G.R. No.

L-45510 May 27, 1986

BERNARDO B. LEGASPI, petitioner,
vs.
COURT OF APPEALS and LEONARDO B. SALCEDO, respondents.
 This is an appeal by way of certiorari from the decision of the then Court of
Appeals in CA-G.R. No. 53947-R and from the resolution denying the
petitioner's motion for reconsideration.
On February 8, 197 1, the plaintiff now petitioner filed a complaint with the
Court of First Instance of Cavite, docketed as Civil Case No. N-1595 for
reconveyance to enforce his right to repurchase two parcels of land, Lots Nos.
3962 and 3963 of the Imus Estate covered by TCT Nos. T-4388 and T-4389,
respectively, which he sold to the defendant, now private respondent, pursuant
to a sale with pacto de retro as evidenced by a Deed of Sale with the Right to
Repurchase dated October 15, 1965 and marked as Exhibit "A".
The complaint alleged, among others, that Bernardo B. Legaspi is the
registered owner of the aforementioned two parcels of land which he sold to
his son-in-law, Leonardo B. Salcedo, on October 15, 1965 for the sum of
P25,000.00 with the right to repurchase the same within five years from the
execution of the deed of sale; that before the expiry date of the repurchase
period which was on October 15, 1970, Legaspi offered and tendered to Salcedo
the sum of P25,000.00 for the repurchase of the two parcels of land; that the
tender of payment was refused by Salcedo without justifiable or legal cause;
that Salcedo refused to convey the properties to Legaspi as requested by the
latter; that on October 15, 1970, Legaspi deposited in the Office of the Clerk
of Court of First Instance of Cavite City the amount of P25,125.00 as
evidenced by Official Receipt No. 2698797-k marked as Exhibit "B"; that
despite earnest efforts towards a compromise after consignation of the
repurchase money had been made, Salcedo refused to reconvey the properties in
question.
In his answer with compulsory counterclaim, Salcedo alleged, among others,
that he denies that Legaspi ever offered and tendered to him the sum of
P25,000.00 or requested the execution of the corresponding deed of
reconveyance; that what actually transpired on October 15, 1970 was that
Legaspi asked for an extension of one year within which to repurchase the two
parcels of land bringing with him a document entitled "Extension Period to
Repurchase" marked as Exhibit "1" which Salcedo declined to sign; and that
Salcedo also denies that earnest efforts towards a compromise were pursued by
Legaspi for the latter merely proposed for an extension of one year of the
right to repurchase. By way of special defense, Salcedo claimed that Legaspi
was no longer entitled to repurchase the properties in question for failure to
exercise his right within the stipulated period in accordance with Article
1250 of the Civil Code under which Salcedo maintained he was entitled to the
payment of P42,250.00 instead of only P25,000.00. Article 1250 of the Civil
Code provides as follows:
In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the establishment
of the obligation shall be the basis of payment, unless there is an agreement
to the contrary.
The lower court, after trial, rendered a decision, the dispositive portion of
which reads:
WHEREFORE, judgment is for the plaintiff who retains ownership of Lots Nos.
3962 and 3963 of the Imus Estate covered by TCT Nos. T-3488 and T-3489,
respectively, of the Registry of Deeds for the Province of Cavite by automatic
operation of law when payment of the obligation has been effected by
depositing the whole amount with the Clerk of Court in spite of the refusal to
receive the same under the allegation that the plaintiff must be obliged to
pay P17,250.00 by way of interest or devaluation where in a case of this
nature, sale with right to repurchase, interest has no place in its scheme;
and the defendant is hereby ordered to deliver these two lots immediately upon
receipt of this decision to the plaintiff as they should have done on October
15, 1970 which in bad faith they have been avoiding using all kinds of tricks
to frustrate the payment of the said obligation and for which they should be
made to answer for damages as consequences of bad faith; the defendant to pay
unto the plaintiff the sum of P10,500.00 yearly from October 15, 1970 until
the delivery of these two lots to the plaintiff value of the produce of the
said two lots which have been retained by the defendant, yearly, from October
15, 1970 when they should have made physical delivery of these two lots by
reason of the payment of the price of the said two lots appearing in the deed
of sale with right to repurchase; defendant further to pay to the plaintiff by
way of moral, punitive, exemplary, and corrective damages in the amount of
P20,000.00; P2,000.00 for attorney's fees, plus the costs of this proceedings.
The counterclaim is hereby dismissed; and the Register of Deeds, Cavite
Province is hereby ordered to cancel the annotation of the sale with pacto de
retro dated October 1, 1965 upon the ground that the repurchase therein
mentioned was effected legally on October 15, 1970, inspite of defendant's
refusal to allow plaintiff to exercise his right to repurchase reserved to
plaintiff in the document.
On appeal, the Court of Appeals reversed the decision and dismissed the
complaint holding that:
... [T]he appellee never made a valid tender of payment that amounted to a
lawful exercise of the right to repurchase the property involved in the
instant case. Neither was a valid consignation made seasonably in court of the
amount of P25,000.00 with which to make the repurchase.
A motion for reconsideration was denied. Hence, this appeal by certiorari.
The petitioner assails the decision of the Court of Appeals first, on the
ground that the respondent court departed from the accepted and usual course
of judicial proceedings contrary to the well-settled rule that as to the
matter of credibility of witnesses, the appellate court cannot substitute its
own discretion with that of the lower court for the latter court is in a
better position to gauge such credibility of witnesses; and secondly on the
ground that the respondent court committed a patent error in law and
jurisprudence by virtue of its conclusion that "no valid consignation was
seasonably made of the amount of P25,000.00 with which to make the repurchase"
despite the Official Receipt of the Clerk of Court evidencing the deposit of
said amount on the last day of the repurchase period, that is, on October 15,
1970.
The only issue crucial to the present appeal is whether or not the petitioner
validly exercised his right to repurchase the properties within the five-year
period as stipulated in the sale with pacto de retro entered into between the
petitioner as vendor a retro and private respondent as vendee a retro. To
resolve this issue, we determine whether it was correct for the respondent
court to disturb the findings of fact made by the trial court in its
conclusion that there was tender of payment within the redemption period.
Tender of payment is the manifestation made by the debtor to the creditor of
his desire to comply with his obligation, with the offer of immediate
performance. (Tolentino, Civil Code of the Phil....ippines, Vol. IV [1985]).
Generally, it is an act preparatory to consignation as an attempt to make a
private settlement before proceeding to the solemnities of consignation. (8
Manresa 325). Consignation is the act of depositing the thing due with the
court or judicial authorities whenever the creditor cannot accept or refuses
to accept payment and it generally requires a prior tender of payment.
(Limkako v. Teodoro, 74 Phil..... 313). In instances where no debt is due and
owing, consignation is not proper. (Asturias Sugar Central vs. Pure Cane
Molasses Co., 60 Phil..... 255) We have early held that:
Consignation is not required to preserve the right of repurchase as a mere
tender of payment is enough if made on time as a basis for an action to compel
the vendee a retro to resell the property. (Villegas vs. Capistrano, 9
Phil..... 416; Resales vs. Reyes, et al. 25 Phil..... 495; Paez, et al., vs.
Magno, 46 O.G. p. 5425).
Since the case at bar involves the exercise of the right to repurchase, a
showing that petitioner made a valid tender of payment is sufficient. It is
enough that a sincere or genuine tender of payment and not a mock or deceptive
one was made. The fact that he deposited the amount of the repurchase money
with the Clerk of Court was simply an additional security for the petitioner.
It was not an essential act that had to be performed after tender of payment
was refused by the private respondent although it may serve to indicate the
veracity of the desire to comply with the obligation.
On the issue of whether or not the tender of payment in the manner described
by the petitioner resulted in the exercise of the right to repurchase, we rule
that it was erroneous on the part of the respondent court to reverse the
factual finding of the trial court that a valid tender of payment was made
seasonably. The records do not show that this finding is grounded entirely on
speculation, surmises, or conjectures.
One reason emphasized by the respondent for reversing the factual findings of
the trial court was a discrepancy regarding the time the consignation was
made. Was it made at 10:00 o'clock in the morning or 3:00 o'clock in the
afternoon? The discrepancy is not substantial. It is plausible that either the
petitioner or the court employee could not correctly recall the exact time,
about one year later, when an official transaction was performed on a given
day. There is no discrepancy in the date that consignation was effected.
Moreover, there is an official receipt evidencing the transaction. We apply
the following:
Sec. 20. Public and private writing The following writings are public:
(a) The written acts or records of the acts of the sovereign authority, of
official bodies and tribunals, and of public officers, legislative, judicial
and executive, whether of the Phil....ippines, or of a foreign country;
xxx xxx xxx
(Rule 132, Rules of Court.)
xxx xxx xxx
... [A]ny instrument authorized by a competent official with the solemnities
required by law is a public document.... [A]n official receipt printed in
accordance with the standard forms required by the government is a public
document. (U.S. vs. Asensi 34 Phil..... 750, 757, 758, citing Cacnio v. Baens
5 Phil.... 742; and U.S. vs. Vy Guico, 12 Phil..... 209).
The evidentiary nature of public documents must be sustained in the absence of
strong, complete and conclusive proof of its falsity or nullity. (Martin,
Rules of Court, with Notes and Comments, Vol. V, [1974], citing Robinson vs.
Villafuerte, 18 Phil.... 171; Sy Tiangco vs. Pablo, 59 Phil..... 119; De Jesus
v. Grey, 59 Phil..... 834; El Hogar Filipino vs. Olviga 60 Phil..... 17).
The law reposes a particular confidence in public officers that it presumes
they will discharge their several trusts with accuracy and fidelity; and,
therefore, whatever acts they do in the discharge of their public duty may be
given in evidence and shall be taken to be true under such a degree of caution
as the nature and circumstances of each case may appear to require. (Antillon
vs. Barcelona, 37 Phil.... 148,152).
The alleged correction in the official receipt was not made by the petitioner
but by the cashier of the Court of First Instance who received the money. The
wife of the private respondent also testified that on October 12, 1970 or
three days before the expiry date, the petitioner and his son went to the
respondent's house to repurchase the lots. The respondent's letter to the
petitioner's lawyer on November 3, 1970 shows that the offer to repurchase the
property was rejected because the petitioner could not pay an additional
P17,250.00 on top of the repurchase price. Paragraph 6 of the respondent's
answer to the complaint states as an Affirmative and Special Defense, the
following:
xxx xxx xxx
6. That if at all plaintiff would be entitled to repurchase the said
properties, he should pay the defendant the sum of P42,250.00 in accordance
with Art. 1250 of the New Civil Code and upon failure to do so, defendant is
entitled to an order of this Honorable Court to have his ownership over the
said properties consolidated and the said properties registered in his name in
accordance with Art. 1607 of the New Civil Code.
The records, therefore, show that the right of repurchase was seasonably
exercised. The records clearly manifest that the petitioner was able to make a
valid tender of payment on the 14th of October 1970 by offering personally the
amount of P25,000.00 to the private respondent who refused to accept it
claiming that the money was devalued. Thereafter, the petitioner informed the
private respondent that he would be depositing the same amount with the proper
court. (tsn., pp. 6 & 9, February 8, 1972 hearing). The trial court correctly
ruled that there was proper exercise of the right to repurchase within the
five-year period not for the reason that the deposit of the repurchase money
amounted to a tender of payment but for what the evidence submitted before it
proved. The appellate court erred when it did not apply the well-accepted
doctrine that:
Conclusions and findings of fact by the trial court are entitled to great
weight on appeal and should not be disturbed unless for strong and cogent
reasons because the trial court is in a better position to examine real
evidence, as well as to observe the demeanor of the witnesses while testifying
in the case. (Chase vs. Buencamino, Sr., 130 SCRA 365)
As regards the award of moral, punitive, exemplary and corrective damages in
the amount of P20,000.00 made by the trial court, the award is deleted for
want of sufficient proof to justify it. The mere refusal to accept the
repurchase money on the ground that the value of the peso had devalued did not
amount to bad faith which would warrant the payment of these damages by the
private respondent.
WHEREFORE, the decision of the former Court of Appeals is hereby REVERSED and
SET ASIDE. The decision of the Court of First Instance of Cavite, 7th Judicial
District, Branch III is REINSTATED but MODIFIED by the deletion of the award
of P20,000.00 for moral, punitive, exemplary and corrective damages. In all
other respects, the trial court's decision is AFFIRMED. No costs.
SO ORDERED.
G.R. No. L-56196 January 7, 1986
RESTITUTA, JESUS, ISIDRO AND JOEL, ALL SURNAMED HULGANZA AND MATILDE COLLAMAR,
petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND BASILIA GEMARINO, respondents.
This is a petition for review on certiorari seeking to set aside: (a) the
judgment of reversal of the respondent Court of Appeals dated November 25,
1980 in CA-G.R No. 58189-R. entitled Restituta, Isidro, Jesus and Joel all
surnamed Hulganza and Matilde Collamar, Plaintiffs-Appellees, versus Basilia
Gemarino, Defendant-Appellant; and (b) respondent Court's resolution dated
January 14, 1981 denying petitioners' motion for reconsideration of said
judgment. (Original Petition, pp. 51-67, Rollo).
The dispositive portion of the decision rendered by the lower court reads as
follows:
WHEREFORE, judgment is hereby rendered as follows:
(1) declaring that the plaintiffs have the legal right to exercise the right
to redemption over the lot in question;
(2) ordering the defendant to allow the plaintiffs to exercise said right of
legal redemption at the original purchase price of P 10,000.00, which is the
principal obligation, with accumulated interest, at the legal rate, from the
date of the execution of the deed of sale up to and until the time of
repurchase; and
(3) to pay the costs.
No award for attorney's fees is hereby made for failure of the plaintiffs to
adduce evidence on this matter.
SO ORDERED.
(Record on Appeal, p.38).
Aforementioned judgment was reversed by the Court of Appeals, in above-cited
decision dated November 25, 1980, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby reversed and another one
entered dismissing the complaint as well as the counterclaim. No pronouncement
is made as to costs.
SO ORDERED.
(Record, p. 33, Annex "B" to Petition).
Petitioners (plaintiff therein) filed with the Court of First Instance of
Negros Occidental on May 24, 1973 Civil Case No. 925 entitled "Hulganza, et
al. v. Gemarino," to: (1) recover from private respondent (defendant therein)
the sum of P3,000.00 representing the unpaid balance of Lot No. 161, Pls. 256;
(2) compel private respondent to allow petitioners to redeem said parcel of
land under Sec. 119 of Commonwealth Act 141 (Public Land Act); and (3) compel
respondent to pay actual damages in the amount of P2,000.00.
Private respondent, in her answer, denied that said balance is due from her
and countered that the period of legal redemption had already lapsed. She
added that the instant action was filed as a business speculation, intended
merely to harass her.
The factual background of this case as admitted by both parties at the pre-
trial conducted on May 24, 1973, is as follows:
Lot 161, Pls. 256, the subject matter of the present case, is situated in
Barrio Mina-otoc, Calatrava, Negros Occidental and is registered in the name
of spouses Nicomedez Hulganza and Matilde Collamar covered by Original
Certificate of Title No. P-1672 issued pursuant to a free patent. Before
Nicomedez Hulganza died leaving as his heirs herein petitioners, namely: his
wife, Matilde Collamar, Restituto Hulganza, Joel Hulganza, and Isidro
Hulganza, he and his wife Matilde had sold the said property on April 21, 1971
in favor of the defendant Basilia Gemarino in the amount of P10,000.00 and by
virtue of the sale the original title was cancelled and a new one issued (T-
5082) in the name of private respondent Basilia Gemarino. Since that date, up
to the present private respondent has been in possession of the property
peacefully, openly or publicly, adversely and without interruption in the
concept of owner.
But on April 13, 1972, petitioners filed a complaint in court seeking to
repurchase the property from said respondent under the provisions of Section
119 of Public Land Act 141 as amended. (Record on Appeal, pp. 25-26, Rollo p.
87).
After pre-trial, the plaintiffs (herein petitioners) narrowed down their stand
by withdrawing their other causes of action but asserted their rights under
their second cause of action, maintaining that they have the right of legal
redemption of the property under Sec. 119 of Act 141 (Public Land Act). In
their memorandum, they agreed not only to support the foregoing position but
also on the fact that they are not obligated to pay for the improvements
introduced by the vendee.
On the other hand defendant (herein private respondent) also narrowed down her
stand by reiterating the grounds alleged as special defenses in her answer,
such as: (1) that the second cause of action does not state a cause of action;
(2) that the period of redemption had already lapsed and (3) that should the
Court hold that the right of redemption still exists, she should be paid the
cost of improvements introduced on the land, estimated to be valued at
P25,000.00. However, she prays that the first ground be treated as a motion to
dismiss. Private respondent concentrated her memorandum only on the first
ground. (ibid, pp. 28-29).
The trial court in its Order dated February 1, 1974 denied the above-mentioned
first ground which was considered as a motion to dismiss. (ibid, p.
32).lwphl@itç
In its decision dated February 25, 1975, the same court rendered judgment in
favor of the plaintiffs (herein petitioners) declaring that they have the
legal right to exercise the right of redemption and ordering among other
things, the defendant (herein private respondent) to allow the former to
exercise said right at the original purchase price of P10,000.00 with
interest.
As above-stated, on appeal, the Court of Appeals reversed the decision of the
lower court.
Hence, this petition.
In the resolution of July 6, 1981 of the Second Division of this Court,
respondent was required to comment (Rollo, p. 89). Thereafter, counsel for
private respondent having failed to file comment within the required period
was required in the resolution of March 3, 1982 to explain such failure and to
file the required comment, both of which were complied with on May 4, 1982
(Rollo, p. 91) and on May 20, 1982 (Rollo, p. 94), respectively. Petitioners
were required to file Reply to aforesaid comment in the resolution of June 14,
1982 (Rollo, p. 99) which was complied with on August 16, 1982 (Rollo, p.
100). The Court gave due course to the petition in the resolution of
September, 1982 (Rollo, p. 104). Petitioners filed their brief on January 3,
1983 (Rollo, p. 110) while private respondent filed her brief on December 1,
1983 and the case was considered submitted for deliberation on June 20, 1984
(Rollo, p. 143).
There is merit in this petition.
The only issue raised herein, is whether or not it is necessary that the
formal offer to redeem the land in question be accompanied by a bona fide
tender of the redemption price, or the repurchase price be consigned in Court,
within the period of redemption even if the right is exercised through the
filing of a judicial action (Brief for Petitioners; p. 5; Rollo p. 110).
Respondent Court of Appeals made the following findings:
In the instant case is bears repeating that plaintiffs-appellees failed to
consign the amount due at the time they filed the complaint, four days before
the lapse of the five-year period, and in fact it was only on the date of the
trial more than three years later that the lower court was informed of the
alleged existence of the money available in the hands of Isidro Hulganza who
was then in Mindanao.
This Court is, therefore, of the belief that the act of merely filing the
complaint on the part of the plaintiffs-appellees without consignation of the
proper amount due within the period prescribed was an ineffective and
incomplete redemption and to say otherwise would in effect extend the period
of redemption beyond that provided by law. (Brief for Petitioners, p. 3,
Rollo, p. 110).lwphl@itç
This issue has already been laid to rest in successive decisions of the
Supreme Court which ruled:
The formal offer to redeem, accompanied by a bona fide tender of the
redemption price, within the period of redemption prescribed by law, is only
essential to preserve the right of redemption for future enforcement beyond
such period of redemption and within the period prescribed for the action by
the statute of limitations. Where, as in the instant case, the right to redeem
is exercised thru the filing of judicial action within the period of
redemption prescribed by the law, the formal offer to redeem, accompanied by a
bona fide tender of the redemption price, night be proper, but is is not
essential. The filing of the action itself, within the period of redemption,
is equivalent to a formal offer to redeem. Any other construction,
particularly with reference to redemption of homesteads conveyed to third
parties, would work hardships on the poor homesteaders who cannot be expected
to know the subtleties of the law, and would defeat the evident purpose of the
Public Land Law — "to give the homesteader or patentee every chance to
preserve for himself and his family the land that the state granted him as a
reward for his labor in cleaning and cultivating it." (Avendano vs. Hao Su
Ton, 47 Off. Gaz., 357; Pascua vs. Talena, 45 Off. Gaz., Supp. No. 9, 413.)
(Reveros v. Abel, et al., 48 Off. Gaz., 5318-5319 [1952]; recently reiterated
in Tolentino v. Court of Appeals, 106 SCRA 526 [1981]).
In view of the foregoing consideration, it appears evident that the bona fide
tender of the redemption price or its equivalent — consignation of said price
in court is not essential or necessary in the case at bar where the filing of
the action itself is equivalent to a formal offer to redeem.
PREMISES CONSIDERED, the assailed decision of the Court of Appeals is hereby
REVERSED and SET ASIDE and the decision of the trial court dated February 25,
1975 is hereby AFFIRMED or REINSTATED.
SO ORDERED.
G.R. No. L-52326 February 12, 1986
LORENZO VALDELLON, petitioner,
vs.
HON. ERNESTO S. TENGCO, AMBROSIO M. GERALDEZ and HERMINIA Y. GERALDEZ,
respondents.
The petition for review by way of certiorari is directed against the decision
of Respondent Judge, then presiding over Branch VI of the Court of First
Instance of Manila, promulgated on November 19, 1979 in Civil Case No. 126610,
entitled, Ambrosio Geraldez, et al., plaintiffs-appellees versus Lorenzo
Valdellon, defendant-appellant. Said decision affirmed in toto, the judgment
rendered by the City Court of Manila in an unlawful detainer case, Civil Case
No. 045819-CV, therein ordering defendant Lorenzo Valdellon to vacate the land
in question and for the latter to pay all his rentals in arrears from March
1979 at the rate of P200.00 a month until possession thereof shall have been
surrendered to the plaintiffs-spouses Geraldez; and to pay said plaintiffs the
amount of P 1,000.00 as attorney's fees, as well as costs of suit.
After comment to the petition was filed by private respondents, and with
petitioner thereafter submitting his rejoinder to petitioner's Reply, there
was filed with this Court by the private respondents' on February 25, 1981 a
motion for a special order of execution, stating therein the following.
That private respondent Ambrosio Geraldez on January 27, 1981, went to the
Court of Appeals and to the Court of First Instance of Manila to withdraw the
monthly rentals deposit by petitioner Valdellon and discovered that Petitioner
Valdellon failed to comply with the required monthly payments of his rentals.
A careful perusal of the record of his payment to the Court, a certified copy
of which is herewith attached as Annex A, shows that Petitioner has not been
consistent or regular in his payment of rentals. Record shows that he paid his
rental for the months of July and August on September 29, 1980 or a delay of
three months; again he paid his rental for September on November 11, 1980 or a
delay of two and a half months; then for his October rental, he paid on
January 13, 1981 or a delay of three and a half months; and finally as of
January 27, 1981 when private respondent took the attached record, petitioner
has not paid his rentals for the months of November, December. 1980 and
January, 1981.
This clearly shows how often the Petitioner herein has violation the
provisions of Batas Pambansa 25, Sec. 5-b as he did violate the same when he
failed to pay for four consecutive months from March to June, 1979, the reason
for the filing of this ejectment case in the first place, a certified copy
from the Court of Appeals Accounting Division is herein attached as Annex B.
WHEREFORE, premises considered, it is respectfully prayed of this Honorable
Court that a special order of execution be issued pursuant to Sec. 8, Rule 70
of the Rules of Court.
Makati, Metro Manila, February 25, 1981.
Under the resolution of this Court dated April 1, 1981, petitioner Valdellon
was required to comment on the aforestated motion, and in his Comment opposing
the same, he simply contends that, "Without going into the question of whether
or not petitioner is in fact arrears for the period of four months as stated
by respondents in their motion, the fact is that Batas Pambansa Bilang 25,
specially Section 5 thereof, refers to rentals of residential units and not to
leased residential lots on which a tenant has built his house and occupied for
a period of more than ten (10) years." Petitioners further claims that the
entire Metropolitan Manila area has been declared as an Urban Land Reform
Zone, and as he has resided in the lot in question for more than ten (10)
years, he may not, therefore, be dispossessed as he has the right of first
refusal to purchase the same under section 6 of Presidential Decree No. 1517
promulgated on June 1, 1978.
In his rejoinder or Reply to petitioner's Comment, private respondents,
however, pointed out that petitioner had avoided answering and, therefore,
impliedly admitted respondents' submission that petitioner indeed was in
arrears in his rentals for four months; that under Sec. 2-B of Batas Pambansa
Blg. 25 a residential unit "refers to an apartment, house and/or land on which
another's dwelling is located used for residential purposes. . . ", and such
definition would thus include within its scope the land in question that Batas
Pambansa Blg. 25 which is the governing law allows the ejection of tenants who
should be in arrears in the payment of rents for three (3) months at any one
time; that Proclamation No. 1893 invoked by petitioner has no application in
this case as respondents having no intention to sell their land in question,
respondents are not bound, much less required to register the property with
the proper governmental agencies.
In the rejoinder of petitioner, he insists that if he cannot purchase the
land, he can institute a move to have the lot expropriated by the government
as indicated in section 7 of P.D. No. 1517 or if he has means to purchase the
land, he then may commence judicial proceedings for the acquisition of the
land.
Without any action taken on the private respondents' motion for a special
order of execution, this Court in its resolution of December 9, 1981 gave due
course to the petition and required both parties to submit simultaneous
memoranda within thirty (30) days from notice. Compliance with said resolution
was made by herein petitioner and private respondents.
The appeal in this case by petitioner appears to have been submitted directly
to this Court, rather than to the then defunct Court of Appeals, upon
petitioner's submission "that the parties agreed on the pertinent facts and
circumstances attending the instant case. They disagree, however, on the legal
consequences arising from such facts." (Rollo, p. 6).
The facts of the case as summarized in the decision rendered in the court
below should thus be accepted as undisputed and these are as follows:
The record reveals that sometime in 1956, on a verbal agreement to pay a
monthly rental to the original owner, defendant constructed his house on the
lot in question located at No. 1331 Antonio Street, Sta. Cruz, Manila. After
buying the lot in 1968, plaintiffs notified the defendant to remove his house
and to vacate the premises because they want to build a three-storey building
thereon. They also demanded the payment of P 200.00 a month from August 15,
1968 until defendant shall have actually vacated the land. Defendant refused
to vacate the premises and this compelled plaintiffs to file the first
ejectment case on September 28, 1968 docketed as Civil Case No. 174400 of the
City Court of Manila.
Civil Case No. 174400 was decided by the City Court in favor of plaintiffs and
defendant appealed to this Court where the case was docketed as Civil Case No.
74828. This Court, however, upheld the decision of the City Court and
defendant appealed to the Court of Appeals where his appeal was docketed as
CA-G.R. No. 44536-R. In a judgment dated March 8, 1976, the Court of Appeals
affirmed with modification the decision of this Court as follows:
. . . Consequently, the duration of the lease of the land in dispute is hereby
fixed for one (1) year from the time the suspension of the provisions of
paragraph (1) of Article 1673 of the Civil Code of the Philippines (by Sec. 4
of PD 20) is lifted.
WHEREFORE, as modified, the judgment appealed from is AFFIRMED and the
defendant is ordered to pay plaintiffs a monthly rental of P200.00 beginning
July 1, 1968.
From this judgment, defendant appealed to the Supreme Court by way of
certiorari. The petition was, however, denied for lack of merit by resolution
of July 11, 1977. This resolution became final.
Meanwhile, defendant had been depositing his monthly rentals of P200.00 with
the Court of Appeals during the pendency of the case in that Court and in the
Supreme Court.
By reason of the finality of the decision of the Court of Appeals and the
remand of the record of the case to this Court, plaintiffs wrote on February
19, 1979 a letter to defendant requesting that the monthly rentals starting
March, 1979 be paid to them directly at their residence at No. 20 Apo Street,
Quezon City (Exhibit A). This letter was sent by registered mail and appeared
to have been received by defendant (Exhibits A-I to A-4). The Court of Appeals
was also furnished a copy of this letter.
On March 19, 1979, defendant deposited his rent for the month of March, 1979
with the Court of Appeals (Exhibit 1),
On June 11, 1979, plaintiffs, through counsel, wrote another letter to
defendant demanding payment of all accrued rentals and to vacate the premises
within ten (10) days from notice, otherwise, an ejectment suit will be filed
against him (Exhibit B). This letter was received by defendant's daughter
(Exhibit B).
On June 12, 1979, defendant's son, Isagani Valdellon, went to plaintiffs'
residence and offered to pay the rentals for April, May and June, 1979 but the
latter refused to accept payment because on June 13, 1979, defendant deposited
the rentals for April, May and June, 1979 with the Court of Appeals who
accepted the same under O.R. No. 8611676, dated June 13, 1979 (Exhibit 2).
On June 22, 1979, plaintiffs instituted the present action in the City Court
where, after trial on the merits, the judgment appealed from was rendered.
We sustain the ruling of the Court below that the deposits made by the
petitioner in the Court of Appeals. the defendant in the unlawful detainer
case, on March 19, 1979 and on June 13, 1979, without notice thereof to the
private respondents and despite petitioner's receipt of said respondent's
letter of February 19, 1979, cannot be considered as valid consignation as
required and contemplated by law.
Under Art. 1257 of our Civil Code, in order that consignation of the thing due
may release the obligor, it must first be announced to the persons interested
in the fulfillment of the obligation. The consignation shall be ineffectual if
it is not made strictly in consonance with the provisions which regulate
payment. In said Article 1258, it is further stated that the consignation
having been made, the interested party shall also be notified thereof.
In the case of Soco vs. Militante, 123 SCRA 160, it was even stated that
without the notice first announced to the persons interested in the
fulfillment of the obligation, the consignation as a payment is void. (Citing
Limkako vs. Teodoro, 74 Phil. 313; See also Jose Ponce de Leon vs. Santiago
Syjuco, Inc., 90 Phil. 311).
It is pertinent to further consider that the petitioner's deposit made in the
Court of Appeals on June 13, 1979 was for his arrears in rentals for four (4)
months March, April, May and June, 1979, and that said appellate court at that
time was no longer the proper entity which should receive such deposits
inasmuch as the case which was appealed to that court (CA-G.R. No. 44536-R)
had already been long decided by a judgment decreed as final and executory on
January 17, 1977. As a matter of fact, the case records appears to have been
already remanded by the Court of Appeals to the Court of First Instance of
Manila since September 19, 1978. Patently, the consignation alleged by the
petitioner under those circumstances would be legally ineffectual.
The claim of petitioner that the deposits he made in the Court of Appeals were
mere continuations of the procedure practised by him for over ten years can
serve him no benefit. Petitioner was undoubtedly aware of the fact that the
case pending between him and respondents in said appellate court had already
been terminated and, therefore, there was no justifiable cause for him to
continue making said deposits in that court as private respondents had in fact
so advised petitioner by letter on February 19, 1970. The insistence of
petitioner to continue making the belated deposit of his arrears in rentals in
the Court of Appeals was not only unjustified. Here his deliberate
intrasigence was all the more compounded by petitioner's intentional non-
compliance with what the governing law on the matter, Batas Pambansa Blg. 25,
specifically directs, which is that notice of the deposit so made should
thereafter be given to the person in whose favor such deposits are made.
Petitioner can, therefore, obtain no gain from such improper deposits made by
him. His stubborness in making said deposits, belated as these already are,
and contrary to the proper advise received by him from the private
respondents, is illustrative of petitioner's apparent bad faith.
The Court fails to see any reason to consider applicable the provisions of
Presidential Decree No. 1517 which petitioner invokes. There is no showing
that the land in question leased by petitioner from the private respondents
has been proclaimed to be within a specific Urban Land Reform Zone. Neither
would petitioner's pretension to exercise his alleged right of first refusal
to purchase the leased property merit any favor as private respondents
categorically manifest that the subject property is not being sold by them to
anyone nor do they have any intent to do so.
In closing, it may not be amiss to take note that from the records it is
disclosed that petitioner appears to be a retired employee of the city
government of Manila since September 1977 and was, thereafter, employed as
Manager of the Mabitac Rural Bank of Laguna. He is not the helpless individual
that he pictures himself to be in court. For a considerable number of years he
has already retained possession of the lot in question to his obvious
advantage. Then, as manifested by him in his filed petition dated February 1,
1980, ". . . the herein petitioner has the right to stay in the lot up to
April 10, 1985, unless of course he incurs rental arrearages of 'three months
at any one time' within the contemplation of section 5(b) of Batas Pambansa
Blg. 25. " (Rollo, p. 8). The petitioner appears indeed to have defaulted in
his arrears in rentals for three (3) months (March, April and May, 1979) which
is the factual finding of the municipal trial court and which the court below
also affirmed in toto. Further to this, as indicated in the motion for special
order of execution submitted to this Court by private respondents during the
pendency of this case, herein petitioner again defaulted in his payment of
rentals for three (3) consecutive months covering the period from November,
1980 up to January, 1981, which significantly, is a matter that petitioner has
not elected to controvert. Even on these considerations alone, the petitioner
has already forfeited any right whatsoever to remain in the lot in question.
WHEREFORE, the petition in this case is hereby dismissed for lack of merit,
with costs against petitioner herein.
The motions for a special order of execution submitted by private respondents
need not be acted upon by the Court as the writ of execution sought for by
them may be obtained in the court below after the finality of and on the basis
of this decision.
SO ORDERED.

G.R. No. 90359 June 9, 1992

JOHANNES RIESENBECK, petitioner,
vs.
THE HON. COURT OF APPEALS, and JUERGEN MAILE, respondents.
This is a petition for review on certiorari to annul the decision dated April
21, 1989 of the Court of Appeals which dismissed for lack of merit the
petition for certiorari against two (2) orders of Regional Trial Court Judge
Teodoro K. Risos.
On July 25, 1988, petitioner Riesenbeck filed in the Regional Trial Court of
Cebu, Branch 27, a complaint for consignation and damages against respondent
Juergen Maile. On July 27, 1988, petitioner consigned and deposited with the
Clerk of Court of the Regional Trial Court of Cebu the sum of P113,750. The
private respondent subsequently filed a Manifestation Accepting Consignation
and Motion to Dismiss dated August 1, 1988, wherein he stated, inter alia,
that "without necessarily admitting the correctness of obligation of plaintiff
to defendant, the latter hereby manifests to accept the said amount of
P113,750 which is consigned by plaintiff, provided that the present complaint
be dismissed outright with cost against plaintiff." (p. 14, CA Rollo.) The
petitioner opposed the manifestation, respondent Maile filed an Answer with
Special Defenses and Counterclaim. On August 23, 1988, petitioner filed his
Answer to Counterclaim. Private respondent filed a rejoinder/reply to the
petitioner's opposition.
Thereafter, on September 28, 1988, respondent Judge issued the first
questioned order reading in part as follows:
After a thorough evaluation of the issues involved in the manifestation and
the opposition thereto, the Court is of the opinion that there was a valid
consignation, and defendant could legally accept the payment by consignation
with reservation to prove damages and other claims as held by the Supreme
Court in the case of Sing Juco vs. Cuaycong, 46 Phil. 81.
WHEREFORE the Clerk of Court of this Court is hereby ordered to deliver to
defendant Juergen Maile the sum of P113,750.00 immediately, but the motion to
dismiss is hereby in the meantime DENIED. (p.31, CA, Rollo.)
On November 11. 1988, Judge Risos denied petitioner's motion for
reconsideration.
On November 18, 1988, petitioner filed a petition for certiorari in the Court
of Appeals to annul and set aside the two orders of Judge Risos.
In a decision dated April 21, 1989, the Court of Appeals dismissed the
petition for certiorari.
Petitioner's motion for reconsideration was denied by the Court of Appeals in
a Resolution dated August 29, 1989.
In this petition for review, the petitioner raises the following issue: What
is the effect on the petitioner's obligation to the private respondent of the
latter's acceptance with reservation of the amount consigned by the
petitioner?
Private respondent's acceptance of the amount consigned by the petitioner-
debtor with a reservation or qualification as to the correctness of the
petitioner's obligation, is legally permissible. There is authority for the
view that before a consignation can be judicially declared proper, the
creditor may prevent the withdrawal of the amount consigned by the debtor, by
accepting the consignation, even with reservations (Tolentino, Civil Code of
the Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena 263).
In ruling that there was a valid consignation and that the respondent creditor
could accept the same with a reservation of his damages and other claims, the
Court of Appeals relied on the 1924 case of Sing Juco vs. Cuaycong, 46 Phil.
81. In that case, the defendants consigned in court the amount which they had
received from the plaintiff as the price of sugar, the sale of which did not
materialize. The defendants were given the alternative of delivering the sugar
or returning the price per stipulation in the contract. We ruled that
plaintiff's acceptance of the money consigned, unconditionally and without
reservation, was a waiver of his other claims under the contract.
A sensu contrario, when the creditor's acceptance of the money consigned is
conditional and with reservations, he is not deemed to have waived the claims
he reserved against his debtor. Thus, when the amount consigned does not cover
the entire obligation, the creditor may accept it, reserving his right to the
balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 317, citing
3 Llerena 263). The same factual milieu obtains here because the respondent
creditor accepted with reservation the amount consigned in court by the
petitioner-debtor. Therefore, the creditor is not barred from raising his
other claims, as he did in his answer with special defenses and counterclaim
against the petitioner-debtor.
As respondent-creditor's acceptance of the amount consigned was with
reservations, it did not completely extinguish the entire indebtedness of the
petitioner-debtor. It is apposite to note here that consignation is completed
at the time the creditor accepts the same without objections, or, if he
objects, at the time the court declares that it has been validly made in
accordance with law. (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed.,
p. 315.)
Since the lower court in this case declared on September 28, 1988 that there
was a valid consignation by the petitioner, the latter cannot tenably argue
that he is still the owner of the amount consigned and that he can still
withdraw it.
The consignation has retroactive effect. The payment is deemed to have been
made at the time of the deposit of the money in court, or when it was placed
at the disposal of the judicial authority, supra. In this case, payment is
considered made on July 27, 1988 when petitioner consigned and deposited with
the respondent court the sum of P113,750.
WHEREFORE, the instant petition is hereby DISMISSED for lack of merit.
SO ORDERED.
G.R. No. L-58961 June 28, 1983
SOLEDAD SOCO, petitioner,
vs.
HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the Court of First
Instance of Cebu, Branch XII, Cebu City and REGINO FRANCISCO, JR.,
respondents.
The decision subject of the present petition for review holds the view that
there was substantial compliance with the requisites of consignation and so
ruled in favor of private respondent, Regino Francisco, Jr., lessee of the
building owned by petitioner lessor, Soledad Soco in the case for illegal
detainer originally filed in the City Court of Cebu City, declaring the
payments of the rentals valid and effective, dismissed the complaint and
ordered the lessor to pay the lessee moral and exemplary damages in the amount
of P10,000.00 and the further sum of P3,000.00 as attorney's fees.
We do not agree with the questioned decision. We hold that the essential
requisites of a valid consignation must be complied with fully and strictly in
accordance with the law, Articles 1256 to 1261, New Civil Code. That these
Articles must be accorded a mandatory construction is clearly evident and
plain from the very language of the codal provisions themselves which require
absolute compliance with the essential requisites therein provided.
Substantial compliance is not enough for that would render only a directory
construction to the law. The use of the words "shall" and "must" which are
imperative, operating to impose a duty which may be enforced, positively
indicate that all the essential requisites of a valid consignation must be
complied with. The Civil Code Articles expressly and explicitly direct what
must be essentially done in order that consignation shall be valid and
effectual. Thus, the law provides:
1257. In order that the consignation of the thing due may release the obligor,
it must first be announced to the persons interested in the fulfillment of the
obligation.
The consignation shall be ineffectual if it is not made strictly in consonance
with the provisions which regulate payment.
Art. 1258. Consignation shall be made by depositing the things due at the
disposal of judicial authority, before whom the tender of payment shall be
proved, in a proper case, and the announcement of the consignation in other
cases.
The consignation having been made, the interested parties shall also be
notified thereof.
Art. 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when they
have been cashed, or when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original obligation shall be held
in abeyance.
We have a long line of established precedents and doctrines that sustain the
mandatory nature of the above provisions. The decision appealed from must,
therefore, be reversed.
The antecedent facts are substantially recited in the decision under review,
as follows:
It appears from the evidence that the plaintiff-appellee-Soco, for short-and
the 'defendant-appellant-Francisco, for brevity- entered into a contract of
lease on January 17, 1973, whereby Soco leased her commercial building and lot
situated at Manalili Street, Cebu City, to Francisco for a monthly rental of P
800.00 for a period of 10 years renewable for another 10 years at the option
of the lessee. The terms of the contract are embodied in the Contract of Lease
(Exhibit "A" for Soco and Exhibit "2" for Francisco). It can readily be
discerned from Exhibit "A" that paragraphs 10 and 11 appear to have been
cancelled while in Exhibit "2" only paragraph 10 has been cancelled. Claiming
that paragraph 11 of the Contract of Lease was in fact not part of the
contract because it was cancelled, Soco filed Civil Case No. R-16261 in the
Court of First Instance of Cebu seeking the annulment and/or reformation of
the Contract of Lease. ...
Sometime before the filing of Civil Case No. R-16261 Francisco noticed that
Soco did not anymore send her collector for the payment of rentals and at
times there were payments made but no receipts were issued. This situation
prompted Francisco to write Soco the letter dated February 7, 1975 (Exhibit
"3") which the latter received as shown in Exhibit "3-A". After writing this
letter, Francisco sent his payment for rentals by checks issued by the
Commercial Bank and Trust Company. Obviously, these payments in checks were
received because Soco admitted that prior to May, 1977, defendant had been
religiously paying the rental. ....
1. The factual background setting of this case clearly indicates that soon
after Soco learned that Francisco sub-leased a portion of the building to
NACIDA, at a monthly rental of more than P3,000.00 which is definitely very
much higher than what Francisco was paying to Soco under the Contract of
Lease, the latter felt that she was on the losing end of the lease agreement
so she tried to look for ways and means to terminate the contract. ...
In view of this alleged non-payment of rental of the leased premises beginning
May, 1977, Soco through her lawyer sent a letter dated November 23, 1978
(Exhibit "B") to Francisco serving notice to the latter 'to vacate the
premises leased.' In answer to this letter, Francisco through his lawyer
informed Soco and her lawyer that all payments of rental due her were in fact
paid by Commercial Bank and Trust Company through the Clerk of Court of the
City Court of Cebu (Exhibit " 1 "). Despite this explanation, Soco filed this
instant case of Illegal Detainer on January 8, 1979. ...
2. Pursuant to his letter dated February 7, 1975(Exhibit"3") and for reasons
stated therein, Francisco paid his monthly rentals to Soco by issuing checks
of the Commercial Bank and Trust Company where he had a checking account. On
May 13, 1975, Francisco wrote the Vice-President of Comtrust, Cebu Branch
(Exhibit "4") requesting the latter to issue checks to Soco in the amount of P
840.00 every 10th of the month, obviously for payment of his monthly rentals.
This request of Francisco was complied with by Comtrust in its letter dated
June 4, 1975 (Exhibit "5"). Obviously, these payments by checks through
Comtrust were received by Soco from June, 1975 to April, 1977 because Soco
admitted that an rentals due her were paid except the rentals beginning May,
1977. While Soco alleged in her direct examination that 'since May, 1977 he
(meaning Francisco) stopped paying the monthly rentals' (TSN, Palicte, p. 6,
Hearing of October 24, 1979), yet on cross examination she admitted that
before the filing of her complaint in the instant case, she knew that payments
for monthly rentals were deposited with the Clerk of Court except rentals for
the months of May, June, July and August, 1977. ...
Pressing her point, Soco alleged that 'we personally demanded from Engr.
Francisco for the months of May, June, July and August, but Engr. Francisco
did not pay for the reason that he had no funds available at that time.' (TSN-
Palicte, p. 28, Hearing October 24, 1979). This allegation of Soco is denied
by Francisco because per his instructions, the Commercial Bank and Trust
Company, Cebu Branch, in fact, issued checks in favor of Soco representing
payments for monthly rentals for the months of May, June, July and August,
1977 as shown in Debit Memorandum issued by Comtrust as follows:
(a) Exhibit "6"-Debit Memo dated May 11, 1977 for P926.10 as payment for May,
1977;
(b) Exhibit"7"-Debit Memo dated June l5, 197 7for P926.10 as payment for June,
1977;
(c) Exhibit "8"-Debit Memo dated July 11, 1977 for P1926.10 as payment for
July, 1977;
(d) Exhibit "9"-Debit Memo dated August 10, 1977 for P926. 10 as payment for
August, 1977.
These payments are further bolstered by the certification issued by Comtrust
dated October 29, 1979 (Exhibit "13"). Indeed the Court is convinced that
payments for rentals for the months of May, June, July and August, 1977 were
made by Francisco to Soco thru Comtrust and deposited with the Clerk of Court
of the City Court of Cebu. There is no need to determine whether payments by
consignation were made from September, 1977 up to the filing of the complaint
in January, 1979 because as earlier stated Soco admitted that the rentals for
these months were deposited with the Clerk of Court. ...
Taking into account the factual background setting of this case, the Court
holds that there was in fact a tender of payment of the rentals made by
Francisco to Soco through Comtrust and since these payments were not accepted
by Soco evidently because of her intention to evict Francisco, by all means,
culminating in the filing of Civil Case R-16261, Francisco was impelled to
deposit the rentals with the Clerk of Court of the City Court of Cebu. Soco
was notified of this deposit by virtue of the letter of Atty. Pampio
Abarientos dated June 9, 1977 (Exhibit "10") and the letter of Atty. Pampio
Abarientos dated July 6. 1977 (Exhibit " 12") as well as in the answer of
Francisco in Civil Case R-16261 (Exhibit "14") particularly paragraph 7 of the
Special and Affirmative Defenses. She was further notified of these payments
by consignation in the letter of Atty. Menchavez dated November 28, 1978
(Exhibit " 1 "). There was therefore substantial compliance of the requisites
of consignation, hence his payments were valid and effective. Consequently,
Francisco cannot be ejected from the leased premises for non-payment of
rentals. ...
As indicated earlier, the above decision of the Court of First Instance
reversed the judgment of the City Court of Cebu, Branch 11, the dispositive
portion of the latter reading as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the
defendant, Regino Francisco, Jr.:
(1) To vacate immediately the premises in question, consisting of a building
located at Manalili St., Cebu City;
(2) To pay to the plaintiff the sum of P40,490.46 for the rentals, covering
the period from May, 1977 to August, 1980, and starting with the month of
September, 1980, to pay to the plaintiff for one (1) year a monthly rental of
P l,072.076 and an additional amount of 5 per cent of said amount, and for so
much amount every month thereafter equivalent to the rental of the month of
every preceding year plus 5 percent of same monthly rental until the defendant
shall finally vacate said premises and possession thereof wholly restored to
the plaintiff-all plus legal interest from date of filing of the complaint;
(3) To pay to the plaintiff the sum of P9,000.00 for attorney's fee;
(4) To pay to the plaintiff the sum of P5,000.00 for damages and incidental
litigation expenses; and
(5) To pay the Costs.
SOORDERED.
Cebu City, Philippines, November 21, 1980.
According to the findings of fact made by the City Court, the defendant
Francisco had religiously paid to the plaintiff Soco the corresponding rentals
according to the terms of the Least Contract while enjoying the leased
premises until one day the plaintiff had to demand upon the defendant for the
payment of the rentals for the month of May, 1977 and of the succeeding
months. The plaintiff also demanded upon the defendant to vacate the premises
and from that time he failed or refused to vacate his possession thereof; that
beginning with the month of May, 1977 until at present, the defendant has not
made valid payments of rentals to the plaintiff who, as a consequence, has not
received any rental payment from the defendant or anybody else; that for the
months of May to August, 1977, evidence shows that the plaintiff through her
daughter, Teolita Soco and salesgirl, Vilma Arong, went to the office or
residence of defendant at Sanciangko St., Cebu City, on various occasions to
effect payment of rentals but were unable to collect on account of the
defendant's refusal to pay; that defendant contended that payments of rental
thru checks for said four months were made to the plaintiff but the latter
refused to accept them; that in 1975, defendant authorized the Commercial Bank
and Trust Company to issue checks to the plaintiff chargeable against his bank
account, for the payment of said rentals, and the delivery of said checks was
coursed by the bank thru the messengerial services of the FAR Corporation, but
the plaintiff refused to accept them and because of such refusal, defendant
instructed said bank to make consignation with the Clerk of Court of the City
Court of Cebu as regard said rentals for May to August, 1977 and for
subsequent months.
The City Court further found that there is no showing that the letter
allegedly delivered to the plaintiff in May, 1977 by Filomeno Soon, messenger
of the FAR Corporation contained cash money, check, money order, or any other
form of note of value, hence there could never be any tender of payment, and
even granting that there was, but plaintiff refused to accept it without any
reason, still no consignation for May, 1977 rental could be considered in
favor of the defendant unless evidence is presented to establish that he
actually made rental deposit with the court in cash money and prior and
subsequent to such deposit, he notified the plaintiff thereof.
Notwithstanding the contradictory findings of fact and the resulting opposite
conclusions of law by the City Court and the Court of First Instance, both are
agreed, however, that the case presents the issue of whether the lessee failed
to pay the monthly rentals beginning May, 1977 up to the time the complaint
for eviction was filed on January 8, 1979. This issue in turn revolves on
whether the consignation of the rentals was valid or not to discharge
effectively the lessee's obligation to pay the same. The City Court ruled that
the consignation was not valid. The Court of First Instance, on the other
hand, held that there was substantial compliance with the requisites of the
law on consignation.
Let us examine the law and consider Our jurisprudence on the matter, aside
from the codal provisions already cited herein.
According to Article 1256, New Civil Code, if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the thing or sum
due. Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of
payment; (2) When he is incapacitated to receive the payment at the time it is
due; (3) When, without just cause, he refuses to give a receipt; (4) When two
or more persons claim the same right to collect; (5) When the title of the
obligation has been lost.
Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment
and it generally requires a prior tender of payment. (Limkako vs. Teodoro, 74
Phil. 313).
In order that consignation may be effective, the debtor must first comply with
certain requirements prescribed by law. The debtor must show (1) that there
was a debt due; (2) that the consignation of the obligation had been made
because the creditor to whom tender of payment was made refused to accept it,
or because he was absent or incapacitated, or because several persons claimed
to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that
previous notice of the consignation had been given to the person interested in
the performance of the obligation (Art. 1177, Civil Code); (4) that the amount
due was placed at the disposal of the court (Art. 1178, Civil Code); and (5)
that after the consignation had been made the person interested was notified
thereof (Art. 1178, Civil Code). Failure in any of these requirements is
enough ground to render a consignation ineffective. (Jose Ponce de Leon vs.
Santiago Syjuco, Inc., 90 Phil. 311).
Without the notice first announced to the persons interested in the
fulfillment of the obligation, the consignation as a payment is void. (Limkako
vs. Teodoro, 74 Phil. 313),
In order to be valid, the tender of payment must be made in lawful currency.
While payment in check by the debtor may be acceptable as valid, if no prompt
objection to said payment is made (Desbarats vs. Vda. de Mortera, L-4915, May
25, 1956) the fact that in previous years payment in check was accepted does
not place its creditor in estoppel from requiring the debtor to pay his
obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30, 1958). Thus, the tender
of a check to pay for an obligation is not a valid tender of payment thereof
(Desbarats vs. Vda. de Mortera, supra). See Annotation, The Mechanics of
Consignation by Atty. S. Tabios, 104 SCRA 174-179.
Tender of payment must be distinguished from consignation. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate consequences
which the debtor desires or seeks to obtain. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the priority of
the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325).
Reviewing carefully the evidence presented by respondent lessee at the trial
of the case to prove his compliance with all the requirements of a valid
tender of payment and consignation and from which the respondent Judge based
his conclusion that there was substantial compliance with the law on
consignation, We note from the assailed decision hereinbefore quoted that
these evidences are: Exhibit 10, the letter of Atty. Pampio Abarintos dated
June 9, 1977: Exhibit 12, letter of Atty. Pampio Abarintos dated July 6, 1977;
Exhibit 14, the Answer of respondent Francisco in Civil Case R- 16261,
particularly paragraph 7 of the Special and Affirmative Defenses; and Exhibit
1, letter of Atty. Eric Menchavez dated November 28, 1978. All these
evidences, according to respondent Judge, proved that petitioner lessor was
notified of the deposit of the monthly rentals.
We have analyzed and scrutinized closely the above exhibits and We find that
the respondent Judge's conclusion is manifestly wrong and based on
misapprehension of facts. Thus-
(1) Exhibit 10 reads: (see p. 17, Records)
June 9, 1977
Miss Soledad Soco
Soledad Soco Retazo
P. Gullas St., Cebu City
Dear Miss Soco:
This is in connection with the payment of rental of my client, Engr. Regino
Francisco, Jr., of your building situated at Manalili St., Cebu City.
It appears that twice you refused acceptance of the said payment made by my
client.
It appears further that my client had called your office several times and
left a message for you to get this payment of rental but until the present you
have not sent somebody to get it.
In this connection, therefore, in behalf of my client, you are hereby
requested to please get and claim the rental payment aforestated from the
Office of my client at Tagalog Hotel and Restaurant, Sanciangko St., Cebu
City. within three (3) days from receipt hereof otherwise we would be
constrained to make a consignation of the same with the Court in accordance
with law.
Hoping for your cooperation on this matter, we remain.
Very truly yours,
(SGD.) PAMPIO A. ABARINTOS
Counsel for Engr. REGINO FRANCISCO, Jr.
We may agree that the above exhibit proves tender of payment of the particular
monthly rental referred to (the letter does not, however, indicate for what
month and also the intention to deposit the rental with the court, which is
the first notice. But certainly, it is no proof of tender of payment of other
or subsequent monthly rentals. Neither is it proof that notice of the actual
deposit or consignation was given to the lessor, which is the second notice
required by law.
(2) Exhibit 12 (see p. 237, Records) states:
Miss Soledad Soco
Soledad Soco Reta
P. Gullas St., Cebu City
Dear Miss Soco:
This is to advise and inform you that my client, Engr. Regino Francisco, Jr.,
has consigned to you, through the Clerk of Court, City Court of Cebu, Cebu
City, the total amount of Pl,852.20, as evidenced by cashier's checks No.
478439 and 47907 issued by the Commercial Bank and Trust Company (CBTC) Cebu
City Branch, dated May 11, 1977 and June 15, 1977 respectively and payable to
your order, under Official Receipt No. 0436936 dated July 6,1977.
This amount represents payment of the rental of your building situated at
Manalili St., Cebu City which my client, Engr. Regino Francisco, Jr., is
renting. You can withdraw the said amount from the Clerk of Court, City Court
of Cebu, Cebu City at any time.
Please be further notified that all subsequent monthly rentals will be
deposited to the Clerk of Court, City Court of Cebu, Cebu City.
Very truly yours,
(SGD.) PAMPIO A. ABARINTOS
Counsel for ENGR. REGINO FRANCISCO, JR.
The above evidence is, of course, proof of notice to the lessor of the deposit
or consignation of only the two payments by cashier's checks indicated
therein. But surely, it does not prove any other deposit nor the notice
thereof to the lessor. It is not even proof of the tender of payment that
would have preceded the consignation.
(3) Exhibit 14, paragraph 7 of the Answer (see p. 246, Records) alleges:
7. That ever since, defendant had been religiously paying his rentals without
any delay which, however, the plaintiff had in so many occasions refused to
accept obviously in the hope that she may declare non-payment of rentals and
claim it as a ground for the cancellation of the contract of lease. This,
after seeing the improvements in the area which were effected, at no small
expense by the defendant. To preserve defendant's rights and to show good
faith in up to date payment of rentals, defendant had authorized his bank to
issue regularly cashier's check in favor of the plaintiff as payment of
rentals which the plaintiff had been accepting during the past years and even
for the months of January up to May of this year, 1977 way past plaintiff's
claim of lease expiration. For the months of June and July, however, plaintiff
again started refusing to accept the payments in going back to her previous
strategy which forced the defendant to consign his monthly rental with the
City Clerk of Court and which is now the present state of affairs in so far as
payment of rentals is concerned. These events only goes to show that the wily
plaintiff had thought of this mischievous scheme only very recently and filed
herein malicious and unfounded complaint.
The above exhibit which is lifted from Civil Case No. R-16261 between the
parties for annulment of the lease contract, is self-serving. The statements
therein are mere allegations of conclusions which are not evidentiary.
(4) Exhibit 1 (see p. 15, Records) is quoted thus:
November 28, 1978
Atty. Luis V. Diores
Suite 504, SSS Bldg.
Jones Avenue, Cebu City
Dear Compañero:
Your letter dated November 23, 1978 which was addressed to my client, Engr.
Regino Francisco, Jr. has been referred to me for reply.
It is not true that my client has not paid the rentals as claimed in your
letter. As a matter of fact, he has been religiously paying the rentals in
advance. Payment was made by Commercial Bank and Trust Company to the Clerk of
Court, Cebu City. Attached herewith is the receipt of payment made by him for
the month of November, 1978 which is dated November 16, 1978.
You can check this up with the City Clerk of Court for satisfaction.
Regards.
(SGD.) ERIC MENCHAVEZ Counsel for Regino Francisco, Jr.
377-B Junquera St., Cebu City
(new address)
Again, Exhibit 1 merely proves rental deposit for the particular month of
November, 1978 and no other. It is no proof of tender of payment to the
lessor, not even proof of notice to consign. We hold that the best evidence of
the rental deposits with the Clerk of Court are the official receipts issued
by the Clerk of Court. These the respondent lessee utterly failed to present
and produce during the trial of the case. As pointed out in petitioner's
Memorandum, no single official receipt was presented in the trial court as
nowhere in the formal offer of exhibits for lessee Francisco can a single
official receipt of any deposit made be found (pp. 8-9, Memorandum for
Petitioner; pp. 163-164, Records).
Summing up Our review of the above four (4) exhibits, We hold that the
respondent lessee has utterly failed to prove the following requisites of a
valid consignation: First, tender of payment of the monthly rentals to the
lessor except that indicated in the June 9, l977 Letter, Exhibit 10. In the
original records of the case, We note that the certification, Exhibit 11 of
Filemon Soon, messenger of the FAR Corporation, certifying that the letter of
Soledad Soco sent last May 10 by Commercial Bank and Trust Co. was marked RTS
(return to sender) for the reason that the addressee refused to receive it,
was rejected by the court for being immaterial, irrelevant and impertinent per
its Order dated November 20, 1980. (See p. 117, CFI Records).
Second, respondent lessee also failed to prove the first notice to the lessor
prior to consignation, except the payment referred to in Exhibit 10.
In this connection, the purpose of the notice is in order to give the creditor
an opportunity to reconsider his unjustified refusal and to accept payment
thereby avoiding consignation and the subsequent litigation. This previous
notice is essential to the validity of the consignation and its lack
invalidates the same. (Cabanos vs. Calo, 104 Phil. 1058; Limkako vs. Teodoro,
74 Phil. 313).
There is no factual basis for the lower court's finding that the lessee had
tendered payment of the monthly rentals, thru his bank, citing the lessee's
letter (Exh. 4) requesting the bank to issue checks in favor of Soco in the
amount of P840.00 every 10th of each month and to deduct the full amount and
service fee from his current account, as well as Exhibit 5, letter of the Vice
President agreeing with the request. But scrutinizing carefully Exhibit 4,
this is what the lessee also wrote: "Please immediately notify us everytime
you have the check ready so we may send somebody over to get it. " And this is
exactly what the bank agreed: "Please be advised that we are in conformity to
the above arrangement with the understanding that you shall send somebody over
to pick up the cashier's check from us." (Exhibit 4, see p. 230, Original
Records; Exhibit 5, p. 231, Original Records)
Evidently, from this arrangement, it was the lessee's duty to send someone to
get the cashier's check from the bank and logically, the lessee has the
obligation to make and tender the check to the lessor. This the lessee failed
to do, which is fatal to his defense.
Third, respondent lessee likewise failed to prove the second notice, that is
after consignation has been made, to the lessor except the consignation
referred to in Exhibit 12 which are the cashier's check Nos. 478439 and 47907
CBTC dated May 11, 1977 and June 15, 1977 under Official Receipt No. 04369
dated July 6, 1977.
Respondent lessee, attempting to prove compliance with the requisites of valid
consignation, presented the representative of the Commercial Bank and Trust
Co., Edgar Ocañada, Bank Comptroller, who unfortunately belied respondent's
claim. We quote below excerpts from his testimony, as follows:
ATTY. LUIS DIORES:
Q What month did you say you made ,you started making the deposit? When you
first deposited the check to the Clerk of Court?
A The payment of cashier's check in favor of Miss Soledad Soco was coursed
thru the City Clerk of Court from the letter of request by our client Regino
Francisco, Jr., dated September 8, 1977. From that time on, based on his
request, we delivered the check direct to the City Clerk of Court.
Q What date, what month was that, you first delivered the check to the Clerk
of Court.?
A We started September 12, 1977.
Q September 1977 up to the present time, you delivered the cashier's check to
the City Clerk of Court?
A Yes.
Q You were issued the receipts of those checks?
A Well, we have an acknowledgment letter to be signed by the one who received
the check.
Q You mean you were issued, or you were not issued any official receipt? My
question is whether you were issued any official receipt? So, were you issued,
or you were not issued?
A We were not issued.
Q On September, 1977, after you deposited the manager's check for that month
with the Clerk of Court, did you serve notice upon Soledad Soco that the
deposit was made on such amount for the month of September, 1977 and now to
the Clerk of Court? Did you or did you not?
A Well, we only act on something upon the request of our client.
Q Please answer my question. I know that you are acting upon instruction of
your client. My question was-after you made the deposit of the manager's check
whether or not you notified Soledad Soco that such manager's check was
deposited in the Clerk of Court from the month of September, 1977?
A We are not bound to.
Q I am not asking whether you are bound to or not. I'masking whether you did
or you did not?
A I did not.
Q Alright, for October, 1977, after having made a deposit for that particular
month, did you notify Miss Soledad Soco that the deposit was in the Clerk of
Court?
A No, we did not.
Q Now, on November, 1977, did you notify Soledad Soco that you deposited the
manager's check to the City Clerk of Court for that month?
A I did not.
Q You did not also notify Soledad Soco for the month December, 1977, so also
from January, February, March, April, May, June, July until December, 1978,
you did not also notify Miss Soledad Soco all the deposits of the manager's
check which you said you deposited with the Clerk of Court in every end of the
month? So also from each and every month from January 1979 up to December
1979, you did not also serve notice upon Soledad Socco of the deposit in the
Clerk of Court, is that correct?
A Yes.
Q So also in January 1980 up to this month 1980, you did not instructed by
your client Mr. and Mrs. Regino Francisco, jr. to make also serve notice upon
Soledad Soco of the Manager's check which you said you deposited to the Clerk
of Court?
A I did not.
Q Now, you did not make such notices because you were not such notices after
the deposits you made, is that correct?
A Yes, sir.
Q Now, from 1977, September up to the present time, before the deposit was
made with the Clerk of Court, did you serve notice to Soledad Soco that a
deposit was going to be made in each and every month?
A Not.
Q In other words, from September 1977 up to the present time, you did not
notify Soledad Soco that you were going to make the deposit with the Clerk of
Court, and you did not also notify Soledad Soco after the deposit was made,
that a deposit has been made in each and every month during that period, is
that correct?
A Yes
Q And the reason was because you were not instructed by Mr. and Mrs. Regino
Francisco, Jr. that such notification should be made before the deposit and
after the deposit was made, is that correct?
A No, I did not. (Testimony of Ocanada pp. 32-41, Hearing on June 3, 1980).
Recapitulating the above testimony of the Bank Comptroller, it is clear that
the bank did not send notice to Soco that the checks will be deposited in
consignation with the Clerk of Court (the first notice) and also, the bank did
not send notice to Soco that the checks were in fact deposited (the second
notice) because no instructions were given by its depositor, the lessee, to
this effect, and this lack of notices started from September, 1977 to the time
of the trial, that is June 3, 1980.
The reason for the notification to the persons interested in the fulfillment
of the obligation after consignation had been made, which is separate and
distinct from the notification which is made prior to the consignation, is
stated in Cabanos vs. Calo, G.R. No. L-10927, October 30, 1958, 104 Phil.
1058. thus: "There should be notice to the creditor prior and after
consignation as required by the Civil Code. The reason for this is obvious,
namely, to enable the creditor to withdraw the goods or money deposited.
Indeed, it would be unjust to make him suffer the risk for any deterioration,
depreciation or loss of such goods or money by reason of lack of knowledge of
the consignation."
And the fourth requisite that respondent lessee failed to prove is the actual
deposit or consignation of the monthly rentals except the two cashier's checks
referred to in Exhibit 12. As indicated earlier, not a single copy of the
official receipts issued by the Clerk of Court was presented at the trial of
the case to prove the actual deposit or consignation. We find, however,
reference to some 45 copies of official receipts issued by the Clerk of Court
marked Annexes "B-1 " to "B-40" to the Motion for Reconsideration of the Order
granting execution pending appeal filed by defendant Francisco in the City
Court of Cebu (pp, 150-194, CFI Original Records) as well as in the Motion for
Reconsideration of the CFI decision, filed by plaintiff lessor (pp. 39-50,
Records, marked Annex "E ") the allegation that "there was no receipt at all
showing that defendant Francisco has deposited with the Clerk of Court the
monthly rentals corresponding to the months of May and June, 1977. And for the
months of July and August, 1977, the rentals were only deposited with the
Clerk of Court on 20 November 1979 (or more than two years later)."... The
deposits of these monthly rentals for July and August, 1977 on 20 November
1979, is very significant because on 24 October 1979, plaintiff Soco had
testified before the trial court that defendant had not paid the monthly
rentals for these months. Thus, defendant had to make a hurried deposit on the
following month to repair his failure. " (pp. 43-44, Records).
We have verified the truth of the above claim or allegation and We find that
indeed, under Official Receipt No. 1697161Z, the rental deposit for August,
1977 in cashier's check No. 502782 dated 8-10-77 was deposited on November 20,
1979 (Annex "B-15", p. 169, Original CFI Records) and under Official Receipt
No. 1697159Z, the rental deposit for July under Check No. 479647 was deposited
on November 20, 1979 (Annex "B-16", p. 170, Original CFI Records). Indeed,
these two rental deposits were made on November 20, 1979, two years late and
after the filing of the complaint for illegal detainer.
The decision under review cites Exhibits 6, 7, 8 and 9, the Debit Memorandum
issued by Comtrust Bank deducting the amounts of the checks therein indicated
from the account of the lessee, to prove payment of the monthly rentals. But
these Debit Memorandums are merely internal banking practices or office
procedures involving the bank and its depositor which is not binding upon a
third person such as the lessor. What is important is whether the checks were
picked up by the lessee as per the arrangement indicated in Exhibits 4 and 5
wherein the lessee had to pick up the checks issued by CBTC or to send
somebody to pick them up, and logically, for the lessee to tender the same to
the lessor. On this vital point, the lessee miserably failed to present any
proof that he complied with the arrangement.
We, therefore, find and rule that the lessee has failed to prove tender of
payment except that in Exh. 10; he has failed to prove the first notice to the
lessor prior to consignation except that given in Exh. 10; he has failed to
prove the second notice after consignation except the two made in Exh. 12; and
he has failed to pay the rentals for the months of July and August, 1977 as of
the time the complaint was filed for the eviction of the lessee. We hold that
the evidence is clear, competent and convincing showing that the lessee has
violated the terms of the lease contract and he may, therefore, be judicially
ejected.
The other matters raised in the appeal are of no moment. The motion to dismiss
filed by respondent on the ground of "want of specific assignment of errors in
the appellant's brief, or of page references to the records as required in
Section 16(d) of Rule 46," is without merit. The petition itself has attached
the decision sought to be reviewed. Both Petition and Memorandum of the
petitioner contain the summary statement of facts; they discuss the essential
requisites of a valid consignation; the erroneous conclusion of the respondent
Judge in reversing the decision of the City Court, his grave abuse of
discretion which, the petitioner argues, "has so far departed from the
accepted and usual course of judicial proceeding in the matter of applying the
law and jurisprudence on the matter." The Memorandum further cites other basis
for petitioner's plea.
In Our mind, the errors in the appealed decision are sufficiently stated and
assigned. Moreover, under Our rulings, We have stated that:
This Court is clothed with ample authority to review matters, even if they are
not assigned as errors in the appeal, if it finds that their consideration is
necessary in arriving at a just decision of the case. Also, an unassigned
error closely related to an error properly assigned or upon which the
determination of the questioned raised by the error properly assigned is
dependent, will be considered by the appellate court notwithstanding the
failure to assign it as an error." (Ortigas, Jr. vs. Lufthansa German
Airlines, L-28773, June 30, 1975, 64 SCRA 610)
Under Section 5 of Rule 53, the appellate court is authorized to consider a
plain error, although it was not specifically assigned by appellants." (Dilag
vs. Heirs of Resurreccion, 76 Phil. 649)
Appellants need not make specific assignment of errors provided they discuss
at length and assail in their brief the correctness of the trial court's
findings regarding the matter. Said discussion warrants the appellate court to
rule upon the point because it substantially complies with Section 7, Rule 51
of the Revised Rules of Court, intended merely to compel the appellant to
specify the questions which he wants to raise and be disposed of in his
appeal. A clear discussion regarding an error allegedly committed by the trial
court accomplishes the purpose of a particular assignment of error." (Cabrera
vs. Belen, 95 Phil. 54; Miguel vs Court of Appeals, L- 20274, Oct. 30, 1969,
29 SCRA 760-773, cited in Moran, Comments on the Rules of Court, Vol. 11, 1970
ed., p. 534).
Pleadings as well as remedial laws should be construed liberally in order that
the litigants may have ample opportunity to prove their respective claims, and
that a possible denial of substantial justice, due to legal technicalities,
may be avoided." (Concepcion, et al. vs. The Payatas Estate Improvement Co.,
Inc., 103 Phil. 10 17).
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the Court of First
Instance of Cebu, 14th Judicial District, Branch XII is hereby REVERSED and
SET ASIDE, and the derision of the City Court of Cebu, Branch II is hereby
reinstated, with costs in favor of the petitioner.
G.R. No. L-62169 February 28, 1983
MINDANAO PORTLAND CEMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, PACWELD STEEL CORPORATION and ATTY. CASIANO P. LAQUIHON
respondents.
The Court of Appeals (now Intermediate Appellate Court) certified petitioner's
appeal therein as defendant-appellant, docketed as C.A.-G.R. No. 65102
thereof, to this Court as involving only questions of law in its Resolution of
August 31, 1982, reading as follows:
The 'Statement of the Case and the Statement of Facts' contained in
appellant's brief follow:
STATEMENT OF FACTS
On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party
defendant Pacweld Steel Corporation (Pacweld for short) as the latter's
attorney, filed a pleading addressed to the defendant & Third-Party Plaintiff
Mindanao Portland Cement Corporation (MPCC) for short), herein appellant,
entitled 'motion to direct payment of attorney's fee to counsel' (himself ),
invoking in his motion the fact that in the decision of the court of Sept. 14,
1976, MPCC was adjudged to pay Pacweld the sum of P10,000.00 as attorney's
fees (Record on Appeal, pp. 1, 6-9).
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion,
stating, as grounds therefor, that said amount is set-off by a like sum of
P10,000.00 which it MPCC has collectible in its favor from Pacweld also by way
of attorney's fees which MPCC recovered from the same Court of First Instance
of Manila (Branch XX) in Civil Case No. 68346, entitled Pacweld Steel
Corporation, et al. writ of execution to this effect having been issued by
said court (Record on Appeal, pp, 2,10- 14).
On June 26, 1978 the court issued the order appealed from (Record on Appeal,
pp. 24-25) and despite MPCCs motion for reconsideration of said order, citing
the law applicable and Supreme Court decisions (Record on Appeal, pp. 26-33),
denied the same in its order of August 28, 1978 (Record on Appeal, p. 37),
also subject matter of this appeal.
The writ of execution referred to above which MPCC has invoked to set- off the
amount sought to be collected by Pacweld through the latter's lawyer, Atty.
Casiano P. Laquihon, is hereunder quoted in full.
In his brief, appellee comments that the statements in appellant's brief are
'substantially correct,' as follows:
STATEMENT OF THE CASE
This is an appeal from the Order of the Court of First Instance of Manila
(Branch X dated June 26, 1978 ordering the appellant (MINDANAO PORTLAND CEMENT
CORPORATION) to pay the amount of P10,000.00 attorney's fees directly to Atty.
Casiano B. Laquihon (Record on Appeal, pp. 24-25) and from the Order dated
August 28, 1978 denying appellant's motion for reconsideration (Record on
Appeal, p. 37).
There was no trial or submission of documentary evidence. Against the orders
of June 26. 1978, and August 28, 1978, appellant has brought this appeal to
this Court, contending that:
The lower court erred in not holding that the two obligations are extinguished
reciprocally by operation of law.' (p. 6, Appellant's Brief)
This appeal calls for the application of Arts. 1278, 1279 and 1290 of the
Civil Code, as urged by the appellant. Another question is: The judgment in
Civil Case No. 75179 being already final at the time the motion under
consideration was filed, does not the order of June 26, 1976 constitute a
change or alteration of the said judgment, though issued by the very same
court that rendered the judgment?
WHEREFORE, since only questions of law are involved and there is no factual
issue left for us to determine, let the records of the appeal in this case be
certified to the Honorable Supreme Court for determination.
After considering the briefs of the parties in the appellate court and the
additional pleadings required of them by this Court, the Court finds merit in
the appeal and sets aside the appealed orders of June 26 and August 28, 1978
of the Court of First Instance (now Regional Trial Court) of Manila, Branch
XX.
It is clear from the record that both corporations, petitioner Mindanao
Portland Cement Corporation (appellant) and respondent Pacweld Steel
Corporation (appellee), were creditors and debtors of each other, their debts
to each other consisting in final and executory judgments of the Court of
First Instance in two (2) separate cases, ordering the payment to each other
of the sum of P10,000.00 by way of attorney's fees. The two (2) obligations,
therefore, respectively offset each other, compensation having taken effect by
operation of law and extinguished both debts to the concurrent amount of
P10,000.00, pursuant to the provisions of Arts. 1278, 1279 and 1290 of the
Civil Code, since all the requisites provided in Art. 1279 of the said Code
for automatic compensation "even though the creditors and debtors are not
aware of the compensation" were duly present.**
Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's
motion for amendment of the judgment of September 14, 1976 against Mindanao
Portland Cement Corporation so as to make the award therein of P10,000.00 as
attorney's fees payable directly to himself as counsel of Pacweld Steel
Corporation instead of payable directly to said corporation as provided in the
judgment, which had become final and executory long before the issuance of
said "amendatory" order was a void alteration of judgment. It was a
substantial change or amendment beyond the trial court's jurisdiction and
authority and it could not defeat the compensation or set-off of the two (2)
obligations of the corporations to each other which had already extinguished
both debts by operation of law.
ACCORDINGLY. the appealed orders are hereby annulled and set aside. No costs.
Melencio-Herrera, Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
 The petitioner invokes legal and equitable grounds to reverse the questioned
decision of the Intermediate Appellate Court, to set aside the auction sale of
his property which took place on December 5, 1977, and to allow him to recover
a 203 square meter lot which was, sold at public auction to Ho Fernandez and
ordered titled in the latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a two-story
house built upon it situated at Barrio San Isidro, now District of Sta. Clara,
Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is
described and covered by Transfer Certificate of Title No. 4739 (37795) of the
Registry of Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's property was
expropriated by the Republic of the Philippines for the sum of P4,116.00
representing the estimated amount equivalent to the assessed value of the
aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes.
Thus, on December 5, 1977, his property was sold at public auction by the City
Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464
known as the Real Property Tax Code in order to satisfy a tax delinquency of
P2,400.00. Ho Fernandez was the highest bidder for the property.
Francia was not present during the auction sale since he was in Iligan City at
that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P
"In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez,
seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name
of a new certificate of title. Upon verification through his lawyer, Francia
discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez
by the City Treasurer on December 11, 1978. The auction sale and the final
bill of sale were both annotated at the back of TCT No. 4739 (37795) by the
Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction sale. He
later amended his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing
the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new Transfer Certificate of
Title in favor of the defendant Ho Fernandez over the parcel of land including
the improvements thereon, subject to whatever encumbrances appearing at the
back of TCT No. 4739 (37795) and ordering the same TCT No. 4739 (37795)
cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as
attorney's fees. (p. 30, Record on Appeal)
The Intermediate Appellate Court affirmed the decision of the lower court in
toto.
Hence, this petition for review.
Francia prefaced his arguments with the following assignments of grave errors
of law:
I
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT
HOLDING PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY
WAS SET-OFF BY THE AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE
FORMER.
II
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN
NOT HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION
SALE OF HIS PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN
ALLEGED TAX DELINQUENCY OF P2,400.00.
III
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND
GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY
RESPONTDENT HO FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE
AMOUNTING TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW,
AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. (pp. 10, 17, 20-21,
Rollo)
We gave due course to the petition for a more thorough inquiry into the
petitioner's allegations that his property was sold at public auction without
notice to him and that the price paid for the property was shockingly
inadequate, amounting to fraud and deprivation without due process of law.
A careful review of the case, however, discloses that Mr. Francia brought the
problems raised in his petition upon himself. While we commiserate with him at
the loss of his property, the law and the facts militate against the grant of
his petition. We are constrained to dismiss it.
Francia contends that his tax delinquency of P2,400.00 has been extinguished
by legal compensation. He claims that the government owed him P4,116.00 when a
portion of his land was expropriated on October 15, 1977. Hence, his tax
obligation had been set-off by operation of law as of October 15, 1977.
There is no legal basis for the contention. By legal compensation, obligations
of persons, who in their own right are reciprocally debtors and creditors of
each other, are extinguished (Art. 1278, Civil Code). The circumstances of the
case do not satisfy the requirements provided by Article 1279, to wit:
(1) that each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other;
xxx xxx xxx
(3) that the two debts be due.
xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently
ruled that there can be no off-setting of taxes against the claims that the
taxpayer may have against the government. A person cannot refuse to pay a tax
on the ground that the government owes him an amount equal to or greater than
the tax being collected. The collection of a tax cannot await the results of a
lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled
that Internal Revenue Taxes can not be the subject of set-off or compensation.
We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is
allowed to be set-off under the statutes of set-off, which are construed
uniformly, in the light of public policy, to exclude the remedy in an action
or any indebtedness of the state or municipality to one who is liable to the
state or municipality for taxes. Neither are they a proper subject of
recoupment since they do not arise out of the contract or transaction sued on.
... (80 C.J.S., 7374). "The general rule based on grounds of public policy is
well-settled that no set-off admissible against demands for taxes levied for
general or local governmental purposes. The reason on which the general rule
is based, is that taxes are not in the nature of contracts between the party
and party but grow out of duty to, and are the positive acts of the government
to the making and enforcing of which, the personal consent of individual
taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called upon by the
collector because he has a claim against the governmental body not included in
the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where
we stated that: "... internal revenue taxes can not be the subject of
compensation: Reason: government and taxpayer are not mutually creditors and
debtors of each other' under Article 1278 of the Civil Code and a "claim for
taxes is not such a debt, demand, contract or judgment as is allowed to be
set-off."
There are other factors which compel us to rule against the petitioner. The
tax was due to the city government while the expropriation was effected by the
national government. Moreover, the amount of P4,116.00 paid by the national
government for the 125 square meter portion of his lot was deposited with the
Philippine National Bank long before the sale at public auction of his
remaining property. Notice of the deposit dated September 28, 1977 was
received by the petitioner on September 30, 1977. The petitioner admitted in
his testimony that he knew about the P4,116.00 deposited with the bank but he
did not withdraw it. It would have been an easy matter to withdraw P2,400.00
from the deposit so that he could pay the tax obligation thus aborting the
sale at public auction.
Petitioner had one year within which to redeem his property although, as well
be shown later, he claimed that he pocketed the notice of the auction sale
without reading it.
Petitioner contends that "the auction sale in question was made without
complying with the mandatory provisions of the statute governing tax sale. No
evidence, oral or otherwise, was presented that the procedure outlined by law
on sales of property for tax delinquency was followed. ... Since defendant Ho
Fernandez has the affirmative of this issue, the burden of proof therefore
rests upon him to show that plaintiff was duly and properly notified ... .
(Petition for Review, Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the
auction sale, has the burden of proof to show that there was compliance with
all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
xxx xxx xxx
... [D]ue process of law to be followed in tax proceedings must be established
by proof and the general rule is that the purchaser of a tax title is bound to
take upon himself the burden of showing the regularity of all proceedings
leading up to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which
results in depriving a taxpayer of his property through a tax sale. (Camo v.
Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This
is actually an exception to the rule that administrative proceedings are
presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal
prerequisites have been complied with, the petitioner can not, however, deny
that he did receive the notice for the auction sale. The records sustain the
lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he
was not properly notified of the auction sale. Surprisingly, however, he
admitted in his testimony that he received the letter dated November 21, 1977
(Exhibit "I") as shown by his signature (Exhibit "I-A") thereof. He claimed
further that he was not present on December 5, 1977 the date of the auction
sale because he went to Iligan City. As long as there was substantial
compliance with the requirements of the notice, the validity of the auction
sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to
wit:
Q. My question to you is this letter marked as Exhibit I for Ho Fernandez
notified you that the property in question shall be sold at public auction to
the highest bidder on December 5, 1977 pursuant to Sec. 74 of PD 464. Will you
tell the Court whether you received the original of this letter?
A. I just signed it because I was not able to read the same. It was just sent
by mail carrier.
Q. So you admit that you received the original of Exhibit I and you signed
upon receipt thereof but you did not read the contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was negligence
on his part when he ignored such notice. By his very own admission that he
received the notice, his now coming to court assailing the validity of the
auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a
general rule, gross inadequacy of price is not material (De Leon v. Salvador,
36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289;
Tolentino v. Agcaoili, 91 Phil. 917 Unrep.). See also Barrozo Vda. de Gordon
v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy of
price is not material when the law gives the owner the right to redeem as when
a sale is made at public auction, upon the theory that the lesser the price,
the easier it is for the owner to effect redemption." In Velasquez v. Coronel
(5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which the lands were
sold are unconscionable considering the wide divergence between their assessed
values and the amounts for which they had been actually sold. However, while
in ordinary sales for reasons of equity a transaction may be invalidated on
the ground of inadequacy of price, or when such inadequacy shocks one's
conscience as to justify the courts to interfere, such does not follow when
the law gives to the owner the right to redeem, as when a sale is made at
public auction, upon the theory that the lesser the price the easier it is for
the owner to effect the redemption. And so it was aptly said: "When there is
the right to redeem, inadequacy of price should not be material, because the
judgment debtor may reacquire the property or also sell his right to redeem
and thus recover the loss he claims to have suffered by reason of the price
obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case of Hilton
et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a sale for
taxes, the collection of taxes in this manner would be greatly embarrassed, if
not rendered altogether impracticable. In Black on Tax Titles (2nd Ed.) 238,
the correct rule is stated as follows: "where land is sold for taxes, the
inadequacy of the price given is not a valid objection to the sale." This rule
arises from necessity, for, if a fair price for the land were essential to the
sale, it would be useless to offer the property. Indeed, it is notorious that
the prices habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Wash.
307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire, et al.
v. Bean, et al. (267 P. 555):
Like most cases of this character there is here a certain element of hardship
from which we would be glad to relieve, but do so would unsettle long-
established rules and lead to uncertainty and difficulty in the collection of
taxes which are the life blood of the state. We are convinced that the present
rules are just, and that they bring hardship only to those who have invited it
by their own neglect.
We are inclined to believe the petitioner's claim that the value of the lot
has greatly appreciated in value. Precisely because of the widening of Buendia
Avenue in Pasay City, which necessitated the expropriation of adjoining areas,
real estate values have gone up in the area. However, the price quoted by the
petitioner for a 203 square meter lot appears quite exaggerated. At any rate,
the foregoing reasons which answer the petitioner's claims lead us to deny the
petition.
And finally, even if we are inclined to give relief to the petitioner on
equitable grounds, there are no strong considerations of substantial justice
in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to
the date of the auction sale. He claims to have pocketed the notice of sale
without reading it which, if true, is still an act of inexplicable negligence.
He did not withdraw from the expropriation payment deposited with the
Philippine National Bank an amount sufficient to pay for the back taxes. The
petitioner did not pay attention to another notice sent by the City Treasurer
on November 3, 1978, during the period of redemption, regarding his tax
delinquency. There is furthermore no showing of bad faith or collusion in the
purchase of the property by Mr. Fernandez. The petitioner has no standing to
invoke equity in his attempt to regain the property by belatedly asking for
the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The
decision of the respondent court is affirmed.
SO ORDERED.

G.R. No. 176669               February 4, 2009

ASSET POOL A (SPV-AMC), INC., Petitioner,
vs.
COURT OF APPEALS, LEPANTO CERAMICS, INC. and GUOCO INDUSTRIES, INC.,
Respondents.
D E C I S I O N
CARPIO MORALES, J.:
The present petition is one for Certiorari, filed by ASSET POOL A (SPV-AMC),
INC. (petitioner), which assails the June 21, 20061 Resolution of the Court of
Appeals in CA G.R. CV No. 84170, "Far East Bank and Trust Company (now merged
with Bank of the Philippine Islands), Plaintiff-Appellee, v. Lepanto Ceramics,
Inc. and Guoco Industries, Inc.,Defendants-Appellants," denying its MOTION FOR
1) SUBSTITUTION OF B[ANK OF] P[HILIPPINE] I[SLANDS] AS PLAINTIFF-APPELLEE and
2) EXTENSION OF TIME TO FILE APPELLEE’S BRIEF.
The antecedent facts of the petition are as follows:
On July 26, 2005, the "Far East Bank and Trust Company, now merged with the
Bank of the Philippine Islands (BPI)," filed before the Regional Trial Court
of Makati a complaint for sum of money against "Lepanto Ceramics, Inc.
(formerly Guoco Ceramics, Inc.) and Guoco Industries, Inc." (private
respondents) arising from their failure to settle their outstanding
obligations covered by, among other things, Promissory Note (PN) No.
2800980920 in the amount of P29,800,000.00.
BPI subsequently assigned PN No. 2800980920 (the subject PN) to petitioner via
a Deed of Assignment. In light of the assignment, petitioner filed the above-
said Motion before the appellate court before which the defendants-herein
private respondents appealed the trial court’s decision.
Private respondents, however, countered that BPI was not a party to the Deed
of Assignment as it was BPI Asset Management and Trust Group (BPI-AMTG) which
has a separate personality from BPI, hence, the Deed of Assignment did not
bind BPI. They added that the signatories to the Deed of Assignment had not
shown that they were duly authorized since there were no corporate secretary’s
certificates to prove that their respective Boards of Directors had adopted
resolutions authorizing them to execute the Deed of Assignment.
The Court of Appeals denied petitioner’s above-said motion by the challenged
Resolution upon a finding that petitioner is a Special Purpose Vehicle (SPV)
created pursuant to Republic Act No. 9182 (An Act Granting Tax Exemptions And
Fee Privileges To Special Purpose Vehicles Which Acquire Or Invest In Non-
Performing Assets, Setting The Regulatory Framework Therefor, And For Other
Purposes) or the SPV law, and since the notice requirement under said law was
not complied with, the assignment was ineffective.
x x x x
As defined under the law, there is no question that BPI is a financial
institution [FI] and that the loan under Promissory Note No. 2800980920 is
considered as a non-performing asset [NPA] or non-performing loan [NPL] since
the principal amount thereof (P29,800,000.00) has remained unpaid for more
than 180 days after it has become past due [Roll, p. 79].
As to the fact that [herein petitioner Asset Pool A] is a special purpose
vehicle [SPV] created pursuant to the provisions of Republic Act No. 9182, it
should be noted that in its pleadings, [it] did not specifically deny that it
is an SPV created under the said law. In fact, in its pleadings and in the
Deed of Assignment, APA consistently referred to itself as SPV-AMC. Ergo, the
provisions of Republic Act No. 9182 are applicable.
x x x x
Based on the foregoing, the effectivity of the transfer of non-performing
loans to an SPV depends upon the financial institution’s compliance with the
notice requirement mandated by Republic Act No. 9182. In the case at bench,
APA did not adduce any evidence to prove that defendants-appellants [-herein
private respondents] were notified prior to or after the execution of the Deed
of Assignment by and between the BPI Asset Management and Trust Group and the
APA. Moreover, APA failed to prove that BPI filed an application for
eligibility of Lepanto Ceramics’ loan as a non-performing asset or that BPI
had given Lepanto Ceramics a period of 90 days to restructure or renegotiate
the loan.2 (Emphasis and underscoring supplied)1avvphi1
Petitioner’s Motion for Reconsideration was likewise denied by Resolution of
December 21, 2006,3 hence, the present petition for Certiorari.4
Arguing that the appellate court erred in denying its Motion, petitioner
asserts that the assignment to it of the subject PN was done under the
provisions of the Civil Code which require no notice to the debtor prior to
the assignment; and that, in any event, Republic Act No. 9343 which extended
to May 14, 2006 the period for availment of the SPV law did not provide for
retroactivity.5
Additionally, petitioner asserts that the notarized certification of BPI that
assignor BPI AMTG is its mere division shows that there was a valid assignment
of credit by BPI.6
RA No. 9343 amended Sections 6 (Period for filing of applications) and 15 (Tax
Exemptions and Fee Privileges) of the SPV law. As the notice requirement under
Section 12 of Article III of the SPV Law was not amended, the same was still
necessary to effect transfer of Non-Performing Loans to an SPV, like
petitioner, to be effective. There being no compliance with such notice
requirement at the time of the assignment to petitioner of the subject PN
during the effectivity of the SPV law, as amended, it could not substitute BPI
as party plaintiff-appellee. The appellate court’s denial of petitioner’s
Motion was thus not attended with grave abuse of discretion.
WHEREFORE, the petition is DISMISSED.
SO ORDERED.
G.R. No. 112191 February 7, 1997
FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L. RODRIGUEZA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and FILINVEST CREDIT CORPORATION, respondents.
To fund their acquisition of new vehicles (which are later retailed or resold
to the general public), car dealers normally enter into wholesale automotive
financing schemes whereby vehicles are delivered by the manufacturer or
assembler on the strength of trust receipts or drafts executed by the car
dealers, which are backed up by sureties. These trust receipts or drafts are
then assigned and/or discounted by the manufacturer to/with financing
companies, which assume payment of the vehicles but with the corresponding
right to collect such payment from the car dealers and/or the sureties. In
this manner, car dealers are able to secure delivery of their stock-in-trade
without having to pay cash therefor; manufacturers get paid without any
receivables/collection problems; and financing companies earn their margins
with the assurance of payment not only from the dealers but also from the
sureties. When the vehicles are eventually resold, the car dealers are
supposed to pay the financing companies — and the business goes merrily on.
However, in the event the car dealer defaults in paying the financing company,
may the surety escape liability on the legal ground that the obligations were
incurred subsequent to the execution of the surety contract?
This is the principal legal question raised in this petition for review (under
Rule 45 of the Rules of Court) seeking to set aside the Decision 1 of the Court
of Appeals (Tenth Division) 2 promulgated on September 30, 1993 in CA G.R. CV
No. 09136 which affirmed in toto the decision 3 of the Regional Trial Court of
Manila — Branch 11 4 in Civil Case No. 83-21994, the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendants, by ordering the latter to pay, jointly and severally, the
plaintiff the following amounts:
1. The sum of P1,348,033.89, plus interest thereon at the rate of P922.53 per
day starting April 1, 1985 until the said principal amount is fully paid;
2. The amount of P50,000.00 as attorney's fees and another P50,000.00 as
liquidated damages; and
3. That the defendants, although spared from paying exemplary damages, are
further ordered to pay, in solidum, the costs of this suit.
Plaintiff therein was the financing company and the defendants the car dealer
and its sureties.
The Facts
On or about August 4, 1981, Joseph L. G. Chua and Petitioner Edgar Lee
Rodrigueza ("Petitioner Rodrigueza") each executed an undated "Surety
Undertaking" 5 whereunder they "absolutely, unconditionally and solidarily
guarantee(d)" to Respondent Filinvest Credit Corporation ("Respondent
Filinvest") and its affiliated and subsidiary companies the "full, faithful
and prompt performance, payment and discharge of any and all obligations and
agreements" of Fortune Motors (Phils.) Corporation ("Petitioner Fortune")
"under or with respect to any and all such contracts and any and all other
agreements (whether by way of guaranty or otherwise)" of the latter with
Filinvest and its affiliated and subsidiary companies "now in force or
hereafter made."
The following year or on April 6 5, 1982, Petitioner Fortune, Respondent
Filinvest and Canlubang Automotive Resources Corporation ("CARCO") entered
into an "Automotive Wholesale Financing Agreement" 7 ("Financing Agreement")
under which CARCO will deliver motor vehicles to Fortune for the purpose of
resale in the latter's ordinary course of business; Fortune, in turn, will
execute trust receipts over said vehicles and accept drafts drawn by CARCO,
which will discount the same together with the trust receipts and invoices and
assign them in favor of Respondent Filinvest, which will pay the motor
vehicles for Fortune. Under the same agreement, Petitioner Fortune, as trustee
of the motor vehicles, was to report and remit proceeds of any sale for cash
or on terms to Respondent Filinvest immediately without necessity of demand.
Subsequently, several motor vehicles were delivered by CARCO to Fortune, and
trust receipts covered by demand drafts and deeds of assignment were executed
in favor of Respondent Filinvest. However, when the demand drafts matured, not
all the proceeds of the vehicles which Petitioner Fortune had sold were
remitted to Respondent Filinvest. Fortune likewise failed to turn over to
Filinvest several unsold motor vehicles covered by the trust receipts. Thus,
Filinvest through counsel, sent a demand letter 8 dated December 12, 1983 to
Fortune for the payment of its unsettled account in the amount of
P1,302,811.00. Filinvest sent similar demand letters 9 separately to Chua and
Rodrigueza as sureties. Despite said demands, the amount was not paid. Hence,
Filinvest filed in the Regional Trial Court of Manila a complaint for a sum of
money with preliminary attachment against Fortune, Chua and Rodrigueza.
In an order dated September 26, 1984, the trial court declared that there was
no factual issue to be resolved except for the correct balance of defendants'
account with Filinvest as agreed upon by the parties during pre-trial. 10
Subsequently, Filinvest presented testimonial and documentary evidence.
Defendants (petitioners herein), instead of presenting their evidence, filed a
"Motion for Judgment on Demurrer to Evidence" 11 anchored principally on the
ground that the Surety Undertakings were null and void because, at the time
they were executed, there was no principal obligation existing. The trial
court denied the motion and scheduled the case for reception of defendants'
evidence. On two scheduled dates, however, defendants failed to present their
evidence, prompting the court to deem them to have waived their right to
present evidence. On December 17, 1985, the trial court rendered its decision
earlier cited ordering Fortune, Chua and Rodrigueza to pay Filinvest, jointly
and severally, the sum of P1,348,033.83 plus interest at the rate of P922.53
per day from April 1, 1985 until fully paid, P50,000.00 in attorney's fees,
another P50,000.00 in liquidated damages and costs of suit.
As earlier mentioned, their appeal was dismissed by the Court of Appeals
(Tenth Division) which affirmed in toto the trial court's decision. Hence,
this recourse.
Issues
Petitioners assign the following errors in the appealed Decision:
1. that the Court of Appeals erred in declaring that surety can exist even if
there was no existing indebtedness at the time of its execution.
2. that the Court of Appeals erred when it declared that there was no
novation.
3. that the Court of Appeals erred when it declared, that the evidence was
sufficient to prove the amount of the claim. 12
Petitioners argue that future debts which can be guaranteed under Article 2053
of the Civil Code refer only to "debts existing at the time of the
constitution of the guaranty but the amount thereof is unknown," and that a
guaranty being an accessory obligation cannot exist without a principal
obligation. Petitioners claim that the surety undertakings cannot be made to
cover the Financing Agreement executed by Fortune, Filinvest and CARCO since
the latter contract was not yet in existence when said surety contracts were
entered into.
Petitioners further aver that the Financing Agreement would effect a novation
of the surety contracts since it changed the principal terms of the surety
contracts and imposed additional and onerous obligations upon the sureties.
Lastly, petitioners claim that no accounting of the payments made by
Petitioner Fortune to Respondent Filinvest was done by the latter. Hence,
there could be no way by which the sureties can ascertain the correct amount
of the balance, if any.
Respondent Filinvest, on the other hand, imputes "estoppel (by pleadings or by
judicial admission)" upon petitioners when in their "Motion to Discharge
Attachment," they admitted their liability as sureties thus:
Defendants Chua and Rodrigueza could not have perpetrated fraud because they
are only sureties of defendant Fortune Motors . . .;
. . . The defendants (referring to Rodrigueza and Chua) are not parties to the
trust receipts agreements since they are ONLY sureties.
. . . 13
In rejecting the arguments of petitioners and in holding that they (Fortune
and the sureties) were jointly and solidarily liable to Filinvest, the trial
court declared:
As to the alleged non-existence of a principal obligation when the surety
agreement was signed, it is enought (sic) to state that a guaranty may also be
given as security for future debts, the amount of which is not known (Art.
2053, New Civil Code). In the case of NARIC vs. Fojas, L-11517, promulgated
April 10, 1958, it was ruled that a bond posted to secure additional credit
that the principal debtor had applied for, is not void just because the said
bond was signed and filed before the additional credit was extended by the
creditor. The obligation of the sureties on future obligations of Fortune is
apparent from a proviso under the Surety Undertakings marked Exhs. B and C
that the sureties agree with the plaintiff as follows:
In consideration of your entering into an arrangement with the party (Fortune)
named above, . . . by which you may purchase or otherwise require from, and or
enter into with obligor . . . trust receipt . . . arising out of wholesale
and/or retail transactions by or with obligor, the undersigned . . .
absolutely, unconditionally, and solidarily guarantee to you . . . the full,
faithful and prompt performance, payment and discharge of any and all
obligations . . . of obligor under and with respect to any and all such
contracts and any and all agreements (whether by way of guaranty or otherwise)
of obligor with you . . . now in force or hereafter made. (Emphasis supplied).
On the matter of novation, this has already been ruled upon when this Court
denied defendants' Motion to dismiss on the argument that what happened was
really an assignment of credit, and not a novation of contract, which does not
require the consent of the debtors. The fact of knowledge is enough. Besides,
as explained by the plaintiff, the mother or the principal contract was the
Financing Agreement, whereas the trust receipts, the sight drafts, as well as
the Deeds of assignment were only collaterals or accidental modifications
which do not extinguish the original contract by way of novation. This
proposition holds true even if the subsequent agreement would provide for more
onerous terms for, at any rate, it is the principal or mother contract that is
to be followed. When the changes refer to secondary agreements and not to the
object or principal conditions of the contract, there is no novation; such
changes will produce modifications of incidental facts, but will not
extinguish the original obligation (Tolentino, Commentaries on Jurisprudence
of the Civil Code of the Philippines, 1973 Edition, Vol. IV, page 367; cited
in plaintiff's Memorandum of September 6, 1985, p. 3).
On the evidence adduced by the plaintiff to show the status of defendants'
accounts, which took into consideration payments by defendants made after the
filing of the case, it is enough to state that a statement was carefully
prepared showing a balance of the principal obligation plus interest totalling
P1,348,033.89 as of March 31, 1985 (Exh. M). This accounting has not been
traversed nor contradicted by defendants although they had the opportunity to
do so. Likewise, there was absolute silence on the part of defendants as to
the correctness of the previous statement of account made as of December 16,
1983 (referring to Exh. I), but more important, however, is that defendants
received demand letters from the plaintiff stating that, as of December 1983
(Exhs. J, K and L), this total amount of obligation was P1,302,811,00, and yet
defendants were not heard to have responded to said demand letters, let alone
have taken any exception thereto. There is such a thing as evidence by silence
(Sec. 23, Rule 130, Revised Rules of Court). 14
The Court of Appeals, affirming the above decision of the trial court, further
explained:
. . . In the case at bar, the surety undertakings in question unequivocally
state that Chua and Rodrigueza "absolutely, unconditionally and solidarily
guarantee" to Filinvest the "full, faithful and prompt performance, payment
and discharge of any and all obligations and agreements" of Fortune "under or
with respect to any and all such contracts and any and all other agreements
(whether by way of guaranty or otherwise)" of the latter with Filinvest in
force at the time of the execution of the "Surety Undertakings" or made
thereafter. Indeed, if Chua and Rodrigueza did not intend to guarantee all of
Fortune's future obligation with Filinvest, then they should have expressly
stated in their respective surety undertakings exactly what said surety
agreements guaranteed or to which obligations of Fortune the same were
intended to apply. For another, if Chua and Rodrigueza truly believed that the
surety undertakings they executed should not cover Fortune's obligations under
the AWFA, then why did they not inform Filinvest of such fact when the latter
sent them the aforementioned demand letters (Exhs. 'K' and 'L') urging them to
pay Fortune's liability under the AWFA. Instead, quite uncharacteristic of
persons who have just been asked to pay an obligation to which they believe
they are not liable, Chua and Rodrigueza elected or chose not to answer said
demand letters. Then, too, considering that appellant Chua is the corporate
president of Fortune and a signatory to the AWFA, he should have simply had it
stated in the AWFA or in a separate document that the "Surety Undertakings" do
not cover Fortune's obligations in the aforementioned AWFA, trust receipts or
demand drafts.
Appellants argue that it was unfair for Filinvest to have executed the AWFA
only after two (2) years from the date of the "Surety undertakings" because
Chua and Rodrigueza were thereby made to wait for said number of years just to
know what kind of obligation they had to guarantee.
The argument cannot hold water. In the first place, the "Surety Undertakings"
did not provide that after a period of time the same will lose its force and
effect. In the second place, if Chua and Rodrigueza did not want to guarantee
the obligations of Fortune under the AWFA, trust receipts and demand drafts,
then why did they not simply terminate the 'Surety Undertakings' by serving
ten (10) days written notice to Filinvest as expressly allowed in said surety
agreements. It is highly plausible that the reason why the 'Surety
Undertakings' were not terminated was because the execution of the same was
part of the consideration why Filinvest and CARCO agreed to enter into the
AWFA with Fortune. 15
The Court's Ruling
We affirm the decisions of the trial and appellate courts.
First Issue: Surety May Secure Future Obligations
The case at bench falls on all fours with Atok Finance Corporation vs. Court
of Appeals 16 which reiterated our rulings in National Rice and Corn
Corporation (NARIC) vs. Court of Appeals 17 and Rizal Commercial Banking
Corporation vs. Arro. 18 In Atok Finance, Sanyu Chemical as principal, and
Sanyu Trading along with individual private stockholders of Sanyu Chemical,
namely, spouses Daniel and Nenita Arrieta, Leopoldo Halili and Pablito
Bermundo, as sureties, executed a continuing suretyship agreement in favor of
Atok Finance as creditor. Under the agreement, Sanyu Trading and the
individual private stockholders and officers of Sanyu Chemical "jointly and
severally unconditionally guarantee(d) to Atok Finance Corporation
(hereinafter called Creditor), the full, faithful and prompt payment and
discharge of any and all indebtedness of [Sanyu Chemical] . . . to the
Creditor." Subsequently, Sanyu Chemical assigned its trade receivables
outstanding with a total face value of P125,871.00 to Atok Finance in
consideration of receipt of the amount of P105,000.00. Later, additional trade
receivables with a total face value of P100,378.45 were also assigned. Due to
nonpayment upon maturity, Atok
Finance commenced action against Sanyu Chemical, the Arrieta spouses, Bermundo
and Halili to collect the sum of P120,240.00 plus penalty charges due and
payable. The individual private respondents contended that the continuing
suretyship agreement, being an accessory contract, was null and void since, at
the time of its execution, Sanyu Chemical had no pre-existing obligation due
to Atok Finance. The trial court rendered a decision in favor of Atok Finance
and ordered defendants to pay, jointly and severally, aforesaid amount to
Atok.
On appeal, the then Intermediate Appellate Court reversed the trial court and
dismissed the complaint on the ground that there was "no proof that when the
suretyship agreement was entered into, there was a pre-existing obligation
which served as the principal obligation between the parties. Furthermore, the
'future debts' alluded to in Article 2053 refer to debts already existing at
the time of the constitution of the agreement but the amount thereof is
unknown, unlike in the case at bar where the obligation was acquired two years
after the agreement."
We ruled then that the appellate court was in serious error. The distinction
which said court sought to make with respect to Article 2053 (that "future
debts" referred to therein relate to "debts already existing at the time of
the constitution of the agreement but the amount [of which] is unknown" and
not to debts not yet incurred and existing at that time) has previously been
rejected, citing the RCBC and NARIC cases. We further said:
. . . Of course, a surety is not bound under any particular principal
obligation until that principal obligation is born. But there is no
theoretical or doctrinal difficulty inherent in saying that the suretyship
agreement itself is valid and binding even before the principal obligation
intended to be secured thereby is born, any more than there would be in saying
that obligations which are subject to a condition precedent are valid and
binding before the occurrence of the condition precedent.
Comprehensive or continuing surety agreements are in fact quite commonplace in
present day financial and commercial practice. A bank or financing company
which anticipates entering into a series of credit transactions with a
particular company, commonly requires the projected principal debtor to
execute a continuing surety agreement along with its sureties. By executing
such an agreement, the principal places itself in a position to enter into the
projected series of transactions with its creditor; with such suretyship
agreement, there would be no need to execute a separate surety contract or
bond for each financing or credit accommodation extended to the principal
debtor.
In Dino vs. Court of Appeals, 19 we again had occasion to discourse on
continuing guaranty/suretyship thus:
. . . A continuing guaranty is one which is not limited to a single
transaction, but which contemplates a future course of dealing, covering a
series of transactions, generally for an indefinite time or until revoked. It
is prospective in its operation and is generally intended to provide security
with respect to future transactions within certain limits, and contemplates a
succession of liabilities, for which, as they accrue, the guarantor becomes
liable. Otherwise stated, a continuing guaranty is one which covers all
transactions, including those arising in the future, which are within the
description or contemplation of the contract, of guaranty, until the
expiration or termination thereof. A guaranty shall be construed as continuing
when by the terms thereof it is evident that the object is to give a standing
credit to the principal debtor to be used from time to time either
indefinitely or until a certain period; especially if the right to recall the
guaranty is expressly reserved. Hence, where the contract of guaranty states
that the same is to secure advances to be made 'from time to time' the
guaranty will be construed to be a continuing one.
In other jurisdictions, it has been held that the use of particular words and
expressions such as payment of "any debt," "any indebtedness," "any
deficiency," or "any sum," or the guaranty of "any transaction" or money to be
furnished the principal debtor "at any time," or "on such time" that the
principal debtor may require, have been construed to indicate a continuing
guaranty. 20
We have no reason to depart from our uniform ruling in the above-cited cases.
The facts of the instant case bring us to no other conclusion than that the
surety undertakings executed by Chua and Rodrigueza were continuing guaranties
or suretyships covering all future obligations of Fortune Motors (Phils.)
Corporation with Filinvest Credit Corporation. This is evident from the
written contract itself which contained the words "absolutely, unconditionally
and solidarily guarantee(d)" to Respondent Filinvest and its affiliated and
subsidiary companies the "full, faithful and prompt performance, payment and
discharge of any and all obligations and agreements" of Petitioner Fortune
"under or with respect to any and all such contracts and any and all other
agreements (whether by way of guaranty or otherwise)" of the latter with
Filinvest and its affiliated and subsidiary companies "now in force or
hereafter made."
Moreover, Petitioner Rodrigueza and Joseph Chua knew exactly where they stood
at the time they executed their respective surety undertakings in favor of
Fortune. As stated in the petition:
Before the execution of the new agreement, Edgar L. Rodrigueza and Joseph Chua
were required to sign blank surety agreements, without informing them how much
amount they would be liable as sureties. However, because of the desire of
petitioners, Chua and Rodrigueza to have the cars delivered to petitioner.
Fortune, they signed the blank promissory notes. 21 (emphasis supplied)
It is obvious from the foregoing that Rodrigueza and Chua were fully aware of
the business of Fortune, an automobile dealer; Chua being the corporate
president of Fortune and even a signatory to the Financial Agreement with
Filinvest. 22 Both sureties knew the purpose of the surety undertaking which
they signed and they must have had an estimate of the amount involved at that
time. Their undertaking by way of the surety contracts was critical in
enabling Fortune to acquire credit facility from Filinvest and to procure cars
for resale, which was the business of Fortune. Respondent Filinvest, for its
part, relied on the surety contracts when it agreed to be the assignee of
CARCO with respect to the liabilities of Fortune with CARCO. After benefiting
therefrom, petitioners cannot now impugn the validity of the surety contracts
on the ground that there was no preexisting obligation to be guaranteed at the
time said surety contracts were executed. They cannot resort to equity to
escape liability for their voluntary acts, and to heap injustice to Filinvest,
which relied on their signed word.
This is a clear case of estoppel by deed. By the acts of petitioners,
Filinvest was made to believe that it can collect from Chua and/or Rodrigueza
in case of Fortune's default. Filinvest relied upon the surety contracts when
it demanded payment from the sureties of the unsettled liabilities of Fortune.
A refusal to enforce said surety contracts would virtually sanction the
perpetration of fraud or injustice. 23
Second Issue: No Novation
Neither do we find merit in the averment of petitioners that the Financing
Agreement contained onerous obligations not contemplated in the surety
undertakings, thus changing the principal terms thereof and effecting a
novation.
We have ruled previously that there are only two ways to effect novation and
thereby extinguish an obligation. First, novation must be explicitly stated
and declared in unequivocal terms. Novation is never presumed. Second, the old
and new obligations must be incompatible on every point. The test of
incompatibility is whether the two obligations can stand together, each one
having its independent existence. If they cannot, they are incompatible and
the latter obligation novates the first. 24 Novation must be established either
by the express terms of the new agreement or by the acts of the parties
clearly demonstrating the intent to dissolve the old obligation as a
consideration for the emergence of the new one. The will to novate, whether
totally or partially, must appear by express agreement of the parties, or by
their acts which are too clear and unequivocal to be mistaken. 25
Under the surety undertakings however, the obligation of the sureties referred
to absolutely, unconditionally and solidarily guaranteeing the full, faithful
and prompt performance, payment and discharge of all obligations of Petitioner
Fortune with respect to any and all contracts and other agreements with
Respondent Filinvest in force at that time or thereafter made. There were to
qualifications, conditions or reservations stated therein as to the extent of
the suretyship. The Financing Agreement, on the other hand, merely detailed
the obligations of Fortune to CARCO (succeeded by Filinvest as assignee). The
allegation of novation by petitioners is, therefore, misplaced. There is no
incompatibility of obligations to speak of in the two contracts. They can
stand together without conflict.
Furthermore, the parties have not performed any explicit and unequivocal act
to manifest their agreement or intention to novate their contract. Neither did
the sureties object to the Financing Agreement nor try to avoid liability
thereunder at the time of its execution. As aptly discussed by the Court of
Appeals:
. . . For another, if Chua and Rodrigueza truly believed that the surety
undertakings they executed should not cover Fortune's obligations under the
AWFA (Financing Agreement), then why did they not inform Filinvest of such
fact when the latter sent them the aforementioned demand letters (Exhs. "K"
and "L") urging them to pay Fortune's liability under the AWFA. Instead, quite
uncharacteristic of persons who have just been asked to pay an obligation to
which they are not liable, Chua and Rodrigueza elected or chose not to answer
said demand letters. Then, too, considering that appellant Chua is the
corporate president of Fortune and a signatory to the AWFA, he should have
simply had it stated in the AWFA or in a separate document that the 'Surety
Undertakings' do not cover Fortune's obligations in the aforementioned AWFA,
trust receipts or demand drafts. 26
Third Issue: Amount of Claim Substantiated
The contest on the correct amount of the liability of petitioners is a purely
factual issue. It is an oft repeated maxim that the jurisdiction of this Court
in cases brought before it from the Court of Appeals under Rule 45 of the
Rules of Court is limited to reviewing or revising errors of law. It is not
the function of this Court to analyze or weigh evidence all over again unless
there is a showing that the findings of the lower court are totally devoid of
support or are glaringly erroneous as to constitute serious abuse of
discretion. Factual findings of the Court of Appeals are conclusive on the
parties and carry even more weight when said court affirms the factual
findings of the trial court. 27
In the case at bar, the findings of the trial court and the Court of Appeals
with respect to the assigned error are based on substantial evidence which
were not refuted with contrary proof by petitioners. Hence, there is no
necessity to depart from the above judicial dictum.
WHEREFORE, premises considered, the petition is DENIED and the assailed
Decision of the Court of Appeals concurring with the decision of the trial
court is hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. 116805 June 22, 2000
MARIO S. ESPINA, petitioner,
vs.
THE COURT OF APPEALS and RENE G. DIAZ, respondents.
The case before the Court is an appeal from a decision of the Court of Appeals
1
reversing that of the Regional Trial Court, Antipolo, Rizal, 2 affirming in
all respects the decision of the Municipal Trial Court, Antipolo, Rizal, 3
ordering respondent Rene G. Diaz to vacate the condominium unit owned by
petitioner and to pay back current rentals, attorney's fees and
costs.1âwphi1.nêt
The facts, as found by the Court of Appeals, are as follows:
Mario S. Espina is the registered owner of a Condominium Unit No. 403,
Victoria Valley Condominium, Valley Golf Subdivision, Antipolo, Rizal. Such
ownership is evidenced by Condominium Certificate of Title No. N-10 (p. 31,
Rollo).
On November 29, 1991, Mario S. Espina, the private respondent as seller, and
Rene G. Diaz, the petitioner as buyer, executed a Provisional Deed of Sale,
whereby the former sold to the latter the aforesaid condominium unit for the
amount of P100,000.00 to be paid upon the execution of the contract and the
balance to be paid through PCI Bank postdated checks as follows:
1. P400,000.00 Check No. 301245 January 15, 1992
2. P200,000.00 Check No. 301246 February 1, 1992
3. P200,000.00 Check No. 301247 February 22, 1992
4. P200,000.00 Check No. 301248 March 14, 1992
5. P200,000.00 Check No. 301249 April 4, 1992
6. P200,000.00 Check No. 301250 April 25, 1992
(pp. 59-61, Rollo).
Subsequently, in a letter dated January 22, 1992, petitioner informed private
respondent that his checking account with PCI Bank has been closed and a new
checking account with the same drawee bank is opened for practical purposes.
The letter further stated that the postdated checks issued will be replaced
with new ones in the same drawee bank (p. 63, Rollo).
On January 25, 1992, petitioner through Ms. Socorro Diaz, wife of petitioner,
paid private respondent Mario Espina P200,000.00, acknowledged by him as
partial payment for the condominium unit subject of this controversy (p. 64,
Rollo).
On July 26, 1992, private respondent sent petitioner a "Notice of
Cancellation" of the Provisional Deed of Sale (p. 48, Rollo).
However, despite the Notice of Cancellation from private respondent, the
latter accepted payment from petitioner per Metrobank Check No. 395694 dated
and encashed on October 28, 1992 in the amount of P100,000.00 (p. 64, Rollo).
On February 24, 1993, private respondent filed a complaint docketed as Civil
Case No. 2104 for Unlawful Detainer against petitioner before the Municipal
Trial Court of Antipolo, Branch 1.
On November 12, 1993, the trial court rendered its decision, the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered
ordering the defendant and all persons claiming rights under him to vacate
unit 403 of the Victoria Golf Valley Condominium, Valley Golf Subdivision,
Antipolo, Rizal; to pay the total arrears of P126,000.00, covering the period
July 1991 up to the filing (sic) complaint, and to pay P7,000.00 every month
thereafter as rentals unit (sic) he vacates the premises; to pay the amount of
P5,000.00 as and attorney's fees; the amount of P300.00 per appearance, and
costs of suit.
However, the plaintiff may refund to the defendant the balance from (sic)
P400,000.00 after deducting all the total obligations of the defendant as
specified in the decision from receipt of said decision.
SO ORDERED. (Decision, Annex "B"; p. 27, Rollo).
From the said decision, petitioner appealed to the Regional Trial Court Branch
71, Antipolo, Rizal. On April 29, 1994, said appellate court affirmed in all
respects the decision of the trial court. 4
On June 14, 1994, petitioner filed with the Court of Appeals a petition for
review.
On July 20, 1994, the Court of Appeals promulgated its decision reversing the
appealed decision and dismissing the complaint for unlawful detainer with
costs against petitioner Espina.
On August 8, 1994, petitioner filed a motion for reconsideration of the
decision of the Court of Appeals. 5
On August 19, 1994, the Court of Appeals denied the motion. 6
Hence, this appeal via petition for review on certiorari. 7
The basic issue raised is whether the Court of Appeals erred in ruling that
the provisional deed of sale novated the existing contract of lease and that
petitioner had no cause of action for ejectment against respondent Diaz.
We resolve the issue in favor of petitioner.
According to respondent Diaz, the provisional deed of sale that was
subsequently executed by the parties novated the original existing contract of
lease. The contention cannot be sustained. Respondent originally occupied the
condominium unit in question in 1987 as a lessee. 8 While he occupied the
premises as lessee, petitioner agreed to sell the condominium unit to
respondent by installments. 9 The agreement to sell was provisional as the
consideration was payable in installments.
The question is, did the provisional deed of sale novate the existing lease
contract? The answer is no. The novation must be clearly proved since its
existence is not presumed. 10 "In this light, novation is never presumed; it
must be proven as a fact either by express stipulation of the parties or by
implication derived from an irreconcilable incompatibility between old and new
obligations or contracts." 11 Novation takes place only if the parties
expressly so provide, otherwise, the original contract remains in force. In
other words, the parties to a contract must expressly agree that they are
abrogating their old contract in favor of a new one. 12 Where there is no clear
agreement to create a new contract in place of the existing one, novation
cannot be presumed to take place, unless the terms of the new contract are
fully incompatible with the former agreement on every point. 13 Thus, a deed of
cession of the right to repurchase a piece of land does not supersede a
contract of lease over the same property. 14 In the provisional deed of sale in
this case, after the initial down payment, respondent's checks in payment of
six installments all bounced and were dishonored upon presentment for the
reason that the bank account was closed. 15 Consequently, on July 26, 1992,
petitioner terminated the provisional deed of sale by a notarial notice of
cancellation. 16 Nonetheless, respondent Diaz continued to occupy the premises,
as lessee, but failed to pay the rentals due. On October 28, 1992, respondent
made a payment of P100,000.00 that may be applied either to the back rentals
or for the purchase of the condominium unit. On February 13, 1993, petitioner
gave respondent a notice to vacate the premises and to pay his back rentals. 17
Failing to do so, respondent's possession became unlawful and his eviction was
proper. Hence, on February 24, 1993, petitioner filed with the Municipal Trial
Court, Antipolo, Rizal, Branch 01 an action for unlawful detainer against
respondent Diaz. 18
Now respondent contends that the petitioner's subsequent acceptance of such
payment effectively withdrew the cancellation of the provisional sale. We do
not agree. Unless the application of payment is expressly indicated, the
payment shall be applied to the obligation most onerous to the debtor. 19 In
this case, the unpaid rentals constituted the more onerous obligation of the
respondent to petitioner. As the payment did not fully settle the unpaid
rentals, petitioner's cause of action for ejectment survives. Thus, the Court
of Appeals erred in ruling that the payment was "additional payment" for the
purchase of the property.
WHEREFORE, the Court GRANTS the petition for review on certiorari, and
REVERSES the decision of the Court of Appeals. 20 Consequently, the Court
REVIVES the decision of the Regional Trial Court, Antipolo, Rizal, Branch 71,
21
affirming in toto the decision of the Municipal Trial Court, Antipolo,
Rizal, Branch 01. 22
No costs.
SO ORDERED.1âwphi1.nêt
G.R. No. L-41117 December 29, 1986
INTEGRATED CONSTRUCTION SERVICES, INC., and ENGINEERING CONSTRUCTION, INC.,
petitioners,
vs.
THE HONORABLE LORENZO RELOVA, as Judge of the Court of First Instance of
Manila, and METROPOLITAN WATERWORKS & SEWERAGE SYSTEM, respondents.
This is a petition 1 for mandamus as a special civil action and/or, in the
alternative, an appeal from orders of the Court of First Instance of Manila
under Republic Act 5440 in Civil Case No. 80390 entitled "Integrated
Construction Services, Inc. and Engineering Construction, Inc., plaintiffs,
versus National Waterworks and Sewerage Authority (now Metropolitan Waterworks
& Sewerage System), defendant." Petitioners complied with the requisites for
both remedies.
The facts are not in dispute:
Petitioners on July 17, 1970 sued the respondent Metropolitan Waterworks and
Sewerage System (MWSS), formerly the National Waterworks and Sewerage
Authority (NAWASA), in the Court of First Instance of Manila for breach of
contract, docketed as Civil Case No. 80390 in that Court. Meanwhile, the
parties submitted the case to arbitration.
The Arbitration Board, after extensive hearings, rendered its decision-award
on August 11, 1972. Respondent Judge confirmed the Award on September 9, 1972
and the same has long since become final and executory.
The decision-award ordered MWSS to pay petitioners P15,518,383.61-less
P2,329,433.41, to be set aside as a trust fund to pay creditors of the joint
venture in connection with the projector a net award of P13,188,950.20 with
interest thereon from the filing of the complaint until fully paid.
Subsequently, however, petitioners agreed to give MWSS some discounts in
consideration of an early payment of the award. Thus, on September 21, 1972,
MWSS adopted Board Resolution No. 132-72, embodying the terms and conditions
of their agreement. On October 2, 1972, MWSS sent a letter-agreement to
petitioners, quoting Board Resolution No. 13272, granting MWSS some discounts
from the amount payable under the decision award (consisting of certain
reductions in interests, in the net principal award and in the trust fund),
provided that MWSS would pay the judgment, less the said discounts, within
fifteen days therefrom or up to October 17, 1972.
Upon MWSS' request, the petitioners signed their "Conforme" to the said
letter-agreement, and extended the period to pay the judgment less the
discounts aforesaid to October 31, 1972. MWSS, however, paid only on December
22, 1972, the amount stated in the decision but less the reductions provided
for in the October 2, 1972 letter-agreement.
Three years thereafter, or on June, 1975, after the last balance of the trust
fund had been released and used to satisfy creditors' claims, the petitioners
filed a motion for execution in said civil case against MWSS for the balance
due under the decision-award. Respondent MWSS opposed execution setting forth
the defenses of payment and estoppel. (p. 174, Rollo)
On July 10, 1975, respondent judge denied the motion for execution on the
ground that the parties had novated the award by their subsequent letter-
agreement. Petitioners moved for reconsideration but respondent judge,
likewise, denied the same in his Order dated July 24, 1975.
Hence, this Petition for Mandamus, alleging that respondent judge unlawfully
refused to comply with his mandatory duty-to order the execution of the
unsatisfied portion of the final and executory award.
In a Resolution dated October 17, 1975, the Supreme Court dismissed the
Petition for lack of merit. (p. 107, Rollo )and denied petitioners' Motion for
Reconsideration of the same. (p. 131, Rollo)
At the hearing on petitioners' Second Motion for Reconsideration, however,
respondent MWSS asserted new matters, (p. 186, Rollo) arguing that: the delay
in effecting payment was caused by an unforeseen circumstance the declaration
of martial law, thus, placing MWSS under the management of the Secretary of
National Defense, which impelled MWSS to refer the matter of payment to the
Auditor General and/or the Secretary of National Defense; and that the 15-day
period was merely intended to pressure MWSS officials to process the voucher.
Petitioners, however, vehemently deny these matters which are not supported by
the records.
We agree with the petitioners.
While the tenor of the subsequent letter-agreement in a sense novates the
judgment award there being a shortening of the period within which to pay
(Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the suspensive and
conditional nature of the said agreement (making the novation conditional) is
expressly acknowledged and stipulated in the 14th whereas clause of MWSS'
Resolution No. 132-72, (p. 23, Rollo) which states:
WHEREAS, all the foregoing benefits and advantages secured by the MWSS out of
said conferences were accepted by the Joint Venture provided that the
remaining net amount payable to the Joint Venture will be paid by the MWSS
within fifteen (15) days after the official release of this resolution and a
written CONFORME to be signed by the Joint Venture; (Emphasis supplied)
MWSS' failure to pay within the stipulated period removed the very cause and
reason for the agreement, rendering some ineffective. Petitioners, therefore,
were remitted to their original rights under the judgment award.
The placing of MWSS under the control and management of the Secretary of
National Defense thru Letter of Instruction No. 2, dated September 22, 1972
was not an unforeseen supervening factor because when MWSS forwarded the
letter-agreement to the petitioners on October 2, 1972, the MWSS was already
aware of LOI No. 2.
MWSS' contention that the stipulated period was intended to pressure MWSS
officials to process the voucher is untenable. As aforestated, it is apparent
from the terms of the agreement that the 15-day period was intended to be a
suspensive condition. MWSS, admittedly, was aware of this, as shown by the
internal memorandum of a responsible MWSS official, stating that necessary
steps should be taken to effect payment within 15 days, for otherwise, MWSS
would forego the advantages of the discount. " (p. 426, Rollo)
As to whether or not petitioners are now in estoppel to question the
subsequent agreement, suffice it to state that petitioners never acknowledged
full payment; on the contrary, petitioners refused MWSS' request for a
conforme or quitclaim. (p. 125, Rollo)
Accordingly, the award is still subject to execution by mere motion, which may
be availed of as a matter of right any time within (5) years from entry of
final judgment in accordance with Section 5, Rule 39 of the Rules of Court.
WHEREFORE, We hereby set aside the assailed orders, and issue the writ of
mandamus directing the present Regional Trial Judge of the Branch that handled
this case originally to grant the writ of execution for the balance due under
the award.
SO ORDERED.
G.R. No. L-29280 August 11, 1988
PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee,
vs.
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP, defendants-
appellants.
This is an appeal from the decision dated May 16, 1968 rendered by the Court
of First Instance of Manila, Branch XII in Civil Case No. 68095, the decretal
portion of which states:
IN VIEW OF THE FOREGOING, judgment is rendered sentencing all the defendants
to pay the plaintiff jointly and severally the sum of P601,633.01 with
interest thereon at the rate of 11% per annum from June 17, 1967, until the
whole amount is paid, plus 10% of the total amount due for attorney's fees and
the costs of suit. Should the defendants fail to pay the same to the
plaintiff, then it is ordered that all the effects, materials and stocks
covered by the chattel mortgages be sold at public auction in conformity with
the Provisions of Sec. 14 of the Chattel Mortgage Law, and the proceeds
thereof applied to satisfy the judgment herein rendered. The counterclaim of
the defendants, upon the evidence presented and in the light of the
authorities above cited, is dismissed for lack of merit.
SO ORDERED
(pp. 89-90, Record on Appeal; p. 15, Rollo)
The facts of the case based on the statement of facts, made by the trial court
in its decision as cited in the briefs of both parties are as follows:
This is an action for foreclosure of chattel mortgage executed in favor of the
plaintiff by the defendant Syvel's Incorporated on its stocks of goods,
personal properties and other materials owned by it and located at its stores
or warehouses at No. 406, Escolta, Manila; Nos. 764-766 Rizal Avenue, Manila;
Nos. 10-11 Cartimar Avenue, Pasay City; No. 886 Nicanor Reyes, Sr. (formerly
Morayta), Manila; as evidenced by Annex"A."The chattel mortgage was duly
registered in the corresponding registry of deeds of Manila and Pasay City.
The chattel mortgage was in connection with a credit commercial line in the
amount of P900,000.00 granted the said defendant corporation, the expiry date
of which was May 20, 1966. On May 20, 1965, defendants Antonio V. Syyap and
Angel Y. Syyap executed an undertaking in favor of the plaintiff whereby they
both agreed to guarantee absolutely and unconditionally and without the
benefit of excussion the full and prompt payment of any indebtedness to be
incurred on account of the said credit line. Against the credit line granted
the defendant Syvel's Incorporated the latter drew advances in the form of
promissory notes which are attached to the complaint as Annexes "C" to "l." In
view of the failure of the defendant corporation to make payment in accordance
with the terms and conditions agreed upon in the Commercial Credit Agreement
the plaintiff started to foreclose extrajudicially the chattel mortgage.
However, because of an attempt to have the matter settled, the extra-judicial
foreclosure was not pushed thru. As no payment had been paid, this case was
even tually filed in this Court.
On petition of the plaintiff based on the affidavits executed by Mr. Leopoldo
R. Rivera, Assistant Vice President of the plaintiff bank and Atty. Eduardo J.
Berenguer on January 12, 1967, to the effect, among others, that the
defendants are disposing of their properties with intent to defraud their
creditors, particularly the plaintiff herein, a preliminary writ of attachment
was issued. As a consequence of the issuance of the writ of attachment, the
defendants, in their answer to the complaint set up a compulsory counterclaim
for damages.
After the filing of this case in this court and during its pendency defendant
Antonio v. Syyap proposed to have the case settled amicably and to that end a
conference was held in which Mr. Antonio de las Alas, Jr., Vice President of
the Bank, plaintiff, defendant Antonio V. Syyap and Atty. Mendoza were
present. Mr. Syyap requested that the plaintiff dismiss this case because he
did not want to have the goodwill of Syvel's Incorporated impaired, and
offered to execute a real estate mortgage on his real property located in
Bacoor, Cavite. Mr. De las Alas consented, and so the Real Estate Mortgage,
marked as Exhibit A, was executed by the defendant Antonio V. Syyap and his
wife Margarita Bengco Syyap on June 22, 1967. In that deed of mortgage,
defendant Syyap admitted that as of June 16, 1967, the indebtedness of Syvel's
Incorporated was P601,633.01, the breakdown of which is as follows:
P568,577.76 as principal and P33,055.25 as interest. Complying with the
promise of the plaintiff thru its Vice President to ask for the dismissal of
this case, a motion to dismiss this case without prejudice was prepared,
Exhibit C, but the defendants did not want to agree if the dismissal would
mean also the dismissal of their counterclaim Against the plaintiff. Hence,
trial proceeded.
As regards the liabilities of the defendants, there is no dispute that a
credit line to the maximum amount of P900,000.00 was granted to the defendant
corporation on the guaranty of the merchandise or stocks in goods of the said
corporation which were covered by chattel mortgage duly registered as required
by law. There is likewise no dispute that the defendants Syyap guaranteed
absolutely and unconditionally and without the benefit of excussion the full
and prompt payment of any indebtedness incurred by the defendant corporation
under the credit line granted it by the plaintiff. As of June 16, 1967, its
indebtedness was in the total amount of P601,633.01. This was admitted by
defendant Antonio V. Syyap in the deed of real estate mortgage executed by
him. No part of the amount has been paid by either of the defendants. Hence
their liabilities cannot be questioned. (pp. 3-6, Brief for Appellee; p. 26,
Rollo)
In their brief, appellants assign the following errors:
I
The lower court erred in not holding that the obligation secured by the
Chattel Mortgage sought to be foreclosed in the above-entitled case was
novated by the subsequent execution between appellee and appellant Antonio V,
Syyap of a real estate mortgage as additional collateral to the obligation
secured by said chattel mortgage.
II
The lower court erred in not dismissing the above-entitled case and in finding
appellants liable under the complaint.
III
The lower court erred in not holding that the writ of preliminary attachment
is devoid of any legal and factual basis whatsoever.
IV
The lower court erred in dismissing appellants'counterclaim and in not holding
appellee liable to appellants for the consequent damages arising out of a
wrongful attachment. (pp. 1-2, Brief for the Appellants, p. 25, Rollo)
Appellants admit that they are indebted to the appellee bank in the amount of
P601,633.01, breakdown of which is as follows: P568,577.76 as principal and
P33,055.25 as interest. After the filing of the case and during its pendency,
defendant Antonio V. Syyap proposed to have the case amicably settled and for
that purpose a conference was held in which Mr. Antonio de las Alas, Jr., Vice
President of plaintiff People's Bank and Trust Company, defendant Antonio V.
Syyap and Atty. Mendoza were present. Mr. Syyap requested that the plaintiff
dismiss this case as he did not want to have the goodwill of Syvel's
Incorporated impaired, and offered to execute a real estate mortgage on his
real property located in Bacoor, Cavite. Mr. de las Alas consented, and so the
Real Estate Mortgage (Exhibit "A") was executed by defendant Antonio Syyap and
his wife Margarita Bengco Syyap on June 22, 1967. Defendants did not agree
with plaintiffs motion to dismiss which included the dismissal of their
counterclaim and filed instead their own motion to dismiss (Record on Appeal,
pp. 68-72) on the ground that by the execution of said real estate mortgage,
the obligation secured by the chattel mortgage subject of this case was
novated, and therefore, appellee's cause of action thereon was extinguished.
In an Order dated September 23, 1967, the motion was denied for not being well
founded (record on Appeal, p. 78).
Appellants contention is without merit.
Novation takes place when the object or principal condition of an obligation
is changed or altered. It is elementary that novation is never presumed; it
must be explicitly stated or there must be manifest incompatibility between
the old and the new obligations in every aspect (Goni v. CA, 144 SCRA 223
[1986]; National Power Corp. v. Dayrit, 125 SCRA 849 [1983]).
In the case at bar, there is nothing in the Real Estate Mortgage which
supports appellants'submission. The contract on its face does not show the
existence of an explicit novation nor incompatibility on every point between
the "old and the "new" agreements as the second contract evidently indicates
that the same was executed as new additional security to the chattel mortgage
previously entered into by the parties.
Moreover, records show that in the real estate mortgage, appellants agreed
that the chattel mortgage "shall remain in full force and shall not be
impaired by this (real estate) mortgage."
The pertinent provision of the contract is quoted as follows:
That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book No. I,
Series of 1965, Notary Public Jose C. Merris, Manila); real estate mortgage
executed by Angel V. Syyap and Rita V. Syyap (Doc. No. 441, Page No. 90, Book
No. I, Series of 1965, Notary Public Jose C. Merris, Manila) shall remain in
full force and shall not be impaired by this mortgage (par. 5, Exhibit"A,"
Emphasis ours).
It is clear, therefore, that a novation was not intended. The real estate
mortgage was evidently taken as additional security for the performance of the
contract (Bank of P.I. v. Herrige, 47 Phil. 57).
In the determination of the legality of the writ of attachment by the Court of
First Instance of Manila, it is a well established rule that the grant or
denial of a writ of attachment rests upon the sound discretion of the court.
Records are bereft of any evidence that grave abuse of discretion was
committed by respondent judge in the issuance of the writ of attachment.
Appellants contend that the affidavits of Messrs. Rivera and Berenguer on
which the lower court based the issuance of the writ of preliminary attachment
relied on the reports of credit investigators sent to the field and not on the
personal knowledge of the affiants. Such contention deserves scant
consideration. Evidence adduced during the trial strongly shows that the
witnesses have personal knowledge of the facts stated in their affidavits in
support of the application for the writ. They testified that Syvel's Inc. had
disposed of all the articles covered by the chattel mortgage but had not
remitted the proceeds to appellee bank; that the Syvel's Stores at the
Escolta, Rizal Avenue and Morayta Street were no longer operated by appellants
and that the latter were disposing of their properties to defraud appellee
bank. Such testimonies and circumstances were given full credit by the trial
court in its decision (Brief for Appellee, p. 14). Hence, the attachment
sought on the ground of actual removal of property is justified where there is
physical removal thereof by the debtor, as shown by the records (McTaggert v.
Putnam Corset Co., 8 N.Y. S 800 cited in Moran, Comments on the Rules of
Court, 1970 Ed., Vol. 3, p. 7).
Besides, the actuations of appellants were clearly seen by the witnesses who
"saw a Fiat Bantam Car-Fiat Car, a small car and about three or four persons
hurrying; they were carrying goods coming from the back portion of this store
of Syvels at the Escolta, between 5:30 and 6:00 o'clock in the evening."
(Record on Appeal, pp. 45-46). Therefore, "the act of debtor (appellant) in
taking his stock of goods from the rear of his store at night, is sufficient
to support an attachment upon the ground of the fraudulent concealment of
property for the purpose of delaying and defrauding creditors." (4 Am. Jur.,
841 cited in Francisco, Revised Rules of Court, Second Edition, 1985, p. 24).
In any case, intent to defraud may be and usually is inferred from the facts
and circumstances of the case; it can rarely be proved by direct evidence. It
may be gleaned also from the statements and conduct of the debtor, and in this
connection, the principle may be applied that every person is presumed to
intend the natural consequences of his acts (Francisco, Revised Rules of
Court, supra, pp. 24-25), In fact the trial court is impressed "that not only
has the plaintiff acted in perfect good faith but also on facts sufficient in
themselves to convince an ordinary man that the defendants were obviously
trying to spirit away a port;.on of the stocks of Syvel's Incorporated in
order to render ineffectual at least partially anyjudgment that may be
rendered in favor of the plaintiff." (Decision; Civil Case No. 68095; Record
on Appeal, pp. 88-89).
Appellants having failed to adduce evidence of bad faith or malice on the part
of appellee in the procurement of the writ of preliminary attachment, the
claim of the former for damages is evidently negated. In fact, the allegations
in the appellee's complaint more than justify the issuance of the writ of
attachment.
PREMISES CONSIDERED, this appeal is DISMISSED for lack of merit and the
judgment appealed from is AFFIRMED.
SO ORDERED.
G.R. No. 118585 September 14, 1995
AJAX MARKETING & DEVELOPMENT CORPORATION, ANTONIO TAN, ELISA TAN, TAN YEE, and
SPS. MARCIAL SEE and LILIAN TAN, petitioners,
vs.
HON. COURT OF APPEALS, METROPOLITAN BANK AND TRUST COMPANY, and THE SHERIFF OF
MANILA, respondents.
In its March 30, 1994 decision, public respondent Court of Appeals affirmed
the trial court's judgment upholding the validity of the extra-judicial
foreclosure of the real estate property of petitioners — spouses Marcial See
and Lilian Tan, located at Paco District, Manila covered by TCT 105233, by
private respondent Metropolitan Bank and Trust Company (Metrobank). 1
Petitioners' motion for reconsideration was denied; hence, this petition for
review on certiorari raising the following assignments of errors:
FIRST: The Honorable Court of Appeals erred in holding that the consolidation
of the three (3) loans granted separately to three entities into a single loan
of P1.0 Million was a mere restructuring and did not effect a novation of the
loan as to extinguish the accessory mortgage contracts.
SECOND: The Honorable Court of Appeals erred in not holding that the
consolidated loan of P1.0 Million was not accompanied by the execution of a
new REM, as was done by the Bank in the earlier three (3) loans, and hence,
was, to all legal intents/purposes, unsecured.
THIRD: The Honorable Court of Appeals erred in holding that the inclusion in
the extra-judicial foreclosure of the admittedly unsecured loan of P970,000.00
is a mere error that does not invalidated said foreclosure, contrary to the
pronouncement in C & C Commercial Corp. vs. PNB, 175 SCRA 1.
FOURTH: The Honorable Court of Appeals erred in not declaring as null and void
the extra-judicial foreclosure undertaken by Metrobank on the property of Sps.
Marcial See and Lilian Tan. 2
The facts as found by public respondent Court of Appeals are as follows:
It is not disputed that Ylang-Ylang Merchandising Company, a partnership
between Angelita Rodriguez and Antonio Tan, obtained a loan in the amount of
P250,000.00 from the Metropolitan Bank and Trust Company, and to secure
payment of the same, spouses Marcial See and Lilian Tan constituted a real
estate mortgage in favor of said bank over their property in the District of
Paco, Manila, covered by TCT No. 105233 of the Registry of Deeds of Manila.
The mortgage was annotated at the back of the title.
Subsequently, after the partnership had changed its name to Ajax Marketing
Company albeit without changing its composition, it obtained a loan in the sum
of P150,000.00 from Metropolitan Bank and Trust Company. Again to secure the
loan, spouses Marcial See and Lilian Tan executed in favor of said bank a
second real estate mortgage over the same property. As in the first instance,
the mortgage was duly annotated at the back of TCT No. 105233.
On February 19, 1979, the partnership (Ajax Marketing Company) was converted
into a corporation denominated as Ajax Marketing and Development Corporation,
with the original partners (Angelita Rodriguez and Antonio Tan) as
incorporators and three (3) additional incorporators, namely, Elisa Tan, the
wife of Antonio Tan, and Jose San Diego and Tessie San Diego. Ajax Marketing
and Development Corporation obtained from Metropolitan Bank and Trust Company
a loan of P600,000.00, the payment of which was secured by another real estate
mortgage executed by spouses Marcial See and Lilian Tan in favor of said bank
over the same realty located in the District of Paco, Manila. Again, the third
real estate mortgage was annotated at the back of TCT No. 105233.
In December 1980, the three (3) loans with an aggregate amount of
P1,000,000.00 were re-structured and consolidated into one (1) loan and Ajax
Marketing and Development Corporation, represented by Antonio Tan as Board
Chairman/President and in his personal capacity as solidary co-obligor, and
Elisa Tan as Vice-President/Treasurer and in her personal capacity as solidary
co-obligor, executed a Promissory Note (PN) No. BDS-3605. 3
In their interrelated first and second assignment of errors, petitioners argue
that a novation occurred when their three (3) loans, which are all secured by
the same real estate property covered by TCT No. 105233 were consolidated into
a single loan of P1 million under Promissory Note No. BDS-3605, thereby
extinguishing their monetary obligations and releasing the mortgaged property
from liability.
Basic principles on novation need to be stressed at the outset. Novation is
the extinguishment of an obligation by the substitution or change of the
obligation by a subsequent one which extinguishes or modifies the first,
either by changing the object or principal conditions, or by substituting
another in place of the debtor, or by subrogating a third person in the rights
of the creditor. 4 Novation, unlike other modes of extinction of obligations,
is a juridical act with a dual function, namely, it extinguishes an obligation
and creates a new one in lieu of the old. It can be objective, subjective, or
mixed. Objective novation occurs when there is a change of the object or
principal conditions of an existing obligation while subjective novation
occurs when there is a change of either the person of the debtor, or of the
creditor in an existing obligation. 5 When the change of the object or
principal conditions of an obligation occurs at the same time with the change
of either in the person of the debtor or creditor a mixed novation occurs. 6
The well settled rule is that novation is never presumed. 7 Novation will not
be allowed unless it is clearly shown by express agreement, or by acts of
equal import. Thus, to effect an objective novation it is imperative that the
new obligation expressly declare that the old obligation is thereby
extinguished, or that the new obligation be on every point incompatible with
the new one. 8 In the same vein, to effect a subjective novation by a change in
the person of the debtor it is necessary that the old debtor be released
expressly from the obligation, and the third person or new debtor assumes his
place in the relation. 9 There is no novation without such release as the third
person who has assumed the debtor's obligation becomes merely a co-debtor or
surety. 10
The attendant facts herein do not make a case of novation. There is nothing in
the records to show the unequivocal intent of the parties to novate the three
loan agreements through the execution of PN No. BDS-3065. The provisions of PN
No. BDS-3065 yield no indication of the extinguishment of, or an
incompatibility with, the three loan agreements secured by the real estate
mortgages over TCT No. 105233. On its face, PN No. BDS-3065 has these words
typewritten: "secured by REM" and "9. COLLATERAL. This is wholly/partly
secured by: (x) "real estate", 11 which strongly negate petitioners'
asseveration that the consolidation of the three loans effected the discharge
of the mortgaged real estate property. Otherwise, there would be no sense
placing these material provisions. Moreover; the real estate mortgages
contained this common provision, to wit:
That for and in consideration of credit accommodations obtained from the
MORTGAGEE (Metropolitan Bank and Trust Company), by the MORTGAGOR and/or AJAX
MKTG. DEV. CORP./AJAX MARKETING COMPANY/YLANG-YLANG MERCHANDISING COMPANY
detailed as follows:
Nature Date Granted Due Date Amount or Line
Loans and/or P 600,000.00
Advances in 150,000.00
current account 250,000.00
and to secure the payment of the same and those that may hereafter be obtained
including the renewals or extension thereof.
xxx xxx xxx
the principal of all of which is hereby fixed at (P600,000.00/ P150,000.00/
P250,000.00) . . .as well as those that the MORTGAGEE may have previously
extended or may later extend to the MORTGAGOR, including interest and expenses
or any other obligation owing to the MORTGAGEE, whether direct or indirect,
principal or secondary, as appears in the accounts, books and records of the
MORTGAGEE, the MORTGAGOR hereby transfer and convey by way of mortgage unto
the MORTGAGEE, its successors or assigns, the parcels of land which are
described in the list inserted on page three of this document and/or appended
hereto, together with all the buildings and improvements now existing or which
may hereafter be erected or constructed thereon, of which the MORTGAGOR
declares that he/it is the absolute owner free from all liens and
encumbrances. However, if the MORTGAGOR shall pay to the MORTGAGEE, its
successors or assigns, the obligation secured by this mortgage when due,
together with interest, and shall keep and perform all and singular the
covenants and agreements herein contained for the MORTGAGOR to keep and
perform, then the mortgage shall be void; otherwise, it shall remain in full
force and effect. 12
The foregoing shows that petitioners agreed to apply the real estate property
to secure obligations that they may thereafter obtain including their renewals
or extensions with the principals fixed at P600,000.00, P150,000.00, and
P250,000.00 which when added have an aggregate sum of P1.0 million. PN No.
BDS-3605 merely restructured and renewed the three previous loans to
expediently make the loans current. There was no change in the object of the
prior obligations. The consolidation of the three loans, contrary to
petitioners' contention, did not release the mortgaged real estate property
from any liability because the mortgage annotations at the back of TCT No.
105233, in fact, all remained uncancelled, thus indicating the continuing
subsistence of the real estate mortgages.
Neither can it be validly contended that there was a change, or substitution
in the persons of either the creditor (Metrobank) or more specifically the
debtors (petitioners) upon the consolidation of the loans in PN No. BDS 3605.
The bare fact of petitioners' conversion from a partnership to a corporation,
without sufficient evidence, either testimonial or documentary, that they were
expressly released from their obligations, did not make petitioner AJAX, with
its new corporate personality, a third person or new debtor within the context
of a subjective novation. If at all, petitioner AJAX only became a co-debtor
or surety. Without express release of the debtor from the obligation, any
third party who may thereafter assume the obligation shall be considered
merely as co-debtor or surety. Novation arising from a purported change in the
person of the debtor must be clear and express because, to repeat, it is never
presumed. Clearly then, from the aforediscussed points, neither objective nor
subjective novation occurred here.
Anent the third assigned error, petitioners posit that the extra-judicial
foreclosure is invalid as it included two unsecured loans: one, the
consolidated loan of P1.0 million under PN BDS No. 3605, and two, the
P970,000.00 loan under PN BDS No. 3583 subsequently extended by Metrobank.
An action to foreclose a mortgage is usually limited to the amount mentioned
in the mortgage, but where on the four corners of the mortgage contracts, as
in this case, the intent of the contracting parties is manifest that the
mortgaged property shall also answer for future loans or advancements then the
same is not improper as it is valid and binding between the parties. 13 For
merely consolidating and expediently making current the three previous loans,
the loan of P1.0 million under PN BDS No. 3605, secured by the real estate
property, was correctly included in the foreclosure's bid price. The inclusion
of the unsecured loan of P970,000.00 under PN BDS NO. 3583, however, was found
to be improper by public respondent which ruling we shall not disturb for
Metrobank's failure to appeal therefrom. Nonetheless, the inclusion of PN BDS
No. 3583 in the bid price did not invalidate the foreclosure proceedings. As
correctly pointed out by the Court of Appeals, the proceeds of the auction
sale should be applied to the obligation pertaining to PN BDS No. 3605 only,
plus interests, expenses and other charges accruing thereto. It is Metrobank's
duty as mortgagee to return the surplus in the selling price to the
mortgagors. 14
Lastly, petitioners cite as supporting authority C & C Commercial Corp. v.
Philippine National Bank 15 where this Court enjoined the foreclosure
proceedings for including unsecured obligations. Petitioners' reliance on the
C & C Commercial Corp. v. Philippine National Bank case is misplaced. In that
case, the foreclosure sale included previously incurred unsecured obligations
in favor of PNB which were not in the contemplation of the mortgage contract,
whereas in the instant case, the mortgages were one in providing that the
mortgaged real estate property shall also secure future advancements or loans,
as well as renewals or extensions of the same.
Prescinding from the above discussions, the fourth assignment of error
obviously needs no further discussion.
WHEREFORE, the decision appealed from is hereby AFFIRMED in toto.
G.R. No. L-27434 September 23, 1986
GENARO GOÑI, RUFINA P. vda. DE VILLANUEVA, VIOLA P. VILLANUEVA, OSCAR P.
VILLANUEVA, MARINA P. VILLANUEVA, VERNA P. VILLANUEVA, PRAXEDES P. VILLANUEVA,
JR., JOSE P. VILLANUEVA, SAMUEL P. VILLANUEVA, LOURDES P. VILLANUEVA, MILAGROS
P. VILLANUEVA DE ARRIETA, petitioners-appellants,
vs.
THE COURT OF APPEALS and GASPAR VICENTE, respondents-appellees.
This is an appeal by certiorari from the decision of the then Court of Appeals
in CA-G.R. No. 27800-R entitled, "Gaspar Vicente, Plaintiff-Appellant, vs.
Genaro Goni, et. al., Defendants-Appellants" as well as from the resolution
denying petitioners' motion for reconsideration.
The factual backdrop is as follows:
The three (3) haciendas known as San Sebastian, Sarria and Dulce Nombre de
Maria situated in the Municipality of Bais, Negros Oriental, were originally
owned by the Compania General de Tabacos de Filipinas [TABACALERA]. Sometime
in 1949, the late Praxedes T. Villanueva, predecessor-in-interest of
petitioners, negotiated with TABACALERA for the purchase of said haciendas.
However, as he did not have sufficient funds to pay the price, Villanueva with
the consent of TABACALERA, offered to sell Hacienda Sarria to one Santiago
Villegas, who was later substituted by Joaquin Villegas. Allegedly because
TABACALERA did not agree to the transaction between Villanueva and Villegas,
without a guaranty private respondent Gaspar Vicente stood as guarantor, for
Villegas in favor of TABACALERA. The guarantee was embodied in a document
denominated as "Escritura de Traspaso de Cuenta." 1
Either because the amount realized from the transaction between Villanueva and
Villegas still fell short of the purchase price of the three haciendas, or in
consideration of the guaranty undertaken by private respondent Vicente,
Villanueva contracted or promised to sell to the latter fields nos. 3, 4 and
13 of Hacienda Dulce Nombre de Maria for the sum of P13,807.00. This agreement
was reduced to writing and signed by petitioner Genaro Goni as attorney-in-
fact of Villanueva, thus:
En consideracion a la garantia que Don Gaspar Vicente assume con la Cia. Gral.
de Tabacos de Filipinas por el saldo de Don Santiago Villegas de P43,539.75
asumido por Don Joaquin Villegas el que Subscribe Praxedes T. Villanueva se
compromete ceder es venta a Don Gaspar Vicente los campos nos. 3, 4 y 13 del
plano de porcelario de la Hacienda Dulce Nombre de Maria, en compra projectada
de la Cia. Gral. de Tabacos de Filipinas. Estas campos representan 6-90-35
hectares por valor de P13,807.00 que Don Gasper Vicente pagara directamente a
Praxedes T. Villanueva
Bais Central, Octubre 24, 1949.
Fdo. Praxedes T. Villanueva
Por: Fdo Genaro Goñi Apoderado 2
Private respondent Vicente thereafter advised TABACALERA to debit from his
account the amount of P13,807.00 as payment for the balance of the purchase
price. However, as only the amount of P12,460.24 was actually needed to
complete the purchase price, only the latter amount was debited from private
respondent's account. The difference was supposedly paid by private respondent
to Villanueva, but as no receipt evidencing such payment was presented in
court, this fact was disputed by petitioners.
It is alleged by petitioners that subsequent to the execution of the
contract/promise to sell, Villanueva was able to raise funds by selling a
property in Ayungon, Negros Oriental. He thus went to private respondent
Vicente for the purpose of rescinding the contract/promise to sell However, as
the amount of P12,460.24 had already been debited from private respondent's
account, it was agreed that lots 4 and 13 of the Hacienda Dulce Nombre de
Maria would merely be leased to private respondent Vicente for a period of
five (5) years starting with crop-year 1950-51 at an annual rental of 15% of
the gross income, said rent to be deducted from the money advanced by private
respondent and any balance owing to Villanueva would be delivered by Vicente
together with the lots at the end of the stipulated period of lease.
On December 10, 1949, TABACALERA executed a formal deed of sale covering the
three haciendas in favor of Villanueva. Fields Nos. 3, 4 and 13 of the
Hacienda Dulce Nombre de Maria were thereafter registered in the name of
Villanueva under TCT No. T-4780 of the Register of Deeds of Negros Oriental.
The fields were likewise mortgaged by Villanueva to the Rehabilitation Finance
Corporation (RFC), later transferred to the Philippine National Bank on
December 16, 1955, for a total indebtedness of
P334,400.00. 3

Meanwhile, Fields nos. 4 and 13 were delivered to private respondent Vicente

after the 1949-1950 milling season in January and February, 1950.
On June 17, 1950, Villanueva executed a "Documento de la Venta Definitive" in
favor of Joaquin Villegas, covering Lot No. 314 of the Cadastral Survey of
Bais with an area of 468,627 square meters, more or less. (Hacienda Sarria). A
supplemental instrument was later executed by Villanueva in favor of Villegas
to include in the sale of June 17, 1950 the sugar quota of the land.
On November 12, 1951, Villanueva died. Intestate proceedings were instituted
on November 24, 1951 before the then Court of First Instance of Negros
Oriental, docketed as Special Case No. 777. Among the properties included in
the inventory submitted to the court were fields nos. 3, 4 and 13 of Hacienda
Dulce Nombre de Maria. Field no. 13 with an area of 1 hectare, 44 ares and 95
centares was listed as Lot no. 723 of the inventory while fields nos. 3 and 4,
with areas of 3 hectares, 75 ares and 60 centares, and 1 hectare, 69 ares and
80 centares, respectively, were included in Lot no. 257 of the inventory.
On October 7, 1954, the day before the intestate proceedings were ordered
closed and the estate of the late Praxedes Villanueva delivered to his heirs,
private respondent Vicente instituted an action for recovery of property and
damages before the then Court of First Instance of Negros Oriental against
petitioner Goñi in his capacity as administrator of the intestate estate of
Praxedes Villanueva. In his complaint docketed as Civil Case No. 2990, private
respondent Vicente sought to recover field no. 3 of the Hacienda Dulce Nombre
de Maria, basing his entitlement thereto on the contract/promise to sell
executed by the late Praxedes Villanueva in his favor on October 24, 1949. He
likewise prayed by way of attorney's fees and other costs the sum of P2,000.00
and for such other further relief which the court may deem just and equitable
in the premises. 4
On October 25, 1954, petitioner Goni as defendant in Civil Case No. 2990,
filed an answer with counterclaim for accounting of the produce of fields nos.
4 and 13, as well as the surrerder thereof on June 20, 1955, the end of the
fifth crop-year, plus moral damages in the sum of P30,000.00 and P3,000.00 as
attorney's fees. After an answer to the counter-claim had been filed, private
respondent Vicente amended his complaint on September 1, 1955, to include a
prayer for damages representing the produce of field no. 3 from 1949-50 until
delivery thereof to him. An answer with counterclaim to the amended complaint
was duly filed, and on April 25, 1956, private respondent Vicente amended his
complaint anew to include as parties-defendants the heirs of the late Praxedes
Villanueva.
On July 13, 1957, the parties entered into a stipulation of facts, agreeing,
among others, on the costs of production and produce of the three fields in
question. The case thereafter proceeded to trial. Plaintiff presented two (2)
witnesses: then party-plaintiff Gaspar Vicente, himself, who over the
objection of therein defendants testified on facts occurring before the death
of Praxedes Villanueva, and Epifanio Equio a clerk of TABACALERA Agency in the
Bais Sugar Central. Defendants presented Genaro Goni, who testified on the
alleged verbal lease agreement.
On December 18, 1959, the trial court rendered a decision ordering therein
defendants-heirs to deliver to Gaspar Vicente field no 3, to execute a formal
deed of sale covering fields nos. 3, 4 and 13 in favor of Vicente, to pay the
latter actual or compensatory damages in the amount of P 81,204.48,
representing 15% of the total gross income of field no. 3 for crop-years 1950-
51 to 1958-59, and such other amounts as may be due from said field for the
crop years subsequent to crop-year 1958-59, until the field is delivered to
Vicente, and to pay the sum of P2,000.00 as attorney's fees plus costs.
Therein defendant Goñi was relieved of any civil liability for damages, either
personally or as administrator of the estate. 5
Both parties appealed the decision to the then Court of Appeals; the plaintiff
from the portion awarding damages on a claim that he was entitled to more, and
defendants, from the entire decision.
On December 15, 1966, the Court of Appeals promulgated its decision, affirming
that of the lower court, with the modification that the amount of damages to
be paid by defendant-heirs to the plaintiff should be the total net income
from field no. 3 from the crop year 1950-51 until said field is finally
delivered to the plaintiff plus interest thereon at the legal rate per annum. 6
Petitioners filed a motion for reconsideration, but were denied the relief
sought in a resolution dated February 9, 1967. Hence, the present appeal by
certiorari whereby petitioners raise the following questions of law:
MAY RESPONDENT GASPAR VICENTE TESTIFY ON MATTERS OF FACT OCCURRING BEFORE THE
DEATH OF PRAXEDES T. VILLANUEVA, WHICH CONSTITUTES A CLAIM OR DEMAND UPON HIS
ESTATE. IN VIOLATION OF RULE 123, SEC, 26, PAR. (C), NOW RULE 130, SEC. 20
PAR. (A)?
MAY NOT A WRITTEN PROMISE TO SELL DATED OCTOBER 24,1949 BE NOVATED INTO A
VERBAL AGREEMENT OF LEASE DURING THE LIFETIME OF THE PROMISSOR, WHOSE DEATH
OCCURRED ON NOVEMBER 12, 1951, BY FACTS AND CIRCUMSTANCES SUBSTANTIATED BY
COMPETENT ORAL EVIDENCE IN THIS CASE?
SHOULD THE PROMISEE IN A PROMISE TO SELL, WHO PAID P12,460.24 WHICH WAS TO BE
ACCOUNTED AND TO BE CREDITED AS RENTALS AFTER FIVE (5) YEARS OF LEASE, WHO IN
HIS ORIGINAL COMPLAINT DID NOT ALLEGE NOR PROVE DAMAGES, EXCEPT THE SUM OF
P2,000.00 AS ATTORNEY'S FEES, RECEIVE A JUDGMENT FOR DAMAGES IN THE AMOUNT OF
P74,056.35 WHICH CONSISTS OF P37,121.26 PLUS LEGAL INTEREST FOR THE CROP YEARS
1950-51 TO 1958-59 AND FOR P3,624.18 TO P4,374.78 FOR EVERY CROP YEAR
SUBSEQUENT TO 1958-59 PLUS
INTEREST? 7
We find that neither the trial nor appellate court erred in ruling for the
admissibility in evidence of private respondent Vicente's testimony. Under
ordinary circumstances, private respondent Vicente 8 would be disqualified by
reason of interest from testifying as to any matter of fact occurring before
the death of Praxedes T. Villanueva, such disqualification being anchored on
Section 20(a) of Rule 130, commonly known as the Survivorship Disqualification
Rule or Dead Man Statute, which provides as follows:
Section 20. Disqualification by reason of interest or relationship.-The
following persons cannot testify as to matters in which they are interested,
directly or indirectly, as herein enumerated:
(a) Parties or assignors of parties to a case, or persons in whose behalf a
case is prosecuted, against an executor or administrator or other
representative of a deceased person, or against a person of unsound mind, upon
a claim or demand against the estate of such deceased person or against such
person of unsound mind, cannot testify as to any matter of fact occurring
before the death of such deceased person or before such person became of
unsound mind.
The object and purpose of the rule is to guard against the temptation to give
false testimony in regard to the transaction in question on the part of the
surviving party and further to put the two parties to a suit upon terms of
equality in regard to the opportunity of giving testimony. 9 It is designed to
close the lips of the party plaintiff when death has closed the lips of the
party defendant, in order to remove from the surviving party the temptation to
falsehood and the possibility of fictitious claims against the deceased. 10
The case at bar, although instituted against the heirs of Praxedes Villanueva
after the estate of the latter had been distributed to them, remains within
the ambit of the protection. The reason is that the defendants-heirs are
properly the "representatives" of the deceased, not only because they
succeeded to the decedent's right by descent or operation of law, but more
importantly because they are so placed in litigation that they are called on
to defend which they have obtained from the deceased and make the defense
which the deceased might have made if living, or to establish a claim which
deceased might have been interested to establish, if living. 11
Such protection, however, was effectively waived when counsel for petitioners
cross-examined private respondent Vicente. "A waiver occurs when plaintiff's
deposition is taken by the representative of the estate or when counsel for
the representative cross-examined the plaintiff as to matters occurring during
deceased's lifetime. 12 It must further be observed that petitioners presented
a counterclaim against private respondent Vicente. When Vicente thus took the
witness stand, it was in a dual capacity as plaintiff in the action for
recovery of property and as defendant in the counterclaim for accounting and
surrender of fields nos. 4 and 13. Evidently, as defendant in the
counterclaim, he was not disqualified from testifying as to matters of fact
occurring before the death of Praxedes Villanueva, said action not having been
brought against, but by the estate or representatives of the estate/deceased
person.
Likewise, under a great majority of statutes, the adverse party is competent
to testify to transactions or communications with the deceased or incompetent
person which were made with an agent of such person in cases in which the
agent is still alive and competent to testify. But the testimony of the
adverse party must be confined to those transactions or communications which
were had with the agent. 13 The contract/promise to sell under consideration
was signed by petitioner Goñi as attorney-in-fact (apoderado) of Praxedes
Villanueva. He was privy to the circumstances surrounding the execution of
such contract and therefore could either confirm or deny any allegations made
by private respondent Vicente with respect to said contract. The inequality or
injustice sought to be avoided by Section 20(a) of Rule 130, where one of the
parties no longer has the opportunity to either confirm or rebut the testimony
of the other because death has permanently sealed the former's lips, does not
actually exist in the case at bar, for the reason that petitioner Goñi could
and did not negate the binding effect of the contract/promise to sell. Thus,
while admitting the existence of the said contract/promise to sell, petitioner
Goñi testified that the same was subsequently novated into a verbal contract
of lease over fields nos. 4 and 13 of the Hacienda Dulce Nombre de Maria.
Novation takes place when the object or principal condition of an obligation
is changed or altered. 14 In order, however, that an obligation may be
extinguished by another which substitutes the same, it is imperative that it
be so declared in unequivocal terms, or that the old and the new obligations
be on every point incompatible with each other. 15 "Novation is never presumed.
It must be established that the old and the new contracts are incompatible in
all points, or that the will to novate appear by express agreement of the
parties or in acts of equivalent import. 16
The novation of the written contract/promise to sell into a verbal agreement
of lease was clearly and convincingly proven not only by the testimony of
petitioner Goñi, but likewise by the acts and conduct of the parties
subsequent to the execution of the contract/promise to sell. Thus, after the
milling season of crop year 1949-50, only fields nos. 4 and 13 were delivered
to private respondent Vicente. Fields nos. 3, 4 and 13 were subsequently
registered in Villanueva's name and mortgaged with the RFC. Villanueva
likewise executed a deed of sale covering Hacienda Sarria in favor of Joaquin
Villegas. All these were known to private respondent Vicente, yet he did not
take any steps toward asserting and/or protecting his claim over fields nos.
3, 4 and 13 either by demanding during the lifetime of Villanueva that the
latter execute a similar document in his favor, or causing notice of his
adverse claim to be annotated on the certificate of title of said lots. If it
were true that he made demands on Villanueva for the surrender of field no. 3
as well as the execution of the corresponding deed of sale, he should have,
upon refusal of the latter to do so, immediately or within a reasonable time
thereafter, instituted an action for recovery, or as previously observed,
caused his adverse claim to be annotated on the certificate of title.
Considering that field no. 3, containing an area of three (3) hectares, 75
ares and 60 centares, is the biggest among the three lots, an ordinary prudent
man would have taken these steps if he honestly believed he had any right
thereto. Yet, private respondent Vicente did neither. In fact such inaction
persisted even during the pendency of the intestate proceedings wherein he
could have readily intervened to seek exclusion of fields nos. 3, 4 and 13
from the inventory of properties of the late Praxedes Villanueva.
The reason given by private respondent Vicente that field no. 3 was not
delivered to him together with fields nos. 4 and 13 because there were small
sugar cane growing on said field at that time belonging to TABACALERA, might
be taken as a plausible explanation why he could not take immediate possession
of lot no. 3, but it certainly could not explain why it took him four years
before instituting an action in court, and very conveniently, as petitioners
noted, after Villanueva had died and at the time when the verbal contract of
lease was about to expire.
Both the trial and appellate courts chose to believe in the contract/promise
to sell rather than the lease agreement, simply because the former had been
reduced to writing, while the latter was merely verbal. It must be observed,
though, that the contract/promise to sell was signed by petitioner Goñi as
attorney-in-fact of the late Praxedes Villanueva, an indication, to our mind,
that final arrangements were made by petitioner Goñi in the absence of
Villanueva. It was therefore natural for private respondent Vicente to have
demanded that the agreement be in writing to erase any doubt of its binding
effect upon Villanueva. On the other hand, the verbal lease agreement was
negotiated by and between Villanueva and private respondent Vicente
themselves. Being close friends and relatives 17 it can be safely assumed that
they did not find it necessary to reduce the same into writing.
In rejecting petitioners' contention respecting the verbal lease agreement,
the appellate court put much weight on the failure of petitioners to demand an
accounting of the produce of fields nos. 4 and 13 from 1950 to 1954, when the
action for recovery of property was filed. Such failure was satisfactorily
explained by petitioners in their motion for reconsideration filed before the
then Court of Appeals, in this manner:
... Mr. Genaro Goni is also a farmer by profession and that there was no need
for him to demand a yearly accounting of the total production because the
verbal lease agreement was for a term of 5 years. The defendant Mr. Genaro
Goni as a sugar planter has already full knowledge as to the annual income of
said lots nos. 4 and 13, and since there was the amount of P12,460.25 to be
liquidated, said defendant never deemed it wise to demand such a yearly
accounting. It was only after or before the expiration of the 5 year lease
that said defendant demanded the accounting from the herein plaintiff
regarding the production of the 2 lots that were then leased to him.
It is the custom among the sugar planters in this locality that the Lessee
usually demands an advance amount to cover the rental for the period of the
lease, and the demand of an accounting will be only made after the expiration
of the lease period. It was adduced during the trial that the amount of
P12,460.75 was considered as an advance rental of the 2 lots which was leased
to the Plaintiff, lots nos. 4 and 13; so we humbly believe that there was no
necessity on the part of defendant Mr. Genaro Goñi to make a yearly demand for
an accounting for the total production of 2 parcels leased to the plaintiff.
18
Petitioners, having clearly and sufficiently shown that the contract/promise
to sell was subsequently novated into a verbal lease agreement, it follows
that they are entitled to a favorable decision on their counterclaim.
Discussion of the third issue raised therefore becomes unnecessary.
WHEREFORE, the decision appealed from is hereby reversed. The judicial
administrator of the estate of private respondent Gaspar Vicente and/or his
successors-in-interest are hereby ordered to: a) surrender possession of
fields nos. 4 and 13 of the Hacienda Dulce Nombre de Maria to petitioners; b)
render an accounting of the produce of said fields for the period beginning
crop-year 1950-51 until complete possession thereof shall have been delivered
to petitioners; and c) to pay the corresponding annual rent for the said
fields in an amount equivalent to 15% of the gross produce of said fields, for
the periods beginning crop-year 1950-51 until said fields shall have been
surrendered to petitioners, deducting from the amount due petitioners the sum
of P12,460.24 advanced by private respondent Gaspar Vicente.
SO ORDERED.
G.R. No. 165116               August 4, 2009
MARIA SOLEDAD TOMIMBANG, Petitioner,
vs.
ATTY. JOSE TOMIMBANG, Respondent.
D E C I S I O N
DEL CASTILLO, J.:
This resolves the petition for review on certiorari under Rule 45 of the Rules
of Court, praying that the Decision1 dated July 1, 2004 and Resolution2 dated
August 31, 2004 promulgated by the Court of Appeals (CA), be reversed and set
aside.
The antecedent facts are as follows.
Petitioner and respondent are siblings. Their parents donated to petitioner an
eight-door apartment located at 149 Santolan Road, Murphy, Quezon City, with
the condition that during the parents' lifetime, they shall retain control
over the property and petitioner shall be the administrator thereof.
In 1995, petitioner applied for a loan from PAG-IBIG Fund to finance the
renovations on Unit H, of said apartment which she intended to use as her
residence. Petitioner failed to obtain a loan from PAG-IBIG Fund, hence,
respondent offered to extend a credit line to petitioner on the following
conditions: (1) petitioner shall keep a record of all the advances; (2)
petitioner shall start paying the loan upon the completion of the renovation;
(3) upon completion of the renovation, a loan and mortgage agreement based on
the amount of the advances made shall be executed by petitioner and
respondent; and (4) the loan agreement shall contain comfortable terms and
conditions which petitioner could have obtained from PAG-IBIG.3
Petitioner accepted respondent's offer of a credit line and work on the
apartment units began. Renovations on Units B to G were completed, and the
work has just started on Unit A when an altercation broke out between herein
parties. In view of said conflict, respondent and petitioner, along with some
family members, held a meeting in the house of their brother Genaro sometime
in the second quarter of 1997. Respondent and petitioner entered into a new
agreement whereby petitioner was to start making monthly payments on her loan.
Upon respondent's demand, petitioner turned over to respondent all the records
of the cash advances for the renovations. Subsequently, or from June to
October of 1997, petitioner made monthly payments of P18,700.00, or a total of
P93,500.00. Petitioner never denied the fact that she started making such
monthly payments.
In October of 1997, a quarrel also occurred between respondent and another
sister, Maricion, who was then defending the actions of petitioner. Because of
said incident, they had a hearing at the Barangay. At said hearing, respondent
had the occasion to remind petitioner of her monthly payment. Petitioner
allegedly answered, "Kalimutan mo na ang pera mo wala tayong pinirmahan. Hindi
ako natatakot sa 'yo!" Thereafter, petitioner left Unit H and could no longer
be found. Petitioner being the owner of the apartments, renovations on Unit A
were discontinued when her whereabouts could not be located. She also stopped
making monthly payments and ignored the demand letter dated December 2, 1997
sent by respondent's counsel.
On February 2, 1998, respondent filed a Complaint against petitioner,
demanding the latter to pay the former the net amount of P3,989,802.25 plus
interest of 12% per annum from date of default.
At the pre-trial conference, the issues were narrowed down as follows:
1. Whether or not a loan was duly constituted between the plaintiff and the
defendant in connection with the improvements or renovations on apartment
units A-H, which is in the name of the defendant [herein petitioner];
2. Assuming that such a loan was duly constituted in favor of plaintiff
[herein respondent], whether or not the same is already due and payable;
3. Assuming that said loan is already due and demandable, whether or not it is
to be paid out of the rental proceeds from the apartment units mentioned,
presuming that such issue was raised in the Answer of the Defendant;
4. Assuming that the said loan was duly constituted in favor of plaintiff
[herein respondent], whether or not it is in the amount of P3,909,802.20 and
whether or not it will earn legal interest at the rate of 12% per annum,
compounded, as provided in Article 2212 of the Civil Code of the Philippines,
from the date of the extrajudicial demand; and
5. Whether or not the plaintiff [herein respondent] is entitled to the reliefs
prayed for in his Complaint or whether or not it is the defendant [herein
petitioner] who is entitled to the reliefs prayed for in her Answer with
Counterclaim.4
On November 15, 2002, the Regional Trial Court (RTC) of Quezon City, Branch
82, rendered a Decision,5 the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendant ordering the latter to pay the former the
following:
1. The sum of P3,989,802.25 with interest thereon at the legal rate of 12% per
annum computed from the date of default until the whole obligation is fully
paid;
2. The sum of P50,000.00 as and by way of attorney's fees; and
3. The cost of suit.
SO ORDERED.6
Petitioner appealed the foregoing RTC Decision to the CA, but on July 1, 2004,
the Court of Appeals promulgated its Decision affirming in toto said RTC
judgment. A motion for reconsideration of the CA Decision was denied per
Resolution dated August 31, 2004.
Hence, this petition where petitioner alleges that:
I.
THE COURT OF APPEALS ACTED NOT IN ACCORD WITH LAW AND APPLICABLE JURISPRUDENCE
OF THE SUPREME COURT WHEN IT AFFIRMED THE LOWER COURT'S FINDING THAT THE LOAN
BETWEEN PETITIONER AND RESPONDENT IS ALREADY DUE AND DEMANDABLE.
II.
THE COURT OF APPEALS ERRED BY DEPARTING FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS – OF AFFIRMING THE DUE AND DEMANDABILITY OF THE LOAN
CONTRARY TO THE EVIDENCE PRESENTED IN THE LOWER COURT – AND SANCTIONING SUCH
DEPARTURE BY THE LOWER COURT IN THE INSTANT CASE.
III.
THE COURT OF APPEALS ERRED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS – OF AFFIRMING THE AWARD OF ATTORNEY'S FEES TO THE RESPONDENT
WITHOUT ANY BASIS – AND SANCTIONING SUCH DEPARTURE BY THE LOWER COURT IN THE
INSTANT CASE.7
The main issues in this case boil down to (1) whether petitioner's obligation
is due and demandable; (2) whether respondent is entitled to attorney's fees;
and (3) whether interest should be imposed on petitioner's indebtedness and,
if in the affirmative, at what rate.
Petitioner does not deny that she obtained a loan from respondent. She,
however, contends that the loan is not yet due and demandable because the
suspensive condition – the completion of the renovation of the apartment units
- has not yet been fulfilled. She also assails the award of attorney's fees to
respondent as baseless.
For his part, respondent admits that initially, they agreed that payment of
the loan shall be made upon completion of the renovations. However, respondent
claims that during their meeting with some family members in the house of
their brother Genaro sometime in the second quarter of 1997, he and petitioner
entered into a new agreement whereby petitioner was to start making monthly
payments on her loan, which she did from June to October of 1997. In
respondent's view, there was a novation of the original agreement, and under
the terms of their new agreement, petitioner's obligation was already due and
demandable.
Respondent also maintains that when petitioner disappeared from the family
compound without leaving information as to where she could be found, making it
impossible to continue the renovations, petitioner thereby prevented the
fulfillment of said condition. He claims that Article 1186 of the Civil Code,
which provides that "the condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment," is applicable to this case.
In his Comment to the present petition, respondent raised for the first time,
the issue that the loan contract between him and petitioner is actually one
with a period, not one with a suspensive condition. In his view, when
petitioner began to make partial payments on the loan, the latter waived the
benefit of the term, making the loan immediately demandable.
Respondent also believes that he is entitled to attorney's fees, as petitioner
allegedly showed bad faith by absconding and compelling him to litigate.
The Court finds the petition unmeritorious.
It is undisputed that herein parties entered into a valid loan contract. The
only question is, has petitioner's obligation become due and demandable? The
Court resolves the question in the affirmative.
The evidence on record clearly shows that after renovation of seven out of the
eight apartment units had been completed, petitioner and respondent agreed
that the former shall already start making monthly payments on the loan even
if renovation on the last unit (Unit A) was still pending. Genaro Tomimbang,
the younger brother of herein parties, testified that a meeting was held among
petitioner, respondent, himself and their eldest sister Maricion, sometime
during the first or second quarter of 1997, wherein respondent demanded
payment of the loan, and petitioner agreed to pay. Indeed, petitioner began to
make monthly payments from June to October of 1997 totalling P93,500.00.8 In
fact, petitioner even admitted in her Answer with Counterclaim that she had
"started to make payments to plaintiff [herein respondent] as the same was in
accord with her commitment to pay whenever she was able; x x x ."9
Evidently, by virtue of the subsequent agreement, the parties mutually
dispensed with the condition that petitioner shall only begin paying after the
completion of all renovations. There was, in effect, a modificatory or partial
novation, of petitioner's obligation. Article 1291 of the Civil Code provides,
thus:
Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (Emphasis
supplied)
In Iloilo Traders Finance, Inc. v. Heirs of Sps. Soriano,10 the Court expounded
on the nature of novation, to wit:
Novation may either be extinctive or modificatory, much being dependent on the
nature of the change and the intention of the parties. Extinctive novation is
never presumed; there must be an express intention to novate; x x x .
An extinctive novation would thus have the twin effects of, first,
extinguishing an existing obligation and, second, creating a new one in its
stead. This kind of novation presupposes a confluence of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation; and
(4) the birth of a new valid obligation. Novation is merely modificatory where
the change brought about by any subsequent agreement is merely incidental to
the main obligation (e.g., a change in interest rates or an extension of time
to pay); in this instance, the new agreement will not have the effect of
extinguishing the first but would merely supplement it or supplant some but
not all of its provisions.11
In Ong v. Bogñalbal,12 the Court also stated, thus:
x x x the effect of novation may be partial or total. There is partial
novation when there is only a modification or change in some principal
conditions of the obligation. It is total, when the obligation is completely
extinguished. Also, the term principal conditions in Article 1291 should be
construed to include a change in the period to comply with the obligation.
Such a change in the period would only be a partial novation since the period
merely affects the performance, not the creation of the obligation.13
As can be gleaned from the foregoing, the aforementioned four essential
elements and the requirement that there be total incompatibility between the
old and new obligation, apply only to extinctive novation. In partial
novation, only the terms and conditions of the obligation are altered, thus,
the main obligation is not changed and it remains in force.
Petitioner stated in her Answer with Counterclaim14 that she agreed and
complied with respondent's demand for her to begin paying her loan, since she
believed this was in accordance with her commitment to pay whenever she was
able. Her partial performance of her obligation is unmistakable proof that
indeed the original agreement between her and respondent had been novated by
the deletion of the condition that payments shall be made only after
completion of renovations. Hence, by her very own admission and partial
performance of her obligation, there can be no other conclusion but that under
the novated agreement, petitioner's obligation is already due and demandable.
With the foregoing finding that petitioner's obligation is due and demandable,
there is no longer any need to discuss whether petitioner's disappearance from
the family compound prevented the fulfillment of the original condition,
necessitating application of Article 1186 of the Civil Code, or whether the
obligation is one with a condition or a period.1awphil
As to attorney's fees, however, the award therefor cannot be allowed by the
Court. It is an oft-repeated rule that the trial court is required to state
the factual, legal or equitable justification for awarding attorney's fees.15
The Court explained in Buñing v. Santos,16 to wit:
x x x While Article 2208 of the Civil Code allows attorney's fees to be
awarded if the claimant is compelled to litigate with third persons or to
incur expenses to protect his interest by reason of an unjustified act or
omission of the party from whom it is sought, there must be a showing that the
losing party acted willfully or in bad faith and practically compelled the
claimant to litigate and incur litigation expenses. In view of the declared
policy of the law that awards of attorney's fees are the exception rather than
the rule, it is necessary for the trial court to make express findings of
facts and law that would bring the case within the exception and justify the
grant of such award. x x x.
Thus, the matter of attorney's fees cannot be touched upon only in the
dispositive portion of the decision. The text itself must state the reasons
why attorney's fees are being awarded. x x x 17
In the above-quoted case, there was a finding that defendants therein had no
intention of fulfilling their obligation in complete disregard of the
plaintiff’s right, and yet, the Court did not deem this as sufficient
justification for the award of attorney's fees. Verily, in the present case,
where it is understandable that some misunderstanding could arise as to when
the obligation was indeed due and demandable, the Court must likewise disallow
the award of attorney's fees.
We now come to a discussion of whether interest should be imposed on
petitioner's indebtedness. In Royal Cargo Corp. v. DFS Sports Unlimited,
Inc.,18 the Court reiterated the settled rule on imposition of interest, thus:
As to computation of legal interest, the seminal ruling in Eastern Shipping
Lines, Inc. v. Court of Appeals controls, to wit:
_ftnx x x x
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When an obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to
run from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code), but when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run only from the
date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base
for the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph
1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to
a forbearance of credit.
The foregoing rule on legal interest was explained in Sunga-Chan v. Court of
Appeals,19 in this wise:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of
interest, if proper, and the applicable rate, as follows: The 12% per annum
rate under CB Circular No. 416 shall apply only to loans or forbearance of
money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art. 2209
of the Civil Code applies "when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the
performance of obligations in general," with the application of both rates
reckoned "from the time the complaint was filed until the [adjudged] amount is
fully paid." In either instance, the reckoning period for the commencement of
the running of the legal interest shall be subject to the condition "that the
courts are vested with discretion, depending on the equities of each case, on
the award of interest."20
In accordance with the above ruling, since the obligation in this case
involves a loan and there is no stipulation in writing as to interest due, the
rate of interest shall be 12% per annum computed from the date of
extrajudicial demand.
IN VIEW OF THE FOREGOING, the petition is AFFIRMED with the MODIFICATION that
the award for attorney's fees is DELETED.
SO ORDERED.
G.R. No. 74553 June 8, 1989
SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT, GALICANO SITON AND JUDGE
JUSTINIANO DE DUMO respondents.
This is a petition for review on certiorari of a decision of the Intermediate
Appellate Court (now Court of Appeals) in ACG.R. CV No. 03876 affirming in
toto the decision of the Regional Trial Court of Manila in Civil Case No. 82-
4364 entitled, "Servicewide Specialists, Inc. vs. Galicano Siton and John
Doe."
The antecedent facts in this case as found by the lower court are as follows:
The private respondent Galicano Siton purchased from Car Traders Philippines,
Inc. a vehicle described as Mitsubishi Celeste two-door with air-conditioning,
Engine 2M-62799, Serial No. A73-2652 and paid P 25,000.00 as downpayment of
the price. The remaining balance of P 68,400.00, includes not only the
remaining principal obligation but also advance interests and premiums for
motor vehicle insurance policies.
On August 14, 1979, Siton executed a promissory note in favor of Car Traders
Philippines, Inc. expressly stipulating that the face value of the note which
is P 68,400. 00, shall "be payable, without need of notice of demand, in
installments of the amounts following and at the dates hereinafter set forth,
to wit: P 1,900.00 monthly for 36 months due and payable on the 14th day of
each month starting September 14, 1979, thru and inclusive of August 14, 1982"
(p. 84, Rollo). There are additional stipulations in the Promissory Note
consisting of, among others:
1 Interest at the rate of 14% per annum to be added on each unpaid installment
from maturity;
2 If default is made in the payment of any of the installments or interest
thereon, the total principal sum then remaining unpaid, together with accrued
interest thereon shall at once become due and demandable;
3 In case of default, and attorney's services are availed of, there shall be
added a sum equal to 25% of the total sum due thereon to cover attorney's
fees, aside from expenses of collection and legal costs (p. 84, Rollo).
As further security, Siton executed a Chattel Mortgage over the subject motor
vehicle in favor of Car Traders Philippines, Inc. (pp. 85-88, Rollo). The
Chattel Mortgage Contract provides additional stipulations, such as: a) the
waiver by the mortgagor of his rights under Art. 1252 of the Civil Code to
designate the application of his payments and authorize the mortgagee or its
assigns to apply such payments to either his promissory note or to any of his
existing obligations to the mortgagee or its assigns at the latter's
discretion; and b) concerning the insurance of the subject motor vehicle, the
mortgagor is under obligation to secure the necessary policy in an amount not
less than the outstanding balance of the mortgage obligation and that loss
thereof shall be made payable to the mortgagee or its assigns as its interest
may appear, with the further obligation of the mortgagor to deliver the policy
to the mortgagee. The mortgagor further agrees that in default of his
effecting or renewing the insurance and delivering the policy as endorsed to
the mortgagee within five (5) days after the execution of the mortgage or the
expiry date of the insurance, the mortgagee may, at his option but without any
obligation to do so, effect such insurance or obtain such renewal for the
account of the mortgagor.
The credit covered by the promissory note and chattel mortgage executed by
respondent Galicano Siton was first assigned by Car Traders Philippines, Inc.
in favor of Filinvest Credit Corporation. Subsequently, Filinvest Credit
Corporation likewise reassigned said credit in favor of petitioner Servicewide
Specialists, Inc. and respondent Siton was advised of this second assignment.
Alleging that Siton failed to pay the part of the installment which fell due
on November 2, 1981 as well as the subsequent installments which fell due on
December 2, 1981 and January 2, 1982, respectively, the petitioner filed this
action against Galicano Siton and "John Doe."
The relief sought by the plaintiff is a Writ of Replevin over subject motor
vehicle or, in the alternative, for a sum of money of P 20,319.42 plus
interest thereon at the rate of 14% per annum from January 11, 1982 until
fully paid; and in either case, for defendants to pay certain sum of money for
attorney's fees, liquidated damages, bonding fees and other expenses incurred
in the seizure of the motor vehicle plus costs of suit.
After the service of summons, Justiniano de Dumo, identifying himself as the
"John Doe" in the Complaint, inasmuch as he is in possession of the subject
vehicle, filed his Answer with Counterclaim and with Opposition to the prayer
for a Writ of Replevin. Said defendant, alleged the fact that he has bought
the motor vehicle from Galicano Siton on November 24, 1979; that as such
successor, he stepped into the rights and obligations of the seller; that he
has religiously paid the installments as stipulated upon in the promissory
note. He also manifested that the Answer he has filed in his behalf should
likewise serve as a responsive pleading for his co-defendant Galicano Siton.
On January 12, 1984, the Regional Trial Court rendered a decision, the
dispositive portion of which states:
WHEREFORE, judgment is hereby rendered as follows:
1. Denying the issuance of a Writ of Replevin in this case;
2. Ordering defendants to pay jointly and severally, the plaintiff, the
remaining balance on the motor vehicle reckoned as of January 25, 1982,
without additional interest and charges, and the same to be paid by
installments, per the terms of the Promissory Note, payable on the 14th day of
each month starting the month after this Decision shall have become final,
until the full payment of the remaining obligation;
3. The Chattel Mortgage contract is deemed to cover the obligation petition
stated in par. 2, supra, without prejudice to the parties, including defendant
de Dumo, to now execute a new promissory note and/or chattel mortgage
contract;
4. Ordering defendants to pay, jointly and severally, the sum of another P
3,859.90 to the plaintiff by way of refunding the premium payments in the past
on insurance policies over subject car;
5. Each party shall bear his own expenses and attorney's fees; and
6. The claim of one party against the other(s) for damages, and vice-versa are
hereby denied and dismissed. There is no pronouncement as to costs.
SO ORDERED. (pp. 95-96, Rollo)
Not satisfied with the decision of the trial court, the petitioner appealed to
the Intermediate Appellate Court.
On April 25, 1986, the respondent Appellate Court rendered judgment affirming
in toto the decision of the trial court. The dispositive portion of the
judgment states:
WHEREFORE, the appealed judgment is in full accord with the evidence and the
law is hereby therefore affirmed in all its parts. Costs against plaintiff-
appellant.
SO ORDERED. (p. 42, Rollo).
Hence, the instant petition was filed, praying for a reversal of the above-
mentioned decision in favor of private respondents, with the petitioner
assigning the following errors:
2.1 The Honorable Respondent, the Intermediate Appellate Court erred and
gravely abused its discretion in concluding that there was a valid sale of the
mortgaged vehicle between Siton and De Dumo;
2.2 The Honorable Respondent, the Intermediate Appellate Court erred and
gravely abused its discretion in holding that the petitioner (plaintiff) and
its predecessors-in-interest are bound by the questionable and invalid
unnotarized Deed of Sale between Siton and De Dumo, even as neither petitioner
(plaintiff) nor its predecessors-in-interest had knowledge nor had they given
their written or verbal consent thereto;
2.3 The Honorable Respondent, the Intermediate Appellate Court erred and
gravely abused its discretion in ruling that the mortgagee (petitioner) has
the obligation to make demands to De Dumo for payment on the Promissory Note
when De Dumo is not privy thereto;
2.4 The Honorable Respondent, the Intermediate Appellate Court erred and acted
with grave abuse of discretion in refusing to issue the Writ of Replevin
despite due compliance by petitioner of the requirements of Rule 60, Sections
1 and 2 of REVISED RULES OF COURT;
2.5 The Honorable Respondent, the Intermediate Appellate Court acted with
grave abuse of discretion in ruling that petitioner (creditor-mortgagee) is
obliged to inform respondent De Dumo (not privy to the mortgage) to submit the
insurance policy over the mortgaged "res" and to demand the payor-third-party
(De Dumo) to redeem his rubber check; (pp. 4-5, Rollo).
In its first assigned error, petitioner alleges that the sale of the mortgaged
vehicle between the mortgagor Siton and De Dumo was void, as the sale is
prohibited under the provisions of the Deed of Chattel Mortgage, the Chattel
Mortgage Act (Act 1508) and the Revised Penal Code. The Deed of Chattel
Mortgage executed by the petitioner and Siton stipulates:
The Mortgagor shall not sell, mortgage or in any other way, encumber or
dispose of the property herein mortgaged without the previous written consent
of the Mortgagee. (p. 85, Rollo).
The rule is settled that the chattel mortgagor continues to be the owner of
the property, and therefore, has the power to alienate the same; however, he
is obliged under pain of penal liability, to secure the written consent of the
mortgagee. (Francisco, Vicente, Jr., Revised Rules of Court in the
Philippines, (1972), Volume IV-B Part I, p. 525). Thus, the instruments of
mortgage are binding, while they subsist, not only upon the parties executing
them but also upon those who later, by purchase or otherwise, acquire the
properties referred to therein.
The absence of the written consent of the mortgagee to the sale of the
mortgaged property in favor of a third person, therefore, affects not the
validity of the sale but only the penal liability of the mortgagor under the
Revised Penal Code and the binding effect of such sale on the mortgagee under
the Deed of Chattel Mortgage.
Anent its second, third and fifth assigned errors, petitioner submits that it
is not bound by the deed of sale made by Siton in favor of De Dumo, as neither
petitioner nor its predecessor has given their written or verbal consent
thereto pursuant to the Deed of Chattel Mortgage.
On this matter, the appellate court upheld the findings of the trial court, as
follows, to wit:
The first issue is whether or not the sale and transfer of the motor vehicle,
subject matter of the chattel mortgage, made by Siton in favor of Atty. de
Dumo is illegal and violative of the Chattel Mortgage Law. The supposition is
that if it were illegal, then plaintiff has all the right to file this action
and to foreclose on the chattel mortgage. Both defendants testified that,
before the projected sale, they went to a certain. Atty. Villa of Filinvest
Credit Corporation advising the latter of the intended sale and transfer.
Defendants were accordingly advised that the verbal information given to the
corporation would suffice, and that it would be tedious and impractical to
effect a change of transfer of ownership as that would require a new credit
investigation as to the capacity and worthiness of Atty. De Dumo, being the
new debtor. The further suggestion given by Atty. Villa is that the account
should be maintained in the name of Galicano Siton. Plaintiff claims that it
and its predecessor had never been notified of the sale much less were they
notified in writing as required by the contract. On this particular issue, it
would really appear that, since the transfer, it was Atty. de Dumo who had
been paying said account, almost invariably with his personal checks. In fact,
one of the checks that supposedly bounced, marked Exhibit J and the relative
receipt as Exhibit 16, was Atty. de Dumo's personal check. Note that plaintiff
has been accepting such payments by defendant de Dumo. It would appear,
therefore, that there was an implied acceptance by the plaintiff and its
predecessor of the transfer. Another reasonable conclusion is that, while
there was failure on the part of defendants to comply strictly and literaly
with their contract, there was substantial compliance therewith. (pp. 92-93,
Rollo)
We agree with the aforequoted findings and conclusions of the lower court
which were affirmed on appeal by the Court of Appeals. The conclusions and
findings of facts by the trial court are entitled to great weight and will not
be disturbed on appeal unless for strong and cogent reasons because the trial
court is in a better position to examine real evidence as well as to observe
the demeanor of witnesses while testifying on the case. (Macua vs.
Intermediate Appellate Court, No. L-70810, October 26, 1987,155 SCRA 29)
There is no dispute that the Deed of Chattel Mortgage executed between Siton
and the petitioner requires the written consent of the latter as mortgagee in
the sale or transfer of the mortgaged vehicle. We cannot ignore the findings,
however, that before the sale, prompt inquiries were made by private
respondents with Filinvest Credit Corporation regarding any possible future
sale of the mortgaged property; and that it was upon the advice of the
company's credit lawyer that such a verbal notice is sufficient and that it
would be convenient if the account would remain in the name of the mortgagor
Siton.
Even the personal checks of de Dumo were accepted by petitioner as payment of
some of the installments under the promissory note (p. 92, Rollo). If it is
true that petitioner has not acquiesced in the sale, then, it should have
inquired as to why de Dumo's checks were being used to pay Siton's
obligations.
Based on the foregoing circumstances, the petitioner is bound by its
predecessor company's representations. This is based on the doctrine of
estoppel, through which, "an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as
against the person relying thereon" (Art. 1431, Civil Code). Like the related
principles of volenti non lit injuria (consent to injury), waiver and
acquiescence, estoppel finds its origin generally in the equitable notion that
one may not change his position, and profit from his own wrongdoing when he
has caused another to rely on his former representations (Sy vs. Central Bank,
No. L-41480, April 30, 1976, 70 SCRA 570).
Further, it is worthy to note that despite the arguments of petitioner that it
is not bound by the sale of the vehicle to de Dumo, and that the latter is a
stranger to the transaction between Filinvest and Siton, nevertheless, it
admitted de Dumo's obligation as purchaser of the property when it named the
latter as one of the defendants in the lower court. Petitioner even manifested
in its prayer in the appellant's brief and in the petition before Us, that de
Dumo be ordered to pay petitioner, jointly and severally with Siton the unpaid
balance on the promissory note (pp. 32 and 72, Rollo).
In the fourth assigned error by petitioner, the latter claims that the
appellate court gravely erred in upholding the trial court's refusal to issue
that Writ of Replevin despite compliance with the requirements of the Rules.
This contention is devoid of merit.
Article 1484 of the New Civil Code prescribes three remedies which a vendor
may pursue in a contract of sale of personal property the price of which is
payable in installments, to wit: 1) to exact fulfillment of the obligation; 2)
cancel the sale; and 3) foreclose the mortgage on the thing sold. These
remedies are alternative and the vendor cannot avail of them at the same time.
It is clear from the prayer of petitioner in its brief on appeal to the
appellate court that it had chosen the remedy of fulfillment when it asked the
appellate court to order private respondents to pay the remaining unpaid sums
under the promissory note (p. 31, Rollo). By having done so, it has deemed
waived the third remedy of foreclosure, and it cannot therefore ask at the
same time for a Writ of Replevin as preparatory remedy to foreclosure of
mortgage. In a similar case, where the vendor filed an action containing three
remedies: to collect the purchase price; to seize the property purchased by
suing for replevin and to foreclose the mortgage executed thereon, We held
that such a scheme is not only irregular but is a flagrant circumvention of
the prohibition of the law (Luneta Motor Company vs. Dimagiba No. L-17061,
December 30, 1961, 3 SCRA 884).
Finally, the petitioner argues that the judgment of the appellate court was
not in accordance with its own findings and those of the trial court showing
private respondents' default in the payment of three monthly installments as a
result of the dishonor of three checks issued as payments; and that as a
consequence thereof, the full amount of the unpaid balance under the
promissory note became due and demandable pursuant to the terms of the
promissory note.
This contention is impressed with merit. The findings of the trial court on
this issue, which were affirmed by the appellate court, state, as follows:
The second point of issue is whether or not defendants were in arrears when
the complaint was filed on January 25, 1982. Plaintiff claims that there were
three payments by checks made by defendants, which are ineffective (Art. 1249,
Civil Code) as said checks bounced for insufficient finding. .... The
debtor/obligor is allegedly obliged, as per the Chattel Mortgage Contract, to
have the motor vehicle insured and, failing which, the creditor may insure the
same for the account of the debtor. Such payments, therefore, together with
the value of the three checks that had been dishonored, are the reasons for
defendants' delinquency. On defendant's part, more particularly Atty. de
Dumo's, they submit that there was no delinquency as, in fact, defendants have
receipts to evidence payment for the months of November 1981 (Exhibit 18 dated
November 3, 1981), December 1981 (Exhibit 17 dated December 2, 1981), and
January, 1982 (Exhibit 30, dated January 5, 1982).
On cross-examination, Atty. de Dumo admitted that really one of his checks
(Exhibit J) was dishonored. There is no evidence on way [or] the other whether
said check was replaced subsequently with a good one. Likewise, there is no
clarification in the record as to whether the two other dishonored checks had
been replaced. As to the insurance policies, defendants claimed on the witness
stand that they were the ones who had the vehicle insured, for, otherwise,
defendant de Dumo could not have registered the motor vehicle for the years
1980 up to 1982. Defendants further contend that they complied with their
undertaking by notifying verbally the creditor of that fact. There is no
denying the fact however, that the insurance policies obtained were not
endorsed, much less surrendered, to the plaintiff; in fact such policies were
not shown in court to evidence the proper indorsement of the policies in favor
of the creditor. (pp. 93-94, Rollo). (Emphasis supplied)
It is evident from the foregoing findings that the checks issued by the
defendants as payment for the installments for November and December, 1981 and
January, 1982 were dishonored and were not shown to have been replaced. The
delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed. (Art. 1249, Civil Code). When the existence of the debt is fully
established by the evidence contained in the record, the burden of proving
that it has been extinguished by payment devolves upon the debtor who offers
such a defense to the claim of the creditor. (Chua Chienco vs. Vargas, 11
Phil. 219). In the absence of any showing that the aforestated checks were
replaced and subsequently cashed, We can only infer that the monthly
installments for November, 1981, December, 1981 and January, 1982 have not
been paid. In view of the above, it is not correct for the appellate court to
ignore the evidence on record showing the default of private respondents in
their obligations. The fact that Siton and de Dumo were not advised or
notified of their failure to comply with their obligations under the note and
under the Deed of Chattel Mortgage is of no importance. Article 1169 of the
Civil Code provides:
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
1. When the obligation or the law expressly so declares;
xxx xxx xxx
The promissory note executed by Siton in favor of Car Traders Philippines,
Inc. expressly stipulates that the unpaid balance shall be payable, without
need of notice or demand, in fixed monthly installments; and that if default
be made in the payment of any of the installments or interest thereon as and
when the same becomes due and payable as specified above, the total principal
sum then remaining unpaid, together with accrued interest thereon, shall at
once become due and payable (p. 84, Rollo). The parties are bound by this
agreement.
In view of the foregoing, We find it correct to hold both the respondents
Galicano Siton and Justiniano de Dumo liable for their obligations to
petitioner herein. In the case at bar, the purchase of the car by respondent
de Dumo from respondent Siton does not necessarily imply the extinguishment of
the liability of the latter. Since it was neither established nor shown that
Siton was released from responsibility under the promissory note, the same
does not constitute novation by substitution of debtors under Article 1293 of
the Civil Code. Likewise, the fact that petitioner company accepts payments
from a third person like respondent de Dumo, who has assumed the obligation,
will result merely to the addition of debtors and not novation. Hence, the
creditor may therefore enforce the obligation against both debtors. (Straight
vs. Hashell, 49 Phil. 614; Mata vs. Serra, 47 Phil. 464; McCullough vs.
Veloso, 46 Phil. 1; Pacific Commercial vs. Sotto, 34 Phil. 237). If there is
no agreement as to solidarity, the first and new debtors are considered
obligated jointly. (Lopez vs. Court of Appeals, et al., No. L-33157, June 29,
1982, 114 SCRA 671; Dungo vs. Lopena, et al., L-18377, December 29, 1962, 6
SCRA 1007).
ACCORDINGLY, the petition is GRANTED and the assailed decision of the Court of
Appeals dated April 25, 1986 is hereby REVERSED and SET ASIDE, and a new one
entered, ordering the private respondents Galicano Siton and Justiniano de
Dumo, jointly to pay to petitioner Servicewide Specialists, Incorporated, the
total sum of the remaining unpaid balance on the promissory note with interest
thereon at fourteen percent per annum from January 25, 1982 until fully paid,
as well as stipulated attorney's fees and liquidated damages; and to reimburse
to petitioner the sum of P 3,859.90 for the premium payments on the insurance
policies over the subject vehicle. Costs against private respondents.
SO ORDERED.