G.R. No.

L-50449 January 30, 1982 attorney's fees in the amount equivalent to 25% of the total of the outstanding unpaid
amount.
FILINVEST CREDIT CORPORATION, plaintiff-appellee,
vs. As security for the payment of said promissory note, the appellant executed a chattel
PHILIPPINE ACETYLENE, CO., INC., defendant-appellant. mortgage (Exh. C) over the same motor vehicle in favor of said Alexander Lim.
Subsequently, on November 2, 1971. Alexander Lim assigned to the Filinvest
Finance Corporation all his rights, title, and interests in the promissory note and
chattel mortgage by virtue of a Deed of Assignment (Exh. D).
DE CASTRO, J.:
Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with
1
the Credit and Development Corporation assigned to the new corporation, the herein
This case is certified to Us by the Court of Appeals in its Resolution dated March 22, plaintiff-appellee Filinvest Credit Corporation, all its rights, title, and interests on the
1979 on the ground that it involves purely questions of law, as raised in the appeal of aforesaid promissory note and chattel mortgage (Exh. A) which, in effect, the
the decision of the Court of First Instance of Manila, Branch XII in Civil Case No. payment of the unpaid balance owed by defendant-appellant to Alexander Lim was
91932, the dispositive portion of which reads as follows: financed by plaintiff-appellee such that Lim became fully paid.

In view of the foregoing consideration, the court hereby renders Appellant failed to comply with the terms and conditions set forth in the promissory
judgment - note and chattel mortgage since it had defaulted in the payment of nine successive
installments. Appellee then sent a demand letter (Exh. 1) whereby its counsel
l) directing defendant to pay plaintiff: demanded "that you (appellant) remit the aforesaid amount in full in addition to
stipulated interest and charges or return the mortgaged property to my client at its
a) the sum of P22,227.81 which is the office at 2133 Taft Avenue, Malate, Manila within five (5) days from date of this letter
outstanding unpaid obligation of the defendant during office hours. " Replying thereto, appellant, thru its assistant general- manager,
under the assigned credit, with 12 %interest from wrote back (Exh. 2) advising appellee of its decision to "return the mortgaged
the date of the firing of the complaint in this suit property, which return shall be in full satisfaction of its indebtedness pursuant to
until the same is fully paid; Article 1484 of the New Civil Code." Accordingly, the mortgaged vehicle was returned
to the appellee together with the document "Voluntary Surrender with Special Power
of Attorney To Sell" 3 executed by appellant on March 12, 1973 and confirmed to by
b) the sum equivalent to l5% of P22,227.81 as appellee's vice-president.
and for attorney's fees; and
On April 4, 1973, appellee wrote a letter (Exh. H) to appellant informing the latter that
2) directing plaintiff to deliver to, and defendant to accept, the motor appellee cannot sell the motor vehicle as there were unpaid taxes on the said vehicle
vehicle, subject of the chattel may have been changed by the result in the sum of P70,122.00. On the last portion of the said letter, appellee requested the
of ordinary wear and tear of the vehicle. appellant to update its account by paying the installments in arrears and accruing
interest in the amount of P4,232.21 on or before April 9, 1973.
Defendant to pay the cost of suit.
On May 8, 1973, appellee, in a letter (Exh. 1), offered to deliver back the motor
SO ORDERED. vehicle to the appellant but the latter refused to accept it, so appellee instituted an
action for collection of a sum of money with damages in the Court of First Instance of
Manila on September 14, 1973.
The facts, as found in the decision 2 subject of the instant appeal, are undisputed.

In its answer, appellant, while admitting the material allegations of the appellee's
On October 30, 1971, the Philippine Acetylene Co., Inc., defendant-appellant herein,
complaint, avers that appellee has no cause of action against it since its obligation
purchased from one Alexander Lim, as evidenced by a Deed of Sale marked as
towards the appellee was extinguished when in compliance with the appellee's
Exhibit G, a motor vehicle described as Chevorlet, 1969 model with Serial No.
demand letter, it returned the mortgaged property to the appellee, and that assuming
136699Z303652 for P55,247.80 with a down payment of P20,000.00 and the balance
arguendo that the return of the property did not extinguish its obligation, it was
of P35,247.80 payable, under the terms and conditions of the promissory note (Exh.
nonetheless justified in refusing payment since the appellee is not entitled to recover
B), at a monthly installment of P1,036.70 for thirty-four (34) months, due and payable
the same due to the breach of warranty committed by the original vendor-assignor
on the first day of each month starting December 1971 through and inclusive
Alexander Lim.
September 1, 1974 with 12 % interest per annum on each unpaid installment, and

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After the case was submitted for decision, the Court of First Instance of Manila, Article 1245. Dation in payment, whereby property is alienated to
Branch XII rendered its decision dated February 25, 1974 which is the subject of the the creditor in satisfaction of a debt in money, shall be governed by
instant appeal in this Court. the law of sales.

Appellant's five assignment of errors may be reduced to, or said to revolve around xxx xxx xxx
two issues: first, whether or not the return of the mortgaged motor vehicle to the
appellee by virtue of its voluntary surrender by the appellant totally extinguished Article 1497. The thing sold shall be understood as delivered, when
and/or cancelled its obligation to the appellee; second, whether or not the warranty for it is placed in the control and possession of the vendee.
the unpaid taxes on the mortgaged motor vehicle may be properly raised and imputed
to or passed over to the appellee.
Passing at once on the relevant issue raised in this appeal, We find appellant's
contention devoid of persuasive force. The mere return of the mortgaged motor
Consistent with its stand in the court a quo, appellant now reiterates its main vehicle by the mortgagor, the herein appellant, to the mortgagee, the herein appellee,
contention that appellee, after giving appellant an option either to remit payment in full does not constitute dation in payment or dacion en pago in the absence, express or
plus stipulated interests and charges or return the mortgaged motor vehicle, had implied of the true intention of the parties. Dacion en pago, according to Manresa, is
elected the alternative remedy of exacting fulfillment of the obligation, thus, precluding the transmission of the ownership of a thing by the debtor to the creditor as an
the exercise of any other remedy provided for under Article 1484 of the Civil Code of accepted equivalent of the performance of obligation. 4 In dacion en pago, as a
the Philippines which reads: special mode of payment, the debtor offers another thing to the creditor who accepts
it as equivalent of payment of an outstanding debt. The undertaking really partakes in
Article 1484. Civil Code. - In a contract of sale of personal property one sense of the nature of sale, that is, the creditor is really buying the thing or
the price of which is payable in installments, the vendor may property of the debtor, payment for which is to be charged against the debtor's debt.
exercise any of the following remedies: As such, the essential elements of a contract of sale, namely, consent, object certain,
and cause or consideration must be present. In its modern concept, what actually
1) Exact fulfillment of the obligation, should the vendee fail to pay; takes place in dacion en pago is an objective novation of the obligation where the
thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered as the
2) Cancel the sale, should the vendee's failure to pay cover two or purchase price. 5 In any case, common consent is an essential prerequisite, be it sale
more installments; or innovation to have the effect of totally extinguishing the debt or obligation.

3) Foreclose the chattel mortgage on the thing sold, if one has been The evidence on the record fails to show that the mortgagee, the herein appellee,
constituted, should the vendee's failure to pay cover two or more consented, or at least intended, that the mere delivery to, and acceptance by him, of
installments. In this case, he shall have no further action against the mortgaged motor vehicle be construed as actual payment, more specifically
the purchaser to recover any unpaid balance of the price. Any dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was
agreement to the contrary shall be void. delivered to him does not necessarily mean that ownership thereof, as juridically
contemplated by dacion en pago, was transferred from appellant to appellee. In the
In support of the above contention, appellant maintains that when it opted to return, absence of clear consent of appellee to the proferred special mode of payment, there
as in fact it did return, the mortgaged motor vehicle to the appellee, said return can be no transfer of ownership of the mortgaged motor vehicle from appellant to
necessarily had the effect of extinguishing appellant's obligation for the unpaid price appellee. If at all, only transfer of possession of the mortgaged motor vehicle took
to the appellee, construing the return to and acceptance by the appellee of the place, for it is quite possible that appellee, as mortgagee, merely wanted to secure
mortgaged motor vehicle as a mode of payment, specifically, dation in payment or possession to forestall the loss, destruction, fraudulent transfer of the vehicle to third
dacion en pago which according to appellant, virtually made appellee the owner of the persons, or its being rendered valueless if left in the hands of the appellant.
mortgaged motor vehicle by the mere delivery thereof, citing Articles 1232, 1245, and
1497 of the Civil Code, to wit: A more solid basis of the true intention of the parties is furnished by the document
executed by appellant captioned "Voluntary Surrender with Special Power of Attorney
Article 1232. Payment means not only the delivery of money but To Sell" dated March 12, 1973, attached as Annex "C" of the appellant's answer to
also the performance, in any manner, of an obligation. the complaint. An examination of the language of the document reveals that the
possession of the mortgaged motor vehicle was voluntarily surrendered by the
xxx xxx xxx appellant to the appellee authorizing the latter to look for a buyer and sell the vehicle
in behalf of the appellant who retains ownership thereof, and to apply the proceeds of
the sale to the mortgage indebtedness, with the undertaking of the appellant to pay
the difference, if any, between the selling price and the mortgage obligation. With the

2
stipulated conditions as stated, the appellee, in essence was constituted as a mere WHEREFORE, the judgment appealed from is hereby affirmed in toto with costs
agent to sell the motor vehicle which was delivered to the appellee, not as its against defendant-appellant.
property, for if it were, he would have full power of disposition of the property, not only
to sell it as is the limited authority given him in the special power of attorney. Had SO ORDERED.
appellee intended to completely release appellant of its mortgage obligation, there
would be no necessity of executing the document captioned "Voluntary Surrender
with Special Power of Attorney To Sell." Nowhere in the said document can We find Barredo (Chairman), Aquino, Concepcion, Jr., Ericta and Escolin, JJ., concur.
that the mere surrender of the mortgaged motor vehicle to the appellee extinguished
appellant's obligation for the unpaid price.

Appellant would also argue that by accepting the delivery of the mortgaged motor
vehicle, appellee is estopped from demanding payment of the unpaid obligation.
Estoppel would not he since, as clearly set forth above, appellee never accepted the Separate Opinions
mortgaged motor vehicle in full satisfaction of the mortgaged debt.

Under the law, the delivery of possession of the mortgaged property to the
mortgagee, the herein appellee, can only operate to extinguish appellant's liability if
the appellee had actually caused the foreclosure sale of the mortgaged property ABAD SANTOS, J., concurring:
when it recovered possession thereof. 6 It is worth noting that it is the fact of
foreclosure and actual sale of the mortgaged chattel that bar the recovery by the I concur in the result.
vendor of any balance of the purchaser's outstanding obligation not satisfied by the
sale. 7 As held by this Court, if the vendor desisted, on his own initiative, from
When the appellant returned the vehicle and executed the document entitled,
consummating the auction sale, such desistance was a timely disavowal of the
"Voluntary Surrender with Special Power of Attorney to Sell" said acts did not result in
remedy of foreclosure, and the vendor can still sue for specific performance. 8 This is
the fulfillment of its obligation under Art. 1884(l) of the Civil Code. On the contrary the
exactly what happened in the instant case.
document indicated that the appellee was to foreclose the chattel mortgage. The
surrender of the car to the appellee was a mere preparatory act for its sale in a
On the second issue, there is no dispute that there is an unpaid taxes of P70,122.00 foreclosure of the chattel mortgage.
due on the mortgaged motor vehicle which, according to appellant, liability for the
breach of warranty under the Deed of Sale is shifted to the appellee who merely
After the appellee discovered, without negligence on its part, that foreclosure of the
stepped into the shoes of the assignor Alexander Lim by virtue of the Deed of
chattel mortgage was impractical, it had the right which it exercised to abandon the
Assignment in favor of appellee. The Deed of Sale between Alexander Lim and
chattel mortgage and demand fulfillment of the obligation.
appellant and the Deed of Assignment between Alexander Lim and appellee are very
clear on this point. There is a specific provision in the Deed of Sale that the seller
Alexander Lim warrants the sale of the motor vehicle to the buyer, the herein
appellant, to be free from liens and encumbrances. When appellee accepted the
assignment of credit from the seller Alexander Lim, there is a specific agreement that
Lim continued to be bound by the warranties he had given to the buyer, the herein
appellant, and that if it appears subsequently that "there are such counterclaims,
Separate Opinions
offsets or defenses that may be interposed by the debtor at the time of the
assignment, such counterclaims, offsets or defenses shall not prejudice the
FILINVEST FINANCE CORPORATION and I (Alexander Lim) further warrant and ABAD SANTOS, J., concurring:
hold the said corporation free and harmless from any such claims, offsets, or
defenses that may be availed of." 9 I concur in the result.

It must be noted that the unpaid taxes on the motor vehicle is a burden on the When the appellant returned the vehicle and executed the document entitled,
property. Since as earlier shown, the ownership of the mortgaged property never left "Voluntary Surrender with Special Power of Attorney to Sell" said acts did not result in
the mortgagor, the herein appellant, the burden of the unpaid taxes should be home the fulfillment of its obligation under Art. 1884(l) of the Civil Code. On the contrary the
by him, who, in any case, may not be said to be without remedy under the law, but document indicated that the appellee was to foreclose the chattel mortgage. The
definitely not against appellee to whom were transferred only rights, title and interest, surrender of the car to the appellee was a mere preparatory act for its sale in a
as such is the essence of assignment of credit. 10 foreclosure of the chattel mortgage.

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After the appellee discovered, without negligence on its part, that foreclosure of the In opposing the money claim, Pascual M. Perez asserts that the surety bonds and the
chattel mortgage was impractical, it had the right which it exercised to abandon the indemnity agreements had been extinguished by the execution of the deed of
chattel mortgage and demand fulfillment of the obligation. assignment. After the trial on the merits, the Court of First Instance of Batangas
rendered judgment on April 15, 1968, the dispositive portion of which reads:
G.R. No. L-48958 June 28, 1988
WHEREFORE, considering that the estate of the late, Nicasia
CITIZENS SURETY and INSURANCE COMPANY, INC., petitioner, Sarmiento is jointly and severally liable to the Citizens' Surety and
vs. Insurance Co., Inc., for the amount the latter had paid the Singer
COURT OF APPEALS and PASCUAL M. PEREZ, respondents. Sewing Machine Company, Ltd., the court hereby orders the
administrator Pascual M. Perez to pay the claimant the sum of
P144,000.00, with interest at the rate of ten (10%) per cent per
F. Sumulong & Associates Law Offices for petitioner. annum from the date this claim was filed, until fully paid, minus the
payments already made in the amount of P55,600.00." (pp. 97-98,
Record on Appeal)

GUTIERREZ, JR., J.: Both parties appealed to the Court of Appeals, On August 31, 1978, the Court of
Appeals rendered its decision with the following dispositive portion:
This is a petition to review the decision of the Court of Appeals which reversed the
decision of the Court of First Instance of Batangas in a case involving a claim for a WHEREFORE, the decision rendered by the Court of First Instance
sum of money against the estate of the late Nicasia Sarmiento, administered by her of Batangas on April 15, 1986 is hereby reversed and set aside and
husband Pascual M. Perez. another one entered dismissing the claim of the Citizens' Surety
and Insurance Co., Inc., against the estate of the late Nicasia
On December 4, 1959, the petitioner issued two (2) surety bonds CSIC Nos. 2631 Sarmiento. No pronouncement as to costs. (p. 37, Rollo)
and 2632 to guarantee compliance by the principal Pascual M. Perez Enterprises of
its obligation under a "Contract of Sale of Goods" entered into with the Singer Sewing The petitioner raises the following alleged errors of the respondent court as the issues
Machine Co. In consideration of the issuance of the aforesaid bonds, Pascual M. in this petition for review:
Perez, in his personal capacity and as attorney-in-fact of his wife, Nicasia Sarmiento
and in behalf of the Pascual M. Perez Enterprises executed on the same date two (2) I
indemnity agreements wherein he obligated himself and the Enterprises to indemnify
the petitioner jointly and severally, whatever payments advances and damage it may
suffer or pay as a result of the issuance of the surety bonds. RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE
OBLIGATION OF PRIVATE RESPONDENT PASCUAL M. PEREZ HAD BEEN
EXTINGUISHED BY VIRTUE OF THE EXECUTION OF THE DEED OF
In addition to the two indemnity agreements, Pascual M. Perez Enterprises was also ASSIGNMENT (EXHIBIT "1") AND/OR THE RELEASE OF THE SECOND REAL
required to put up a collateral security to further insure reimbursement to the ESTATE MORTGAGE (EXHIBIT "2").
petitioner of whatever losses or liabilities it may be made to pay under the surety
bonds. Pascual M. Perez therefore executed a deed of assignment on the same day,
December 4,1959, of his stock of lumber with a total value of P400,000.00. On April II
12, 1960, a second real estate mortgage was further executed in favor of the
petitioner to guarantee the fulfillment of said obligation. RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THERE
WAS DATION IN PAYMENT BY VIRTUE OF THE EXECUTION OF THE DEED OF
Pascual M. Perez Enterprises failed to comply with its obligation under the contract of ASSIGNMENT (EXHIBIT "1").
sale of goods with Singer Sewing Machine Co., Ltd. Consequently, the petitioner was
compelled to pay, as it did pay, the fair value of the two surety bonds in the total III
amount of P144,000.00. Except for partial payments in the total sum of P55,600.00
and notwithstanding several demands, Pascual M. Perez Enterprises failed to RESPONDENT COURT OF APPEALS ERRED WHEN IT TOTALLY REVERSED
reimburse the petitioner for the losses it sustained under the said surety bonds. AND SET ASIDE THE DECISION OF THE COURT OF FIRST INSTANCE OF
BATANGAS THUS DEPRIVING PETITIONER OF THE PRINCIPAL SUM DUE PLUS
The petitioner filed a claim for sum of money against the estate of the late Nicasia INTEREST AND ATTORNEY'S FEES. (p. 4, Petitioner's Brief)
Sarmiento which was being administered by Pascual M. Perez.

4
The main issue in this petition is whether or not the administrator's obligation under assignment, we can not regard the transaction as an absolute conveyance. As held in
the surety bonds and indemnity agreements had been extinguished by reason of the the case of Sy v. Court of Appeals, (131 SCRA 116,124):
execution of the deed of assignment.
It is a basic and fundamental rule in the interpretation of contract
It is the general rule that when the words of a contract are plain and readily that if the terms thereof are clear and leave no doubt as to the
understandable, there is no room for construction thereof (San Mauricio Milling Co. v. intention of the contracting parties, then the literal meaning of the
Ancheta, 105 SCRA 371). However, this is only a general rule and it admits stipulations shall control but when the words appear contrary to the
exceptions. evident intention of the parties, the latter shall prevail over the
former. (Labasan v. Lacuesta, 86 SCRA 16) In order to judge the
Pascual M. Perez executed an instrument denominated as "Deed of Assignment." intention of the parties, their contemporaneous and subsequent
Pertinent portions of the deed read as follows: acts shall be principally considered. (Emphasis supplied)

I, Pascual M. Perez, Filipino, of legal age, married, with residence The petitioner issued the two (2) surety bonds on December 4, 1959 in behalf of the
and postal address at 115 D. Silang, Batangas, as the owner and Pascual M. Perez Enterprises to guaranty fullfillment of its obligation under the
operator of a business styled "PASCUAL M. PEREZ "Contract of Sale of Goods" entered into with the Singer Sewing Machine Co. In
ENTERPRISES," with office at R-31 Madrigal Building, Escolta, consideration of the two surety bonds, two indemnity agreements were executed by
Manila, hereinafter referred to as ASSIGNOR, for and in Pascual M. Perez followed by a Deed of Assignment which was also executed on the
consideration of the issuance in my behalf and in favor of the same date.
SINGER SEWING MACHINE COMPANY, LTD., of two Surety
Bonds (CSIC) Bond Nos. 2631 and 2632 each in the amount of In the case of Lopez v. Court of appeals (114 SCRA 673), we stated that:
SEVENTY TWO THOUSAND PESOS (P72,000.00), or with a total
sum of ONE RED FORTY-FOUR THOUSAND PESOS The indemnity agreement and the stock assignment must be
(Pl44,000.00), Philippine Currency, by the CITIZENS' SURETY considered together as related transactions because in order to
AND INSURANCE CO., INC., a corporation duly organized and judge the intention of the contracting parties, their
existing under and by virtue of the laws of the Republic of the contemporaneous and subsequent acts shall be principally
Philippines, with principal office at R-306 Samanillo Building, considered. (Article 1371, New Civil Code). Thus, considering that
Escolta, Manila, Philippines, and duly represented in the act by its the indemnity agreement connotes a continuing obligation of Lopez
Vice-President and General Manager, ARISTEO L. LAT, towards Philamgen, while the stock assignment indicates a
hereinafter referred to as ASSIGNEE, assign by these presents, complete discharge of the same obligation, the existence of the
unto said ASSIGNEE, its heirs, successors, administrators or indemnity agreement whereby Lopez had to pay a premium of
assigns the herein ASSIGNOR'S stock (Insured) of low grade P1,000.00 for a period of one year and agreed at all times to
lumber, class "No. 2 COMMON" kept and deposited at Tableria Tan indemnify Philamgen of any and all kinds of losses which the latter
Tao at Batangas, Batangas, with a total measurement of Two might sustain by reason of it becoming a surety, is inconsistent with
Million (2,000,000.00) board feet and valued of P0.20 per board the theory of an absolute sale for and in consideration of the same
feet or with a total value of P400,000.00 which lumber is intended undertaking of Philamgen. There would have been no necessity for
by the ASSIGNOR for exportation under a Commodity Trade the execution of the indemnity agreement if the stock assignment
Permit, the condition being that in the event that the herein assignor was really intended as an absolute conveyance. Hence, there are
exports said lumber and as soon as he gets the necessary export strong and cogent reasons to conclude that the parties intended
shipping and related and pertinent documents therefor, the said stock assignment to complement the indemnity agreement and
ASSIGNOR will turn said papers over to the herein ASSIGNEE, thereby sufficiently guarantee the indemnification of Philamgen
conserving all of the latter's dominion, rights and interests in said should it be required to pay Lopez" loan to Prudential Bank. (at pp.
exportation. 682-683)

The ASSIGNEE hereby agrees and accepts this assignment under The respondent court stated that "by virtue of the execution of the deed of assignment
the conditions above-mentioned. (pp. 77-79, Record on Appeal) ownership of administrator-appellant's lumber materials had been transferred to the
claimant-appellant and this amounted to dation in payment whereby the former is
On its face, the document speaks of an assignment where there seems to be a considered to have alienated his property in favor of the latter in satisfaction of a
complete conveyance of the stocks of lumber to the petitioner, as assignee. However, monetary debt (Artide 1245). As a consequence thereof, administrator-appellant's
in the light of the circumstances obtaining at the time of the execution of said deed of obligation under the surety bonds is thereby extinguished upon the execution of the
deed of assignment." This statement is not sustained by the records.

5
The transaction could not be dation in payment. As pointed out in the concurring and procedure was for Citizens' Insurance and Surety Co., to collect the remaining
dissenting opinion of Justice Edgardo L. Paras and the dissenting opinion of Justice P88,400.00 from the sales of lumber and to return whatever remained to Perez. We
Mariano Serrano when the deed of assignment was executed on December 4, 1959, cannot order the return in this decisions because the Estate of Mrs. Perez has not
the obligation of the assignor to refund the assignee had not yet arisen. In other asked for any return of excess lumber or its value. There appears to have been other
words, there was no obligation yet on the part of the petitioner, Citizens' Surety and transactions, surety bonds, and performance bonds between the petitioner and Perez
Insurance Company, to pay Singer Sewing Machine Co. There was nothing to be Enterprises but theseare extraneous matters which, the records show, have
extinguished on that date, hence, there could not have been a dation in payment. absolutely no bearing on the resolution of the issues in this petition.

In the case of Lopez v. Court of Appeals (supra) we had the occasion to explain: With respect to the claim for interests and attomey's fees, we agree with the private
respondent that the petitioner is not entitled to either one. It had the means to recoup
Considering the above jurisprudence, We find that the debt or its investment and losses many times over, yet it chose to litigate and delay the final
obligation at bar has not matured on June 2, 1959 when Lopez determination of how much was really owing to it. As stated by Justice Paras in his
'alienated' his 4,000 shares of stock to Philamgen. Lopez' obligation separate opinion:
would arise only when he would default in the payment of the
principal obligation (the loan) to the bank and Philamgen had to pay Interest will not be given the Surety because it had all the while (or
for it. Such fact being adverse to the nature and concept of dation at least, it may be presumed that such was the case) the
in payment, the same could not have been constituted when the P400,000.00 worth of lumber, from which value the 'refunding' by
stock assignment was executed. Moreover, there is no express assignor could have been deducted if it had so informed the
provision in the terms of the stock assignment between Philamgen assignor of the plan.
and Lopez that the principal obligation (which is the loan) is
immediately extinguished by reason of such assignment. (at p. 686) For the same reason as in No. (5), attomey's fees cannot be
charged, for despite the express stipulation on the matter in the
The deed of assignment cannot be regarded as an absolute conveyance whereby the contract, there was actually no failure on the part of the assignor to
obligation under the surety bonds was automatically extinguished. The subsequent comply with the obligation of refinding. The means of compliance
acts of the private respondent bolster the fact that the deed of assignment was was right there with the Surety itself-. surely it could have earlier
intended merely as a security for the issuance of the two bonds. Partial payments conferred with the assignor on how to effect the 'refunding. (p. 39,
amounting to P55,600.00 were made after the execution of the deed of assignment to Rollo)
satisfy the obligation under the two surety bonds. Since later payments were made to
pay the indebtedness, it follows that no debt was extinguished upon the execution of WHEREFORE, the petition is hereby DISMISSED. For the reasons above-stated, the
the deed of assignment. Moreover, a second real estate mortgage was executed on claim of Citizens' Surety and Insurance Co., Inc., against the estate of Nicasia
April 12, 1960 and eventually cancelled only on May 15, 1962. If indeed the deed of Sarmiento is DISMISSED. SO ORDERED.
assignment extinguished the obligation, there was no reason for a second mortgage
to still have to be executed. We agree with the two dissenting opinions in the Court of
Appeals that the only conceivable reason for the execution of still another mortgage Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
on April 12, 1960 was because the obligation under the indemnity bonds still existed.
It was not yet extinguished when the deed of assignment was executed on December G.R. No. 182128 February 19, 2014
4, 1959. The deed of assignment was therefore intended merely as another collateral
security for the issuance of the two surety bonds. PHILIPPINE NATIONAL BANK, Petitioner,
vs.
Recapitulating the facts of the case, the records show that the petitioner surety TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (now PRIME EAST
company paid P144,000.00 to Singer on the basis of the two surety bonds it had PROPERTIES, INC.) and AFP-RSBS, INC., Respondents.
issued in behalf of Pascual Perez Enterprises. Perez in turn was able to indemnify the
petitioner for its payment to Singer in the amount of P55,600.00 thus leaving a DECISION
balance of only P88,400.00.
REYES, J.:
The petitioner surety company was more than adequately protected. Lumber worth
P400,000.00 was assigned to it as collateral. A second real estate mortgage was also
given by Perez although it was later cancelled obviously because the P400,000.00 This is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the
worth of lumber was more than enough guaranty for the obligations assumed by the Decision2 dated August 13, 2007 and Resolution3 dated March 13, 2008 rendered by
petitioner. As pointed out by Justice Paras in his separate opinion, the proper the Court of Appeals (CA) in CA-G.R. SP No. 86033, which affirmed the

6
Decision4 dated August 4, 2004 of the Office of the President (OP) in O.P. Case No. hereby ordered to jointly and severally pay to [Dee] the amount of FIVE
04-D-182 (HLURB Case No. REM-A-030724-0186). HUNDRED TWENTY THOUSAND PESOS ([P]520,000.00) plus twelve
percent (12%) interest to be computed from the filing of complaint on April
Facts of the Case 24, 2002 until fully paid; and

Some time in July 1994, respondent Teresita Tan Dee (Dee) bought from respondent 5. Ordering [PEPI, AFP-RSBS, and the petitioner] to pay jointly and severally
Prime East Properties Inc.5 (PEPI) on an installment basis a residential lot located in [Dee] the following sums:
Binangonan, Rizal, with an area of 204 square meters 6 and covered by Transfer
Certificate of Title (TCT) No. 619608. Subsequently, PEPI assigned its rights over a a) The amount of TWENTY FIVE THOUSAND PESOS
213,093-sq m property on August 1996 to respondent Armed Forces of the ([P]25,000.00) as attorney’s fees;
Philippines-Retirement and Separation Benefits System, Inc. (AFP-RSBS), which
included the property purchased by Dee. b) The cost of litigation[;] and

Thereafter, or on September 10, 1996, PEPI obtained a ₱205,000,000.00 loan from c) An administrative fine of TEN THOUSAND PESOS
petitioner Philippine National Bank (petitioner), secured by a mortgage over several ([P]10,000.00) payable to this Office fifteen (15) days upon receipt
properties, including Dee’s property. The mortgage was cleared by the Housing and of this decision, for violation of Section 18 in relation to Section 38
Land Use Regulatory Board (HLURB) on September 18, 1996.7 of PD 957.

After Dee’s full payment of the purchase price, a deed of sale was executed by SO ORDERED.9
respondents PEPI and AFP-RSBS on July 1998 in Dee’s favor. Consequently, Dee
sought from the petitioner the delivery of the owner’s duplicate title over the property,
to no avail. Thus, she filed with the HLURB a complaint for specific performance to The HLURB decision was affirmed by its Board of Commissioners per Decision dated
compel delivery of TCT No. 619608 by the petitioner, PEPI and AFP-RSBS, among March 15, 2004, with modification as to the rate of interest. 10
others. In its Decision8 dated May 21, 2003, the HLURB ruled in favor of Dee and
disposed as follows: On appeal, the Board of Commissioners’ decision was affirmed by the OP in its
Decision dated August 4, 2004, with modification as to the monetary award. 11
WHEREFORE, premises considered, judgment is hereby rendered as follows:
Hence, the petitioner filed a petition for review with the CA, which, in turn, issued the
1. Directing [the petitioner] to cancel/release the mortgage on Lot 12, Block assailed Decision dated August 13, 2007, affirming the OP decision. The dispositive
21-A, Village East Executive Homes covered by Transfer Certificate of Title portion of the decision reads:
No. -619608-(TCT No. -619608-), and accordingly, surrender/release the
title thereof to [Dee]; WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated
August 4, 2004 rendered by the Office of the President in O. P. Case No. 04-D-182
2. Immediately upon receipt by [Dee] of the owner’s duplicate of Transfer (HLURB Case No. REM-A-030724-0186) is hereby AFFIRMED.
Certificate of Title No. -619608- (TCT No. -619608-), respondents PEPI and
AFP-RSBS are hereby ordered to deliver the title of the subject lot in the SO ORDERED.12
name of [Dee] free from all liens and encumbrances;
Its motion for reconsideration having been denied by the CA in the Resolution dated
3. Directing respondents PEPI and AFP-RSBS to pay [the petitioner] the March 13, 2008, the petitioner filed the present petition for review on the following
redemption value of Lot 12, Block 21-A, Village East Executive Homes grounds:
covered by Transfer Certificate of Title No. -619608- (TCT No. -619608-) as
agreed upon by them in their Real Estate Mortgage within six (6) months I. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING
from the time the owner’s duplicate of Transfer Certificate of Title No. - OUTRIGHT RELEASE OF TCT NO. 619608 DESPITE PNB’S DULY
619608- (TCT No. -619608-) is actually surrendered and released by [the REGISTERED AND HLURB[-] APPROVED MORTGAGE ON TCT NO.
petitioner] to [Dee]; 619608.

4. In the alternative, in case of legal and physical impossibility on the part of II. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING
[PEPI, AFP-RSBS, and the petitioner] to comply and perform their respective CANCELLATION OF MORTGAGE/RELEASE OF TITLE IN FAVOR OF
obligation/s, as above-mentioned, respondents PEPI and AFP-RSBS are
7
 RESPONDENT DEE DESPITE THE LACK OF PAYMENT OR The petitioner, however, is not being tasked to undertake the obligations of PEPI and
SETTLEMENT BY THE MORTGAGOR (API/PEPI and AFP-RSBS) OF ITS AFP-RSBS.1avvphi1 In this case, there are two phases involved in the transactions
EXISTING LOAN OBLIGATION TO PNB, OR THE PRIOR EXERCISE OF between respondents PEPI and Dee – the first phase is the contract to sell, which
RIGHT OF REDEMPTION BY THE MORTGAGOR AS MANDATED BY eventually became the second phase, the absolute sale, after Dee’s full payment of
SECTION 25 OF PD 957 OR DIRECT PAYMENT MADE BY the purchase price. In a contract of sale, the parties’ obligations are plain and simple.
RESPONDENT DEE TO PNB PURSUANT TO THE DEED OF The law obliges the vendor to transfer the ownership of and to deliver the thing that is
UNDERTAKING WHICH WOULD WARRANT RELEASE OF THE SAME.13 the object of sale.26 On the other hand, the principal obligation of a vendee is to pay
the full purchase price at the agreed time.27 Based on the final contract of sale
The petitioner claims that it has a valid mortgage over Dee’s property, which was part between them, the obligation of PEPI, as owners and vendors of Lot 12, Block 21-A,
of the property mortgaged by PEPI to it to secure its loan obligation, and that Dee and Village East Executive Homes, is to transfer the ownership of and to deliver Lot 12,
PEPI are bound by such mortgage. The petitioner also argues that it is not privy to the Block 21-A to Dee, who, in turn, shall pay, and has in fact paid, the full purchase price
transactions between the subdivision project buyers and PEPI, and has no obligation of the property. There is nothing in the decision of the HLURB, as affirmed by the OP
to perform any of their respective undertakings under their contract.14 and the CA, which shows that the petitioner is being ordered to assume the obligation
of any of the respondents. There is also nothing in the HLURB decision, which
validates the petitioner’s claim that the mortgage has been nullified. The order of
The petitioner also maintains that Presidential Decree (P.D.) No. 95715 cannot nullify cancellation/release of the mortgage is simply a consequence of Dee’s full payment
the subsisting agreement between it and PEPI, and that the petitioner’s rights over of the purchase price, as mandated by Section 25 of P.D. No. 957, to wit:
the mortgaged properties are protected by Act 313516. If at all, the petitioner can be
compelled to release or cancel the mortgage only after the provisions of P.D. No. 957
on redemption of the mortgage by the owner/developer (Section 25) are complied Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or
with. The petitioner also objects to the denomination by the CA of the provisions in unit to the buyer upon full payment of the lot or unit. No fee, except those required for
the Affidavit of Undertaking as stipulations pour autrui,17 arguing that the release of the registration of the deed of sale in the Registry of Deeds, shall be collected for the
the title was conditioned on Dee’s direct payment to it. 18 issuance of such title. In the event a mortgage over the lot or unit is outstanding at the
time of the issuance of the title to the buyer, the owner or developer shall redeem the
mortgage or the corresponding portion thereof within six months from such issuance
Respondent AFP-RSBS, meanwhile, contends that it cannot be compelled to pay or in order that the title over any fully paid lot or unit may be secured and delivered to
settle the obligation under the mortgage contract between PEPI and the petitioner as the buyer in accordance herewith.
it is merely an investor in the subdivision project and is not privy to the mortgage. 19
It must be stressed that the mortgage contract between PEPI and the petitioner is
Respondent PEPI, on the other hand, claims that the title over the subject property is merely an accessory contract to the principal three-year loan takeout from the
one of the properties due for release by the petitioner as it has already been the petitioner by PEPI for its expansion project. It need not be belaboured that "[a]
subject of a Memorandum of Agreement and dacion en pago entered into between mortgage is an accessory undertaking to secure the fulfillment of a principal
them.20 The agreement was reached after PEPI filed a petition for rehabilitation, and obligation,"28 and it does not affect the ownership of the property as it is nothing more
contained the stipulation that the petitioner agreed to release the mortgage lien on than a lien thereon serving as security for a debt.29
fully paid mortgaged properties upon the issuance of the certificates of title over the
dacioned properties.21
Note that at the time PEPI mortgaged the property to the petitioner, the prevailing
contract between respondents PEPI and Dee was still the Contract to Sell, as Dee
For her part, respondent Dee adopts the arguments of the CA in support of her prayer was yet to fully pay the purchase price of the property. On this point, PEPI was acting
for the denial of the petition for review.22 fully well within its right when it mortgaged the property to the petitioner, for in a
contract to sell, ownership is retained by the seller and is not to pass until full
Ruling of the Court payment of the purchase price.30 In other words, at the time of the mortgage, PEPI
was still the owner of the property. Thus, in China Banking Corporation v. Spouses
The petition must be DENIED. Lozada,31 the Court affirmed the right of the owner/developer to mortgage the
property subject of development, to wit: "[P.D.] No. 957 cannot totally prevent the
owner or developer from mortgaging the subdivision lot or condominium unit when the
The petitioner is correct in arguing that it is not obliged to perform any of the title thereto still resides in the owner or developer awaiting the full payment of the
undertaking of respondent PEPI and AFP-RSBS in its transactions with Dee because purchase price by the installment buyer."32 Moreover, the mortgage bore the
it is not a privy thereto. The basic principle of relativity of contracts is that contracts clearance of the HLURB, in compliance with Section 18 of P.D. No. 957, which
can only bind the parties who entered into it,23 and cannot favor or prejudice a third provides that "[n]o mortgage on any unit or lot shall be made by the owner or
person, even if he is aware of such contract and has acted with knowledge developer without prior written approval of the [HLURB]."
thereof.24 "Where there is no privity of contract, there is likewise no obligation or
liability to speak about."25

8
Nevertheless, despite the apparent validity of the mortgage between the petitioner have been fully paid shall be released to the purchasers within 90 days after the
and PEPI, the former is still bound to respect the transactions between respondents dacion to the secured creditors has been completed." 37 Consequently, the agreement
PEPI and Dee. The petitioner was well aware that the properties mortgaged by PEPI stipulated that as partial settlement of PEPI’s obligation with the petitioner, the former
were also the subject of existing contracts to sell with other buyers. While it may be absolutely and irrevocably conveys by way of "dacion en pago" the properties listed
that the petitioner is protected by Act No. 3135, as amended, it cannot claim any therein,38 which included the lot purchased by Dee. The petitioner also committed to –
superior right as against the installment buyers. This is because the contract between
the respondents is protected by P.D. No. 957, a social justice measure enacted [R]elease its mortgage lien on fully paid Mortgaged Properties upon issuance of the
primarily to protect innocent lot buyers.33 Thus, in Luzon Development Bank v. certificates of title over the Dacioned Properties in the name of the [petitioner]. The
Enriquez,34 the Court reiterated the rule that a bank dealing with a property that is request for release of a Mortgaged Property shall be accompanied with: (i) proof of
already subject of a contract to sell and is protected by the provisions of P.D. No. 957, full payment by the buyer, together with a certificate of full payment issued by the
is bound by the contract to sell.35 Borrower x x x. The [petitioner] hereby undertakes to cause the transfer of the
certificates of title over the Dacioned Properties and the release of the Mortgaged
However, the transferee BANK is bound by the Contract to Sell and has to respect Properties with reasonable dispatch.39
Enriquez’s rights thereunder. This is because the Contract to Sell, involving a
subdivision lot, is covered and protected by PD 957. Dacion en pago or dation in payment is the delivery and transmission of ownership of
a thing by the debtor to the creditor as an accepted equivalent of the performance of
x x x. the obligation.40 It is a mode of extinguishing an existing obligation 41 and partakes the
nature of sale as the creditor is really buying the thing or property of the debtor, the
xxxx payment for which is to be charged against the debtor’s debt. 42 Dation in payment
extinguishes the obligation to the extent of the value of the thing delivered, either as
agreed upon by the parties or as may be proved, unless the parties by agreement –
x x x Under these circumstances, the BANK knew or should have known of the express or implied, or by their silence – consider the thing as equivalent to the
possibility and risk that the assigned properties were already covered by existing obligation, in which case the obligation is totally extinguished. 43
contracts to sell in favor of subdivision lot buyers. As observed by the Court in
another case involving a bank regarding a subdivision lot that was already subject of
a contract to sell with a third party: There is nothing on record showing that the Memorandum of Agreement has been
nullified or is the subject of pending litigation; hence, it carries with it the presumption
of validity.44 Consequently, the execution of the dation in payment effectively
"[The Bank] should have considered that it was dealing with a property subject of a extinguished respondent PEPI’s loan obligation to the petitioner insofar as it covers
real estate development project. A reasonable person, particularly a financial the value of the property purchased by Dee. This negates the petitioner’s claim that
institution x x x, should have been aware that, to finance the project, funds other than PEPI must first redeem the property before it can cancel or release the mortgage. As
those obtained from the loan could have been used to serve the purpose, albeit it now stands, the petitioner already stepped into the shoes of PEPI and there is no
partially. Hence, there was a need to verify whether any part of the property was more reason for the petitioner to refuse the cancellation or release of the mortgage,
already intended to be the subject of any other contract involving buyers or potential for, as stated by the Court in Luzon Development Bank, in accepting the assigned
buyers. In granting the loan, [the Bank] should not have been content merely with a properties as payment of the obligation, "[the bank] has assumed the risk that some
clean title, considering the presence of circumstances indicating the need for a of the assigned properties are covered by contracts to sell which must be honored
thorough investigation of the existence of buyers x x x. Wanting in care and prudence, under PD 957."45 Whatever claims the petitioner has against PEPI and AFP-RSBS,
the [Bank] cannot be deemed to be an innocent mortgagee. x x x" 36 (Citation omitted) monetary or otherwise, should not prejudice the rights and interests of Dee over the
property, which she has already fully paid for.
More so in this case where the contract to sell has already ripened into a contract of
absolute sale.1âwphi1 As between these small lot buyers and the gigantic financial institutions which the
developers deal with, it is obvious that the law—as an instrument of social justice—
Moreover, PEPI brought to the attention of the Court the subsequent execution of a must favor the weak.46 (Emphasis omitted)
Memorandum of Agreement dated November 22, 2006 by PEPI and the petitioner.
Said agreement was executed pursuant to an Order dated February 23, 2004 by the Finally, the Court will not dwell on the arguments of AFP-RSBS given the finding of
Regional Trial Court (RTC) of Makati City, Branch 142, in SP No. 02-1219, a petition the OP that "[b]y its non-payment of the appeal fee, AFP-RSBS is deemed to have
for Rehabilitation under the Interim Rules of Procedure on Corporate Rehabilitation abandoned its appeal and accepts the decision of the HLURB." 47 As such, the
filed by PEPI. The RTC order approved PEPI’s modified Rehabilitation Plan, which HLURB decision had long been final and executory as regards AFP-RSBS and can
included the settlement of the latter’s unpaid obligations to its creditors by way of no longer be altered or modified.48
dacion of real properties. In said order, the RTC also incorporated certain measures
that were not included in PEPI’s plan, one of which is that "[t]itles to the lots which

9
WHEREFORE, the petition for review is DENIED for lack of merit. Consequently, the essentially done in order that consignation shall be valid and effectual. Thus, the law
Decision dated August 13, 2007 and Resolution dated March 13, 2008 of the Court of provides:
Appeals in CA-G.R. SP No. 86033 are AFFIRMED.
1257. In order that the consignation of the thing due may release
Petitioner Philippine National Bank and respondents Prime East Properties Inc. and the obligor, it must first be announced to the persons interested in
Armed Forces of the Philippines-Retirement and Separation Benefits System, Inc. are the fulfillment of the obligation.
hereby ENJOINED to strictly comply with the Housing and Land Use Regulatory
Board Decision dated May 21, 2003, as modified by its Board of Commissioners The consignation shall be ineffectual if it is not made strictly in
Decision dated March 15, 2004 and Office of the President Decision dated August 4, consonance with the provisions which regulate payment.
2004.
Art. 1258. Consignation shall be made by depositing the things due
SO ORDERED. at the disposal of judicial authority, before whom the tender of
payment shall be proved, in a proper case, and the announcement
G.R. No. L-58961 June 28, 1983 of the consignation in other cases.

SOLEDAD SOCO, petitioner, The consignation having been made, the interested parties shall
vs. also be notified thereof.
HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the Court of First
Instance of Cebu, Branch XII, Cebu City and REGINO FRANCISCO, Art. 1249. The payment of debts in money shall be made in the
JR., respondents. currency stipulated, and if it is not possible to deliver such currency,
then in the currency which is legal tender in the Philippines.
Chua & Associates Law Office (collaborating counsel) and Andales, Andales &
Associates Law Office for petitioner. The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect of
Francis M. Zosa for private respondent. 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
GUERRERO, J.: be held in abeyance.

The decision subject of the present petition for review holds the view that there was We have a long line of established precedents and doctrines that sustain the
substantial compliance with the requisites of consignation and so ruled in favor of mandatory nature of the above provisions. The decision appealed from must,
private respondent, Regino Francisco, Jr., lessee of the building owned by petitioner therefore, be reversed.
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 The antecedent facts are substantially recited in the decision under review, as
complaint and ordered the lessor to pay the lessee moral and exemplary damages in follows:
the amount of P10,000.00 and the further sum of P3,000.00 as attorney's fees.
It appears from the evidence that the plaintiff-appellee-Soco, for
We do not agree with the questioned decision. We hold that the essential requisites of short-and the 'defendant-appellant-Francisco, for brevity- entered
a valid consignation must be complied with fully and strictly in accordance with the into a contract of lease on January 17, 1973, whereby Soco leased
law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a her commercial building and lot situated at Manalili Street, Cebu
mandatory construction is clearly evident and plain from the very language of the City, to Francisco for a monthly rental of P 800.00 for a period of 10
codal provisions themselves which require absolute compliance with the essential years renewable for another 10 years at the option of the lessee.
requisites therein provided. Substantial compliance is not enough for that would The terms of the contract are embodied in the Contract of Lease
render only a directory construction to the law. The use of the words "shall" and (Exhibit "A" for Soco and Exhibit "2" for Francisco). It can readily be
"must" which are imperative, operating to impose a duty which may be enforced, discerned from Exhibit "A" that paragraphs 10 and 11 appear to
positively indicate that all the essential requisites of a valid consignation must be have been cancelled while in Exhibit "2" only paragraph 10 has
complied with. The Civil Code Articles expressly and explicitly direct what must be been cancelled. Claiming that paragraph 11 of the Contract of

10
Lease was in fact not part of the contract because it was cancelled, the instant case, she knew that payments for monthly rentals were
Soco filed Civil Case No. R-16261 in the Court of First Instance of deposited with the Clerk of Court except rentals for the months of
Cebu seeking the annulment and/or reformation of the Contract of May, June, July and August, 1977. ...
Lease. ...
Pressing her point, Soco alleged that 'we personally demanded
Sometime before the filing of Civil Case No. R-16261 Francisco from Engr. Francisco for the months of May, June, July and August,
noticed that Soco did not anymore send her collector for the but Engr. Francisco did not pay for the reason that he had no funds
payment of rentals and at times there were payments made but no available at that time.' (TSN-Palicte, p. 28, Hearing October 24,
receipts were issued. This situation prompted Francisco to write 1979). This allegation of Soco is denied by Francisco because per
Soco the letter dated February 7, 1975 (Exhibit "3") which the latter his instructions, the Commercial Bank and Trust Company, Cebu
received as shown in Exhibit "3-A". After writing this letter, Branch, in fact, issued checks in favor of Soco representing
Francisco sent his payment for rentals by checks issued by the payments for monthly rentals for the months of May, June, July and
Commercial Bank and Trust Company. Obviously, these payments August, 1977 as shown in Debit Memorandum issued by Comtrust
in checks were received because Soco admitted that prior to May, as follows:
1977, defendant had been religiously paying the rental. ....
(a) Exhibit "6"-Debit Memo dated May 11, 1977 for P926.10 as
1. The factual background setting of this case clearly indicates that payment for May, 1977;
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 (b) Exhibit"7"-Debit Memo dated June l5, 197 7for P926.10 as
which is definitely very much higher than what Francisco was payment for June, 1977;
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. ... (c) Exhibit "8"-Debit Memo dated July 11, 1977 for P1926.10 as
payment for July, 1977;
In view of this alleged non-payment of rental of the leased premises
beginning May, 1977, Soco through her lawyer sent a letter dated (d) Exhibit "9"-Debit Memo dated August 10, 1977 for P926. 10 as
November 23, 1978 (Exhibit "B") to Francisco serving notice to the payment for August, 1977.
latter 'to vacate the premises leased.' In answer to this letter,
Francisco through his lawyer informed Soco and her lawyer that all These payments are further bolstered by the certification issued by
payments of rental due her were in fact paid by Commercial Bank Comtrust dated October 29, 1979 (Exhibit "13"). Indeed the Court is
and Trust Company through the Clerk of Court of the City Court of convinced that payments for rentals for the months of May, June,
Cebu (Exhibit " 1 "). Despite this explanation, Soco filed this instant July and August, 1977 were made by Francisco to Soco thru
case of Illegal Detainer on January 8, 1979. ... Comtrust and deposited with the Clerk of Court of the City Court of
Cebu. There is no need to determine whether payments by
2. Pursuant to his letter dated February 7, 1975(Exhibit"3") and for consignation were made from September, 1977 up to the filing of
reasons stated therein, Francisco paid his monthly rentals to Soco the complaint in January, 1979 because as earlier stated Soco
by issuing checks of the Commercial Bank and Trust Company admitted that the rentals for these months were deposited with the
where he had a checking account. On May 13, 1975, Francisco Clerk of Court. ...
wrote the Vice-President of Comtrust, Cebu Branch (Exhibit "4")
requesting the latter to issue checks to Soco in the amount of P Taking into account the factual background setting of this case, the
840.00 every 10th of the month, obviously for payment of his Court holds that there was in fact a tender of payment of the rentals
monthly rentals. This request of Francisco was complied with by made by Francisco to Soco through Comtrust and since these
Comtrust in its letter dated June 4, 1975 (Exhibit "5"). Obviously, payments were not accepted by Soco evidently because of her
these payments by checks through Comtrust were received by intention to evict Francisco, by all means, culminating in the filing of
Soco from June, 1975 to April, 1977 because Soco admitted that Civil Case R-16261, Francisco was impelled to deposit the rentals
an rentals due her were paid except the rentals beginning May, with the Clerk of Court of the City Court of Cebu. Soco was notified
1977. While Soco alleged in her direct examination that 'since May, of this deposit by virtue of the letter of Atty. Pampio Abarientos
1977 he (meaning Francisco) stopped paying the monthly rentals' dated June 9, 1977 (Exhibit "10") and the letter of Atty. Pampio
(TSN, Palicte, p. 6, Hearing of October 24, 1979), yet on cross Abarientos dated July 6. 1977 (Exhibit " 12") as well as in the
examination she admitted that before the filing of her complaint in answer of Francisco in Civil Case R-16261 (Exhibit "14")

11
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.

(
S
G
According to the findings of factDmade 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 P months. The plaintiff also demanded upon the

12
defendant to vacate the premises and from that time he failed or refused to vacate his Consignation is the act of depositing the thing due with the court or judicial authorities
possession thereof; that beginning with the month of May, 1977 until at present, the whenever the creditor cannot accept or refuses to accept payment and it generally
defendant has not made valid payments of rentals to the plaintiff who, as a requires a prior tender of payment. (Limkako vs. Teodoro, 74 Phil. 313).
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 In order that consignation may be effective, the debtor must first comply with certain
through her daughter, Teolita Soco and salesgirl, Vilma Arong, went to the office or requirements prescribed by law. The debtor must show (1) that there was a debt due;
residence of defendant at Sanciangko St., Cebu City, on various occasions to effect (2) that the consignation of the obligation had been made because the creditor to
payment of rentals but were unable to collect on account of the defendant's refusal to whom tender of payment was made refused to accept it, or because he was absent or
pay; that defendant contended that payments of rental thru checks for said four incapacitated, or because several persons claimed to be entitled to receive the
months were made to the plaintiff but the latter refused to accept them; that in 1975, amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation had
defendant authorized the Commercial Bank and Trust Company to issue checks to been given to the person interested in the performance of the obligation (Art. 1177,
the plaintiff chargeable against his bank account, for the payment of said rentals, and Civil Code); (4) that the amount due was placed at the disposal of the court (Art.
the delivery of said checks was coursed by the bank thru the messengerial services 1178, Civil Code); and (5) that after the consignation had been made the person
of the FAR Corporation, but the plaintiff refused to accept them and because of such interested was notified thereof (Art. 1178, Civil Code). Failure in any of these
refusal, defendant instructed said bank to make consignation with the Clerk of Court requirements is enough ground to render a consignation ineffective. (Jose Ponce de
of the City Court of Cebu as regard said rentals for May to August, 1977 and for Leon vs. Santiago Syjuco, Inc., 90 Phil. 311).
subsequent months.
Without the notice first announced to the persons interested in the fulfillment of the
The City Court further found that there is no showing that the letter allegedly delivered obligation, the consignation as a payment is void. (Limkako vs. Teodoro, 74 Phil.
to the plaintiff in May, 1977 by Filomeno Soon, messenger of the FAR Corporation 313),
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 In order to be valid, the tender of payment must be made in lawful currency. While
rental could be considered in favor of the defendant unless evidence is presented to payment in check by the debtor may be acceptable as valid, if no prompt objection to
establish that he actually made rental deposit with the court in cash money and prior said payment is made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956) the
and subsequent to such deposit, he notified the plaintiff thereof. 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
Notwithstanding the contradictory findings of fact and the resulting opposite valid tender of payment thereof (Desbarats vs. Vda. de Mortera, supra). See
conclusions of law by the City Court and the Court of First Instance, both are agreed, Annotation, The Mechanics of Consignation by Atty. S. Tabios, 104 SCRA 174-179.
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 Tender of payment must be distinguished from consignation. Tender is the
the rentals was valid or not to discharge effectively the lessee's obligation to pay the antecedent of consignation, that is, an act preparatory to the consignation, which is
same. The City Court ruled that the consignation was not valid. The Court of First the principal, and from which are derived the immediate consequences which the
Instance, on the other hand, held that there was substantial compliance with the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while
requisites of the law on consignation. 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).
Let us examine the law and consider Our jurisprudence on the matter, aside from the
codal provisions already cited herein.
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
According to Article 1256, New Civil Code, if the creditor to whom tender of payment and consignation and from which the respondent Judge based his conclusion that
has been made refuses without just cause to accept it, the debtor shall be released there was substantial compliance with the law on consignation, We note from the
from responsibility by the consignation of the thing or sum due. Consignation alone assailed decision hereinbefore quoted that these evidences are: Exhibit 10, the letter
shall produce the same effect in the following cases: (1) When the creditor is absent of Atty. Pampio Abarintos dated June 9, 1977: Exhibit 12, letter of Atty. Pampio
or unknown, or does not appear at the place of payment; (2) When he is Abarintos dated July 6, 1977; Exhibit 14, the Answer of respondent Francisco in Civil
incapacitated to receive the payment at the time it is due; (3) When, without just Case R- 16261, particularly paragraph 7 of the Special and Affirmative Defenses; and
cause, he refuses to give a receipt; (4) When two or more persons claim the same Exhibit 1, letter of Atty. Eric Menchavez dated November 28, 1978. All these
right to collect; (5) When the title of the obligation has been lost. evidences, according to respondent Judge, proved that petitioner lessor was notified
of the deposit of the monthly rentals.

13
We have analyzed and scrutinized closely the above exhibits and We find that the y
respondent Judge's conclusion is manifestly wrong and based on misapprehension of
facts. Thus- t
r
(1) Exhibit 10 reads: (see p. 17, Records) u
l
y
J
u y
n o
e u
r
9 s
, ,
1
9 (
7 S
7 G
D
.
Miss Soledad Soco )
Soledad Soco Retazo
P. Gullas St., Cebu City P
A
Dear Miss Soco: M
P
This is in connection with the payment of rental of my client, Engr. I
Regino Francisco, Jr., of your building situated at Manalili St., Cebu O
City.
A
.
It appears that twice you refused acceptance of the said payment
made by my client. A
B
It appears further that my client had called your office several times A
and left a message for you to get this payment of rental but until the R
present you have not sent somebody to get it. I
N
T
In this connection, therefore, in behalf of my client, you are hereby
O
requested to please get and claim the rental payment aforestated
S
from the Office of my client at Tagalog Hotel and Restaurant,
Sanciangko St., Cebu City. within three (3) days from receipt hereof
C
otherwise we would be constrained to make a consignation of the
o
same with the Court in accordance with law.
u
n
Hoping for your cooperation on this matter, we remain. s
e
V l
e
r f

14
 o
r

E Miss Soledad Soco

n Soledad Soco Reta
g P. Gullas St., Cebu City
r
.
Dear Miss Soco:
R
E This is to advise and inform you that my client, Engr. Regino
G Francisco, Jr., has consigned to you, through the Clerk of Court,
I City Court of Cebu, Cebu City, the total amount of Pl,852.20, as
N evidenced by cashier's checks No. 478439 and 47907 issued by
O the Commercial Bank and Trust Company (CBTC) Cebu City
Branch, dated May 11, 1977 and June 15, 1977 respectively and
F payable to your order, under Official Receipt No. 0436936 dated
R July 6,1977.
A
N This amount represents payment of the rental of your building
C situated at Manalili St., Cebu City which my client, Engr. Regino
I Francisco, Jr., is renting. You can withdraw the said amount from
S the Clerk of Court, City Court of Cebu, Cebu City at any time.
C
O
, Please be further notified that all subsequent monthly rentals will be
deposited to the Clerk of Court, City Court of Cebu, Cebu City.
J
r V
. e
r
We may agree that the above exhibit proves tender of payment of the particular y
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 t
certainly, it is no proof of tender of payment of other or subsequent monthly rentals. r
Neither is it proof that notice of the actual deposit or consignation was given to the u
lessor, which is the second notice required by law. l
y
(2) Exhibit 12 (see p. 237, Records) states: y
o
J u
u r
l s
y ,

6 (
, S
G
1 D
9 .

15
 ) I
S
P C
A O
M ,
P
I J
O R
.
A
. 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
A surely, it does not prove any other deposit nor the notice thereof to the lessor. It is not
B even proof of the tender of payment that would have preceded the consignation.
A
R
I (3) Exhibit 14, paragraph 7 of the Answer (see p. 246, Records) alleges:
N
T 7. That ever since, defendant had been religiously paying his
O rentals without any delay which, however, the plaintiff had in so
S 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
C cancellation of the contract of lease. This, after seeing the
o improvements in the area which were effected, at no small expense
u by the defendant. To preserve defendant's rights and to show good
n faith in up to date payment of rentals, defendant had authorized his
s bank to issue regularly cashier's check in favor of the plaintiff as
e payment of rentals which the plaintiff had been accepting during the
l 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
f months of June and July, however, plaintiff again started refusing to
o accept the payments in going back to her previous strategy which
r 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
E as payment of rentals is concerned. These events only goes to
N show that the wily plaintiff had thought of this mischievous scheme
G only very recently and filed herein malicious and unfounded
R complaint.
.
The above exhibit which is lifted from Civil Case No. R-16261 between the parties for
R annulment of the lease contract, is self-serving. The statements therein are mere
E allegations of conclusions which are not evidentiary.
G
I
N (4) Exhibit 1 (see p. 15, Records) is quoted thus:
O

F
R
A
N
C
16
 e
r

2
8
,

1
9
7
8

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.

(
S
G
D
.
)

E
R
I
C

M
E
N
C

17
 Second, respondent
r lessee also failed to prove the first notice to the lessor prior to
consignation, aexcept the payment referred to in Exhibit 10.

S
In this connection, the purpose of the notice is in order to give the creditor an
opportunity tot 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).
C
e
There is no factual
b basis for the lower court's finding that the lessee had tendered
payment of the u 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 C month and to deduct the full amount and service fee from his current
account, as well
i as Exhibit 5, letter of the Vice President agreeing with the request.
But scrutinizing
t carefully Exhibit 4, this is what the lessee also wrote: "Please
immediately ynotify 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 nsend somebody over to pick up the cashier's check from us." (Exhibit 4,
see p. 230, Original
e Records; Exhibit 5, p. 231, Original Records)
w
Evidently, from this arrangement, it was the lessee's duty to send someone to get the
a from the bank and logically, the lessee has the obligation to make and
cashier's check
d
tender the check to the lessor. This the lessee failed to do, which is fatal to his
defense. d
r
e
Third, respondent lessee likewise failed to prove the second notice, that is after
consignation shas been made, to the lessor except the consignation referred to in
s are the cashier's check Nos. 478439 and 47907 CBTC dated May
Exhibit 12 which
11, 1977 and )June 15, 1977 under Official Receipt No. 04369 dated July 6, 1977.

Again, Exhibit 1 merely proves rental deposit for the particular month of November, Respondent lessee, attempting to prove compliance with the requisites of valid
1978 and no other. It is no proof of tender of payment to the lessor, not even proof of consignation, presented the representative of the Commercial Bank and Trust Co.,
notice to consign. We hold that the best evidence of the rental deposits with the Clerk Edgar Ocañada, Bank Comptroller, who unfortunately belied respondent's claim. We
of Court are the official receipts issued by the Clerk of Court. These the respondent quote below excerpts from his testimony, as follows:
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 ATTY. LUIS DIORES:
receipt of any deposit made be found (pp. 8-9, Memorandum for Petitioner; pp. 163-
164, Records). Q What month did you say you made ,you started
making the deposit? When you first deposited the
Summing up Our review of the above four (4) exhibits, We hold that the respondent check to the Clerk of Court?
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 A The payment of cashier's check in favor of Miss
June 9, l977 Letter, Exhibit 10. In the original records of the case, We note that the Soledad Soco was coursed thru the City Clerk of
certification, Exhibit 11 of Filemon Soon, messenger of the FAR Corporation, Court from the letter of request by our client
certifying that the letter of Soledad Soco sent last May 10 by Commercial Bank and Regino Francisco, Jr., dated September 8, 1977.
Trust Co. was marked RTS (return to sender) for the reason that the addressee From that time on, based on his request, we
refused to receive it, was rejected by the court for being immaterial, irrelevant and delivered the check direct to the City Clerk of
impertinent per its Order dated November 20, 1980. (See p. 117, CFI Records). Court.

18
Q What date, what month was that, you first Q Alright, for October, 1977, after having made a
delivered the check to the Clerk of Court.? deposit for that particular month, did you notify
Miss Soledad Soco that the deposit was in the
A We started September 12, 1977. Clerk of Court?

Q September 1977 up to the present time, you A No, we did not.

delivered the cashier's check to the City Clerk of
Court? Q Now, on November, 1977, did you notify
Soledad Soco that you deposited the manager's
A Yes. check to the City Clerk of Court for that month?

Q You were issued the receipts of those checks? A I did not.

A Well, we have an acknowledgment letter to be Q You did not also notify Soledad Soco for the
signed by the one who received the check. month December, 1977, so also from January,
February, March, April, May, June, July until
December, 1978, you did not also notify Miss
Q You mean you were issued, or you were not Soledad Soco all the deposits of the manager's
issued any official receipt? My question is check which you said you deposited with the
whether you were issued any official receipt? So, Clerk of Court in every end of the month? So also
were you issued, or you were not issued? from each and every month from January 1979
up to December 1979, you did not also serve
A We were not issued. notice upon Soledad Socco of the deposit in the
Clerk of Court, is that correct?
Q On September, 1977, after you deposited the
manager's check for that month with the Clerk of A Yes.
Court, did you serve notice upon Soledad Soco
that the deposit was made on such amount for Q So also in January 1980 up to this month 1980,
the month of September, 1977 and now to the you did not instructed by your client Mr. and Mrs.
Clerk of Court? Did you or did you not? Regino Francisco, jr. to make also serve notice
upon Soledad Soco of the Manager's check
A Well, we only act on something upon the which you said you deposited to the Clerk of
request of our client. Court?

Q Please answer my question. I know that you A I did not.

are acting upon instruction of your client. My
question was-after you made the deposit of the Q Now, you did not make such notices because
manager's check whether or not you notified you were not such notices after the deposits you
Soledad Soco that such manager's check was made, is that correct?
deposited in the Clerk of Court from the month of
September, 1977?
A Yes, sir.
A We are not bound to.
Q Now, from 1977, September up to the present
time, before the deposit was made with the Clerk
Q I am not asking whether you are bound to or of Court, did you serve notice to Soledad Soco
not. I'masking whether you did or you did not? that a deposit was going to be made in each and
every month?
A I did not.

19
 A Not. 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
Q In other words, from September 1977 up to the November 1979 (or more than two years later)."... The deposits of these monthly
present time, you did not notify Soledad Soco rentals for July and August, 1977 on 20 November 1979, is very significant because
that you were going to make the deposit with the on 24 October 1979, plaintiff Soco had testified before the trial court that defendant
Clerk of Court, and you did not also notify had not paid the monthly rentals for these months. Thus, defendant had to make a
Soledad Soco after the deposit was made, that a hurried deposit on the following month to repair his failure. " (pp. 43-44, Records).
deposit has been made in each and every month
during that period, is that correct? 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
A Yes 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,
Q And the reason was because you were not 1979 (Annex "B-16", p. 170, Original CFI Records). Indeed, these two rental deposits
instructed by Mr. and Mrs. Regino Francisco, Jr. were made on November 20, 1979, two years late and after the filing of the complaint
that such notification should be made before the for illegal detainer.
deposit and after the deposit was made, is that
correct?
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
A No, I did not. (Testimony of Ocanada pp. 32- account of the lessee, to prove payment of the monthly rentals. But these Debit
41, Hearing on June 3, 1980). 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.
Recapitulating the above testimony of the Bank Comptroller, it is clear that the bank What is important is whether the checks were picked up by the lessee as per the
did not send notice to Soco that the checks will be deposited in consignation with the arrangement indicated in Exhibits 4 and 5 wherein the lessee had to pick up the
Clerk of Court (the first notice) and also, the bank did not send notice to Soco that the checks issued by CBTC or to send somebody to pick them up, and logically, for the
checks were in fact deposited (the second notice) because no instructions were given lessee to tender the same to the lessor. On this vital point, the lessee miserably failed
by its depositor, the lessee, to this effect, and this lack of notices started from to present any proof that he complied with the arrangement.
September, 1977 to the time of the trial, that is June 3, 1980.
We, therefore, find and rule that the lessee has failed to prove tender of payment
The reason for the notification to the persons interested in the fulfillment of the except that in Exh. 10; he has failed to prove the first notice to the lessor prior to
obligation after consignation had been made, which is separate and distinct from the consignation except that given in Exh. 10; he has failed to prove the second notice
notification which is made prior to the consignation, is stated in Cabanos vs. Calo, after consignation except the two made in Exh. 12; and he has failed to pay the
G.R. No. L-10927, October 30, 1958, 104 Phil. 1058. thus: "There should be notice to rentals for the months of July and August, 1977 as of the time the complaint was filed
the creditor prior and after consignation as required by the Civil Code. The reason for for the eviction of the lessee. We hold that the evidence is clear, competent and
this is obvious, namely, to enable the creditor to withdraw the goods or money convincing showing that the lessee has violated the terms of the lease contract and
deposited. Indeed, it would be unjust to make him suffer the risk for any deterioration, he may, therefore, be judicially ejected.
depreciation or loss of such goods or money by reason of lack of knowledge of the
consignation." 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
And the fourth requisite that respondent lessee failed to prove is the actual deposit or appellant's brief, or of page references to the records as required in Section 16(d) of
consignation of the monthly rentals except the two cashier's checks referred to in Rule 46," is without merit. The petition itself has attached the decision sought to be
Exhibit 12. As indicated earlier, not a single copy of the official receipts issued by the reviewed. Both Petition and Memorandum of the petitioner contain the summary
Clerk of Court was presented at the trial of the case to prove the actual deposit or statement of facts; they discuss the essential requisites of a valid consignation; the
consignation. We find, however, reference to some 45 copies of official receipts erroneous conclusion of the respondent Judge in reversing the decision of the City
issued by the Clerk of Court marked Annexes "B-1 " to "B-40" to the Motion for Court, his grave abuse of discretion which, the petitioner argues, "has so far departed
Reconsideration of the Order granting execution pending appeal filed by defendant from the accepted and usual course of judicial proceeding in the matter of applying
Francisco in the City Court of Cebu (pp, 150-194, CFI Original Records) as well as in the law and jurisprudence on the matter." The Memorandum further cites other basis
the Motion for Reconsideration of the CFI decision, filed by plaintiff lessor (pp. 39-50, for petitioner's plea.
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

20
In Our mind, the errors in the appealed decision are sufficiently stated and assigned.
Moreover, under Our rulings, We have stated that: LAURO IMMACULATA, represented by his wife AMPARO VELASCO as
Guardian Ad Litem, Petitioner, v. HON. PEDRO C. NAVARRO, in his capacity as
This Court is clothed with ample authority to review matters, even if Presiding Judge of the Court of First Instance of Rizal, Branch No. II, and HEIRS
they are not assigned as errors in the appeal, if it finds that their OF JUANITO VICTORIA, namely: LOLITA, TOMAS, BENJAMIN, VIRGINIA,
consideration is necessary in arriving at a just decision of the case. BRENDA AND ELVIE, all surnamed VICTORIA, and JUANITA NAVAL, surviving
Also, an unassigned error closely related to an error properly widow; and, the PROVINCIAL SHERIFF OF RIZAL, Respondents.
assigned or upon which the determination of the questioned raised
by the error properly assigned is dependent, will be considered by Pedro N. Belmi for Petitioner.
the appellate court notwithstanding the failure to assign it as an
error." (Ortigas, Jr. vs. Lufthansa German Airlines, L-28773, June Alfonso G. Salvador for Respondents.
30, 1975, 64 SCRA 610)
SYLLABUS
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) 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; REAL ESTATE MORTGAGE;
LEGAL REDEMPTION; FIVE-YEAR PERIOD; EXERCISED IN CASE AT BAR. —
Appellants need not make specific assignment of errors provided While the sale was originally executed sometime in December, 1969, it was only on
they discuss at length and assail in their brief the correctness of the February 3, 1974 when, as prayed for by private respondent, and as ordered by the
trial court's findings regarding the matter. Said discussion warrants court a quo, a "deed of conveyance" was formally executed. Since offer to redeem
the appellate court to rule upon the point because it substantially was made on March 24, 1975, this was clearly within the five-year period of legal
complies with Section 7, Rule 51 of the Revised Rules of Court, redemption allowed by the Public Land Act (See Abuan v. Garcia, 14 SCRA 759,
intended merely to compel the appellant to specify the questions 761).
which he wants to raise and be disposed of in his appeal. A clear
discussion regarding an error allegedly committed by the trial court 2. ID.; ID.; ID.; ID.; CONSIGNATION, UNNECESSARY. — The right to redeem is a
accomplishes the purpose of a particular assignment of error." RIGHT, not an obligation, therefore, there is no consignation required (De Jesus v.
(Cabrera vs. Belen, 95 Phil. 54; Miguel vs Court of Appeals, L- Garcia, C.A. 47 O.G. 2406; Rosales v. Reyes, 25 Phil. 495, Vda. de Quirino v.
20274, Oct. 30, 1969, 29 SCRA 760-773, cited in Moran, Palarca, L-28269, Aug. 16, 1969) to preserve the right to redeem (Villegas v.
Comments on the Rules of Court, Vol. 11, 1970 ed., p. 534). Capistrano, 9 Phil. 416).

Pleadings as well as remedial laws should be construed liberally in

order that the litigants may have ample opportunity to prove their RESOLUTION
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). PARAS, J.:

WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the Court of Petitioner’s Motion for Reconsideration of Our decision dated November 26, 1986
First Instance of Cebu, 14th Judicial District, Branch XII is hereby REVERSED and asks Us to consider a point inadvertently missed by the Court — the matter of legal
SET ASIDE, and the derision of the City Court of Cebu, Branch II is hereby redemption of a parcel of land previously obtained by petitioner Lauro Immaculata
reinstated, with costs in favor of the petitioner. thru a free patent. The reconsideration of this issue is hereby GRANTED.

SO ORDERED. While res judicata may bar questions on the validity of the sale in view of alleged
insanity and intimidation (and this point is no longer pressed by counsel for the
petitioner) still the question of the right of legal redemption has remained
Makasiar (Chairman), Concepcion, Jr., Abad Santos, and De Castro, JJ., concur.
unresolved.chanrobles virtual lawlibrary

Aquino and Escolin JJ., concurs in the result, Be it noted that in an action (Civil Case No. 20968) filed on March 24, 1975 before the
defunct Court of First Instance of Rizal, petitioner presented an alternative cause of
action or prayer just in case the validity of the sale would be sustained. And this
[G.R. No. L-42230. April 15, 1988.] alternative cause of action or prayer is to allow petitioner to legally redeem the
21
property. Sometime in 1961, the spouses Toribio and Eufrocina Suico (Suico spouses), along
with several business partners, entered into a business venture by establishing a rice
We hereby grant said alternative cause of action or prayer. While the sale was and com mill at Mandaue City, Cebu. As part of their capital, they obtained a loan
originally executed sometime in December, 1969, it was only on February 3, 1974 from the Development Bank of the Philippines (DBP), and to secure the said loan,
when, as prayed for 1 by private respondent, and as ordered by the court a quo, a four parcels of land owned by the Suico spouses, denominated as Lots 506, 512, 513
"deed of conveyance" was formally executed. Since offer to redeem was made on and 514, and another lot owned by their business partner, Juliana Del Rosario, were
March 24, 1975, this was clearly within the five-year period of legal redemption mortgaged. Subsequently, the Suico spouses and their business partners failed to
allowed by the Public Land Act (See Abuan v. Garcia, 14 SCRA 759, 761). pay their loan obligations forcing DBP to foreclose the mortgage. After the Suico
spouses and their partners failed to redeem the foreclosed properties, DBP
The allegation that the offer to redeem was not sincere, because there was no consolidated its ownership over the same. Nonetheless, DBP later allowed the Suico
consignation of the amount in Court is devoid of merit. The right to redeem is a spouses and Reginald and Beatriz Flores (Flores spouses), as substitutes for Juliana
RIGHT, not an obligation, therefore, there is no consignation required (De Jesus v. Del Rosario, to repurchase the subject lots by way of a conditional sale for the sum of
Garcia, C.A. 47 O.G. 2406; Rosales v. Reyes, 25 Phil. 495, Vda. de Quirino v. ₱240,571.00. The Suico and Flores spouses were able to pay the downpayment and
Palarca, L-28269, Aug. 16, 1969) to preserve the right to redeem (Villegas v. the first monthly amortization, but no monthly installments were made thereafter.
Capistrano, 9 Phil. 416). Threatened with the cancellation of the conditional sale, the Suico and Flores
spouses sold their rights over the said properties to herein respondents Restituto and
WHEREFORE, as prayed for by the petitioner Lauro Immaculata (represented by his Mima Sabordo, subject to the condition that the latter shall pay the balance of the sale
wife, Amparo Velasco, as Guardian ad litem) the decision of this Court dated price. On September 3, 1974, respondents and the Suico and Flores spouses
November 26, 1986 is hereby MODIFIED, and the case is remanded to the court a executed a supplemental agreement whereby they affirmed that what was actually
quo for it to accept payment or consignation 2 (in connection with the legal sold to respondents were Lots 512 and 513, while Lots 506 and 514 were given to
redemption which We are hereby allowing the petitioner to do) by the herein petitioner them as usufructuaries. DBP approved the sale of rights of the Suico and Flores
of whatever he received from respondent at the time the transaction was spouses in favor of herein respondents. Subsequently, respondents were able to
made.chanrobles.com:cralaw:red repurchase the foreclosed properties of the Suico and Flores spouses.

SO ORDERED. On September 13, 1976, respondent Restituto Sabordo (Restituto) filed with the then
Court of First Instance of Negros Occidental an original action for declaratory relief
with damages and prayer for a writ of preliminary injunction raising the issue of
Republic of the Philippines whether or not the Suico spouses have the right to recover from respondents Lots
SUPREME COURT 506 and 514.
Manila
In its Decision dated December 17, 1986, the Regional Trial Court (RTC) of San
THIRD DIVISION Carlos City, Negros Occidental, ruled in favor of the Suico spouses directing that the
latter have until August 31, 1987 within which to redeem or buy back from
respondents Lots 506 and 514.
G.R. No. 181723 August 11, 2014

On appeal, the CA, in its Decision3 in CA-G.R. CV No. 13785, dated April 24, 1990,
ELIZABETH DEL CARMEN, Petitioner,
modified the RTC decision by giving the Suico spouses until October 31, 1990 within
vs.
which to exercise their option to purchase or redeem the subject lots from
SPOUSES RESTITUTO SABORDO and MIMA MAHILUM-
respondents by paying the sum of ₱127,500.00. The dispositive portion of the
SABORDO, Respondents.
CADecision reads as follows:

DECISION
xxxx

PERALTA, J.:
For reasons given, judgment is hereby rendered modifying the dispositive portion of
[the] decision of the lower court to read:
This treats of the petition for review on certiorari assailing the Decision1 and
Resolution2 of the Court of Appeals (CA), dated May 25, 2007 and January 24, 2008,
1) The defendants-appellees are granted up to October 31, 1990 within
respectively, in CA-G.R. CV No. 75013.
which toexercise their option to purchase from the plaintiff-appellant
Restituto Sabordo and Mima Mahilum Lot No. 506, covered by Transfer
The factual and procedural antecedents of the case are as follows: Certificate of Title No. T-102598 and Lot No. 514, covered by Transfer
22
 Certificate of Title No. T-102599, both of Escalante Cadastre, Negros On December 5, 2001, the RTC rendered judgment, dismissing the Complaint of
Occidental by reimbursing or paying to the plaintiff the sum of ONE petitioner and her co-heirs for lack of merit.8 Respondents' Counterclaim was likewise
HUNDRED TWENTY-SEVEN THOUSAND FIVE HUNDRED PESOS dismissed.
(₱127,500.00);
Petitioner and her co-heirs filed an appeal with the CA contending that the judicial
2) Within said period, the defendants-appellees shall continue to have deposit or consignation of the amount of ₱127,500.00 was valid and binding and
usufructuary rights on the coconut trees on Lots Nos. 506 and 514, produced the effect of payment of the purchase price of the subject lots.
Escalante Cadastre, Negros Occidental;
In its assailed Decision, the CA denied the above appeal for lack of merit and affirmed
3) The Writ of Preliminary Injunction dated August 12, 1977 shall be effective the disputed RTC Decision.
untildefendants-appellees shall have exercised their option to purchase
within said period by paying or reimbursing to the plaintiff-appellant the Petitioner and her co-heirs filed a Motion for Reconsideration,9 but it was likewise
aforesaid amount. denied by the CA.

No pronouncement as to costs. Hence, the present petition for review on certiorariwith a lone Assignment of Error, to
wit:
SO ORDERED.4
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE
In a Resolution5 dated February 13, 1991, the CA granted the Suico spouses an LOWER COURT WHICH HELD THAT THE JUDICIAL DEPOSIT OF ₱127,500.00
additional period of 90 days from notice within which to exercise their option to MADE BY THE SUICOS WITH THE CLERK OF COURT OF THE RTC, SAN
purchase or redeem the disputed lots. CARLOS CITY, IN COMPLIANCE WITH THE FINAL AND EXECUTORY DECISION
OF THE COURT OF APPEALS IN CA-G.R. CV-13785 WAS NOT VALID.10
In the meantime, Toribio Suico (Toribio) died leaving his widow, Eufrocina, and
several others, includingherein petitioner, as legal heirs. Later, they discovered that Petitioner's main contention is that the consignation which she and her co-heirs made
respondents mortgaged Lots 506 and 514 with Republic Planters Bank (RPB) as was a judicial deposit based on a final judgment and, as such, does not require
security for a loan which, subsequently, became delinquent. compliance with the requirements of Articles 125611 and 125712 of the Civil Code.

Thereafter, claiming that theyare ready with the payment of ₱127,500.00, but alleging The petition lacks merit. At the outset, the Court quotes withapproval the discussion
that they cannot determine as to whom such payment shall be made, petitioner and of the CA regarding the definition and nature of consignation, to wit: … consignation
her co-heirs filed a Complaint6 with the RTC of San Carlos City, Negros Occidental [is] the act of depositing the thing due with the court or judicial authorities whenever
seeking to compel herein respondents and RPB to interplead and litigate between the creditor cannot accept or refuses to accept payment, and it generally requires a
themselves their respective interests on the abovementioned sum of prior tender of payment. It should be distinguished from tender of payment which is
money.1âwphi1 The Complaint also prayed that respondents be directed to substitute the manifestation by the debtor to the creditor of his desire to comply with his
Lots 506 and 514 with other real estate properties as collateral for their outstanding obligation, with the offer of immediate performance.Tender is the antecedent of
obligation with RPB and that the latter be ordered toaccept the substitute collateral consignation, thatis, an act preparatory to the consignation, which is the principal, and
and release the mortgage on Lots 506 and 514. Upon filing of their complaint, the from which are derived the immediate consequences which the debtor desires or
heirs of Toribio deposited the amount of ₱127,500.00 with the RTC of San Carlos seeks to obtain. Tender of payment may be extrajudicial, while consignation is
City, Branch 59. necessarily judicial, and the priority of the first is the attempt to make a private
settlement before proceeding to the solemnities of consignation. Tender and
Respondents filed their Answer7 with Counterclaim praying for the dismissal of the consignation, where validly made, produces the effect of payment and extinguishes
above Complaint on the grounds that (1) the action for interpleader was improper the obligation.13
since RPB isnot laying any claim on the sum of ₱127,500.00; (2) that the period
withinwhich the complainants are allowed to purchase Lots 506 and 514 had already In the case of Arzaga v. Rumbaoa,14 which was cited by petitioner in support of his
expired; (3) that there was no valid consignation, and (4) that the case is barred by contention, this Court ruled that the deposit made with the court by the plaintiff-
litis pendenciaor res judicata. appellee in the saidcase is considered a valid payment of the amount adjudged, even
without a prior tender of payment thereof to the defendants-appellants,because the
On the other hand, RPB filed a Motion to Dismiss the subject Complaint on the plaintiff-appellee, upon making such deposit, expressly petitioned the court that the
ground that petitioner and her co-heirs had no valid cause of action and that they defendants-appellees be notified to receive the tender of payment.This Court held
have no primary legal right which is enforceable and binding against RPB. that while "[t]he deposit, by itself alone, may not have been sufficient, but with the
23
express terms of the petition, there was full and complete offer of payment made and Solicitor Antonio M. Consing for Plaintiff-Appellee.
directly to defendants-appellants."15 In the instant case, however, petitioner and her
co-heirs, upon making the deposit with the RTC, did not ask the trial court that Advincula, Astraquillo, Villa & Ramos for bondsman-appellant.
respondents be notified to receive the amount that they have deposited. In fact, there
was no tender of payment. Instead, what petitioner and her co-heirs prayed for is
thatrespondents and RPB be directed to interplead with one another to determine SYLLABUS
their alleged respective rights over the consigned amount; that respondents be
likewise directed to substitute the subject lots with other real properties as collateral
for their loan with RPB and that RPB be also directed to accept the substitute real 1. REMEDIAL LAW; CRIMINAL PROCEDURE; SURETY TO A BAIL BOND,
properties as collateral for the said loan. Nonetheless,the trial court correctly ruled NATURE OF OBLIGATION OF; SURETY AT FAULT WHERE ACCUSED IS ABLE
that interpleader is not the proper remedy because RPB did notmake any claim TO SECURE A PASSPORT AND GO TO THE UNITED STATES. — It is clear,
whatsoever over the amount consigned by petitioner and her co-heirs with the court. therefore, that in the eyes of the law a surety becomes the legal custodian and jailer
of the accused, thereby assuming the obligation to keep the latter at all times under
In the cases of Del Rosario v. Sandico16 and Salvante v. Cruz,17 likewise cited as his surveillance and to produce and surrender him to the court upon the latter’s
authority by petitioner, this Court held that, for a consignation or deposit with the court demand. That the accused in this case was able to secure a Philippine passport
of an amount due on a judgment to be considered as payment, there must beprior which enabled her to go to the United States was, in fact, due to the surety
tender to the judgment creditor who refuses to accept it. The same principle was company’s fault because it was its duty to do everything and take all steps necessary
reiterated in the later case of Pabugais v. Sahijwani. 18 As stated above, tender of to prevent that departure. This could have been accomplished by seasonably
payment involves a positive and unconditional act by the obligor of offering legal informing the Department of Foreign Affairs and other agencies of the government of
tender currency as payment to the obligee for the former’s obligation and demanding the fact that the accused for whose provisional liberty it had posted a bail bond was
that the latter accept the same.19 In the instant case, the Court finds no cogent reason facing a criminal charge in a particular court of the country. Had the surety company
to depart from the findings of the CA and the RTC that petitioner and her co-heirs done this, there can be no doubt that no Philippine passport would have been issued
failed to make a prior valid tender of payment to respondents. to Natividad Franklin.

2. CIVIL LAW; ARTICLE 1266, NEW CIVIL CODE DOES NOT APPLY TO THE
It is settled that compliance with the requisites of a valid consignation is RELATION BETWEEN SURETY TO A BAIL BOND AND THE STATE. — Appellant
mandatory.20 Failure to comply strictly with any of the requisites will render the now contends that the lower court should have released it from all liability under the
consignation void. One of these requisites is a valid prior tender of payment. 21 bail bond posted by it because its failure to produce and surrender the accused was
due to the negligence of the Philippine Government itself in issuing a passport to said
Under Article 1256, the only instances where prior tender of payment is excused are: accused, thereby enabling her to leave the country. In support of this contention the
(1) when the creditor is absent or unknown, or does not appear at the place of provisions of Article 1266 of the New Civil Code are invoked. Appellant’s contention is
payment; (2) when the creditor is incapacitated to receive the payment at the time it is untenable. The above-mentioned legal provision does not apply to its case, because
due; (3) when, without just cause, the creditor refuses to give a receipt; (4) when two the same speaks, of the relation between a debtor and a creditor, which does not
or more persons claim the same right to collect; and (5) when the title of the obligation exist in the case of a surety upon a bail bond, on the one hand, and the State, on the
has been lost. None of these instances are present in the instant case. Hence, the other.
fact that the subject lots are in danger of being foreclosed does not excuse petitioner
and her co-heirs from tendering payment to respondents, as directed by the court.
DECISION
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals,
dated May 25, 2007, and its Resolution dated January 24, 2008, both in CA-G.R. CV
No. 75013, are AFFIRMED. DIZON, J.:

SO ORDERED. Appeal taken by the Asian Surety & Insurance Company, Inc. from the decision of the
Court of First Instance of Pampanga dated April 17, 1963, forfeiting the bail bond
[G.R. No. L-21507. June 7, 1971.] posted by it for the provisional release of Natividad Franklin, the accused in Criminal
Case No. 4300 of said court, as well as from the latter’s orders denying the surety
PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. NATIVIDAD company’s motion for a reductions of bail, and its motion for reconsideration thereof.
FRANKLIN, Accused, ASIAN SURETY & INSURANCE COMPANY, INC.,
bondsman-appellant. It appears that an information filed with the Justice of the Peace Court of Angeles,
Pampanga, docketed as Criminal Case No. 5536, Natividad Franklin was charged
Solicitor General Arturo A. Alafriz, Acting Solicitor General Isidro C. Borromeo with estafa. Upon a bail bond posted by the Asian Surety & Insurance Company, Inc.
24
in the amount of P2,000.00, she was released from custody. "By the mere fact that a person binds himself as surety for the accused, he takes
charge of, and absolutely becomes responsible for the latter’s custody, and under
After the preliminary investigation of the case, the Justice of the Peace Court elevated such circumstances it is incumbent upon him, or rather, it is his inevitable obligation,
it to the Court of First Instance of Pampanga where the Provincial Fiscal filed the not merely a right, to keep the accused at all times under his surveillance, inasmuch
corresponding information against the accused. The Court of First Instance then set as the authority emanating from his character as surety is no more nor less than the
her arraignment on July 14, 1962, on which date she failed to appear, but the court Government’s authority to hold the said accused under preventive imprisonment. In
postponed the arraignment to July 28 of the same year upon motion of counsel for the allowing the accused Eugenio Uy Tuising to leave the jurisdiction of the Philippines,
surety company. The accused failed to appear again, for which reason the court the appellee necessarily ran the risk of violating and in fact it clearly violated the
ordered her arrest and required the surety company to show cause why the bail bond terms of its bail-bonds because it failed to produce the said accused when on January
posted by it should not be forfeited. 15, 1932, it was required to do so. Undoubtedly, the result of the obligation assumed
by the appellee to hold the accused amenable at all times to the orders and
On September 25, 1962, the court granted the surety company a period of thirty days processes of the lower court, was to prohibit said accused from leaving the
within which to produce and surrender the accused, with the warning that upon its jurisdiction of the Philippines because, otherwise, said orders and processes would
failure to do so the bail bond posted by it would be forfeited. On October 25, 1962 the be nugatory; and inasmuch as the jurisdiction of the court from which they issued
surety company filed a motion praying for an extension of thirty days within which to does not extend beyond that of the Philippines, they would have no binding force
produce the body of the accused and to show cause why its bail bond should not be outside of said jurisdiction."cralaw virtua1aw library
forfeited. As notwithstanding the extension granted the surety company failed to
produce the accused again, the court had no other alternative but to render the It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian
judgment of forfeiture. and jailer of the accused, thereby assuming the obligation to keep the latter at all
times under his surveillance, and to produce and surrender him to the court upon the
Subsequently, the surety company filed a motion for a reduction of bail alleging that latter’s demand.
the reason for its inability to produce and surrender the accused to the court was the
fact that the Philippine Government had allowed her to leave the country and proceed That the accused in this case was able to secure a Philippine passport which enabled
to the United States on February 27, 1962. The reason thus given not being to the her to go to the United States was, in fact, due to the surety company’s fault because
satisfaction of the court, the motion for reduction of bail was denied. The surety it was its duty to do everything and take all steps necessary to prevent that departure.
company’s motion for reconsideration was also denied by the lower court on May 27, This could have been accomplished by seasonably informing the Department of
1963, although it stated in its order that it would consider the matter of reducing the Foreign Affairs and other agencies of the government of the fact that the accused for
bail bond "upon production of the accused." The surety company never complied with whose provisional liberty it had posted a bail bond was facing a criminal charge in a
this condition. particular court of the country. Had the surety company done this, there can be no
doubt that no Philippine passport would have been issued to Natividad Franklin.
Appellant now contends that the lower court should have released it from all liability
under the bail bond posted by it because its failure to produce and surrender the UPON ALL THE FOREGOING, the decision appealed from is affirmed in all its parts,
accused was due to the negligence of the Philippine Government itself in issuing a with costs.
passport to said accused, thereby enabling her to leave the country. In support of this
contention the provisions of Article 1266 of the New Civil Code are invoked. G.R. No. L-23546 August 29, 1974
Appellant’s contention is untenable. The abovementioned legal provision does not
apply to its case, because the same speaks of the relation between a debtor and a LAGUNA TAYABAS BUS COMPANY and BATANGAS TRANSPORTATION
creditor, which does not exist in the case of a surety upon a bail bond, on the one COMPANY, Petitioners, vs. FRANCISCO C. MANABAT, as assignee of Biñan
hand, and the State, on the other. Transportation Company, Insolvent, Respondent.

In U.S. v. Bonoan, Et Al., 22 Phil., p. 1, We held that:jgc:chanrobles.com.ph Domingo E. de Lara for petitioners.

"The rights and liabilities of sureties on a recognizance or bail bond are, in many M. A. Concordia & V.A. Guevarra for respondent.
respects, different from those of sureties on ordinary bonds or commercial contracts.
The former can discharge themselves from liability by surrendering their principal; the
latter, as a general rule, can only be released by payment of the debt or performance MAKASIAR, J.:
of the act stipulated."cralaw virtua1aw library
This is an appeal by certiorari from a judgment of the Court of Appeals dated August
In the more recent case of Uy Tuising, 61 Phil. 404, We also held 31, 1964, which WE AFFIRM.chanroblesvirtualawlibrarychanrobles virtual law library
that:jgc:chanrobles.com.ph

25
The undisputed facts are recounted by the Court of Appeals through then Associate of the leased lines until such time as the operating expenses were restored to normal
Justice Salvador Esguerra thus: levels so as to allow the lessees to realize a reasonable margin of profit from their
operation.chanroblesvirtualawlibrarychanrobles virtual law library
On January 20, 1956, a contract was executed whereby the Biñan Transportation
Company leased to the Laguna-Tayabas Bus Company at a monthly rental of Plaintiff's assignee opposed the petition on the ground that the Public Service
P2,500.00 its certificates of public convenience over the lines known as Manila-Biñan, Commission had no jurisdiction to grant the relief prayed for as it should involve the
Manila-Canlubang and Sta. Rosa-Manila, and to the Batangas Transportation interpretation of the lease contract, which act falls exclusively within the jurisdiction of
Company its certificate of public convenience over the line known as Manila- the ordinary courts; that the petitioners had not asked for the suspension of the
Batangas Wharf, together with one "International" truck, for a period of five years, operation of the lines covered by their own certificates of public convenience; that to
renewable for another similar period, to commence from the approval of the lease grant the petition would amount to an impairment of the obligation of contract; and
contract by the Public Service Commission. On the same date the Public Service that the defendants have no legal personality to ask for suspension of the operation of
Commission provisionally approved the lease contract on condition that the lessees the leased lines since they belonged exclusively to the plaintiffwho is the grantee of
should operate on the leased lines in accordance with the prescribed time schedule the corresponding certificate of public convenience. Aside from the assignee, the
and that such approval was subject to modification or cancellation and to whatever Commissioner of the Internal Revenue and other creditors of the Biñan
decision that in due time might be rendered in the Transportation Company, like the Standard Vacuum Oil Co. and Parsons Hardware
case.chanroblesvirtualawlibrarychanrobles virtual law library Company, filed oppositions to the petitions for suspension of
operation.chanroblesvirtualawlibrarychanrobles virtual law library
Sometime after the execution of the lease contract, the plaintiff Biñan Transportation
Company was declared insolvent in Special Proceedings No. B-30 of the Court of On October 15, 1958, the Public Service Commission overruled all oppositions filed
First Instance of Laguna, and Francisco C. Manabat was appointed as its assignee. by the assignee and other creditors of the insolvent, holding that upon its approval of
From time to time, the defendants paid the lease rentals up to December, 1957, with the lease contract, the lessees acquired the operating rights of the lessor and
the exception of the rental for August 1957, from which there was deducted the sum assumed full responsibility for compliance with all the terms and conditions of the
of P1,836.92 without the consent of the plaintiff. This deduction was based on the certificate of public convenience. The Public Service Commission further stated that
ground that the employees of the defendants on the leased lines went on strike for 6 the petition to suspend operation did not pertain to any act of dominion or ownership
days in June and another 6 days in July, 1957, and caused a loss of P500 for each but only to the use of the certificate of public convenience which had been transferred
strike, or a total of P1,000.00; and that in Civil Case No. 696 of the Court of First by the plaintiff to the defendants, and that the suspension prayed for was but an
Instance of Batangas, Branch II, judgment was rendered in favor of defendant incident of the operation of the lines leased to the defendants. The Public Service
Batangas Transportation Company against the Biñan Transportation Company for the Commission further ruled that being a quasi-judicial body of limited jurisdiction, it had
sum of P836.92. The assignee of the plaintiff objected to such deduction, claiming no authority to interpret contracts, which function belongs to the exclusive domain of
that the contract of lease would be suspended only if the defendants could not the ordinary courts, but the petition did not call for interpretation of any provision of
operate the leased lines due to the action of the officers, employees or laborers of the the lease contract as the authority of the Public Service Commission to grant or deny
lessor but not of the lessees, and that the deduction of P836.92 amounted to a the prayer therein was derived from its regulatory power over the leased certificates
fraudulent preference in the insolvency proceedings as whatever judgment might of public convenience.
have been rendered in favor of any of the lessees should have been filed as a claim
in said proceedings. The defendants neither refunded the deductions nor paid the While proceedings before the Public Service Commission were thus going on, as a
rentals beginning January, 1958, notwithstanding demands therefor made from time consequence of the continuing failure of the lessees to fulfill their earlier promise to
to time. At first, the defendants assured the plaintiff that the lease rentals would be pay the accruing rentals on the leased certificates,
paid, although it might be delayed, but in the end they failed to comply with their
promise.chanroblesvirtualawlibrarychanrobles virtual law library
On May 19, 1959, plaintiff Biñan Transportation Company represented by Francisco
C. Manabat, assignee, filed this action against defendants Laguna Tayabas Bus
On February 18, 1958, the Batangas Transportation Company and Laguna-Tayabas Company and Batangas Transportation Company for the recovery of the sum of
Bus Company separately filed with the Public Service Commission a petition for P42,500 representing the accrued rentals for the lease of the certificates of public
authority to suspend the operation on the lines covered by the certificates of public convenience of the former to the latter, corresponding to the period from January
convenience leased to each of them by the Biñan Transportation Company. The 1958, to May 1959, inclusive, plus the sum of P1,836.92 which was deducted by the
defendants alleged as reasons the reduction in the amount of dollars allowed by the defendants from the rentals due for August, 1957, together with all subsequent
Monetary Board of the Central Bank of the Philippines for the purchase of spare parts rentals from June, 1959, that became due and payable; P5,000.00 for attorney's fees
needed in the operation of their trucks, the alleged difficulty encountered in securing and such corrective and exemplary damages as the court may find
said parts, and their procurement at exorbitant costs, thus rendering the operation of reasonable.chanroblesvirtualawlibrarychanrobles virtual law library
the leased lines prohibitive. The defendants further alleged that the high cost of
operation, coupled with the lack of passenger traffic on the leased lines resulted in
financial losses. For these reasons they asked permission to suspend the operation
26
The defendants moved to dismiss the complaint for lack of jurisdiction over the decision was received by the appellants on September 7,
subject matter of the action, there being another case pending in the Public Service 1964.chanroblesvirtualawlibrarychanrobles virtual law library
Commission between the same parties for the same cause. ... (pp. 20-21, rec.; pp.
54-55, ROA). On September 21, 1964, appellants filed the present appeal, raising the following
questions of law:
The motion to dismiss was, however, denied. Meanwhile -
1. Considering that the Court of Appeals found that the Public Service Commission
The Public Service Commission delegated its Chief Attorney to receive evidence of provisionally approved the lease contract of January 20, 1956 between petitioners
the parties on the petition of the herein defendants for authority to suspend operation and Biñan Transportation Company upon the condition, amongothers, that such
on the lines leased to them by the plaintiff. The defendants, the assignee of the approval was subject to modification and cancellation and towhatever decision that in
plaintiff and other creditors of the insolvent presented evidence before the Chief due time might be rendered in the case, the Court ofAppeals erred in giving no legal
Attorney and the hearing was concluded on June 29, 1959. On October 20, 1959, the effect and significance whatever to the suspension of operations later granted by the
Public Service Commission issued an order the dispositive part of which reads as Public Service Commission after due hearing covering the lines leased to petitioners
follows: thereby nullifying, contrary to law and decisions of this Honorable Court, the authority
and powersconferred on the Public Service
In view of the foregoing, the petitioners herein are authorized to suspend their Commission.chanroblesvirtualawlibrarychanrobles virtual law library
operation of the trips of the Biñan Transportation Company between Batangas Piers-
Manila, Biñan-Manila, Sta. Rosa-Manila and Canlubang-Manila authorized in the 2. The Court of Appeals misapplied the statutory rules on interpreting contracts and
aforementioned cases from the date of the filing of their petition on February 18, erred in its construction of the clauses in the lease agreement authorizing petitioners
1958, until December 31, 1959. (p. 25, rec.; pp. 60-61, ROA). to suspend operation without the corresponding liability for rentals during the period of
suspension.chanroblesvirtualawlibrarychanrobles virtual law library
Going back to the Court of First Instance of Laguna -
3. Contrary to various decisions of this Honorable Court relieving the lessee from the
... The motion (to dismiss) having been denied, the defendants answered the obligation to pay rent where there is failure to use or enjoy the thing leased, the Court
complaint, alleging among others, that the Public Service Commission authorized the of Appeals erroneously required petitioners to pay rentals, with interest, during the
suspension of operation over the leased lines from February 18, 1950, up to period of suspension of the lease from January, 1958 up to the expiration of the
December 31, 1959, and hence the lease contract should be deemed suspended agreement on January 20, 1961. (p. 7, rec.)
during that period; that plaintiff failed to place defendants in peaceful and adequate
enjoyment and possession of the things leased; that as a result of the plaintiff being On October 12, 1964, the Supreme Court issued a resolution dismissing said petition
declared insolvent the lease contract lost further force and effect and payment of "for lack of merit." (p. 43, rec.). Said resolution was received by petitioners on October
rentals thereafter was made under a mistake and should be refunded to the 16, 1964.chanroblesvirtualawlibrarychanrobles virtual law library
defendants. (p. 21; rec.; p. 55, ROA).
On October 31, 1964, the day the Court's resolution was to become final, petitioners
The Court of Appeals proceeded to state that - filed a "Motion to Admit Amended Petition and to Give Due Course Thereto." In said
motion, petitioners explained -
After hearing in the court a quo and presentation by the parties herein of their
respective memoranda, the trial court on March 18, 1960, rendered judgment in favor ... The amendment includes an alternative ground relating to petitioners' prayer for the
of plaintiff, ordering the defendants jointly and severally to pay to the former the sum reduction of the rentals payable by them. This alternative petition was not included in
of P65,000.00 for the rentals of the certificates of public convenience corresponding the original one as petitioners where genuinely convinced that they should have been
to the period from January, 1958, to February, 1960, inclusive, including the withheld absolved from all liabilities whatever. However, in view of the apparent position taken
amount of P836.92 from the rentals for August, 1957, plus the rentals that might by this Honorable Court, as implied in its resolution on October 12, 1964, notice of
become due and payable beginning March, 1960, at the rate of P2,500.00 a month, which was received on October 16, 1964, petitioners now squarely submit their
with interest on the sums of P42,500 and P836.92 at the rate of 6% per annum from alternative position for consideration. There is decisional authority for the reduction of
the date of the filing of the complaint, with interest on the subsequent rentals at the rentals payable (see Reyes v. Caltex, 47 O.G. 1193, 1203-1204) (p. 44, rec).
same rate beginning the first of the following month, plus the sum of P3,000.00 as
attorney's fees, and the cost of the suit. (pp. 25-26, rec.) The new question raised is presented thus:

From the decision of the Court of First Instance, defendants appealed to the Court of xxx xxx xxx
Appeals, which affirmed the same in toto in its decision dated August 31, 1964. Said

27
IV was also placed by the petitioners on Our decision in Reyes v. Caltex (Phil.) Inc., 84
Phil. 654, which supposedly applied said article by analogy to a lease other than that
This Honorable Court is authorized to equitably reduce the rentals payableby the covered by said legal provision.chanroblesvirtualawlibrarychanrobles virtual law
petitioners, should this Honorable Court adopt the position of the Courtof Appeals and library
the lower court that petitioners have not been releived from thepayment of rentals on
the leased lines. (p. 7 Amended Petition for Certiorari,pp. 46, 52, The authorities from which the petitioners draw support, however, are not applicable
rec.).chanroblesvirtualawlibrarychanrobles virtual law library to the case at bar.chanroblesvirtualawlibrarychanrobles virtual law library

On November 5, 1964, the Supreme Court required respondents herein to file an Article 1680 of the Civil Code reads thus:
answer to the amended petition. On the same date, respondents filed, quite belatedly,
an opposition to the motion of the petitioners. Said opposition was later "noted" by the Art. 1680. The lessee shall have no right to a reduction of the rent on accountof the
Court in its resolution dated December 1, 1964. sterility of the land leased, or by reason of the loss of fruits due toordinary fortuitous
events; but he shall have such right in case of the loss ofmore than one-half of the
Ichanrobles virtual law library fruits through extraordinary and unforeseen fortuitous events, save always when
there is a specific stipulation to the contrary.chanroblesvirtualawlibrarychanrobles
First, it must be pointed out that the first three questions of law raised by petitioners virtual law library
were already disposed of in Our resolution dated October 12, 1964 dismissing the
original petition for lack of merit, which in effect affirmed the appealed decision of the Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual
Court of of Appeals. Although, in their motion to admit amended petition dated flood, locusts, earthquake, or others which are uncommon, and which thecontracting
October 31, 1964, petitioners sought a reconsideration of the said resolution not only parties could not have reasonably foreseen.
in the light of the fourth legal issue raised but also on the said first three legal
questions, the petitioners advanced no additional arguments nor cited new authorities Article 1680, it will be observed is a special provision for leases of rural lands. No
in support of their stand on the first three questions of law. They merely other legal provision makes it applicable to ordinary leases. Had theintention of the
reproduced verbatim from their original petition their discussion on said lawmakers been so, they would have placed the article among the general provisions
questions.chanroblesvirtualawlibrarychanrobles virtual law library on lease. Nor can the article be applied analogously to ordinary leases, for precisely
because of its special character, it was meant to apply only to a special specie of
To the extent therefore that the motion filed by the petitioner seeks a reconsideration lease. It is a provision of social justice designed to relieve poor farmers from the
of our order of dismissal by submitting anew, through the amended petition, the very harsh consequences of their contracts with rich landowners. And taken in that light,
same arguments already dismissed by this Court, the motion shall be considered pro the article provides no refuge to lessees whose financial standing or social position is
forma, (See Estrada v. Sto. Domingo, 28 SCRA 890, 905-906, 911) and hence is equal to, or even better than, the lessor as in the case at
without merit.chanroblesvirtualawlibrarychanrobles virtual law library bar.chanroblesvirtualawlibrarychanrobles virtual law library

Consequently, we limit the resolution of this case solely on the discussions on the last Even if the cited article were a general rule on lease, its provisions nevertheless do
(fourth) question of law raised, taking into consideration the discussion on the first not extend to petitioners. One of its requisites is that the cause of loss of the fruits of
three questions only insofar as they place the petitioners' discussion on the fourth the leased property must be an "extraordinary and unforeseen fortuitous event." The
question in its proper context and perspective.chanroblesvirtualawlibrarychanrobles circumstances of the instant case fail tosatisfy such requisite. As correctly ruled by
virtual law library the Court of Appeals, the alleged causes for the suspension of operations on the lines
leased, namely, the high prices of spare parts and gasoline and the reduction of the
IIchanrobles virtual law library dollar allocations, "already existed when the contract of lease was executed" (p. 11,
Decision; p. 30, rec.; Cuyugan v. Dizon, 89 Phil. 80). The cause of petitioners' inability
to operate on the lines cannot, therefore, be ascribed to fortuitous events or
The undisguised object of petitioners' discussion on the fourth question of law raised circumstances beyond their control, but to their own voluntary desistance (p. 13,
is to justify their plea for a reduction of the rentals on the ground that the subject Decision; p. 32, rec.).chanroblesvirtualawlibrarychanrobles virtual law library
matter of the lease was allegedly not used by them as a result of the suspension of
operations on the lines authorized by the Public Service
Commission.chanroblesvirtualawlibrarychanrobles virtual law library If the petitioners would predicate their plea on the basis solely of their inability to use
the certificates of public convenience, absent the requisite of fortuitous event, the
cited article would speak strongly against their plea.Article 1680 opens with the
In support of said plea, petitioners invoke article 1680 of the Civil Code which grants statement: "The lessee shall have no right to reduction of the rent on account of the
lessees of rural lands a right to a reduction of rentals whenever the harvest on the sterility of the land leased ... ." Obviously, no reduction can be sustained on the
land leased is considerably damaged by an extraordinary fortuitous event. Reliance
28
ground that the operation of the leased lines was suspended upon the mere have the advantage of casual profits of the leased premises, he should run the
speculation that it would yield no substantial profit for the lessee bus company. hazard of casual losses during the term and not lay the whole burden upon the
Petitioners' profits may be reduced due to increase operating costs; but the volume of lessor." (Reyes vs. Caltex, supra, 664).chanroblesvirtualawlibrarychanrobles virtual
passenger traffic along the leased lines not only remains same but may even law library
increase as the tempo of the movement of population is intensified by the industrial
development of the areas covered or connected by the leased routes. Moreover, Militating further against a grant of reduction of the rentals to the petitioners is the
upon proper showing, the Public Service Commission might have granted petitioners petitioners' conduct which is not in accord with the rules of fair play and justice.
an increase in rates, as it has done so in several instances, so that public interest will Petitioners, it must be recalled, promised to pay the accrued rentals in due time.
always be promoted by a continuous flow of transportation facilities to service the Later, however, when they believed they found a convenient excuse for escaping
population and the economy. The citizenry and the economy will suffer by reason of their obligation, they reneged on their earlier promise. Moreover, petitioners' option to
any disruption in the transportation facilities.chanroblesvirtualawlibrarychanrobles suspend operation on the leased lines appears malicious. Thus, Justice Esguerra,
virtual law library speaking for the Court of Appeals, propounded the following questions: "If it were true
that thecause of the suspension was the high prices of spare parts, gasoline and
Furthermore, we are not at all convinced that the lease contract brought no material needed materials and the reduction of the dollar allocation, why was it that only
advantage to the lessor for the period of suspension. It must be recalled that the plaintiff-appellee's certificate of public convenience was sought to be suspended?
lease contract not only stipulated for the transfer of the lessor's right to operate the Why did not the defendants-appellants ask for a corresponding reduction or
lines covered by the contract, but also for a forbearance on the part of the lessor to suspension under their own certificate along the same route? Suppose the prices of
operate transportation business along the same lines - and to hold a certificate for the spare parts and needed materials were cheap, would the defendants-appellants
that purpose. Thus, even if the lessee would not actually make use of the lessor's have paid more than what is stipulated in the lease contract? We believe not. Hence,
certificates over the leased lines, the contractual commitment of the lessor not to the suspension of operation on the leased lines was conceived as a scheme to lessen
operate on the lines would sufficiently insure added profit to the lessees on account of operation costs with the expectation of greater profit." (p. 14,
the lease contract. In other words, the commitment alone of the lessor under the Decision).chanroblesvirtualawlibrarychanrobles virtual law library
contract would enable the lessees to reap full benefits therefrom since the commuting
public would, after all, be forced - at their inconvenience and prejudice - to patronize Indeed, petitioners came to court with unclean hands, which fact militates against
petitioner's remaining buses.chanroblesvirtualawlibrarychanrobles virtual law library their plea for equity.chanroblesvirtualawlibrarychanrobles virtual law library

Contrary to what petitioners want to suggest, WE refused in the Reyes case, supra, to WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE HEREBY
apply by analogy Article 1680 and consequently, WE denied the plea oflessee therein DISMISSED, AND THE DECISION OF THE COURT OF APPEALS DATED AUGUST
for an equitable reduction of the stipulated rentals, holding that: 31, 1964 IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONERS.

The general rule on performance of contracts is graphically set forth in American G.R. No. L-44349 October 29, 1976
treatises which is also the rule, in our opinion, obtaining under the Civil
Code.chanroblesvirtualawlibrarychanrobles virtual law library
JESUS V. OCCENA and EFIGENIA C. OCCENA, Petitioners, vs. HON. RAMON V.
JABSON, Presiding Judge of the Court Of First Instance of Rizal, Branch XXVI;
Where a person by his contract charges himself with an obligation possible to be COURT OF APPEALS and TROPICAL HOMES, INC., Respondents.
performed, he must perform it, unless the performance is rendered impossible by the
act of God, by the law, or by the other party, it being the rule that in case the party
desires to be excused from the performance in the event of contingencies arising, it is Occena Law Office for petitioners.chanrobles virtual law library
his duty to provide therefor in his contract. Hence, performance is not excused by
subsequent inability to perform, by unforeseen difficulties, by unusual or unexpected Serrano, Diokno & Serrano for respondents.
expenses, by danger, by inevitable accident, by breaking of machinery, by strikes, by
sickness, by failure of a party to avail himself of the benefits tobe had under the TEEHANKEE, J.:
contract, by weather conditions, by financial stringency or bystagnation of business.
Neither is performance excused by the fact that the contract turns out to be hard and
improvident, unprofitable, or impracticable, ill-advised, or even foolish, or less The Court reverses the Court of Appeals appealed resolution. The Civil Code
profitable, unexpectedly burdensome. (17 CJS 946-948) (Reyes vs. Caltex, supra, authorizes the release of an obligor when the service has become so difficult as to be
664. Emphasis supplied). manifestly beyond the contemplation of the parties but does not authorize the courts
to modify or revise the subdivision contract between the parties or fix a different
sharing ratio from that contractually stipulated with the force of law between the
Also expressed in said case is a ruling in American jurisprudence, which found parties. Private respondent's complaint for modification of the contract manifestly has
relevance again in the case at bar, to wit: "(S)ince, by the lease, the lessee was to no basis in law and must therefore be dismissed for failure to state a cause of action.
29
On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for Hence, the petition at abar wherein petitioners insist that the worldwide increase
modification of the terms and conditions of its subdivision contract with petitioners inprices cited by respondent does not constitute a sufficient casue of action for
(landowners of a 55,330 square meter parcel of land in Davao City), making the modification of the subdivision contrct. After receipt of respondent's comment, the
following allegations:chanrobles virtual law library Court in its Resolution of September 13, 1976 resolved to treat the petition as special
civil actionand declared the case submitted for
"That due to the increase in price of oil and its derivatives and the concomitant decision.chanroblesvirtualawlibrarychanrobles virtual law library
worldwide spiralling of prices, which are not within the control of plaintiff, of all
commodities including basis raw materials required for such development work, the The petition must be granted.chanroblesvirtualawlibrarychanrobles virtual law library
cost of development has risen to levels which are unanticipated, unimagined and not
within the remotest contemplation of the parties at the time said agreement was While respondent court correctly cited in its decision the Code Commission's report
entered into and to such a degree that the conditions and factors which formed the giving the rationale for Article 1267 of the Civil Code, to wit;
original basis of said contract, Annex 'A', have been totally changed; 'That further
performance by the plaintiff under the contract.
The general rule is that impossibility of performance releases the obligor. However, it
is submitted that when the service has become so difficult as to be manifestly beyond
That further performance by the plaintiff under the contract,Annex 'S', will result in the contemplation of the parties, the court should be authorized to release the obligor
situation where defendants would be unustly enriched at the expense of the plaintiff; in whole or in part. The intention of the parties should govern and if it appears that the
will cause an inequitous distribution of proceeds from the sales of subdivided lots in service turns out to be so difficult as have been beyond their contemplation, it would
manifest actually result in the unjust and intolerable exposure of plaintiff to implacable be doing violence to that intention to hold the obligor still responsible. ... 2chanrobles
losses, all such situations resulting in an unconscionable, unjust and immoral virtual law library
situation contrary to and in violation of the primordial concepts of good faith, fairness
and equity which should pervade all human relations.
It misapplied the same to respondent's
complaint.chanroblesvirtualawlibrarychanrobles virtual law library
Under the subdivision contract, respondent "guaranteed (petitioners as landowners)
as the latter's fixed and sole share and participation an amount equivalent to forty
(40%) percent of all cash receifpts fromthe sale of the subdivision lots"chanrobles If respondent's complaint were to be released from having to comply with the
virtual law library subdivision contract, assuming it could show at the trial that the service undertaken
contractually by it had "become so difficult as to be manifestly beyond the
contemplation of the parties", then respondent court's upholding of respondet's
Respondent pray of the Rizal court of first instance that "after due trial, this Honorable complaint and dismissal of the petition would be justifiable under the cited codal
Court render judgment modifying the terms and conditions of the contract ... by fixing article. Without said article, respondent would remain bound by its contract under the
the proer shares that shouls pertain to the herein parties out of the gross proceeds theretofore prevailing doctrine that performance therewith is ot excused "by the fact
from the sales of subdivided lots of subjects that the contract turns out to be hard and improvident, unprofitable, or unespectedly
subdivision".chanroblesvirtualawlibrarychanrobles virtual law library burdensome", 3 since in case a party desires to be excuse from performance in the
event of such contingencies arising, it is his duty to provide threfor in the
Petitioners moved to dismiss the complaint principally for lack of cause of action, and contract.chanroblesvirtualawlibrarychanrobles virtual law library
upon denial thereof and of reconsideration by the lower court elevated the matter on
certiorari to respondent Court of Appeals.chanroblesvirtualawlibrarychanrobles virtual But respondent's complaint seeks not release from the subdivision contract but that
law library the court "render judgment I modifying the terms and Conditions of the Contract by
fixing the proper shares that should pertain to the herein parties out of the gross
Respondent court in its questioned resolution of June 28, 1976 set aside the proceed., from the sales of subdivided lots of subject subdivision". The cited article
preliminary injunction previously issued by it and dimissed petition on the ground that does not grant the courts this authority to remake, modify or revise the contract or to
under Article 1267 of the Civil Code which provides that fix the division of shares between the parties as contractually stipulated with the force
of law between the parties, so as to substitute its own terms for those covenanted by
ART. 1267. When the service has become so difficult as to be manifestly beyond the the partiesthemselves. Respondent's complaint for modification of contract manifestly
contemplation of the parties, the obligor may also be released therefrom, in whole or has no basis in law and therefore states no cause of action. Under the particular
in part. 1chanrobles virtual law library allegations of respondent's complaint and the circumstances therein averred, the
courts cannot even in equity grant the relief
sought.chanroblesvirtualawlibrarychanrobles virtual law library
... a positive right is created in favor of the obligor to be released from the
performance of an obligation in full or in part when its performance 'has become so
difficult as to be manifestly beyond the contemplation of the parties.

30
A final procedural note. Respondent cites the general rule that an erroneous order In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a
denying a motion to dismiss is interlocutory and should not be corrected by certiorari writ of execution of the judgment for attorney's fees in his favor. Gan Tion went on
but by appeal in due course. This case however manifestly falls within the recognized certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that
exception that certiorari will lie when appeal would not prove to be a speedy and Ong Wan Sieng was indebted to him in the sum of P4,320 for unpaid rents. The
adequate remedy.' Where the remedy of appeal would not, as in this case, promptly appellate court accepted the petition but eventually decided for the respondent,
relieve petitioners from the injurious effects of the patently erroneous order holding that although "respondent Ong is indebted to the petitioner for unpaid rentals
maintaining respondent's baseless action and compelling petitioners needlessly to go in an amount of more than P4,000.00," the sum of P500 could not be the subject of
through a protracted trial and clogging the court dockets by one more futile case, legal compensation, it being a "trust fund for the benefit of the lawyer, which would
certiorari will issue as the plain, speedy and adequate remedy of an aggrieved have to be turned over by the client to his counsel." In the opinion of said court, the
party.chanroblesvirtualawlibrarychanrobles virtual law library requisites of legal compensation, namely, that the parties must be creditors and
debtors of each other in their own right (Art. 1278, Civil Code) and that each one of
ACCORDINGLY, the resolution of respondent appellate court is reversed and the them must be bound principally and at the same time be a principal creditor of the
petition for certiorari is granted and private respondent's complaint in the lower court other (Art. 1279), are not present in the instant case, since the real creditor with
is ordered dismissed for failure to state a sufficient cause of action. With costs in all respect to the sum of P500 was the defendant's counsel.
instances against private respondent.
This is not an accurate statement of the nature of an award for attorney's fee's. The
Makasiar, Muñoz Palma, Concepcion, Jr., and Martin JJ., concur. award is made in favor of the litigant, not of his counsel, and is justified by way of
indemnity for damages recoverable by the former in the cases enumerated in Article
2208 of the Civil Code.1 It is the litigant, not his counsel, who is the judgment creditor
G.R. No. L-22490 May 21, 1969 and who may enforce the judgment by execution. Such credit, therefore, may properly
be the subject of legal compensation. Quite obviously it would be unjust to compel
GAN TION, petitioner, petitioner to pay his debt for P500 when admittedly his creditor is indebted to him for
vs. more than P4,000.
HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of
the Court of First Instance of Manila, ONG WAN SIENG and THE SHERIFF OF WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of
MANILA, respondents. execution issued by the Court of First Instance of Manila in its Civil Case No. 49535 is
set aside. Costs against respondent.
Burgos and Sarte for petitioner.
Roxas, Roxas, Roxas and Associates for respondents. Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
Teehankee and Barredo JJ., took no part.
MAKALINTAL, J.: Concepcion, C.J., and Castro, J., are on leave.

The sole issue here is whether or not there has been legal compensation between G.R. No. L-69255 February 27, 1987
petitioner Gan Tion and respondent Ong Wan Sieng.
PHILIPPINE NATIONAL BANK, petitioner,
Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the vs.
latter filed an ejectment case against the former, alleging non-payment of rents for GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG
August and September of that year, at P180 a month, or P360 altogether. The ACERO CHUA, respondents.
defendant denied the allegation and said that the agreed monthly rental was only
P160, which he had offered to but was refused by the plaintiff. The plaintiff obtained a Leopoldo E. Petilla for respondents.
favorable judgment in the municipal court (of Manila), but upon appeal the Court of
First Instance, on July 2, 1962, reversed the judgment and dismissed the complaint,
and ordered the plaintiff to pay the defendant the sum of P500 as attorney's fees.
That judgment became final.
NARVASA, J.:
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was
increasing the rent to P180 a month, effective November 1st, and at the same time Savings Account No. 010-5878868-D of Isabela Wood Construction & Development
demanded the rents in arrears at the old rate in the aggregate amount of P4,320.00, Corporation, opened with the Philippine National Bank on March 9, 1979 in the
corresponding to a period from August 1961 to October 1963.lâwphi1.ñet amount of P2 million is the subject of two (2) conflicting claims, sought to be
definitively resolved in the proceedings at bar. 1 One claim is asserted by the
31
ACEROS — Gloria G. Vda. de Ong Acero, Arnolfo Ong Acero and Soledad Ong On October 13, 1977, Isabela Wood Construction and
Acero-Chua, judgment creditors of the depositor (hereafter simply referred to as Development Corporation ** entered into a Credit Agreement with
ISABELA) — who seek to enforce against said savings account the final and PNB. Under the agreement PNB, having approved the application
executory judgment rendered in their favor by the Court of First Instance of Rizal QC of defendant (Isabela & c.) for the establishment for its account of a
Br. XVI). The other claim has been put forth by the Philippine National Bank deferred letter of credit in the amount of DM 4,695,947.00 in favor
(hereafter, simply PNB) which claims that since ISABELA was at some point in time of the Machinenfabric Augsburg Nunberg (MAN) of Germany from
both its debtor and creditor-ISABELA's deposit being deemed a loan to it (PNB)-there whom defendant purchased thirty-five (35) units of MAN trucks,
had occurred a mutual set-off between them, which effectively precluded the defendant corporation agreed to put up, as collaterals, among
ACEROS' recourse to that deposit. others, the following:

The controversy was decided by the Intermediate Appellate Court adversely to the 4. The CLIENT shall assign to the BANK the
PNB. It is this decision that the PNB would have this Court reverse. proceeds of its contract with the Department of
Public Works for the construction of Nagapit
The ACEROS' claim to the bank deposit is more specifically founded upon the Suspension Bridge (Substructure) in Cagayan.
garnishment thereof by the sheriff, effected in execution of the partial judgment
rendered by the CFI at Quezon City in their favor on November 18, 1979. The partial This particular proviso in the aforesaid agreement was to be
judgment ordered payment by ISABELA to the ACEROS of the amount of subsequently confirmed by Faustino Dy, Jr., as president of
P1,532,000.07. 2 Notice of garnisment was served on the PNB on January 9, 1980, defendant corporation, in a letter to the PNB, dated February 21,
pursuant to the writ of execution dated December 23, 1979. 3 This was followed by an 1970, quoted in full as follows:
Order issued on February 15, 1980 directing PNB to hand over this amount of
P1,532,000.07 to the sheriff for delivery, in turn, to the ACEROS. Not quite two Gentlemen:
months later, or on April 8, 1980, a second (and the final and complete judgment) was
promulgated by the CFI in favor of the ACEROS and against ISABELA, the
dispositive part of which is as follows: This is to confirm our arrangement that the
treasury warrant in the amount of P2,704 millon
in favor of Isabela Wood Construction and
WHEREFORE, premises considered, judgment is hereby rendered Development Corporation to be delivered either
in favor of plaintiffs and against the defendant: by the Commission on Audit or the Ministry of
Public Highways, shall be placed in a savings
1. Reiterating the dispositive portion of the partial judgment issued account with your bank to the extent of P 2
by this Court, dated November 16, 1979, ordering the defendant to million.
pay to the plaintiff the amount of P1,532,000.07 as principal, with
interest at 12% per annum from December 11, 1975 until the whole The said amount shall remain in the savings
amount is fully paid; account until we are able to comply with the
delivery and registration of the mortgage in favor
2. Ordering defendant to pay the plaintiffs the amount of of the Philippine National Bank of our Paranaque
P207,148.00 as compensatory damages, with legal interest thereon property, and the securing from Metropolitan
from the filing of the complaint until the whole amount is fully paid; Bank and Home Owners Savings and Loan
Association to snow PNB a second mortgage on
3. Ordering defendant to pay plaintiffs the amount of P383,000.00 the properties of Isabela Wood Construction
as and by way of attorneys fees. 4 Group, Inc., presently under first mortgage with
them.
On the other hand, PNB's claim to the two-million-peso deposit in question is made to
rest on an agreement between it and ISABELA in virtue of which, according to PNB: Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit
(1) the deposit was made by ISABELA as "collateral" in connection with its Agreement, quoted above, PNB thru its International Department
indebtedness to PNB as to which it (ISABELA) had assumed certain contractual opened the savings account in question, under Account No. 010-
undertakings; and (2) in the event of ISABELA's failure to fulfill those undertakings, 58768-D, with an initial deposit of P2,000,000.00, proceeds of a
PNB was empowered to apply the deposit to the payment of that indebtedness. The treasury warrant delivered to PNB (EXHIBIT 3-A).
facts upon which PNB's theory stands are summarized in the Order of CFI Judge
Solano dated October 1, 1982, 5 relevant portions of which are here reproduced: xxx xxx xxx

32
 Since defendant corporation failed to deliver to PNB by way of It is not necessary for the perfection of the contract of sale that the
mortgage its Paranaque property, neither was defendant thing be delivered and that the price be paid. Neither is it necessary
corporation able to secure from Metropolitan Bank and Home that the thing should belong to the vendor at the time of the
Owners Savings and Loan Association its consent to allow PNB a perfection of the contract, it being sufficient that the vendor has the
second mortgage, and considering that the obligation of defendant right to transfer ownership thereof at the time it is delivered.
corporation to PNB have been due and unsettled, PNB applied the
amount of P 2,102804.11 in defendant's savings account of PNB. The shoe was now on the other foot. It was the ACEROS' turn to move for
reconsideration, which they did as regards this Order of October 1, 1982; but by
It was upon this version of the facts, and its theory thereon based on a mutual set-off, Order promulgated on December 14, 1982, the Court declined to modify its
or compensation, between it and ISABELA — in accordance with Articles 1278 et al. resolution.
of the Civil Code — that PNB intervened in the action between the ACEROS and
ISABELA on or about February 28, 1980 and moved for reconsideration of the Order The ACEROS then appealed to the Intermediate Appellate Court which, after due
of February 15, 1980 (requiring it to turn over to the sheriff the sum of proceedings, sustained them. On September 14, 1984, it rendered judgment the
P1,532,000.07, supra: fn. 2). But its motion met with no success. It was denied by the dispositive part whereof reads as follows:
Lower Court (Hon. Judge Apostol, presiding) by Order dated May 14, 1980. 6 And a
motion for the reconsideration of that Order of May 14, 1980 was also denied, by
Order dated August 11, 1980. WHEREFORE, the Orders of October 1 and December 14, 1982 of
the Court a quo are hereby REVERSED and SET ASIDE, and in
their stead, it is hereby adjudged:
PNB again moved for reconsideration, this time of the Order of August 11, 1980; it
also pleaded for suspension in the meantime of the enforcement of the Orders of
February 15, and May 14, 1980. Its persistence seemingly paid off. For the Trial Court 1. That the Order of February 15, 1980 of the Court a quo is hereby
(now presided over by Hon. Judge Solano), directed on October 9, 1980 the setting ordered reinstated;
aside of the said Orders of May 14, and August 11, 1980, and set for hearing PNB's
first motion for the reconsideration of the Order of February 15, 1980. 7 Several 2. That intervenor PNB must deliver the amount stated in the Order
months afterwards, or more precisely on October 1, 1982, the Order of February 15, of February 15, 1980 with interest thereon at 12% from February
1980 was itself also struck down, 8 the Lower Court opining that under the 15, 1980 until delivered to appellants, the amount of interest to be
circumstances, there had been a valid assignment by ISABELA to PNB of the amount paid by PNB and not to be deducted from the deposit of Isabela
deposited, which effectively placed that amount beyond the reach of the ACE ROS, Wood;
viz:
3. That intervenor PNB must pay attorney's fees and expenses of
When the two million or so treasury warrant, proceeds of litigation to appellants in the amount of P10,000.00 plus the costs of
defendant's contract with the government was delivered to PNB, suit. 9
said amount, per agreement aforequoted, had already been
assigned by defendant corporation to PNB, as collateral. This dispositive part was subsequently modified at the ACEROS' instance, by
Resolution dated November 8, 1984 which inter alia "additionally ** (ordered) PNB to
The said amount is not a pledge. likewise deliver to appellants the balance of the deposit of Isabela Wood Construction
and Development Corporation after first deducting the amount applied to the partial
The assignment is valid. The defendant need not be the owner judgment of P1,532,000.00 in satisfaction of appeallants' final judgment." 10
thereof at the time of assignment.
PNB's main thesis is that when it opened a savings account for ISABELA on March 9,
An assignment of credit and other incorporeal 1979 in the amount of P 2M, it (PNB) became indebted to ISABELA in that
rights shall be perfected in accordance with the amount. 11 So that when ISABELA itself subsequently came to be indebted to it on
provisions of Article 1475. account of ISABELA's breach of the terms of the Credit Agreement of October 13,
1977, and therefore ISABELA and PNB became at the same time creditors and
debtors of each other, compensation automatically took place between them, in
The contract of sale is perfected at the moment accordance with Article 1278 of the Civil Code. The amounts due from each other
there is a meeting of the minds upon the thing were, in its view, applied by operation of law to satisfy and extinguish their respective
which is the object of the interest and upon its credits. More specifically, the P2M owed by PNB to ISABELA was automatically
price. applied in payment and extinguishment of PNB's own credit against ISABELA. This
having taken place, that amount of P2M could no longer be levied on by any other
33
creditor of ISABELA, as the ACEROS attempted to do in the case at bar, in order to Reconsideration filed on August 26, 1980, 14 and thus furnished the occasion for PNB
satisfy their judgment against ISABELA. to prove, among others, ISABELA's debt to it. PNB unaccountably failed to do so.
Moreover, PNB never even attempted to offer or exhibit such evidence, in the course
Article 1278 of the Civil Code does indeed provide that "Compensation shall take of the appellate proceedings before the IAC, which is a certain indication, in that
when two persons, in their own right, are creditors and debtors of each other. " Also Court's view, that PNB does not really have these proofs at ala
true is that compensation may transpire by operation of law, as when all the requisites
therefor, set out in Article 1279, are present. Nonetheless, these legal provisions can For this singular omission PNB offers no explanation except that it saw no necessity
not apply to PNB's advantage under the circumstances of the case at bar. to submit the Documents in evidence, because sometime on March 14, 1980, the
ACEROS's attorney had been shown those precise documents — setting forth
The insuperable obstacle to the success of PNB's cause is the factual finding of the ISABELA's loan obligations, such as the import bills and the sight draft covering
IAC, by which upon firmly established rules even this Court is bound, 12 that it has not drawings on the L/C for ISABELA's account — and after all, the ACEROS had not
proven by competent evidence that it is a creditor of ISABELA. The only evidence really put this indebtedness in issue. 15The explanation cannot be taken seriously. In
present by PNB towards this end consists of two (2) documents marked in its behalf the picturesque but forceful language of the Appellate Court, the explanation "is silly
as Exhibits 1 and 2, But as the IAC has cogently observed, these documents do not as you do not prove a fact in issue by showing evidence in support thereof to the
prove any indebtedness of ISABELA to PNB. All they do prove is that a letter of credit opposing counsel; you prove it by submitting evidence to the proper court." The fact is
might have been opened for ISABELA by PNB, but not that the credit was ever that the record does not disclose that the ACEROS have ever admitted the asserted
availed of (by ISABELA's foreign correspondent MAN, or that the goods thereby theory of ISABELA's indebtedness to PNB. At any rate, not being privies to whatever
covered were in fact shipped, and received by ISABELA. transactions might have generated that indebtedness, they were clearly not in a
position to make any declaration on the matter. The fact is, too, that the avowed
indebtedness of ISABELA was an essential element of PNB's claim to the former's P2
Quite obviously, as the IAC has further observed, the most persuasive evidence of million deposit and hence, it was incumbent on the latter to demonstrate it by
these facts — i.e., ISABELA's availment of the credit, as well as the actual delivery of competent evidence if it wished its claim to be judicially recognized and enforced.
the goods covered by and shipped pursuant to the letter of credit-assuming these This, it has failed to do. The failure is fatal to its claim.
facts to have occurred, would naturally and logically have been in PNB's possession
and could have been readily submitted to the Court, to wit:
PNB has however deposited an alternative theory, which is that the P2M deposit had
been assigned to it by ISABELA as "collateral," although not by way of pledge; that
1. The document of availment by the foreign creditor of the letter of ISABELA had explicitly authorized it to apply the P2M deposit in payment of its
credit. indebtedness; and that PNB had in fact applied the deposit to the payment of
ISABELA's debt on February 26, 1980, in concept of voluntary compensation. 16 This
2. The document of release of the amounts mentioned in the second, alternative theory, is as untenable as the first.
agreement.
In the first place, there being no indebtedness to PNB on ISABELA's part, there is in
3. The documents showing that the trucks (transported to the consequence no occasion to speak of any mutual set-off, or compensation, whether it
Philippines by the foreign creditor [MAN] were shipped to ** and be legal, i.e., which automatically occurs by operation of law, or voluntary, i.e., which
received by Isabela. can only take place by agreement of the parties. 17

4. The trust receipts by which possession was given to Isabela of In the second place, the documents indicated by PNB as constitutive of the claimed
the 35 (Imported) trucks. assignment do not in truth make out any such transaction. While the Credit
Agreement of October 13, 1977 (Exh. 1) declares it to be ISABELA's intention to
5. The chattel mortgages over the trucks required under No. 3 of II "assign to the BANK the proceeds of its contract with the Department of Public Works
Collaterals of the Credit Agreement (Exhibit 1). for the construction of Nagapit Suspension Bridge (Substructure) in Cagayan," 18 it
does not appear that that intention was adhered to, much less carried out. The letter
of ISABELA's president dated February 21, 1979 (Exh. 2) would on the contrary seem
6. The receipt by Isabela of the standing accounts sent by PNB. to indicate the abandonment of that intention, in the light of the statements therein
that the amount of P2M (representing the bulk of the proceeds of its contract referred
7. There receipt of the letter of demand by Isabela Wood. 13 to) "shall be placed in a savings account" and that "said amount shall remain in the
savings account until ** (ISABELA is) able to comply with" specified commitments —
these being: the constitution and registration of a mortgage in PNB's favor over its
It bears stressing that PNB did not at all lack want for opportunity to produce these
"Paranaque property," and the obtention from the first mortgage thereof of consent for
documents, if it does indeed have them. Judge Solano, it should be recalled,
the creation of a second lien on the property. 19 These statements are to be sure
specifically allowed PNB to introduce evidence in relation to its Motion for
34
inconsistent with the notion of an assignment of the money. In addition, there is yet The antecedent facts are as follows:
another circumstance militating against the actuality of such an assignment-the "most
telling argument" against it, in fact, in the line of the Appellate Court-and that is, that Engracio Francia is the registered owner of a residential lot and a two-story house
PNB itself, through its International Department, deposited the whole amount of ?2 built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro
million, not in its name, but in the name of ISABELA, 20 without any accompanying Manila. The lot, with an area of about 328 square meters, is described and covered
statement even remotely intimating that it (PNB) was the owner of the deposit, or that by Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay
an assignment thereof was intended, or that some condition or lien was meant to City.
burden it.
On October 15, 1977, a 125 square meter portion of Francia's property was
Even if it be assumed that such an assignment had indeed been made, and PNB had expropriated by the Republic of the Philippines for the sum of P4,116.00 representing
been really authorized to apply the P2M deposit to the satisfaction of ISABELA's the estimated amount equivalent to the assessed value of the aforesaid portion.
indebtedness to it, nevertheless, since the record reveals that the application was
attempted to be made by PNB only on February 26, 1980, that essayed application
was ineffectual and futile because at that time, the deposit was already in custodia Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on
legis, notice of garnishment thereof having been served on PNB on January 9, 1980 December 5, 1977, his property was sold at public auction by the City Treasurer of
(pursuant to the writ of execution issued by the Court of First Instance on December Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real
23, 1979 for the enforcement of the partial judgment in the ACEROS' favor rendered Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez
on November 18,1979). was the highest bidder for the property.

One final factor precludes according validity to PNB's arguments. On the assumption Francia was not present during the auction sale since he was in Iligan City at that
that the P 2M deposit was in truth assigned as some sort of "collateral" to PNB — time helping his uncle ship bananas.
although as PNB insists, it was not in the form of a pledge — the agreement
postulated by PNB that it had been authorized to assume ownership of the fund upon On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In
the coming into being of ISABELA s indebtedness is void ab initio, it being in the re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the
nature of a pactum commisoruim proscribed as contrary to public policy. 21 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
WHEREFORE, the judgment of the Intermediate Appellate Court subject of the Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on
instant appeal, being fully in accord with the facts and the law, is hereby affirmed in December 11, 1978. The auction sale and the final bill of sale were both annotated at
toto. Costs against petitioner. the back of TCT No. 4739 (37795) by the Register of Deeds.

SO ORDERED. On March 20, 1979, Francia filed a complaint to annul the auction sale. He later
amended his complaint on January 24, 1980.
G.R. No. L-67649 June 28, 1988
On April 23, 1981, the lower court rendered a decision, the dispositive portion of
which reads:
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents. 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
GUTIERREZ, JR., J.: defendant Ho Fernandez over the parcel of land
including the improvements thereon, subject to
The petitioner invokes legal and equitable grounds to reverse the questioned decision whatever encumbrances appearing at the back of
of the Intermediate Appellate Court, to set aside the auction sale of his property which TCT No. 4739 (37795) and ordering the same
took place on December 5, 1977, and to allow him to recover a 203 square meter lot TCT No. 4739 (37795) cancelled.
which was, sold at public auction to Ho Fernandez and ordered titled in the latter's
name.

35
 (b) The plaintiff to pay defendant Ho Fernandez Francia contends that his tax delinquency of P2,400.00 has been extinguished by
the sum of P1,000.00 as attorney's fees. (p. 30, legal compensation. He claims that the government owed him P4,116.00 when a
Record on Appeal) 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.
The Intermediate Appellate Court affirmed the decision of the lower court in toto.
There is no legal basis for the contention. By legal compensation, obligations of
Hence, this petition for review. 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:
Francia prefaced his arguments with the following assignments of grave errors of law:
(1) that each one of the obligors be bound principally and that he be
I at the same time a principal creditor of the other;

RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE xxx xxx xxx

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 (3) that the two debts be due.
FORMER.
xxx xxx xxx
II
This principal contention of the petitioner has no merit. We have consistently ruled
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND that there can be no off-setting of taxes against the claims that the taxpayer may have
SERIOUS ERROR IN NOT HOLDING THAT PETITIONER WAS NOT PROPERLY against the government. A person cannot refuse to pay a tax on the ground that the
AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS PROPERTY WAS TO government owes him an amount equal to or greater than the tax being collected. The
TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX collection of a tax cannot await the results of a lawsuit against the government.
DELINQUENCY OF P2,400.00.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that
III Internal Revenue Taxes can not be the subject of set-off or compensation. We stated
that:
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A
SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN NOT HOLDING THAT A claim for taxes is not such a debt, demand, contract or judgment
THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO FERNANDEZ WAS as is allowed to be set-off under the statutes of set-off, which are
GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO construed uniformly, in the light of public policy, to exclude the
FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF remedy in an action or any indebtedness of the state or municipality
LAW, AND CONSEQUENTLY, THE AUCTION SALE MADE THEREOF IS VOID. to one who is liable to the state or municipality for taxes. Neither
(pp. 10, 17, 20-21, Rollo) 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
We gave due course to the petition for a more thorough inquiry into the petitioner's no set-off admissible against demands for taxes levied for general
allegations that his property was sold at public auction without notice to him and that or local governmental purposes. The reason on which the general
the price paid for the property was shockingly inadequate, amounting to fraud and rule is based, is that taxes are not in the nature of contracts
deprivation without due process of law. 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
A careful review of the case, however, discloses that Mr. Francia brought the which, the personal consent of individual taxpayers is not required.
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. 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.

36
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we did receive the notice for the auction sale. The records sustain the lower court's
stated that: "... internal revenue taxes can not be the subject of compensation: finding that:
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, [T]he plaintiff claimed that it was illegal and irregular. He insisted
demand, contract or judgment as is allowed to be set-off." that he was not properly notified of the auction sale. Surprisingly,
however, he admitted in his testimony that he received the letter
There are other factors which compel us to rule against the petitioner. The tax was dated November 21, 1977 (Exhibit "I") as shown by his signature
due to the city government while the expropriation was effected by the national (Exhibit "I-A") thereof. He claimed further that he was not present
government. Moreover, the amount of P4,116.00 paid by the national government for on December 5, 1977 the date of the auction sale because he went
the 125 square meter portion of his lot was deposited with the Philippine National to Iligan City. As long as there was substantial compliance with the
Bank long before the sale at public auction of his remaining property. Notice of the requirements of the notice, the validity of the auction sale can not
deposit dated September 28, 1977 was received by the petitioner on September 30, be assailed ... .
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 We quote the following testimony of the petitioner on cross-examination, to wit:
to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus
aborting the sale at public auction.
Q. My question to you is this letter marked as
Exhibit I for Ho Fernandez notified you that the
Petitioner had one year within which to redeem his property although, as well be property in question shall be sold at public
shown later, he claimed that he pocketed the notice of the auction sale without auction to the highest bidder on December 5,
reading it. 1977 pursuant to Sec. 74 of PD 464. Will you tell
the Court whether you received the original of
Petitioner contends that "the auction sale in question was made without complying this letter?
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 A. I just signed it because I was not able to read
tax delinquency was followed. ... Since defendant Ho Fernandez has the affirmative the same. It was just sent by mail carrier.
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)
Q. So you admit that you received the original of
Exhibit I and you signed upon receipt thereof but
We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction you did not read the contents of it?
sale, has the burden of proof to show that there was compliance with all the
prescribed requisites for a tax sale.
A. Yes, sir, as I was in a hurry.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:
Q. After you received that original where did you
place it?
xxx xxx xxx
A. I placed it in the usual place where I place my
... [D]ue process of law to be followed in tax proceedings must be mails.
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 Petitioner, therefore, was notified about the auction sale. It was negligence on his part
supplied) 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.
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 Petitioner's third assignment of grave error likewise lacks merit. As a general rule,
Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an exception gross inadequacy of price is not material (De Leon v. Salvador, 36 SCRA 567; Ponce
to the rule that administrative proceedings are presumed to be regular. 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
But even if the burden of proof lies with the purchaser to show that all legal law gives the owner the right to redeem as when a sale is made at public auction,
prerequisites have been complied with, the petitioner can not, however, deny that he
37
upon the theory that the lesser the price, the easier it is for the owner to effect And finally, even if we are inclined to give relief to the petitioner on equitable grounds,
redemption." In Velasquez v. Coronel (5 SCRA 985), this Court held: 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
... [R]espondent treasurer now claims that the prices for which the to have pocketed the notice of sale without reading it which, if true, is still an act of
lands were sold are unconscionable considering the wide inexplicable negligence. He did not withdraw from the expropriation payment
divergence between their assessed values and the amounts for deposited with the Philippine National Bank an amount sufficient to pay for the back
which they had been actually sold. However, while in ordinary sales taxes. The petitioner did not pay attention to another notice sent by the City Treasurer
for reasons of equity a transaction may be invalidated on the on November 3, 1978, during the period of redemption, regarding his tax delinquency.
ground of inadequacy of price, or when such inadequacy shocks There is furthermore no showing of bad faith or collusion in the purchase of the
one's conscience as to justify the courts to interfere, such does not property by Mr. Fernandez. The petitioner has no standing to invoke equity in his
follow when the law gives to the owner the right to redeem, as attempt to regain the property by belatedly asking for the annulment of the sale.
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 WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is
redemption. And so it was aptly said: "When there is the right to DISMISSED. The decision of the respondent court is affirmed.
redeem, inadequacy of price should not be material, because the
judgment debtor may reacquire the property or also sell his right to SO ORDERED.
redeem and thus recover the loss he claims to have suffered by
reason of the price obtained at the auction sale."
G.R. No. L-30187 June 25, 1980
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): REPUBLIC OF THE PHILIPPINES, in behalf of the RICE AND CORN
ADMINISTRATION, petitioner,
vs.
If mere inadequacy of price is held to be a valid objection to a sale HON. WALFRIDO DE LOS ANGELES, in his capacity as Judge of the Court of
for taxes, the collection of taxes in this manner would be greatly First Instance of Rizal, Branch IV, Quezon City and MARCELO STEEL
embarrassed, if not rendered altogether impracticable. In Black on CORPORATION, respondents.
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 CONCEPCION JR., J.:
habitually paid by purchasers at tax sales are grossly out of
proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32 Petition for certiorari and prohibition, with preliminary injunction to annul and set aside
Wash. 307, 73 P. 367, 369). the order of the respondent Judge in Civil Case No. Q-9384 of the Court of First
Instance of Rizal Branch IV, Quezon City, entitled "Petra R. Farin, et al.,
In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, petitioners, versus Benito Macrohon, et al., respondents," dated December 23, 1967,
et al. (267 P. 555): ordering "the Rice and Corn Administration and all other business concerns holding
offices at the building known as 'Doña Petra Building,' through their proper
Like most cases of this character there is here a certain element of representative ... to channel or pay directly to herein respondent Meralco Steel
hardship from which we would be glad to relieve, but do so would Corporation, at its main office at Malabon, Rizal the rents for the use of the said
unsettle long-established rules and lead to uncertainty and difficulty building, offices, and/or premises," as well as the orders dated April 3, 1968, May 14,
in the collection of taxes which are the life blood of the state. We 1968, and December 19, 1968, all affirming the said order of December 23, 1967.
are convinced that the present rules are just, and that they bring
hardship only to those who have invited it by their own neglect. It appears that on October 29, 1964, the spouses Petra R. Farin and Benjamin Farin
obtained a loan from the Marcelo Steel Corporation in the amount of P600,000.00,
We are inclined to believe the petitioner's claim that the value of the lot has greatly and as security therefor, the said spouses constituted, in favor of the said corporation,
appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay a real estated mortgage upon their parcel of land situated at Quezon City covered by
City, which necessitated the expropriation of adjoining areas, real estate values have TCT No. 42589 of the Registry of Deeds of Quezon City. 1 On July 24, 1965, the
gone up in the area. However, the price quoted by the petitioner for a 203 square mortgagee wrote the Sheriff of Quezon City requesting the extrajudicial foreclosure of
meter lot appears quite exaggerated. At any rate, the foregoing reasons which the aforesaid mortgage. 2 Accordingly, the sheriff advertised and scheduled the extra-
answer the petitioner's claims lead us to deny the petition. judicial foreclosure sale of the mortgaged property for August 26, 1965. However, on
38
August 21, 1965, the mortgagors filed a petition for prohibition with injunction and Parties to the case and were not served with a copy of the motion of Marcelo Steel
damages against Benito Macrohon, as sheriff of Quezon City, and the Marcelo Steel Corporation, filed on December 9, 1967, so that the Court has no jurisdiction over
Corporation, with the Court of First Instance of Rizal docketed therein as Civil Case them; (b) Petra Farin has assigned a portion of the monthly rental due from RCA to
No. Q-9384, wherein they prayed that the respondent Sheriff be permanently Vidal A. Tan, who has acquired proprietary rights thereto, and (c) under the power of
enjoined from proceeding with the scheduled sale at public auction of the mortgaged attorney provided for in the real estate mortgage contract, the rents collected shall be
property, and that the respondent Corporation be condemned to pay the petitioners applied to the interest on he obligation, and the legality of the additional interest at the
P200,000.00 as actual and moral damages and P50,000.00 as penal and rate of 12% per annum of the total amount of the mortgage indebtedness in addition
compensatory damages and P30,000.00 as attorney's fees, upon the ground that to the 12% annual interest being charged by the Marcelo Steel Corporation on said
they have not been in default in the payment of their obligation. 3 Acting upon the indebtedness is directly at issue in the case, so that to enforce the disputed portion of
petition, the herein respondent Judge Walfrido de los Angeles, issued an order the real estate mortgage contract and allow the Marcelo Steel Corporation to collect
commanding the respondent Sheriff and the respondent Corporation to desist from rents and apply the same to the interests on the loan would be premature. 10
proceeding with the public auction sale of the property scheduled on August 26,
1965. 4 The trial court denied both motions for reconsideration on April 3, 1968, 11 and on
April 17, 1968 the RCA filed a second motion for reconsideration, insisting that the
While the above case was pending, Petra Farin lease portions of the "Doña Petra claim of Marcelo Steel Corporation for rents has no legal basis because even a
Building situated on the mortgaged premises, to the Rice and Corn Administration, mortgagee who has successfully foreclosed a mortgage is not entitled to the fruits
(RCA, for short), for the amount of P11,500.00 per month, payable on or before the and rents of the property during the one-year redemption period, and that Marcelo
5th day of the incoming month.5 Steel Corporation, after it had chosen to foreclose the mortgage, cannot resort to the
provision of the mortgage contract authorizing the mortgagee to collect and receive
On December 9, 1967, the Meralco Steel Corporation invoking paragraph 5 of the rents and to apply said amounts to the payment of the principal obligation and the
mortgage contract, 6 filed a motion praying that an order be issued directing and/or interests thereon; and that no rents are due Petra Farin because she has an
authorizing the Rice and Corn Administration (RCA) and an other business concerns accountability with the RCA in the amount of P263,062.40, which amount should be
holding offices at the Doña Petra Building to channel or pay directly to it the rents for compensated with the rents due. 12 No action appears to have been taken on this
the use of the building. 7 motion.

On December 23, 1967, the respondent Judge of first instance issued the questioned On May 10, 1968, Petra Farin filed an urgent ex parte motion to authorize the RCA to
order, the dispositive portion of which reads, as follows: release the rentals corresponding to the months of December, 1967, January and
February, 1968, amounting to P37,500.00 so as to enable her to make the necessary
repairs on the air conditioning system of the Doña Petra Building, stating, among
AS PRAYED FOR, the Rice and Corn Administration and all other others, that "That RCA is ready, willing and able to release to the petitioners the
business concerns holding offices at the be known as 'Doña Petra rentals mentioned above. 13
Building', through their proper representative and the petitioners as
well are ordered to channel or pay directly to herein respondent,
Marcelo Steel Corporation, at its main office at Malabon, Rizal the The respondent Judge granted the motion, saying.
rents for the use of the said building, offices, and/or premisee. 8
Considering the urgent ex-parte motion, etc. dated May 10, 1968
The RCA filed a motion for the reconsideration of said order, praying that it be filed by the plaintiff, thru counsel and finding the reasons alleged
excluded therefrom, for the reasons that (a) the rents due Petra Farin had been therein to be well-founded;
assigned by her, with the conformity with the RCA, to Vidal A. Tan; (b) Petra Farin
has an outstanding obligation with the RCA in the amount of P263,062.40, AS PRAYED FOR, the Rice and Corn Administration (RCA) is
representing rice shortages incurred by her as a bonded warehouse under contract hereby authorized to deliver to the herein Petitioners their rentals
with the RCA, which should be compensated with the rents due and may be due; and for the use of portions of the Dofia Petra Building corresponding to
(c) RCA was never given an opportunity to be heard on these matters. 9 December, 1967; January 30, February, 1968, all amounting to
P37,500.00, to enable the petitioners to forthwith effect the
Petra and Benjamin Farin filed a similar motion for the reconsideration of the disputed necessary repairs of the air-conditioning system of the said building
order of December 23, 1967, alleging that (a) the lessees of the Doña Petra Building Doña Petra Building. However, all succeeding rentals should be
are not such amounts collected and received in payment of the interest on the delivered to the Marcelo Steel Corporation as previously ordered in
obligation of all expenses of whatever kind and nature by the MORTGAGEE in the order of December 23, 1967. 14
connection with this mortgage, and on the principal obligation in the order they are
enumerated and all acts done in conformity with the power herein granted are hereby On May 17, 1968, the RCA filed a motion to set aside the said order, c g that the
ratified." allegations contained in the motion dated May 10, 1968, that "The RCA is ready,
39
willing and able to release to the petitioners the rentals mentioned above is A. Tan with the acquiescence of the RCA, who has acquired proprietary rights thereto
unauthorized and gratuitous, and the delivery of the withheld rentals to Petra R. Farin and would be deprived of his property without due process of law; and (2) that the
would defeat its claim without giving the corporation its day in court. 15 But, the trial lessor Petra R. Farin has an outstanding obligation to the RCA in the amount of
court denied the motion, saying: P263,062.40 which should be compensated with the rentals already due or may be
due. The said order clearly violated the constitutional provision against depriving a
Considering the motion to set aside the order of May 14, 1968, filed person of his property without due process of law. 20 While there may be rents due
by the Rice and Corn Administration and finding the same to be the lessor for the use of portions of the Doña Petra Building, otherwise there would be
without merit, the same is thereby DENIED. The records does not no claim of compensation, the collection of said rents should not be done in an
show any proof that the plaintiff, Petra Farin, is indebted to the arbitrary and illegal manner. Certain ruled should be observed and justice accorded
aforesaid movant, RCA, as allegedly in the said motion and the parties whose property rights would be adversely affected thereby. Since the
assuming that the herein plaintiff is really indebted to the RCA, the order of December 23, 1967 was issued in executive s of jurisdiction, the said order is
records further does not show that a case has been filed against null and void and of no legal t effect.
her for the payment of such obligation, and therefore, there is no
apparent legal ground to hold the payment of the rentals due the The respondent Judge also erred in denying the claim of the RCA that compensation
plaintiff. 16 of debts had taken place allegedly because "The records does not show any proof
that the plaintiff is indebted to the aforesaid movant, RCA, as alleged in the said
On August 28, 1968, the RCA filed a motion to vacate the orders directing the RCA to motion and assuming that the herein plaintiff is really indebted to the RCA, the
pay rentals to Marcelo Steel Corporation, reiterating therein the grounds alleged in its records further does not show that a case has been filed against her, or a decision
motion for reconsideration dated January 19, 1968, and in its second motion for has been rendered against her for the payment of such obligation." Proof of the
reconsideration dated April 17, 1968, which has remained unacted upon. In said liquidation of a claim, in order that there be compensation of debts, is proper if such
motion, the RCA emphasized that it is not a party to the case; that it had been denied claim is disputed. But, if the claim is undisputed, as in the case at bar, the statement
due process for lack of notice and the right to be heard; that compensation took place is sufficient and no other proof may be required. In the instant case, the claim of the
by operation of law pursuant to Art. 1286 of the Civil Code without the need of a case RCA that Petra R. Farin has an outstanding obligation to the RCA in the amount of
against Petra R. Farin, or a decision rendered against her for the payment of such P263,062.40 which should be compensated against the rents already due or may be
obligation; and that the provisions of the Rules of Court permitting a judgment creditor due, was raised by the RCA in its motion for the reconsideration of the order of
to reach money or property in the hands of third persons file the RCA, all purpose a December 23, 1967. A copy of said motion was duly furnished counsel for Petra R.
final judgment, and not a mere interlocutory order. 17 Farin and although the said Petra R. Farin subsequently filed a similar motion for the
reconsideration of the order of December 23, 1967, she did not dispute nor deny such
claim Neither did the Marcelo Steel Corporation dispute such claim of compensation
The motion was denied on December 19, 1968, 18 and when the RCA received a in its opposition to the motion for the reconsideration of the order of December 23,
letter from counsel for the Marcelo Steel Corporation, dated January 2, 1969, 1967. 21 The silence of Petra R. Farin, order of December 23, 1967. although the
requesting compliance with the order of December 23, 1967, and the payment of declaration is such as naturally one to call for action or comment if not true, could be
accrued rentals, 19 the petitioner instituted the present recourse. taken as an admission of the existence and validity of such a claim. Therefore, since
the claim of the RCA is undisputed, proof of its liquidation is not necessary. At any
Insofar as it recognized the right of the herein private respondent, Marcelo Steel rate, if the record is bereft of the proof mentioned by the respondent Judge of first
Corporation, to collect and receive rentals from the lessees of the Doña Petra instance, it is because the respondent Judge did not call for the submission of such
Building, the order of December 23, 1967 was within the competence of the proof. Had the respondent Judge issued an order calling for proof, the RCA would
respondent Judge, since the lessor-mortgagor, Petra Farin, had empowered the said have presented sufficient evidence to the satisfaction of the court.
corporation to collect and receive any interest, dividend, rents, profits or other income
or benefit produced by or derived from the mortgaged property under the terms of the WHEREFORE, the petition is granted and the order issued on December 23, 1967 in
real estate mortgage contract executed by them. But, the respondent Judge Civil Case No. Q-9384 of the Court of First Instance of Rizal, Quezon City, Branch IV,
exceeded his jurisdiction in ordering or compelling the lessees of the said building, entitled: Petra R. Farin, et al. petitioners, versus Benito Macrohon, et al.,
the RCA among others, to pay the rentals to the respondent Corporation, without respondents," as well as the orders dated April 3, 1968, May 14, 1968, and December
giving the lessees an opportunity to be heard. The said lessees are not parties to the 19, 1968, all affirming the said order of December 23, 1967, should be, as they are
case between the lessor and the Marcelo Steel Corporation. The RCA, in particular, hereby, annulled and set aside. With costs against the respondent Marcelo Steel
was not furnished with a copy of the motion of the respondent Corporation, dated Corporation.
December 9, 1967, praying that an order be issued directing and/or authorizing the
RCA and other lessees to channel or pay directly to the said corporation the rents for
the use of the Doña Petra Building, so that the RCA was deprived of its day in court Guerrero, ** Abad Santos and De Castro, *** JJ., concur.
and precluded it from presenting the defenses that it has against the lessor which, in
this case, are: (1) that the rents due to Petra Farin had been assigned by her to Vidal Barredo, * J., Chairman (Did not take part)

40
G.R. No. L-50638 July 25, 1983 Before the motion could be resolved by the court, petitioner on April 28, 1978 filed in
the Court of First Instance of Iloilo a separate action against the spouses Juanito
LORETO J. SOLINAP, petitioner, Lutero and Hardivi R. Lutero for collection of the total amount of P71,000.00,
vs. docketed as Civil Case No. 12397. Petitioner alleged in the complaint that on April 25,
HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV, Court of First 1974 the defendants Lutero borrowed from him the sum of P45,000.00 for which they
Instance of Iloilo, SPOUSES JUANITO and HARDEVI R. LUTERO, and THE executed a deed of real estate mortgage; that on July 2, 1974, defendants obtained
PROVINCIAL SHERIFF OF ILOILO, respondents. an additional loan of P3,000.00, evidenced by a receipt issued by them; that
defendants are further liable to him for the sum of P23,000.00, representing the value
of certain dishonored checks issued by them to the plaintiff; and that defendants
Espeleta & Orleans Law Office for petitioner. refused and failed to settle said accounts despite demands.

Simplicia Magahum, Offemaria & Sixto Demaisip Law Office for private respondents. In their answer, the respondents Lutero traversed the material averments of the
complaint and set up legal and factual defenses. They further pleaded a counterclaim
against petitioners for the total sum of P 125,000.00 representing unpaid rentals on
Hacienda Tambal. Basis of the counterclaim is the allegation that they had purchased
ESCOLIN; J.: one-half [1/2] of Hacienda Tambal, which their predecessors, the spouses Tiburcio
Lutero and Asuncion Magalona, leased to the plaintiff for a rental of P50,000.00 a
year; and that plaintiffs had failed to pay said rentals despite demands.
Posed for resolution in this petition is the issue of whether or not the obligation of
petitioners to private respondents may be compensated or set- off against the amount
sought to be recovered in an action for a sum of money filed by the former against the At the pre-trial, the parties defined the issues in that case as follows:
latter.
(1) Whether or not the defendants [Luteros] are indebted to the
The facts are not disputed. On June 2, 1970, the spouses Tiburcio Lutero and plaintiff and, if so, the amount thereof;
Asuncion Magalona, owners of the Hacienda Tambal, leased the said hacienda to
petitioner Loreto Solinap for a period of ten [10] years for the stipulated rental of (2) Whether or not the defendants are the owners of one-half [1/2]
P50,000.00 a year. It was further agreed in the lease contract that out of the aforesaid of that parcel of land known as 'Hacienda Tambal' presently leased
annual rental, the sum of P25,000.00 should be paid by Solinap to the Philippine to the plaintiff and, therefore, entitled to collect from the latter one-
National Bank to amortize the indebtedness of the spouses Lutero with the said bank. half [1/2] of its lease rentals; and in the affirmative, the amount
representing the unpaid rental by plaintiff in favor of the
Tiburcio Lutero died on January 21, 1971. Soon after, his heirs instituted the testate defendant. 1
estate proceedings of the deceased, docketed as Sp. Proc. No. 1870 of the Court of
First Instance of Iloilo, presided by respondent Judge Amelia K. del Rosario. In the On June 14, 1978, the respondent judge issued an order in Sp. Proc. No. 1870,
course of the proceedings, the respondent judge, upon being apprized of the granting the respondent Lutero's motion for reimbursement from petitioner of the sum
mounting interest on the unpaid account of the estate, issued an order, stating, of P25,000.00 plus interest, as follows:
among others, "that in order to protect the estate, the administrator, Judge Nicolas
Lutero, is hereby authorized to scout among the testamentary heirs who is financially WHEREFORE, Mr. Loreto Solinap is hereby directed to pay
in a position to pay all the unpaid obligations of the estate, including interest, with the spouses Juanito Lutero and Hardivi R. Lutero the sum of
right of subrogation in accordance with existing laws." P25,000.00 with interest at 12% per annum from June 17, 1975
until the same shall have been duly paid.
On the basis of this order, respondents Juanito Lutero [grandson and heir of the late
Tiburcio] and his wife Hardivi R. Lutero paid the Philippine National Bank the sum of Petitioner filed a petition for certiorari before this Court, docketed as G.R. No. L-
P25,000.00 as partial settlement of the deceased's obligations. Whereupon the 48776, assailing the above order. This Court, however, in a resolution dated January
respondents Lutero filed a motion in the testate court for reimbursement from the 4, 1979 dismissed the petition thus:
petitioner of the amount thus paid. They argued that the said amount should have
been paid by petitioner to the PNB, as stipulated in the lease contract he had entered
into with the deceased Tiburcio Lutero; and that such reimbursement to them was L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the petition
proper, they being subrogees of the PNB. in this case as well as the comment thereon of respondents and the
reply of petitioner to said comment, the Court Resolved to DISMISS
the petition for lack of merit, anyway, the P25,000.00 to be paid by
the petitioner to the private respondent Luteros may well be taken
41
 up in the final liquidation of the account between petitioner as and Separate Opinions
the subject estate as lessor.

Thereafter the respondent Luteros filed with the respondent court a "Motion to
Reiterate Motion for Execution of the Order dated June 14, 1978." Petitioner filed a AQUINO, J., concurrence:
rejoinder to said motion, raising for the first time the thesis that the amount payable to
private respondents should be compensated against the latter's indebtedness to him
amounting to P71,000.00. Petitioner attached to his rejoinder copies of the pleadings I concur in the result and on the understanding that the trial court should hold a
filed in Civil Case No. 12397, then pending before Branch V of the Court of First hearing to determine the merits of the claim of petitioner RCA that it is entitled to
Instance of Iloilo. This motion was denied by respondent judge on the ground that retain the rentals by way of compensation. RCA should be considered impleaded as a
"the claim of Loreto Solinap against Juanito Lutero in Civil Case No. 12397 is yet to party in the case since it had already intervened therein.
be liquidated and determined in the said case, such that the requirement in Article
1279 of the New Civil Code that both debts are liquidated for compensation to take The claim of Marcelo Steel Corporation on the rentals is based on the contractual
place has not been established by the oppositor Loreto Solinap." stipulation and on article 2127 of the Civil Code which provides that the mortgage
extends to the rents or income not yet received when the obligation falls due (See
Petition filed a motion for reconsideration of this order, but the same was denied. Hijos de I. de la Rama vs. Betia 54 Phil 991; National Bank vs. Alejano 55 Phil. 811;
Afable vs. Belando 55 Phil. 64).
Hence, this petition.

The petition is devoid of merit. Petitioner contends that respondent judge gravely
abused her discretion in not declaring the mutual obligations of the parties Separate Opinions
extinguished to the extent of their respective amounts. He relies on Article 1278 of the
Civil Code to the effect that compensation shall take place when two persons, in their AQUINO, J., concurrence:
own right, are creditors and debtors of each other. The argument fails to consider
Article 1279 of the Civil Code which provides that compensation can take place only if I concur in the result and on the understanding that the trial court should hold a
both obligations are liquidated. In the case at bar, the petitioner's claim against the hearing to determine the merits of the claim of petitioner RCA that it is entitled to
respondent Luteros in Civil Case No. 12379 is still pending determination by the retain the rentals by way of compensation. RCA should be considered impleaded as a
court. While it is not for Us to pass upon the merits of the plaintiffs' cause of action in party in the case since it had already intervened therein.
that case, it appears that the claim asserted therein is disputed by the Luteros on both
factual and legal grounds. More, the counterclaim interposed by them, if ultimately
found to be meritorious, can defeat petitioner's demand. Upon this premise, his claim The claim of Marcelo Steel Corporation on the rentals is based on the contractual
in that case cannot be categorized as liquidated credit which may properly be set-off stipulation and on article 2127 of the Civil Code which provides that the mortgage
against his obligation. As this Court ruled in Mialhe vs. Halili, 2 " compensation cannot extends to the rents or income not yet received when the obligation falls due (See
take place where one's claim against the other is still the subject of court litigation. It Hijos de I. de la Rama vs. Betia 54 Phil 991; National Bank vs. Alejano 55 Phil. 811;
is a requirement, for compensation to take place, that the amount involved be certain Afable vs. Belando 55 Phil. 64).
and liquidated."
G.R. No. 125059 March 17, 2000
WHEREFORE, the petition is dismissed, with costs against petitioner.
FRANCISCO T. SYCIP, JR., petitioner,
SO ORDERED. vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
Makasiar (Chairman), Aquino and Concepcion, Jr., JJ., concur.
QUISUMBING, J.:
De Castro, Guerrero, J., are on leave.
For review on certiorari is the decision of the Court of Appeals, dated February 29,
1996, in CA-G.R. CR No. 15993, which affirmed the judgment of the Regional Trial
Court of Quezon City, Branch 95, in Criminal Cases Nos. Q-91-25910 to 15, finding
petitioner guilty beyond reasonable doubt of violating B.P. Blg. 22, the Bouncing
Checks Law.

42
The facts in this case, as culled from the records, are as follows: CONTRARY TO LAW.1

On August 24, 1989, Francisco T. Sycip agreed to buy, on installment, from Francel Criminal Cases No. Q-91-25911 to Q-91-25915, with Informations similarly worded as
Realty Corporation (FRC), a townhouse unit in the latter's project at Bacoor, Cavite. in Criminal Case No. Q-91-25910, except for the dates, and check numbers 2 were
consolidated and jointly tried.
Upon execution of the contract to sell, Sycip, as required, issued to FRC, forty-eight
(48) postdated checks, each in the amount of P9,304.00, covering 48 monthly When arraigned, petitioner pleaded "Not Guilty" to each of the charges. Trial then
installments. proceeded.

After moving in his unit, Sycip complained to FRC regarding defects in the unit and The prosecution's case, as summarized by the trial court and adopted by the
incomplete features of the townhouse project. FRC ignored the complaint. appellate court, is as follows:
Dissatisfied, Sycip served on FRC two (2) notarial notices to the effect that he was
suspending his installment payments on the unit pending compliance with the project The prosecution evidence established that on or about August 24, 1989, at
plans and specifications, as approved by the Housing and Land Use Regulatory the office of the private complainant Francel Realty Corporation (a private
Board (HLURB). Sycip and 12 out of 14 unit buyers then filed a complaint with the domestic corporation engaged in the real estate business) at 822 Quezon
HLURB. The complaint was dismissed as to the defects, but FRC was ordered by the Avenue, QC, accused Francisco Sycip, Jr. drew, issued, and delivered to
HLURB to finish all incomplete features of its townhouse project. Sycip appealed the private complainant Francel Realty Corporation (FRC hereinafter) six checks
dismissal of the complaint as to the alleged defects. (among a number of other checks), each for P9,304.00 and drawn pay to the
order of FRC and against Francisco's account no. 845515 with Citibank, to
Notwithstanding the notarial notices, FRC continued to present for encashment wit: Check No. 813514 dated October 30, 1990 (Exh. C), Check No. 813515
Sycip's postdated checks in its possession. Sycip sent "stop payment orders" to the dated November 30, 1990 (Exh. D), Check No. 813518 dated February 28,
bank. When FRC continued to present the other postdated checks to the bank as the 1991 (Exh. E), Check No. 813516 dated December 30, 1990 (Exh. F),
due date fell, the bank advised Sycip to close his checking account to avoid paying Check No. 813517 dated January 30, 1991 (Exh. G) and Check No. 813519
bank charges every time he made a "stop payment" order on the forthcoming checks. dated March 30, 1991 (Exh. H), as and in partial payment of the unpaid
Due to the closure of petitioner's checking account, the drawee bank dishonored six balance of the purchase price of the house and lot subject of the written
postdated checks. FRC filed a complaint against petitioner for violations of B.P. Blg. contract executed and entered into by and between FRC as seller and
22 involving said dishonored checks. Francisco as buyer on said date of August 24, 1989 (Exh. B, also Exh. 1).
The total stipulated purchase price for the house and lot was P451,700.00,
On November 8, 1991, the Quezon City Prosecutor's Office filed with the RTC of of which Francisco paid FRC in the sum of P135,000.00 as down payment,
Quezon City six Informations docketed as Criminal Cases No. Q-91-25910 to Q-91- with Francisco agreeing and committing himself to pay the balance of
25915, charging petitioner for violation of B.P. Blg. 22. P316,000.00 in 48 equal monthly installments of P9,304.00 (which sum
already includes interest on successive monthly balance) effective
September 30, 1989 and on the 30th day of each month thereafter until the
The accusative portion of the Information in Criminal Case No. Q-91-25910 reads: stipulated purchase price is paid in full. The said six Citibank checks, Exhs.
C thru H, as earlier indicated were drawn, issued, and delivered by
That on or about the 30th day of October 1990 in Quezon City, Philippines Francisco in favor of FRC as and in partial payment of the said 48 equal
and within the jurisdiction of this Honorable Court, the said accused, did then monthly installments under their said contract (Exh. B, also Exh. 1).
and there, willfully, unlawfully and feloniously make, draw and issue in favor Sometime in September 1989, the Building Official's certificate of occupancy
of Francel Realty Corporation a check 813514 drawn against Citibank, a for the subject house — a residential townhouse — was issued (Exh. N) and
duly established domestic banking institution in the amount of P9,304.00 Francisco took possession and started in the use and occupancy of the
Philippine Currency dated/postdated October 30, 1990 in payment of an subject house and lot.1âwphi1.nêt
obligation, knowing fully well at the time of issue that she/he did not have
any funds in the drawee bank of (sic) the payment of such check; that upon When the subject six checks, Exhs. C thru H, were presented to the Citibank
presentation of said check to said bank for payment, the same was for payment on their respective due dates, they were all returned to FRC
dishonored for the reason that the drawer thereof, accused Francisco T. dishonored and unpaid for the reason: account closed as indicated in the
Sycip, Jr. did not have any funds therein, and despite notice of dishonor drawee bank's stamped notations on the face and back of each check; in
thereof, accused failed and refused and still fails and refused (sic) to redeem fact, as indicated in the corresponding record of Francisco's account no.
or make good said check, to the damage and prejudice of the said Francel 815515 with Citibank, said account already had a zero balance as early as
Realty Corporation in the amount aforementioned and in such other amount September 14, 1990 (Exh. 1-5). Notwithstanding the fact that FRC, first thru
as may be awarded under the provisions of the Civil Code. its executive vice president and project manager and thereafter thru its

43
 counsel, had notified Francisco, orally and in writing, of the checks' dishonor WHEREFORE, in each of Crim. Cases Nos. Q-91-25910, Q-91-25911, Q-
and demanded from him the payment of the amount thereof, still Francisco 91-25912, Q-91-25913, Q-91-25914 and Q-91-25915, the Court finds
did not pay or make good any of the checks (Exhs. I thru K). . . 3 accused Francisco T. Sycip, Jr. guilty beyond reasonable doubt of a violation
of Sec. 1 of Batas Pambansa Blg. 22 and, accordingly, he is hereby
The case for the defense, as summarized also by the trial court and adopted by the sentenced in and for each case to suffer imprisonment of thirty (30) days
Court of Appeals, is as follows: and pay the costs. Further, the accused is hereby ordered to pay the
offended party, Francel Realty Corporation, as and for actual damages, the
total sum of fifty-five thousand eight hundred twenty four pesos (P55,824.00)
The defense evidence in sum is to the effect that after taking possession and with interest thereon at the legal rate from date of commencement of these
starting in the use and occupancy of the subject townhouse unit, Francisco actions, that is, November 8, 1991, until full payment thereof.
became aware of its various construction defects; that he called the attention
of FRC, thru its project manager, requesting that appropriate measures be
forthwith instituted, but despite his several requests, FRC did not SO ORDERED.
acknowledge, much less attend to them; that Francisco thus mailed to FRC
a verified letter dated June 6, 1990 (Exh. 2) in sum giving notice that Dissatisfied, Sycip appealed the decision to the Court of Appeals. His appeal was
effective June 1990, he will cease and desist "from paying my monthly docketed as CA-G.R. CR No. 15993. But on February 29, 1996, the appellate court
amortization of NINE THOUSAND THREE HUNDRED FOUR (P9,304.00) ruled:
PESOS towards the settlement of my obligation concerning my purchase of
Unit No. 14 of FRC Townhomes referred to above, unless and until your On the basis of the submission of the People, We find and so hold that
Office satisfactorily complete(s) the construction, renovation and/or repair of appellant has no basis to rely on the provision of PD 957 to justify the non-
my townhouses (sic) unit referred to above" and that should FRC "persist in payment of his obligation, the closure of his checking account and the
ignoring my aforesaid requests, I shall, after five (5) days from your receipt notices sent by him to private complainant that he will stop paying his
of this Verified Notice, forthwith petition the [HLURB] for Declaratory Relief monthly amortizations.6
and Consignation to grant me provisional relief from my obligation to pay my
monthly amortization to your good Office and allow me to deposit said
amortizations with [HLURB] pending your completion of FRC Townhomes Petitioner filed a motion for reconsideration on March 18, 1996, but it was denied per
Unit in question"; that Francisco thru counsel wrote FRC, its president, and Resolution dated April 22, 1996.
its counsel notices/letters in sum to the effect that Francisco and all other
complainants in the [HLURB] case against FRC shall cease and desist from Hence, the instant petition anchored on the following assignment of errors:
paying their monthly amortizations unless and until FRC satisfactorily
completes the construction of their units in accordance with the plans and I
specifications thereof as approved by the [HLURB] and as warranted by the
FRC in their contracts and that the dishonor of the subject checks was a
natural consequence of such suspension of payments, and also advising THE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF
FRC not to encash or deposit all other postdated checks issued by THE LOWER COURT FINDING THAT THE ACCUSED-APPELLANT DID
Francisco and the other complainants and still in FRC's possession (Exhs. 3 NOT HAVE ANY JUSTIFIABLE CAUSE TO STOP OR OTHERWISE
thru 5); that Francisco and the other complainants filed the [HLURB] case PREVENT THE PAYMENT OF THE SUBJECT CHECKS BY THE DRAWEE
against FRC and later on a decision was handed down therein and the same BANK.
is pending appeal with the Board (Exhs. 6, 7, & 12 thru 17, also Exh. 8); that
as of the time of presentation of the subject checks for payment by the II
drawee bank, Francisco had at least P150,000.00 cash or credit with
Citibank (Exhs. 10 & 11) and, that Francisco closed his account no. 845515
THE LOWER COURT ERRED IN FINDING THAT THE ACCUSED-
with Citibank conformably with the bank's customer service officer's advice
APPELLANT MUST BE DEEMED TO HAVE WAIVED HIS RIGHT TO
to close his said account instead of making a stop-payment order for each of
COMPLAIN AGAINST THE DEVELOPMENT OF THE TOWNHOUSE UNIT
his more than 30 post-dated checks still in FRC's possession at the time, so
AND THE TOWNHOUSE PROJECT.
as to avoid the P600.00-penalty imposed by the bank for every check
subject of a stop-payment order.4
III
On March 11, 1994, the trial court found petitioner guilty of violating Section 1 of B.P.
Blg. 22 in each of the six cases, disposing as follows: THE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF
THE LOWER COURT THAT THE ACCUSED-APPELLANT DID NOT HAVE

44
 SUFFICIENT FUNDS WITH THE DRAWEE BANK TO COVER THE To begin with, the second element involves knowledge on the part of the issuer at the
SUBJECT CHECKS UPON PRESENTMENT FOR PAYMENT THEREOF. time of the check's issuance that he did not have enough funds or credit in the bank
for payment thereof upon its presentment. B.P. No. 22 creates a presumption juris
IV tantum that the second element prima facie exists when the first and third elements of
the offense are present. 11 But such evidence may be rebutted. If not rebutted or
contradicted, it will suffice to sustain a judgment in favor of the issue, which it
THE APPELLATE COURT ERRED IN AFFIRMING THE DECISION OF supports. 12 As pointed out by the Solicitor General, such knowledge of the
THE LOWER COURT CONVICTING THE ACCUSED-APPELLANT AND insufficiency of petitioner's funds "is legally presumed from the dishonor of his checks
AWARDING DAMAGES IN FAVOR OF PRIVATE COMPLAINANT.7 for insufficiency of funds." 13 But such presumption cannot hold if there is evidence to
the contrary. In this case, we find that the other party has presented evidence to
The principal issue before us is whether or not the Court of Appeals erred in affirming contradict said presumption. Hence, the prosecution is duty bound to prove every
the conviction of petitioner for violation of the Bouncing Checks Law. element of the offense charged, and not merely rely on a rebuttable presumption.

Petitioner argues that the court a quo erred when it affirmed his conviction for Admittedly, what are involved here are postdated checks. Postdating simply means
violation of B.P. Blg. 22, considering that he had cause to stop payment of the checks that on the date indicated on its face, the check would be properly funded, not that the
issued to respondent. Petitioner insists that under P.D. No. 957, the buyer of a checks should be deemed as issued only then. 14 The checks in this case were issued
townhouse unit has the right to suspend his amortization payments, should the at the time of the signing of the Contract to Sell in August 1989. But we find from the
subdivision or condominium developer fail to develop or complete the project in records no showing that the time said checks were issued, petitioner had knowledge
accordance with duly-approved plans and specifications. Given the findings of the that his deposit or credit in the bank would be insufficient to cover them when
HLURB that certain aspects of private complainant's townhouse project were presented for encashment. 15 On the contrary, there is testimony by petitioner that at
incomplete and undeveloped, the exercise of his right to suspend payments should the time of presentation of the checks, he had P150,000,00 cash or credit with
not render him liable under B.P. Blg. 22. Citibank.

The Solicitor General argues that since what petitioner was charged with were As the evidence for the defense showed, the closure of petitioner's Account No.
violations of B.P. Blg. 22, the intent and circumstances surrounding the issuance of a 845515 with Citibank was not for insufficiency of funds. It was made upon the advice
worthless check are immaterial.8 The gravamen of the offense charged is the act itself of the drawee bank, to avoid payment of hefty bank charges each time petitioner
of making and issuing a worthless check or one that is dishonored upon its issued a "stop payment" order to prevent encashment of postdated checks in private
presentment for payment. Mere issuing of a bad check is malum prohibitum, respondent's possession. 16 Said evidence contradicts the prima facie presumption of
pernicious and inimical to public welfare. In his view, P.D. No. 957 does not provide knowledge of insufficiency of funds. But it establishes petitioner's state of mind at the
petitioner a sufficient defense against the charges against him. time said checks were issued on August 24, 1989. Petitioner definitely had no
knowledge that his funds or credit would be insufficient when the checks would be
Under the provisions of the Bouncing Checks Law (B.P. No. 22), 9 an offense is presented for encashment. He could not have foreseen that he would be advised by
committed when the following elements are present: his own bank in the future, to close his account to avoid paying the hefty banks
charges that came with each "stop payment" order issued to prevent private
respondent from encashing the 30 or so checks in its possession. What the
(1) the making, drawing and issuance of any check to apply for account or prosecution has established is the closure of petitioner's checking account. But this
for value; does not suffice to prove the second element of the offense under B.P. Blg. 22, which
explicitly requires "evidence of knowledge of insufficient funds" by the accused at the
(2) the knowledge of the maker, drawer, or issuer that at the time of issue he time the check or checks are presented for encashment.
does not have sufficient funds in or credit with the drawee bank for the
payment of such check in full upon its presentment; and To rely on the presumption created by B.P. No. 22 as the prosecution did in this case,
would be to misconstrue the import of requirements for conviction under the law. It
(3) the subsequent dishonor of the check by the drawee bank for must be stressed that every element of the offense must be proved beyond
insufficiency of funds or credit or dishonor for the same reason had not the reasonable doubt, never presumed. Furthermore, penal statutes are strictly construed
drawer, without any valid cause, ordered the bank to stop payment. 10 against the State and liberally in favor of the accused. Under the Bouncing Checks
Law, the punishable act must come clearly within both the spirit and letter of the
statute. 17
In this case, we find that although the first element of the offense exists, the other
elements have not been established beyond reasonable doubt.
While B.P. Blg. 22 was enacted to safeguard the interest of the banking system, 18 it
is difficult to see how conviction of the accused in this case will protect the sanctity of

45
the financial system. Moreover, protection must also be afforded the interest of G.R. No. L-51463 April 9, 1985
townhouse buyers under P.D. No. 957. 19 A statute must be construed in relation to
other laws so as to carry out the legitimate ends and purposes intended by the PAN ORIENTAL SHIPPING CO., petitioner,
legislature. 20 Courts will not strictly follow the letter of one statute when it leads away vs.
from the true intent of legislature and when ends are inconsistent with the general COURT OF APPEALS, COMPAÑIA MARITIMA and THE REPUBLIC OF THE
purpose of the act. 21 More so, when it will mean the contravention of another valid PHILIPPINES (BOARD OF LIQUIDATORS), respondents.
statute. Both laws have to be reconciled and given due effect.
Quisumbing, Caparas, Tobias, Alcantara y Mosqueda for Pan Oriental Shipping Co.
Note that we have upheld a buyer's reliance on Section 23 of P.D. 957 to suspend Rafael Dinglasan for Compania Maritima.
payments until such time as the owner or developer had fulfilled its obligations to the
buyer. 22 This exercise of a statutory right to suspend installment payments, is to our
mind, a valid defense against the purported violations of B.P. Blg. 22 that petitioner is
charged with.
MELENCIO-HERRERA, J.:
Given the findings of the HLURB as to incomplete features in the construction of
petitioner's and other units of the subject condominium bought on installment from The above-entitled three (3) cases stemmed from the Decision of this Court, dated
FRC, we are of the view that petitioner had a valid cause to order his bank to stop October 31, 1964, entitled "Fernando A. Froilan vs. Pan-Oriental Shipping Co., et
payment. To say the least, the third element of "subsequent dishonor of the check. . . al. 1 and our four (4) subsequent Resolutions of August 27, 1965, November 23,
without valid cause" appears to us not established by the prosecution. As already 1966, December 16, 1966, and January 5, 1967, respectively.
stated, the prosecution tried to establish the crime on a prima facie presumption in
B.P. Blg. 22. Here that presumption is unavailing, in the presence of a valid cause to The antecedental background is narrated in the aforestated Decision, the pertinent
stop payment, thereby negating the third element of the crime.1âwphi1 portions of which read:

Offenses punished by a special law, like the Bouncing Checks Law, are not subject to
the Revised Penal Code, but the Code is supplementary to such a law. 23 We find
nothing in the text of B.P. Blg. 22, which would prevent the Revised Penal Code from
supplementing it. Following Article 11 (5) 24 of the Revised Penal Code, petitioner's On March 7, 1947, Fernando A. Froilan purchased from the
exercise of a right of the buyer under Article 23 of P.D. No. 957 is a valid defense to Shipping Administration a boat described as MV/FS-197 for the
the charges against him. sum of P200,000.00, with a down payment of P50,000.00. To
secure payment of the unpaid balance of the purchase price, a
mortgage was constituted on the vessel in favor of the Shipping
WHEREFORE, the instant petition is GRANTED. Petitioner Francisco T. Sycip, Jr., is Administration ....
ACQUITTED of the charges against him under Batas Pambansa Blg. 22, for lack of
sufficient evidence to prove the offenses charged beyond reasonable doubt. No
pronouncement as to costs. xxx xxx xxx

SO ORDERED. Th(e) contract was duly approved by the President of the

Philippines.
G.R. No. L-50900 April 9, 1985
Froilan appeared to have defaulted in spite of demands, not only in
the payment of the first installment on the unpaid balance of the
COMPAÑIA MARITIMA, petitioner,
purchase price and the interest thereon when they fell due, but also
vs. failed in his express undertaking to pay the premiums on the
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents.
insurance coverage of the vessel obliging the Shipping
Administration to advance such payment to the insurance
G.R. No. L-51438 April 9, 1985 company. ...

REPUBLIC OF THE PHILIPPINES (BOARD OF LlQUIDATORS), petitioner, Subsequently, FROILAN appeared to have still incurred a series of defaults
vs. notwithstanding reconsiderations granted, so much so that:
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents.

46
On February 21, 1949, the General Manager (of the Shipping month until the return of the vessel to OWNER or purchase of the
Administration) directed its officers ... to take immediate possession vessel by CHARTERER.
of the vessel and to suspend the unloading of all cargoes on the
same until the owners thereof made the corresponding IV. RIGHT OF OPTION TO PURCHASE.— The right of option to
arrangement with the Shipping Administration. Pursuant to these purchase the vessel at the price of P150,000.00 plus the amount
instructions, the boat was, not only actually repossessed, but the expended for its present repairs is hereby granted to the
title thereto was registered again in the name of the Shipping CHARTERER within 120 days from the execution of this Contract,
Administration, thereby re-transferring the ownership thereof to the unless otherwise extended by the OWNER. This right shall be
government. deemed exercised only if, before the expiration of the said period,
or its extension by the OWNER, the CHARTERER completes the
On February 22, 1949, Pan Oriental Shipping Co., hereinafter payment, including any amount paid as Charter hire, of a total sum
referred to as Pan Oriental, offered to charter said vessel FS-197 of not less than twenty-five percentum (25%) of said price of the
for a monthly rent of P3,000.00. Because the government was then vessel.
spending for the guarding of the boat and subsistence of the crew
members since repossession, the Slopping Administration on April The period of option may be extended by the OWNER without in
1, 1949, accepted Pan Oriental's offer "in principle" subject to the any way affecting the other provisions, stipulations, and terms of
condition that the latter shag cause the repair of the vessel this contract.
advancing the cost of labor and drydocking thereof, and the
Shipping Administration to furnish the necessary spare parts. In
accordance with this charter contract, the vessel was delivered to If, for any reason whatsoever, the CHARTERER fails to exercise its
the possession of Pan Oriental. option to purchase within the period stipulated, or within the
extension thereof by the OWNER, its right of option to purchase
shall be deemed terminated, without prejudice to the continuance of
In the meantime, or on February 22, 1949, Froilan tried to explain the Charter Party provisions of this contract. The right to dispose of
his failure to comply with the obligations he assumed and asked the vessel or terminate the Charter Party at its discretion is
that he be given another extension up to March 15, 1949 to file the reserved to the OWNER.
necessary bond. Then on March 8, Froilan offered to pay all his
overdue accounts. However, as he failed to fulfill even these offers
made by him in these two communications, the Shipping XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. — After the
Administration denied his petition for reconsideration (of the CHARTERER has exercised his right of option as provided in the
rescission of the contract) on March 22, 1949. It should be noted preceding paragraph (XII), the vessel shall be deemed conditionally
that while his petition for reconsideration was denied on March 22, sold to the purchaser, but the ownership thereof shag not be
it does not appear when he formally formulated his appeal. In the deemed transferred unless and until all the price of the vessel,
meantime, as already stated, the boat has been repossessed by together with the interest thereon, and any other obligation due and
the Shipping Administration and the title thereto re-registered in the payable to the OWNER under this contract, have been fully paid by
name of the government, and delivered to the Pan Oriental in virtue the CHARTERER.
of the charter agreement. On June 2, 1949, Froilan protested to the
President against the charter of the vessel. xxx xxx xxx

xxx xxx xxx XXI. APPROVAL OF THE PRESIDENT. — This contract shall take
effect only upon approval of His Excellency, the President.
On June 4, 1949, the Shipping Administration and the Pan Oriental
formalized the charter agreement and signed a bareboat contract On September 6, 1949, the Cabinet revoked the cancellation of
with option to purchase, containing the following pertinent Froilan's contract of sale and restored to him all his rights
provisions: thereunder, on condition that he would give not less than P1,000.00
to settle partially as overdue accounts and that reimbursement of
III. CHARTER HIRE, TIME OF PAYMENT. — The CHARTERER the expenses incurred for the repair and drydocking of the vessel
shall pay to the owner a monthly charter hire of THREE performed by Pan Oriental was to be made in accordance with
THOUSAND (P3,000.00) PESOS from date of delivery of the future adjustment between him and the Shipping Administration
vessel, payable in advance on or before the 5th of every current (Exh. I). Later, pursuant to this reservation, Froilan's request to the
Executive Secretary that the Administration advance the payment

47
of the expenses incurred by Pan Oriental in the drydocking and The Republic of the Philippines, having been allowed to intervene
repair of the vessel, was granted on condition that Froilan assume in the proceeding, also prayed for the possession of the vessel in
to pay the same and file a bond to cover said undertaking (EXH. order that the chattel mortgage constituted thereon may be
III). foreclosed. Defendant Pari Oriental resisted said intervention,
claiming to have a better right to the possession of the vessel by
On September 7, 1949, the formal bareboat charter with option to reason of a valid and subsisting contract in its favor, and of its right
purchase filed on June 4, 1949, in favor of the Pan Oriental was of retention, in view of the expenses it had incurred for the repair of
returned to the General Manager of the Shipping Administration the said vessel. As counterclaim, defendant demanded of the
without action (not disapproval), only because of the Cabinet intervenor to comply with the latter's obligation to deliver the vessel
resolution of September 6, 1949 restoring Froilan to his rights under pursuant to the provisions of the charter contract.
the conditions set forth therein, namely, the payment of P10,000.00
to settle partially his overdue accounts and the filing of a bond to xxx xxx xxx
guarantee the reimbursement of the expenses incurred by the Pan
Oriental in the drydocking and repair of the vessel But Froilan again Subsequently, Compañia Maritima, as purchaser of the vessel from
failed to comply with these conditions. And so the Cabinet, Froilan, was allowed to intervene in the proceedings (in the lower
considering Froilan's consistent failure to comply with his court), said intervenor taking common cause with the plaintiff
obligations, including those imposed in the resolution of September Froilan. In its answer to the complaint in intervention, defendant
6, 1949, resolved to reconsider said previous resolution restoring set-up a counterclaim for damages in the sum of P50,000.00,
him to his previous rights. And, in a letter dated December 3, 1949, alleging that plaintiff secured the Cabinet resolutions and the writ of
the Executive Secretary authorized the Administration to continue replevin, resulting in its deprivation of possession of the vessel, at
its charter contract with Pan Oriental in respect to FS-197 and the instigation and inducement of Compania Maritima. This
enforce whatever rights it may still have under the original contract counterclaim was denied by both plaintiff and intervenor Maritima.
with Froilan (Exh. 188).
On September 28, 1956, the lower court rendered a decision
xxx xxx xxx upholding Froilan's (and Compañia Maritima's) right to the
ownership and possession of the FS-197.
On August 25, 1950, the Cabinet resolved once more to restore
Froilan to his rights under the original contract of sale, on condition xxx xxx xxx
that he shall pay the sum of P10,000.00 upon delivery of the vessel
to him, said amount to be credited to his outstanding accounts; that
he shall continue paying the remaining installments due, and that It is not disputed that appellant Pan Oriental took possession of the
he shall assume the expenses incurred for the repair and vessel in question after it had been repossessed by the Shipping
drydocking of the vessel (Exh. 134). Pan Oriental protested to this Administration and title thereto reacquired by the government,
restoration of Froilan's rights under the contract of sale, for the and operated the same from June 2, 1949 after it had repaired the
reason that when the vessel was delivered to it, the Shipping vessel until it was dispossessed of the property on February 3,
Administration had authority to dispose of the said property, Froilan 1951, in virtue of a bareboat charter contract entered into between
having already relinquished whatever rights he may have thereon. said company and the Shipping Administration. In the same
Froilan paid the required cash of P10,000.00, and as Pan Oriental agreement, appellant as charterer, was given the option to
refused to surrender possession of the vessel, he filed an action for purchase the vessel, which may be exercised upon payment of a
replevin in the Court of First Instance of Manila (Civil Case No. certain amount within a specified period. The President and
13196) to recover possession thereof and to have him declared the Treasurer of the appellant company, tendered the stipulated initial
rightful owner of said property. payment on January 16, l950. Appellant now contends that having
exercised the option, the subsequent Cabinet resolutions restoring
Froilan's rights on the vessel, violated its existing rights over the
Upon plaintiff's filing a bond of P400,000.00, the court ordered the same property. To the contention of plaintiff Froffan that the charter
seizure of the vessel from Pan Oriental and its delivery to the contract never became effective because it never received
plaintiff. Pan Oriental tried to question the validity of this order in a presidential approval as required therein, Pan Oriental answers that
petition for certiorari filed in this Court (G.R. No. L-4577), but the the letter of the Executive Secretary dated December 3, 1949 (Exh.
same was dismissed for lack of merit by resolution of February 22, 118), authorizing the Shipping Administration to continue its charter
1951. Defendant accordingly filed an answer, denying the contract with appellant, satisfies such requirement (of presidential
averments of the complaint. approval). It is to be noted, however, that said letter was signed by

48
 the Executive Secretary only and not under authority of the appellee Fernando A. Froilan, and intervenor-appellee Compañia
President. The same, therefore, cannot be considered to have Maritima, for reconsideration of the decision insofar as it declared
attached unto the charter contract the required consent of the Chief said movants, together with intervenor Republic of the Philippines,
Executive for its validity. liable for reimbursement to appellant Pan Oriental of the latter's
legitimate necessary expenses made on the vessel in question.
xxx xxx xxx
1. .Appellant Pan Oriental's Motion must be denied.
(Emphasis supplied)
It may be remembered that in the instant case, the alleged approval
This Court then held: of the charter contract or permission to proceed with said contract
was given by the Executive Secretary in his own name and not
under the authority of the President.
In the circumstances of this case, therefore, the resulting situation
is that neither Froilan nor the Pan Oriental holds a valid contract
over the vessel. However, since the intervenor Shipping xxx xxx xxx
Administration, representing the government practically ratified its
proposed contract with Froilan by receiving the full consideration of 2. Anent, appellant's motion, considering that the writ of replevin, by
the sale to the latter, for which reason the complaint in intervention virtue of which appellant Pan Oriental was divested of possession
was dismissed as to Froilan, and since Pan Oriental has no of the vessel FS-197, was issued by the lower court on February 8,
capacity to question this actuation of the Shipping Administration 1951 at the instance of plaintiff Froilan and with the cooperation of
because it had no valid contract in its favor, the of the lower court intervenor Republic of the Philippines, which accepted the payment
adjudicating the vessel to Froilan and its successor Maritima, must tendered by him (Froilan) notwithstanding its previous dealings with
be sus Nevertheless, under the already adverted to, Pan Oriental Pan Oriental; and whereas, the intervenor Compañia Maritima
cannot be considered as in bad faith until after the institution of the acquired the same property only on December 1, 1951, it is clear
case. However, since it is not disputed that said made useful and that only plaintiff Froilan and the intervenor Republic of the
necessary expenses on the vessel, appellant is entitled to the Philippines may be held responsible for the deprivation of
refund of such expenses with the light to retain the vessel until he defendant of its right to the retention of the property until fully
has been reimbursed therefor (Art. 546, Civil Code). As it is by the reimbursed of the necessary expenditure made on the vessel. For
concerted acts of defendants and intervenor Republic of the this reason, Froilan and the Republic of the Philippines are
Philippines that appellant was deprived of the possession of the declared jointly and severally liable, not only for reimbursement to
vessel over which appellant had a lien for his expenses, appellees Pan Oriental of the legitimate necessary expenses incurred on the
Froilan, Compañia Maritima, and the Republic of the Philippines vessel but also for payment of legal interest thereon, computed
are declared liable for the reimbursement to appellant of its from the date of the defendant's dispossession of the
legitimate expenses, as allowed by law, with legal interest from the property. However, as defendant was in actual possession of the
time of disbursement. vessel from April 1, 1949 to February 7, 1951, it must be required to
pay reasonable rental for the use thereof, at the rate of P3,000.00 a
Modified in this manner, the decision appealed from is affirmed, month — the same rate specified as rental in the imperfected
without costs. Case is remanded to the lower court for further charter contract — which shall be deductible from whatever may be
proceedings in the matter of expenses. So ordered. (Emphasis due and owing the said party by way of reimbursable necessary
supplied). expenses and interest. This rental shall commence from the time
defendant Pan Oriental actually operated the vessel, which date
shall be determined by the lower court.
On August 27, 1965, this Court, in resolving a Motion for Reconsideration filed by
FROILAN and MARITIMA, ruled:
Case is remanded to the court of origin for further proceedings on
the matter of necessary expenses, interest and rental, as directed
In G.R. No. L-11897 (Fernando A. Froilan vs. Pan Oriental Shipping in our decision and this resolution. (Emphasis supplied).
Co.); before us are (1) a motion, filed by appellant Pan Oriental to
reconsider the ruling made in this case sustaining Froilan's right to
ownership and possession of the vessel FS-197, and holding that On November 23, 1966, acting on a second Motion for Reconsideration filed by PAN
there was never a perfected contract between said movant and the ORIENTAL, this Court resolved:
intervenor Republic of the Philippines; and (2) a motion by plaintiff-

49
 In case G.R. No. L-11817, Fernando A, Froilan, et al., appellees, (Board of Liquidators) jointly and severally to pay defendant Pan
vs. Pan Oriental Shipping Company, appellant, the latter filed a Oriental Shipping Company the sum of P6,937.72 a month from the
.second motion for reconsideration, alleging that the Resolution of time 'it was dispossessed on February 3, 1951' until it is paid its
this Court of August 27, 1965 denying its motion for reconsideration useful and necessary expenses; the sum of P40,797.54 actual
of December 16, 1964 is not in accordance with law; and that the amount expended for the repairs and improvements prior to the
modification of the judgment following the ex-parte motion for operation of the vessel on June 1, 1949 with legal interest from the
reconsideration of appellee Froilan is contrary to due process. time of disbursement of said legitimate expenses. The Court also
orders the intervenor Republic of the Philippines to return the sum
Considering that foregoing motion as well as the opposition thereto of P15,000.00 tendered by defendant Pan Oriental Shipping
by plaintiff-appellee and intervenor-appellee Compañia Maritima, Company as provided in the option with legal interest from January
the Court RESOLVED to amend the ruling in this case by holding 16, 1950, the date it was paid by the latter.
intervenor-appellee Compañia Maritima, because of its actual
knowledge of the circumstances surrounding the purchase by SO ORDERED. 2
Froilan of the vessel in question from the Shipping Administrator,
jointly and severally liable with the other appellees, for The amount of P6,937.72 ordered to be paid monthly represented the lower Court's
reimbursement to appellant of the necessary expenses incurred computation of damages of PAN ORIENTAL for deprivation of the right to retain the
and expended by the latter on the said vessel, minus the amount of vessel. 3
rentals due from the appellant for the use thereof for the period it
was actually operated by Pan Oriental. The period of actual
operation shall not include the time when the vessel was On appeal by REPUBLIC and MARITIMA to the then Court of Appeals, judgment was
drydocked. promulgated decreeing.

On December 16,1966, acting on PAN ORIENTAL's Motion for Reconsideration or WHEREFORE, in the light of the foregoing pronouncements, the
Application for Damages on account of the wrongful issuance of the Writ of Replevin, judgment appealed from is hereby MODIFIED as follows:
this Court issued a Resolution as follows:
Ordering intervenors-appellants Republic and Compañia Maritima,
Before us again in Case G.R. No. 11897 (Fernando A. Froilan vs. jointly and severally, to pay appellee Pan Oriental Shipping
Pan Oriental Shipping Co. et al) is a motion for reconsideration or Company the sum of P40,797.54 with legal interest from February
Application for damages filed by respondent Pan Oriental Shipping 3, 1951 until fully paid but there shah be deducted therefrom the
Co., allegedly on account of the wrongful issuance of the writ of amount of P59,500.00 representing the unpaid rentals due the
replevin, pursuant to Rule 60, Section 10, in relation to Rule 57, Republic of the Philippines; and AFFIRMED in all other respects.
Section 20 of the Revised Rules of Court. Considering that by virtue
of our resolution dated August 27, 1965, this case has been In other words, (a) the date from which interest is to be paid on the amount of
ordered to be remanded to the Court of origin for further P40,797.54 is from February 3, 1951, the date of dispossession, and not from the
proceedings on the matter of necessary expenses, interest and time of disbursement and (b) the unpaid rentals due the Republic are deductible from
rentals, and since evidence would have to be presented if the the amount of expenses payable to PAN-ORIENTAL. It should be recalled that the
application for damages is allowed, the Court resolved, first, to deduction of rentals from the amount payable to PAN-ORIENTAL by REPUBLIC was
deny the present motion for reconsideration and, second, to refer pursuant to this Court's Resolutions of August 27, 1965 and November 23,
the application to the trial court, there to be heard and decided as 1966, supra,
prescribed by law and the Rules. (See last sentence, Section 20,
Rule 57). From the foregoing Decision, the parties filed their respective Petitions for Review
now before us.
Pursuant thereto, the case was remanded to the Court of First Instance of Manila,
Branch VI (Civil Case No. 13196). After the evidence of the parties was received and For clarity, the sums ordered to be paid by MARITIMA and the REPUBLIC, jointly and
assessed by a Commissioner, said Court issued an Order, dated June 4, 1975, the severally, to PAN-ORIENTAL are: (a) the sum of P6,937.72 a month from February 3,
dispositive portion of which reads: 1951, the date of PAN-ORIENTAL's dispossession, in the concept of damages for the
deprivation of its right to retain the vessel, it until it is paid its useful and necessary
WHEREFORE, in view of the foregoing consideration, the Court expenses"; 4 (b) the sum of P15,000.00, representing PAN-ORIENTAL's deposit with
orders the intervenor Compañia (plaintiff Fernando A. Froilan's REPUBLIC for the purchase of the vessel, "with legal interest from January 16, 1950,"
successor-in-interest) and intervenor Republic of the Philippines the date PAN-ORIENTAL had paid the same; 5 and (c) the sum of P40,797.54
50
representing the expenses for repairs incurred by PAN-ORIENTAL, "with legal legal interest due, assuming that the latter amount would still be greater. Otherwise,
interest from February 3, 1951 until fully paid," minus the amount of P59,500.00 the corresponding adjustments can be made depending on the totality of the
representing the unpaid rentals due the REPUBLIC 6 The legal rate of interest is respective amounts.
made payable only on the last two amounts (b) and (c).
2) Since we are holding that the obligation of REPUBLIC to pay P40,797.54 to PAN-
REPUBLIC attributes the following errors to the Appellate Court: (1) in not holding ORIENTAL was not extinguished by compensation, the obligation of REPUBLIC to
that compensation by operation of law took place as between REPUBLIC and PAN- pay legal interest on said amount has neither become stale as REPUBLIC contends.
ORIENTAL as of the date of dispossession; (2) in not holding that the obligation of the Of special note is the fact that payment of that interest was the specific ruling of this
REPUBLIC to pay legal interest on the amount of useful and necessary expenses Court in its Resolution of August 27, 1965, thus:
from February 3, 1951 had become stale and ineffective; (3) in affirming the Order of
the Trial Court that MARITIMA and REPUBLIC, jointly and severally, pay to PAN- ... For this reason, Froilan and the REPUBLIC of the Philippines are
ORIENTAL the sum of P6,937.72 a month from the time it was dispossessed of the declared jointly and severally liable, not only for reimbursement to
vessel on February 3, 1951 until it is paid its useful and necessary expenses; and (4) Pan Oriental, of the legitimate necessary expenses incurred on the
in not holding that the Trial Court had no jurisdiction to order the return of P15,000.00 vessel, but also for payment of legal interest thereon, computed
to PAN-ORIENTAL. MARITIMA, for its part, aside from assailing the sums it was from the date of the defendant's dispossession of the property ... .
ordered to pay PAN-ORIENTAL, jointly and severally, with REPUBLIC, echoed the
theory of compensation and added that the question of damages on account of
alleged wrongful replevin was not a proper subject of inquiry by the Trial Court when it 3) The amount of P6,937.72 a month ordered to be paid by REPUBLIC and
determined the matter of necessary expenses, interest and rentals. MARITIMA to PAN-ORIENTAL until the latter is paid its useful and necessary
expenses is likewise in order. That amount represents the damages for the wrongful
issuance of the Writ of Replevin and was computed as follows: P4,132.77 for loss of
REPUBLIC's Submissions income by PAN-ORIENTAL plus P2,804.95 as monthly depreciation of the vessel in
lieu of the charter hire.
1) REPUBLIC maintains that compensation or set-off took place between it and PAN-
ORIENTAL as of February 3, 1951, the date the latter was dispossessed of the vessel It should further be recalled that this Court, in acting on PAN- ORIENTAL's application
For compensation to take place, one of the elements necessary is that the debts be for damages in its Resolution of December 16, 1966, supra, did not deny the same
liquidated. 7 In this case, all the elements for Compensation to take place were not but referred it instead to the Trial Court "there to be heard and decided" since
present on the date of dispossession, or on February 3, 1951. The amount expended evidence would have to be presented. Moreover, this Court found that PAN-
for repairs and improvements had yet to be determined by the Trial Court pursuant to ORIENTAL was "deprived of the possession of the vessel over which (it) had a lien
the Decision of this Court promulgated on October 31, 1964. At the time of for these expenses" 10 and that FROILAN and REPUBLIC "may be held
dispossession also, PAN-ORIENTAL was still insisting on its right to purchase the responsible for the deprivation of defendant (PANORIENTAL) of its right to
vessel. The obligation of REPUBLIC to reimburse PAN-ORIENTAL for expenses retention of the property until fully reimbursed on the necessary expenditures
arose only after this Court had so ruled. Rentals for the use of the vessel by PAN- made on the vessel. " 11
ORIENTAL were neither due and demandable at the time of dispossession but only
after this Court had issued its Resolution of August 27, 1965.
4) There return of Pl5,000.00 ordered by the Trial Court and affirmed by the Appellate
Court was but just and proper. As this Court found, that sum was tendered to
More, the legal interest payable from February 3, 1951 on the sum of P40,797.54, REPUBLIC "which together with its (PAN-ORIENTAL's) alleged expenses already
representing useful expenses incurred by PAN-ORIENTAL, is also still made on the vessel, cover 25% of the cost of the vessel, as provided in the option
unliquidated 8 since interest does not stop accruing "until the expenses are fully granted in the bareboat contract (Exhibit "C"). This amount was accepted by the
paid." 9 Thus, we find without basis REPUBLIC's allegation that PAN- ORIENTAL's Administration as deposit ...." Since the purchase did not eventually materialize for
claim in the amount of P40,797.54 was extinguished by compensation since the reasons attributable to REPUBLIC, it is but just that the deposit be returned. 12 It is
rentals payable by PAN-ORIENTAL amount to P59,500.00 while the expenses reach futile to allege that PAN-ORIENTAL did not plead for the return of that amount since
only P40,797.54. Deducting the latter amount from the former, REPUBLIC claims that its prayer included other reliefs as may be just under the premises. Courts may issue
P18,702.46 would still be owing by PAN-ORIENTAL to REPUBLIC. That argument such orders of restitution as justice and equity may warrant.
loses sight of the fact that to the sum of P40,797.54 will still have to be added the
legal rate of interest "from February 3, 1951 until fully paid."
MARITIMA's Position
But although compensation by operation of law cannot take place as between
REPUBLIC and PAN-ORIENTAL, by specific pronouncement of this Court in its We find no merit in MARITIMA's contention that the alleged damages on account of
Resolution of November 23, 1966, supra, the rentals payable by PAN-ORIENTAL in wrongful replevin was barred by res judicata, and that the application for damages
the amount of P59,500.00 should be deducted from the sum of useful expenses plus before the lower Court was but a mere adoption of a different method of presenting

51
claims already litigated. For the records show that an application for damages for In the early part of 1980, private respondent secured from petitioner's predecessors-
wrongful replevin was filed both before this Court and thereafter before the Trial Court in-interest, the then Investment and Underwriting Corp. of the Philippines and Atrium
after this Tribunal specifically remanded the issue of those damages to the Trial Court Capital Corp., a loan in the amount of P50,000,000.00. To secure this loan, private
there to be heard and decided pursuant to Rule 60, Section 10 in relation to Rule 57, respondent mortgaged her real properties in Quiapo, Manila and in San Rafael,
Section 20. 13 Bulacan, which she claimed have a total market value of P110,000,000.00. Of this
loan, only the amount of P20,000,000.00 was approved for release. The same
The matter of legal compensation which MARITIMA has also raised has been amount was applied to pay her other obligations to petitioner, bank charges and fees.
previously discussed. Thus, private respondent's claim that she did not receive anything from the approved
loan.
Parenthetically, PAN-ORIENTAL can no longer raise the alleged error of the Trial
Court in computing the necessary and useful expenses at only P40,797.54 when they On September 11, 1980, private respondent made a money market placement with
should be P87,267.30, since it did not appeal from that Court's Decision. ATRIUM in the amount of P1,046,253.77 at 17% interest per annum for a period of 32
days or until October 13, 1980, its maturity date. Meanwhile, private respondent
allegedly failed to pay her mortgaged indebtedness to the bank so that the latter
In a nutshell, we find that the appealed Decision of the Trial Court and of the then refused to pay the proceeds of the money market placement on maturity but applied
Court of Appeals is in consonance with the Decision and Resolutions of this Court. the amount instead to the deficiency in the proceeds of the auction sale of the
mortgaged properties. With Atrium being the only bidder, said properties were sold in
ACCORDINGLY, the judgment appealed from is hereby affirmed. No costs. its favor for only P20,000,000.00. Petitioner claims that after deducting this amount,
private respondent is still indebted in the amount of P6.81 million.
SO ORDERED.
On November 17, 1982, private respondent filed a complaint with the trial court
G.R. No. L-69560 June 30, 1988 against petitioner for annulment of the sheriff's sale of the mortgaged properties, for
the release to her of the balance of her loan from petitioner in the amount of
P30,000,000,00, and for recovery of P1,062,063.83 representing the proceeds of her
THE INTERNATIONAL CORPORATE BANK INC., petitioner, money market investment and for damages. She alleges in her complaint, which was
vs. subsequently amended, that the mortgage is not yet due and demandable and
THE IMMEDIATE APPELLATE COURT, HON. ZOILO AGUINALDO, as presiding accordingly the foreclosure was illegal; that per her loan agreement with petitioner
Judge of the Regional Trial Court of Makati, Branch 143, NATIVIDAD M. she is entitled to the release to her of the balance of the loan in the amount of
FAJARDO, and SILVINO R. PASTRANA, as Deputy and Special P30,000,000.00; that petitioner refused to pay her the proceeds of her money market
Sheriff, respondents. placement notwithstanding the fact that it has long become due and payable; and that
she suffered damages as a consequence of petitioner's illegal acts.

In its answer, petitioner denies private respondent's allegations and asserts among
PARAS, J.: others, that it has the right to apply or set off private respondent's money market claim
of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of
P5,763,741.23, representing the balance of its deficiency claim after deducting the
This is a petition for review on certiorari of the Decision of the Court of Appeals dated
proceeds of the money market placement, and for damages.
October 31, 1984 in AC-G.R. SP No. 02912 entitled "THE INTERNATIONAL
CORPORATE BANK, INC. v. Hon. ZOILO AGUINALDO, et al.," dismissing
petitioner's petition for certiorari against the Regional Trial Court of Makati (Branch The trial court subsequently dismissed private respondent's cause of action
143) for lack of merit, and of its Resolution dated January 7, 1985, denying concerning the annulment of the foreclosure sale, for lack of jurisdiction, but left the
petitioner's motion for reconsideration of the aforementioned Decision. other causes of action to be resolved after trial. Private respondent then filed separate
complaints in Manila and in Bulacan for annulment of the foreclosure sale of the
properties in Manila and in Bulacan, respectively.
Petitioner also prays that upon filing of the petition, a restraining order be issued ex-
parte, enjoining respondents or any person acting in their behalf, from enforcing or in
any manner implementing the Order of the respondent trial court dated February 13 On December 15, 1983, private respondent filed a motion to order petitioner to
and March 9, 1984, and January 10 and January 11, 1985. release in her favor the sum of P1,062,063.83, representing the proceeds of the
money market placement, at the time when she had already given her direct
testimony on the merits of the case and was being cross-examined by counsel. On
The facts of this case, as found by the trial court and subsequently adopted by the
December 24, 1983, petitioner filed an opposition thereto, claiming that the proceeds
Court of Appeals, are as follows:
of the money market investment had already been applied to partly satisfy its

52
deficiency claim, and that to grant the motion would be to render judgment in her will not make the causes of action of the case pending before the trial court moot and
favor without trial and make the proceedings moot and academic. However, at the academic nor will it cause irreparable damage to petitioner, private respondent having
hearing on February 9, 1984, counsel for petitioner and private respondent jointly filed her bond in the amount of P1,062,063.83 to answer for all damages which the
manifested that they were submitting for resolution said motion as well as the former may suffer in the event that the court should finally decide that private
opposition thereto on the basis of the pleadings and of the evidence which private respondent is not entitled to the return of said amount (CA Decision, Rello, pp. 112-
respondent had already presented. 114).

On February 13, 1984, respondent judge issued an order granting the motion, as The dispositive portion of the aforementioned Decision reads:
follows:
... We hold that the respondent court cannot be successfully
IN VIEW OF THE FOREGOING, the defendant International charged with grave abuse of discretion amounting to lack of
Corporate Bank is hereby ordered to deliver to the plaintiff jurisdiction when it issued its Orders of February 13, 1984 and
Natividad M. Pajardo the amount of P1,062,063.83 covered by the March 9, 1984, based as they are on a correct appreciation of the
repurchase agreement with Serial No. AOY-14822 (Exhibit "A'), this import of the parties' evidence and the applicable law.
amount represented the principal of P1,046,253.77 which the
plaintiff held including its interest as of October 13, 1980, IN VIEW WHEREOF, the petition is dismissed for lack of merit and
conditioned upon the plaintiff filing a bond amount to P1,062,063.83 the temporary restraining order issued by this Court on March 22,
to answer for all damages which the said defendant bank may 1984 is lifted. (Ibid., p. 114).
suffer in the event that the Court should finally decide that the
plaintiff was not entitled to the said amount.
Petitioner moved for the reconsideration of the above decision (Annex "S", Rollo, pp.
116-124), but for the reason that the same failed to raise any issue that had not been
Petitioner filed a motion for reconsideration to the aforesaid order, asserting among considered and passed upon by the respondent Court of Appeals, it was denied in a
other things that said motion is not verified, and therefore a mere scrap of paper. Resolution dated January 7, 1985 (CA Resolution, Rollo, p. 126).
Private respondent however manifested that since she testified in open court and was
cross-examined by counsel for petitioner on the motion for release of the proceeds of
the money market placement, the defect had already been cured. On March 9, 1984, Having been affirmed by the Court of Appeals, the trial court issued a Writ of
the respondent judge issued an order denying petitioner's motion for reconsideration. Execution to implement its Order of February 13, 1984 (Annex "BB", Rollo, p. 188)
(CA Decision, Rollo, pp. 109-111). and by virtue thereof, a levy was made on petitioner's personal property consisting of
20 motor vehicles (Annex "U", Rollo, p. 127).
On March 13, 1984, petitioner filed a special civil action for certiorari and prohibition
with preliminary injunction with the Court of Appeals, (a) for the setting aside and On January 9, 1985, herein private respondent (then plaintiff) filed in the trial court
annulment of the Orders dated February 13, 1984 and March 9,1984, issued by the an ex-parte motion praying that the four branches of the petitioner such as: Baclaran
respondent trial court, and (b) for an order commanding or directing the respondent Branch, Paranaque, Metro Manila; Ylaya Branch, Divisoria, Metro Manila; Cubao
trial judge to desist from enforcing and/or implementing and/or executing the Branch, Quezon City and Binondo Branch, Sta. Cruz, Manila, be ordered to pay the
aforesaid Orders. The temporary restraining order prayed for was issued by amount of P250,000.00 each, and the main office of the petitioner bank at Paseo de
respondent Court of Appeals on March 22, 1984. (Please see CA Decision, Rollo, p. Roxas, Makati, Metro Manila, be ordered to pay the amount of P62,063.83 in order to
114, last paragraph). answer for the claim of private respondent amounting to P1,062,063.83.

In a decision rendered on October 31, 1984 (Rollo, pp. 109-14), the Court of Appeals Thereupon, on January 10, 1985, the trial court issued an Order (Annex "V", Rollo, p.
dismissed said petition finding—(a) that while the Motion for the release of the 129) granting the above-mentioned prayers.
proceeds of the money market investment in favor of private respondent was not
verified by her, that defect was cured when she testified under oath to substantiate Acting on the ex-parte motion by the plaintiff (now private respondent), the trial court,
her allegations therein: (b) that, petitioner cannot validly claim it was denied due on January 11, 1984, ordered the President of defendant International Corporate
process for the reason that it was given ample time to be heard, as it was in fact Bank (now petitioner) and all its employees and officials concemed to deliver to the
heard when it filed an Opposition to the motion and a motion for reconsideration; (c) sheriff the 20 motor vehicles levied by virtue of the Writ of Execution dated December
that the circumstances of this case prevent legal compensation from taking place 12, 1984 (Annex "W", Rollo, p. 131).
because the question of whether private respondent is indebted to petitioner in the
amount of 6.81 million representing the deficiency balance after the foreclosure of the The petitioner having failed to comply with the above-cited Order, the respondent trial
mortgage executed to secure the loan extended to her, is vigorously disputed; (d) that court issued two (2) more Orders: the January 16, 1985 (Annex "CC," Rollo, p. 190)
the release of the proceeds of the money market investment for private respondent and January 21, 1985 Orders (Annex "DD", Rollo, p. 191), directing several
53
employees mentioned therein to show cause wily they should not be cited in e. in line 9, the phrase "and of the levying of said attachment" was
contempt. also erased or deleted;

Hence, this petition for review on certiorari with prayer for a restraining order and for a f. in line 13, the word "attachment" was likewise erased or deleted;
writ of preliminary injunction.
g. also in line 13 after the deletion of word "attachment" the phrase
Three days after this petition was filed, or specifically on January 18, 1985, petitioner "release of the P1,062,063.83 to the plaintiff was similarly inserted
filed an urgent motion reiterating its prayer for the issuance of an ex-parte restraining or added."
order (Rollo, p. 132).
Petitioner contended therein that in view of the foregoing facts, the genuineness, due
Simultaneous with the filing of the present petition, petitioner, as defendant, filed with execution and authenticity as well as the validity and enforceability of the bond (Rello,
the trial court an ex-parte motion to suspend the implementation of any and all orders p. 174) is now placed in issue and consequently, the bond may successfully be
and writs issued pursuant to Civil Case No. 884 (Annex "A", Rollo, p. 135). repudiated as falsified and, therefore, without any force and effect and the bonding
company may thereby insist that it has been released from any hability thereunder.
This Court's resolution dated January 21, 1985, without giving due course to the
petition, resolved (a) to require the respondents to comment: (b) to issue, effective Also, petitioner pointed as error the respondent trial court's motu proprio transferring
immediately and until further orders from this Court, a Temporary Restraining Order Civil Case No. 884 to the Manila Branch of the same Court arguing that improper
enjoining the respondents from enforcing or in any manner implementing the venue, as a ground for, and unless raised in, a Motion to Dismiss, may be waived by
questioned Orders dated February 13, 1984, March 9, 1984, January 10, 1985 and the parties and the court may not pre-empt the right of the parties to agree between
January 11 and 16, 1985, issued in Civil Case No. 884. or among themselves as to the venue of their choice in litigating their justiciable
controversy (Supplemental Petition, Rollo, p. 160).
The corresponding writ was issued on the same day (Rollo, pp. 139-140).
On being required to comment thereon, (Rollo, p. 192) private respondent countered
As required, the Comment of private respondent was filed on January 28, 1985 (Rollo, pp. 193-198) that bond forms are ready-prepared forms and the bonding
(Rollo, pp. 141- 150). company used the form for "Levying of Attachment" because the company has no
ready-prepared form for the kind of bond called for or required in Civil Case 884.
Whatever deletions or additions appear on the bond were made by the Afisco
Thereafter, petitioner moved for leave to file a supplemental petition on the ground Insurance Corporation itself for the purpose of accomplishing what was required or
that after it had filed this present petition, petitioner discovered that the bond filed intended.
with, and approved by, the respondent lower court showed numerous material
erasures, alterations and/or additions (Rollo, p. 151), which the issuing insurance
company certified as having been done without its authority or consent (Annex "Z", Nonetheless, on May 7, 1985, private respondent filed "Plaintiffs Bond" in the
Rollo, p. 178). respondent trial court in the amount of P1,062,063.83 a xerox copy of which was
furnished this Court (Rollo, p. 219), and noted in the Court's Resolution dated May
29,1985 (Rollo, p. 225).
The Supplemental Petition was actually filed on February 1, 1985 (Rollo, pp. 154-
171). It pointed out the erasures, alterations and/or additions in the bond as follows:
On March 11, 1985, petitioner was required to file a Consolidated Reply (Rollo, p.
199) which was filed on April 10, 1985 (Rollo, p. 201).
a. below "Civil Case No. 884" after the words, "Plaintiff's Bond," the
phrase "For Levying of Attachment" was erased or deleted;
Thereafter, a Rejoinder (Rollo, p. 238) was filed by private respondent on September
18, 1985 after Atty. Advincula, counsel for private respondents was required by this
b. in lines 2 and 3 after the word "order," the phrase "approving Court to show cause why he should not be disciplinarily dealt with or held in contempt
plaintiff's motion dated Dec. 15, 1983, was inserted or added; for his failure to comply on time (Rollo, p. 226) and on August 19, 1985 said lawyer
was finally admonished (Rollo, p. 229) for his failure to promptly apprise the Court of
c. in line 3, the phrases "Of attachment" and "ordered that a writ of his alleged non-receipt of copy of petitioner's reply, which alleged non-receipt was
attachment issue' were erased or deleted; vehemently denied by petitioner in its Counter Manifestation (Rollo, p. 230) filed on
August 5, 1985.
d also in line 3 after the words "the court has" the phrase "approved
the Motion was likewise inserted or added; Finally, on October 7, 1985, this petition was given due course and both parties were
required to submit simultaneous memoranda (Rollo, p. 249) but before the same were
54
filed, petitioner moved for leave to file sur-rejoinder (Rollo, p. 250), the sur-rejoinder It must be noted that Civil Case No. 83-19717 is still pending consideration at the
was filed on October 14,1985 (Rollo, pp. 252-254). RTC Manila, for annulment of Sheriffs sale on extra-judicial foreclosure of private
respondent's property from which the alleged deficiency arose. (Annex "AA", Rollo,
Petitioner's memorandum was filed on December 28, 1985 (Rollo, pp. 264-292) while pp. 181-189). Therefore, the validity of the extrajudicial foreclosure sale and
that of private respondent was submitted on January 10, 1986 (Rollo, pp. 295-304). petitioner's claim for deficiency are still in question, so much so that it is evident, that
the requirement of Article 1279 that the debts must be liquidated and demandable
has not yet been met. For this reason, legal compensation cannot take place under
Petitioner again moved for leave to file a Reply Memorandum (Rollo, p. 307) which, Article 1290 of the Civil Code.
despite permission from this Court, was not filed and on August 22, 1986, private
respondent prayed for early resolution of the petition (Rollo, p. 311).
Petitioner now assails the motion of the plaintiff (now private respondent) filed in the
trial court for the release of the proceeds of the money market investment, arguing
In a resolution dated October 13, 1986 (Rollo, p. 314) this case was transferred to the that it is deficient in form, the same being unverified (petitioner's Memorandum, Rollo,
Second Division of this Court, the same being assigned to a member of that Division. p. 266). On this score, it has been held that "as enjoined by the Rules of Court and
the controlling jurisprudence, a liberal construction of the rules and the pleadings is
The crucial issue to be resolved in this case is whether or not there can be legal the controlling principle to effect substantial justice." (Maturan v. Araula, 111 SCRA
compensation in the case at bar. 615 [1982]).

Petitioner contends that after foreclosing the mortgage, there is still due from private Finally, the filing of insufficient or defective bond does not dissolve absolutely and
respondent as deficiency the amount of P6.81 million against which it has the right to unconditionally the injunction issued. Whatever defect the bond possessed was cured
apply or set off private respondent's money market claim of P1,062,063.83. when private respondent filed another bond in the trial court.

The argument is without merit. PREMISES CONSIDERED, the questioned Decision and Resolution of the
respondent Court of Appeals are hereby AFFIRMED.
As correctly pointed out by the respondent Court of Appeals —
SO ORDERED
Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other. (Art. 1278, Civil G.R. No. L-62169 February 28, 1983
Code). "When all the requisites mentioned in Art. 1279 of the Civil
Code are present, compensation takes effect by operation of law, MINDANAO PORTLAND CEMENT CORPORATION, petitioner,
even without the consent or knowledge of the debtors." (Art. 1290, vs.
Civil Code). Article 1279 of the Civil Code requires among others, COURT OF APPEALS, PACWELD STEEL CORPORATION and ATTY. CASIANO
that in order that legal compensation shall take place, "the two P. LAQUIHON respondents.
debts be due" and "they be liquidated and demandable."
Compensation is not proper where the claim of the person
asserting the set-off against the other is not clear nor liquidated; Tolentino, Garcia, Cruz Reyes Law Office for petitioner.
compensation cannot extend to unliquidated, disputed claim arising
from breach of contract. (Compañia General de Tabacos vs. Casiano P. Laquihon for respondents.
French and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17
Phil. 29).

There can be no doubt that petitioner is indebted to private TEEHANKEE, J.:

respondent in the amount of P1,062,063.83 representing the
proceeds of her money market investment. This is admitted. But
whether private respondent is indebted to petitioner in the amount The Court of Appeals (now Intermediate Appellate Court) certified petitioner's appeal
of P6.81 million representing the deficiency balance after the therein as defendant-appellant, docketed as C.A.-G.R. No. 65102 thereof, to this
foreclosure of the mortgage executed to secure the loan extended Court as involving only questions of law in its Resolution of August 31, 1982, reading
to her, is vigorously disputed. This circumstance prevents legal as follows:
compensation from taking place. (CA Decision, Rollo, pp. 112-113).

55
The 'Statement of the Case and the Statement of Facts' contained There was no trial or submission of documentary evidence. Against
in appellant's brief follow: the orders of June 26. 1978, and August 28, 1978, appellant has
brought this appeal to this Court, contending that:
STATEMENT OF FACTS
The lower court erred in not holding that the two obligations are
On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of extinguished reciprocally by operation of law.' (p. 6, Appellant's
third-party defendant Pacweld Steel Corporation (Pacweld for Brief)
short) as the latter's attorney, filed a pleading addressed to the
defendant & Third-Party Plaintiff Mindanao Portland Cement This appeal calls for the application of Arts. 1278, 1279 and 1290 of
Corporation (MPCC) for short), herein appellant, entitled 'motion to the Civil Code, as urged by the appellant. Another question is: The
direct payment of attorney's fee to counsel' (himself ), invoking in judgment in Civil Case No. 75179 being already final at the time the
his motion the fact that in the decision of the court of Sept. 14, motion under consideration was filed, does not the order of June
1976, MPCC was adjudged to pay Pacweld the sum of P10,000.00 26, 1976 constitute a change or alteration of the said judgment,
as attorney's fees (Record on Appeal, pp. 1, 6-9). though issued by the very same court that rendered the judgment?

On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's WHEREFORE, since only questions of law are involved and there
motion, stating, as grounds therefor, that said amount is set-off by a is no factual issue left for us to determine, let the records of the
like sum of P10,000.00 which it MPCC has collectible in its favor appeal in this case be certified to the Honorable Supreme Court for
from Pacweld also by way of attorney's fees which MPCC determination.
recovered from the same Court of First Instance of Manila (Branch
XX) in Civil Case No. 68346, entitled Pacweld Steel Corporation, et After considering the briefs of the parties in the appellate court and the additional
al. writ of execution to this effect having been issued by said court pleadings required of them by this Court, the Court finds merit in the appeal and sets
(Record on Appeal, pp, 2,10- 14). 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.
On June 26, 1978 the court issued the order appealed from
(Record on Appeal, pp. 24-25) and despite MPCCs motion for It is clear from the record that both corporations, petitioner Mindanao Portland
reconsideration of said order, citing the law applicable and Cement Corporation (appellant) and respondent Pacweld Steel Corporation
Supreme Court decisions (Record on Appeal, pp. 26-33), denied (appellee), were creditors and debtors of each other, their debts to each other
the same in its order of August 28, 1978 (Record on Appeal, p. 37), consisting in final and executory judgments of the Court of First Instance in two (2)
also subject matter of this appeal. 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,
The writ of execution referred to above which MPCC has invoked to compensation having taken effect by operation of law and extinguished both debts to
set- off the amount sought to be collected by Pacweld through the the concurrent amount of P10,000.00, pursuant to the provisions of Arts. 1278, 1279
latter's lawyer, Atty. Casiano P. Laquihon, is hereunder quoted in and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of the said
full. Code for automatic compensation "even though the creditors and debtors are not
aware of the compensation" were duly present.**
In his brief, appellee comments that the statements in appellant's
brief are 'substantially correct,' as follows: 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
STATEMENT OF THE CASE 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
This is an appeal from the Order of the Court of First Instance of final and executory long before the issuance of said "amendatory" order was a void
Manila (Branch X dated June 26, 1978 ordering the appellant alteration of judgment. It was a substantial change or amendment beyond the trial
(MINDANAO PORTLAND CEMENT CORPORATION) to pay the court's jurisdiction and authority and it could not defeat the compensation or set-off of
amount of P10,000.00 attorney's fees directly to Atty. Casiano B. the two (2) obligations of the corporations to each other which had already
Laquihon (Record on Appeal, pp. 24-25) and from the Order dated extinguished both debts by operation of law.
August 28, 1978 denying appellant's motion for reconsideration
(Record on Appeal, p. 37).
ACCORDINGLY. the appealed orders are hereby annulled and set aside. No costs.

56
Melencio-Herrera, Plana, Vasquez, Relova and Gutierrez, Jr., JJ., concur. checks (P267,692.50) and the amount actually debited from her account
(P267,707.70) represented bank charges in connection with the issuance of a
G.R. No. 136202 January 25, 2007 cashier’s check to Templonuevo.

BANK OF THE PHILIPPINE ISLANDS, Petitioner, In the answer to the third-party complaint, private respondent Templonuevo admitted
vs. the payment to him of P267,692.50 and argued that said payment was to correct the
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. malicious deposit made by private respondent Salazar to her private account, and
TEMPLONUEVO, Respondents that petitioner bank’s negligence and tolerance regarding the matter was violative of
the primary and ordinary rules of banking. He likewise contended that the debiting or
taking of the reimbursed amount from the account of private respondent Salazar by
DECISION petitioner BPI was a matter exclusively between said parties and may be pursuant to
banking rules and regulations, but did not in any way affect him. The debiting from
AZCUNA, J.: another account of private respondent Salazar, considering that her other account
was effectively closed, was not his concern.
This is a petition for review under Rule 45 of the Rules of Court seeking the reversal
of the Decision1 dated April 3, 1998, and the Resolution2 dated November 9, 1998, of After trial, the RTC rendered a decision, the dispositive portion of which reads thus:
the Court of Appeals in CA-G.R. CV No. 42241.
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
The facts3 are as follows: plaintiff [private respondent Salazar] and against the defendant [petitioner BPI] and
ordering the latter to pay as follows:
A.A. Salazar Construction and Engineering Services filed an action for a sum of
money with damages against herein petitioner Bank of the Philippine Islands (BPI) on 1. The amount of P267,707.70 with 12% interest thereon from September
December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City. 16, 1991 until the said amount is fully paid;
The complaint was later amended by substituting the name of Annabelle A. Salazar
as the real party in interest in place of A.A. Salazar Construction and Engineering 2. The amount of P30,000.00 as and for actual damages;
Services. Private respondent Salazar prayed for the recovery of the amount of Two
Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy
Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise 3. The amount of P50,000.00 as and for moral damages;
prayed for damages and attorney’s fees.
4. The amount of P50,000.00 as and for exemplary damages;
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo,
third-party defendant and herein also a private respondent, demanded from the 5. The amount of P30,000.00 as and for attorney’s fees; and
former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred
Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate 6. Costs of suit.
value of three (3) checks, which were allegedly payable to him, but which were
deposited with the petitioner bank to private respondent Salazar’s account (Account
No. 0203-1187-67) without his knowledge and corresponding endorsement. The counterclaim is hereby ordered DISMISSED for lack of factual basis.

Accepting that Templonuevo’s claim was a valid one, petitioner BPI froze Account No. The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED
0201-0588-48 of A.A. Salazar and Construction and Engineering Services, instead of for lack of merit.
Account No. 0203-1187-67 where the checks were deposited, since this account was
already closed by private respondent Salazar or had an insufficient balance. Third-party defendant’s [i.e., private respondent Templonuevo’s] counterclaim is
hereby likewise DISMISSED for lack of factual basis.
Private respondent Salazar was advised to settle the matter with Templonuevo but
they did not arrive at any settlement. As it appeared that private respondent Salazar SO ORDERED.4
was not entitled to the funds represented by the checks which were deposited and
accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that
her Account No. 0201-0588-48 and the sum of P267,692.50 was paid to respondent Salazar was entitled to the proceeds of the three (3) checks
Templonuevo by means of a cashier’s check. The difference between the value of the notwithstanding the lack of endorsement thereon by the payee. The CA concluded
57
that Salazar and Templonuevo had previously agreed that the checks payable to JRT The issues center on the propriety of the deductions made by petitioner from private
Construction and Trading5 actually belonged to Salazar and would be deposited to respondent Salazar’s account. Stated otherwise, does a collecting bank, over the
her account, with petitioner acquiescing to the arrangement. 6 objections of its depositor, have the authority to withdraw unilaterally from such
depositor’s account the amount it had previously paid upon certain unendorsed order
Petitioner therefore filed this petition on these grounds: instruments deposited by the depositor to another account that she later closed?

I. Petitioner argues thus:

The Court of Appeals committed reversible error in misinterpreting Section 49 of the 1. There is no presumption in law that a check payable to order, when found
Negotiable Instruments Law and Section 3 (r and s) of Rule 131 of the New Rules on in the possession of a person who is neither a payee nor the indorsee
Evidence. thereof, has been lawfully transferred for value. Hence, the CA should not
have presumed that Salazar was a transferee for value within the
contemplation of Section 49 of the Negotiable Instruments Law, 8 as the latter
II. applies only to a holder defined under Section 191of the same. 9

The Court of Appeals committed reversible error in NOT applying the provisions of 2. Salazar failed to adduce sufficient evidence to prove that her possession
Articles 22, 1278 and 1290 of the Civil Code in favor of BPI. of the three checks was lawful despite her allegations that these checks
were deposited pursuant to a prior internal arrangement with Templonuevo
III. and that petitioner was privy to the arrangement.

The Court of Appeals committed a reversible error in holding, based on a 3. The CA should have applied the Civil Code provisions on legal
misapprehension of facts, that the account from which BPI debited the amount compensation because in deducting the subject amount from Salazar’s
of P267,707.70 belonged to a corporation with a separate and distinct personality. account, petitioner was merely rectifying the undue payment it made upon
the checks and exercising its prerogative to alter or modify an erroneous
IV. credit entry in the regular course of its business.

The Court of Appeals committed a reversible error in holding, based entirely on 4. The debit of the amount from the account of A.A. Salazar Construction
speculations, surmises or conjectures, that there was an agreement between and Engineering Services was proper even though the value of the checks
SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be had been originally credited to the personal account of Salazar because A.A.
deposited by SALAZAR to her personal account and that BPI was privy to this Salazar Construction and Engineering Services, an unincorporated single
agreement. proprietorship, had no separate and distinct personality from Salazar.

V. 5. Assuming the deduction from Salazar’s account was improper, the CA

should not have dismissed petitioner’s third-party complaint against
Templonuevo because the latter would have the legal duty to return to
The Court of Appeals committed reversible error in holding, based entirely on petitioner the proceeds of the checks which he previously received from it.
speculation, surmises or conjectures, that SALAZAR suffered great damage and
prejudice and that her business standing was eroded.
6. There was no factual basis for the award of damages to Salazar.

VI.
The petition is partly meritorious.

The Court of Appeals erred in affirming instead of reversing the decision of the lower
court against BPI and dismissing SALAZAR’s complaint. First, the issue raised by petitioner requires an inquiry into the factual findings made
by the CA. The CA’s conclusion that the deductions from the bank account of A.A.
Salazar Construction and Engineering Services were improper stemmed from its
VII. finding that there was no ineffective payment to Salazar which would call for the
exercise of petitioner’s right to set off against the former’s bank deposits. This finding,
The Honorable Court erred in affirming the decision of the lower court dismissing the in turn, was drawn from the pleadings of the parties, the evidence adduced during trial
third-party complaint of BPI.7 and upon the admissions and stipulations of fact made during the pre-trial, most
significantly the following:
58
 (a) That Salazar previously had in her possession the following checks: their payee. In fact, they hesitate to accept indorsed checks for deposit if the
depositor is not one they know very well.11
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the
amount of P57,712.50; The CA likewise sustained Salazar’s position that she received the checks from
Templonuevo pursuant to an internal arrangement between them, ratiocinating as
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the follows:
amount of P55,180.00; and,
If there was indeed no arrangement between Templonuevo and the plaintiff over the
(3) Equitable Banking Corporation Check No. 32380638 dated three questioned checks, it baffles us why it was only on August 31, 1991 or more
August 28, 1990 for the amount of P154,800.00; than a year after the third and last check was deposited that he demanded for the
refund of the total amount of P267,692.50.
(b) That these checks which had an aggregate amount of P267,692.50 were
payable to the order of JRT Construction and Trading, the name and style A prudent man knowing that payment is due him would have demanded payment by
under which Templonuevo does business; his debtor from the moment the same became due and demandable. More so if the
sum involved runs in hundreds of thousand of pesos. By and large, every person, at
the very moment he learns that he was deprived of a thing which rightfully belongs to
(c) That despite the lack of endorsement of the designated payee upon such him, would have created a big fuss. He would not have waited for a year within which
checks, Salazar was able to deposit the checks in her personal savings to do so. It is most inconceivable that Templonuevo did not do this.12
account with petitioner and encash the same;
Generally, only questions of law may be raised in an appeal by certiorari under Rule
(d) That petitioner accepted and paid the checks on three (3) separate 45 of the Rules of Court.13 Factual findings of the CA are entitled to great weight and
occasions over a span of eight months in 1990; and respect, especially when the CA affirms the factual findings of the trial court. 14 Such
questions on whether certain items of evidence should be accorded probative value
(e) That Templonuevo only protested the purportedly unauthorized or weight, or rejected as feeble or spurious, or whether or not the proofs on one side
encashment of the checks after the lapse of one year from the date of the or the other are clear and convincing and adequate to establish a proposition in issue,
last check.10 are questions of fact. The same holds true for questions on whether or not the body of
proofs presented by a party, weighed and analyzed in relation to contrary evidence
Petitioner concedes that when it credited the value of the checks to the account of submitted by the adverse party may be said to be strong, clear and convincing, or
private respondent Salazar, it made a mistake because it failed to notice the lack of whether or not inconsistencies in the body of proofs of a party are of such gravity as
endorsement thereon by the designated payee. The CA, however, did not lend to justify refusing to give said proofs weight – all these are issues of fact which are not
credence to this claim and concluded that petitioner’s actions were deliberate, in view reviewable by the Court.15
of its admission that the "mistake" was committed three times on three separate
occasions, indicating acquiescence to the internal arrangement between Salazar and This rule, however, is not absolute and admits of certain exceptions, namely: a) when
Templonuevo. The CA explained thus: the conclusion is a finding grounded entirely on speculations, surmises, or
conjectures; b) when the inference made is manifestly mistaken, absurd, or
It was quite apparent that the three checks which appellee Salazar deposited were impossible; c) when there is a grave abuse of discretion; d) when the judgment is
not indorsed. Three times she deposited them to her account and three times the based on a misapprehension of facts; e) when the findings of fact are conflicting; f)
amounts borne by these checks were credited to the same. And in those separate when the CA, in making its findings, went beyond the issues of the case and the
occasions, the bank did not return the checks to her so that she could have them same are contrary to the admissions of both appellant and appellee; g) when the
indorsed. Neither did the bank question her as to why she was depositing the checks findings of the CA are contrary to those of the trial court; h) when the findings of fact
to her account considering that she was not the payee thereof, thus allowing us to are conclusions without citation of specific evidence on which they are based; i) when
come to the conclusion that defendant-appellant BPI was fully aware that the the finding of fact of the CA is premised on the supposed absence of evidence but is
proceeds of the three checks belong to appellee. contradicted by the evidence on record; and j) when the CA manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion.16
For if the bank was not privy to the agreement between Salazar and Templonuevo, it
is most unlikely that appellant BPI (or any bank for that matter) would have accepted
the checks for deposit on three separate times nary any question. Banks are most In the present case, the records do not support the finding made by the CA and the
finicky over accepting checks for deposit without the corresponding indorsement by trial court that a prior arrangement existed between Salazar and Templonuevo
regarding the transfer of ownership of the checks. This fact is crucial as Salazar’s

59
entitlement to the value of the instruments is based on the assumption that she is a overcome. This is consistent with the principle that if instruments payable to named
transferee within the contemplation of Section 49 of the Negotiable Instruments Law. payees or to their order have not been indorsed in blank, only such payees or their
indorsees can be holders and entitled to receive payment in their own right.21
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the
payee or indorsee delivers a negotiable instrument for value without indorsing it, thus: The presumption under Section 131(s) of the Rules of Court stating that a negotiable
instrument was given for a sufficient consideration will not inure to the benefit of
Transfer without indorsement; effect of- Where the holder of an instrument payable to Salazar because the term "given" does not pertain merely to a transfer of physical
his order transfers it for value without indorsing it, the transfer vests in the transferee possession of the instrument. The phrase "given or indorsed" in the context of a
such title as the transferor had therein, and the transferee acquires in addition, the negotiable instrument refers to the manner in which such instrument may be
right to have the indorsement of the transferor. But for the purpose of determining negotiated. Negotiable instruments are negotiated by "transfer to one person or
whether the transferee is a holder in due course, the negotiation takes effect as of the another in such a manner as to constitute the transferee the holder thereof. If
time when the indorsement is actually made. 17 payable to bearer it is negotiated by delivery. If payable to order it is negotiated by the
indorsement completed by delivery."22 The present case involves checks payable to
order. Not being a payee or indorsee of the checks, private respondent Salazar
It bears stressing that the above transaction is an equitable assignment and the could not be a holder thereof.
transferee acquires the instrument subject to defenses and equities available among
prior parties. Thus, if the transferor had legal title, the transferee acquires such title
and, in addition, the right to have the indorsement of the transferor and also the right, It is an exception to the general rule for a payee of an order instrument to transfer the
as holder of the legal title, to maintain legal action against the maker or acceptor or instrument without indorsement. Precisely because the situation is abnormal, it is but
other party liable to the transferor. The underlying premise of this provision, however, fair to the maker and to prior holders to require possessors to prove without the aid of
is that a valid transfer of ownership of the negotiable instrument in question has taken an initial presumption in their favor, that they came into possession by virtue of a
place. legitimate transaction with the last holder.23 Salazar failed to discharge this burden,
and the return of the check proceeds to Templonuevo was therefore warranted under
the circumstances despite the fact that Templonuevo may not have clearly
Transferees in this situation do not enjoy the presumption of ownership in favor of demonstrated that he never authorized Salazar to deposit the checks or to encash the
holders since they are neither payees nor indorsees of such instruments. The weight same. Noteworthy also is the fact that petitioner stamped on the back of the checks
of authority is that the mere possession of a negotiable instrument does not in itself the words: "All prior endorsements and/or lack of endorsements guaranteed," thereby
conclusively establish either the right of the possessor to receive payment, or of the making the assurance that it had ascertained the genuineness of all prior
right of one who has made payment to be discharged from liability. Thus, something endorsements. Having assumed the liability of a general indorser, petitioner’s liability
more than mere possession by persons who are not payees or indorsers of the to the designated payee cannot be denied.
instrument is necessary to authorize payment to them in the absence of any other
facts from which the authority to receive payment may be inferred. 18
Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s
account for the value of the checks it previously credited in her favor. It is of no
The CA and the trial court surmised that the subject checks belonged to private moment that the account debited by petitioner was different from the original account
respondent Salazar based on the pre-trial stipulation that Templonuevo incurred a to which the proceeds of the check were credited because both admittedly belonged
one-year delay in demanding reimbursement for the proceeds of the same. To the to Salazar, the former being the account of the sole proprietorship which had no
Court’s mind, however, such period of delay is not of such unreasonable length as to separate and distinct personality from her, and the latter being her personal account.
estop Templonuevo from asserting ownership over the checks especially considering
that it was readily apparent on the face of the instruments 19 that these were crossed
checks. The right of set-off was explained in Associated Bank v. Tan:24

In State Investment House v. IAC,20 the Court enumerated the effects of crossing a A bank generally has a right of set-off over the deposits therein for the payment of
check, thus: (1) that the check may not be encashed but only deposited in the bank; any withdrawals on the part of a depositor. The right of a collecting bank to debit a
(2) that the check may be negotiated only once - to one who has an account with a client's account for the value of a dishonored check that has previously been credited
bank; and (3) that the act of crossing the check serves as a warning to the holder that has fairly been established by jurisprudence. To begin with, Article 1980 of the Civil
the check has been issued for a definite purpose so that such holder must inquire if Code provides that "[f]ixed, savings, and current deposits of money in banks and
the check has been received pursuant to that purpose. similar institutions shall be governed by the provisions concerning simple loan."

Thus, even if the delay in the demand for reimbursement is taken in conjunction with Hence, the relationship between banks and depositors has been held to be that of
Salazar’s possession of the checks, it cannot be said that the presumption of creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code
ownership in Templonuevo’s favor as the designated payee therein was sufficiently may take place "when all the requisites mentioned in Article 1279 are present," as
follows:
60
 (1) That each one of the obligors be bound principally, and that he be at the issued a cashier’s check in the name of Julio R. Templonuevo of the J.R.T.
same time a principal creditor of the other; Construction and Trading for the sum of P267,692.50 (Exhibit "8") and debited said
amount from Ms. Arcilla’s account No. 0201-0588-48 which was supposed to be
(2) That both debts consist in a sum of money, or if the things due are frozen or controlled. Such a move by BPI is, to Our minds, a clear case of negligence,
consumable, they be of the same kind, and also of the same quality if the if not a fraudulent, wanton and reckless disregard of the right of its depositor.
latter has been stated;
The records further bear out the fact that respondent Salazar had issued several
(3) That the two debts be due; checks drawn against the account of A.A. Salazar Construction and Engineering
Services prior to any notice of deduction being served. The CA sustained private
respondent Salazar’s claim of damages in this regard:
(4) That they be liquidated and demandable;
The act of the bank in freezing and later debiting the amount of P267,692.50 from the
(5) That over neither of them there be any retention or controversy, account of A.A. Salazar Construction and Engineering Services caused plaintiff-
commenced by third persons and communicated in due time to the debtor. appellee great damage and prejudice particularly when she had already issued
checks drawn against the said account. As can be expected, the said checks
While, however, it is conceded that petitioner had the right of set-off over the amount bounced. To prove this, plaintiff-appellee presented as exhibits photocopies of checks
it paid to Templonuevo against the deposit of Salazar, the issue of whether it acted dated September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits "D",
judiciously is an entirely different matter.25 As businesses affected with public interest, "E" and "F" respectively)30
and because of the nature of their functions, banks are under obligation to treat the
accounts of their depositors with meticulous care, always having in mind the fiduciary These checks, it must be emphasized, were subsequently dishonored, thereby
nature of their relationship.26 In this regard, petitioner was clearly remiss in its duty to causing private respondent Salazar undue embarrassment and inflicting damage to
private respondent Salazar as its depositor. her standing in the business community. Under the circumstances, she was clearly
not given the opportunity to protect her interest when petitioner unilaterally withdrew
To begin with, the irregularity appeared plainly on the face of the checks. Despite the the above amount from her account without informing her that it had already done so.
obvious lack of indorsement thereon, petitioner permitted the encashment of these
checks three times on three separate occasions. This negates petitioner’s claim that it For the above reasons, the Court finds no reason to disturb the award of damages
merely made a mistake in crediting the value of the checks to Salazar’s account and granted by the CA against petitioner. This whole incident would have been avoided
instead bolsters the conclusion of the CA that petitioner recognized Salazar’s claim of had petitioner adhered to the standard of diligence expected of one engaged in the
ownership of checks and acted deliberately in paying the same, contrary to ordinary banking business. A depositor has the right to recover reasonable moral damages
banking policy and practice. It must be emphasized that the law imposes a duty of even if the bank’s negligence may not have been attended with malice and bad faith,
diligence on the collecting bank to scrutinize checks deposited with it, for the purpose if the former suffered mental anguish, serious anxiety, embarrassment and
of determining their genuineness and regularity. The collecting bank, being primarily humiliation.31 Moral damages are not meant to enrich a complainant at the expense of
engaged in banking, holds itself out to the public as the expert on this field, and the defendant. It is only intended to alleviate the moral suffering she has undergone. The
law thus holds it to a high standard of conduct. 27 The taking and collection of a check award of exemplary damages is justified, on the other hand, when the acts of the
without the proper indorsement amount to a conversion of the check by the bank. 28 bank are attended by malice, bad faith or gross negligence. The award of reasonable
attorney’s fees is proper where exemplary damages are awarded. It is proper where
More importantly, however, solely upon the prompting of Templonuevo, and with full depositors are compelled to litigate to protect their interest. 32
knowledge of the brewing dispute between Salazar and Templonuevo, petitioner
debited the account held in the name of the sole proprietorship of Salazar without WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April
even serving due notice upon her. This ran contrary to petitioner’s assurances to 3, 1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-
private respondent Salazar that the account would remain untouched, pending the G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the
resolution of the controversy between her and Templonuevo.29 In this connection, the Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven
CA cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of Hundred and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A.
petitioner bank’s Pasig/Ortigas branch, to private respondent Salazar informing her Salazar, which portion is REVERSED and SET ASIDE. In all other respects, the
that her account had been frozen, thus: same are AFFIRMED.

From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. No costs.
0201-0588-48 will remain frozen or untouched until herein [Salazar] has settled
matters with Templonuevo. But, in an unexpected move, in less than two weeks
(eleven days to be precise) from the time that letter was written, [petitioner] bank SO ORDERED.

61
G.R. No. 191555 January 20, 2014 xxxx

UNION BANK OF THE PHILIPPINES, Petitioner, 4. DBP hereby covenants and undertakes that the amount up to 30% of any and all
vs. rentals due from the Lessee pursuant to the Lease Agreement shall be remitted by
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent. DBP to Bancom at the latter’s offices at Pasay Road, Makati, Metro Manila within five
(5) days from due dates thereof, and applied in payment of the Assumed Obligations.
DECISION Likewise, the amount up to 30% of the proceeds from any sale of the Leased
Properties shall within the same period above, be remitted by DBP to Bancom and
applied in payment or prepayment of the Assumed Obligations. x x x.
PERLAS-BERNABE, J.:
Any balance of the Assumed Obligations after application of the entire rentals and or
Assailed in this petition for review on Certiorari1 are the Decision2 dated November 3, the entire sales proceeds actually received by Bancom on the Leased Properties shall
2009 and Resolution3 dated February 26, 2010 of the Court of Appeals (CA) in CA- be paid by DBP to Bancom not later than December 29, 1998. (Emphases supplied)
G.R. SP No. 93833 which affirmed the Orders4 dated November 9, 2005 and January
30, 2006 of the Regional Trial Court of Makati, Branch 58 5 (RTC) in Civil Case No.
7648 denying the motion to affirm legal compensation 6 filed by petitioner Union Bank Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease
of the Philippines (Union Bank) against respondent Development Bank of the Agreement to Foodmasters Worldwide, Inc. (FW);11 while on May 9, 1984, Bancom
Philippines (DBP). conveyed all its receivables, including, among others, DBP’s assumed obligations, to
Union Bank.12
The Facts
Claiming that the subject rentals have not been duly remitted despite its repeated
demands, Union Bank filed, on June 20, 1984, a collection case against DBP before
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s the RTC, docketed as Civil Case No. 7648.13 In opposition, DBP countered, among
predecessor-in-interest, Bancom Development Corporation (Bancom), and to DBP. others, that the obligations it assumed were payable only out of the rental payments
made by FI. Thus, since FI had yet to pay the same, DBP’s obligation to Union Bank
On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of had not arisen.14 In addition, DBP sought to implead FW as third party-defendant in
Property In Payment of Debt7 (dacion en pago) whereby the former ceded in favor of its capacity as FI’s assignee and, thus, should be held liable to Union Bank.15
the latter certain properties (including a processing plant in Marilao, Bulacan
[processing plant]) in consideration of the following: (a) the full and complete In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground that it
satisfaction of FI’s loan obligations to DBP; and (b) the direct assumption by DBP of had ceased to be a real-party-in-interest due to the supervening transfer of its rights,
FI’s obligations to Bancom in the amount of ₱17,000,000.00 (assumed obligations). 8 title and interests over the subject matter to the Asset Privatization Trust (APT). Said
motion was, however, denied by the RTC in an Order dated May 27, 1988. 16
On the same day, DBP, as the new owner of the processing plant, leased back9 for
20 years the said property to FI (Lease Agreement) which was, in turn, obliged to pay The RTC Ruling in Civil Case No. 7648
monthly rentals to be shared by DBP and Bancom.
Finding the complaint to be meritorious, the RTC, in a Decision 17 dated May 8, 1990,
DBP also entered into a separate agreement 10 with Bancom (Assumption Agreement) ordered: (a) DBP to pay Union Bank the sum of ₱4,019,033.59, representing the
whereby the former: (a) confirmed its assumption of FI’s obligations to Bancom; and amount of the subject rentals (which, again, constitutes 30% of FI’s [now FW’s] total
(b) undertook to remit up to 30% of any and all rentals due from FI to Bancom rental debt), including interest until fully paid; and (b) FW, as third-party defendant, to
(subject rentals) which would serve as payment of the assumed obligations, to be indemnify DBP, as third- party plaintiff, for its payments of the subject rentals to Union
paid in monthly installments. The pertinent portions of the Assumption Agreement Bank. It ruled that there lies no evidence which would show that DBP’s receipt of the
reads as follows: rental payments from FW is a condition precedent to the former’s obligation to remit
the subject rentals under the Lease Agreement. Thus, when DBP failed to remit the
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the above subject rentals to Union Bank, it defaulted on its assumed obligations. 18 DBP then
obligations to Bancom which DBP has assumed shall be settled, paid and/or elevated the case on appeal before the CA, docketed as CA-G.R. CV No. 35866.
liquidated by DBP out of a portion of the lease rentals or part of the proceeds of sale
of those properties of the Assignors conveyed to DBP pursuant to the [Deed of The CA Ruling in CA-G.R. CV No. 35866
Cession of Property in Payment of Debt dated May 21, 1979] and which are the
subject of [the Lease Agreement] made and executed by and between DBP and [FI],
the last hereafter referred to as the "Lessee" to be effective as of July 31, 1978. In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside the
RTC’s ruling, and consequently ordered: (a) FW to pay DBP the amount of
62
₱32,441,401.85 representing the total rental debt incurred under the Lease On May 16, 2001, Union Bank filed a motion for execution 28 before the RTC, praying
Agreement, including ₱10,000.00 as attorney’s fees; and (b) DBP, after having been that DBP be directed to pay the amount of ₱9,732,420.555 which represents the
paid by FW its unpaid rentals, to remit 30% thereof (i.e., the subject rentals) to Union amount of the subject rentals (i.e., 30% of the FW’s total rental debt in the amount of
Bank.20 ₱32,441,401.85). DBP opposed29 Union Bank’s motion, contending that it sought to
effectively vary the dispositive portion of the CA’s May 27, 1994 Decision in CA-G.R.
It rejected Union Bank’s claim that DBP has the direct obligation to remit the subject CV No. 35866. Also, on September 12, 2001, DBP filed its own motion for execution
rentals not only from FW’s rental payments but also out of its own resources since against FW, citing the same CA decision as its basis.
said claim contravened the "plain meaning" of the Assumption Agreement which
specifies that the payment of the assumed obligations shall be made "out of the In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the RTC
portion of the lease rentals or part of the proceeds of the sale of those properties of granted both motions for execution. Anent Union Bank’s motion, the RTC opined that
[FI] conveyed to DBP."21 It also construed the phrase under the Assumption the CA’s ruling that DBP’s payment to Union Bank shall be demandable only upon
Agreement that DBP is obligated to "pay any balance of the Assumed Obligations payment of FW must be viewed in light of the date when the same was rendered. It
after application of the entire rentals and/or the entire sales proceeds actually noted that the CA decision was promulgated only on May 27, 1994, which was before
received by [Union Bank] on the Leased Properties . . . not later than December 29, the December 29, 1998 due date within which DBP had to fully pay its obligation to
1998" to mean that the lease rentals must first be applied to the payment of the Union Bank under the Assumption Agreement. Since the latter period had already
assumed obligations in the amount of ₱17,000,000.00, and that DBP would have to lapsed, "[i]t would, thus, be too strained to argue that payment by DBP of its assumed
pay out of its own money only in case the lease rentals were insufficient, having only obligation[s] shall be dependent on [FW’s] ability, if not availability, to pay." 31 In similar
until December 29, 1998 to do so. Nevertheless, the monthly installments in regard, the RTC granted DBP’s motion for execution against FW since its liability to
satisfaction of the assumed obligations would still have to be first sourced from said Union Bank and DBP remained undisputed.
lease rentals as stipulated in the assumption agreement. 22 In view of the foregoing,
the CA ruled that DBP did not default in its obligations to remit the subject rentals to As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Writ of
Union Bank precisely because it had yet to receive the rental payments of FW.23 Execution) and, thereafter, a notice of garnishment33 against DBP were issued.
Records, however, do not show that the same writ was implemented against FW.
Separately, the CA upheld the RTC’s denial of DBP’s motion to dismiss for the reason
that the transfer of its rights, title and interests over the subject matter to the APT DBP filed a motion for reconsideration34 from the Execution Order, averring that the
occurred pendente lite, and, as such, the substitution of parties is largely discretionary latter issuance varied the import of the CA’s May 27, 1994 Decision in CA-G.R. CV
on the part of the court. No. 35866 in that it prematurely ordered DBP to pay the assumed obligations to
Union Bank before FW’s payment. The motion was, however, denied on December 5,
At odds with the CA’s ruling, Union Bank and DBP filed separate petitions for review 2001.35 Thus, DBP’s deposits were eventually garnished.36 Aggrieved, DBP filed a
on certiorari before the Court, respectively docketed as G.R. Nos. 115963 and petition for certiorari37 before the CA, docketed as CA-G.R. SP No. 68300.
119112, which were thereafter consolidated.
The CA Ruling in CA-G.R. SP No. 68300
The Court’s Ruling in G.R. Nos. 115963 & 119112
In a Decision38 dated July 26, 2002, the CA dismissed DBP’s petition, finding that the
The Court denied both petitions in a Resolution 24 dated December 13, 1995. First, it RTC did not abuse its discretion when it issued the October 15, 2001 Writ of
upheld the CA’s finding that while DBP directly assumed FI’s obligations to Union Execution. It upheld the RTC’s observation that there was "nothing wrong in the
Bank, DBP was only obliged to remit to the latter 30% of the lease rentals collected manner how [said writ] was implemented," as well as "in the zealousness and
from FW, from which any deficiency was to be settled by DBP not later than promptitude exhibited by Union Bank" in moving for the same. DBP appealed the
December 29, 1998.25 Similarly, the Court agreed with the CA that the denial of CA’s ruling before the Court, which was docketed as G.R. No. 155838.
DBP’s motion to dismiss was proper since substitution of parties, in case of transfers
pendente lite, is merely discretionary on the part of the court, adding further that the The Court’s Ruling in G.R. No. 155838
proposed substitution of APT will amount to a novation of debtor which cannot be
done without the consent of the creditor.26
In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court
granted DBP’s appeal, and thereby reversed and set aside the CA’s ruling in CA-G.R.
On August 2, 2000, the Court’s resolution became final and executory. 27 SP No. 68300. It found significant points of variance between the CA’s May 27, 1994
Decision in CA-G.R. CV No. 35866, and the RTC’s Order of Execution/October 15,
The RTC Execution Proceedings 2001 Writ of Execution. It ruled that both the body and the dispositive portion of the
same decision acknowledged that DBP’s obligation to Union Bank for remittance of
the lease payments is contingent on FW’s prior payment to DBP, and that any

63
deficiency DBP had to pay by December 29, 1998 as per the Assumption Agreement The Issue Before the Court
cannot be determined until after the satisfaction of FW’s own rental obligations to
DBP. Accordingly, the Court: (a) nullified the October 15, 2001 Writ of Execution and The sole issue for the Court’s resolution is whether or not the CA correctly upheld the
all related issuances thereto; and (b) ordered Union Bank to return to DBP the denial of Union Bank’s motion to affirm legal compensation.
amounts it received pursuant to the said writ.40 Dissatisfied, Union Bank moved for
reconsideration which was, however, denied by the Court in a Resolution dated
March 24, 2004 with finality. Thus, the January 13, 2004 Decision attained finality on The Court’s Ruling
April 30, 2004.41 Thereafter, DBP moved for the execution of the said decision before
the RTC. After numerous efforts on the part of Union Bank proved futile, the RTC The petition is bereft of merit. Compensation is defined as a mode of extinguishing
issued a writ of execution (September 6, 2005 Writ of Execution), ordering Union obligations whereby two persons in their capacity as principals are mutual debtors
Bank to return to DBP all funds it received pursuant to the October 15, 2001 Writ of and creditors of each other with respect to equally liquidated and demandable
Execution.42 obligations to which no retention or controversy has been timely commenced and
communicated by third parties.53 The requisites therefor are provided under Article
Union Bank’s Motion to Affirm Legal Compensation 1279 of the Civil Code which reads as follows:

On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm Legal Art. 1279. In order that compensation may be proper, it is necessary:
Compensation,43 praying that the RTC apply legal compensation between itself and
DBP in order to offset the return of the funds it previously received from DBP. Union (1) That each one of the obligors be bound principally, and that he be at the
Bank anchored its motion on two grounds which were allegedly not in existence prior same time a principal creditor of the other;
to or during trial, namely: (a) on December 29, 1998, DBP’s assumed obligations
became due and demandable;44 and (b) considering that FWI became non- (2) That both debts consist in a sum of money, or if the things due are
operational and non-existent, DBP became primarily liable to the balance of its consumable, they be of the same kind, and also of the same quality if the
assumed obligation, which as of Union Bank’s computation after its claimed set-off, latter has been stated;
amounted to ₱1,849,391.87.45

(3) That the two debts be due;

On November 9, 2005, the RTC issued an Order 46 denying the above-mentioned
motion for lack of merit, holding that Union Bank’s stated grounds were already
addressed by the Court in the January 13, 2004 Decision in G.R. No. 155838. With (4) That they be liquidated and demandable;
Union Bank’s motion for reconsideration therefrom having been denied, it filed a
petition for certiorari47 with the CA, docketed as CA-G.R. SP No. 93833. (5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
Pending resolution, Union Bank issued Manager’s Check 48 No. 099-0003192363 debtor.1awp++i1 (Emphases and underscoring supplied)
dated April 21, 2006 amounting to ₱52,427,250.00 in favor of DBP, in satisfaction of
the Writ of Execution dated September 6, 2005 Writ of Execution. DBP, however, The rule on legal54 compensation is stated in Article 1290 of the Civil Code which
averred that Union Bank still has a balance of ₱756,372.39 representing a portion of provides that "[w]hen all the requisites mentioned in Article 1279 are present,
the garnished funds of DBP,49 which means that said obligation had not been compensation takes effect by operation of law, and extinguishes both debts to the
completely extinguished. concurrent amount, even though the creditors and debtors are not aware of the
compensation."
The CA Ruling in CA-G.R. SP No. 93833
In this case, Union Bank filed a motion to seek affirmation that legal compensation
In a Decision50 dated November 3, 2009, the CA dismissed Union Bank’s petition, had taken place in order to effectively offset (a) its own obligation to return the funds it
finding no grave abuse of discretion on the RTC’s part. It affirmed the denial of its previously received from DBP as directed under the September 6, 2005 Writ of
motion to affirm legal compensation considering that: (a) the RTC only implemented Execution with (b) DBP’s assumed obligations under the Assumption Agreement.
the Court’s January 13, 2004 Decision in G.R. No. 155838 which by then had already However, legal compensation could not have taken place between these debts for the
attained finality; (b) DBP is not a debtor of Union Bank; and (c) there is neither a apparent reason that requisites 3 and 4 under Article 1279 of the Civil Code are not
demandable nor liquidated debt from DBP to Union Bank. 51 present. Since DBP’s assumed obligations to Union Bank for remittance of the lease
payments are – in the Court’s words in its Decision dated January 13, 2004 in G.R.
No. 155838 – " contingent on the prior payment thereof by [FW] to DBP," it cannot be
Undaunted, Union Bank moved for reconsideration which was, however, denied in a said that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in the
Resolution52 dated February 26, 2010; hence, the instant petition. same ruling, the Court observed that any deficiency that DBP had to make up (by
64
December 29, 1998 as per the Assumption Agreement) for the full satisfaction of the August 1981 to June 30, 1987, as well as ₱10,000.00 for attorney’s fees;
assumed obligations " cannot be determined until after the satisfaction of and
Foodmasters’ obligation to DBP." In this regard, it cannot be concluded that the same
debt had already been liquidated, and thereby became demandable (requisite 4 of (ii) Ordering defendant and third-party plaintiff-appellant Development Bank
Article 1279 of the Civil Code). of the Philippines after having been paid by third-party defendant-appellee
the sum of ₱32,441,401.85, to remit 30% thereof to plaintiff-appellee Union
The aforementioned Court decision had already attained finality on April 30, Bank of the Philippines.
200455 and, hence, pursuant to the doctrine of conclusiveness of judgment, the facts
and issues actually and directly resolved therein may not be raised in any future case SO ORDERED.
between the same parties, even if the latter suit may involve a different cause of
action.56 Its pertinent portions are hereunder quoted for ready reference: 57
In other words, both the body and the dispositive portion of the aforequoted decision
acknowledged that DBP’s obligation to Union Bank for remittance of the lease
Both the body and the dispositive portion of the [CA’s May 27, 1994 Decision in CA- payments is contingent on the prior payment thereof by Foodmasters to DBP.
G.R. CV No. 35866] correctly construed the nature of DBP’s liability for the lease
payments under the various contracts, to wit:
A careful reading of the decision shows that the Court of Appeals, which was affirmed
by the Supreme Court, found that only the balance or the deficiency of the ₱17 million
x x x Construing these three contracts, especially the "Agreement" x x x between principal obligation, if any, would be due and demandable as of December 29, 1998.
DBP and Bancom as providing for the payment of DBP’s assumed obligation out of Naturally, this deficiency cannot be determined until after the satisfaction of
the rentals to be paid to it does not mean negating DBP’s assumption "for its own Foodmasters obligation to DBP, for remittance to Union Bank in the proportion set out
account" of the ₱17.0 million debt x x x. It only means that they provide a mechanism in the 1994 Decision. (Emphases and underscoring supplied; citations omitted)
for discharging [DBP’s] liability. This liability subsists, since under the "Agreement" x x
x, DBP is obligated to pay "any balance of the Assumed Obligations after application
of the entire rentals and or the entire sales proceeds actually received by [Union xxxx
Bank] on the Leased Properties … not later than December 29, 1998." x x x It only
means that the lease rentals must first be applied to the payment of the ₱17 million In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in
debt and that [DBP] would have to pay out of its money only in case of insufficiency of this case, no legal compensation could have taken place between the above-stated
the lease rentals having until December 29, 1998 to do so. In this sense, it is correct debts pursuant to Article 1290 of the Civil Code. Perforce, the petition must be
to say that the means of repayment of the assumed obligation is not limited to the denied, and the denial of Union Bank s motion to affirm legal compensation
lease rentals. The monthly installments, however, would still have to come from the sustained.
lease rentals since this was stipulated in the "Agreement."
WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 and
xxxx Resolution dated February 26, 2010 of the Court of Appeals in CA-G.R. SP No.
93833 are hereby AFFIRMED.
Since, as already stated, the monthly installments for the payment of the ₱17 million
debt are to be funded from the lease rentals, it follows that if the lease rentals are not SO ORDERED.
paid, there is nothing for DBP to remit to [Union Bank], and thus [DBP] should not be
considered in default. It is noteworthy that, as stated in the appealed decision, "as ESTELA M. PERLAS-BERNABE
regards plaintiff’s claim for damages against defendant for its alleged negligence in Associate Justice
failing and refusing to enforce a lessor’s remedies against Foodmasters Worldwide,
Inc., the Court finds no competent and reliable evidence of such claim."
WE CONCUR:
xxxx
NOVATION
WHEREFORE, the decision appealed from is SET ASIDE and another one is
RENDERED, G.R. No. L-48797 July 30, 1943

(i) Ordering third-party defendant-appellee Foodmasters Worldwide, Inc. to FUA CAM LU, plaintiff-appellee,
pay defendant and third-party plaintiff-appellant Development Bank of the vs.
Philippines the sum of ₱32,441,401.85, representing the unpaid rentals from YAP FAUCO and YAP SINGCO, defendants-appellants.

65
Vicente J. Francisco for petitioner. Moreover, the sheriff's sale in favor of the appellee is void because no notice thereof
M.H. de Joya for respondents. was published other than that which appeared in the Mamera Press regarding the
sale to be held on December 12, 1933. Lack of new publication is shown by
The plaintiff-appellee, Fua Cam Lu, obtained in civil case No. 42125 of the Court of appellee's own evidence and the issue, though not raised in the pleadings, was
First Instance of Manila a judgment sentencing the defendants-appellants, Yap Fauco thereby tried by implied consent of the parties, emphasized by the appellants in the
and Yap Singco, to pay P1,538.04 with legal interest and costs. By virtue of a writ of memorandum filed by them in the lower court and squarely threshed out in this Court
execution, a certain parcel of land belonging to the appellants, assessed at P3,550 by both the appellants and the appellee. The latter had, besides, admitted that there
and situated in Donsol, Sorsogon was levied upon the provincial sheriff of Sorsogon was no new publication, and so much so that in his brief he merely resorted to the
who, on November 15, 1933, made a notice, duly posted in three conspicuous places argument that "section 460 of Act 190 authorized the sheriff to adjourn any sale upon
in the municipalities of Donsol and Sorsogon and published in the Mamera Press, that execution to any date agreed upon in writing by the parties . . . and does not require
said land would be sold at public auction on December 12, 1933. On December 16, the sheriff to publish anew the public sale which was adjourned." The appellee has
1933, the appellants executed a mortgage in favor of the appellee, wherein it was correctly stated the law but has failed to show that it supports his side, for it is not
stipulated that their obligation under the judgment in civil case No. 41225 was pretended that there was any written agreement between the parties to adjourn the
reduced to P1,200 which was made payable in four installments of P300 during the sale advertised for December 12, 1933, to May 28, 1934. Neither may it be pretended
period commencing on February 8, 1934, and ending on August 8, 1935l that to that the sale in favor of the appellee was by virtue of a mere adjournment, it
secure the payment of the said P1,200, a camarin belonging to the appellants and appearing that it was made pursuant to an alias writ of execution. Appellee's
built on the above-mentioned land, was mortgaged to the appellee; that in case the admission has thus destroyed the legal presumption that official duty was regularly
appellants defaulted in the payment of any of the installments, they would pay ten per performed.
cent of the unpaid balance as attorney's fees. plus the costs of the action to be
brought by the appellee by reason of such default, and the further amount of P338, The appealed judgment is, therefore, reversed and the defendants-appellants, who
representing the discount conceded to the appellants. As a result of the agreement are hereby declared to be the owners of the land in question are absolved from the
thus reached by the parties, the sale of the land advertised by the provincial sheriff complaint, with costs against the appellee. So ordered.
did not take place. However, pursuant to an alias writ of execution issued by the
Court of First instance of manila in civil case No. 42125 on March 31, 1934, the Yulo, C.J., Ozaeta and Bocobo, JJ., concur.
provincial sheriff, without publishing a new notice, sold said land at a public auction
held on May 28, 1934, to the appellee for P1,923.32. On June 13, 1935, the provincial
sheriff executed a final deed in favor of the appellee. On August 29, 1939, the
appellee instituted the present action in the Court of First Instance of Sorsogon
against the appellants in view of their refusal to recognize appellee's title and to
vacate the land. The appellants relied on the legal defenses that their obligation under Separate Opinions
the judgment in civil case No. 42125 was novated by the mortgage executed by them
in favor of the appellee and that the sheriffs sale was void for lack of necessary MORAN, J., dissenting:
publication. These contentions were overruled by the lower court which rendered
judgment declaring the appellee to be the owner of the land and ordering the
appellants to deliver the same to him, without special pronouncement as to costs. The I dissent.
appellants seek the reversal of this judgment.
By virtue of a judgment for P1,538.04 which appellee obtained against appellants, a
We concur in the theory that appellants liability under the judgment in civil case No. writ of execution was issued in pursuance of which a parcel of land belonging to
42125 had been extinguished by the settlement evidenced by the mortgage executed appellants was levied upon and its sale at public auction duly advertised. The sale
by them in favor of the appellee on December 16, 1933. Although said mortgage did was, however, suspended as a result of an agreement between the parties, by the
not expressly cancel the old obligation, this was impliedly novated by reason of terms of which the obligation under the judgment was reduced to P1,200 payable in
incompatibly resulting from the fact that, whereas the judgment was for P1,538.04 four installments, and to secure the payment of this amount, the land levied upon with
payable at one time, did not provide for attorney's fees, and was not secured, the new its improvement was mortgaged to appellee with the condition that in the event of
obligation is or P1,200 payable in installments, stipulated for attorney's fees, and is appellants' default in the payment of any installment, they would pay 10 per cent of
secured by a mortgage. The appellee, however, argues that the later agreement any unpaid balance as attorney's fees as well as the difference between the full
merely extended the time of payment and did not take away his concurrent right to judgment credit and the reduced amount thus agreed. Appellants failed to comply
have the judgment executed. This court not have been the purpose for executive the with the terms of the settlement, whereupon, appellee sought the execution of the
mortgage, because it was therein recited that the appellants promised to pay P1,200 judgment, and by virtue of an alias writ of execution, the land was sold at public
to the appellee as a settlement of the judgment in civil case No. 42125 (en forma de auction to appellee and a final deed was executed in his favor. Appellants refused,
transaccion de la decision . . . en el asunto civil No. 42125). Said judgment cannot be however, to vacate the land and to recognize appellee's title thereto; hence, the latter
said to have been settled, unless it was extinguished. instituted the present action for recovery.

66
The majority sustained appellants' theory upon two grounds: (1) that their liability right to execute the judgment has been upheld. I perceive no cogent reason why
under the judgment has been extinguished by the agreement and that accordingly plaintiff in the instant case would be denied a like option to merely execute the
there was legally no judgment to execute; and (2) that the auction sale was void not judgment and be compelled, instead, to enter an independent suit on the terms of the
only because the judgment sought to be executed has been extinguished but also settlement The spirit of the new Rules which frowns upon multiplicity of suits lends
because there was no publication thereof as required by law. additional argument against the majority view.

The first ground is contrary to a doctrine laid down by this Court in a previous case. The majority maintains that here there is an implied novation by "reason of
In Zapanta vs. De Rotaeche (21 Phil., 154), plaintiff obtained judgment against incompatibility resulting from the fact that, whereas the judgment was for P1,538.04
defendant for a sum of money. Thereafter, the parties entered into an agreement by payable at one time, did not provide for attorney's fees, and was not secured, the new
virtue of which the obligation under the judgment was to be paid in installments and obligation is for P1,200 payable in installments, stipulates for attorney's fees, and is
that, upon default of defendant to comply with the terms of one agreement, plaintiff secured by a mortgage." With respect to the amount, it should be noted that, "while
shall be at liberty to enter suit against him. Defendant defaulted and plaintiff sued out the obligation under the judgment was reduced to P1,200, there was, however, a
a writ of execution to recover the balance due upon the judgment credit and by virtue stipulation to the effect that the discount would be recoverable in the event of
thereof defendant's property was levied upon and sold at public auction. Upon the appellants' default to comply with the terms of the agreement. And as to attorney's
issue of whether the agreement extinguished the judgment and plaintiff's right to an fees and the security by way of mortgage, the stipulation therefor contained in the
execution thereunder, this Court held: agreement is of no moment, for it is merely incidental to, and anticipatory of, a suit
which appellee may choose to take against appellants. Far, therefore, from
A final judgment is one of the most solemn obligations incurred by parties extinguishing the obligation under the judgment, the agreement ratifies it and provides
known to law. The Civil Code, in article 1156, provides the method by which merely a new method and more time for the judgment debtor to satisfy it. If the
all civil obligations may be extinguished. One of the methods recognized by judgment debtor fail to comply with the terms of the agreement, the judgment creditor
said code for the extinguishment of obligations is that by novation. (Civil shall be deemed remitted to his original rights under the judgment which he may
Code, arts. 1156, 1203, 1213.) In order, however, that an obligation shall be choose to execute or enter, instead, a separate suit on the terms of the settlement.
extinguished by another obligation (novation) which substitutes it, the law This is the ratio decidendi in the Zapanta case; this is the ratio decidendi here.
requires that the novation or extinguishment shall be expressly declared or
that the old and the new obligations shall be absolutely incompatible. (Civil Upon the question of the nullity of the auction sale, the majority appears to have
Code, art. 1204.) In the present case, the contract referred to does not deduced the lack of publication of the necessary notice from isolated parts of the
expressly extinguish the obligations existing in said judgment. Upon the records and from the fact that the published notice regarding the first sale which was
contrary, it expressly recognizes the obligation existing between the parties suspended, was merely appended to the second sheriff's sale. It should be noted,
in said judgment and expressly provides a method by which the same shall however, that appellants have never raised this issue in their pleadings and that the
be extinguished which method is, as is expressly indicated in said contract, nullity of the sale by them pleaded is made to rest only upon the ground of "fraud and
by monthly payments. The contract, instead of containing provisions deceit" or without or with false consideration." There having been no issue as to the
"absolutely incompatible" with the obligations of the judgment, expressly publication of notice, no evidence thereon has been adduced by both parties whose
ratifies such obligations and contains provisions for satisfying them. The said attention has never been directed to the question of whether the notice appended to
agreement simply gave the plaintiff a method and more time for the the second sale is or is not the true notice published in connection therewith. Under
satisfaction of said judgment. It did not extinguish the obligations contained such circumstance, we have only to rely on the presumption of law in favor of the
in the judgment, until the terms of said contract had been fully complied with. regularity of official action. We cannot safely disregard this presumption of law for the
Had the plaintiff continued to comply with the conditions of said contract, he records on appeal may offer in support of one conjecture or another on matters not
might have successfully invoked its provisions against the issuance of an expressly litigated by the parties.
execution upon said judgment. The contract and the punctual compliance
with its terms only delayed the right of the defendant to an execution upon I therefore, vote for the affirmance of the judgment of the trial court.
the judgment. The judgment was not satisfied and the obligations existing
thereunder still subsisted until the terms of the agreement had been fully
complied with. The plaintiff was bound to perform the conditions mentioned G.R. No. 170141 April 22, 2008
in said contract punctually and fully, in default of which the defendant was
remitted to the original rights under his judgment. (pp. 159-160.) JAPAN AIRLINES, petitioner,
vs.
I see no reason why this decision cannot be made to control in the instant case. Here, JESUS SIMANGAN, respondent.
as in the Zapanta case, there was an agreement providing for the manner of payment
of the obligation under the judgment. In both cases plaintiff has by express stipulation, DECISION
the option to enter an independent suit against defendant should the latter fail to
comply with the terms of the settlement. If, in the Zapante case plaintiff alternative
67
REYES R.T., J.: over in Narita.17 His pleas were ignored. He was then constrained to go out of the
plane.18 In a nutshell, respondent was bumped off the flight.
WHEN an airline issues a ticket to a passenger confirmed on a particular flight on a
certain date, a contract of carriage arises, and the passenger has every right to Respondent went to JAL's ground office and waited there for three hours. Meanwhile,
expect that he would fly on that flight and on that date. If he does not, then the carrier the plane took off and he was left behind. 19 Afterwards, he was informed that his
opens itself to a suit for breach of contract of carriage. 1 travel documents were, indeed, in order.20 Respondent was refunded the cost of his
plane ticket less the sum of US$500.00 which was deducted by JAL. 21 Subsequently,
The power to admit or not an alien into the country is a sovereign act which cannot be respondent's U.S. visa was cancelled.22
interfered with even by Japan Airlines (JAL).2
Displeased by the turn of events, respondent filed an action for damages against JAL
In this petition for review on certiorari,3 petitioner JAL appeals the: (1) Decision4 dated with the Regional Trial Court (RTC) in Valenzuela City, docketed as Civil Case No.
May 31, 2005 of the Court of Appeals (CA) ordering it to pay respondent Jesus 4195-V-93. He claimed he was not able to donate his kidney to Loreto; and that he
Simangan moral and exemplary damages; and (2) Resolution 5 of the same court suffered terrible embarrassment and mental anguish.23 He prayed that he be
dated September 28, 2005 denying JAL's motion for reconsideration. awarded P3 million as moral damages, P1.5 million as exemplary damages
and P500,000.00 as attorney's fees.24
The Facts
JAL denied the material allegations of the complaint. It argued, among others, that its
failure to allow respondent to fly on his scheduled departure was due to "a need for
In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin, his travel documents to be authenticated by the United States Embassy" 25 because
Loreto Simangan, in UCLA School of Medicine in Los Angeles, California, U.S.A. no one from JAL's airport staff had encountered a parole visa before.26 It posited that
Upon request of UCLA, respondent undertook a series of laboratory tests at the the authentication required additional time; that respondent was advised to take the
National Kidney Institute in Quezon City to verify whether his blood and tissue type flight the following day, July 30, 1992. JAL alleged that respondent agreed to be
are compatible with Loreto's.6 Fortunately, said tests proved that respondent's blood rebooked on July 30, 1992.27
and tissue type were well-matched with Loreto's.7
JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution
Respondent needed to go to the United States to complete his preliminary work-up of the complaint. It prayed for litigation expenses, exemplary damages and attorney's
and donation surgery. Hence, to facilitate respondent's travel to the United States, fees.28
UCLA wrote a letter to the American Consulate in Manila to arrange for his visa. In
due time, respondent was issued an emergency U.S. visa by the American Embassy
in Manila.8 On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its
decision in favor of respondent (plaintiff), disposing as follows:
Having obtained an emergency U.S. visa, respondent purchased a round trip plane
ticket from petitioner JAL for US$1,485.00 and was issued the corresponding WHEREFORE, judgment is hereby rendered ordering the defendant to pay
boarding pass.9 He was scheduled to a particular flight bound for Los Angeles, the plaintiff the amount of P1,000,000.00 as moral damages, the amount
California, U.S.A. via Narita, Japan.10 of P500,000.00 as exemplary damages and the amount of P250,000.00 as
attorney's fees, plus the cost of suit.29
On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International
Airport in the company of several relatives and friends. 11 He was allowed to check-in The RTC explained:
at JAL's counter.12 His plane ticket, boarding pass, travel authority and personal
articles were subjected to rigid immigration and security routines. 13 After passing In summarily and insolently ordering the plaintiff to disembark while the latter
through said immigration and security procedures, respondent was allowed by JAL to was already settled in his assigned seat, the defendant violated the contract
enter its airplane.14 of carriage; that when the plaintiff was ordered out of the plane under the
pretext that the genuineness of his travel documents would be verified it had
While inside the airplane, JAL's airline crew suspected respondent of carrying a caused him embarrassment and besmirched reputation; and that when the
falsified travel document and imputed that he would only use the trip to the United plaintiff was finally not allowed to take the flight, he suffered more wounded
States as a pretext to stay and work in Japan.15 The stewardess asked respondent to feelings and social humiliation for which the plaintiff was asking to be
show his travel documents. Shortly after, the stewardess along with a Japanese and awarded moral and exemplary damages as well as attorney's fees.
a Filipino haughtily ordered him to stand up and leave the plane. 16 Respondent
protested, explaining that he was issued a U.S. visa. Just to allow him to board the The reason given by the defendant that what prompted them to investigate
plane, he pleaded with JAL to closely monitor his movements when the aircraft stops the genuineness of the travel documents of the plaintiff was that the plaintiff
68
 was not then carrying a regular visa but just a letter does not appear That appellee possessed bogus travel documents and that he might stay
satisfactory. The defendant is engaged in transporting passengers by plane illegally in Japan are allegations without substantiation. Also, appellant's
from country to country and is therefore conversant with the travel attempt to rebook appellee the following day was too late and did not relieve
documents. The defendant should not be allowed to pretend, to the it from liability. The damage had been done. Besides, its belated theory of
prejudice of the plaintiff not to know that the travel documents of the plaintiff novation, i.e., that appellant's original obligation to carry appellee to Narita
are valid documents to allow him entry in the United States. and Los Angeles on July 29, 1992 was extinguished by novation when
appellant and appellant agreed that appellee will instead take appellant's
The foregoing act of the defendant in ordering the plaintiff to deplane while flight to Narita on the following day, July 30, 1992, deserves little attention. It
already settled in his assigned seat clearly demonstrated that the defendant is inappropriate at bar. Questions not taken up during the trial cannot be
breached its contract of carriage with the plaintiff as passenger in bad faith raised for the first time on appeal.40 (Underscoring ours and citations were
and as such the plaintiff is entitled to moral and exemplary damages as well omitted)
as to an award of attorney's fees.30
Citing Ortigas, Jr. v. Lufthansa German Airlines,41 the CA declared that "(i)n contracts
Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not of common carriage, inattention and lack of care on the part of the carrier resulting in
guilty of breach of contract of carriage, hence, not liable for damages. 31 It posited that the failure of the passenger to be accommodated in the class contracted for amounts
it is the one entitled to recover on its counterclaim.32 to bad faith or fraud which entitles the passengers to the award of moral damages in
accordance with Article 2220 of the Civil Code."42
CA Ruling
Nevertheless, the CA modified the damages awarded by the RTC. It explained:
In a Decision33 dated May 31, 2005, the CA affirmed the decision of the RTC with
modification in that it lowered the amount of moral and exemplary damages and Fundamental in the law on damages is that one injured by a breach of a
deleted the award of attorney's fees. The fallo of the CA decision reads: contract, or by a wrongful or negligent act or omission shall have a fair and
just compensation commensurate to the loss sustained as consequence of
the defendant's act. Being discretionary on the court, the amount, however,
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. should not be palpably and scandalously excessive.
Appellant JAPAN AIR LINES is ordered to pay appellee JESUS SIMANGAN
the reduced sums, as follows: Five Hundred Thousand Pesos (P500,000.00)
as moral damages, and Two Hundred Fifty Thousand Pesos (P250,000.00) Here, the trial court's award of P1,000,000.00 as moral damages appears to
as exemplary damages. The award of attorney's fees is hereby DELETED. 34 be overblown. No other proof of appellee's social standing, profession,
financial capabilities was presented except that he was single and a
businessman. To Us, the sum of 500,000.00 is just and fair. For, moral
The CA elucidated that since JAL issued to respondent a round trip plane ticket for a damages are emphatically not intended to enrich a complainant at the
lawful consideration, "there arose a perfected contract between them." 35 It found that expense of the defendant. They are awarded only to enable the injured party
respondent was "haughtily ejected"36 by JAL and that "he was certainly embarrassed to obtain means, diversion or amusements that will serve to alleviate the
and humiliated"37 when, in the presence of other passengers, JAL's airline staff moral suffering he has undergone, by reason of the defendant's culpable
"shouted at him to stand up and arrogantly asked him to produce his travel papers, action.
without the least courtesy every human being is entitled to"; 38 and that "he was
compelled to deplane on the grounds that his papers were fake."39
Moreover, the grant of P500,000.00 as exemplary damages needs to be
reduced to a reasonable level. The award of exemplary damages is
The CA ratiocinated: designed to permit the courts to mould behavior that has socially deleterious
consequences and its imposition is required by public policy to suppress the
While the protection of passengers must take precedence over convenience, the wanton acts of the offender. Hence, the sum of P250,000.00 is adequate
implementation of security measures must be attended by basic courtesies. under the circumstances.

In fact, breach of the contract of carriage creates against the carrier a The award of P250,000.00 as attorney's fees lacks factual basis. Appellee
presumption of liability, by a simple proof of injury, relieving the injured was definitely compelled to litigate in protecting his rights and in seeking
passenger of the duty to establish the fault of the carrier or of his employees; relief from appellant's misdeeds. Yet, the record is devoid of evidence to
and placing on the carrier the burden to prove that it was due to an show the cost of the services of his counsel and/or the actual expenses
unforeseen event or to force majeure. incurred in prosecuting his action.43 (Citations were omitted)

69
When JAL's motion for reconsideration was denied, it resorted to the petition at bar. IV.

Issues WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING

FOR JAL ON ITS COUNTERCLAIM.44 (Underscoring Ours)
JAL poses the following issues -
Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of
I. contract of carriage; (2) whether or not respondent is entitled to moral and exemplary
damages; and (3) whether or not JAL is entitled to its counterclaim for damages.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT
RESPONDENT WAS ENTITLED TO MORAL DAMAGES, CONSIDERING Our Ruling
THAT:
This Court is not a trier of facts.
A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.
Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA.
B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF The CA also gave its nod to the reasoning of the RTC except as to the awards of
CONTRACT CASES ONLY WHEN THE BREACH IS ATTENDED damages, which were reduced, and that of attorney's fees, which was deleted.
BY FRAUD OR BAD FAITH. ASSUMING ARGUENDO THAT JAL
WAS GUILTY OF BREACH, JAL DID NOT ACT FRAUDULENTLY We are not a trier of facts. We generally rely upon, and are bound by, the conclusions
OR IN BAD FAITH AS TO ENTITLE RESPONDENT TO MORAL on this matter of the lower courts, which are better equipped and have better
DAMAGES. opportunity to assess the evidence first-hand, including the testimony of the
witnesses.45
C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH
EFFECTED IN GOOD FAITH FROM ONE ATTENDED BY BAD We have repeatedly held that the findings of fact of the CA are final and conclusive
FAITH. and cannot be reviewed on appeal to the Supreme Court provided they are based on
substantial evidence.46 We have no jurisdiction, as a rule, to reverse their
II. findings.47 Among the exceptions to this rule are: (a) when the conclusion is a finding
grounded entirely on speculations, surmises or conjectures; (b) when the inference
made is manifestly mistaken, absurd or impossible; (c) where there is grave abuse of
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT discretion; (d) when the judgment is based on a misapprehension of facts; (e) when
RESPONDENT WAS ENTITLED TO EXEMPLARY the findings of facts are conflicting; (f) when the CA, in making its findings, went
DAMAGES CONSIDERING THAT: beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee.48
A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN
BREACH OF CONTRACT OF CARRIAGE UNLESS THE The said exceptions, which are being invoked by JAL, are not found here. There is no
CARRIER IS GUILTY OF WANTON, FRAUDULENT, RECKLESS, indication that the findings of the CA are contrary to the evidence on record or that
OPPRESSIVE OR MALEVOLENT CONDUCT. vital testimonies of JAL's witnesses were disregarded. Neither did the CA commit
misapprehension of facts nor did it fail to consider relevant facts. Likewise, there was
B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF no grave abuse of discretion in the appreciation of facts or mistaken and absurd
BREACH, JAL DID NOT ACT IN A WANTON FRAUDULENT, inferences.
RECKLESS, OPPRESSIVE OR MALEVOLENT MANNER AS TO
ENTITLE RESPONDENT TO EXEMPLARY DAMAGES. We thus sustain the coherent facts as established by the courts below, there being no
sufficient showing that the said courts committed reversible error in reaching their
III. conclusions.

ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN JAL is guilty of breach of

AWARD OF DAMAGES, WHETHER OR NOT THE COURT OF APPEALS contract of carriage.
AWARD OF P750,000 IN DAMAGES WAS EXCESSIVE AND
UNPRECEDENTED.

70
That respondent purchased a round trip plane ticket from JAL and was issued the It bears repeating that the power to admit or not an alien into the country is a
corresponding boarding pass is uncontroverted. 49 His plane ticket, boarding pass, sovereign act which cannot be interfered with even by JAL. 62
travel authority and personal articles were subjected to rigid immigration and security
procedure.50 After passing through said immigration and security procedure, he was In an action for breach of contract of carriage, all that is required of plaintiff is to prove
allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita, the existence of such contract and its non-performance by the carrier through the
Japan.51 Concisely, there was a contract of carriage between JAL and respondent. latter's failure to carry the passenger safely to his destination. 63 Respondent has
complied with these twin requisites.
Nevertheless, JAL made respondent get off the plane on his scheduled departure on
July 29, 1992. He was not allowed by JAL to fly. JAL thus failed to comply with its Respondent is entitled to moral and exemplary damages and attorney's fees
obligation under the contract of carriage. plus legal interest.

JAL justifies its action by arguing that there was "a need to verify the authenticity of With reference to moral damages, JAL alleged that they are not recoverable in
respondent's travel document."52 It alleged that no one from its airport staff had actions ex contractu except only when the breach is attended by fraud or bad faith. It
encountered a parole visa before.53 It further contended that respondent agreed to fly is contended that it did not act fraudulently or in bad faith towards respondent, hence,
the next day so that it could first verify his travel document, hence, there was it may not be held liable for moral damages.
novation.54 It maintained that it was not guilty of breach of contract of carriage as
respondent was not able to travel to the United States due to his own voluntary
desistance.55 As a general rule, moral damages are not recoverable in actions for damages
predicated on a breach of contract for it is not one of the items enumerated under
Article 2219 of the Civil Code.64 As an exception, such damages are recoverable: (1)
We cannot agree. JAL did not allow respondent to fly. It informed respondent that in cases in which the mishap results in the death of a passenger, as provided in
there was a need to first check the authenticity of his travel documents with the U.S. Article 1764, in relation to Article 2206(3) of the Civil Code; and (2) in the cases in
Embassy.56 As admitted by JAL, "the flight could not wait for Mr. Simangan because it which the carrier is guilty of fraud or bad faith, as provided in Article 2220.65
was ready to depart."57
The acts committed by JAL against respondent amounts to bad faith. As found by the
Since JAL definitely declared that the flight could not wait for respondent, it gave RTC, JAL breached its contract of carriage with respondent in bad faith. JAL
respondent no choice but to be left behind. The latter was unceremoniously bumped personnel summarily and insolently ordered respondent to disembark while the latter
off despite his protestations and valid travel documents and notwithstanding his was already settled in his assigned seat. He was ordered out of the plane under the
contract of carriage with JAL. Damage had already been done when respondent was alleged reason that the genuineness of his travel documents should be verified.
offered to fly the next day on July 30, 1992. Said offer did not cure JAL's default.
These findings of facts were upheld by the CA, to wit:
Considering that respondent was forced to get out of the plane and left behind against
his will, he could not have freely consented to be rebooked the next day. In short, he
did not agree to the alleged novation. Since novation implies a waiver of the right the x x x he was haughtily ejected by appellant. He was certainly embarrassed
creditor had before the novation, such waiver must be express. 58 It cannot be and humiliated when, in the presence of other passengers, the appellant's
supposed, without clear proof, that respondent had willingly done away with his right airline staff shouted at him to stand up and arrogantly asked him to produce
to fly on July 29, 1992. his travel papers, without the least courtesy every human being is entitled to.
Then, he was compelled to deplane on the grounds that his papers were
fake. His protestation of having been issued a U.S. visa coupled with his
Moreover, the reason behind the bumping off incident, as found by the RTC and CA, plea to appellant to closely monitor his movements when the aircraft stops
was that JAL personnel imputed that respondent would only use the trip to the United over in Narita, were ignored. Worse, he was made to wait for many hours at
States as a pretext to stay and work in Japan.59 the office of appellant only to be told later that he has valid travel
documents.66 (Underscoring ours)
Apart from the fact that respondent's plane ticket, boarding pass, travel authority and
personal articles already passed the rigid immigration and security routines,60 JAL, as Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are
a common carrier, ought to know the kind of valid travel documents respondent recoverable in suits predicated on breach of a contract of carriage where it is proved
carried. As provided in Article 1755 of the New Civil Code: "A common carrier is that the carrier was guilty of fraud or bad faith, as in this case. Inattention to and lack
bound to carry the passengers safely as far as human care and foresight can of care for the interests of its passengers who are entitled to its utmost consideration,
provide, using the utmost diligence of very cautious persons, with a due regard for all particularly as to their convenience, amount to bad faith which entitles the passenger
the circumstances."61 Thus, We find untenable JAL's defense of "verification of to an award of moral damages. What the law considers as bad faith which may
respondent's documents" in its breach of contract of carriage. furnish the ground for an award of moral damages would be bad faith in securing the
71
contract and in the execution thereof, as well as in the enforcement of its terms, or It was therefore erroneous for the CA to delete the award of attorney's fees on the
any other kind of deceit.67 ground that the record is devoid of evidence to show the cost of the services of
respondent's counsel. The amount is actually discretionary upon the Court so long as
JAL is also liable for exemplary damages as its above-mentioned acts constitute it passes the test of reasonableness. They may be recovered as actual or
wanton, oppressive and malevolent acts against respondent. Exemplary damages, compensatory damages when exemplary damages are awarded and whenever the
which are awarded by way of example or correction for the public good, may be court deems it just and equitable,75 as in this case.
recovered in contractual obligations, as in this case, if defendant acted in wanton,
fraudulent, reckless, oppressive, or malevolent manner.68 Considering the factual backdrop of this case, attorney's fees in the amount
of P200,000.00 is reasonably modest.
Exemplary damages are designed by our civil law to permit the courts to reshape
behaviour that is socially deleterious in its consequence by creating negative The above liabilities of JAL in the total amount of P800,000.00 earn legal interest
incentives or deterrents against such behaviour. In requiring compliance with the pursuant to the Court's ruling in Construction Development Corporation of the
standard of extraordinary diligence, a standard which is, in fact, that of the highest Philippines v. Estrella,76 citing Eastern Shipping Lines, Inc. v. Court of Appeals,77 to
possible degree of diligence, from common carriers and in creating a presumption of wit:
negligence against them, the law seeks to compel them to control their employees, to
tame their reckless instincts and to force them to take adequate care of human beings Regarding the imposition of legal interest at the rate of 6% from the time of
and their property.69 the filing of the complaint, we held in Eastern Shipping Lines, Inc. v. Court of
Appeals, that when an obligation, regardless of its source, i.e., law,
Neglect or malfeasance of the carrier's employees could give ground for an action for contracts, quasi-contracts, delicts or quasi-delicts is breached, the
damages. Passengers have a right to be treated by the carrier's employees with contravenor can be held liable for payment of interest in the concept of
kindness, respect, courtesy and due consideration and are entitled to be protected actual and compensatory damages, subject to the following rules, to wit -
against personal misconduct, injurious language, indignities and abuses from such
employees.70 1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary interest due should be that which may have been stipulated in
damages in respondent's favor is, in Our view, reasonable and realistic. This award is writing. Furthermore, the interest due shall itself earn legal interest
reasonably sufficient to indemnify him for the humiliation and embarrassment he from the time it is judicially demanded. In the absence of stipulation,
suffered. This also serves as an example to discourage the repetition of similar the rate of interest shall be 12% per annum to be computed from
oppressive acts. default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
With respect to attorney's fees, they may be awarded when defendant's act or
omission has compelled plaintiff to litigate with third persons or to incur expenses to 2. When an obligation, not constituting a loan or forbearance of
protect his interest.71 The Court, in Construction Development Corporation of the money, is breached, an interest on the amount of damages
Philippines v. Estrella,72 citing Traders Royal Bank Employees Union-Independent v. awarded may be imposed at the discretion of the court at the rate of
National Labor Relations Commission,73 elucidated thus: 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand
There are two commonly accepted concepts of attorney's fees, the so-called can be established with reasonable certainty. Accordingly, where
ordinary and extraordinary. In its ordinary concept, an attorney's fee is the the demand is established with reasonable certainty, the interest
reasonable compensation paid to a lawyer by his client for the legal services shall begin to run from the time the claim is made judicially or
he has rendered to the latter. The basis of this compensation is the fact of extrajudicially (Art. 1169, Civil Code) but when such certainty
his employment by and his agreement with the client. 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
In its extraordinary concept, an attorney's fee is an indemnity for of damages may be deemed to have been reasonably
damages ordered by the court to be paid by the losing party in a ascertained). The actual base for the computation of legal interest
litigation. The basis of this is any of the cases provided by law where such shall, in any case, be on the amount finally adjudged.
award can be made, such as those authorized in Article 2208, Civil Code,
and is payable not to the lawyer but to the client, unless they have
agreed that the award shall pertain to the lawyer as additional 3. When the judgment of the court awarding a sum of money
compensation or as part thereof.74 becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall
72
 be 12% per annum from such finality until its satisfaction, this The publications involved matters about which the public has the right to be informed
interim period being deemed to be by then an equivalent to a because they relate to a public issue. This public issue or concern is a legitimate topic
forbearance of credit.78 (Emphasis supplied and citations omitted) of a public comment that may be validly published.

Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay Assuming that respondent, indeed, caused the publication of his complaint, he may
respondent legal interest. Pursuant to the above ruling of the Court, the legal interest not be held liable for damages for it. The constitutional guarantee of freedom of the
is 6% and it shall be reckoned from September 21, 2000 when the RTC rendered its speech and of the press includes fair commentaries on matters of public interest. This
judgment. From the time this Decision becomes final and executory, the interest rate is explained by the Court in Borjal v. Court of Appeals,85 to wit:
shall be 12% until its satisfaction.
To reiterate, fair commentaries on matters of public interest are privileged
JAL is not entitled to its counterclaim for damages. and constitute a valid defense in an action for libel or slander. The doctrine
of fair comment means that while in general every discreditable imputation
The counterclaim of JAL in its Answer79 is a compulsory counterclaim for damages publicly made is deemed false, because every man is presumed innocent
and attorney's fees arising from the filing of the complaint. There is no mention of any until his guilt is judicially proved, and every false imputation is deemed
other counter claims. malicious, nevertheless, when the discreditable imputation is directed
against a public person in his public capacity, it is not necessarily actionable.
In order that such discreditable imputation to a public official may be
This compulsory counterclaim of JAL arising from the filing of the complaint may not actionable, it must either be a false allegation of fact or a comment based on
be granted inasmuch as the complaint against it is obviously not malicious or a false supposition. If the comment is an expression of opinion, based on
unfounded. It was filed by respondent precisely to claim his right to damages against established facts, then it is immaterial that the opinion happens to be
JAL. Well-settled is the rule that the commencement of an action does not per mistaken, as long as it might reasonably be inferred from the
se make the action wrongful and subject the action to damages, for the law could not facts.86 (Citations omitted and underscoring ours)
have meant to impose a penalty on the right to litigate. 80
Even though JAL is not a public official, the rule on privileged commentaries on
We reiterate case law that if damages result from a party's exercise of a right, it matters of public interest applies to it. The privilege applies not only to public officials
is damnum absque injuria.81 Lawful acts give rise to no injury. Walang but extends to a great variety of subjects, and includes matters of public concern,
perhuwisyong maaring idulot ang paggamit sa sariling karapatan. public men, and candidates for office.87

During the trial, however, JAL presented a witness who testified that JAL suffered Hence, pursuant to the Borjal case, there must be an actual malice in order that a
further damages. Allegedly, respondent caused the publications of his subject discreditable imputation to a public person in his public capacity or to a public official
complaint against JAL in the newspaper for which JAL suffered damages.82 may be actionable. To be considered malicious, the libelous statements must be
shown to have been written or published with the knowledge that they are false or in
Although these additional damages allegedly suffered by JAL were not incorporated reckless disregard of whether they are false or not. 88
in its Answer as they arose subsequent to its filing, JAL's witness was able to testify
on the same before the RTC.83 Hence, although these issues were not raised by the Considering that the published articles involve matters of public interest and that its
pleadings, they shall be treated in all respects as if they had been raised in the expressed opinion is not malicious but based on established facts, the imputations
pleadings. against JAL are not actionable. Therefore, JAL may not claim damages for them.

As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by WHEREFORE, the petition is DENIED. The appealed Decision of the Court of
the pleadings are tried with the express or implied consent of the parties, they shall Appeals is AFFIRMED WITH MODIFICATION. As modified, petitioner Japan Airlines
be treated in all respects as if they had been raised in the pleadings." is ordered to pay respondent Jesus Simangan the following: (1) P500,000.00 as
moral damages; (2) P100,000.00 as exemplary damages; and (3) P200,000.00 as
Nevertheless, JAL's counterclaim cannot be granted. attorney's fees.

JAL is a common carrier. JAL's business is mainly with the traveling public. It invites The total amount adjudged shall earn legal interest at the rate of 6% per annum from
people to avail themselves of the comforts and advantages it offers. 84 Since JAL the date of judgment of the Regional Trial Court on September 21, 2000 until the
deals with the public, its bumping off of respondent without a valid reason naturally finality of this Decision. From the time this Decision becomes final and executory, the
drew public attention and generated a public issue. unpaid amount, if any, shall earn legal interest at the rate of 12% per annum until its
satisfaction.

73
SO ORDERED. Aggrieved, accused attempted a reconsideration on the civil aspect of the order and
to allow her to present evidence thereon. The motion was denied. Accused went up to
G.R. No. 171998 October 20, 2010 the Supreme Court on a petition for review on certiorari under Rule 45 of the Rules of
Court. Docketed as G.R. 151931, in its Decision dated September 23, 2003, the High
Court ruled:
ANAMER SALAZAR, Petitioner,
vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent. IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated
November 19, 2001 and January 14, 2002 are SET ASIDE and NULLIFIED. The
Regional Trial Court of Legaspi City, Branch 5, is hereby DIRECTED to set Criminal
DECISION Case No. 7474 for the continuation of trial for the reception of the evidence-in-chief of
the petitioner on the civil aspect of the case and for the rebuttal evidence of the
PERALTA, J.: private complainant and the sur-rebuttal evidence of the parties if they opt to adduce
any.
Before us is a petition for review seeking to annul and set aside the Decision 1 dated
September 29, 2005 and the Resolution2 dated March 2, 2006 of the Court of SO ORDERED.3
Appeals (CA) in CA-G.R. CV No. 83104.
The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the
The facts, as found by the Court of Appeals, are not disputed, thus: trial on the civil aspect of the criminal case.

J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the On April 1, 2004, the RTC rendered its Decision,4 the dispositive portion of which
business of selling sugar, rice and other commodities. On October 15, 1996, Anamer reads:
Salazar, a freelance sales agent, was approached by Isagani Calleja and Jess Kallos,
if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against
to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Anamer D. Salazar the civil aspect of the above-entitled case. No pronouncement as
Bros. 300 cavans of rice worth ₱214,000.00. As payment, Salazar negotiated and to costs.
indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996
issued by Nena Jaucian Timario in the amount of ₱214,000.00 with the assurance
that the check is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans Place into the files (archive) the record of the above-entitled case as against the other
of rice to Salazar. However, upon presentment, the check was dishonored due to accused Nena Jaucian Timario. Let an alias (bench) warrant of arrest without expiry
"closed account." dated issue for her apprehension, and fix the amount of the bail bond for her
provisional liberty at 59,000.00 pesos.
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y.
Bros. a replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 SO ORDERED.5
again issued by Nena Jaucian Timario in the amount of ₱214,000.00 but which, just
the same, bounced due to insufficient funds. When despite the demand letter dated The RTC found that the Prudential Bank check drawn by Timario for the amount of
February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter ₱214,000.00 was payable to the order of respondent, and such check was a
charged Salazar and Timario with the crime of estafa before the Regional Trial Court negotiable order instrument; that petitioner was not the payee appearing in the check,
of Legaspi City, docketed as Criminal Case No. 7474. but respondent who had not endorsed the check, much less delivered it to petitioner.
It then found that petitioner’s liability should be limited to the allegation in the
After the prosecution rested its case and with prior leave of court, Salazar submitted a amended information that "she endorsed and negotiated said check," and since she
demurrer to evidence. On November 19, 2001, the court a quo rendered an Order, had never been the holder of the check, petitioner's signing of her name on the face
the dispositive portion of which reads: of the dorsal side of the check did not produce the technical effect of an indorsement
arising from negotiation. The RTC ruled that after the Prudential Bank check was
dishonored, it was replaced by a Solid Bank check which, however, was also
WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby subsequently dishonored; that since the Solid Bank check was a crossed check,
ACQUITTED of the crime charged but is hereby held liable for the value of the 300 which meant that such check was only for deposit in payee’s account, a condition that
bags of rice. Accused Anamer D. Salazar is therefore ordered to pay J.Y. Brothers rendered such check non-negotiable, the substitution of a non-negotiable Solid Bank
Marketing Corporation the sum of ₱214,000.00. Costs against the accused. check for a negotiable Prudential Bank check was an essential change which had the
effect of discharging from the obligation whoever may be the endorser of the
SO ORDERED. negotiable check. The RTC concluded that the absence of negotiability rendered
74
nugatory the obligation arising from the technical act of indorsing a check and, thus, 3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
had the effect of novation; and that the ultimate effect of such substitution was to DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION
extinguish the obligation arising from the issuance of the Prudential Bank check. WHEN IT DENIED THE MOTION FOR RECONSIDERATION OF THE
PETITIONER ON THE GROUND THAT THE ISSUE RAISED THEREIN
Respondent filed an appeal with the CA on the sole assignment of error that: HAD ALREADY BEEN PASSED UPON AND CONSIDERED IN THE
DECISION SOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND IN
FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.11
IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER
SALAZAR BY INDORSING THE CHECK (A) DID NOT BECOME A HOLDER OF
THE CHECK, (B) DID NOT PRODUCE THE TECHNICAL EFFECT OF AN Petitioner contends that the issuance of the Solid Bank check and the acceptance
INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID NOT INCUR CIVIL thereof by the respondent, in replacement of the dishonored Prudential Bank check,
LIABILITY.6 amounted to novation that discharged the latter check; that respondent's acceptance
of the Solid Bank check, notwithstanding its eventual dishonor by the drawee bank,
had the effect of erasing whatever criminal responsibility, under Article 315 of the
After petitioner filed her appellees' brief, the case was submitted for decision. On Revised Penal Code, the drawer or indorser of the Prudential Bank check would have
September 29, 2005, the CA rendered its assailed Decision, the decretal portion of incurred in the issuance thereof in the amount of ₱214,000.00; and that a check is a
which reads: contract which is susceptible to a novation just like any other contract.

IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her
Decision is REVERSED and SET ASIDE, and a new one entered ordering the Reply thereto.
appellee to pay the appellant the amount of ₱214,000.00, plus interest at the legal
rate from the written demand until full payment. Costs against the appellee. 7
We find no merit in this petition.
In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which
was later replaced by a Solid Bank check issued by Timario, also indorsed by Section 119 of the Negotiable Instrument Law provides, thus:
petitioner as payment for the 300 cavans of rice bought from respondent. The CA,
applying Sections 63,8 669 and 2910 of the Negotiable Instruments Law, found that SECTION 119. Instrument; how discharged. – A negotiable instrument is discharged:
petitioner was considered an indorser of the checks paid to respondent and
considered her as an accommodation indorser, who was liable on the instrument to a (a) By payment in due course by or on behalf of the principal debtor;
holder for value, notwithstanding that such holder at the time of the taking of the
instrument knew her only to be an accommodation party.
(b) By payment in due course by the party accommodated, where the
instrument is made or accepted for his accommodation;
Respondent filed a motion for reconsideration, which the CA denied in a Resolution
dated March 2, 2006.
(c) By the intentional cancellation thereof by the holder;
Hence this petition, wherein petitioner raises the following assignment of errors:
(d) By any other act which will discharge a simple contract for the
payment of money;
1. THE COURT OF APPEALS ERRED IN IGNORING THE
RAMIFICATIONS OF THE ISSUANCE OF THE SOLIDBANK CHECK IN
REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH WOULD (e) When the principal debtor becomes the holder of the instrument at or
HAVE RESULTED TO THE NOVATION OF THE OBLIGATION ARISING after maturity in his own right. (Emphasis ours)
FROM THE ISSUANCE OF THE LATTER CHECK.
And, under Article 1231 of the Civil Code, obligations are extinguished:
2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF
THE REGIONAL TRIAL COURT OF LEGASPI CITY, BRANCH 5, xxxx
DISMISSING AS AGAINST THE PETITIONER THE CIVIL ASPECT OF
THE CRIMINAL ACTION ON THE GROUND OF NOVATION OF (6) By novation.
OBLIGATION ARISING FROM THE ISSUANCE OF THE PRUDENTIAL
BANK CHECK.

75
Petitioner's claim that respondent's acceptance of the Solid Bank check which cannot, they are incompatible and the latter obligation novates the first. In the instant
replaced the dishonored Prudential bank check resulted to novation which discharged case, there was no express agreement that BA Finance's acceptance of the SBTC
the latter check is unmeritorious. check will discharge Nyco from liability. Neither is there incompatibility because both
checks were given precisely to terminate a single obligation arising from Nyco's sale
In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold of credit to BA Finance. As novation speaks of two distinct obligations, such is
Insurance Co., Inc.,12 we stated the concept of novation, thus: inapplicable to this case.16

x x x Novation is done by the substitution or change of the obligation by a subsequent In this case, respondent’s acceptance of the Solid Bank check, which replaced the
one which extinguishes the first, either by changing the object or principal conditions, dishonored Prudential Bank check, did not result to novation as there was no express
or by substituting the person of the debtor, or by subrogating a third person in the agreement to establish that petitioner was already discharged from his liability to pay
rights of the creditor. Novation may: respondent the amount of ₱214,000.00 as payment for the 300 bags of rice. As we
said, novation is never presumed, there must be an express intention to novate. In
fact, when the Solid Bank check was delivered to respondent, the same was also
[E]ither be extinctive or modificatory, much being dependent on the nature of the indorsed by petitioner which shows petitioner’s recognition of the existing obligation to
change and the intention of the parties. Extinctive novation is never presumed; there respondent to pay ₱214,000.00 subject of the replaced Prudential Bank check.
must be an express intention to novate; in cases where it is implied, the acts of the
parties must clearly demonstrate their intent to dissolve the old obligation as the
moving consideration for the emergence of the new one. Implied novation Moreover, respondent’s acceptance of the Solid Bank check did not result to any
necessitates that the incompatibility between the old and new obligation be total on incompatibility, since the two checks − Prudential and Solid Bank checks − were
every point such that the old obligation is completely superceded by the new one. The precisely for the purpose of paying the amount of ₱214,000.00, i.e., the credit
test of incompatibility is whether they can stand together, each one having an obtained from the purchase of the 300 bags of rice from respondent. Indeed, there
independent existence; if they cannot and are irreconcilable, the subsequent was no substantial change in the object or principal condition of the obligation of
obligation would also extinguish the first. petitioner as the indorser of the check to pay the amount of ₱214,000.00. It would
appear that respondent accepted the Solid Bank check to give petitioner the chance
to pay her obligation.
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, Petitioner also contends that the acceptance of the Solid Bank check, a non-
(2) an agreement of all parties concerned to a new contract, (3) the extinguishment of negotiable check being a crossed check, which replaced the dishonored Prudential
the old obligation, and (4) the birth of a valid new obligation. Novation is merely Bank check, a negotiable check, is a new obligation in lieu of the old obligation arising
modificatory where the change brought about by any subsequent agreement is from the issuance of the Prudential Bank check, since there was an essential change
merely incidental to the main obligation (e.g., a change in interest rates or an in the circumstance of each check.
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 Such argument deserves scant consideration.
of its provisions.)
Among the different types of checks issued by a drawer is the crossed check. 17 The
The obligation to pay a sum of money is not novated by an instrument that expressly Negotiable Instruments Law is silent with respect to crossed checks, 18 although the
recognizes the old, changes only the terms of payment, adds other obligations not Code of Commerce makes reference to such instruments.19 We have taken judicial
incompatible with the old ones or the new contract merely supplements the old one. 13 cognizance of the practice that a check with two parallel lines in the upper left hand
corner means that it could only be deposited and could not be converted into
In Nyco Sales Corporation v. BA Finance Corporation,14 we found untenable cash.20 Thus, the effect of crossing a check relates to the mode of payment, meaning
petitioner Nyco's claim that novation took place when the dishonored BPI check it that the drawer had intended the check for deposit only by the rightful person, i.e., the
endorsed to BA Finance Corporation was subsequently replaced by a Security Bank payee named therein.21 The change in the mode of paying the obligation was not a
check,15 and said: change in any of the objects or principal condition of the contract for novation to take
place.22
There are only two ways which indicate the presence of novation and thereby
produce the effect of extinguishing an obligation by another which substitutes the Considering that when the Solid Bank check, which replaced the Prudential Bank
same. First, novation must be explicitly stated and declared in unequivocal terms as check, was presented for payment, the same was again dishonored; thus, the
novation is never presumed. Secondly, the old and the new obligations must be obligation which was secured by the Prudential Bank check was not extinguished and
incompatible on every point.1avvphi1 The test of incompatibility is whether or not the the Prudential Bank check was not discharged. Thus, we found no reversible error
two obligations can stand together, each one having its independent existence. If they committed by the CA in holding petitioner liable as an accommodation indorser for the
payment of the dishonored Prudential Bank check.
76
WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and On the same date, the Central Bank approved the loan application of another farmer-
the Resolution dated March 2, 2006, of the Court of Appeals in CA-G.R. CV No. borrower, Basilio Panopio, for ₱189,052.00, and credited the amount to Metrobank’s
83104, are AFFIRMED. demand deposit account. Metrobank, in turn, credited RBG’s special savings account.
Metrobank claims that the RBG also withdrew the entire credited amount from its
SO ORDERED. account.

On October 3, 1978, the Central Bank approved Ponciano Lagman’s loan application
for ₱220,000.00. As with the two other IBRD loans, the amount was credited to
Metrobank’s demand deposit account, which amount Metrobank later credited in favor
G.R. No. 159097 July 5, 2010 of RBG’s special savings account. Of the ₱220,000.00, RBG only withdrew
₱75,375.00.
METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs. On November 3, 1978, more than a month after RBG had made the above
RURAL BANK OF GERONA, INC. Respondent. withdrawals from its account with Metrobank, the Central Bank issued debit advices,
reversing all the approved IBRD loans.6 The Central Bank implemented the reversal
DECISION by debiting from Metrobank’s demand deposit account the amount corresponding to
all three IBRD loans.
BRION, J.:
Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn, debited the
Petitioner Metropolitan Bank and Trust Company (Metrobank) filed this Petition for following amounts from RBG’s special savings account: ₱189,052.00, ₱115,000.00,
Review on Certiorari1 under Rule 45 of the Rules of Court to challenge the Court of and ₱8,000.41. Metrobank, however, claimed that these amounts were insufficient to
Appeals (CA) decision dated December 17, 20022 and the resolution dated July 14, cover all the credit advices that were reversed by the Central Bank. It demanded
20033 in CA-G.R. CV No. 46777. The CA decision set aside the July 7, 1994 payment from RBG which could make partial payments. As of October 17, 1979,
decision4 of the Regional Trial Court (RTC) of Tarlac, Branch 65, in Civil Case No. Metrobank claimed that RBG had an outstanding balance of ₱334,220.00. To collect
6028 (a collection case filed by Metrobank against respondent Rural Bank of Gerona, this amount, it filed a complaint for collection of sum of money against RBG before
Inc. [RBG]), and ordered the remand of the case to include the Central Bank of the the RTC, docketed as Civil Case No. 6028.7
Philippines5 (Central Bank) as a necessary party.
In its July 7, 1994 decision,8 the RTC ruled for Metrobank, finding that legal
THE FACTUAL ANTECEDENTS subrogation had ensued:

RBG is a rural banking corporation organized under Philippine laws and located in [Metrobank] had allowed releases of the amounts in the credit advices it credited in
Gerona, Tarlac. In the 1970s, the Central Bank and the RBG entered into an favor of [RBG’s special savings account] which credit advices and deposits were
agreement providing that RBG shall facilitate the loan applications of farmers- under its supervision. Being faulted in these acts or omissions, the Central Bank [sic]
borrowers under the Central Bank-International Bank for Reconstruction and debited these amounts against [Metrobank’s] demand [deposit] reserve; thus[,
Development’s (IBRD’s) 4th Rural Credit Project. The agreement required RBG to Metrobank’s] demand deposit reserves diminished correspondingly, [Metrobank as of
open a separate bank account where the IBRD loan proceeds shall be deposited. The this time,] suffers prejudice in which case legal subrogation has ensued.9
RBG accordingly opened a special savings account with Metrobank’s Tarlac Branch.
As the depository bank of RBG, Metrobank was designated to receive the credit It thus ordered RBG to pay Metrobank the sum of ₱334,200.00, plus interest at 14%
advice released by the Central Bank representing the proceeds of the IBRD loan of per annum until the amount is fully paid.
the farmers-borrowers; Metrobank, in turn, credited the proceeds to RBG’s special
savings account for the latter’s release to the farmers-borrowers. On appeal, the CA noted that this was not a case of legal subrogation under Article
1302 of the Civil Code. Nevertheless, the CA recognized that Metrobank had a right
On September 27, 1978, the Central Bank released a credit advice in Metrobank’s to be reimbursed of the amount it had paid and failed to recover, as it suffered loss in
favor and accordingly credited Metrobank’s demand deposit account in the amount of an agreement that involved only the Central Bank and the RBG. It clarified, however,
₱178,652.00, for the account of RBG. The amount, which was credited to RBG’s that a determination still had to be made on who should reimburse Metrobank. Noting
special savings account represented the approved loan application of farmer- that no evidence exists why the Central Bank reversed the credit advices it had
borrower Dominador de Jesus. RBG withdrew the ₱178,652.00 from its account. previously confirmed, the CA declared that the Central Bank should be impleaded as
a necessary party so it could shed light on the IBRD loan reversals. Thus, the CA set
aside the RTC decision, and remanded the case to the trial court for further

77
proceedings after the Central Bank is impleaded as a necessary party. 10 After the CA bank’s demand deposit reserve13 at any time to cover any delinquency. [Emphasis
denied its motion for reconsideration, Metrobank filed the present petition for review supplied.]
on certiorari.
Based on these arrangements, the Central Bank’s immediate recourse, therefore
THE PETITION FOR REVIEW ON CERTIORARI should have been against the farmers-borrowers and the RBG; thus, it erred when it
deducted the amounts covered by the debit advices from Metrobank’s demand
Metrobank disagrees with the CA’s ruling to implead the Central Bank as a necessary deposit account. Under the Project Terms and Conditions, Metrobank had no
party and to remand the case to the RTC for further proceedings. It argues that the responsibility over the proceeds of the IBRD loans other than serving as a conduit for
inclusion of the Central Bank as party to the case is unnecessary since RBG has their transfer from the Central Bank to the RBG once credit advice has been issued.
already admitted its liability for the amount Metrobank failed to recover. In two Thus, we agree with the CA’s conclusion that the agreement governed only the
letters,11 RBG’s President/Manager made proposals to Metrobank for the repayment parties involved – the Central Bank and the RBG. Metrobank was simply an outsider
of the amounts involved. Even assuming that no legal subrogation took place, to the agreement. Our disagreement with the appellate court is in its conclusion that
Metrobank claims that RBG’s letters more than sufficiently proved its liability. no legal subrogation took place; the present case, in fact, exemplifies the
circumstance contemplated under paragraph 2, of Article 1302 of the Civil Code
which provides:
Metrobank additionally contends that a remand of the case would unduly delay the
proceedings. The transactions involved in this case took place in 1978, and the case
was commenced before the RTC more than 20 years ago. The RTC resolved the Art. 1302. It is presumed that there is legal subrogation:
complaint for collection in 1994, while the CA decided the appeal in 2002. To implead
Central Bank, as a necessary party in the case, means a return to square one and the (1) When a creditor pays another creditor who is preferred, even without the
restart of the entire proceedings. debtor’s knowledge;

THE COURT’S RULING (2) When a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor;
The petition is impressed with merit.
(3) When, even without the knowledge of the debtor, a person interested in
A basic first step in resolving this case is to determine who the liable parties are on the fulfillment of the obligation pays, without prejudice to the effects of
the IBRD loans that the Central Bank extended. The Terms and Conditions of the confusion as to the latter’s share. [Emphasis supplied.]
IBRD 4th Rural Credit Project12 (Project Terms and Conditions) executed by the
Central Bank and the RBG shows that the farmers-borrowers to whom credits have As discussed, Metrobank was a third party to the Central Bank-RBG agreement, had
been extended, are primarily liable for the payment of the borrowed amounts. The no interest except as a conduit, and was not legally answerable for the IBRD loans.
loans were extended through the RBG which also took care of the collection and of Despite this, it was Metrobank’s demand deposit account, instead of RBG’s, which
the remittance of the collection to the Central Bank. RBG, however, was not a mere the Central Bank proceeded against, on the assumption perhaps that this was the
conduit and collector.1avvphil While the farmers-borrowers were the principal most convenient means of recovering the cancelled loans. That Metrobank’s payment
debtors, RBG assumed liability under the Project Terms and Conditions by solidarily was involuntarily made does not change the reality that it was Metrobank which
binding itself with the principal debtors to fulfill the obligation.1awphi1 effectively answered for RBG’s obligations.

How RBG profited from the transaction is not clear from the records and is not part of Was there express or tacit approval by RBG of the payment enforced against
the issues before us, but if it delays in remitting the amounts due, the Central Bank Metrobank? After Metrobank received the Central Bank’s debit advices in November
imposed a 14% per annum penalty rate on RBG until the amount is actually remitted. 1978, it (Metrobank) accordingly debited the amounts it could from RBG’s special
The Central Bank was further authorized to deduct the amount due from RBG’s savings account without any objection from RBG.14 RBG’s President and Manager,
demand deposit reserve should the latter become delinquent in payment. On these Dr. Aquiles Abellar, even wrote Metrobank, on August 14, 1979, with proposals
points, paragraphs 5 and 6 of the Project Terms and Conditions read: regarding possible means of settling the amounts debited by Central Bank from
Metrobank’s demand deposit account.15 These instances are all indicative of RBG’s
5. Collection received representing repayments of borrowers shall be immediately approval of Metrobank’s payment of the IBRD loans. That RBG’s tacit approval came
remitted to the Central Bank, otherwise[,] the Rural Bank/SLA shall be charged a after payment had been made does not completely negate the legal subrogation that
penalty of fourteen [percent] (14%) p.a. until date of remittance. had taken place.

6. In case the rural bank becomes delinquent in the payment of amortizations due[,] Article 1303 of the Civil Code states that subrogation transfers to the person
the Central Bank is authorized to deduct the corresponding amount from the rural subrogated the credit with all the rights thereto appertaining, either against the debtor
78
or against third persons. As the entity against which the collection was enforced, remand this factual issue to the RTC for determination and computation of the actual
Metrobank was subrogated to the rights of Central Bank and has a cause of action to amount RBG owes to Metrobank, plus the corresponding interest and penalties.
recover from RBG the amounts it paid to the Central Bank, plus 14% per annum
interest. WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE the
decision and the resolution of the Court of Appeals, in CA-G.R. CV No. 46777,
Under this situation, impleading the Central Bank as a party is completely promulgated on December 17, 2002 and July 14, 2003, respectively. We AFFIRM the
unnecessary. We note that the CA erroneously believed that the Central Bank’s decision of the Regional Trial Court, Branch 65, Tarlac, promulgated on July 7, 1994,
presence is necessary "in order x x x to shed light on the matter of reversals made by insofar as it found respondent liable to the petitioner Metropolitan Bank and Trust
it concerning the loan applications of the end users and to have a complete Company, but order the REMAND of the case to the trial court to determine the actual
determination or settlement of the claim." 16 In so far as Metrobank is concerned, amounts due to the petitioner. Costs against respondent Rural Bank of Gerona, Inc.
however, the Central Bank’s presence and the reasons for its reversals of the IBRD
loans are immaterial after subrogation has taken place; Metrobank’s interest is simply SO ORDERED.
to collect the amounts it paid the Central Bank. Whatever cause of action RBG may
have against the Central Bank for the unexplained reversals and any undue
deductions is for RBG to ventilate as a third-party claim; if it has not done so at this G.R. No. L-29981 April 30, 1971
point, then the matter should be dealt with in a separate case that should not in any
way further delay the disposition of the present case that had been pending before EUSEBIO S. MILLAR, petitioner,
the courts since 1980. vs.
THE HON. COURT OF APPEALS and ANTONIO P. GABRIEL, respondents.
While we would like to fully and finally resolve this case, certain factual matters
prevent us from doing so. Metrobank contends in its petition that it credited RBG’s Fernandez Law Office and Millar and Esguerra for petitioner.
special savings account with three amounts corresponding to the three credit advices
issued by the Central Bank: the ₱178,652.00 for Dominador de Jesus; the Francisco de la Fuente for respondents.
₱189,052.00 for Basilio Panopio; and the ₱220,000.00 for Ponciano Lagman.
Metrobank claims that all of the three credit advices were subsequently reversed by
the Central Bank, evidenced by three debit advices. The records, however, contained
only the credit and debit advices for the amounts set aside for de Jesus and
Lagman;17 nothing in the findings of fact by the RTC and the CA referred to the CASTRO, J.:
amount set aside for Panopio.
On February 11, 1956, Eusebio S. Millar (hereinafter referred to as the petitioner)
Thus, what were sufficiently proven as credited and later on debited from Metrobank’s obtained a favorable judgment from the Court of First Instance of Manila, in civil case
demand deposit account were only the amounts of ₱178,652.00 and ₱189,052.00. 27116, condemning Antonio P. Gabriel (hereinafter referred to as the respondent) to
With these amounts combined, RBG’s liability would amount to ₱398,652.00 – the pay him the sum of P1,746.98 with interest at 12% per annum from the date of the
same amount RBG acknowledged as due to Metrobank in its August 14, 1979 filing of the complaint, the sum of P400 as attorney's fees, and the costs of suit. From
letter.18 Significantly, Metrobank likewise quoted this amount in its July 11, 1979 19 and the said judgment, the respondent appealed to the Court of Appeals which, however,
July 26, 197920 demand letters to RBG and its Statement of Account dated December dismissed the appeal on January 11, 1957.
23, 1982.21
Subsequently, on February 15, 1957, after remand by the Court of Appeals of the
RBG asserts that it made partial payments amounting to ₱145,197.40, 22 but neither case, the petitioner moved ex parte in the court of origin for the issuance of the
the RTC nor the CA made a conclusive finding as to the accuracy of this claim. corresponding writ of execution to enforce the judgment. Acting upon the motion, the
Although Metrobank admitted that RBG indeed made partial payments, it never lower court issued the writ of execution applied for, on the basis of which the sheriff of
mentioned the actual amount paid; neither did it state that the ₱145,197.40 was part Manila seized the respondent's Willy's Ford jeep (with motor no. B-192297 and plate
of the ₱312,052.41 that, it admitted, it debited from RBG’s special savings account. no. 7225, Manila, 1956).

Deducting ₱312,052.41 (representing the amounts debited from RBG’s special The respondent, however, pleaded with the petitioner to release the jeep under an
savings account, as admitted by Metrobank) from ₱398,652.00 amount due to arrangement whereby the respondent, to secure the payment of the judgement debt,
Metrobank from RBG, the difference would only be ₱86,599.59. We are, therefore, at agreed to mortgage the vehicle in favor of the petitioner. The petitioner agreed to the
a loss on how Metrobank computed the amount of ₱334,220.00 it claims as the arrangement; thus, the parties, on February 22, 1957, executed a chattel mortgage
balance of RBG’s loan. As this Court is not a trier of facts, we deem it proper to on the jeep, stipulating, inter alia, that

79
 This mortgage is given as security for the payment to the said 1. Whereas the judgment orders the respondent to pay the petitioner the sum of
EUSEBIO S. MILLAR, mortgagee, of the judgment and other P1,746.98 with interest at 12% per annum from the filing of the complaint, plus the
incidental expenses in Civil Case No. 27116 of the Court of First amount of P400 and the costs of suit, the deed of chattel mortgage limits the principal
Instance of Manila against Antonio P. Gabriel, MORTGAGOR, in obligation of the respondent to P1,700;
the amount of ONE THOUSAND SEVEN HUNDRED (P1,700.00)
PESOS, Philippine currency, which MORTGAGOR agrees to pay 2. Whereas the judgment mentions no specific mode of payment of the amount due to
as follows: the petitioner, the deed of chattel mortgage stipulates payment of the sum of P1,700
in two equal installments;
March 31, 1957 — EIGHT HUNDRED FIFTY (P850) PESOS;
3. Whereas the judgment makes no mention of damages, the deed of chattel
April 30, 1957 — EIGHT HUNDRED FIFTY (P850.00) PESOS. mortgage obligates the respondent to pay liquidated damages in the amount of P300
in case of default on his part; and
Upon failure of the respondent to pay the first installment due on March 31, 1957, the
petitioner obtained an alias writ of execution. This writ which the sheriff served on the 4. Whereas the judgment debt was unsecured, the chattel mortgage, which may be
respondent only on May 30, 1957 — after the lapse of the entire period stipulated in foreclosed extrajudicially in case of default, secured the obligation.
the chattel mortgage for the respondent to comply with his obligation — was returned
unsatisfied. On November 26, 1968, the petitioner moved for reconsideration of the appellate
court's decision, which motion the Court of Appeals denied in its resolution of
So on July 17, 1957 and on various dates thereafter, the lower court, at the instance December 7, 1968. Hence, the present petition for certiorari to review the decision of
of the petitioner, issued several alias writs, which writs the sheriff also returned the Court of Appeals, seeking reversal of the appellate court's decision and
unsatisfied. On September 20, 1961, the petitioner obtained a fifth alias writ of affirmance of the order of the lower court.
execution. Pursuant to this last writ, the sheriff levied on certain personal properties
belonging to the respondent, and then scheduled them for execution sale. Resolution of the controversy posed by the petition at bar hinges entirely on a
determination of whether or not the subsequent agreement of the parties as
However, on November 10, 1961, the respondent filed an urgent motion for the embodied in the deed of chattel mortgage impliedly novated the judgment obligation
suspension of the execution sale on the ground of payment of the judgment in civil case 27116. The Court of Appeals, in arriving at the conclusion that implied
obligation. The lower court, on November 11, 1961, ordered the suspension of the novation has taken place, took into account the four circumstances heretofore already
execution sole to afford the respondent the opportunity to prove his allegation of adverted to as indicative of the incompatibility between the judgment debt and the
payment of the judgment debt, and set the matter for hearing on November 25, 1961. principal obligation under the deed of chattel mortgage.
After hearing, the lower court, on January 25, 1962, issued an order the dispositive
portion of which reads: 1. Anent the first circumstance, the petitioner argues that this does not constitute a
circumstance in implying novation of the judgment debt, stating that in the interim —
IN VIEW WHEREOF, execution reiterated for P1,700.00 plus costs from the time of the rendition of the judgment in civil case 27116 to the time of the
of execution. execution of the deed of chattel mortgage — the respondent made partial payments,
necessarily resulting in the lesser sum stated in the deed of chattel mortgage. He
The lower court ruled that novation had taken place, and that the parties had adds that on record appears the admission by both parties of the partial payments
executed the chattel mortgage only "to secure or get better security for the judgment. made before the execution of the deed of chattel mortgage. The erroneous
conclusion arrived at by the Court of Appeals, the petitioner argues, creates the
wrong impression that the execution of the deed of chattel mortgage provided the
The respondent duly appealed the aforesaid order to the Court of Appeals, which set consideration or the reason for the reduced judgment indebtedness.
aside the order of execution in a decision rendered on October 17, 1968, holding that
the subsequent agreement of the parties impliedly novated the judgment obligation in
civil case 27116. Where the new obligation merely reiterates or ratifies the old obligation, although the
former effects but minor alterations or slight modifications with respect to the cause or
object or conditions of he latter, such changes do not effectuate any substantial
The appellate court stated that the following circumstances sufficiently demonstrate incompatibility between the two obligations Only those essential and principal
the incompatibility between the judgment debt and the obligation embodied in the changes introduced by the new obligation producing an alteration or modification of
deed of chattel mortgage, warranting a conclusion of implied novation: the essence of the old obligation result in implied novation. In the case at bar, the
mere reduction of the amount due in no sense constitutes a sufficient indictum of
incompatibility, especially in the light of (a) the explanation by the petitioner that the

80
reduced indebtedness was the result of the partial payments made by the respondent novation. The stipulation for the payment of the obligation under the terms of the deed
before the execution of the chattel mortgage agreement and (b) the latter's of chattel mortgage serves only to provide an express and specific method for its
admissions bearing thereon. extinguishment — payment in two equal installments. The chattel mortgage simply
gave the respondent a method and more time to enable him to fully satisfy the
At best, the deed of chattel mortgage simply specified exactly how much the judgment indebtedness.1 The chattel mortgage agreement in no manner introduced
respondent still owed the petitioner by virtue of the judgment in civil case 27116. The any substantial modification or alteration of the judgment. Instead of extinguishing the
parties apparently in their desire to avoid any future confusion as to the amounts obligation of the respondent arising from the judgment, the deed of chattel mortgage
already paid and as to the sum still due, decoded to state with specificity in the deed expressly ratified and confirmed the existence of the same, amplifying only the mode
of chattel mortgage only the balance of the judgment debt properly collectible from and period for compliance by the respondent.
the respondent. All told, therefore, the first circumstance fails to satisfy the test of
substantial and complete incompatibility between the judgment debt an the pecuniary The Court of Appeals also considered the terms of the deed of chattel mortgage
liability of the respondent under the chattel mortgage agreement. incompatible with the judgment because the chattel mortgage secured the obligation
under the deed, whereas the obligation under the judgment was unsecured. The
2. The petitioner also alleges that the third circumstance, considered by the Court of petitioner argues that the deed of chattel agreement clearly shows that the parties
Appeals as indicative of incompatibility, is directly contrary to the admissions of the agreed upon the chattel mortgage solely to secure, not the payment of the reduced
respondent and is without any factual basis. The appellate court pointed out that while amount as fixed in the aforesaid deed, but the payment of the judgment obligation
the judgment made no mention of payment of damages, the deed of chattel mortgage and other incidental expenses in civil case 27116.
stipulated the payment of liquidated damages in the amount of P300 in case of
default on the part of the respondent. The unmistakable terms of the deed of chattel mortgage reveal that the parties
constituted the chattel mortgage purposely to secure the satisfaction of the then
However, the petitioner contends that the respondent himself in his brief filed with the existing liability of the respondent arising from the judgment against him in civil case
Court of Appeals admitted his obligation, under the deed of chattel mortgage, to pay 27116. As a security for the payment of the judgment obligation, the chattel mortgage
the amount of P300 by way of attorney's fees and not as liquidated damages. agreement effectuated no substantial alteration in the liability of the respondent.
Similarly, the judgment makes mention of the payment of the sum of P400 as
attorney's fees and omits any reference to liquidated damages. The defense of implied novation requires clear and convincing proof of complete
incompatibility between the two obligations.2 The law requires no specific form for an
The discrepancy between the amount of P400 and tile sum of P300 fixed as effective novation by implication. The test is whether the two obligations can stand
attorney's fees in the judgment and the deed of chattel mortgage, respectively, is together. If they cannot, incompatibility arises, and the second obligation novates the
explained by the petitioner, thus: the partial payments made by the respondent before first. If they can stand together, no incompatibility results and novation does not take
the execution of the chattel mortgage agreement were applied in satisfaction of part place.
of the judgment debt and of part of the attorney's fee fixed in the judgment, thereby
reducing both amounts. We do not see any substantial incompatibility between the two obligations as to
warrant a finding of an implied novation. Nor do we find satisfactory proof showing
At all events, in the absence of clear and convincing proof showing that the parties, in that the parties, by explicit terms, intended the full discharge of the respondent's
stipulating the payment of P300 as attorney's fees in the deed of chattel mortgage, liability under the judgment by the obligation assumed under the terms of the deed of
intended the same as an obligation for the payment of liquidated damages in case of chattel mortgage so as to justify a finding of express novation.
default on the part of the respondent, we find it difficult to agree with the conclusion
reached by the Court of Appeals. ACCORDINGLY, the decision of the Court of Appeals of October 17, 1968 is set
aside, and the order of the Court of First Instance of Manila of January 25, 1962 is
3. As to the second and fourth circumstances relied upon by the Court of Appeals in affirmed, at respondent Antonio Gabriel's cost.
holding that the montage obligation superseded, through implied novation, the
judgment debt, the petitioner points out that the appellate court considered said Concepcion, C. J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando and
circumstances in a way not in accordance with law or accepted jurisprudence. The Makasiar, JJ., concur.
appellate court stated that while the judgment specified no mode for the payment of
the judgment debt, the deed of chattel mortgage provided for the payment of the Villamor, J., abstains.
amount fixed therein in two equal installments.
Separate Opinions
On this point, we see no substantial incompatibility between the mortgage obligation
and the judgment liability of the respondent sufficient to justify a conclusion of implied
BARREDO, J., concurring:
81
I concur. I would like to add the following considerations to the rationale of the main Lorenzo G. Timbol for petitioners.
opinion:
Abel de Ocera for respondent Desiderio Paras.
As evidenced by the express terms of the chattel mortgage by repondent Gabriel in
favor of petitioner Millar, it was unmistakably the intent of the parties that the said
mortgage be merely a "security for the payment to the said Eusebio Millar,
mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116 of
the Court of First Instance of Manila against Antonio P. Gabriel, mortgagor," to be CASTRO, J.:
paid in the amount and manner therein stated. If this can in any sense in which the
parties must be held to have newly bound themselves. In other words, by their explicit On April 16, 1960 the spouses Carlos Sandico and Enrica Timbol, and Teopisto P.
covenant, the parties contemplated the chattel mortgage to be a security for the Timbol, administrator of the estate of the late Sixta Paras, obtained a judgment in
payment of the judgment and not the payment itself thereof. Such being the case, and their favor against Desiderio Paras (hereinafter referred to as the respondent) in civil
it appearing that respondent Gabriel has not paid the judgment remains unimpaired in case 1554, an action for easement and damages in the Court of First Instance of
its full existence and vigor, and the resort to the execution thereof thru the ordinary Pampanga. On appeal, the Court of Appeals affirmed and modified the judgment, as
procedure of a writ of execution by the petitioner is an election to which every follows:
mortgage creditor is entitled when he decides to abandon his security.
IN VIEW WHEREOF, judgment affirmed and modified; as a
Teehankee, J., concurs. consequence, defendant is condemned to recognize the easement
which is held binding as to him; he is sentenced to pay plaintiffs the
Separate Opinions sums of P5,000.00 actual, and P500.00 exemplary damages, and
P500.00 attorney's fees; plus costs in both instances.1
BARREDO, J., concurring:
Thereafter, upon remand to the court a quo of civil case 1554, the Sandicos and
Timbol (hereinafter referred to as the petitioners) moved for the issuance of a writ of
I concur. I would like to add the following considerations to the rationale of the main execution to enforce the appellate court's judgment which had acquired finality. Acting
opinion: upon the motion, the court a quo issued a writ of execution on July 22, 1964. This writ
the provincial sheriff served upon the respondent on August 22, 1964.
As evidenced by the express terms of the chattel mortgage by repondent Gabriel in
favor of petitioner Millar, it was unmistakably the intent of the parties that the said Meanwhile the petitioners and the respondent reached a settlement, finally agreeing
mortgage be merely a "security for the payment to the said Eusebio Millar, to the reduction of the money judgment from P6,000 to P4,000. Thus, the respondent,
mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116 of on August 5, 1964, paid the petitioners the sum of P3,000; he made another payment
the Court of First Instance of Manila against Antonio P. Gabriel, mortgagor," to be in the amount of P1,000 as evidenced by a receipt issued by the petitioners' counsel.
paid in the amount and manner therein stated. If this can in any sense in which the This receipt is hereunder reproduced in full:
parties must be held to have newly bound themselves. In other words, by their explicit
covenant, the parties contemplated the chattel mortgage to be a security for the
payment of the judgment and not the payment itself thereof. Such being the case, and P1,000.00
it appearing that respondent Gabriel has not paid the judgment remains unimpaired in
its full existence and vigor, and the resort to the execution thereof thru the ordinary RECEIVED from Mr. Desiderio Paras the sum of ONE THOUSAND
procedure of a writ of execution by the petitioner is an election to which every PESOS (P1,000.00), Philippine Currency, in full satisfaction of the
mortgage creditor is entitled when he decides to abandon his security. money judgment rendered against him in Civil Case No. 1554 of
the Court of First Instance of Pampanga, it being understood that
Teehankee, J., concurs. the portion of the final judgment rendered in the said case ordering
him to reconstruct the irrigation canal in question shall be complied
with by him immediately.
G.R. No. L-26115 November 29, 1971
City of Angeles, August 31, 1964.
CARLOS SANDICO, SR., and TEOPISTO P. TIMBOL, petitioners,
vs.
THE HONORABLE MINERVA R. INOCENCIO PIGUING, Judge of the Court of (SGD.) DALMACIO P. TIMBOL
First Instance of Pampanga, and DESIDERIO PARAS, respondents. Counsel for Plaintiffs
in Civil Case No. 1554
82
 I AGREE: (aside from money judgment) any other condition except for the
(SGD.) DESIDERIO PARAS defendants to recognize the easement therein.

Subsequently, the petitioners sent the respondent a letter dated November 5, 1964 With their subsequent motion for reconsideration denied by the respondent judge, the
demanding compliance by the latter with the portion of the judgment in civil case 1554 petitioners, on May 27, 1966, filed with this Court the present
relative to the reconstruction and reopening of the irrigation canal. petition2 for certiorari seeking to set aside (1) the order of the respondent judge dated
September 8, 1965 denying their motion to declare the respondent in contempt of
On February 12, 1965 the provincial sheriff returned the writ of execution issued on court in civil case 1554, and (2) the orders of the respondent judge dated February 3,
July 22, 1964 unsatisfied. 1966 and March 30, 1966 granting the respondent's motion to set aside the alias writ
of execution issued in the same civil case, on the ground that the respondent judge
acted in excess of jurisdiction or with grave abuse of discretion.
Upon failure and refusal of the respondent to rebuild and reopen the irrigation canal,
the petitioners, on March 3, 1965, filed with the court a quo, with Judge Minerva R.
Inocencio Piguing (hereinafter referred to as the respondent judge) presiding, a Here tendered for resolution are the following issues:
motion to declare the said private respondent in contempt of court, pursuant to
provisions of section 9, Rule 39 of the Rules of Court. Opposing the motion, the (1) Whether the respondent judge correctly constructed the judgment of the Court of
respondent alleged recognition by him of the existence of the easement and Appeals as not requiring the respondent to reconstruct and reopen the irrigation
compliance with the appellate court's judgment, stating that he had dug a canal in its canal, and consequently, whether the said respondent judge acted in excess of
former place, measuring about one and-a-half feet deep, for the petitioners' use. jurisdiction or with grave abuse of discretion in denying the petitioners' motion to
declare the respondent in contempt of court for failing and refusing to comply with the
On September 8, 1965 the respondent judge issued an order denying the petitioners' appellate court's judgment; and
motion to declare the respondents in contempt of court, ruling that.
(2) Whether the payment by the respondent to the petioners of the amount of P4,000
... it appears from the dispositive part of the decision that the extinguished the money judgment, and, consequently, whether the respondent judge
defendant was only ordered to recognize the easement which is acted in excess of jurisdiction or with grave abuse of discretion in ordering the recall
held binding as to him and to pay the plaintiffs the sums P5,000.00 and quashal of the alias writ of execution.
of actual, and P500.00 exemplary damages.
1. Anent the first issue, the petitioners argue that although the dispositive portion of
Apparently, it is clear from the dispositive part of the decision that the appellate court's judgment omitted any directive to the respondent to reconstruct
there is nothing to show that the defendant was ordered to and reopen the irrigation canal, the Court of Appeals' order requiring recognition of
reconstruct the canal. the easement on the part of the said respondent suffices to make him aware of his
obligation under the judgment. The only way of recognizing the easement, the
petitioners continue, consists in performing positive act — the reconstruction and
On September 16, 1965 the petitioners moved for issuance of an alias writ of restoration of the irrigation canal to its former condition. Moreover, to understand the
execution to enforce the judgement of the Court of Appeals. This motion the full intendment of the dispositive portion of the judgment directing the respondent "to
respondent judge granted in an order dated September 25, 1965. On November 3, recognize the easement" necessitates reference to a statement in the decision of the
1965. the respondent moved to set aside the said alias writ, alleging full satisfaction Court of Appeals that reads:
of the judgment per agreement of the parties when the petitioner received the sum of
P4,000 in August, 1964 as evidenced by the receipt dated August 31, 1964.
... the result of this must be to justify the conclusion prayed for by
the plaintiffs that the easement should be held to be existing and
The respondent judge then issued an order dated November 11, 1965 directing the binding upon defendant and he should be held to have acted
provincial sheriff to suspend the execution of the alias writ until further orders. On without authority in closing the canal which should be ordered
February 3, 1966 the respondent judge issued an order calling, and directing the reopened.
quashal of the alias writ of execution. The respondent judge stated in her order that
the agreement of the parties "novated" the money judgment provided for in the
decision of the Court of Appeals, ruling that the said decision. On the other hand, the respondent alleges that there is no ambiguity in the
phraseology of the portion of the Court of Appeals' judgment condemning to
recognize the easement. Said decision requires him only to "recognize" the easement
... which is sought now to be executed by this Court, has already and in compliance therewith, he gives the petitioners permission to reconstruct and
been fully satisfied as to the money judgment and nothing more is reopen the irrigation canal themselves. Neither the decision a quo nor that of the
left to be executed from the aforesaid Decision as it does not allege appellate court orders him to reconstruct and reopen the irrigation canal.

83
The agreement reached by the petitioners and the respondent in August, 1964 The petitioners predicate their stand mainly upon the provisions of section 9 of Rule
relative to the judgment of the appellate court which had acquired finality and the 39 of the Rules of Court. Said section reads:
interpretation by the parties themselves of the said judgment, specifically its
dispositive portion, as embodied in the receipt dated August 31, 1964, constitute the Sec. 9. Writ of execution of special judgment. — When judgment
considerations of prime importance in the resolution of the first question. No doubt requires the performance of any other act than the payment of
exists that the parties entered into the agreement, fully aware of the judgment of the money, or the sale or delivery of real or personal property, a
appellate court ordering the respondent to comply with two obligations, to wit, certified copy of the judgment shall be attached the writ of
payment of a sum of money and recognition of the easement. The receipt evidencing execution and shall be served by the officer upon the party against
the agreement, aside from providing for the reduction of the money judgment, whom the same is rendered, or upon any of person required
provides for the reconstruction of the irrigation canal. Such constitutes the thereby, or by law, to obey the same, and party or person may be
interpretation accorded by the parties to that part of the dispositive portion of the punished forcontempt if he disobeys such judgment.
appellate court's judgment condemning the respondent to recognize the easement.
This stipulation — one wherein the respondent clearly recognizes his obligation "to
reconstruct the irrigation canal" — embodied in precise and clear terms in the receipt Section 9 applies to specific acts other than those cover by section 10 of the same
binds the said respondent, a signatory to the said receipt, and requires from him full rule. Section 10 pertinently provides:
compliance. We thus fail to perceive any reason to sustain the contention of the
respondent that he has no obligation at all to reconstruct and reopen the irrigation See. 10. Judgment for an acts; vesting title. — If a judgment directs
canal, a position utterly inconsistent with his agreement with the petitioners as a party to execute a conveyance of land, or to deliver deeds or
embodied in the receipt dated August 31, 1964. other documents, or to perform any other specific act, and the party
fails to comply within the time specified, the court may direct the act
The record, however, shows that the respondent exerted efforts to reconstruct the to be done at the cost of disobedient party by some other person
portion of the irrigation canal running through his land by digging a canal about one appointed by the court and the act when so done shall have like
meter wide and about one-and-a-half feet deep. This partial reconstruction of the effect as if done by the party. ...
irrigation canal the petitioners admit. Still, the petitioners demand the reconstruction
of the irrigation canal to its former condition — measuring four meters wide, five feet Section 9 refers to a judgment directing the performance of a specific act which the
deep, and one-hundred and twenty-eight meters long — contending that the rebuilt said judgment requires the party or person to personally do because of his personal
canal serves no useful purpose because the water passing through it overflows, qualifications and circumstances. Section 10 refers to a judgment requiring the
which overflow ultimately causes the destruction of the canal itself. Nonetheless, we execution of a conveyance of land or the delivery of deeds or other documents or the
believe that need to give full force and effect to the existence of the easement performance of any other specific act susceptible of execution by some other person
demands that the respondent reconstruct the irrigation canal to its condition before he or in some other way provided by law with the same effect. Under section 10, the
closed and destroyed the same. After all, the respondent himself in his answer dated court may designate some other person to do the act ordained to be done by the
June 16, 1959 filed with the court a quo admitted the original dimensions of the judgment, the reasonable cost of its performance chargeable to the disobedient party.
irrigation canal as four meters wide and one-hundred and twenty-eight meters long. The act, when so done, shall have the same effect as if performed by the party
The respondent's attempt, to rebuild the irrigation canal, partially and not in conformity himself. In such an instance, the disobedient party incurs no liability for
with the dimensions of the original one, does not constitute satisfactory and contempt.3 Under section 9, the court may resort to proceedings for contempt in order
substantial compliance with his obligation to recognize the easement per the to enforce obedience to a judgment which requires the personal performance of a
appellate court's judgment and to reconstruct the irrigation canal pursuant to his specific act other than the payment of money, or the sale or delivery of real or
agreement with the petitioners in August, 1964. personal property.

Due to the respondent's failure and refusal to reconstruct and reopen the irrigation An examination of the case at bar makes it apparent that the same falls within the
canal, the petitioners sought to declare him in contempt of court, under the provisions contemplation of section 10, and not of section 9 as the petitioners contend. The
of section 9 of Rule 39 of the Rules of Court. The respondent judge, however, reconstruction and reopening of the irrigation canal may be done by same other
believing that the appellate court's judgement required the respondent merely to person designated by the court, at the cost of the respondent. In fact, the respondent
recognize the equipment without doing any positive act of reconstruction and in his attempt to rebuild the irrigation canal, contracted the services of one Gerardo
reopening of the irrigation canal, dismissed the petition motion to declare the Salenga. Accordingly, in conformity with the appellate court's judgment as further
respondent in contempt of court. In doing so, the petitioners allege, the respondent mutually interpreted by the parties themselves, the court a quo, because of the failure
judge acted in excess of jurisdiction or with grave abuse of discretion. The petitioners and refusal of the respondent to restore the irrigation canal to its former condition and
thus ask us now to annul the order of the respondent judge denying their motion to to reopen it, should have appointed some other person to do the reconstruction,
declared the respondent in contempt of court or, by way of native, to declare the charging the expenses therefor to the said respondent.
respondent in contempt of court and to punish him accordingly.

84
2. As to the second question, which relates to the money judgment, the petitioners civil case 1554, completely extinguished the judgment debt and released the
vehemently insist on their right to recover an additional sum of P2,000 — the alleged respondent from his pecuniary liability.
unsatisfied portion of the appellate court's judgement requiring the respondent to pay
to the petitioners the total amount of P6,000 corresponding to damages and Both the petitioners and the respondent take exception to the respondent judge's
attorney's fees. The petitioners allege that their agreement with the respondent in ruling that their agreement of August, 1964 to reduce the judgment debt, as
August, 1964, reducing the amount due from the respondent, constitutes neither evidenced by the receipt hereinbefore adverted to, "novated" the money judgment
waiver of their claim for the sum of P2,000 nor novation of the money judgment rendered by the appellate court.
provided for in the Court of Appeals' decision. They state that their agreement with
the respondent reduced the amount of the money judgment, subject to the condition
that the latter reconstruct and reopen the irrigation canal immediately. This, they Novation results in two stipulations — one to extinguish an existing obligation, the
argue, does not constitute alteration of the appellate court's judgment. other to substitute a new one in its place.4 Fundamental it is that novation effects a
substitution or modification of an obligation by another or an extinguishment of one
obligation in the creation of another. In the case at hand, we fail to see what new or
For his part, the respondent contends that his payment of the sum of P4,000, modified obligation arose out of the payment by the respondent of the reduced
received and acknowledged by the petitioners through their counsel as "in full amount of P4,000 and substitute the monetary liability for P6,000 of the said
satisfaction of the money judgment" in civil case 1554, extinguished his pecuniary respondent under the appellate court's judgment. Additionally, to sustain novation
liability. Thus, when the petitioners, notwithstanding the admitted payment of the necessitates that the same be so declared in unequivocal terms — clearly and
judgment debt in the lesser amount of P4,000, still sought to enforce the money unmistakably shown by the express agreement of the parties or by acts of equivalent
judgment for the full amount of P6,000 through an alias writ of execution, the court a import — or that there is complete and substantial incompatibility between the two
quo, in recalling and quashing the alias writ previously issued, acted correctly obligations.5
andwithin its authority.
Neither do we appreciate the petitioners' stand that, according to their agreement with
Parenthetically, the petitioner's application for the issuance of the alias writ of the respondent, their assent to the reduction of the money judgment was subject to
execution dated September 16, 1965, the alias writ of execution dated September 29, the condition that the respondent reconstruct and reopen the portion of the irrigation
1965, and the levy on execution and the notice of sheriff's sale, both dated October canal passing through his land immediately. The petitioners even state that the
21, 1965, all refer to the amount of P6,000 and make no mention whatsoever of the receipt of August 31, 1964 embodies this condition.
true status of the judgement debt. On this point the respondent charges the
petitioners with concealing from the court a quo the true amount, if any, still due from
him. And in effect, he alleges, the petitioners apparently seek the payment of the The terms of the receipt dated August 31, 1964, we find clear and definite. The
judgment debt twice. The petitioners, however, emphasize that they demand payment receipt neither expressly nor impliedly declares that the reduction of the money
of only the balance of P2,000. To rebut the respondents charge of concealment, they judgment was conditioned on the respondent's reconstruction and reopening of the
state that they informed the court a quo that the respondent already paid them the irrigation canal. The receipt merely embodies the recognition by the respondent of his
sum of P4,000. Furthermore, they allege that another lawyer, a former associate of obligation to reconstruct the irrigation canal. And the receipt simply requires the
their counsel, prepared their motion for the issuance of the alias writ of execution, respondent to comply with such obligation "immediately." The obligation of the
received the alias writ and delivered the same to the sheriff. Impliedly, therefore, they respondent remains as a portion of the Court of Appeals' judgment. In fact, the
attribute the inconsistency regarding the amount still allegedly due from the petitioners themselves, in their letter dated November 5, 1964, sent to the
respondent to the former associate of their counsel. respondent, demanding that the latter reconstruct the irrigation canal immediately,
referred to the same not as a condition but as "the portion of the judgment" in civil
case 1594.
Reverting to the second question, the appellate court's judgment obliges the
respondent to do two things: (1) to recognize the easement, and (2) to pay the
petitioners the sums of P5,000 actual and P500 exemplary damages and P500 Consequently, the respondent judge, when she granted the motion of the respondent
attorney's fees, or a total of P6,000. The full satisfaction of the said judgment requires to set aside the alias writ of execution and issued the order dated February 3, 1966
specific performance and payment of a sum of money by the respondent. recalling and quashing the said alias writ, acted correctly. Courts have jurisdiction to
entertain motions to quash previously issued writs of execution because courts have
the inherent power, for the advancement of justice, to correct the errors of their
We adjudge the respondent's judgment debt as having been fully satisfied. We see no ministerial officers and to control their own processes. However, this power, well
valid objection to the petitioners and the respondent entering into an agreement circumscribed, to quash the writ, may be exercised only in certain situations, as when
regarding the monetary obligation of the latter under the judgment of the Court of it appears that (a) the writ has been improvidently issued, or (b) the writ is defective in
Appeals, reducing the same from P6,000 to P4,000. The payment by the respondent substance, or (c) the writ has been issued against the wrong party, or (d) the
of the lesser amount of P4,000, accepted by the petitioners without any protest or judgment debt has been paid or otherwise satisfied, or (e) the writ has been issued
objection and acknowledged by them as "in full satisfaction of the money judgment" in without authority, or (f) there has been a change in the situation of the parties which
renders such execution inequitable, or (g) the controversy has never been submitted

85
to the judgment of the court, and, therefore, no judgment at all has ever been The condition or clause provided in the said receipt viz, "that the portion of the final
rendered thereon.6 In the instant case, the payment of the judgment debt by the judgment rendered in the said case ordering him (respondent Paras) to reconstruct
respondent, although in a reduced amount but accepted by the petitioners as "in full the irrigation canal in question shall be complied with by him immediately" (emphasis
satisfaction of the money judgment," warrants the quashal of the alias writ. supplied) is ambiguous being premised on an erroneous statement of fact. Besides
the money part of the judgment, all that the said judgment ordered respondent was
ACCORDINGLY, judgment is hereby rendered, (1) declaring that the respondent "to recognize the easement which is held binding as to him."
judge did not act in excess of jurisdiction or with grave abuse of discretion in issuing
the order dated February 3, 1966 (granting the respondent's motion to set aside Accordingly, I submit that in the proceedings below with the remand of the case,
the alias writ of execution, and recalling and guashing the said alias writ) and the respondent should in fairness be permitted to present competent evidence to clarify
order dated March 30, 1966 (denying the petitioners' motion for reconsideration, of his contention at bar "that he has no obligation at all to reconstruct and reopen the
the order dated February 3, 1966) ; and (2) remanding the case to the court a irrigation canal" (main opinion, at p. 5), which, as noted in the main opinion, is a
quo with instructions that the respondent court (a) conduct an ocular inspection of the "position utterly inconsistent" with his alleged agreement to do so, as stated in the
irrigation canal passing through the respondent's land to determine whether or not the receipt of August 31, 1964 — which alleged agreement was in turn based on the
said canal has been rebuilt in accordance with its original dimensions; (b) in the event erroneous premise that the judgment in question ordered him to reconstruct the
that the said canal fails to meet the measurements of the original one, order the irrigation canal. If there were in fact an agreement or recognition on respondent's part
respondent to reconstruct the same to its former condition; and (3) in the event of the to reconstruct the irrigation canal immediately, notwithstanding that he was not so
respondent's further refusal or failure to do so, appoint some other person to sentenced under the final judgment, competent evidence should likewise be permitted
reconstruct the canal in accordance with its original dimensions, at the cost of the in the proceedings below to determine the nature and extent of his agreement and
said respondent, pursuant to section 10 of Rule 39 of the Rules of Court. Without undertaking.
pronouncement as to costs.
No grave abuse of discretion committed by respondent judge in issuing the orders
Concepcion, C.J., Makalintal, Zaldivar, Fernando, Barredo, Villamor and Makasiar, complained of; case remanded to court a quo with instructions.
JJ., concur.

Reyes, J.B.L., J., concurs in the result.

Separate Opinions

TEEHANKEE, J., concurring:

Separate Opinions
I concur in the result. It seems to me that any ambiguity in the receipt of August 31,
1964 prepared by Atty. Dalmacio P. Timbol as counsel for petitioners as judgment
creditors in Civil Case No. 1554 of the Court of First Instance of Pampanga, to which
respondent as judgment debtor had signed his agreement, must be construed against
petitioners as the parties responsible for the ambiguity.
TEEHANKEE, J., concurring:
The condition or clause provided in the said receipt viz, "that the portion of the final
judgment rendered in the said case ordering him (respondent Paras) to reconstruct
I concur in the result. It seems to me that any ambiguity in the receipt of August 31, the irrigation canal in question shall be complied with by him immediately" (emphasis
1964 prepared by Atty. Dalmacio P. Timbol as counsel for petitioners as judgment supplied) is ambiguous being premised on an erroneous statement of fact. Besides
creditors in Civil Case No. 1554 of the Court of First Instance of Pampanga, to which the money part of the judgment, all that the said judgment ordered respondent was
respondent as judgment debtor had signed his agreement, must be construed against "to recognize the easement which is held binding as to him."
petitioners as the parties responsible for the ambiguity.
Accordingly, I submit that in the proceedings below with the remand of the case,
respondent should in fairness be permitted to present competent evidence to clarify

86
his contention at bar "that he has no obligation at all to reconstruct and reopen the In order to abbreviate the proceedings in this case, the parties,
irrigation canal" (main opinion, at p. 5), which, as noted in the main opinion, is a instead of going into trial, submitted a compromise agreement, as
"position utterly inconsistent" with his alleged agreement to do so, as stated in the follows: têñ.£îhqwâ£
receipt of August 31, 1964 — which alleged agreement was in turn based on the
erroneous premise that the judgment in question ordered him to reconstruct the The parties, DANIEL E. ROXAS, etc. and
irrigation canal. If there were in fact an agreement or recognition on respondent's part NATIONAL POWER CORPORATION, ET AL.,
to reconstruct the irrigation canal immediately, notwithstanding that he was not so represented by its President Mr. Gabriel Y. Itchon
sentenced under the final judgment, competent evidence should likewise be permitted with due and proper authority under NP Board
in the proceedings below to determine the nature and extent of his agreement and Resolution No. 81-224, assisted by their
undertaking. respective counsel, to this Honorable Court
respectfully submit the following compromise
No grave abuse of discretion committed by respondent judge in issuing the orders agreement:
complained of; case remanded to court a quo with instructions.
1. The defendant National Power Corporation
shall pay to plaintiff the sum of P7,277.45,
representing the amount due to plaintiff for the
G.R. Nos. L-62845-46 November 25, 1983 services of one of plaintiff's supervisors;

NATIONAL POWER CORPORATION, petitioner, 2. The defendant shall pay plaintiff the value of
vs. the line materials which were stolen but
JUDGE ABELARDO M. DAYRIT, Court of First Instance of Manila, Branch 39, recovered, by plaintiff's agency which value is to
and DANIEL R. ROXAS, doing business as United Veterans Security Agency be determined after a joint inventory by the
and Foreign Boats Watchmen, respondents. representatives of both parties;

The Solicitor General for petitioner. 3. The parties shall continue with the contract of
security services under the same terms and
conditions as the previous contract effective upon
William C. Arceno for respondents. the signing thereof;

4. The parties waive all their respective claims

and counterclaims in favor of each other;
ABAD SANTOS, J.:ñé+.£ªwph!1
5. The parties agree to faithfully comply with the
This is a petition to set aside the Order, dated September 22, 1982, of the respondent foregoing agreement.
judge. The prayer is premised on the allegation that the questioned Order was issued
with grave abuse of discretion. PRAYER

In Civil Case No. 133528 of the defunct Court of First Instance of Manila, DANIEL E. WHEREFORE, it is respectfully prayed that the Hon. Court approve
ROXAS, doing business under the name and style of United Veterans Security the following compromise agreement.'
Agency and Foreign Boats Watchmen, sued the NATIONAL POWER
CORPORATION (NPC) and two of its officers in Iligan City. The purpose of the suit
was to compel the NPC to restore the contract of Roxas for security services which Examining the foregoing agreement, the Court finds that the same
the former had terminated. is in accordance with law and not against morals and public policy.

After several incidents, the litigants entered into a Compromise Agreement on CONFORMABLY, the Court hereby renders judgment in
October 14, 1981, and they asked the Court to approve it. Accordingly, a Decision accordance with the terms and conditions thereof, enjoining the
was rendered on October 30, 1981, which reads as follows: têñ.£îhqw⣠parties to strictly comply with the terms and conditions of the
compromise agreement, without pronouncement as to cost. (Rollo,
pp. 33-34.)

87
The judgment was not implemented for reasons which have no relevance here. CONFORMABLY, let the corresponding writ of execution be issued
to be served by the Deputy Sheriff assigned to this branch. (Rollo,
On May 14, 1982, the NPC executed another contract for security services with p. 54.)
Josette L. Roxas whose relationship to Daniel is not shown. At any rate Daniel has
owned the contract. The NPC refused to implement the new contract for which reason The NPC assails the Order on the ground that it directs execution of a contract which
Daniel filed a Motion for Execution in the aforesaid civil case which had been re- had been novated by that of May 14, 1982. Upon the other hand, Roxas claims that
numbered R-82-10787. The Motion reads: têñ.£îhqw⣠said contract was executed precisely to implement the compromise agreement for
which reason there was no novation.
PLAINTIFF, by counsel, respectfully shows:
We sustain the private respondent. Article I of the May 14, 1982, agreement supports
1. On October 30, 1981, this Honorable Court rendered its decision his contention. Said article reads: têñ.£îhqwâ£
based on compromise agreement submitted by the parties, under
which it was provided, among others, that — têñ.£îhqw⣠ARTICLE I

3. The parties shall continue with the contract of DOCUMENTS COMPRISING THE CONTRACT
security services under the same terms and
conditions as the previous contract effective upon The letter proposal dated September 5, 1981; CORPORATION'S
the signing thereof; counter- proposal dated September 11, 1981; Board Resolution No.
81-244 dated September 28, 1981; the Compromise Agreement
2. To date, after more than about eight (8) months since the and Court Decision dated October 30, 1981 in Civil Case No.
decision of this Honorable Court, defendant National Power 133528 CFI-Manila; other subsequent letters and the performance
Corporation, through bad faith by reason of excuses made one bond of AGENCY to be flied in favor of CORPORATION in the
after another, has yet to comply with the aforesaid terms of the manner hereinafter provided, are hereby expressly made integral
decision. It has not reinstated the contract with the plaintiff in gross parts of this contract by reference. (Rollo, pp. 59-60.)
violation of the terms of the said compromise agreement which this
Honorable Court approved, 'enjoining the parties to strictly comply It is elementary that novation is never presumed; it must be explicitly stated or there
with the terms and conditions of the compromise agreement, must be manifest incompatibility between the old and the new obligations in every
aspect. Thus the Civil Code provides: têñ.£îhqwâ£
3. Hence, plaintiff is compelled to seek the assistance of this
Honorable Court for the execution of its decision. Art. 1292. In order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be so
PRAYER têñ.£îhqw⣠declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
WHEREFORE, it is respectfully prayed that this Honorable Court
order the issuance of the writ of execution for the enforcement of In the case at bar there is nothing in the May 14, 1982, agreement which supports the
the aforesaid portion of its decision. (Rollo, pp. 35-36.) petitioner's contention. There is neither explicit novation nor incompatibility on every
point between the "old" and the "new" agreements.
Acting on the Motion, the respondent judge issued the following Order: têñ.£îhqwâ£
WHEREFORE, the petition is denied for lack of merit with costs against the petitioner.
Acting on the motion for execution dated July 14, 1982, visibly over
the objection and/or opposition to the motion for execution dated SO ORDERED.1äwphï1.ñët
July 19, 1982, the Court, considering that the decision of October
30, 1981 was based on a Compromise Agreement entered into by G.R. No. L-41117 December 29, 1986
and between the parties which decidedly, become final and
executory, is inclined to grant said action.
INTEGRATED CONSTRUCTION SERVICES, INC., and ENGINEERING
CONSTRUCTION, INC., petitioners,
vs.

88
THE HONORABLE LORENZO RELOVA, as Judge of the Court of First Instance to October 31, 1972. MWSS, however, paid only on December 22, 1972, the amount
of Manila, and METROPOLITAN WATERWORKS & SEWERAGE stated in the decision but less the reductions provided for in the October 2, 1972
SYSTEM, respondents. letter-agreement.

J.R. Blanco and Bengzon, Villegas, Zarraga, Narciso & Cudala for petitioners. 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
Raymundo A. Armovit for petitioner Engineering Construction, Inc. 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
PARAS, J.: that the parties had novated the award by their subsequent letter-agreement.
Petitioners moved for reconsideration but respondent judge, likewise, denied the
This is a petition 1 for mandamus as a special civil action and/or, in the alternative, an same in his Order dated July 24, 1975.
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 Hence, this Petition for Mandamus, alleging that respondent judge unlawfully refused
Construction, Inc., plaintiffs, versus National Waterworks and Sewerage Authority to comply with his mandatory duty-to order the execution of the unsatisfied portion of
(now Metropolitan Waterworks & Sewerage System), defendant." Petitioners the final and executory award.
complied with the requisites for both remedies.
In a Resolution dated October 17, 1975, the Supreme Court dismissed the Petition for
The facts are not in dispute: lack of merit. (p. 107, Rollo )and denied petitioners' Motion for Reconsideration of the
same. (p. 131, Rollo)
Petitioners on July 17, 1970 sued the respondent Metropolitan Waterworks and
Sewerage System (MWSS), formerly the National Waterworks and Sewerage At the hearing on petitioners' Second Motion for Reconsideration, however,
Authority (NAWASA), in the Court of First Instance of Manila for breach of contract, respondent MWSS asserted new matters, (p. 186, Rollo) arguing that: the delay in
docketed as Civil Case No. 80390 in that Court. Meanwhile, the parties submitted the effecting payment was caused by an unforeseen circumstance the declaration of
case to arbitration. 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
The Arbitration Board, after extensive hearings, rendered its decision-award on and/or the Secretary of National Defense; and that the 15-day period was merely
August 11, 1972. Respondent Judge confirmed the Award on September 9, 1972 and intended to pressure MWSS officials to process the voucher. Petitioners, however,
the same has long since become final and executory. vehemently deny these matters which are not supported by the records.

The decision-award ordered MWSS to pay petitioners P15,518,383.61-less We agree with the petitioners.
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 While the tenor of the subsequent letter-agreement in a sense novates the judgment
from the filing of the complaint until fully paid. 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
Subsequently, however, petitioners agreed to give MWSS some discounts in agreement (making the novation conditional) is expressly acknowledged and
consideration of an early payment of the award. Thus, on September 21, 1972, stipulated in the 14th whereas clause of MWSS' Resolution No. 132-72, (p. 23, Rollo)
MWSS adopted Board Resolution No. 132-72, embodying the terms and conditions of which states:
their agreement. On October 2, 1972, MWSS sent a letter-agreement to petitioners,
quoting Board Resolution No. 13272, granting MWSS some discounts from the WHEREAS, all the foregoing benefits and advantages secured by the
amount payable under the decision award (consisting of certain reductions in MWSS out of said conferences were accepted by the Joint
interests, in the net principal award and in the trust fund), provided that MWSS would Venture provided that the remaining net amount payable to the Joint Venture
pay the judgment, less the said discounts, within fifteen days therefrom or up to will be paid by the MWSS within fifteen (15) days after the official release of
October 17, 1972. this resolution and a written CONFORME to be signed by the Joint Venture;
(Emphasis supplied)
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
89
MWSS' failure to pay within the stipulated period removed the very cause and reason In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and
for the agreement, rendering some ineffective. Petitioners, therefore, were remitted to was granted an increase in its line of credit from P400,000.00 to P800,000.00 (the
their original rights under the judgment award. "Principal Obligation"), with the Philippine National Bank (PNB). To secure PNB's
approval, PAGRICO had to give a good and sufficient bond in the amount of
The placing of MWSS under the control and management of the Secretary of National P400,000.00, representing the increment in its line of credit, to secure its faithful
Defense thru Letter of Instruction No. 2, dated September 22, 1972 was not an compliance with the terms and conditions under which its line of credit was increased.
unforeseen supervening factor because when MWSS forwarded the letter-agreement In compliance with this requirement, PAGRICO submitted Surety Bond No. 4765,
to the petitioners on October 2, 1972, the MWSS was already aware of LOI No. 2. issued by the respondent R & B Surety and Insurance Co., Inc. (R & B Surety") in the
specified amount in favor of the PNB. Under the terms of the Surety Bond, PAGRICO
and R & B Surety bound themselves jointly and severally to comply with the "terms
MWSS' contention that the stipulated period was intended to pressure MWSS officials and conditions of the advance line [of credit] established by the [PNB]." PNB had the
to process the voucher is untenable. As aforestated, it is apparent from the terms of right under the Surety Bond to proceed directly against R & B Surety "without the
the agreement that the 15-day period was intended to be a suspensive condition. necessity of first exhausting the assets" of the principal obligor, PAGRICO. The
MWSS, admittedly, was aware of this, as shown by the internal memorandum of a Surety Bond also provided that R & B Surety's liability was not to be limited to the
responsible MWSS official, stating that necessary steps should be taken to effect principal sum of P400,000.00, but would also include "accrued interest" on the said
payment within 15 days, for otherwise, MWSS would forego the advantages of the amount "plus all expenses, charges or other legal costs incident to collection of the
discount. " (p. 426, Rollo) obligation [of R & B Surety]" under the Surety Bond.

As to whether or not petitioners are now in estoppel to question the subsequent In consideration of R & B Surety's issuance of the Surety Bond, two Identical
agreement, suffice it to state that petitioners never acknowledged full payment; on the indemnity agreements were entered into with R & B Surety: (a) one agreement dated
contrary, petitioners refused MWSS' request for a conforme or quitclaim. (p. 125, 23 December 1963 was executed by the Catholic Church Mart (CCM) and by
Rollo) petitioner Joseph Cochingyan, Jr, the latter signed not only as President of CCM but
also in his personal and individual capacity; and (b) another agreement dated 24
Accordingly, the award is still subject to execution by mere motion, which may be December 1963 was executed by PAGRICO, Pacific Copra Export Inc. (PACOCO),
availed of as a matter of right any time within (5) years from entry of final judgment in Jose K. Villanueva and Liu Tua Ben Mr. Villanueva signed both as Manager of
accordance with Section 5, Rule 39 of the Rules of Court. PAGRICO and in his personal and individual capacity; Mr. Liu signed both as
President of PACOCO and in his individual and personal capacity.
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 Under both indemnity agreements, the indemnitors bound themselves jointly and
case originally to grant the writ of execution for the balance due under the award. severally to R & B Surety to pay an annual premium of P5,103.05 and "for the faithful
compliance of the terms and conditions set forth in said SURETY BOND for a period
SO ORDERED. beginning ... until the same is CANCELLED and/or DISCHARGED." The Indemnity
Agreements further provided:

G.R. No. L-47369

(b) INDEMNITY: — TO indemnify the SURETY COMPANY for any damage,
prejudice, loss, costs, payments, advances and expenses of whatever kind
JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA, petitioners, and nature, including [of] attorney's fees, which the CORPORATION may, at
vs. any time, become liable for, sustain or incur as consequence of having
R & B SURETY AND INSURANCE COMPANY, INC., respondent. executed the above mentioned Bond, its renewals, extensions or
substitutions and said attorney's fees [shall] not be less than twenty [20%]
per cent of the total amount claimed by the CORPORATION in each action,
the same to be due, demandable and payable, irrespective of whether the
case is settled judicially or extrajudicially and whether the amount has been
actually paid or not;
FELICIANO, J.:

(c) MATURITY OF OUR OBLIGATIONS AS CONTRACTED HEREWITH: —

This case was certified to us by the Court of Appeals in its resolution dated 11
The said indemnities will be paid to the CORPORATION as soon as demand
November 1977 as one involving only questions of law and, therefore, falling within
is received from the Creditor or upon receipt of Court order or as soon as it
the exclusive appellate jurisdiction of this Court under Section 17, Republic Act 296,
becomes liable to make payment of any sum under the terms of the above-
as amended.
mentioned Bond, its renewals, extensions, modifications or substitutions,

90
 whether the said sum or sums or part thereof, have been actually paid or xxx xxx xxx
not.
Petitioner Joseph Cochingyan, Jr. in his answer maintained that the Indemnity
We authorize the SURETY COMPANY, to accept in any case and at its Agreement he executed in favor of R & B Surety: (i) did not express the true intent of
entire discretion, from any of us, payments on account of the pending the parties thereto in that he had been asked by R & B Surety to execute the
obligations, and to grant extension to any of us, to liquidate said obligations, Indemnity Agreement merely in order to make it appear that R & B Surety had
without necessity of previous knowledge of [or] consent from the other complied with the requirements of the PNB that credit lines be secured; (ii) was
obligors. executed so that R & B Surety could show that it was complying with the regulations
of the Insurance Commission concerning bonding companies; (iii) that R & B Surety
xxx xxx xxx had assured him that the execution of the agreement was a mere formality and that
he was to be considered a stranger to the transaction between the PNB and R & B
Surety; and (iv) that R & B Surety was estopped from enforcing the Indemnity
(e) INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY. — Agreement as against him.
Any payment or disbursement made by the SURETY COMPANY on account
of the above-mentioned Bonds, its renewals, extensions or substitutions,
either in the belief that the SURETY COMPANY was obligate[d] to make Petitioner Jose K. Villanueva claimed in his answer that. (i) he had executed the
such payment or in the belief that said payment was necessary in order to Indemnity Agreement in favor of R & B Surety only "for accommodation purposes"
avoid greater losses or obligations for which the SURETY COMPANY might and that it did not express their true intention; (ii) that the Principal Obligation of
be liable by virtue of the terms of the above-mentioned Bond, its renewals, PAGRICO to the PNB secured by the Surety Bond had already been assumed by
extensions or substitutions, shall be final and will not be disputed by the CCM by virtue of a Trust Agreement entered into with the PNB, where CCM
undersigned, who jointly and severally bind themselves to indemnify the represented by Joseph Cochingyan, Jr. undertook to pay the Principal Obligation of
SURETY COMPANY of any and all such payments as stated in the PAGRICO to the PNB; (iii) that his obligation under the Indemnity Agreement was
preceding clauses. thereby extinguished by novation arising from the change of debtor under the
Principal Obligation; and (iv) that the filing of the complaint was premature,
considering that R & B Surety filed the case against him as indemnitor although the
xxx xxx xxx PNB had not yet proceeded against R & B Surety to enforce the latter's liability under
the Surety Bond.
When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB
demanded payment from R & B Surety of the sum of P400,000.00, the full amount of Petitioner Cochingyan, however, did not present any evidence at all to support his
the Principal Obligation. R & B Surety made a series of payments to PNB by virtue of asserted defenses. Petitioner Villanueva did not submit any evidence either on his
that demand totalling P70,000.00 evidenced by detailed vouchers and receipts. "accommodation" defense. The trial court was therefore constrained to decide the
case on the basis alone of the terms of the Trust Agreement and other documents
R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. submitted in evidence.
and Jose K. Villanueva for reimbursement of the payments made by it to the PNB and
for a discharge of its liability to the PNB under the Surety Bond. When petitioners In due time, the Court of First Instance of Manila, Branch 24 1 rendered a decision in
failed to heed its demands, R & B Surety brought suit against Joseph Cochingyan, favor of R & B Surety, the dispositive portion of which reads as follows;
Jr., Jose K. Villanueva and Liu Tua Ben in the Court of First Instance of Manila,
praying principally that judgment be rendered:
Premises considered, judgment is hereby rendered: (a) ordering the
defendants Joseph Cochingyan, Jr. and Jose K. Villanueva to pay, jointly
b. Ordering defendants to pay jointly and severally, unto the plaintiff, the sum and severally, unto the plaintiff the sum of 400,000,00, representing the total
of P20,412.20 representing the unpaid premiums for Surety Bond No. 4765 amount of their liability on Surety Bond No. 4765, and interest at the rate of
from 1965 up to 1968, and the additional amount of P5,103.05 yearly until 6% per annum on the following amounts:
the Surety Bond No. 4765 is discharged, with interest thereon at the rate of
12% per annum; [and]
On P14,000.00 from September 27, 1966;
c. Ordering the defendants to pay jointly and severally, unto the plaintiff the
sum of P400,000.00 representing the total amount of the Surety Bond No. On P4,000.00 from November 28, 1966;
4765 with interest thereon at the rate of 12% per annum on the amount of
P70,000.00 which had been paid to the Phil. National Bank already, the On P4,000.00 from December 14, 1966;
interest to begin from the month of September, 1966;
On P4,000.00 from January 19, 1967;
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 On P8,000.00 from February 13, 1967; 1. The Trust Agreement referred to by both petitioners in their separate briefs, was
executed on 28 December 1965 (two years after the Surety Bond and the Indemnity
On P4,000.00 from March 6, 1967; Agreements were executed) between: (1) Jose and Susana Cochingyan, Sr., doing
business under the name and style of the Catholic Church Mart, represented by
Joseph Cochingyan, Jr., as Trustor[s]; (2) Tomas Besa, a PNB official, as Trustee;
On P8,000.00 from June 24, 1967; and (3) the PNB as beneficiary. The Trust Agreement provided, in pertinent part, as
follows:
On P8,000. 00 from September 14, 1967;
WHEREAS, the TRUSTOR has guaranteed a bond in the amount of
On P8,000.00 from November 28, 1967; and P400,000.00 issued by the R & B Surety and Insurance Co. (R & B) at the
instance of Pacific Agricultural Suppliers, Inc. (PAGRICO) on December 21,
On P8,000. 00 from February 26, 1968 1963, in favor of the BENEFICIARY in connection with the application of
PAGRICO for an advance line of P400,000.00 to P800,000.00;

until full payment; (b) ordering said defendants to pay, jointly and severally,
unto the plaintiff the sum of P20,412.00 as the unpaid premiums for Surety WHEREAS, the TRUSTOR has also guaranteed a bond issued by the
Bond No. 4765, with legal interest thereon from the filing of plaintiff's Consolacion Insurance & Surety Co., Inc. (CONSOLACION) in the amount
complaint on August 1, 1968 until fully paid, and the further sum of of P900,000.00 in favor of the BENEFICIARY to secure certain credit
P4,000.00 as and for attorney's fees and expenses of litigation which this facilities extended by the BENEFICIARY to the Pacific Copra Export Co.,
Court deems just and equitable. Inc. (PACOCO);

There being no showing the summons was duly served upon the defendant WHEREAS, the PAGRICO and the PACOCO have defaulted in the payment
Liu Tua Ben who has filed no answer in this case, plaintiff's complaint is of their respective obligations in favor of the BENEFICIARY guaranteed by
hereby dismissed as against defendant Liu Tua Ben without prejudice. the bonds issued by the R & B and the CONSOLACION, respectively, and
by reason of said default, the BENEFICIARY has demanded compliance by
the R & B and the CONSOLACION of their respective obligations under the
Costs against the defendants Joseph Cochingyan, Jr. and Jose K. aforesaid bonds;
Villanueva.
WHEREAS, the TRUSTOR is, therefore, bound to comply with his obligation
Not satisfied with the decision of the trial court, the petitioners took this appeal to the under the indemnity agreements aforementioned executed by him in favor of
Court of Appeals which, as already noted, certified the case to us as one raising only R & B and the CONSOLACION, respectively and in order to forestall
questions of law. impending suits by the BENEFICIARY against said companies, he is willing
as he hereby agrees to pay the obligations of said companies in favor of the
The issues we must confront in this appeal are: BENEFICIARY in the total amount of P1,300,000 without interest from the
net profits arising from the procurement of reparations consumer goods
made thru the allocation of WARVETS; . . .
1. whether or not the Trust Agreement had extinguished, by novation, the obligation
of R & B Surety to the PNB under the Surety Bond which, in turn, extinguished the
obligations of the petitioners under the Indemnity Agreements; l. TRUSTOR hereby constitutes and appoints Atty. TOMAS BESA as
TRUSTEE for the purpose of paying to the BENEFICIARY Philippine
National Bank in the manner stated hereunder, the obligations of the R & B
2. whether the Trust Agreement extended the term of the Surety Bond so as to
under the R & B Bond No. G-4765 for P400,000.00 dated December 23,
release petitioners from their obligation as indemnitors thereof as they did not give
1963, and of the CONSOLACION under The Consolacion Bond No. G-5938
their consent to the execution of the Trust Agreement; and
of June 3, 1964 for P900,000.00 or the total amount of P1,300,000.00
without interest from the net profits arising from the procurement of
3. whether or not the filing of this complaint was premature since the PNB had not yet reparations consumer goods under the Memorandum of Settlement and
filed a suit against R & B Surety for the forfeiture of its Surety Bond. Deeds of Assignment of February 2, 1959 through the allocation of
WARVETS;
We address these issues seriatim.
xxx xxx xxx

92
 6. THE BENEFICIARY agrees to hold in abeyance any action to enforce its Applying the above principles to the instant case, it is at once evident that the Trust
claims against R & B and CONSOLACION, subject of the bond mentioned Agreement does not expressly terminate the obligation of R & B Surety under the
above. In the meantime that this TRUST AGREEMENT is being Surety Bond. On the contrary, the Trust Agreement expressly provides for the
implemented, the BENEFICIARY hereby agrees to forthwith reinstate the R continuing subsistence of that obligation by stipulating that "[the Trust Agreement]
& B and the CONSOLACION as among the companies duly accredited to do shall not in any manner release" R & B Surety from its obligation under the Surety
business with the BENEFICIARY and its branches, unless said companies Bond.
have been blacklisted for reasons other than those relating to the obligations
subject of the herein TRUST AGREEMENT; Neither can the petitioners anchor their defense on implied novation. Absent an
unequivocal declaration of extinguishment of a pre-existing obligation, a showing of
xxx xxx xxx complete incompatibility between the old and the new obligation (and nothing else)
would sustain a finding of novation by implication. 9 But where, as in this case, the
9. This agreement shall not in any manner release the R & B and parties to the new obligation expressly recognize the continuing existence and validity
CONSOLACION from their respective liabilities under the bonds mentioned of the old one, where, in other words, the parties expressly negated the lapsing of the
above. (emphasis supplied) old obligation, there can be no novation. The issue of implied novation is not reached
at all.
There is no question that the Surety Bond has not been cancelled or fully
discharged 2 by payment of the Principal Obligation. Unless, therefore, the Surety What the trust agreement did was, at most, merely to bring in another person or
Bond has been extinguished by another means, it must still subsist. And so must the persons-the Trustor[s]-to assume the same obligation that R & B Surety was bound to
supporting Indemnity Agreements. 3 perform under the Surety Bond. It is not unusual in business for a stranger to a
contract to assume obligations thereunder; a contract of suretyship or guarantee is
the classical example. The precise legal effect is the increase of the number of
We are unable to sustain petitioners' claim that the Surety Bond and their respective persons liable to the obligee, and not the extinguishment of the liability of the first
obligations under the Indemnity Agreements were extinguished by novation brought debtor. 10 Thus, in Magdalena Estates vs. Rodriguez, 11 we held that:
about by the subsequent execution of the Trust Agreement.
[t]he mere fact that the creditor receives a guaranty or accepts payments
Novation is the extinguishment of an obligation by the substitution or change of the from a third person who has agreed to assume the obligation, when there is
obligation by a subsequent one which terminates it, either by changing its object or no agreement that the first debtor shall be released from responsibility, does
principal conditions, or by substituting a new debtor in place of the old one, or by not constitute a novation, and the creditor can still enforce the obligation
subrogating a third person to the rights of the creditor. 4 Novation through a change of against the original debtor.
the object or principal conditions of an existing obligation is referred to as objective (or
real) novation. Novation by the change of either the person of the debtor or of the
creditor is described as subjective (or personal) novation. Novation may also be both In the present case, we note that the Trustor under the Trust Agreement, the
objective and subjective (mixed) at the same time. In both objective and subjective CCM, was already previously bound to R & B Surety under its Indemnity Agreement.
novation, a dual purpose is achieved-an obligation is extinguished and a new one is Under the Trust Agreement, the Trustor also became directly liable to the PNB. So far
created in lieu thereof.5 as the PNB was concerned, the effect of the Trust Agreement was that where there
had been only two, there would now be three obligors directly and solidarily bound in
favor of the PNB: PAGRICO, R & B Surety and the Trustor. And the PNB could
If objective novation is to take place, it is imperative that the new obligation expressly proceed against any of the three, in any order or sequence. Clearly, PNB never
declare that the old obligation is thereby extinguished, or that the new obligation be intended to release, and never did release, R & B Surety. Thus, R & B Surety, which
on every point incompatible with the old one. 6 Novation is never presumed: it must was not a party to the Trust Agreement, could not have intended to release any of its
be established either by the discharge of the old debt by the express terms of the new own indemnitors simply because one of those indemnitors, the Trustor under the
agreement, or by the acts of the parties whose intention to dissolve the old obligation Trust Agreement, became also directly liable to the PNB.
as a consideration of the emergence of the new one must be clearly discernible. 7
2. We turn to the contention of petitioner Jose K. Villanueva that his obligation as
Again, if subjective novation by a change in the person of the debtor is to occur, it is indemnitor under the 24 December 1963 Indemnity Agreement with R & B Surety was
not enough that the juridical relation between the parties to the original contract is extinguished when the PNB agreed in the Trust Agreement "to hold in abeyance any
extended to a third person. It is essential that the old debtor be released from the action to enforce its claims against R & B Surety .
obligation, and the third person or new debtor take his place in the new relation. If the
old debtor is not released, no novation occurs and the third person who has assumed
the obligation of the debtor becomes merely a co-debtor or surety or a co-surety. 8 The Indemnity Agreement speaks of the several indemnitors "apply[ing] jointly and
severally (in solidum) to the R & B Surety] — to become SURETY upon a SURETY
BOND demanded by and in favor of [PNB] in the sum of [P400,000.00] for the faithful
93
compliance of the terms and conditions set forth in said SURETY BOND — ." This Surety and thereupon becoming subrogated to such remedies as R & B Surety may
part of the Agreement suggests that the indemnitors (including the petitioners) would have against PAGRICO.
become co-sureties on the Security Bond in favor of PNB. The record, however, is
bereft of any indication that the petitioners-indemnitors ever in fact became co- 3. The last issue can be disposed of quicjly, Clauses (b) and (c) of the Indemnity
sureties of R & B Surety vis-a-vis the PNB. The petitioners, so far as the record goes, Agreements (quoted above) allow R & B Surety to recover from petitioners even
remained simply indemnitors bound to R & B Surety but not to PNB, such that PNB before R & B Surety shall have paid the PNB. We have previously held similar
could not have directly demanded payment of the Principal Obligation from the indemnity clauses to be enforceable and not violative of any public policy. 13
petitioners. Thus, we do not see how Article 2079 of the Civil Code-which provides in
part that "[a]n extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty" could apply in the instant case. The petitioners lose sight of the fact that the Indemnity Agreements are contracts of
indemnification not only against actual loss but against liability as well. 14 While in a
contract of indemnity against loss as indemnitor will not be liable until the person to
The petitioner-indemnitors are, as, it were, second-tier parties so far as the PNB was be indemnified makes payment or sustains loss, in a contract of indemnity against
concerned and any extension of time granted by PNB to any of the first-tier obligators liability, as in this case, the indemnitor's liability arises as soon as the liability of the
(PAGRICO, R &B Surety and the trustors[s]) could not prejudice the second-tier person to be indemnified has arisen without regard to whether or not he has suffered
parties. actual loss. 15 Accordingly, R & B Surety was entitled to proceed against petitioners
not only for the partial payments already made but for the full amount owed by
There is no other reason why petitioner Villanueva's contention must fail. PNB's PAGRICO to the PNB.
undertaking under the Trust Agreement "to hold in abeyance any action to enforce its
claims" against R & B Surety did not extend the maturity of R & B Surety's obligation Summarizing, we hold that :
under the Surety Bond. The Principal Obligation had in fact already matured, along
with that of R &B Surety, by the time the Trust Agreement was entered into.
Petitioner's Obligation had in fact already matured, for those obligations were to (1) The Surety Bond was not novated by the Trust Agreement. Both agreements can
amture "as soon as [R & B Surety] became liable to make payment of any sum under co-exist. The Trust Agreement merely furnished to PNB another party obligor to the
the terms of the [Surety Bond] — whether the said sum or sums or part thereof have Principal Obligation in addition to PAGRICO and R & B Surety.
been actually paid or not." Thus, the situation was that precisely envisaged in Article
2079: (2) The undertaking of the PNB to 'hold in abeyance any action to enforce its claim"
against R & B Surety did not amount to an "extension granted to the debtor" without
[t]he mere failure on the part of the creditor to demand payment after the petitioner's consent so as to release petitioner's from their undertaking as indemnitors
debt has become due does not of itself constitute any extension of the of R & B Surety under the INdemnity Agreements; and
referred to herein.(emphasis supplied)
(3) Petitioner's are indemnitors of R & B Surety against both payments to and liability
The theory behind Article 2079 is that an extension of time given to the principal for payments to the PNB. The present suit is therefore not premature despite the fact
debtor by the creditor without the surety of his right to pay the creditor and to be that the PNB has not instituted any action against R & B Surety for the collection of its
immediately subrogated to the creditor's remedies against the principal debtor upon matured obligation under the Surety Bond.
the original maturity date. The surety is said to be entitled to protect himself against
the principal debtor upon the orginal maturity date. The surety is said to be entitled to WHEREFORE, the petitioner's appeal is DENIED for the lack of merit and the
protect himself against the contingency of the principal debtor or the indemnitors decision of the trial court is AFFIRMED in toto. Costs against the petitioners.
becoming insolvent during the extended period. The underlying rationale is not
present in the instant case. As this Court has held, SO ORDERED.

merely delay or negligence in proceeding against the principal will not G.R. No. L-68477 October 29, 1987
discharge a surety unless there is between the creditor and the principal
debtor a valid and binding agreement therefor, one which tends to prejudice
[the surety] or to deprive it of the power of obtaining indemnity by presenting SPOUSES ANICETO BALILA and EDITHA S. DE GUZ MAN, SPOUSES ASTERIO
a legal objection for the time, to the prosecution of an action on the original DE GUZMAN and ERLINDA CONCEPCION and ENCARNACION OCAMPO VDA.
security.12 DE CONCEPCION, petitioners,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT, HONORABLE FLORANTE
In the instant case, there was nothing to prevent the petitioners from tendering S. ABASOLO, in his capacity as Judge, Regional Trial Court, First Judicial
payment, if they were so minded, to PNB of the matured obligation on behalf of R & B

94
Region, Branch L, Villasis, Pangasinan, GUADALUPE C. VDA. DE DEL both denied by the lower court, prompting defendants to file a petition for certiorari,
CASTILLO and WALDO DEL CASTILLO, respondents. prohibition and mandamus with pre injunction petition with the Intermediate Appellate
Court to seeking to annul and set aside the assailed Order dated April 26, 1983 and
the Order denying their motion for reconsideration. After due consideration of the
records of the case, the appellate tribunal sustained the lower court, hence the
present petition for certiorari, defendants relying on the following arguments:,
PARAS, J.:
(1) The appellate court erred in not declaring that the contract
This is a Petition for Review on certiorari of (1) the decision 1 of the Intermediate between the petitioners and private respondent Guadalupe is one
Appellate Court (IAC) affirming in toto the order 2 dated April 26, 1983 in Civil Case of equitable mortgage and not a pacto de retro sale,
No. U-3501 of the trial court which ordered the consolidation of ownership in favor of
private respondent Guadalupe C. Vda. del Castillo over two (2) parcels of land
including the improvements thereon, situated in Villasis, Pangasinan namely, Lot No. (2) The appellate court erred in not declaring that the decision
965, with an area of 648 square meters covered by TCT No. 93407 and Lot No. 16 dated 11, 1980, based upon the agreement of the parties was
with an area of 910 square meters covered by TCT No. 101794 and (2) the Order of novated upon subsequent mutual agreements of the said parties.
the Intermediate Appellate Court (IAC) dated July 25, 1984 denying petitioners'
Motion for Reconsideration. Petitioners contend that despite the rendition of the said decision by the appellate
court, private respondent Guadalupe Vda. de del Castillo, represented by her son
The petition at bar began as an amicable settlement between petitioners and private Waldo del Castillo as for attorney-in-fact, accepted payments from petitioners and
respondents as defendants and plaintiffs in Civil Case No. U-3501, which was gave petitioners several extensions of time to pay their remaining obligations thus:
approved by the trial court and made as the basis of its Decision 3 dated December
11, 1980 ordering the parties to comply strictly with the terms and conditions 5.A. On July 8, 1984, private respondents accepted the amounts of
embodied in said amicable settlement. The salient points therein show that P6,130.00 from petitioners- and gave petitioners up to August 30,
defendants admitted "having sold under a pacto de retro sale the parcels of 1984 to pay the latter's balance of P23,870.00; (Certification Annex
land 4 described in the complaint in the amount of P84,000.00" and that they "hereby "J" Petition);
promise to pay the said amount within the period of four (4) months but not later than
May 15,1981." 5 5.B. On September 9, 1984, private respondents accepted the
amount of P1,100.00 from petitioners and gave petitioners up to
On December 30, 1981 or more than seven months after the last day for making October 30, 1984 to pay the latter's balance of P21,624.00
payments, defendants redeemed from plaintiff Guadalupe (one of the private (Certification Annex "L" Petition);
respondents herein) Lot No. 52 with an area of 294 sq.m. covered by TCT 101352
which was one of the three parcels of land described in the complaint by paying the 5.C. On October 30, 1984, private respondents accepted the
amount of P20,000.00. amount of P2,500.00 from petitioners and gave petitioners up to
November 15, 1984 to pay the latter's balance of P19,124.00
On August 4, 1982, plaintiff filed a motion for a hearing on the consolidation of title (Receipt, Annex "N" Reply);
over the remaining two (2) parcels of land namely Lot 965 and Lot 16 alleging that the
court's decision dated December 11, 1980 remained unenforced for no payment of 5.D. On November 13, 1984, private respondents accepted the
the total obligation due from defendants. Defendants opposed said motion alleging amount of P3,124.00 from petitioners and gave petitioners up to
that they had made partial payments of their obligation through plaintiff's attorney in December 30, 1984 to pay the latter's balance of P16,000.00 and
fact and son, Waldo del Castillo, as well as to the Sheriff. On April 26, 1983, the lower private respondent promised to deliver TCT Nos. 146360 and
court issued the questioned order affirming consolidation. 146361 already in-the name of private respondent Guadalupe Vda.
de del Castillo, covering lots 965 and 16, respectively, in favor of
On June 8, 1983, while the Order of the lower court had not yet been enforced, petitioners (Receipt, Annex "O," Reply);
defendants paid plaintiff Guadalupe Vda. del Castillo by tendering the amount of
P28,800.00 to her son Waldo del Castillo (one of the private respondents herein) thus 5.E. On November 23, 1984, private respondents accepted the
leaving an unpaid balance of P35,200.00. A Certification dated June 8, 1983, (Annex amount of P6,000.00 from petitioners and gave petitioners up to
D, Rollo, page 31) and signed by Waldo shows that defendants were given a period December 30, 1984 to pay the latter's balance of P10,000.00 and
of 45 days from date or up to July 23, 1983 within which to pay the balance. Said private respondents proposed to deliver TCT Nos. 146360 and
Certification supported defendants' motion for reconsideration and supplemental 146361, covering Lots 965 and 16, respectively, and promised to
motion for reconsideration of the Order reconsolidation of title, which motions were

95
 reconvey said lots in favor of petitioners (Receipt, Annex "P," It may be mentioned that on May 25,1981, Guadalupe Vda. de Del
Reply). Castillo, represented by her attorney in fact Waldo Castillo, filed a
complaint for consolidation of ownership against the same
(Memo for Petitioners, pp. 175-176, Rollo) petitioners herein before the Court of First Instance of Pangasinan,
docketed as Civil Case No. U-3650, the allegations of which are
Identical to the complaint filed in Civil Case No. U-3501 of the same
Petitioners likewise allege that private respondents Guadalupe Vda. de del Castillo court. This case U-3650 was, however, dismissed in an Order
and son Waldo, were nowhere to be found on December 30, 1984, the last day for dated May 27, 1983, in view of the order of consolidation issued in
petitioners to pay their balance of P10,000.00 and for private respondents to Civil Case No. U-350 1. (p. 37, Rollo) (Underscoring supplied)
reconvey the lands in question (Lots 965 and 16) in favor of petitioners and to deliver
TCT Nos. 146360 and 146361 already in the name of private respondent Guadalupe
Vda. de del Castillo, covering said lots respectively. This incident compelled The fact therefore remains that the amount of P84,000.00 payable on or before May
petitioners to deposit said amount with the Regional Trial Court as per receipt OR No. 15, 1981 decreed by the trial court in its judgment by compromise was novated and
9764172 (Annex "Q") accompanied by a motion to deposit (Annex "R") which motion amended by the subsequent mutual agreements and actions of petitioners and
was granted as per Order dated January 9, 1985 (Annex "S"). The aforementioned private respondents. Petitioners paid the aforestated amount on an insatalment basis
titles over the two parcels of lands are subject to Notice of Lis Pendens dated August and they were given by private respondents no less than eight extensions of time pay
15, 1983 (Annex "T"). their obligation. These transactions took place during the pendency of the motion for
reconsideration of the Order of the trial court dated April 26, 1983 in Civil Case No. U-
3501, during the pendency of the petition for certiorari in AC-G.R. SP-01307 before
On the other hand, some of the private respondents do not deny they received the the Intermediate Appellate Court and after the filing of the petition before us. This
amounts stated in Annexes "D," "F," "J," "L," N," and "P". They aver however that the answers the claim of the respondents on the failure of the petitioners to present
amicable settlement entered into by and between the parties duly assisted by their evidences or proofs of payment in the lower court and the appellate court. We have
counsel was, with respect to Guadalupe, signed by her personally and that at no time touched on this issue, similarly, in the case of de los Santos vs. Rodriguez 6 wherein
thereafter did she ever appoint Waldo del Castillo who is one of her children to We ruled that:
receive for her any sum of money to be paid by the petitioners for the settlement of
their obligations arising out of their amicable settlement. Guadalupe also questions
the inclusion as private respondent of Waldo del Castillo in this Court and the As early as Molina vs. De la Riva 7 the principle has been laid down
inclusion of the alleged receipts of payments as these receipts were never offered in that, when, after judgment has become final, facts and
evidence before the 'trial court or the appellate court nor were the same admitted in circumstances transpire which render its execution impossible or
evidence by said courts. unjust, the interested party may ask the court to modify or alter the
judgment to harmonize the same with justice and the facts.
Petitioners' contentions deserve Our consideration.
For this reason, in Amor vs. Judge Jose, 8 we used the following
language:
The root of all the issues raised before Us is that judgment by compromise rendered
by the lower court based on the terms of the amicable settlement of the contending
parties. Such agreement not being contrary to law, good morals or public policy was The Court cannot refuse to issue a writ of
approved by the lower court and therefore binds the parties who are enjoined to execution upon a final and executory judgment,
comply therewith. or quash it, or order its stay, for, as a general
rule, parties will not be allowed, after final
judgment, to object to the execution by raising
However, the records show that petitioners made partial payments to private new issues of fact or of law, except when there
respondent Waldo del Castillo after May 15, 1981 or the last day for making had been a change in the situation of the parties
payments, redeeming Lot No. 52 as earlier stated. (Annex "A," Petition). which makes such execution in- equitable; or
when it appears that the controversy has never
There is no question that petitioners tendered several payments to Waldo del Castillo been submitted to the judgment of the court, or
even after redeeming lot No. 52. A total of these payments reveals that petitioners when it appears that the writ of execution has
share. fulIy paid the amount stated in the judgment by com promise. The only issue is been improvidently issued, or that it is defective
whether Waldo del Castillo was a person duly authorized by his mother Guadalupe in substance, or issued against the wrong
Vda. de del Castillo, as her attorney-in-fact to represent her in transactions involving party or that judgment debt has been paid or
the properties in question. We believe that he was so authorized in the same way that otherwise satisfied or when the writ has been
the appellate court took cognizance of such fact as embodied in its assailed decision. issued without authority. (emphasis supplied)
reading as follows:

96
Likewise in the case of Dormitorio vs. Fernandez, 9 We held: PARAS, J.:

What was done by respondent Judge in setting aside the writ of This is an appeal from the decision dated May 16, 1968 rendered by the Court of First
execution in Civil Case No. 5111 finds support in the applicable Instance of Manila, Branch XII in Civil Case No. 68095, the decretal portion of which
authorities. There is this relevant excerpt in Barretto v. states:
Lopez 10 this Court speaking through the then Chief Justice Paras:
"Allegating that the respondent judge of the municipal court had IN VIEW OF THE FOREGOING, judgment is rendered sentencing
acted in excess of her jurisdiction and with grave abuse of all the defendants to pay the plaintiff jointly and severally the sum of
discretion in issuing the writ of execution of December 15, 1947, P601,633.01 with interest thereon at the rate of 11% per annum
the petitioner has filed the present petition for certiorari and from June 17, 1967, until the whole amount is paid, plus 10% of the
prohibition for the purpose of having said writ of execution annulled. total amount due for attorney's fees and the costs of suit. Should
Said petition is meritorious. The agreement filed by the parties in the defendants fail to pay the same to the plaintiff, then it is ordered
the ejectment case created as between them new rights and that all the effects, materials and stocks covered by the chattel
obligations which naturally superseded the judgment of the mortgages be sold at public auction in conformity with the
municipal court." In Santos v. Acuna, 11 it was contended that a Provisions of Sec. 14 of the Chattel Mortgage Law, and the
lower court decision was novated by the subsequent agreement of proceeds thereof applied to satisfy the judgment herein rendered.
the parties. Implicit in this Court's ruling is that such a plea would The counterclaim of the defendants, upon the evidence presented
merit approval if indeed that was what the parties intended. ... and in the light of the authorities above cited, is dismissed for lack
of merit.
WHEREFORE, finding merit in the petition, the same is hereby given DUE COURSE
and the assailed decision, SET ASIDE. Private respondents are hereby ordered to SO ORDERED
reconvey and deliver lot No. 965 and Lot No. 16 as covered by TCT Nos. 146360 and
146361 respectively in favor of petitioners. Should private respondents fail to do so,
the Clerk of Court of the Regional Trial Court concerned is ordered to execute the (pp. 89-90, Record on Appeal; p. 15, Rollo)
necessary deed of reconveyance, conformably with the provisions of the Rules of
Court. The local Register of Property is ordered to register said deed of The facts of the case based on the statement of facts, made by the trial court in its
reconveyance. Private respondents are hereby authorized to withdraw the balance in decision as cited in the briefs of both parties are as follows:
the amount of P10,000 consigned by petitioners on January 9, 1985 with the trial
court as per OR No. 9764172 (Annex "O") a full payment of petitioners' obligation. This is an action for foreclosure of chattel mortgage executed in
favor of the plaintiff by the defendant Syvel's Incorporated on its
This decision is immediately executory and no motion for extension of the period stocks of goods, personal properties and other materials owned by
within which to file a motion for reconsideration will be granted. it and located at its stores or warehouses at No. 406, Escolta,
Manila; Nos. 764-766 Rizal Avenue, Manila; Nos. 10-11 Cartimar
SO ORDERED. 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
G.R. No. L-29280 August 11, 1988 and Pasay City. The chattel mortgage was in connection with a
credit commercial line in the amount of P900,000.00 granted the
PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee, said defendant corporation, the expiry date of which was May 20,
vs. 1966. On May 20, 1965, defendants Antonio V. Syyap and Angel Y.
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y Syyap executed an undertaking in favor of the plaintiff whereby
SYYAP, defendants-appellants. they both agreed to guarantee absolutely and unconditionally and
without the benefit of excussion the full and prompt payment of any
Araneta, Mendoza & Papa for plaintiff-appellee. 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
Quasha, Asperilia, Zafra, Tayag & Ancheta for defendants-appellants. 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
97
matter settled, the extra-judicial foreclosure was not pushed thru. In their brief, appellants assign the following errors:
As no payment had been paid, this case was even tually filed in this
Court. I

On petition of the plaintiff based on the affidavits executed by Mr. The lower court erred in not holding that the obligation secured by
Leopoldo R. Rivera, Assistant Vice President of the plaintiff bank the Chattel Mortgage sought to be foreclosed in the above-entitled
and Atty. Eduardo J. Berenguer on January 12, 1967, to the effect, case was novated by the subsequent execution between appellee
among others, that the defendants are disposing of their properties and appellant Antonio V, Syyap of a real estate mortgage as
with intent to defraud their creditors, particularly the plaintiff herein, additional collateral to the obligation secured by said chattel
a preliminary writ of attachment was issued. As a consequence of mortgage.
the issuance of the writ of attachment, the defendants, in their
answer to the complaint set up a compulsory counterclaim for
damages. II

After the filing of this case in this court and during its pendency The lower court erred in not dismissing the above-entitled case and
defendant Antonio v. Syyap proposed to have the case settled in finding appellants liable under the complaint.
amicably and to that end a conference was held in which Mr.
Antonio de las Alas, Jr., Vice President of the Bank, plaintiff, III
defendant Antonio V. Syyap and Atty. Mendoza were present. Mr.
Syyap requested that the plaintiff dismiss this case because he did The lower court erred in not holding that the writ of preliminary
not want to have the goodwill of Syvel's Incorporated impaired, and attachment is devoid of any legal and factual basis whatsoever.
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 IV
defendant Antonio V. Syyap and his wife Margarita Bengco Syyap
on June 22, 1967. In that deed of mortgage, defendant Syyap The lower court erred in dismissing appellants'counterclaim and in
admitted that as of June 16, 1967, the indebtedness of Syvel's not holding appellee liable to appellants for the consequent
Incorporated was P601,633.01, the breakdown of which is as damages arising out of a wrongful attachment. (pp. 1-2, Brief for the
follows: P568,577.76 as principal and P33,055.25 as interest. Appellants, p. 25, Rollo)
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
Appellants admit that they are indebted to the appellee bank in the amount of
without prejudice was prepared, Exhibit C, but the defendants did
P601,633.01, breakdown of which is as follows: P568,577.76 as principal and
not want to agree if the dismissal would mean also the dismissal of
P33,055.25 as interest. After the filing of the case and during its pendency, defendant
their counterclaim Against the plaintiff. Hence, trial proceeded.
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
As regards the liabilities of the defendants, there is no dispute that People's Bank and Trust Company, defendant Antonio V. Syyap and Atty. Mendoza
a credit line to the maximum amount of P900,000.00 was granted were present. Mr. Syyap requested that the plaintiff dismiss this case as he did not
to the defendant corporation on the guaranty of the merchandise or want to have the goodwill of Syvel's Incorporated impaired, and offered to execute a
stocks in goods of the said corporation which were covered by real estate mortgage on his real property located in Bacoor, Cavite. Mr. de las Alas
chattel mortgage duly registered as required by law. There is consented, and so the Real Estate Mortgage (Exhibit "A") was executed by defendant
likewise no dispute that the defendants Syyap guaranteed Antonio Syyap and his wife Margarita Bengco Syyap on June 22, 1967. Defendants
absolutely and unconditionally and without the benefit of excussion did not agree with plaintiffs motion to dismiss which included the dismissal of their
the full and prompt payment of any indebtedness incurred by the counterclaim and filed instead their own motion to dismiss (Record on Appeal, pp. 68-
defendant corporation under the credit line granted it by the plaintiff. 72) on the ground that by the execution of said real estate mortgage, the obligation
As of June 16, 1967, its indebtedness was in the total amount of secured by the chattel mortgage subject of this case was novated, and therefore,
P601,633.01. This was admitted by defendant Antonio V. Syyap in appellee's cause of action thereon was extinguished.
the deed of real estate mortgage executed by him. No part of the
amount has been paid by either of the defendants. Hence their
In an Order dated September 23, 1967, the motion was denied for not being well
liabilities cannot be questioned. (pp. 3-6, Brief for Appellee; p. 26,
founded (record on Appeal, p. 78).
Rollo)

98
Appellants contention is without merit. 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
Novation takes place when the object or principal condition of an obligation is property is justified where there is physical removal thereof by the debtor, as shown
changed or altered. It is elementary that novation is never presumed; it must be by the records (McTaggert v. Putnam Corset Co., 8 N.Y. S 800 cited in Moran,
explicitly stated or there must be manifest incompatibility between the old and the Comments on the Rules of Court, 1970 Ed., Vol. 3, p. 7).
new obligations in every aspect (Goni v. CA, 144 SCRA 223 [1986]; National Power
Corp. v. Dayrit, 125 SCRA 849 [1983]). 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
In the case at bar, there is nothing in the Real Estate Mortgage which supports were carrying goods coming from the back portion of this store of Syvels at the
appellants'submission. The contract on its face does not show the existence of an Escolta, between 5:30 and 6:00 o'clock in the evening." (Record on Appeal, pp. 45-
explicit novation nor incompatibility on every point between the "old and the "new" 46). Therefore, "the act of debtor (appellant) in taking his stock of goods from the rear
agreements as the second contract evidently indicates that the same was executed of his store at night, is sufficient to support an attachment upon the ground of the
as new additional security to the chattel mortgage previously entered into by the fraudulent concealment of property for the purpose of delaying and defrauding
parties. creditors." (4 Am. Jur., 841 cited in Francisco, Revised Rules of Court, Second
Edition, 1985, p. 24).
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 In any case, intent to defraud may be and usually is inferred from the facts and
estate) mortgage." 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
The pertinent provision of the contract is quoted as follows: 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
That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, faith but also on facts sufficient in themselves to convince an ordinary man that the
Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila); defendants were obviously trying to spirit away a port;.on of the stocks of Syvel's
real estate mortgage executed by Angel V. Syyap and Rita V. Incorporated in order to render ineffectual at least partially anyjudgment that may be
Syyap (Doc. No. 441, Page No. 90, Book No. I, Series of 1965, rendered in favor of the plaintiff." (Decision; Civil Case No. 68095; Record on Appeal,
Notary Public Jose C. Merris, Manila) shall remain in full force and pp. 88-89).
shall not be impaired by this mortgage (par. 5, Exhibit"A," Emphasis
ours). 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
It is clear, therefore, that a novation was not intended. The real estate mortgage was former for damages is evidently negated. In fact, the allegations in the appellee's
evidently taken as additional security for the performance of the contract (Bank of P.I. complaint more than justify the issuance of the writ of attachment.
v. Herrige, 47 Phil. 57).
PREMISES CONSIDERED, this appeal is DISMISSED for lack of merit and the
In the determination of the legality of the writ of attachment by the Court of First judgment appealed from is AFFIRMED.
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 SO ORDERED.
evidence that grave abuse of discretion was committed by respondent judge in the
issuance of the writ of attachment.
G.R. No. L-22958 January 30, 1971

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 ESTRELLA BENIPAYO RODRIGUEZ, MANUEL D. BENIPAYO, DONATO
reports of credit investigators sent to the field and not on the personal knowledge of BENIPAYO, JR., JAIME D. BENIPAYO, MAXIMA BENIPAYO MORALES,
the affiants. Such contention deserves scant consideration. Evidence adduced during AURORA BENIPAYO DE LEON, FRANCISCO D. BENIPAYO, ALEJANDRO D.
the trial strongly shows that the witnesses have personal knowledge of the facts BENIPAYO, TERESITA BENIPAYO DE LOS SANTOS, LYDIA BENIPAYO
stated in their affidavits in support of the application for the writ. They testified that CLEMENTE, and JULIA C. MERCADO, petitioners,
Syvel's Inc. had disposed of all the articles covered by the chattel mortgage but had vs.
not remitted the proceeds to appellee bank; that the Syvel's Stores at the Escolta, HON. JUAN O. REYES, in his capacity as Presiding Judge of the Manila Court of
Rizal Avenue and Morayta Street were no longer operated by appellants and that the First Instance, Branch XXI, ALBERTO D. BENIPAYO, DR. JOSE N. DUALAN and
latter were disposing of their properties to defraud appellee bank. Such testimonies VICENTE SAYSON, JR., respondents.

99
De Santos and Delfino for petitioners. The respondent judge first directed the sale at public auction of properties located in
Albay. After the consummation of the sale and the approval thereof, His Honor
Padilla Law Offices for respondents Alberto D. Benipayo and Dr. Jose N. Dualan. ordered the sale of the two Manila lots and improvements described above. Pursuant
to the order, the sheriff of the City of Manila scheduled the auction sale on 30 March
1964 at 10:00 o'clock A.M. Notice thereof was duly posted and published, with the
Ledesma, Guytingco, Mendoza and Associates for respondent Vicente Sayson, Jr. following warning:

NOTE: According to information furnished by the plaintiffs' counsel,

Atty. Gonzalo D. David, the real properties described above are
REYES, J.B.L., J.: mortgaged with (sic) the Development Bank of the Philippines,
under which there is allegedly an outstanding balance in the sum of
Petition for certiorari, with a prayer for the issuance of a writ of preliminary injunction, P37,121.76.
filed by some1 of the children of the deceased spouses, Donato Benipayo, Jr., and
Pura Disonglo, seeking to have this Court set aside the order issued on 28 April 1964 Prospective buyers and bidders are hereby enjoined to investigate
by the Hon. Juan O. Reyes in Civil Case No. 52188 of the Court of First Instance of for themselves the titles to the real properties described above, as
Manila, entitled "Estrella Benipayo-Rodriguez, et al. vs. Alberto D. Benipayo," well as the encumbrances thereon, if any there be.
approving the sheriff's sales of properties owned in common by the plaintiffs and
defendant aforesaid, subject to the condition that the vendors should clear the titles On the date set for the sale, petitioners moved for its postponement on the ground
thereof from any encumbrance in favor of the Development Bank of the that they were not in a position to actively participate therein, but upon objection of
Philippines.lâwphî1.ñèt The petition further sought to compel the respondent judge to respondent Benipayo's counsel, His honor denied the motion and the sale was held
cause a re-bidding of the properties involved, at public auction, or to approve the as scheduled.
sales aforementioned without the condition imposed upon the vendors.
Herein respondent, Jose N. Dualan, successfully bid at the auction sale the sum of
Upon the filing of a bond in the amount of P20,000.00 this Court ordered the issuance P235,000.0 for Lot No. 6-B-2, Block No. 2124, covered by Transfer Certificate of Title
of a writ of preliminary injunction on 25 June 1964.2 No. 48979, issued by the Office of the Register of Deeds of Manila; while respondent
Vicente Sayson's bid of P173,000.00 was the highest for Lot No. 6-A of Block No.
It appears that on 13 November 1962, petitioners filed with the respondent court a 2124, covered by Transfer Certificate of Title No. 48978 issued by the same office. 3
complaint against their brother, respondent Alberto D. Benipayo, for the partition of
the properties held by them in common as heirs of the late spouses, Donato D. After the sheriff had filed his return with the respondent judge, petitioners moved for
Benipayo and Pura Disonglo (Civil Case No. 52188). After respondent Benipayo had the approval of the sale, deducting from the total amount of P408,000.00 the sheriff's
answered the complaint, the court set the case for a pre-trial conference, and in the percentage, and the expenses incurred by petitioners for the publication of the notice
course thereof the parties agreed to have the properties in litigation sold at public of sale. Commenting on the aforesaid motion, respondents Benipayo and Dualan
auction to the highest bidder. Pursuant to an order issued by the respondent judge, prayed that the respondent judge order (1) the payment of the mortgage debt in favor
the parties submitted to the court a list of the properties to be sold, among which were of the Development Bank of the Philippines in the amount of P37,121.96 from the
some lots in Albay, and the following parcels of land, with their improvements, that proceeds of the auction sale; (2) the issuance by the sheriff of Manila of a certificate
were at the time mortgaged to the Development Bank of the Philippines: of sale in favor of Dualan of the property sold to him free from all liens and
encumbrances; and (3) the payment to respondent Benipayo of 1/12 of the proceeds
1. Lot No. 6-A, Block 2124, with an area of 314.70 square meters, of the sale after deducting therefrom the payment to the Development Bank of the
evidenced by TCT No. 48978, Manila; Philippines.

2. Lot No. 6-B-2, Block No. 2124, with an area of 389.90 square After hearing the arguments of the parties on the motion, the respondent judge
meters, evidenced by TCT No. 48979, Manila; apparently entertained some doubts as to whether there had been a meeting of minds
on the question of who was to discharge the mortgage obligation in favor of the
3. The improvements erected on the above two lots denominated Development Bank, so he suggested that the properties be subjected to another
as No. 664 Misericordia, Manila. "bidding" "with a clear-cut understanding that the 12 heirs shall assume all obligations
and that they should not be paid by the buyers." 4 The suggestion was not accepted
by the buyers; and the respondent judge, on 28 April 1964, issued the order
The above improvements and two lots are mortgaged with the complained of, the dispositive portion of which reads as follows:
Development Bank of the Philippines with an outstanding mortgage
capital of about P50,000.00.
100
 WHEREFORE, the Manila Sheriff's Report dated March 30, 1964, By buying the property covered by TCT No. 48979 with notice that it was mortgaged,
and the Quezon City Sheriff's Report dated April 6, 1964, are respondent Dualan only undertook either to pay or else allow the land's being sold if
hereby approved, subject to the following conditions: the mortgage creditor could not or did no obtain payment from the principal debtor
when the debt matured. 6 Nothing else. Certainly the buyer did not obligate himself to
1. That the vendors or the owners of the properties sold shall clear replace the debtor in the principal obligation, and he could not do so in law without the
said properties of all encumbrances that were incurred in them long creditor's consent. Our Civil Code, Article 1293, explicitly provides:
before the auction sales;
ART. 1293. Novation which consists in substituting a new debtor in
2. That since the taxes on said real estates are not encumbrances the place of the original one, may be made even with out the
incurred by the owners of the properties, but are proper charges knowledge or against the will of the latter, but not without the
attached and against the properties themselves, the real estate consent of the creditor. Payment by the new debtor gives him the
taxes shall be borne by the owner or owners of the said properties rights mentioned in articles 1236 and 1237.
on the date when said taxes become due for payment.
The obligation to discharge the mortgage indebtedness, therefore, remained on the
Petitioners' motion for reconsideration of the above-quoted order having been denied, shoulders of the original debtors and their heirs, petitioners herein, since the record is
the present petition for certiorari was filed by them. devoid of any evidence of contrary intent. This Court has so ruled in Bank of the
Philippine Islands vs. Concepcion e Hijos, Inc., 53 Phil. 806, from which We quote:
After the respondents had filed their answer to the petition and the parties had
submitted their respective memorandum, the petitioners, jointly with respondents But the plaintiff argues that in American jurisprudence, the
Vicente Sayson and Alberto Benipayo, submitted a compromise agreement, on 8 May purchaser of mortgaged property who assumes the payment of the
1970, cancelling the sale to respondent Vicente Sayson of the property (TCT No. mortgage debt, may for that reason alone be sued for the debt by
48978) previously bidded for by him, upon the consideration that the amount paid to the creditor and that that rule is applicable in this jurisdiction. Aside
the Sheriff by Sayson be returned to the latter. As respondent Jose Dualan interposed from the fact we are not here dealing with a mere assumption of the
no objection to the approval of the said compromise agreement, this Court rendered, debt, but with a subrogation, it may be noted that this court has
on 30 June 1970, a partial decision, approving the compromise agreement and already held that the American doctrine in this respect is not in
ordering the compliance with its provisions by the parties thereto, and, as prayed for, harmony with the spirit of our legislation and has not been adopted
dismissed this case as against Vicente Sayson, leaving only Jose N. Dualan, in this country. In the case of E. C. McCullough & Co. vs. Veloso
purchaser of the property covered by TCT No. 48979 of the City of Manila, as party and Serna (46 Phil., 1), the court, speaking through its present
respondent. Chief Justice, said:

The petitioners seek to apply the doctrine of caveat emptor to the successful bidder The effects of a transfer of a mortgaged property
Dualan, and contend that under said rule Dualan bought at his own peril and, having to a third person are well determined by the Civil
purchased the property with knowledge of the encumbrance he should assume Code. According to article 1879 7 of this Code,
payment of the indebtedness secured thereby. the creditor may demand of the third person in
possession of the property mortgaged payment
of such part of the debt, as is secured by the
We find the stand of petitioners-appellants to be unmeritorious and untenable. The property in his possession, in the manner and
maxim "caveat emptor" applies only to execution sales, and this was not one form established by the law. The Mortgage Law
such.5 The mere fact that the purchaser of an immovable has notice that the required in force at the promulgation of the Civil Code and
realty is encumbered with a mortgage does not render him liable for the payment of referred to in the latter, exacted, among other
the debt guaranteed by the mortgage, in the absence of stipulation or condition that conditions, also the circumstance that after
he is to assume payment of the mortgage debt. The reason is plain: the mortgage is judicial or notarial demand, the original debtor
merely an encumbrance on the property, entitling the mortgagee to have the property had failed to make payment of the debt at
foreclosed, i.e., sold, in case the principal obligor does not pay the mortgage debt, maturity. (Art. 135 of the Mortgage Law of the
and apply the proceeds of the sale to the satisfaction of his credit. Mortgage is merely Philippines of 1889.) According to this, the
an accessory undertaking for the convenience and security of the mortgage creditor, obligation of the new possessor to pay the debt
and exists independently of the obligation to pay the debt secured by it. The originated only from the right of the creditor to
mortgagee, if he is so minded, can waive the mortgage security and proceed to demand payment of him, it being necessary that
collect the principal debt by personal action against the original mortgagor. a demand for payment should have previously
been made upon the debtor and the latter should

101
 have failed to pay. And even if these The third ground relied upon in the petition for annulling the sale is the participation of
requirements were complied with, still the third Atty. Ambrosio Padilla in the auction sale on behalf of respondent Dualan while still
possessor might abandon the property the counsel of record for respondent Benipayo. The ground lacks merit, for the reason
mortgaged, and in that case it is considered to be that petitioners have not shown that they were in any way prejudiced, and they had,
in the possession of the debtor. (Art. 136 of the by their conduct, accepted the validity of the sale.
same law.) This clearly shows that the spirit of
the Civil Code is to let the obligation of the debtor FOR THE FOREGOING REASONS, the petition for certiorari is hereby granted and
to pay the debt stand although the property the orders complained of are reversed and set aside in so far as they require
mortgaged to secure the payment of said debt petitioners to clear the property sold from the mortgage in favor of the Development
may have been transferred to a third person. Bank. The writ of preliminary injunction heretofore issued is made permanent. No
While the Mortgage Law of 1893 eliminated these costs.
provisions, it contained nothing indicating any
change in the spirit of the law in this respect.
Article 129 of this law, which provides for the G.R. No. 213582
substitution of the debtor by the third person in
possession of the property, for the purposes of NYMPHA ODIAMAR,1 Petitioner
the giving of notice, does not show this change vs.
and has reference to a case where the action is LINDA ODIAMAR VALEN CIA, Respondent
directed only against the property burdened with
the mortgage. (Art. 168 of the Regulation ) DECISION

Upon the other hand, the orders complained of, in so far as they require the vendors- PERLAS-BERNABE, J.:
heirs to clear the title to the land sold to respondent Dualan, when the latter bid for it
with full knowledge that the same was subject to a valid and subsisting mortgage, is
plainly erroneous. In submitting his bid, Dualan is presumed to know, and in fact did Before the Court is a petition for review on certiorari2 assailing the Decision3 dated
know, that the property was subject to a mortgage lien; that such encumbrance would March 16, 2012 and the Resolution4 dated July 14, 2014 of the Court of Appeals (CA)
make him, as purchaser, eventually liable to discharge mortgage by paying or settling in C.A. G.R. CV No. 93624, which affirmed the Decision5 dated May 5, 2009 of the
with the mortgage creditor, should the original mortgagors fail to satisfy the debt. Regional Trial Court of San Jose, Camarines Sur, Branch 58 (RTC) in Civil Case No.
Normally, therefore, he would have taken this eventuality into account in making his T-962 ordering petitioner Nympha S. Odiamar (petitioner) to pay respondent Linda
bid, and offer a lower amount for the lot than if it were not encumbered. If he intended Odiamar Valencia (respondent) the amount of Pl,710,049.00 plus twelve percent
his bid to be understood as conditioned upon the property being conveyed to him free (12%) interest, attorney's fees, litigation expenses, and the costs of suit.
from encumbrance, it was his duty to have so stated in his bid, or at least before
depositing the purchase price. He did not do so, and the bid must be understood and Facts
taken to conform to the normal practice of the buyer's taking the mortgaged property
subject to the mortgage. Consequently, he may not demand that the vendors should
On August 20, 2003, respondent filed a complaint6 for sum of money and damages
discharge the encumbrance aforesaid.
against petitioner, alleging that the latter owed her P2,100,000.00. Petitioner
purportedly issued China Bank Check No. GH
Thus, the questioned order of the trial court ordering the vendors-heirs to clear the
property of all its encumbrances is not in accordance with law.
B 114 72127 (the check) for the said amount to guarantee the payment of the debt,
but upon presentment, the same was dishonored. 8 Respondent lamented that
The second and fourth grounds for the petition for certiorari are that the minds of the petitioner refused to pay despite repeated demands, and that had she invested the
parties allegedly never met, so that the court should have ordered a re-bidding. The money loaned to petitioner or deposited the same in a bank, it would have earned
claim that there was no meeting of the minds is not only inconsistent with petitioners' interest at the rate of 36% per annum or three percent (3%) per month.9
own argument on the main issue, but is belied by their conduct. The fact is that an
offer to sell was advertised, a bidding was conducted, and the winning bidder
For her part, petitioner sought the dismissal 10 of the complaint on the ground that it
deposited the price. A rebidding would have been proper had all the parties agreed to
was her deceased parents who owed respondent money. Accordingly, respondent's
it, but they did not. Instead, the petitioners authorized their lawyer to negotiate for the
claim should be filed in the proceedings for the settlement of their estates. Petitioner
redemption of the property, thereby implying that they have accepted the validity of
averred that respondent had, in fact, participated in the settlement proceedings and
the sale and that their questioning it now is but an afterthought.
had issued a certification 11 stating that it was petitioner's deceased parents who were
indebted to respondent for P2,000,000.00. She further maintained that as

102
administratix of her parents' estates, she agreed to pay such indebtedness on a total of ₱389,95l.00 in installments, leaving an unpaid balance of ₱l,710,049.00,
installment but respondent refused to accept her payments.12 subject to interest of twelve percent (12%) per annum from the time judicial demand
was made on August 20, 2003, in the absence of any written stipulation on interest. 27
Respondent countered13 that petitioner personally borrowed almost half of the P2,
100,000.00 from her, as evidenced by the check which she issued after agreeing to Aggrieved, petitioner appealed28 to the CA, arguing that novation did not take place
settle the same in installments.14 While respondent conceded that petitioner made and no interest was due respondent.29
several installment payments from December 29, 2000 until May 31, 2003, she
pointed out that the latter failed to make any succeeding payments. 15 Moreover, The CA Ruling
respondent denied participating in the proceedings for the settlement of the estates of
petitioner's parents, clarifying that petitioner was the one who prepared the
certification alluded to and that she (respondent) signed it on the belief that petitioner In a Decision30 dated March 16, 2012, the CA affirmed the ruling of the RTC.31 It
would make good her promise to pay her (respondent). 16 agreed that petitioner cannot deny her liability to respondent in view of her admission
that she borrowed money from the latter several times.32 The CA also found
petitioner's claim that she issued a blank check incredible, pointing out that petitioner
In an Order17 dated October 3, 2003, the RTC denied petitioner's motion to dismiss, testified in court that she personally wrote the amount thereon after she and
thus prompting her to file an answer. 18 She asserted that respondent merely respondent agreed that the loans she and her deceased parents obtained amounted
persuaded her to issue the check to guarantee her deceased parents' loan. She to P2,100,000.00.33
further claimed that the check was blank when she issued it and that despite having
no authority to fill up the same, respondent wrote the amount and date thereon.19 She
also maintained that from December 29, 2000 to May 31, 2003, she made, in almost Anent the issue of novation, the CA concurred with the RTC that novation took place
daily installments, payments to respondent ranging from P500.00 to Pl0,000.00, and insofar as petitioner was substituted in place of petitioner's late parents, considering
that while she tried to make succeeding payments, respondent refused to accept the that petitioner undertook to pay her deceased parents' debt. However, the CA opined
same, demanding, instead, the payment of the entire balance. 20 As counterclaim, that there was no novation with respect to the object of the contract, following the rule
petitioner prayed that moral damages, attorney's fees, litigation expenses, and that an obligation is not novated by an instrument which expressly recognizes the old
exemplary and punitive damages be awarded to her.21 obligation and changes only the terms of paying the same, as in this case where the
parties merely modified the terms of payment of the ₱2,100,000.00.34
The RTC Ruling
Dissatisfied, petitioner moved for reconsideration,35 which was, however, denied in a
Resolution36 dated July 14, 2014; hence, this petition.
In a Decision22 dated May 5, 2009, the RTC ruled in favor of respondent and ordered
petitioner to pay: (a) ₱1,710,049.00 which represents the unpaid portion of the
₱2,100,000.00 debt; (b) twelve percent (12%) interest computed from the time judicial The Issue Before the Court
demand was made on August 20, 2003 until fully paid; (c) ₱10,000.00 as attorney's
fees; (d) litigation expenses amounting to ₱19,662.78; and (e) the costs of suit.23 The primary issue for the Court's resolution is whether or not petitioner should be held
liable to respondent for the entire debt in the amount of ₱2,100,000.00.
The RTC refused to give credence to petitioner's contention that it was her deceased
parents who borrowed money from respondent, observing that while the latter The Court's Ruling
acknowledged that the former's deceased parents owed her ₱700,000.00 out of the
₱2,100,000.00, petitioner likewise admitted that she obtained personal loans from At the outset, it must be emphasized that the fact of petitioner's liability to respondent
respondent.24 Hence, according to the RTC, petitioner cannot deny her liability to is well-established. As correctly pointed out by the RTC and the CA, while respondent
respondent. Further, by assuming the liability of her deceased parents and agreeing acknowledged that petitioner's deceased parents owed her money, petitioner also
to pay their debt in installments - which she in fact paid from December 29, 2000 to admitted obtaining loans from respondent, viz. :
May 31, 2003 in amounts of ₱500.00 to ₱10,000.00, and which payments respondent
did actually accept - a mixed novation took place and petitioner was substituted in
their place as debtor. Thus, the liabilities of the estates of petitioner's deceased From [respondent's] recollection, the amount due from [petitioner's] parents is
parents were extinguished and transferred to petitioner. 25 ₱700,000.00. Aside from her parents' loans, however, [petitioner] herself admitted
having obtained personal loans from the respondent while her parents were still alive.
She testified:
Anent the sum due, the RTC surmised that petitioner and her deceased parents owed
respondent the sum of ₱2,000,000.00 as principal and since petitioner undertook to
pay the same in installments, ₱100,000.00 was added as interest; hence, petitioner ATTY. P ASA: You also know that [respondent] was also in [lending]?
issued the check for ₱2,100,000.00.26 Based on the receipts submitted by petitioner,
the genuineness and due execution of which were not put in issue, petitioner had paid
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[PETITIONER]: Yes, Madam. A There were loans which were obtained by her father, some by her mother and since
they died already[,] when we summarized the amount that was the total amount that
Q: Because she was in lending you have borrowed money also? (sic) she owes me, sir.

A: Yes, Madam. Q How much is the amount owe[d] to you by the [petitioner's] father?

Q: Separate from your father? A I could no longer recall, sir because that was already long time ago but it was part
of the summary that we made, sir.
A: Yes, Madam.
Q Could it be P200,000.00?
xxxx
A More or less, that much, sir.
Q: You borrowed money from [respondent] separate from your father prior to his
death? Q What about the defendant's mother? How much was her obligation to you?

A: Yes, Madam.37 A ₱500,000.00, more or less, but I cannot exactly recall.

Having admitted that she obtained loans from respondent without showing that the Q So, the defendant's parents owed you more than ₱700,000.00 is it not?
same had already been paid or otherwise extinguished, petitioner cannot now aver
otherwise. It is settled that judicial admissions made by the parties in the pleadings or A Yes, sir.
in the course of the trial or. Other proceedings in the same case are conclusive and
do not require further evidence to prove them.38 They are legally binding on the party xxxx
making it, 39 except when it is shown that they have been made through palpable
mistake or that no such admission was actually made, 40 neither of which was shown
to exist in this case. Accordingly, petitioner is bound by her admission of liability and COURT:
the only material question remaining is the extent of such liability.
Q Is it the impression of the Court that the x x x amount of ₱700,000.00 is not a
Based on the records of this case, respondent, for her part, admitted that petitioner's personal indebtedness of [petitioner] but that of her parents? Is that the
deceased parents owed her ₱700,000.00 of the ₱2,100,000.00 debt and that impression xxx the Court is getting?
petitioner owed her ₱l,400,000.00 only:
A Yes, Your Honor.
ATTY. VILLEGAS:
xxxx
Q When was the first time that the [petitioner] obtained cash advances from you?
ATTY. VILLEGAS:
A About 1996, sir and then she made several others and she kept on borrowing
money from me. Q Tell us, how much really to your recollection is the indebtedness of the [petitioner's]
parents?
Q Do you mean to say that she obtained part of her loan while her father was still
alive? A To the best of my recollection, that is the amount. More or less [₱]700,000[.00] for
both spouses, sir.41 (Emphases supplied)
A Yes, when he was still alive she already borrowed.
ATTY. PASA:
Q Are you telling us that this 2.1 Million Pesos was entirely borrowed from you by the
[petitioner]? Q Madam witness, during the last hearing you stated that the [petitioner's] parents
were indebted [to] you for about ₱700,000.00?

104
A Yes, Madam. It is fundamental that for monetary interest to be due, there must be an express
written agreement therefor.47 Article 1956 of the Civil Code provides that "[n]o
Q How about the [petitioner], how much did she [owe] you? interest shall be due unless it bas been expressly stipulated in writing." In this
relation, case law states that the lack of a written stipulation to pay interest on the
loaned amount bars a creditor from charging monetary interest 48 and the collection of
A More or less 1.4 [Million] Madam.42 (Emphasis supplied) interest without any stipulation therefor in writing is prohibited by law.49

Applying the same principle on judicial admissions above, it is therefore Here, respondent herself admitted that there was no written agreement that interest
incontrovertible that petitioner's debt to respondent amounted to only would be due on the sum loaned, only that there was an implicit understanding that
₱l,400,000.00 and not ₱2,100,000.00. Thus, respondent only remains liable to the same would be subject to interest since she also borrowed the same from banks
petitioner for such amount. Considering that petitioner had already paid ₱389,951.00 which, as a matter of course, charged interest. Respondent also testified on cross
in installments as evidenced by the receipts submitted by petitioner - the genuineness examination that the ₱2,100,000.00 corresponds only to the principal and does not
and due execution of which were not put in issue - the unpaid balance of petitioner's include
₱l,400,000.00 debt to respondent stands at ₱l,010,049.00. On the other hand, the
remaining ₱700,000.00 of the total ₱2,100,000.00 debt to respondent is properly for
the account of the estates of petitioner's deceased parents and, hence, should be interest, viz. :
claimed in the relevant proceeding therefor.
[Atty. Villegas]: Now, are these loans interest bearing?
At this juncture, the Court finds it apt to correct the mistaken notions
that: (a) novation by substitution of the debtor took place so as to release the [Respondent]: Yes, sir, because the money I loaned to them I have also obtained as a
estates of the petitioner's deceased parents from their obligation, which, thus, loan from the bank.1âwphi1
rendered petitioner solely liable for the entire ₱2,100,000.00 debt; and (b) the
₱100,000.00 of the ₱2,100,000.00 debt was in the nature of accrued monetary Q: This 2.1 Million Pesos are included (sic) the interest that you charge[d] to the
interests. [petitioner's] parents and to the petitioner, is it not?

On the first matter, while it is observed that petitioner had indeed admitted that she A: That is the basis of the interest bearing, 2.1 Million Pesos at 3 percent per month.
agreed to settle her late parents' debt, which was supposedly evinced by (a) the
₱2,100,000.00 check she issued therefor, and (b) several installment payments she
made to respondent from December 29, 2000 to May 31, 2003, there was no Q: Are you telling us that when you summarized and computed the entire total
allegation, much less any proof to show, that the estates of her deceased obligations of the [petitioner and her parents] you computed the interest and come out
parents were released from liability thereby. In S.C. Megaworld Construction and (sic) with 2.1 Million Pesos?
Development Corporation v. Parada,43 the Court held that to constitute novation by
substitution of debtor, the former debtor must be expressly released from the A: Interest has not yet been included in the 2.1 Million Pesos.
obligation and the third person or new debtor must assume the former's place in the
contractual relations.44 Moreover, the Court ruled that the "fact that the creditor Q: This agreement of yours to pay interest is not in writing, is it not (sic)?
accepts payments from a third person, who has assumed the obligation, will result
merely in the addition of debtors and not novation."45 At its core, novation is
never presumed, and the animus novandi, whether totally or partially, must appear by A: It is not in writing, sir. 50
express agreement of the parties, or by their acts that are too clear and unequivocal
to be mistaken. 46 Here, the intent to novate was not satisfactorily proven by All told, having established that no novation took place and that no interest was
respondent. At best, petitioner only manifested her desire to shoulder the debt of her actually due, and factoring in the payments already made for her account, petitioner
parents, which, as above-discussed, does not amount to novation. Thus, the courts a is, thus, ordered to pay respondent the amount of
quo erred in holding petitioner liable for the debts obtained by her deceased parents
on account of novation by substitution of the debtor.
₱l,010,049.00, which is the remaining balance of her principal debt to the latter in the
original amount of ₱l,400,000.00.
Similarly, both courts faultily concluded that the principal sum loaned by petitioner and
her deceased parents amounted to ₱2,000,000.00 and the ₱100,000.00 was added
WHEREFORE, the petition is PARTLY GRANTED. The Decision dated March 16,
as interest because petitioner undertook to pay the loan in installments.
2012 and the Resolution dated July 14, 2014 of the Court of Appeals (CA) in C.A.
G.R. CV No. 93624 are hereby AFFIRMED with MODIFICATION in that petitioner
Nympha S. Odiamar is ORDERED to pay respondent Linda Odiamar Valencia the

105
amount of ₱l,010,049.00, which is the remaining balance of her principal debt to the
latter in the original amount of Pl,400,000.00.

SO ORDERED.

106