that
without prejudice to the right of [VICENTE] to avail himself of his Vicente made payments for the period of April 2, 2003 to
right for reimbursement under Art. 1236 of the Civil Code of the January 20, 2004. Since Vicente defaulted in the payments and
Philippines; under the terms of the compromise agreement to which he
agreed, the immediate issuance of a writ of execution was in
WHEREAS, [PBCom] has agreed and accepted [VICENTE's] order.
aforementioned offer to pay, in accordance with the terms and
conditions of the Promissory Note 8200013327 dated 27 Dec. The CA also found no merit with the petitioners' contention that
2002, copy of which is hereto attached as Annex "A" hereof. the writ of execution was not valid on the ground that it was
issued against the properties of Ever and not against Vicente
WHEREAS, [VICENTE] fully understands that failure on his part to who assumed sole responsibility for the payment of the loan. The
make partial payments of the amount, due under the said compromise agreement specifically stated that in the event that
Promissory Note shall make the whole balance of the unpaid Vicente failed to comply with the terms of the compromise
amounts due and demandable, less the amounts actually paid on agreement, execution would revert to the full amounts in the
account, without any necessity of notice to him and [PBCom] complaint. Since the writ of execution was valid, the notice of
shall be entitled to the issuance of the corresponding writ of levy and the levy on execution, as well as the public auction,
execution for the full amounts due as specified in the prayer of were also valid and binding on the parties. The CA, thus, ruled
the above-mentioned complaint.[9] (Emphasis ours) that the RTC did not commit any grave abuse of discretion. The
On February 21, 2003, the RTC approved the compromise dispositive portion of the decision reads:
agreement.[10] Consequently, the loan was restructured.
WHEREFORE, the Consolidated Petition for Certiorari is hereby
However, Vicente was not able to make the necessary payments DISMISSED.
as stipulated in the compromise agreement. PBCom, thus, filed
with the RTC a motion for execution. PBCom alleged that Vicente SO ORDERED.[23]
violated the terms of the compromise agreement for non- Vicente moved for reconsideration but it was denied in a
payment of installments from September to December 2003 and Resolution[24] dated May 6, 2009.
the first quarter of 2004. It prayed that a writ of execution be
issued per the terms of the compromise agreement.[11] Hence, this petition.
Ruling of the RTC The petitioners assert that Vicente had faithfully complied with
the terms of the compromise agreement. The petitioners argue
On May 4, 2004, the RTC found merit in PBCom's application for that the writ of execution had been issued prematurely on two
a writ of execution and granted the same.[12] A writ of points: 1) that Vicente did not violate the terms of the
execution[13] dated May 14, 2004 was thereby issued. The compromise agreement; and 2) that the compromise agreement
petitioners moved for reconsideration.[14] effectively novated the original contract pursuant to Article 1293
of the Civil Code.
Thereafter, on May 19, 2004, a Notice of Levy upon Realty[15]
was issued by the Deputy Sheriff to the Register of Deeds (RD) Vicente further states that PBCom's application for the issuance
of Calamba, Laguna. He informed the RD that the properties of a writ of execution on March 26, 2004 was premature since
described under TCT Nos. T-61475 and T-61476 were under amortizations for the first quarter of 2004 were not yet due and
custodia legis and thus requested that the proper annotations be demandable, as these were still due on March 31, 2004.[25]
made in the Book of the RD.
More importantly, Vicente argues that the writ of execution was
On June 9, 2004, the RTC denied the petitioners' motion for erroneously issued against Ever. Fie alleges that the Partial
reconsideration. It found that while the petitioners did in fact Judgment dated July 23, 2001 of the RTC was novated by the
make some payments, these were not in accord with the clear compromise agreement. As a consequence, Ever's obligation to
terms of the compromise agreement which required quarterly PBCom was already extinguished as it was substituted by Vicente
payments for a specific amount.[16] when he assumed full responsibility of the loan repayment.
Under Article 1293 of the Civil Code, Ever had been substituted
On June 11, 2004, the Sheriff issued a Notice of Sale and by Vicente thus novating the obligation.[26]
scheduled the public auction on July 14, 2004 for the parcels of
land.[17] Due to some postponements, public auction was
235
For its part, PBCom maintains that the writ of execution was declared in unequivocal terms, or that the old and the new
valid. It reiterates that Vicente had defaulted in the payment of obligations be on every point incompatible with each other.
the quarterly installment, comprising the principal, interests and It must be established that the old and new contracts are
penalty amounting to P1,125,000.00 for the period of September incompatible on all points, or that the will to novate appear by
30, 2003 to December 31, 2003. Vicente once again defaulted express agreement of the parties or acts of equivalent import.
paying the installment for the period of December 31, 2003 to [35] In the absence of an express provision, a contract may still
March 31, 2004. With the petitioner's failure to abide by the be considered novated impliedly if it passes the test of
terms of the compromise agreement, the whole balance of the incompatibility, that is, whether the contracts can stand
obligation became immediately due and demandable.[27] together, each one having an independent existence.[36]
With respect to the petitioners' claim that the writ of execution In the early case of Santos v. Reyes, et al.,[37] the Court held
was directed at the wrong party, PBCom stressed that the that there was no novation where under the original contract
compromise agreement is clear that upon the failure of Vicente consisting of a principal debtor and a surety, the latter
to make installment payments, the bank is entitled to "the subsequently made an agreement with the creditor to be bound
issuance of the corresponding writ of execution for the full as a principal for the same obligation. There, the Court stated
amounts due as specified in the prayer of the above-captioned that there can be no effective novation if the contract was not
complaint."[28] extinguished by an instrument subsequently executed therefor.
[38]
The Issues Presented
Whether or not the CA correctly drew the conclusion that Vicente As stated in Article 1291, novation may also be brought about by
failed to comply with the compromise agreement in the face of a change in the person of the debtor. Article 1293 of the Civil
the existence of payments made by Vicente. Code states:
Art. 1293. Novation which consists in substituting a new debtor
Whether or not there was novation of the Partial Judgment dated in the place of the original one, may be made even without the
July 23, 2001. knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
Whether or not the issue on novation of the Partial Judgment the rights mentioned in Articles 1236 and 1237.
dated July 23, 2001 by the February 21, 2003 decision was In Mercantile Insurance Co., Inc. v. CA,[39] the Court said:
resolved by the CA. The general rule is that novation is never presumed; it must
always be clearly and unequivocally shown. Thus, "the mere fact
Whether or not the writ of execution was correctly issued against that the creditor receives a guaranty or accepts payments from a
the petitioners.[29] third person who has agreed to assume the obligation, when
Simply, the issue for the Court's consideration is whether the CA there is no agreement that the first debtor shall be released from
erred in ruling that the writ of execution, levy on execution and responsibility, does not constitute novation, and the creditor can
auction sale were valid. still enforce the obligation against the original debtor."[40]
(Emphasis ours and citations omitted)
Ruling of the Court In the present case, the compromise agreement entered into by
the parties does not contain any provision releasing Ever (the
The Court denies the petition. debtor) from its liability to PBCom (the lender). In fact, the first
paragraph of the approved compromise agreement states:
The Court is not a trier of facts. In Spouses Bernales v. Heirs of WHEREAS, [VICENTE] has offered to assume full liability and to
Julian Sambaan,[30] the Court reiterated that for a question to undertake the full payment of all the past due accounts of
be one of law, it must involve no examination of the probative [EVER] and to exempt from any and all obligations/liabilities his
value of the evidence presented by the litigants or any of them. co-defendants-sureties GEORGE C. GO and NG MENG TAM
There is a question of law when the doubt or difference arises as arising from and subject of the above-captioned litigation,
to what the law is pertaining to a certain state of facts. On the without prejudice to the right of [VICENTE] to avail himself of his
other hand, there is a question of fact when the doubt arises as right for reimbursement under Art. 1236 of the Civil Code of the
to the truth or the falsity of alleged facts.[31] Philippines[.][41] (Emphasis ours)
There is nothing to be construed from the above-stated
Here, the petitioners essentially argue that since the parties paragraph releasing Ever from its obligation. Under the terms of
entered into a compromise agreement, which was judicially the agreement, Vicente is an additional person who would ensure
approved, the same novated the original loan agreement. that the loan of Ever to PBCom would be paid. Under the rules of
novation, the mere act of adding another person to be personally
The Court disagrees. liable, who in this case is Vicente, did not constitute novation
since there was no agreement to release Ever from its
Under the Civil Code, novation is one of the means to extinguish responsibility to PBCom. Thus, absent the release of Ever from
an obligation. This is done either by changing the object or the original obligation, PBCom may still enforce the obligation
principal conditions, by substituting the person of the debtor, or against it.
by subrogating a third person in the rights of the creditor.[32] It
is a relative extinguishment since a new obligation is created in Since there was no novation, PBCom may proceed to collect from
lieu of the old obligation. The following requisites must be met the original debtor, Ever, under the terms of the original loan
for novation to take place: agreement. The Court holds that there was no irregularity in the
(1) issuance of the writ of execution, levy on the properties and the
There must be a previous valid obligation; subsequent sale of the auction sale.
(2)
There must be an agreement of the parties concerned to a new WHEREFORE, the petition is DENIED. The Decision dated
contract; November 28, 2008 and Resolution dated May 6, 2009 of the
(3) Court of Appeals in CA-G.R. SP Nos. 84631 and 87444 are
There must be the extinguishment of the old contract; and hereby AFFIRMED.
(4)
There must be the validity of the new contract.[33] SO ORDERED.
However, novation is never presumed.[34] Article 1292 of the
Civil Code provides:
Art. 1292. In order that an obligation may be extinguished by THIRD DIVISION
another which substitutes the same, it is imperative that it be so [ G.R. No. 191174, June 07, 2017 ]
236
PARADIGM DEVELOPMENT CORPORATION OF THE PHILIPPINES,
PETITIONER, V. BANK OF THE PHILIPPINES ISLANDS, On behalf of our client, [FEBTC], we hereby submit its Bid for the
RESPONDENT. Real Properties including all improvements existing thereon
covered by [TCT] Nos. RT - 55259 (354583), 58281, RT - 54993
DECISION (348989) and RT- 55260 (352956) which are the subject of the
REYES, J.: Auction Sale scheduled on June, 20, 2000 in the amount of:
This is a Petition for Review on Certiorari[1] filed under Rule 45 SEVENTY[-]SIX MILLION FIVE HUNDRED THOUSAND PESOS
of the Rules of Court assailing the Decision[2] dated November ONLY (P76,500,000.00), Philippine Currency.
25, 2009 and Resolution[3] dated February 2, 2010 of the Court
of Appeals (CA) in CA-G.R. CV No. 89755, which granted Please note that the aforesaid Bid is only in PARTIAL
respondent Bank of the Philippine Islands' (BPI) appeal and SETTLEMENT of the obligation of [PDCP], x x x.[13]
accordingly dismissed the complaint filed by petitioner Paradigm
Development Corporation of the Philippines (PDCP). Upon verification with the Registry of Deeds, PDCP discovered
The Facts that FEBTC extra-judicially foreclosed on June 20, 2000 the first
and second mortgage without notice to it as mortgagor and sold
Sometime in February 1996, Sengkon Trading (Sengkon), a sole the mortgaged properties to FEBTC as the lone bidder.[14]
proprietorship owned by Anita Go, obtained a loan from Far East Thereafter, on August 8, 2000, the corresponding Certificate of
Bank and Trust Company (FEBTC) under a credit facility Sale was registered.[15]
denominated as Omnibus Line in the amount of P100 Million on
several sub-facilities with their particular sub-limits denominated Consequently, on July 19, 2001, PDCP filed a Complaint for
as follows: (i) Discounting Line for P20 Million; (ii) Letter of Annulment of Mortgage, Foreclosure, Certificate of Sale and
Credit/Trust Receipt (LC-TR) Line for P60 Million; and (iii) Bills Damages[16] with the RTC of Quezon City, against BPI,
Purchased Line for P8 Million. This was embodied in the successor-in-interest of FEBTC, alleging that the REMs and their
document denominated as "Agreement for Renewal of Omnibus foreclosure were null and void.[17]
Line."[4]
In its Amended Complaint,[18] PDCP alleged that FEBTC assured
On April 19, 1996, FEBTC again granted Sengkon another credit it that the mortgaged properties will only secure the Credit Line
facility, denominated as Credit Line, in the amount of P60 Million sub-facility of the Omnibus Line. With this understanding, PDCP
as contained in the "Agreement for Credit Line." Two real estate President Go allegedly agreed to sign on two separate dates a
mortgage (REM) contracts were executed by PDCP President pro-forma and blank REM, securing the amount ofP42.4 Million
Anthony L. Go (Go) to partially secure Sengkon's obligations and P8 Million, respectively. PDCP, however, claimed that it had
under this Credit Line. One REM, acknowledged on April 22, no intent to be bound under the second REM, which was not
1996, was constituted over Transfer Certificate of Title (TCT) No. intended to be a separate contract, but only a means to reduce
RT-55259 (354583) and secured the amount of P8 Million. The registration expenses.[19]
other REM, acknowledged on December 19, 1997, was
constituted over TCT Nos. RT-58281, RT-54993 (348989) and Moreover, PDCP averred that sometime in September 1997,
RT-55260 (352956) and secured the amount of P42,400,000.00. FEBTC allegedly requested it to sign a document which would
[5] effectively extend the liability of the properties covered by the
mortgage beyond the Credit Line. Because of its refusal to sign
In a letter dated September 18, 1997, FEBTC informed Sengkon said document, it surmised that this must have been the reason
regarding the renewal, increase and conversion of its P100 why, as it later discovered, FEBTC registered not only the first
Million Omnibus Line to P150 Million LC-TR Line and P20 Million but also the second REM, contrary to the parties' agreement.[20]
Discounting Line, the renewal of the P60 Million Credit Line and
P8 Million Bills Purchased Line.[6] In asking for the nullity of the REMs and the foreclosure
proceeding, PDCP alleged:
In the same letter, FEBTC also approved the request of Sengkon
to change the account name from SENGKON TRADING to a.) THAT although the [REM] of April 22, 1996 for Php 8.0 Million
SENGKON TRADING, INC. (STI).[7] was not a separate security but was merely intended to reduce
registration expenses, FEBTC, [BPI's] predecessor-in-interest,
Eventually, Sengkon defaulted in the payment of its loan fraudulently and in violation of the original intent and agreement
obligations.[8] Thus, in a letter dated September 8, 1999, FEBTC of the parties, made it appear that said [REM] of April 22, 1996
demanded payment from PDCP of alleged Credit Line and Trust was separate and distinct from that of December 18, 1997 and
Receipt availments with a principal balance of P244,277,199.68 caused the registration of both mortgages with separate
plus interest and other charges which Sengkon failed to pay. considerations totaling Php 50.4 Million;
PDCP responded by requesting for segregation of Sengkon's
obligations under the Credit Line and for the pertinent statement b.) THAT the subject [REMs] were foreclosed to answer not only
of account and supporting documents.[9] for obligations incurred under SENGKON's Credit Line but also for
other obligations of SENGKON and other companies which were
Negotiations were then held and PDCP proposed to pay not secured by said mortgages;
approximately P50 Million, allegedly corresponding to the
obligations secured by its property, for the release of its c.) THAT no notice was given to or received by [PDCP] of the
properties but FEBTC pressed for a comprehensive repayment projected foreclosure x x x since the notice of said foreclosure
scheme for the entirety of Sengkon's obligations.[10] was sent by defendant SHERIFF to an address (333 EDSA,
Quezon City) other than [PDCP's] known address as stated in the
Meanwhile, the negotiations were put on hold because BPI [REMs] themselves (333 EDSA Caloocan City) x x x;
acquired FEBTC and assumed the rights and obligations of the
latter.[11] d.) THAT, contrary to the then prevailing Supreme Court Circular
AM 99-10-05-0 x x x, only one (1) bidder was present and
When negotiations for the payment of Sengkon's outstanding participated at the foreclosure sale[; and]
obligations, however, fell, FEBTC, on April 5, 2000, initiated
foreclosure proceedings against the mortgaged properties of e.) THAT, without the knowledge and consent of [PDCP],
PDCP before the Regional Trial Court (RTC) of Quezon City.[12] obligation of SENGKON has been transferred to STI[,] a juridical
In its Bid for the mortgaged properties, FEBTC's counsel stated personality separate and distinct from SENGKON, a single
that: proprietorship. This substitution of SENGKON as debtor by STI x
237
x x effectively novated the obligation of [PDCP] to FEBTC. x x x.
[21] (Underlining ours) In its Decision[30] dated November 25, 2009, the CA reversed
the RTC's ruling on all points. The CA found PDCP's contentions
Ruling of the RTC incredible for the following reasons: (i) the fact that PDCP
surrendered the titles to the mortgaged properties to FEBTC only
On April 16, 2007, the RTC rendered its Decision[22] nullifying shows that PDCP intended to mortgage all of these properties;
the REMs and the foreclosure proceedings. It also awarded (ii) if it were true that FEBTC assured PDCP that it would be
damages to PDCP. The dispositive portion of the decision reads: registering only one of the two REMs in order to reduce
registration expenses, then each of the two REMs should have
WHEREFORE, premises considered the Court renders judgment in covered the four properties but it was not. On the contrary, the
favor of [PDCP] and against defendants [BPI], Sheriff and the four properties were spread out with one REM covering one of
Register of Deeds of Quezon City in the following manner: the four properties and the other REMs covering the remaining
three properties; and (iii) PDCP never complained to FEBTC
1) Declaring null and void and of no further force and effect the regarding the registration of the two REMs even after it
following: discovered the same.[31]
(a) the [REMs] (Annexes "F" and "F-1" hereof); Also, the CA ruled that novation could not have taken place from
(b) the foreclosure thereof; FEBTC's mere act of approving Sengkon's request to change
(c) the Certificate of Sale; and account name from Sengkon to STI.[32]
(d) the entries relating to said [REMs] and Certificate of Sale
annotated on TCT Nos. 58281, RT-54993 (348989), RT-55260 Moreover, it held that the fact that FEBTC failed to submit the
(352956) and RT-55259 (354583) covering the mortgaged original copies of the PNs that formed the basis of its Petition for
properties; Extrajudicial Foreclosure of Mortgage cannot affect the validity of
foreclosure because the validity of the obligations represented in
2) Ordering defendant Registrar of Deeds to cancel all the those PNs was never denied by Sengkon nor by PDCP.[33]
annotations of the [REMs] and the Certificate of Sale on the
above stated TCTs covering the mortgaged properties and The CA added that even if the obligations of Sengkon in credit
otherwise to clear said TCTs of any liens and encumbrances facilities (other than the Credit Line) were included, since the
annotated thereon relating to the invalid [REMs] aforesaid; REMs contain a dragnet clause, these other obligations were still
covered by PDCP's REMs.[34] Lastly, the CA ruled that the failure
3) Ordering defendant [BPI] to return to [PDCP] the owner's to send a notice of extrajudicial foreclosure sale to PDCP did not
duplicate copies of the TCTs covering the mortgaged properties affect the validity of the foreclosure sale because personal notice
free from any and all liens and encumbrances; and, to the mortgagor is not even generally required.[35]
4) Ordering the defendant BPI to pay [PDCP] the following sums: Hence, this present petition, where PDCP presented the following
arguments:
(a) Php 150,000.00 as attorney's fees; and,
(b) Php 50,000.00 as litigation expenses. THE FINDINGS IN THE CA DECISION WHICH DEVIATED ON
ALMOST ALL POINTS FROM THOSE OF THE RTC ARE NOT IN
The Writ of Preliminary Injunction is hereby made FINAL and ACCORD WITH THE RULES ON THE ASSESSMENT OF THE
PERMANENT. CREDIBILITY AND WEIGHT OF THE EVIDENCE;
Costs against defendant [BPI]. THE VALIDITY OF THE REMs, AS UPHELD BY THE CA, IS
VITIATED BY THE FACT THAT BPI'S PREDECESSOR-IN-INTEREST
SO ORDERED.[23] VIOLATED THE TRUE INTENT AND AGREEMENT OF THE PARTIES
THERETO;
The RTC observed that the availments under the Credit Line,
secured by PDCP's properties, may be made only within one THE CA DECISION'S REJECTION OF PDCP'S NOVATION THEORY
year, or from April 19, 1996 to April 30, 1997. While BPI claimed BASED ON THE ABSENCE OF AN EXPRESS RELEASE OF THE OLD
that the period of said credit line was extended up to July 31, DEBTOR AND THE SUBSTITUTION IN ITS PLACE OF A NEW
1997, PDCP was not notified of the extension and thus could not DEBTOR IS MISPLACED AND ERRONEOUS;
have consented to the extension. Anyhow, said the RTC, "no
evidence had been adduced to show that Sengkon availed of any THE FORECLOSURE OF THE REMs WAS VITIATED NOT ONLY BY
loan under the credit line up to July 31, 1997." Thus, in the THE INADMISSIBILITY OF THE PNs UPON WHICH IT IS BASED
absence of any monetary obligation that needed to be secured, BUT ALSO BECAUSE IT VIOLATED THE THERETO APPLICABLE
the REM cannot be said to subsist.[24] RULES; and
Further, the RTC agreed with PDCP that novation took place in THE APPLICATION BY THE CA OF THE SHORTENED PERIOD OF
this case, which resulted in discharging the latter from its REDEMPTION IN THIS CASE VIOLATED THE NON-IMPAIRMENT
obligations as third-party mortgagor. In addition, it also nullified AND EQUAL PROTECTION CLAUSES OF THE CONSTITUTION.[36]
the foreclosure proceedings because the original copies of the Ruling of the Court
promissory notes (PNs), which were the basis of FEBTC's Petition
for Extrajudicial Foreclosure of Mortgage, were not presented in The Court finds the petition meritorious.
court and no notice of the extrajudicial foreclosure sale was
given to PDCP.[25] The registration of the REMs, even if
contrary to the supposed intent of the
Lastly, the RTC ruled that the shorter period of redemption under parties, did not affect the validity of
Republic Act No. 8791[26] cannot apply to PDCP considering that the mortgage contracts
the REMs were executed prior to the effectivity of said law. As
such, the longer period of redemption under Act No. 3135[27] According to PDCP, when FEBTC registered both REMs, even if
applies.[28] the intent was only to register one, the validity of both REMs was
vitiated by lack of consent. PDCP claims that said intent is
Aggrieved, BPI appealed to the CA.[29] supported by the fact that the REMs were constituted merely as
"partial security" for Sengkon's obligations and therefore there
Ruling of the CA
238
was really no intent to be bound under both - but only in one - Hence, even assuming that the parties indeed agreed to register
REM. only one of the two REMs, the subsequent registration of both
REMs did not affect an already validly executed REM if there was
The Court cannot see its way clear through PDCP's argument. To no other basis for the declaration of its nullity. That the REMs
begin with, the registration of the REM contract is not essential were intended merely as "partial security" does not make PDCP's
to its validity. Article 2085 of the Civil Code provides: argument more plausible because as aptly observed by the CA,
the PDCP's act of surrendering all the titles to the properties to
Art. 2085. The following requisites are essential to the contracts FEBTC clearly establishes PDCP's intent to mortgage all of the
of pledge and mortgage: four properties in favor of FEBTC to secure Sengkon's obligation
under the Credit Line. The Court notes that the principal debtor,
(1) That they be constituted to secure the fulfillment of a Sengkon, has several obligations under its Omnibus Line
principal obligation; corresponding to the several credit sub-facilities made available
to it by FEBTC. As found by the trial court, PDCP intended to be
(2) That the pledgor or mortgagor be the absolute owner of the bound only for Sengkon's availments under the Credit Line sub-
thing pledged or mortgaged; facility and not for just any of Sengkon's availments. Hence, it is
in this sense that the phrase "partial security" should be logically
(3) That the persons constituting the pledge or mortgage have understood.
the free disposal of their property, and in the absence thereof,
that they be legally authorized for the purpose. In this regard, PDCP argued that what its President signed is a
pro-forma REM whose important details were still left in blank at
Third persons who are not parties to the principal obligation may the time of its execution. But notably, nowhere in PDCP's
secure the latter by pledging or mortgaging their own property. Amended Complaint did it anchor its cause of action for the
nullity of the REMs on this ground. While it indeed alleged this
In relation thereto, Article 2125 of the Civil Code reads: circumstance, PDCP's Amended Complaint is essentially premised
on the supposed fraud employed on it by FEBTC consisting of the
Article 2125. In addition to the requisites stated in Article 2085, latter's assurances that the REMs it already signed would not be
it is indispensable, in order that a mortgage may be validly registered. In Solidbank Corporation v. Mindanao Ferroalloy
constituted, that the document in which it appears be recorded in Corporation,[39] the Court discussed the nature of fraud that
the Registry of Property. If the instrument is not recorded, the would annul or avoid a contract, thus:
mortgage is nevertheless binding between the parties.
Fraud refers to all kinds of deception - whether through insidious
x x x x (Emphasis ours) machination, manipulation, concealment or misrepresentation
that would lead an ordinarily prudent person into error after
In Mobil Oil Philippines, Inc. v. Diocares, et al., [37] the trial taking the circumstances into account. In contracts, a fraud
court refused to order the foreclosure of the mortgaged known as dolo causante or causal fraud is basically a deception
properties on the ground that while an unregistered REM contract used by one party prior to or simultaneous with the contract, in
created a personal obligation between the parties, the same did order to secure the consent of the other. Needless to say, the
not validly establish a REM. In reversing the trial court, the Court deceit employed must be serious. In contradistinction, only some
said: particular or accident of the obligation is referred to by incidental
fraud or dolo incidente, or that which is not serious in character
The lower court predicated its inability to order the foreclosure in and without which the other party would have entered into the
view of the categorical nature of the opening sentence of [Article contract anyway.[40] (Citations omitted)
2125] that it is indispensable, "in order that a mortgage may be
validly constituted, that the document in which it appears be Under Article 1344 of the Civil Code, the fraud must be serious to
recorded in the Registry of Property." Not[e] that it ignored the annul or avoid a contract and render it voidable. This fraud or
succeeding sentence: "If the instrument is not recorded, the deception must be so material that had it not been present, the
mortgage is nevertheless binding between the parties." Its defrauded party would not have entered into the contract.
conclusion, however, is that what was thus created was merely
"a personal obligation but did not establish a [REM]." In the present case, even if FEBTC represented that it will not
register one of the REMs, PDCP cannot disown the REMs it
Such a conclusion does not commend itself for approval. The executed after FEBTC reneged on its alleged promise. As earlier
codal provision is clear and explicit. Even if the instrument were stated, with or without the registration of the REMs, as between
not recorded, "the mortgage is nevertheless binding between the the parties thereto, the same is valid and PDCP is already bound
parties." The law cannot be any clearer. Effect must be given to thereby. The signature of PDCP's President coupled with its act of
it as written. The mortgage subsists; the parties are bound. As surrendering the titles to the four properties to FEBTC is proof
between them, the mere fact that there is as yet no compliance that no fraud existed in the execution of the contract. Arguably
with the requirement that it be recorded cannot be a bar to at most, FEBTC's act of registering the mortgage only amounted
foreclosure. to dolo incidente which is not the kind of fraud that avoids a
contract.
xxxx
No novation took place
Moreover to rule as the lower court did would be to show less
than fealty to the purpose that animated the legislators in giving The Court likewise agrees with the CA that no novation took
expression to their will that the failure of the instrument to be place in the present case. Novation is a mode of extinguishing an
recorded does not result in the mortgage being any the less obligation by changing its objects or principal obligations, by
"binding between the parties." In the language of the Report of substituting a new debtor in place of the old one, or by
the Code Commission: "In Article [2125] an additional provision subrogating a third person to the rights of the creditor. Article
is made that if the instrument of mortgage is not recorded, the 1293 of the Civil Code defines novation as "consists in
mortgage, is nevertheless binding between the parties." We are substituting a new debtor in the place of the original one, [which]
not free to adopt then an interpretation, even assuming that the may be made even without the knowledge or against the will of
codal provision lacks the forthrightness and clarity that this the latter, but not without the consent of the creditor." However,
particular norm does and therefore requires construction, that while the consent of the creditor need not be expressed but may
would frustrate or nullify such legislative objective.[38] (Citation be inferred from the creditor's clear and unmistakable acts,[41]
omitted and emphasis and underlining ours) to change the person of the debtor, the former debtor must be
expressly released from the obligation, and the third person or
239
new debtor must assume the former's place in the contractual In the case at bar, a close look at the Agreement for Credit Line
relation.[42] would reveal that the said credit facility for Php60 Million was
granted in favor of [Sengkon] for the purpose of "Additional
Thus, in Ajax Marketing and Development Corporation v. CA,[43] Working Capital" and that it would be "available by way of short
the Court had already ruled that: term [PN]." In the same manner, an examination of [PNs] PN
Nos. 2-002-028618, 2-002-029436 and 2-002-029437 would
The well-settled rule is that novation is never presumed. reveal that the said [PNs] were availed of by [Sengkon] for the
Novation will not be allowed unless it is clearly shown by express purpose of "Additional Working Capital."[45] (Citations omitted
agreement, or by acts of equal import. Thus, to effect an and emphasis in the original)
objective novation it is imperative that the new obligation
expressly declare that the old obligation is thereby extinguished, The Court cannot agree with the CA. In order to determine
or that the new obligation be on every point incompatible with whether the obligations sought to be satisfied by the foreclosure
the new one. In the same vein, to effect a subjective novation by proceedings were only Sengkon's availments under the Credit
a change in the person of the debtor it is necessary that the old Line, the court necessarily needs to refer to the PNs themselves,
debtor be released expressly from the obligation, and the third as what the CA in fact did. Thus, it is actually the contents of
person or new debtor assumes his place in the relation. There is these PNs that are in issue and the trial court did not err in
no novation without such release as the third person who has applying the best evidence rule.
assumed the debtor's obligation becomes merely a co-debtor or
surety.[44] (Emphasis ours) But even if the Court disregards the best evidence rule, the
circumstances in this case militate against the CA's conclusion.
In the present case, PDCP failed to prove by preponderance of The trial court made a factual finding that Sengkon's availment
evidence that Sengkon was already expressly released from the under the Credit Line, which is the one secured by PDCP's
obligation and that STI assumed the former's obligation. Again, properties, may be made only within one year, or from April 19,
as correctly pointed out by the CA, the Deed of Assumption of 1996 to April 30, 1997. While FEBTC claimed that the period of
Line/Loan with Mortgage (Deed of Assumption) which was said credit line was extended up to July 31, 1997, PDCP was not
supposed to embody STI's assumption of all the obligations of notified of the extension. At any rate, the RTC found that "no
Sengkon under the line, including but not necessarily limited to evidence had been adduced to show that Sengkon availed of any
the repayment of all the outstanding availments thereon, as well loan under the credit line up to July 31, 1997," which was the
as all applicable interests and other charges, was not signed by period of the extension.
the parties.
Notably, while PDCP demanded from FEBTC for the segregation
Contrary to PDCP's claim, the CA's rejection of its claim of of Sengkon's availments under the Credit Line, FEBTC failed to
novation is not based on the absence of the mortgagor's heed PDCP's valid request and instead demanded for a
conformity to the Deed of Assumption. The CA's rejection is comprehensive payment of Sengkon's entire obligation,
based on the fact that the non-execution of the Deed of unmindful of the fact of PDCP's status as a mere third-party
Assumption by Sengkon, STI and FEBTC rendered the existence mortgagor and not a principal debtor. As a third-party
of novation doubtful because of lack of clear proof that Sengkon mortgagor, the limitation on its liability pertains not only to the
is being expressly released from its obligation; that STI was properties it mortgaged but also to the obligations specifically
already assuming Sengkon's former place in the contractual secured thereby. It is well settled that while a REM may
relation; and that FEBTC is giving its conformity to this exceptionally secure future loans or advancements, these future
arrangement. While FEBTC indeed approved Sengkon's request debts must be specifically described in the mortgage contract. An
for the "change in account name" from Sengkon to STI, such obligation is not secured by a mortgage unless it comes fairly
mere change in account name alone does not meet the required within the terms of the mortgage contract.[46]
degree of certainty to establish novation absent any other
circumstance to bolster said conclusion. In this case, there was simply no evidence to support the
conclusion that the PNs were in fact availments under the Credit
The trial court's finding that Line secured by PDCP's properties. The PNs that were used by
Sengkon did not avail under the FEBTC in its Petition for Extrajudicial Foreclosure of Mortgage
Credit Line taints the foreclosure of were all executed beyond the extended duration of Sengkon's
the mortgage Credit Line (or until July 1997). While FEBTC wrote a letter[47]
dated September 18, 1997, which is a few days short of the date
PDCP also claims that the foreclosure of the mortgage was of the earliest PN (September 23, 1997), addressed to STI,
invalid because the PNs that formed the basis of FEBTC's Petition approving the renewal of the debtor's Credit Line subject to the
for Extrajudicial Foreclosure of Mortgage were inadmissible in condition that the Line "shall be partially secured" by the PDCP's
evidence. Rejecting this argument, the CA ruled that the mortgaged properties, it is worthy to note that this letter did not
admissibility of the PNs is a non-issue in this case because in bear the conforme of the debtor, lending credence to the trial
questioning the validity of the REMs and the foreclosure court's observation. In this light, FEBTC's failure to heed PDCP's
proceedings, PDCP did not actually assail the validity or existence request for the segregation of the amounts secured by its
of said PNs; what it raised as an issue was whether the properties assumes critical significance. The lack of proof that
foreclosure covered obligations other than Sengkon's availment the availments subject of the foreclosure proceedings were
under the Credit Line. As the CA puts it: within the coverage of PDCP's REMs explains FEBTC's omission.
[W]hat should have been the focal and critical question to be Despite the foregoing, however, particularly the variance
answered on the issue of whether the subject [REMs] were between the duration of Sengkon's Credit Line and the dates
validly foreclosed should have been whether the [REMs] appearing on the face of the PNs, the CA upheld the validity of
executed by [PDCP] covered the obligations of [Sengkon] as the foreclosure based merely on the similarity in the purpose for
represented in those [PNs] or, stated in another way, were the which the Credit Line was granted and the purpose for which the
[PNs] used by defendant BPI in its foreclosure proceedings over PNs were executed.
[PDCP's] mortgages availments by [Sengkon] under its Credit
Line? On the implied premise that what is material is only the identity
of the debtor whose obligation the mortgagor secures, the CA
An examination of the subject [PNs] vis-a-vis the Agreement for cited Prudential Bank v. Alviar[48] and applied the dragnet
Credit Line would yield an affirmative answer. clause in PDCP's REMs. According to the CA, since the REMs
contain a dragnet clause, then PDCP's properties can be made to
answer even if the PNs supporting the Petition for Extrajudicial
240
Foreclosure of Mortgage refer to Sengkon's obligations in its
other credit facilities.[49] xxxx
The CA unfortunately misapplied the ruling in Prudential Bank. In Indeed, in some instances, it has been held that in the absence
that case, the Court's discussion on the application of the blanket of clear, supportive evidence of a contrary intention, a mortgage
mortgage clause or dragnet clause was not as much as critically containing a "dragnet clause" will not be extended to cover
important as the Court's novel application of the doctrine of future advances unless the document evidencing the subsequent
reliance on security test. advance refers to the mortgage as providing security therefor.
[51] (Citations omitted and emphasis and underlining ours)
A dragnet clause is a stipulation in a REM contract that extends
the coverage of a mortgage to advances or loans other than In the present case, PDCP's REMs indeed contain a blanket
those already obtained or specified in the contract. Where there mortgage clause in the following language:
are several advances, however, a mortgage containing a dragnet
clause will not be extended to cover future advances, unless the That, for and in consideration of credit accommodations obtained
document evidencing the subsequent advance refers to the from the [FEBTC], and to secure the payment of the same and
mortgage as providing security therefor or unless there are clear those that may hereafter be obtained, the principal of all of
and supportive evidence to the contrary.[50] This is especially which is hereby fixed at x x x PESOS x x x, Philippine Currency,
true in this case where the advances were not only several but as well as those that the [FEBTC] may extend to the [PDCP],
were covered by different sub-facilities. Thus, in Prudential Bank, including interest and expenses or any other obligation owing to
the Court stated: the [FEBTC], whether direct or indirect, principal or secondary,
as appears in the accounts, books and records of the [FEBTC] x x
In the case at bar, the subsequent loans obtained by x.[52]
respondents were secured by other securities, thus: PN
BD#76/C-345, executed by Don Alviar was secured by a "hold- Nonetheless, the parties do not dispute that what the REMs
out" on his foreign currency savings account, while PN BD#76/C- secured were only Sengkon's availments under the Credit Line
430, executed by respondents for Donalco Trading, Inc., was and not all of Sengkon's availments under other sub-facilities
secured by "Clean-Phase out TOD CA 3923" and eventually by a which are also secured by other collaterals.[53] Since the liability
deed of assignment on two [PNs] executed by Bancom Realty of PDCP's properties was not unqualified, the PNs, used as basis
Corporation with Deed of Guarantee in favor of A.U. Valencia and of the Petition for Extrajudicial Foreclosure of Mortgage should
Co., and by a chattel mortgage on various heavy and sufficiently indicate that it is within the terms of PDCP's limited
transportation equipment. The matter of PN BD#76/C-430 has liability. In this case, the PNs failed to make any reference to
already been discussed. Thus, the critical issue is whether the PDCP's availments, if any, under its Credit Line. In fact, it did not
"blanket mortgage" clause applies even to subsequent even mention Sengkon's securities under the Credit Line.
advancements for which other securities were intended, or Notably, the Disclosure Statements, which were "certified
particularly, to PN BD#76/C-345. correct" by FEBTC's authorized representative, Ma. Luisa C.
Ellescas, and which accompanied the PNs, failed to disclose
Under American jurisprudence, two schools of thought have whether the loan secured thereby was actually secured or not.
emerged on this question. One school advocates that a "dragnet
clause" so worded as to be broad enough to cover all other debts Thus, even if the Court brushes aside the Best Evidence Rule, the
in addition to the one specifically secured will be construed to foregoing observations clearly support the trial court's
cover a different debt, although such other debt is secured by observation that FEBTC's foreclosure did not actually cover the
another mortgage. The contrary thinking maintains that a specific obligations secured by PDCP's properties.
mortgage with such a clause will not secure a note that
expresses on its face that it is otherwise secured as to its FEBTC's failure to send personal
entirety, at least to anything other than a deficiency after notice to the mortgagor is fatal to the
exhausting the security specified therein, such deficiency being validity of the foreclosure proceedings
an indebtedness within the meaning of the mortgage, in the
absence of a special contract excluding it from the arrangement. Indeed, FEBTC's failure to comply with its contractual obligation
to send notice to PDCP of the foreclosure sale is fatal to the
The latter school represents the better position. The parties validity of the foreclosure proceedings. In Metropolitan Bank v.
having conformed to the "blanket mortgage clause" or "dragnet Wong,[54] the Court ruled that while as a rule, personal notice
clause," it is reasonable to conclude that they also agreed to an to the mortgagor is not required, such notice may be subject of a
implied understanding that subsequent loans need not be contractual stipulation, the breach of which is sufficient to nullify
secured by other securities, as the subsequent loans will be the foreclosure sale, thus:
secured by the first mortgage. In other words, the sufficiency of
the first security is a corollary component of the "dragnet In resolving the first query, we resort to the fundamental
clause." But of course, there is no prohibition, as in the mortgage principle that a contract is the law between the parties and, that
contract in issue, against contractually requiring other securities absent any showing that its provisions are wholly or in part
for the subsequent loans. Thus, when the mortgagor takes contrary to law, morals, good customs, public order, or public
another loan for which another security was given it could not be policy, it shall be enforced to the letter by the courts. Section 3,
inferred that such loan was made in reliance solely on the Act No. 3135 reads:
original security with the "dragnet clause," but rather, on the
new security given. This is the "reliance on the security test." xxxx
Hence, based on the "reliance on the security test," the California The Act only requires (1) the posting of notices of sale in three
court in the cited case made an inquiry whether the second loan public places, and (2) the publication of the same in a newspaper
was made in reliance on the original security containing a of general circulation. Personal notice to the mortgagor is not
"dragnet clause." Accordingly, finding a different security was necessary. Nevertheless, the parties to the mortgage contract
taken for the second loan no intent that the parties relied on the are not precluded from exacting additional requirements. In this
security of the first loan could be inferred, so it was held. The case, petitioner and respondent in entering into a contract of
rationale involved, the court said, was that the "dragnet clause" [REM], agreed inter alia:
in the first security instrument constituted a continuing offer by
the borrower to secure further loans under the security of the "all correspondence relative to this mortgage, including demand
first security instrument, and that when the lender accepted a letters, summonses, subpoenas, or notifications of any judicial or
different security he did not accept the offer. extra-judicial action shall be sent to the MORTGAGOR at 40-42
241
Aldeguer St. Iloilo City, or at the address that may hereafter be that personal notice is additionally required to be given the
given in writing by the MORTGAGOR to the MORTGAGEE." mortgagor. Failure to abide by the general rule, or its exception,
renders the foreclosure proceedings null and void.[63] (Citation
Precisely, the purpose of the foregoing stipulation is to apprise omitted, italics ours, and emphasis and underlining in the original
respondent of any action which petitioner might take on the deleted)
subject property, thus according him the opportunity to
safeguard his rights. When petitioner failed to send the notice of In fact, the 2002 case of Nepomuceno Productions,[64] cited by
foreclosure sale to respondent, he committed a contractual the CA, already made it clear that while personal notice to the
breach sufficient to render the foreclosure sale on November 23, mortgagor in extrajudicial foreclosure proceedings is not
1981 null and void.[55] (Citation omitted and italics in the necessary, this holds true only if the parties did not stipulate
original) therefor. Stated differently, personal notice is necessary if the
parties so agreed in their mortgage contract. In the present
In trivializing FEBTC's failure to send personal notice to PDCP case, the parties provided in their REMs that:
however, the CA, citing Philippine National Bank v. Nepomuceno
Productions, Inc.,[56] ruled that since the principal object of a 12. All correspondence relative to this mortgage, including
notice of sale is not so much to notify the mortgagor but to demand letters, summonses, subpoenas, or notifications of any
inform the public in general of the particularities of the judicial or extrajudicial action shall be sent to the [PDCP] at
foreclosure, then personal notice to the mortgagor may be _______________ or at the address that may hereafter be given
disregarded.[57] The cited case, however, is inapplicable in writing by the [PDCP] to the [FEBTC]. x x x.[65]
because that case did not in fact involve stipulations on personal
notice to mortgagor nor the sending of notice to a wrong This provision clearly establishes the agreement between the
address. The issue involved in that case is whether the parties to parties that personal notice is required before FEBTC may
the mortgage can validly waive the statutory requirements of proceed with the foreclosure of the property and thus, FEBTC's
posting and publication and not whether the bank can ignore a act of proceeding with the foreclosure despite the absence of
contractual stipulation for personal notice. Neither is PNB v. personal notice to the mortgagor was its own lookout.
Spouses Rabat[58] likewise cited by the CA applicable because
the trial court therein found that the mortgage contract did not in That the portion on the mortgagor's address was left in blank
fact require that personal service of notice of foreclosure sale be cannot be simply swept under the rug as "an expression of
given to the mortgagors. The CA's cavalier disregard of the general intent" that cannot prevail of the parties' specific intent
mortgagor's contractual right to notice of the foreclosure sale not to require personal notice. Apart from the fact that this
runs contrary to jurisprudence. In Wong,[59] the Court already reasoning is based on a questionable doctrine, the CA's ruling
had the occasion to observe: completely ignored the fact that the mortgage contract
containing said stipulation was a standard contract prepared by
It is bad enough that the mortgagor has no choice but to yield FEBTC itself. If the latter did not intend to require personal
his property in a foreclosure proceeding. It is infinitely worse, if notice, on top of the statutory requirements of posting and
prior thereto, he was denied of his basic right to be informed of publication, then said provision should not have at all been
the impending loss of his property. x x x.[60] included in the mortgage contract. In other words, the REMs in
this case are contracts of adhesion, and in case of doubt, the
While the CA acknowledged that there was indeed a contractual doubt should be resolved against the party who prepared it.[66]
stipulation for notice to PDCP as mortgagor, it considered the
absence of a particular address in the space provided therefor in Accordingly, the CA should have considered the "doubt" created
the mortgage contract as merely evincing an expression of by the blank space in the mortgage contract against FEBTC and
"general intent" between the parties and that this cannot prevail not in its favor. Nonetheless, even if the Court ignores this
against their "specific intent" that Act No. 3135 be the controlling particular rule of interpretation, the fact that FEBTC caused the
law between them, citing Cortes v. Intermediate Appellate Court. sending of a notice, albeit at a wrong address, to PDCP is itself a
[61] clear proof that the parties did intend to impose a contractual
requirement of personal notice, FEBTC's undisputed breach of
The Court cannot agree with the CA. To begin with, the value of which sufficiently nullifies the foreclosure proceeding.
the doctrine enunciated in Cortes has long been considered
questionable by this Court. Thus, in Global Holiday Ownership With the foregoing, the Court finds it unnecessary to discuss
Corporation v. Metropolitan Bank and Trust Company,[62] the PDCP's argument based on the alleged violation of its
Court held: constitutional right against impairment of obligations and
contract.
But what is stated in Cortes no longer applies in light of the
Court's rulings in Wong and all the subsequent cases, which have WHEREFORE, premises considered, the petition is GRANTED. The
been consistent. Cortes has never been cited in subsequent Decision dated November 25, 2009 and Resolution dated
rulings of the Court, nor has the doctrine therein ever been February 2, 2010 of the Court of Appeals in CA-G.R. CV No.
reiterated. Its doctrinal value has been diminished by the policy 89755 are hereby ANNULLED and SET ASIDE. The Decision dated
enunciated in Wong and the subsequent cases; that is, that in April 16, 2007 of the Regional Trial Court of Quezon City, Branch
addition to Section 3 of Act 3135, the parties may stipulate that 222, in Civil Case No. Q01-44630 is REINSTATED and AFFIRMED.
personal notice of foreclosure proceedings may be required. Act
3135 remains the controlling law, but the parties may agree, in SO ORDERED.
addition to posting and publication, to include personal notice to
the mortgagor, the non-observance of which renders the Velasco, Jr., (Chairperson), Bersamin, Caguioa,[*] and Tijam,
foreclosure proceedings null and void, since the foreclosure JJ., concur.
proceedings become an illegal attempt by the mortgagee to
appropriate the property for itself.