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, respondents. Ocampo, Dizon & Domingo for petitioner. Angara, Concepcion, Regala & Cruz for private respondent.
MEDIALDEA, J.:p This is a petition for review on certiorari of the decision (pp 21-31, Rollo) of the Intermediate Appellate Court (now Court of Appeals) in AC-G.R. C.V. No. 02753, 1 which modified the decision of the trial court against herein private respondent Roberto Regala, Jr., one of the defendants in the case for sum of money filed by Pacific Banking Corporation. The facts of the case as adopted by the respondent appellant court from herein petitioner's brief before said court are as follows: On October 24, 1975, defendant Celia Syjuco Regala (hereinafter referred to as Celia Regala for brevity), applied for and obtained from the plaintiff the issuance and use of Pacificard credit card (Exhs. "A", "A-l",), under the Terms and Conditions Governing the Issuance and Use of Pacificard (Exh. "B" and hereinafter referred to as Terms and Conditions), a copy of which was issued to and received by the said defendant on the date of the application and expressly agreed that the use of the Pacificard is governed by said Terms and Conditions. On the same date, the defendant-appelant Robert Regala, Jr., spouse of defendant Celia Regala, executed a "Guarantor's Undertaking" (Exh. "A-1-a") in favor of the appellee Bank, whereby the latter agreed "jointly and severally of Celia Aurora Syjuco Regala, to pay the Pacific Banking Corporation upon demand, any and all indebtedness, obligations, charges or liabilities due and incurred by said Celia Aurora Syjuco Regala with the use of the Pacificard, or renewals thereof, issued in her favor by the Pacific Banking Corporation". It was also agreed that "any changes of or novation in the terms and conditions in connection with the issuance or use of the Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from responsibility hereunder, it being understood that I fully agree to such charges, novation or extension, and that this understanding is a continuing one and shall subsist and bind me until the liabilities of the said Celia Syjuco Regala have been fully satisfied or paid. Plaintiff-appellee Pacific Banking Corporation has contracted with accredited business establishments to honor purchases of goods and/or services by
Pacificard holders and the cost thereof to be advanced by the plaintiffappellee for the account of the defendant cardholder, and the latter undertook to pay any statements of account rendered by the plaintiffappellee for the advances thus made within thirty (30) days from the date of the statement, provided that any overdue account shall earn interest at the rate of 14% per annum from date of default. The defendant Celia Regala, as such Pacificard holder, had purchased goods and/or services on credit (Exh. "C", "C-l" to "C-112") under her Pacificard, for which the plaintiff advanced the cost amounting to P92,803.98 at the time of the filing of the complaint. In view of defendant Celia Regala's failure to settle her account for the purchases made thru the use of the Pacificard, a written demand (Exh. "D") was sent to the latter and also to the defendant Roberto Regala, Jr. (Exh. " ") under his "Guarantor's Undertaking." A complaint was subsequently filed in Court for defendant's (sic) repeated failure to settle their obligation. Defendant Celia Regala was declared in default for her failure to file her answer within the reglementary period. Defendant-appellant Roberto Regala, Jr., on the other hand, filed his Answer with Counterclaim admitting his execution of the "Guarantor's Understanding", "but with the understanding that his liability would be limited to P2,000.00 per month." In view of the solidary nature of the liability of the parties, the presentation of evidence ex-parte as against the defendant Celia Regala was jointly held with the trial of the case as against defendant Roberto Regala. After the presentation of plaintiff's testimonial and documentary evidence, fire struck the City Hall of Manila, including the court where the instant case was pending, as well as all its records. Upon plaintiff-appellee's petition for reconstitution, the records of the instant case were duly reconstituted. Thereafter, the case was set for pre-trial conference with respect to the defendant-appellant Roberto Regala on plaintiff-appellee's motion, after furnishing the latter a copy of the same. No opposition thereto having been interposed by defendant-appellant, the trial court set the case for pre-trial conference. Neither did said defendantappellant nor his counsel appear on the date scheduled by the trial court for said conference despite due notice. Consequently, plaintiff-appellee moved that the defendant-appellant Roberto Regala he declared as in default and that it be allowed to present its evidence ex-parte, which motion was granted. On July 21, 1983, plaintiff-appellee presented its evidence exparte. (pp. 23-26, Rollo) After trial, the court a quo rendered judgment on December 5, 1983, the dispositive portion of which reads:
WHEREFORE, the Court renders judgment for the plaintiff and against the defendants condemning the latter, jointly and severally, to pay said plaintiff the amount of P92,803.98, with interest thereon at 14% per annum, compounded annually, from the time of demand on November 17, 1978 until said principal amount is fully paid; plus 15% of the principal obligation as and for attorney's fees and expense of suit; and the costs. The counterclaim of defendant Roberto Regala, Jr. is dismissed for lack of merit. SO ORDERED. (pp. 22-23, Rollo) The defendants appealed from the decision of the court a quo to the Intermediate Appellate Court. On August 12, 1985, respondent appellate court rendered judgment modifying the decision of the trial court. Private respondent Roberto Regala, Jr. was made liable only to the extent of the monthly credit limit granted to Celia Regala, i.e., at P2,000.00 a month and only for the advances made during the one year period of the card's effectivity counted from October 29, 1975 up to October 29, 1976. The dispositive portion of the decision states: WHEREFORE, the judgment of the trial court dated December 5, 1983 is modified only as to appellant Roberto Regala, Jr., so as to make him liable only for the purchases made by defendant Celia Aurora Syjuco Regala with the use of the Pacificard from October 29, 1975 up to October 29, 1976 up to the amount of P2,000.00 per month only, with interest from the filing of the complaint up to the payment at the rate of 14% per annum without pronouncement as to costs. (p. 32, Rollo) A motion for reconsideration was filed by Pacific Banking Corporation which the respondent appellate court denied for lack of merit on September 19, 1985 (p. 33, Rollo). On November 8, 1985, Pacificard filed this petition. The petitioner contends that while the appellate court correctly recognized Celia Regala's obligation to Pacific Banking Corp. for the purchases of goods and services with the use of a Pacificard credit card in the total amount of P92,803.98 with 14% interest per annum, it erred in limiting private respondent Roberto Regala, Jr.'s liability only for purchases made by Celia Regala with the use of the card from October 29, 1975 up to October 29, 1976 up to the amount of P2,000.00 per month with 14% interest from the filing of the complaint. There is merit in this petition. The pertinent portion of the "Guarantor's Undertaking" which private respondent Roberto Regala, Jr. signed in favor of Pacific Banking Corporation provides: I/We, the undersigned, hereby agree, jointly and severally with Celia Syjuco Regala to pay the Pacific Banking Corporation upon demand any and all
. G.00 per month and that Celia Regala succeeded in using the card beyond the original period of its effectivity. Civil Code of the Philippines). Consequently. Jr. 1967." was in substance a contract of surety. October 29. Jr. Tizon. 2 It is likewise not disputed by the parties that the credit limit granted to Celia Regala was P2. Jr.Rollo) The undertaking signed by Roberto Regala. We need not look elsewhere to determine the nature and extent of private respondent Roberto Regala. 2047. as surety of his wife. it being understood that the undertaking is a continuing one and shall subsist and bind me/us until all the liabilities of the said Celia Syjuco Regala have been fully satisfied or paid. it does not make him the debtor but still the guarantor (or the surety). L-22108. the Pacificard holder and the guarantor assume joint and several liabilities for any and all amount arising out of the use of the Pacificard. Private respondent Roberto Regala. charges or liabilities shall not in any manner release me/us from the responsibility hereunder.'s liability should be limited to that extent. thus: 5." It further ruled that although the surety's liability is like that of a joint and several debtor. It is true that under Article 2054 of the Civil Code. any and all indebtedness.indebtedness. August 30.000. Any changes of or Novation in the terms and conditions in connection with the issuance or use of said Pacificard. (p. A Pacificard is issued to a Pacificard-holder against the joint and several signature of a third party and as such. in fact. Article 2054 of the Civil Code providing for a limited liability on the part of the guarantor or debtor still applies." Roberto. both as regards the amount and the onerous nature of the conditions. that Roberto Jr. As distinguished from a contract of guaranty where the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor only in case the latter should fail to do so. charges or liabilities due and incurred by said Celia Syjuco Regala with the use of Pacificard or renewals thereof issued in (her) favor by Pacific Banking Corporation." This undertaking was also provided as a condition in the issuance of the Pacificard to Celia Regala. "(A) guarantor may bind himself for less. 12.'s undertaking. obligations. obligations. 14. As a surety he bound himself jointly and severally with the debtor Celia Regala "to pay the Pacific Banking Corporation upon demand. We do not agree however. expressly bound himself up to the extent of the debtor's (Celia) indebtedness likewise expressly waiving any "discharge in case of any change or novation of the terms and conditions in connection with the issuance of the Pacificard credit card. 20 SCRA 1182. or any extension of time to pay such obligations. charges or liabilities due and incurred by said Celia Syjuco Regala with the use of the Pacificard or renewals thereof issued in his favor by the Pacific Banking Corporation. although denominated "Guarantor's Undertaking.R. Rollo) The respondent appellate court held that "all the other rights of the guarantor are not thereby lost by the guarantor becoming liable solidarily and therefore a surety. relying on the case of Government of the Philippines v. but not for more than the principal debtor. No. made his commitment as a surety a continuing one. in a contract of suretyship. binding upon himself until all the liabilities of . the surety binds himself solidarily with the principal debtor (Art. (p. 1979.
supra. however. he voluntarily agreed to be bound as a surety. should fail to comply with the contract. March 18. although solidarily liable with the principal debtor. the liability of the Surety under its bond would arise only if its co-defendants. supra is misplaced. the principal obligor.Celia Regala have been fully paid. or "so dependent on that of the principal debtor" that the Surety "is considered in law as being the same party as the debtor in relation to whatever is adjudged. . It was held in that case that: . 74231 April 10. A guarantor or surety does not incur liability unless the principal debtor is held liable. supra). although the defendants bound themselves in solidum. Any changes of or novation in the terms and conditions in connection with the issuance or use of said Pacificard. . . 1987 ." Changing the expression. The application by respondent court of the ruling in Government v. the petition is GRANTED. It does not mean. thus: .R. it being understood that the undertaking is a continuing one and shall subsist and bind me/us until all the liabilities of the said Celia Syjuco Regala have been fully satisfied or paid. To paraphrase the ruling in the case of Municipality of Orion vs. that the surety cannot be held liable to the same extent as the principal debtor. G. charges or liabilities shall not in any manner release me/us from the responsibility hereunder. had been made aware by the terms of the undertaking of future changes in the terms and conditions governing the issuance of the credit card to his wife and that. their liability to pay the plaintiff would be solidary. No. SO ORDERED. CA. 159 SCRA 24). touching the obligation of the latter". the liability of the Surety is "consequent upon the liability" of Tizon. Concha. 1988. notwithstanding. ACCORDINGLY. or any extension of time to pay such obligations. or the liabilities of the two defendants herein "are so interwoven and dependent as to be inseparable. if the defendants are held liable. Jr. As in guaranty. emphasis supplied) Private respondent Roberto Regala. It is in this sense that a surety. is different from the debtor. Tizon. but the nature of the Surety's undertaking is such that it does not incur liability unless and until the principal debtor is held liable. The nature and extent of the liabilities of a guarantor or a surety is determined by the clauses in the contract of suretyship(see PCIB v. 12. All these were clear under the "Guarantor's Undertaking" Roberto signed. . a surety may secure additional and future debts of the principal debtor the amount of which is not yet known (see Article 2053. L-34959. (p. The questioned decision of respondent appellate court is SET ASIDE and the decision of the trial court is REINSTATED.
in the aforementioned amount of P85. the Decision of the Court of Appeals 1affirming her conviction of the crime of estafa by the Court of First Instance of Rizal Quezon City Branch. to wit: the said accused received from the offended party one (1) 8-karat solo diamond ring. Vizconde and Pilar A. or to return the said ring if unsold. 1975.00. which it increased to a term of from ten (10) years and one (1) day of prision mayor to twelve (12) years ten (10) months and twenty-one (21) days of reclusion temporal.000. VIZCONDE. with the obligation to tum over the proceeds of the sale to the offended party. and jointly and severally to indemnify the offended party in the sum of P55. misapplied.5476. with intent of gain and with unfaithfulness and/or abuse of confidence.000.CORAZON J.00. MARYLOU J. to the damage and prejudice of the offended party.00 as and for moral damages and the sum of P10.: Corazon J. petitioner. respondents.000. the Court of Appeals affirmed the judgment of the Trial Court in all respects except the penalty of imprisonment.000.000. double cut. the further sum of P30. 3 Both accused appealed to the Court of Appeals. with the accessory penalties provided by law. both accused failed. omitted and refused. Perlas in an information which avers that they: * * * wilfully.00 for attorney's fees. white. Philippine currency. in Criminal Case No. to be sold by them on commission basis. valued at P85. A motion for reconsideration was denied. defraud(ed) DRA. once in possession thereof. but the Id accused. Pagulayan had evaded promulgation of sentence in the Trial Court and had appealed only through counsel the Appellate Court vacated her appeal as ineffectual. 5 . and in spite of repeated demands made upon them. J. 4On Vizconde's part. misappropriated and converted the same to their own personal use and benefit. PERLAS in the following manner. brilliant cut with multiple bentitos. vs. Pagulayan were charged in the Trial Court with misappropriation and conversion of an 8-carat diamond ring belonging to Dr. Marylon J. four (4) months and one (1) day to ten (10) years and two (2) months of prision mayor. and still fait omit and refuse up to the present. INTERMEDIATE APPELLATE COURT & PEOPLE OF THE PHILIPPINES. 2 After trial both accused were convicted and each sentenced to serve an indeterminate prison term of from eight (8) years. to comply with their aforesaid obligation. NARVASA. contrary to their obligation. Vizconde has appealed as contrary to law and the evidence. Vizconde thereafter filed the present petition for review on certiorari.00 for the unaccounted balance of the value of the ring with legal interest from April 22. unlawfully and feloniously. Q. but as Pilar A.
00 (the unaccounted balance of the value of the ring as found by the Trial Court) " * * * or whatever portion thereof which remains unpaid. together with Vizconde. a long-time friend and former high school classmate. Perlas. double cut.00 — postdated check PNB check 730297 dated April 26. 1975.000.000.000. Philippines 22 April 1975 (SGD. 8 Perlas was initially hesitant to do so. who claimed to have a "sure buyer" for the ring. Marylon J. called up the appellant Vizconde. Vizconde afterwards called on Perlas at the latter's home. the total payment of the above item shall become immediately due and demandable without awaiting further demand. Marylon Javier-Perlas one (1) solo 8 karat diamond ring.Required to comment on the petition.00) and.000. Pilar A. white. signed a receipt prepared by Perlas. Dr. This receipt-people's Exhibit "A". Vizconde returned the ring to Perlas. which I agree to sell for P85. the complainant.000. despite having argued for affirmance of Vizconde's conviction in the Court of Appeals. who had asked for it because she needed to show it to a cousin However. Vizconde signed a receipt for the ring. but nonetheless held civilly liable to the complainant in the sum of P55. with another lady.) PILAR A. PAGULAYAN . Quezon City.00 (eighty-five thousand pesos) on commission basis and pay her in the following manner: P85. * * * 6 From the record and the findings of the courts below. Shortly afterwards. 7 About a week and a half later. it appears that sometime in the first week of April. but she eventually parted with the ring so that it could be examined privately by Pagulayan's buyer when the latter' gave her a postdated check for the price (P 85.reads as follows: RECEIPT Received from Dra.00 It is understood that in the event the above postdated check is dishonored for any reason whatsoever on its due date. the Solicitor General. now recommends that she be acquitted. Perlas delivered the ring to Vizconde to be sold on commission for P 85.000. Pagulayan. asking her to sen Perlas' 8-carat diamond ring.00. 1975 for P85. I guarantee that the above check will be sufficiently funded on the respective due date. brilliant cut with multiple brilliantitos.
434909. Perlas . "No arrangement. 434907.00).) Marylon J. Philippines 7 May 1975 (Sgd.00. double cut." stated in the debit advice. PAGULAYAN 16 Rd. Perlas re-deposited the check. 12 The receipt — Exhibit "D" of the prosecution — reads: Received from Mrs. VIZCONDE 9 After Pagulayan's postdated check matured. Pilar Pagulayan. Pilar Pagulayan and Mrs.000.five thousand pesos (P85. Perlas then called up Vizconde to inform her about the dishonor of the check.000. Received also owner's duplicate copies of TCT Nos. She also gave into Perlas' keeping three certificates of title to real estate to guarantee delivery of the balance of such value. Quezon City. Corazon de Jesus Vizconde on 22 April 1975. brilliant cut w/multiple brilliantitos.00).000. 10 So Perlas took the matter to counsel who sent separate letters of demand to Vizconde and Pagulayan for return of the ring or payment of P85. which will be returned upon delivery of the remaining balance of the proceeds of the sale of said diamond ring for eighty five thousand pesos (P85.00 against the value of the ring. A receipt for the money and the titles was typed and signed by Perlas. white. This receipt is being issued without prejudice to legal action. to be sold on commission basis for eighty. which she also made the two sign.) CORAZON J. VIZCONDE CORAZON J. 8 Project 6 I guarantee jointly and severally — (SGD. The latter suggested that Perlas re-deposit the check while she (Vizconde) followed up the sale of the ring.000. 11 After nine days.000. Perlas deposited it to her account at Manila Bank. It was dishonored for the reason.00) representing part of the proceeds of the sale of one (1) solo 8 carat diamond ring. Vizconde and Pagulayan called on Perlas.PILAR A. Pagulayan paid Perlas P5. the sum of FIVE THOUSAND PESOS ONLY (P5. given to Mrs. 434910. but again it was dishonored because drawn against insufficient funds.
par. the receipts Exhibits A" and "D". in any sense. disagrees and submits in his Comment that the appellant cannot be convicted of estafa under a correct interpretation of the two principal exhibits of the prosecution. as already stated. As the Solicitor General correctly puts it. Exhibit "A". to the prejudice of another.000. reference to what may be taken for an agency agreement appears in the clause " * * * which I agree to sell * * * on commission basis" in the main text of that document. * * * " The Solicitor General falling back. upon failure to return the ring or deliver its agreed value.00 which. Pagulayan stin paid Perlas various sums totalling P25.00 earlier paid. Pagulayan Pilar A. of the Revised Penal Code. True. Nothing in the language of the receipt.) Corazon J. Exhibit "A".000.) Pilar A. To warrant anything more than a mere conjecture that the receipt also constituted Vizconde the agent of Perlas for the same purpose of selling the ring. for defraudation committed " * * * with unfaithfulness or abuse of confidence * * * by misappropriating or converting. the cited clause should at least have used the plural "we.000. Vizconde Corazon Vizconde 13 Vizconde and Pagulayan having allegedly reneged on a promise to complete payment for the ring on the very next day. for the sale of the former's ring. It cannot. as agent. the joint and several undertaking assumed by Vizconde in a separate writing below the main body of the receipt. * * * personal property received in trust or on commission. 315. which rendered them criminally liable. Perlas Conforme: (Sgd. it was one between Perlas and Pagulayan only. But it is clear that if any agency was established. Marylon J. under Art. l(b). or in the proven circumstances attending its execution can logically be considered as evidencing the creation of an agency between Perlas. Pagulayan (Sgd. and Vizconde." or the text of the receipt containing that clause should also have carried Vizconde's signature.00 still owing. Perlas filed with the Quezon City Fiscal's office a complaint against them for estafa This notwithstanding. this being the only logical conclusion from the use of the singular "I" in said clause. from an earlier stance. left a balance of P55. 14 Both the Trial Court and the Court of Appeals found istilln these facts sufficient showing that Vizconde and Pagulayan had assumed a joint agency in favor of Perlas for the sale of the latter's ring. as principal. in conjunction with the fact that the part of the receipt in which the clause appears bears only the signature of Pagulayan. or under any other obligation involving the duty to make delivery of or to return the same. 15 He is correct. merely guaranteed the civil obligation of Pagulayan to pay Perlas the value of the ring in the event of her (Pagulayan's) failure to return said article. together with the P5.Dra. be .
It is fundamental that criminal responsibility is personal and that in the absence of conspiracy. A person to be guilty of crime. to be sold on commission basis for eighty five thousand pesos (P85. They are not inconsistent with what Vizconde has asserted to be an innocent desire to help her friend dispose of the ring. in some manner. and thereby bind Vizconde to a commitment far stronger and more compelling than a mere civil guarantee for the value of the ring. participate in its commission or in the fruits thereof. one cannot be held criminally liable for the act or default of another. it strikes at the very essence of guaranty (or suretyship) as creating purely civil obligations on the part of the guarantor or surety.00 was made. either in obtaining possession of the ring. At the least. There is otherwise no explanation for requiring Vizconde and Pagulayan to sign the receipt. with threat of legal action. Exhibit "D". appears to confirm that the ring "* * * was given to Mrs." 19 The implications and probative value of this writing must be considered in the context of what had already transpired at the time of its making. * * * 16 Thus. such as the fact that Vizconde and the complainant were friends of long standing and former classmates. as the complainant would have it) had already been dishonored twice. Exhibits "A" and "D. that Vizconde was present on the two occasions when the ring was entrusted to Pagulayan and when part payment of P5.000. inconclusive. Exhibit "D". That the complainant then already entertained serious apprehensions about the fate of the ring is evident in her having had her lawyers send Vizconde and Pagulayan demands for restitution or payment. must commit the crime himself or he must. the circumstances from which a reasonable inference of conspiracy might arise. It is of course true that direct proof of conspiracy is not essential to convict an alleged conspirator. the theory that by standing as surety for Pagulayan. however. or in undertaking to return the same or delivery its value." on those occasions are. and the check that she had issued in payment therefor (or to secure payment. insofar as it purports to confirm that Vizconde had also received the ring in trust. which needed only the signature of .000. the information charges conspiracy between Vizconde and Pagulayan. nor do they exclude every reasonable hypothesis other than complicity in a premeditated swindle. 18 The foregoing conclusion in nowise suffers from the fact that the second receipt. at best. or in the misappropriation or conversion of the same. 17 Here. that it was Vizconde who introduced Pagulayan to Perlas. and that she signed the receipts. but no adequate proof thereof has been presented.00). Exhibit "A". more than her mere guarantee written on Exhibit "A" is necessary. Corazon de Jesus Vizconde on 22 April 1975. Given that situation.construed as assuming any criminal responsibility consequent upon the failure of Pagulayan to return the ring or deliver its value. Now. To render Vizconde criminally liable for the misappropriation of the ring. and that conspiracy may be established by evidence of acts done in pursuance of a common unlawful purpose. Pilar Pagulayan and Mrs. The ring had already been given to Pagulayan. Vizconde assumed an obligation more than merely civil in character. she must be shown to have acted in concert and conspiracy with Pagulayan. cannot be considered as anything other than an attempt to "cure" the lack of mention of such an entrustment in the first receipt. and staked her very liberty on Pagulayan's fidelity to her trust is utterly unacceptable.
the later receipt was made under circumstances which leave no little doubt of its truth and . It is. as the Court sees it. since. to indemnify the complainant Marylon J. that Vizconde was constituted. and said appellant is acquitted.00 given in part payment. consideration of the Solicitor General's argument — also quite persuasive — that Exhibit "D" in fact evidences a consummated sale of the ring for an agreed price not fully paid for. appellant Corazon J. agent jointly with Pagulayan for the sale of the ring. What is clear from Exhibit "A" is that the ring was entrusted to Pilar A. Vizconde. solidarity with Pilar A. or whatever part of such amount remains unpaid. The conflict in the recitals of the two receipts insofar as concerns Vizconde's part in the transaction involving Perlas' ring is obvious and cannot be ignored. The undisputed fact that Exhibit "A" was executed simultaneously with the delivery of the ring to Pagulayan compellingly argues for accepting it as a more trustworthy memorial of the real agreement and transaction of the parties than Exhibit "D" which was executed at a later date and after the supervention of events rendering it expedient or desirable to vary the terms of that agreement or transaction. not criminal.Integrity. Neither. there being no question — as in fact admitted by her — that the appellant executed the guarantee already referred to. however. Vizconde was a mere guarantor. and the delivery of the land titles to secure the balance. Pagulayan. this is a correct proposition. the Solicitor General however maintains. It was. or agreed to act as. except insofar as it affirms the judgment of the Trial Court ordering appellant Corazon J. As the record indicates that levies on preliminary attachment and on execution pending appeal have been made on behalf of the complainant. error to convict her of estafa.000. Again.000. Perlas for the return of the latter's ring or the delivery of its value. for the value of the ring. which yields the same result.Perlas as an acknowledgment of the P5. As already stated. 20 that the appellant should be held hable to pay the complainant the amount of P55. Exhibit "D". a solidary one to be sure. on the other hand. should these writings be read together in an attempt to reconcile what they contain. there is no mention therein that it was simultaneously delivered to and received by Vizconde for the same purpose or. the appellant may. Pagulayan to be sold on commission. Padilla. would make out Vizconde an agent for the sale of the ring. therefore. WHEREFORE. upon default of the principal. at least another factor reinforcing the hypothesis of Vizconde's innocence. as already pointed out. with costs de oficio. and that guarantee created only a civil obligation. Whatever liability was incured by Pagulayan for defaulting on such obligation — and this is not inquired into — that of Vizconde consequent upon such default was merely civil. therefore.000. Pagulayan to complainant Marylon J. Upon the evidence. without more. the appellant pealed Decision of the Court of Appeals is reversed and set aside. upon remand of this case to the .00. What Vizconde solely undertook was to guarantee the obligation of Pagulayan to return the ring or deliver its value. 21 which may have resulted in further reducing the abovestated balance. on the authority of People vs. is no longer necessary. of the obligation assumed by Pilar A.00 for the unaccounted balance of the value of the latter's ring. In view of the conclusions already reached. Perlas in the amount of P55.
the latter "sold" to Harden eight (8) Anderson expellers. to be paid on delivery. for the price of P80. It appears that in the month of April. according to the terms of the following letter dated April 27.I. Harden. . 1918. applied to Smith. to which the amount of the indemnity adjudged may be justly subject. and the plaintiff appealed.R. an arrangement was made between Harden and the Philippine National Bank whereby the latter bound itself to Smith. on April 25. F. 1922 SMITH. defendant-appellee. STREET. THE PHILIPPINE NATIONAL BANK.000. SO ORDERED.. the Philippine National Bank. for the payment of the contract price. 1918.. by the operation of said levies or otherwise. LTD. 1918. P. Manila. to recover a sum of money of the defendant. Bell & Co. By the contract signed for this purpose between said Harden and Smith. GENTLEMEN: In connection with the 8 expellers purchased by Mr.M. Smith. one Fred M. vs. Bell & Co. Ross & Lawrence and Ewald E. SMITH. J.. expellers through this house.. latest model. Bell & Co.. Harden. G.000 please be advised that this institution will pay the above amount upon delivery of the expellers to us. upon condition that these are new Anderson expellers and are laid down in Manila in first class working order. Harden. After the hearing the trial judge absolved the defendant. Roman J. In order to assure the prompt payment of the price upon delivery. as damages for its failure to accept delivery of certain machinery which had been ordered from the plaintiff by one F. which was addressed by the bank to the latter firm: Messrs. Selph for appellant.: This action was brought by Messrs. prove any reductions.Trial Court. Lacson for appellee. end-drive. amounting to P80. BELL & CO. and it was stipulated that shipment would be made from the United States in the month of February or March of the ensuing year. and for the purchase price of which the bank had obligated itself in the manner stated below. It was understood that these expellers would be manufactured in the United States. being desirous of obtaining eight expellers adopted to the extraction of coconut oil. BELL & COMPANY.M. plaintiff-appellant. 16482 February 1. Ltd. No.
which was done. H. with the terms of said contract. The consideration for this promise is to be found in the credit extended to Harden by the plaintiff and in the fact that the plaintiff. Harden appeared in the office of Smith." and in obedience to this instruction. has gone to the expense of bringing to these Islands the expellers which Harden had ordered. and on or about May 9. J. informed both Harden and the bank that the expellers had arrived. and one J. and inasmuch as the plaintiff had compiled. As we have already stated. This fact is in our opinion clearly established by the concurring testimony of J. In addition to this it appears that the side-drive expeller represents an improvement over the enddrive and is of a newer type. and requested them to change the order for the expellers from "end-drive" to "side-drive. For the rest. Bell & Co. It is undeniable that the contract sued on had its origin and explanation in the contract between Harden and the plaintiff. or offered to comply. 1918. 1919. the debt must be considered a liquidated debt. and he denied that the order for expellers had been changed upon his instructions. in the sense intended in article 1825 of the . and the plaintiff disposed of them to the best advantage in the Manila market at a price which was below the price at which Harden had agreed to take them. Smith. But this does not make the bank subsidiary liable as regards the contract which is the subject of this suit. relying upon the bank's promise. Upon this. On July 2. advised the bank that the expellers were not as ordered. Its obligation to the plaintiff is direct and independent. Harden exhibited to the manager of Messrs. the house cabled to its agent in New York to change the order accordingly. and we do not hesitate to find upon the proof before us that the order was changed at Harden's request. and upon the occasion mentioned. the bank is bound by its promise to pay the purchase price. The contract by which the bank obligated itself is both in form and effect an independent undertaking on the part of the bank directly to the plaintiff. and in support of this contention Harden was produced by the defendant as a witness.Yours very truly. as explanatory of his change in the order. Shortly thereafter Harden. Smith. In the light of these facts the right of the plaintiff to recover is clear. The ground upon which the defense is chiefly rested is that the expellers tendered by the plaintiff were "side-drive" instead of "end-drive" expellers. it is shown that the expellers tendered by the plaintiff were new Anderson expellers. Bell & Co. Moreover. ELMER DELANEY. this contention is untenable. in all respect in firstclass working order. having examined the machinery in the plaintiff's bodega. Acting President. plaintiff's sales manager. and the bank of course obligated itself solely for the purpose of assuring the payment of the purchase price of the expellers to the plaintiff. Cowper. C. a catalogue from the Anderson factory showing this fact. who accompanied Harden on the mission to get the order changed. Bell & Co.. the bank naturally refused to accept and pay for the machinery. Schmidt. Shortly after the contract for the purchase of these expellers had been thus made.
PABLITO BERMUNDO and LEOPOLDO HALILI.400. So ordered. as indicated in the statement. in other words. and for collie hire. a consequence would be that Harden had no authority to change the order from enddrive to side-drive expellers. and the action is now maintainable by the plaintiff directly against the bank without regard to the position of Harden. — P22. namely.Civil Code. vs. while the machinery remained in the plaintiff's hands after it should have been delivered to the defendant. G. We observe that in the second amended complaint of March 8. upon which it is asked that interest be allowed at the legal rate from the date of this complaint. various charges for storage. No special pronouncement will be made as to costs of either instances. the difference between the contract price and the amount realized from the sale of the expellers. NENITA B.705. as all parties were well aware. ARRIETA. interest has been compounded monthly at 8 per cent. and the bank is to be considered strictly in the light of an independent promisor. DANILO E. No. At this point the thought may possibly suggested itself that if the view above indicated is correct. — which was the first complaint in which the plaintiff signified his election to claim damages for breach of contract — the damages are alleged to have been in the sum of P26. and for his purpose. 80078 May 18. 1993 ATOK FINANCE CORPORATION. to the situation as all parties understood it. thirdly.339. we are of opinion that the act of Harden in changing the order could not affect the liability of the defendant bank. The real purpose of the bank. In the itemized statement of damages submitted by the plaintiff. Having regard. etc. petitioner. especially since the specification in the bank's letter calls for "new" Anderson expellers and the change made was rather in furtherance of this specification than prejudicial to it.34). Judgment will be reversed. Exhibit D. however. respondents. COURT OF APPEALS.34. Upon examining the several items which go to compose the damages. and we are the more disposed to eliminate this charge for interest. SANYU CHEMICAL CORPORATION. prepared by the plaintiff's department of accounts. but in the absence of express stipulation this cannot be allowed. that the bank should be held to be obligated according to the terms of the order as it stood when the bank entered into the undertaking which is the subject of the suit. insurance.. we consider the following to be legitimate charges. ARRIETA. for the reason that the plaintiff's sales manager has effect admitted that the terms imposed by the plaintiff on Harden were severe. 1920. secondly. and. . first.55. 1920. and the plaintiff will recover of the defendant the sum of twenty-three thousand seven hundred five pesos and thirty-four centavos (P23. and it would tend to frustrate the intention of the parties to hold that Harden had no authority to change the order to the extent stated. — P665. with legal interest from March 8. — P640. was to supply its credit to enable Harden to obtain the expellers ordered by himself.R. expenses actually paid out by the plaintiff in moving the expellers. Syquia Law Offices for petitioner.
Allaga & Zara Law Offices for private respondents. . private respondent spouses Danilo E. FELICIANO. . Angala. incurred or created. 1 (Emphasis supplied) Other relevant provisions of the Continuing Suretyship Agreement follow: (2) This is a continuing suretyship relating to any indebtedness.or whether such indebtedness may be or otherwise become unenforceable. or whether recovery upon such indebtedness may be or hereafter become barred by any statute of limitations. . (hereinafter called Principal) to the Creditor. whether due or not due. Under this Agreement. including that arising under successive transactions which shall either continue the indebtedness from time to time or renew it after it has been satisfied.Batino. . executors. A separate action or actions may be prosecuted against the Principal and whether or not the Principal be joined in any such action or actions. namely. Halili and Pablico Bermundo as sureties. debts. obligations and liabilities of Principal or any one or more of them. here[to]fore. successors. On 27 July 1979. jointly and severally unconditionally guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor). whether direct or acquired by the Creditor by assignment or succession. J. executed in the continuing Suretyship Agreement in favor of Atok Finance as creditor. absolute or contingent. private respondents Sanyu Chemical corporation ("Sanyu Chemical") as principal and Sanyu Trading Corporation ("Sanyu Trading") along with individual private stockholders of Sanyu Chemical. liquidated or unliquidated. whether voluntary or involuntary and however arising. administrators and assigns of the surety. faithful and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] . Sanyu Trading and the individual private respondents who were officers and stockholders of Sanyu Chemical did: (1) For valuable and/or other consideration . now or hereafter made. The word"indebtedness" is used herein in its most comprehensive sense and includes any and all advances. . determined or undetermined and whether the Principal may be may be liable individually of jointly with others.: Atok Finance Corporation ("Atok Finance") asks us to review and set aside the Decision of the Court of Appeals which reversed a decision of the trial court ordering private respondents to pay jointly and severally to petitioner Atok Finance certain sums of money. This suretyship is binding upon the heirs.. the full. and the benefits hereof shall extend to and include the successors and assigns of the Creditor. (3) The obligations hereunder are joint and several and independent of the obligations of the Principal.
however. or by any delay in so doing.00. securities or other property of the Surety given to the Creditor by law. notes. to Atok Finance in consideration of receipt from Atok Finance of the amount of P105. The relevant portions of this Deed of Assignment read as follows: 1. The assigned receivables carried a standard term of thirty (30) days. (6) In addition to liens upon. negotiable instruments and evidences of indebtedness listed in the schedule forming part hereinafter called "Contract" or "Contracts. TRANSFER and ASSIGN all his/its rights. and rights of set-off against the moneys.871. receivables. FOR VALUE RECEIVED. He/It is the sole owner of the assigned Contracts free and clear of claims of any other party except the . and other property of the Surety now and hereafter in the possession of the Creditor.00. enforced and shall be paid over to the Creditor and shall be paid over to the Creditor and shall be paid over to the Creditor on account of the indebtedness of the Principal to the Creditor but without reducing or affecting in any manner the liability of the Surety under the provisions of this suretyship. and if the Creditor so requests. (7) Any indebtedness of the Principal now or hereafter held by the Surety is hereby subordinated to the indebtedness of the Principal to the Creditor. the Creditor shall have the lien upon and a right of self-off against all moneys." 2. Sanyu Chemical assigned its trade receivables outstanding as of 27 November 1981 with a total face value of P125. checks. accounts. securities.xxx xxx xxx. omission or conduct on the part of the Creditor. deeds of sale with reservation of title. that the standard commercial practice was to grant an extension up to one hundred twenty (120) days without penalties. xxx xxx xxx 2 (Emphases supplied) On 27 November 1981. the ASSIGNOR does hereby certify. the ASSIGNOR does hereby SELL. mortgages. invoices. and every such lien or right of self-off may be exercised without need of demands upon or notice to the Surety. No lien or right of set-off shall be deemed to have been waived by any act. it appeared.warrant and represent that : (a).000. such indebtedness of the Principal of the Surety shall be collected. and every right of set-off or lien shall continue in full force and effect until such right of setoff of lien is specifically waived or released by an instrument in writing executed by the Creditor. leases. To induce the ASSIGNEE to purchase the above Contracts. title and interest in the contracts. or by any neglect to exercise such right of set-off or to enforce such lien.
(f). The foregoing warranties and representations are in addition to those provided for in the Negotiable Instruments Law and other applicable laws. (b). assigned and delivered by the ASSIGNOR to the ASSIGNEE simultaneously with the assignment of such Contract. None of the terms or provisions of the assigned Contracts have been amended. The debtor/s under the assigned Contract/s are solvent and his/its/their failure to pay the assigned Contracts and/or any installment thereon upon maturity thereof shall be conclusively considered as a violation of this warranty. (c). (e). No agreement has been made. . Any violation thereof shall render the ASSIGNOR immediately and unconditionally liable to pay the ASSIGNEE jointly and severally with the debtors under the assigned contracts. and (h). Each assigned Contract is a valid obligation of the buyer of the merchandise and/or service rendered under the Contract And that no Contract is overdue. or will be made. offset or counterclaim. except as may be specifically noted at the time of the assignment of the Contract. with any debtor for any deduction discount or return of merchandise. contingent upon the fulfillment of any contract or condition whatsoever.herein ASSIGNEE and has the right to transfer absolute title thereto the ASSIGNEE. or subject to any defense. modified or waived. (g). the amounts due thereon. Each assigned Contract arises out of the sale of merchandise/s which had been delivered and/or services which have been rendered and none of the Contract is now. (d). nor will at any time become. Each assigned Contract is bonafide and the amount owing and to become due on each contract is correctly stated upon the schedule or other evidences of the Contract delivered pursuant thereto. No assigned Contract is represented by any note or other evidence of indebtness or other security document except such as may have been endorsed.
although the individual private respondents submitted a memorandum in support of their argument. the Arrieta spouses. on 1 April 1985. collect and receive in trust for the ASSIGNEE all payments made upon the assigned contracts and shall remit to the ASSIGNEE all collections on the said Contracts as follows : P5.00 balloon payment after 12 months. Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amount due under the trade receivables. the trial court rendered a decision in favor of Atok Finance. SO ORDERED. additional trade receivables were assigned by Sanyu Chemical to Atok Finance with a total face value of P100.00 plus penalty charges amounting to P0.240. judgment is hereby rendered in favor of the plaintiff ATOK FINANCE CORPORATION.00 plus P0.450.03 for every peso due and payable for each month starting from 1 September 1983. 1982. Pablito Bermundo and Leopoldo Halili before the Regional Trial Court of Manila to collect the sum of P120. The ASSIGNOR shall without compensation or cost.03 for each peso for each month from September 1. jointly and severally. 4 . On 13 January 1984. After trial. P110. and against the defendants SANYU CHEMICAL CORPORATION.378.00 as attorney's fees. Atok Finance commenced action against Sanyu Chemical. PABLITO BERMUNDO and LEOPOLDO HALILI.550. NENITA B. to pay the plaintiff: (1) P120.xxx xxx xxx 4. The private respondents contended that the Continuing Suretyship Agreement.240. Sanyu Chemical and the individual private respondents failed to present any evidence on their behalf. being an accessory contract. ARRIETA. at the time of its execution. 1983 until the whole amount is fully paid. At the trial. The dispositive portion of this decision reads as follows: ACCORDINGLY. and (3) To pay the costs. ordering the said defendants.45.000. 3 (Emphasis supplied) Later. Sanyu Chemical had no pre-existing obligation due to Atok Finance.00 due on January 2. ARRIETA. 1982 on every 15th day (semimonthly) until November 1. Sanyu Chemical and the individual private respondents sought dismissal of Atok's claim upon the ground that such claim had prescribed under Article 1629 of the Civil Code and for lack of cause of action. (2) P50. was null and void since. DANILO E.
including the appeal of private respondents. which associate. Atok Finance opposed the Petition for Relief arguing that no valid ground existed for setting aside the resolution of the Third Division of the then IAC. entry of judgment was made by the Clerk of Court of the IAC. 5 Petitioner alleged that the writ of execution was served on private respondents. This Petition was raffled off to the 15th Division of the Court of Appeals. The trial court issued a writ of execution on 23 July 1986." 7 set aside the resolution of the Third Civil Cases Division of the then IAC. In that Petition. inviting attention to the resolution of the IAC's Third Civil Cases Division of 21 March 1986 originally dismissing private respondent's appeal for abandonment thereof. rendered a Decision on the merits of the appeal. private respondents claimed that their failure to file their appeal brief was due to excusable negligence. In a resolution dated 21 March 1986. and the appeal was there docketed as AC-G. that Division dismissed the appeal upon the ground of abandonment. private respondents filed a Petition for Relief from Judgment before the Court of Appeals. The 15th Division. Atok Finance went before the trial court and sought a writ of execution to enforce the decision of the trial court of 1 April 1985. The case was raffled to the Third Civil Cases Division of the IAC. On 4 June 1986. 07005-CV. 6 However. In a resolution dated 18 August 1987. The 15th Division of the Court of Appeals nonetheless granted the Petition for Relief from Judgment "in the paramount interest of justice. had unexpectedly resigned from the law firm without returning the records of cases he had been handling." In the present Petition for Review. Private respondents did file their appeal brief. and gave private respondents a nonextendible period of fifteen (15) days within which to file their appeal brief. ordering it to pay private respondents P3. that is. Atok Finance assigns the following as errors on the part of the Court of Appeals in rendering its decision of 18 August 1987: (1) that it had erred in ruling that a continuing suretyship agreement cannot be effected to secure future debts.R. that their previous counsel had entrusted the preparation and filing of the brief to one of his associates. . on 27 August 1986. on 18 August 1987. while Atok Finance did not file an appellee's brief. and that its decision was arrived at "on the basis of appellant's brief and the original records of the appeal case. No. however.00 as attorney's fees and to pay the costs. Atok Finance moved to set aside the decision of the 15th Division of the Court of Appeals. and reversed and set aside the decision of the trial court and entered a new judgment dismissing the complaint of Atok Finance. Accordingly. since the private respondents had failed to file their appeal brief notwithstanding receipt of the notice to do so. the 15th Division denied Atok Finance's motion stating that it had granted the Petition for Relief from Judgment and given private respondents herein fifteen (15) days within which to file an appeal brief.Private respondents went on appeal before the then Intermediate Appellate Court ("IAC").000.
we note that a Division of the Court of Appeals is co-equal with any other Division of the same court. came into being. In the case at bar. therefore. The said agreement was entered into by the parties two years before the Deed of Assignment was executed..G. or whether that Agreement must be held null and void as having been executed without consideration and without a pre-existing principal obligation to sustain it. 9 This event. We find merit in this contention. however. 8836. On 28 July 1986.(2) that it had erred in ruling that the continuing suretyship agreement was null and void for lack of consideration without any evidence whatsoever [being] adduced by private respondents. At the same time. as in this case.G.Baxter Construction & Co. Manila Fidelity & Surety Co. (3) that it had erred in granting the Petition for Relief from Judgment while execution proceedings [were] on-going on the trial court. a Division of the Court of Appeals has no authority to consider and grant a petition for relief from a judgment rendered by another Division of the same court. nothing in this decision should be read as impliedly holding that a petition from relief judgment is available in respect of a decision rendered by the Court of Appeals. 7247. the Court of Appeals. Thus. the agreement was for acontinuing . to a consideration of the first substantive issue addressed by the Court of Appeals in rendering its Decision on the merits of the appeal: whether the individual private respondents may be held solidarily liable with Sanyu Chemical under the provisions of the Continuing Suretyship Agreement. The Court of Appeals held on this first issue as follows: It is the contention of private appellants that the suretyship agreement is null and void because it is not in consonance with the laws on guaranty and security. So. lead us to believe that the defect here involved should be disregarded as being of secondary importance. 53 O. even if. and. and the probability that some confusion may have accompanied the period of transition from the IAC to the Court of Appeals. Although obligations arising from contracts have the force of law between the contracting parties. (Article 1159 of the Civil Code) this does not mean that the law is inferior to it.. this issue is best reserved for determination in some future cases where it shall have been adequately argued by the parties. Accordingly. We turn. it ran counter to the provision that guaranty cannot exist independently because by nature it is merely an accessory contract. was organized and commenced functioning. The law on guaranty is applicable to surety to some extent Manila Surety and Fidelity Co. allegedly. 8 (Emphasis in the original) As a preliminary matter. v. 53 O. we must note that an intervening event had occurred between the resolution of 21 March 1986 of the Third Civil Cases Division of the IAC dismissing private respondents' appeal and the 30 September 1986 order of the 15th Division of the Court of Appeals granting the Petition for Relief from Judgment. Arran v. the old Intermediate Appellate Court went out of existence and a new court. the terms of the contract could not be enforces if not valid.
Civil Code). however. Article 2053 of the Civil Code states: Art. A guaranty cannot exist without a valid obligation. speaking through Mr. made short shrift of the private respondents' doctrinaire argument: Under his third assignment of error. InNational Rice and Corn Corporation (NARIC) v. a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. appellant Fojas questions the validity of the additional bonds(Exhs. First. (Emphasis supplied) The Court of Appeals apparently overlooked our caselaw interpreting Articles 2052 and 2053 of the Civil Code. in favor of petitioner NARIC." (Emphasis supplied). Nevertheless.B. Fojas and Alto Surety Co.suretyship to include obligations enumerated in paragraph 2 of the agreement. We consider that the Court of Appeals here was in serious error." In affirming the decision of the trial court. 10(Emphasis supplied). D and D-1) on the theory that when they were executed. It may also guaranty a natural obligation. this Court. A guaranty may also be given as security for future debts.C." This legal proposition is not. Jose A. like most legal principles. 2052. there can be no claim against the guarantor until the debt is liquidated. there was a pre-existing obligation which served the principal obligation between the parties. cannot exist without a valid obligation (Art. to be read in an absolute and literal manner and carried to the limit of its logic. the "future debts" alluded to in Article 2053 refer to debts already existing at the time of the constitution of the agreement but the amount thereof is unknown. Furthermore. 2053. the principal obligation referred to in said bonds had not yet been . Reyes. and. There is no proof that when the suretyship agreement was entered into. because this contract. C. Inc. Moreover. Justice J. the amount of which is not yet known. It is also true that Article 2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation. 2053.). This is clear from Article 2052 of the Civil Code itself: Art. 11 the private respondents assailed the decision of the trial court holding them liable under certain surety bonds filed by private respondent Fojas and issued by private respondent Alto Surety Co.. just like guaranty.. upon the ground that those surety bonds were null and void "there being no principal obligation to be secured by said bonds. second. unlike in the case at bar where the obligation was acquired two years after the agreement. although it may be given as security for future debt(Art. A conditional obligation may also be secured. the obligation contemplated in the case at bar cannot be considered "future debt" as envisioned by this law. 2052. the same could not be enforced.L. It is true that a serious guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation.
and private respondent. because in its complaint the NARIC averred. 13 (Emphasis supplied) It is clear to us that the Rizal Commercial Banking Corporation and the NARIC cases rejected the distinction which the Court of Appeals in the case at bar sought to make with respect to Article 2053. the Court said: The surety agreement which was earlier signed by Enrique Go. that is. the amount of which is not yet known. and the appellant did not deny that these bonds were posted to secure the additional credit that Fojas has applied for.14 ." (Emphasis supplied) In Rizal Commercial Banking Corporation v. it can be clearly seen thatthe surety agreement was executed to guarantee future debts which Daicor may incur with petitioner. This defense is untenable. 12 the Court was confronted again with the same issue. is an accessory obligation. as is legally allowable under the Civil Code." and not to debts not yet incurred and existing at that time. that the "future debts" referred to in that Article relate to "debts already existing at the time of the constitution of the agreement but the amount [of which] is unknown. there can be no claim against the guarantor until the debt is liquidated. — A guarantee may also be given as security for future debts. Sr. any more that there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. in force in 1948. Thus — Article 2053. and the credit increase over his original contract was sufficient consideration for the bonds. A conditional obligation may also be secured.entered into. which. Article 1825 of the Civil Code of 1889. in this case is the loan obtained by Daicor as evidenced by a promissory note. it being dependent upon a principal one. Arro. Of course. By terms that are unequivocal. In holding private respondent surety (Residoro Chua) liable under the comprehensive surety agreement. expressly recognized that "a guaranty may also be given as security for future debts the amount of which is not yet known. That the latter were signed and filed before the additional credit was extended by the NARIC is no ground for complaint. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born. whether private respondent was liable to pay a promissory note dated 29 April 1977 executed by the principal debtor in the light of the provisions of a comprehensive surety agreement which petitioner bank and the private respondent had earlier entered into on 19 October 1976. a surety is not bound under any particular principal obligation until that principal obligation is born. the private respondents had bound themselves as solidary debtors of the Diacor Corporation not only in respect of existing obligations but also in respect of future ones. as no copy thereof was attached to the deeds of suretyship. What obviously induced petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily to guaranty the punctual payment of the loan at maturity. Under the comprehensive surety agreement. that is.
from the time of the assignment if the period had already expired. The contention of Sanyu Chemical was that Atok Finance had no cause of action under the Deed of Assignment for the reason that Sanyu Chemical's warranty of the debtors' solvency had ceased. If the credit should be payable within a term or period which has not yet expired. A bank or a financing company which anticipates entering into a series of credit transactions with a particular company. then for such period. executed in favor of petitioner. there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. Article 1629 provides for the duration of assignor's warranty of debtor's solvency depending on whether there was a period agreed upon for the existence of such warranty. Sanyu Chemical relied on Article 1629 of the Civil Code which reads as follows: Art. (2) if no period (or length of time) was agreed upon. 1629. . We turn to the second substantive issue. The debt referred to in this law is the debt under the assigned contract or the original debts in favor of the assignor which were later assigned to the assignee. this is precisely what happened in the case at bar.Comprehensive or continuing surety agreements are in fact quite commonm place in present day financial and commercial practice. the principal places itself in a position to enter into the projected series of transactions with its creditor. Once more. then: (a) one year from assignment — if debt was due at the time of the assignment (b) one year from maturity — if debt was not yet due at the time of the assignment. As we understand it. . In case the assignor in good faith should have made himself responsible for the solvency of the debtor. whether private respondents are liable under the Deed of Assignment which they. it shall last for one year only. that is. the Court of Appeals upheld the contention of private respondents and held that Sanyu Chemical was free from liability under the Deed of Assignment. . on the receivables thereby assigned. is not the debt incurred by the assignor to the assignee as contended by the appellant. The Court of Appeals said: . The debt alluded to in the law. By executing such an agreement. In submitting this contention. analyzing the law thus: (1) if there is a period (or length of time) agreed upon. along with the principal debtor Sanyu Chemical. with such surety agreement.. and the contracting parties should not have agreed upon the duration of the liability. the liability shall cease one year after maturity. commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties.
warrant and represent that . the assigned debts matured between April 3. we consider that the Court of Appeals was in reversible error in so concluding. 15 (Emphasis supplied) Once again." (Exhibit B-2). The letter of demand executed by appellee was dated August 29. 1982. in this case. Both dates were beyond the warranty period. Each of the invoices assigned to the assignee contained a term of 30 days (Exhibits B-3-A to 5 and extended by the notation which appeared in the "Schedule of Assigned Receivables" which states that the ". would then be from the maturity period up to April 3.Applying the said law to the case at bar. (g) the debtor/s under the assigned contract/s are solvent and his/its/their failure to pay the assigned contract/s and/or any installment thereon upon maturity thereof shall be conclusively considered as a violation of this warranty. the terms stated on our invoices were normally extended up to a period of 120 days . Any violation thereof shall render the ASSIGNOR immediately and unconditionally liable to pay the ASSIGNEE jointly and severally with the debtors under the assigned contracts. . the amounts due thereon. thus. 1981 when the Deed of Assignment was executed. 1984. . the ASSIGNOR [Sanyu Chemical] does hereby certify. . 1983 to cover all of the receivables in the invoices. therefore. In effect. 1981. The foregoing warranties and representations are in addition to those provided for in the Negotiable Instruments Law and other applicable laws. The assignor's warranty for debtor's warranty. . 1983 (Exhibit D) and the complaint was filed on January 13. xxx xxx xxx (Emphasis supplied) . 1982 to May 4. The oldest debt then existing was that contracted on November 3. . To induce the ASSIGNEE [Atok Finance] to purchase the above contracts. 1983 or May 4. Considering the terms in the invoices plus the ordinary practice of the company. . 1981 and the latest was contracted on December 4. company-appellant was right when it claimed that appellee had no cause of action against it or had lost its cause of action. . however. the records disclose that none of the assigned receivables had matured on November 27. . The relevant provision of the Deed of Assignment may be quoted again in this connection: 2. and .
Article 1629 of the Civil Code invoked by private respondents and accepted by the Court of Appeals is not. Assignment of receivables is a commonplace commercial transaction today. that penalty is hereby reduced to eighteen percent (18%) per annum (instead of P0. WHEREFORE. Under the Deed of Assignment. We also agree with the Court of Appeals that the original obligors under the receivables assigned to Atok Finance remain liable under the terms of such receivables.R. It follows that at the time the original complaint was filed by Atok Finance in the trial court. L-53955 January 13. 1989 . solidary obligor under each of the assigned receivables. the Decision of the trial court is hereby AFFIRMED. The liability of Sanyu Chemical to Atok Finance rests not on the breach of the warranty of solvency. In other words. The payments due in the first instance from the trade debtors of Sanyu Chemical would represent the return of the investment which Atok Finance had made when it paid Sanyu Chemical the transfer value of such receivables. It is an activity or operation that permits the assignee to monetize or realize the value of the receivables before the maturity thereof. in the exercise of this Court's discretionary authority equitably to mitigate the penalty clause attached to the Deed of Assignment. G. That solidary liability of Sanyu Chemical is not subject to the limiting period set out in Article 1629 of the Civil Code. the effect of non-payment by the original trade debtors was breach of warranty of solvency by Sanyu Chemical. it had a valid and enforceable cause of action against Sanyu Chemical and the other private respondents. the obligations of individual private respondent officers and stockholders of Sanyu Chemical under the Continuing Suretyship Agreement. for all the foregoing. the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and transferred by virtue of the Deed of Assignment. Sanyu Chemical received from Atok Finance the value of its trade receivables it had assigned. material. A new judgment is hereby entered REINSTATING the Decision of the trial court in Civil Case No. and the Decision of the Court of Appeals dated 18 August 1987 and its Resolution dated 30 September 1987 are hereby REVERSED and SET ASIDE. in the case at bar. the liability of Sanyu Chemical was not ex lege (ex Article 1629) but rather ex contractu. became solidarily liable for that obligation of Sanyu Chemical.It may be stressed as a preliminary matter that the Deed of Assignment was valid and binding upon Sanyu Chemical. Sanyu Chemical obviously benefitted from the assignment. except only that. under the terms of the Deed of Assignment. resulting in turn in the assumption of solidary liability by the assignor under the receivables assigned. No. the Petition for Review is hereby GRANTED DUE COURSE. by virtue of the operation of the Continuing Suretyship Agreement. were activated by the resulting obligations of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the Deed of Assignment. As so modified. the other private respondents (the Arrieta spouses. SO ORDERED. Pablito Bermundo and Leopoldo Halili). And because assignor Sanyu Chemical became.03 for every peso monthly [or 36% per annum]). Put a little differently. In other words. Costs against private respondents. 84-22198 dated 1 April 1985.
the whole .037. and GRACE ANNA TEODORO. Rivera for defendants-appellants.000. ANASTACIO TEODORO. defendants-appellants. at 12% interest per annum. or on August 25. in payment of Promissory Notes No. in payment of Promissory Notes Nos. JR. Sr.000. defendants Anastacio Teodoro. 1969 stood at P 15. 1966 and June 20. 11515 and 11699) for P8.: This is an appeal from the decision* of the Court of First Instance of Manila. 1969 until fully paid. Jr.00 respectively. 11487) for the sum of P10. Branch XVII in Civil Case No.420. Anastacio Teodoro.THE MANILA BANKING CORPORATION. 1969 including accrued interest and service charge. plus interest at 12% per annum from September 30. payable in 120 days at 12% interest per annum. together with Anastacio Teodoro. Father and Son made a partial payment on the May 3. (Son) executed in favor of plaintiff two Promissory Notes (Nos.74 as of September 30. plaintiff-appellee..000. 11515 and 11699.00 and P1. 78178 for collection of sum of money based on promissory notes executed by the defendants-appellants in favor of plaintiff-appellee bank. Formoso & Quimbo Law Office for plaintiff-appellee.00 an attorney's fees. The three Promissory Notes stipulated that any interest due if not paid at the end of every month shall be added to the total amount then due. 33) reads as follows: WHEREFORE judgment is hereby rendered (a) sentencing defendants. jointly and severally. and Grace Anna Teodoro jointly and severally. 11487.74. and (b) sentencing defendant Anastacio Teodoro.934. With Costs against defendants. Serafin P. 1966 Promissory Note. Jr. defendants. 1969 until fully paid. The facts of the case as found by the trial court are as follows: On April 25. The dispositive portion of the appealed decision (Record on Appeal. 1966. plus the sum of P1.137.11 plus 12% interest per annum from September 30.00 payable in 120 days. Defendants failed to pay the said amount inspire of repeated demands and the obligation as of September 30. 1966.00 as attorney's fees. BIDIN. Jr. J. (Father) and Anastacio Teodoro.11 including accrued interest and service charge. plus the sum of P500. to pay plaintiff the sum of P15. Sr. to pay plaintiff the sum of P8. 1966. p. vs. 1966 promissory Note but none on the June 20.934. On May 3. executed in favor of plaintiff a Promissory Note (No. leaving still an unpaid balance of P8.
. title.00. . and further..amount to bear interest at the rate of 12% per annum until fully paid. release and quitclaim all its rights. 1964. jointly and severally. This Assignment shall also stand as a continuing guarantee for any and all whatsoever there is or in the future there will be justly owing from the Assignor to the Assignee . Further.. The Deed of Assignment provided that it was for and in consideration of certain credits. pay 10% of the amount over-due as attorney's fees.635.. it is admitted by the parties that plaintiff extended loans to defendants on the basis and by reason of certain contracts entered into by the defunct Emergency Employment Administration (EEA) with defendants for the fabrication of fishing boats. and whatsoever the Assignor does in connection with the collection of said accounts. it agrees to do as agent and representative of the Assignee and in trust for said Assignee . xxx xxx xxx (6) The Assignor guarantees the existence and legality of said accounts receivable. (1) The title and right of possession to said accounts receivable is to remain in the assignee. that Assignor warrants the solvency and credit worthiness of each and every account. In their stipulations of Fact.. and interest in and to the accounts receivables. and that the Philippine Fisheries Commission succeeded the EEA after its abolition.. and that defendants do hereby remise. the Son executed in favor of plaintiff a Deed of Assignment of Receivables from the Emergency Employment Administration in the sum of P44. .00. and it shall have the right to collect the same from the debtor. loans. and the due and punctual payment thereof unto the assignee. and in case of collection through an attorney-at-law. including reasonable attorney's fees in enforcing any rights against the debtors of the assigned accounts receivable and will pay upon demand. xxx xxx xxx (9) . which in no case shall be leas than P200. It appears that on January 24. the makers shall.. that non- .. the entire unpaid balance of said contract in the event of non-payment by the said debtors of any monthly sum at its due date or of any other default by said debtors. overdrafts and other credit accommodations extended to defendants as security for the payment of said sum and the interest thereon.. (7) The Assignor does hereby guarantee the payment when due on all sums payable under the contracts giving rise to the accounts receivable .. on demand.
394. and 10% of the amounts due as attorney's fees. 1972. 1972. then is against defendants Son and his wife for the collection of the sum of P 15. As the appeal involves a pure question of law. as defined by the parties are: (1) whether or not plaintiff claim is already considered paid by the Deed of Assign.7. 1969. p. in its resolution promulgated on March 6. p. On June 23. certified the case to this Court (Rollo. Because the Father died. Son. On June 8. and (2) whether or not it is plaintiff who should directly sue the Philippine Fisheries Commission for collection. defendants filed with the lower court their notice of appeal together with the appeal bond (Record on Appeal. HENCE. documentary evidence. p. and the latter's wife. 1980. 38). 1969 until fully paid. the case as against him was dismiss under the provisions of Section 21. originally against the Father. p. that is — THAT THE DECISION IN QUESTION AMOUNTS TO A JUDICIAL REMAKING OF THE CONTRACT BETWEEN THE PARTIES. Rollo. plus interest on both amounts at 12% per annum from September 30. 1972 (Record on Appeal. this action was instituted on November 13. 14487. In their appeal (Brief for the Appellants. 1980. the First Division of this Court ordered that the case be docketed and declared submitted for decision (Rollo. The issues. 11515 and 11699. On April 17. 33) which was denied by the trial court in its order of June 14. and that the President of plaintiff Bank took steps to collect from the Commission. 1972 (Record on Appeal. On March 7. during the pendency of the suit. p. For failure of defendants to pay the sums due on the Promissory Note. 37). 12). appellants raised a single assignment of error. 24). The record of appeal was forwarded to the Court of Appeals on August 22. the Court of Appeals. but no collection was effected. IN VIOLATION OF LAW.payment of the notes was due to the failure of the Commission to pay defendants after the latter had complied with their contractual obligations. p. 2932). Rule 3 of the Rules of Court. The record on Appeal was forwarded to this Court on March 31. and against defendant Son for the recovery of P 8. considering the length of time that the case has been pending with the Court and to determine whether supervening events may have rendered the case . p. The action. In the resolution of May 30. judgment of Receivables by the Son. the trial court rendered its judgment adverse to defendants. 42). Neither of the parties presented any testimonial evidence and submitted the case for decision based on their Stipulations of Fact and on then.4 on Promissory Notes Nos. p. TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.' (Record on Appeal. however. p.11 on Promissory Note No.037. 1988. 1). 1972. 1980 (Rollo. 33). defendants filed a motion for reconsideration (Record on Appeal.
11487. without transmitting ownership. and (2) whether or not appellee bank must first exhaust all legal remedies against the Philippine Fisheries Commission before it can proceed against appellants for collections of loan under the promissory notes which are plaintiffs bases in the action for collection in Civil Case No. but at times it may constitute a dation in payment. in order to obtain a release from his debt. p. exchange or donation. . assigns to his creditor a credit he has against a third person. who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor. (2) to consider the case terminated and closed with the entry of judgment accordingly made thereon (Rollo. the Court resolved (1) to require the parties to MOVE IN THE PREMISES within thirty days from notice. such as when a debtor. as when the creditor gives as a collateral. dation in payment. by a legal cause. to secure his own debt in favor of the assignee.00 extended to appellants by appellee bank. title and interest in and to the accounts receivable assigned (lst paragraph). overdrafts. 40).. and their credit accommodations in the sum of P10. 1964 did not transfer the ownership of the receivables to appellee bank and release appellants from their loans with the bank incurred under promissory notes Nos. Assignment of credit is an agreement by virtue of which the owner of a credit. remise. 1988. and quitclaim to assignee bank all their rights. It was further stipulated that the assignment will also stand as a continuing .. Vol.000. pp. 5.moot and academic. The character that it may assume determines its requisites and effects. 78178. The major issues raised in this case are as follows: (1) whether or not the assignment of receivables has the effect of payment of all the loans contracted by appellants from appellee bank. the obligations between assignor and assignee will depend upon the judicial relation which is the basis of the assignment: (Tolentino. appellee moved for a resolution of the appeal review interposed by defendants-appellants (Rollo. its regulation. and without the need of the consent of the debtor. The Deed of Assignment provided that it was for and in consideration of certain credits. loans. and the capacity of the parties to execute it. The issue is with regard to its legal effects. that appellants as assignors.11515 and 11699. known as the assignee. 41). I It is evident that the assignment of receivables executed by appellants on January 24. transfers his credit and its accessory rights to another. and in case they fail to make the proper manifestation within the required period. p. It may be in the form of a sale. and as security for the payment of said sum and the interest thereon. and in every case. 165-166). or it may constitute a donation as when it is by gratuitous title. such as sale. or it may even be merely by way of guaranty. On April 27. release. There is no question as to the validity of the assignment of receivables executed by appellants in favor of appellee bank. known as the assignor. Commentaries and Jurisprudence on the Civil Code of the Philippines.
the Assignor do hereby remise. until the consideration on the loans secured by appellants from appellee bank shall have been fully paid by them (No. At the time the deed of assignment was executed. promissory note 11515. while promissory note No. the assignment of the receivables did not result from a sale transaction. . not mere guaranty. regardless of what language was used or what the form of the transfer was. 2 of Deed of Assignment). 1966 (Exh. 9).. 78178.(Ibid.. release and quit-claim unto said assignee all its rights. in the absence of clear and ambiguous language or other circumstances excluding an intent to pledge. (Emphasis supplied by appellants. 1966 (Exh. Thus. said loans were non-existent yet. determined by the language used in the document but by their intention. Definitely. even if sufficient on its farm to make an absolute conveyance. it agrees to do so as agent and representative of the Assignee and it trust for said Assignee .. however. Secured Transaction. Court of Appeals.. it must be construed as a pledge. However. appellants shall also obtain in the future. should be treated as a pledge if the debt continues in existence and is not discharged by the transfer. 1964 (Exh. (Lopez v. It cannot be said to have been constituted by virtue of a dation in payment for appellants' loans with the bank evidenced by promissory note Nos. first par. It has been Id that a transfer of property by the debtor to a creditor.. appellate to have been absolute. 11487 is dated April 25. and that accordingly. 'A). even though a transfer. 'B'). however. of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership. dated May 3. the Court.. p. If it was intended to secure the payment of money. 11515 and 11699 which are the subject of the suit for collection in Civil Case No. that the title and right of possession to said account receivable is to remain in said assignee and it shall have the right to collect directly from the debtor. the use of the terms ordinarily exporting conveyance. Deed of Assignment). title and interest in the accounts receivable described hereunder. 114 SCRA 671 ). Section 50) said: The characters of the transaction between the parties is to be determined by their intention. if regarded by itself.. The position of appellants. its object and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral security. 27) The character of the transactions between the parties is not.guaranty for future loans of appellants to appellee bank and correspondingly the assignment shall also extend to all the accounts receivable. is that the deed of assignment is a quitclaim in consideration of their indebtedness to appellee bank. "G"). in view of the following provisions of the deed of assignment: .' (Record on Appeal. quoting from the American Jurisprudence (68 2d. par. . 11487. and whatever the Assignor does in connection with the collection of said accounts. The deed of assignment was executed on January 24.
and has resorted to all the legal remedies against the debtor. as stated in stipulation No. under Article 2058 of the New Civil Code does not therefore apply to them. The obligation of appellants under the promissory notes not having been released by the assignment of receivables. New Civil Code). on June 20. 16). appellants remain as the principal debtors of appellee bank rather than mere guarantors.000. title and interest of the defendant in the contracts of lease of two buildings as well as her rights. it is imperative that it be so declared in unequivocal terms. That the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor. p. must also be answered in the negative. Resort to one is. 1966 (Exh. In one case. it was a dation in payment for P10.000. the presumption is in favor of pledge. The deed of assignment merely guarantees said obligations. II As to whether or not appellee bank must have to exhaust all legal remedies against the Philippine Fisheries Commission before it can proceed against appellants for collection of loans under their promissory notes. the collection had to be coursed through the Office of the President which disapproved the same (Record on Appeal. there was no obligation to be extinguished except the amount of P10. 9 of the deed.00 was considered by the Court to be documents of mortgage contracts inasmuch as they were executed to guarantee the principal obligations of the defendant consisting of the overdrafts or the indebtedness resulting therefrom. Court of Appeals. resort to the other. Odom. In the instant case. It is but proper that after their repeated . At most. title and interest in the land on which the buildings were constructed to secure an overdraft from a bank amounting to P110. It is of course of the essence of a contract of pledge or mortgage that when the principal obligation becomes due. the things in which the pledge or mortgage consists may be alienated for the payment to the creditor (Article 2087. appellants are both the principal debtors and the pledgors or mortgagors.00. The receivable became virtually worthless leaving appellants' loans from appellee bank unsecured. In case of doubt as to whether a transaction is a pledge or a dation in payment. Obviously. 64 Phil. v.promissory note 11699. As the Emergency Employment Agency (EEA) which issued the receivables had been abolished. the assignments of rights.000. "C"). therefore. or that the old and the new obligations be on every point incompatible with each other (Article 1292. then to P165. The Court ruled that an assignment to guarantee an obligation is in effect a mortgage and not an absolute conveyance of title which confers ownership on the assignee (People's Bank & Trust Co.00.000.00. the amount of credit from appellee bank indicated in the deed of assignment. 126 ). At the time the assignment was executed.000. in order that an obligation may be extinguished by another which substitutes the same. the deed of assignment was intended as collateral security for the bank loans of appellants.00 which was increased to P150. as a continuing guaranty for whatever sums would be owing by defendants to plaintiff. Appellee bank did try to collect on the pledged receivables. Moreover. supra). New Civil Code). the latter being the lesser transmission of rights and interests (Lopez v.
plaintiff-appellant. Paulino Gullas and Pedro Lopez signed as endorsers of this check. the Treasurer of the United States for the United States Veterans Bureau issued a Warrant in the amount of $361. It would be an exercise in futility to proceed against a defunct office for the collection of the receivables pledged. At that time the outstanding balance of Attorney Gullas on the books of the bank was P509. As it is conceded that the plaintiff has already received the sum represented by the United States treasury. SO ORDERED. warrant. Thereupon it was cashed by the Philippine National Bank. the appeal is Dismissed for lack of merit and the appealed decision of the trial court is affirmed in toto.: Both parties to this case appealed from a judgment of the Court of First Instance of Cebu. WHEREFORE. 1933. and the defendant to be absolved totally from the amended complaint. L-43191 November 13. Gullas. Jose Delgado for defendant-appellant. The second named is a banking corporation with a branch in the same city. if any. the appeal will thus determine the amount. 1933. .000 more or less. which sentenced the defendant to return to the account of the plaintiff the sum of P5098. 1935 PAULINO GULLAS. MALCOLM. It appears from the record that on August 2. J. No. Subsequently the treasury warrant was dishonored by the Insular Treasurer. resident in the City of Cebu. with legal interest and costs. G.demands made on appellants for the settlement of their obligations. which is in question. Attorney Gullas left his residence for Manila. Attorney Gullas has had a current account with the bank. Lopez.R. Tuaño and Leuterio for plaintiff-appellant. THE PHILIPPINE NATIONAL BANK. appellee bank should proceed against appellants. vs. The first named is a member of the Philippine Bar. payable to the order of Francisco Sabectoria Bacos. Against this balance he had issued certain cheeks which could not be paid when the money was sequestered by the On August 20. defendant-appellant. which should be paid to the plaintiff by the defendant. the plaintiff to secure damages in the amount of P10. The parties to the case are Paulino Gullas and the Philippine National Bank.
59 Phil. namely. With freedom of selection and after full preference to the minority rule as more in harmony with modern banking practice. (Fulton Iron Works Co. and it is held that a bank has no right.. a bank has a right of set off of the deposits in its hands for the payment of any indebtedness to it on the part of a depositor. 5th ed. The portions of Philippine law provide that compensation shall take place when two persons are reciprocally creditor and debtor of each other (Civil Code. it has been held a long line of authorities that notice of dishonor is in order to charge all indorser and that the right of action against him does not accrue until the notice is given. (Negotiable Instruments Law. notice of dishonor was received and the unpaid balance of the United States Treasury warrant was immediately paid by him. and to apply a deposit to the debt of depositor to the bank and (2) as to the amount damages. g. periodicals in the vicinity gave prominence to the news to the great mortification of Gullas. sec. Paulino Gullas P509. article 1195).) In this connection. The Civil Code contains provisions regarding compensation (set off) and deposit. 20175 in the name of Francisco Sabectoria Bacos for $361 or P722. (1) as to the right of Philippine National Bank. In Louisiana.S.) The Negotiable Instruments Law contains provisions establishing the liability of a general indorser and giving the procedure for a notice of dishonor. (Asia Banking Corporation vs.. Union Trust Company .The bank on learning of the dishonor of the treasury warrant sent notices by mail to Mr. 407. 1758 et seq. necessary proceedings of dishonor be duly taken. Mr.. if any. they were informed that the United States Treasury warrant No. without an order from or special assent of the depositor to retain out of his deposit an amount sufficient to meet his indebtedness. as above indicated..R. In his connection. however. the rule is denied. In the first place. 5 Uniform Laws Annotated. Paulino Gulla and Pedro Lopez. "In view of this therefore we have applied the outstanding balances of your current accounts with us to the part payment of the foregoing check". Javier  44 Phil.net A variety of incidental questions have been suggested on the record which it can be taken for granted as having been adversely disposed of in this opinion. Garrison vs. a civil law jurisdiction. Louisiana Civil Code .. it has been held that the relation existing between a depositor and a bank is that of creditor and debtor. he will pay the amount thereof to the holder. vs. China Banking Corporation . the payment for which had been received has been returned by our Manila office with the notation that the payment of his check has been stopped by the Insular Treasurer. The basis of the Louisiana doctrine is the theory of confidential contracts arising from irregular deposits. 324. 1933. In the second place. As a consequence of these happenings. (1 Morse on Banks and Banking. Gullas which could not be delivered to him at that time because he was in Manila. In the bank's letter of August 21. (Articles 1195 et seq. The main issues are two. which should be awarded Gullas.) As a general rule. On the return of Attorney Gullas to Cebu on August 31. checks including one for his insurance were not paid because of the lack of funds standing to his credit in the bank. 59. namely.lawphil. 777. two occurrences transpired which inconvenienced Attorney Gullas. 66. 111 A. e. the deposit of money with a banker. sec. The general indorser of negotiable instrument engages that if he be dishonored and the. 1933. addressed to Messrs..
Medina for defendant-appellee. and notice should actually have been given him in order that he might protect his interests. On the other hand. R. Also Gullas having eventually been reimbursed lost little through the actual levy by the bank on his funds. Tomas Besa.Annotated. That caused a disturbance in Gullas' finances.) Starting. 359 et seq. At this point recall that Gullas was merely an indorser and had issued in good faith. Lumontad. 2207 et seq. for plaintiff-appellant. No. The fact we believe is undeniable that prior to the mailing of notice of dishonor. We accordingly are of the opinion that the action of the bank was prejudicial to Gullas. Agreeable to the foregoing. E. for on principle it would seem that notice is not necessary to a maker because the right is based on the doctrine that the relationship is that of creditor and debtor. 694 et seq. B. the errors assigned by the parties will in the main be overruled. as to an indorser the situation is different. leave for Manila. and without waiting for any action by Gullas.) The decision cited represents the minority doctrine. we next consider if that remedy was enforced properly. for alleged libelous articles the bank would not be primarily liable. 604. Ann. 8 Manresa. G. from the premise that the Philippine National Bank had with respect to the deposit of Gullas a right of set off. 1968 DIOSDADO YULIONGSIU. it was not agreeable for one to draw checks in all good faith. defendant-appellee. Vicente Jaime. As to a depositor who has funds sufficient to meet payment of a check drawn by him in favor of a third party.. Comentarios al Codigo Civil Español.R. vs.. especially with reference to his insurance. L-19227 February 17. 11 Manresa pp. Bank of Anderson . plaintiff-appellant. 4th ed. arts. (Callahan vs. Cas. with the result that the judgment of the trial court will be modified by sentencing the defendant to pay the plaintiff the sum of P250. then. For instance. the bank made use of the money standing in his account to make good for the treasury warrant.. 2 Ann. PHILIPPINE NATIONAL BANK (Cebu Branch). therefore. The same remark could be made relative to the loss of business which Gullas claims but which could not be traced definitely to this occurrence. Regino Hermosisima & E. and the costs of both instances. Gordon & Gomila vs. we are of the opinion that Gullas should be awarded nominal damages because of the premature action of the bank against which Gullas had no means of protection. But to follow up that statement with others proving exact damages is not so easy.. . 203. and on return find that those checks had not been cashed because of the action taken by the bank.. which was injurious to him. and have finally determined that the amount should be P250. Muchler . All facts and circumstances considered. de los Reyes and C. Sr. However this may be. it has been held that he has a right of action against the bank for its refusal to pay such a check in the absence of notice to him that the bank has applied the funds so deposited in extinguishment of past due claims held against him. 34 L.
by installment or on account. Exhibit "A" & "1-Bank". J. 1951.925. As of January or February. because plaintiff had. To guarantee its payment. 4 On April 6..042. dated December 18. 1948. acting as attorney-in-fact of plaintiff pursuant to the terms of the pledge contract. valued at P109. 2 On June 30. 7 The other two boats. 1947.000. 1948. However. plaintiff obtained a loan of P50. 5 Meanwhile.000. the Cebu Branch Manager of defendant bank. the M/S Surigao and the M/S Don Dino were sold by defendant bank to third parties on March 15. These two notes were never paid at all by plaintiff on their respective due dates. M/S Don Dino and its equity in the FS-203 to the defendant bank.P. transferring the two pledged vessels and plaintiff's equity in FS-203. 1948. plaintiff had paid to the Philippine Shipping Commission only the sum of P76. to defendant bank for P30. from March 11 to March 31. together with the institution of the criminal action. 1948. for P10. 1948.500 and the balance of the purchase price was payable at P50. valued at P63.BENGZON.000 a year. 6 The FS-203 was subsequently surrendered by the defendant bank to the Philippine Shipping Commission which rescinded the sale to plaintiff on September 8. after the first note fell due and was not paid.000.00. Exhibit "4". which was purchased by him from the Philippine Shipping Commission. as last indorsee. 1948. 1948 while the second. valued at P210. The remaining balance was renewed by the execution of two (2) promissory notes in the bank's favor.78 and the M/S Don Dino. due on or before the end of the current year.672. dated February 26. Cebu Branch. J. as evidenced by the pledge contract.000 from the defendant Philippine National Bank. seven Bank of the Philippine Islands checks totalling P184. 1943. was due on June 25. the bank filed criminal charges against plaintiff and two other accused for estafa thru falsification of commercial documents. executed on the same day and duly registered with the office of the Collector of Customs for the Port of Cebu.: Plaintiff-appellant Diosdado Yuliongsiu 1 was the owner of two (2) vessels. deposited with defendant bank. . 1950.72. namely: The M/S Surigao. the conviction was affirmed by the Court of Appeals on October 31.000. The corresponding writ of execution issued to implement the order for indemnification was returned unsatisfied as plaintiff was totally insolvent. On appeal. and operated the FS-203. 3 Subsequently. executed a document of sale. plaintiff was able to withdraw the amount credited to him before the discovery of the defraudation on April 2.24.000. for failure to pay the remaining installments on the purchase price thereof. 1948. The drawer thereof — one of the co-accused — had no funds in the drawee bank. Plaintiff and his co-accused were convicted by the trial court and sentenced to indemnify the defendant bank in the sum of P184. plaintiff effected partial payment of the loan in the sum of P20. and on April 29. The first note. for P20.000. plaintiff pledged the M/S Surigao. was due on April 16. defendant bank took physical possession of three pledged vessels while they were at the Port of Cebu. 1947. in connivance with one employee of defendant bank.
000. The submission is without merit. On the other hand. a pretrial was held resulting in a partial stipulation of facts dated October 2. The lower court rendered its decision on February 13.01. the amount involved being more than P200. Exhibit "A" & Exhibit "1-Bank".On July 19. When his motion for reconsideration and new trial was denied. In such a case. reciting most of the facts above-narrated. 1948 was justified by the pledge contract.000 damages. But then there is . 1960 ruling: (a) that the bank's taking of physical possession of the vessels on April 6. and in order to guarantee the payment of this loan.000. 1958.ñët Necessarily.99 and P8. During the course of the trial.846. was executed and duly registered with the Office of the Collector of Customs for the Port of Cebu on the date appearing therein. (b) that the private sale of the pledged vessels by defendant bank to itself without notice to the plaintiff-pledgor as stipulated in the pledge contract was likewise valid. plaintiff-appellant would have this Court hold that Exhibit "A" & "1-Bank" is a chattel mortgage contract so that the creditor defendant could not take possession of the chattels object thereof until after there has been default. (Emphasis supplied)1äwphï1. the pledge contract. Exhibit "A" & "1-Bank" and the law. and (c) that the defendant bank should pay to plaintiff the sums of P1.000. as his remaining account balance. 1947.000. 8 but increasing its alleged damages to P35. this judicial admission binds the plaintiff. 87 which ruled that there has to be actual delivery of the chattels pledged. 2110 of the present Civil Code 11being new — cannot apply to the pledge contract here which was entered into on June 30. 49 Phil. or set-off these sums against the indemnity which plaintiff was ordered to pay to it in the criminal cases. defendant amended its answer reducing its claim from P202. The latter filed its answer. He points to Betita v." 10 The provision of Art. and the plaintiff obtained and received from the said Bank the sum of P50. 9 The defendant bank as pledgee was therefore entitled to the actual possession of the vessels. there is an authority supporting the proposition that the pledgee can temporarily entrust the physical possession of the chattels pledged to the pledgor without invalidating the pledge. plaintiff commenced action in the Court of First Instance of Cebu to recover the three vessels or their value and damages from defendant bank. 1948.00 was extended to the plaintiff by the defendant Bank. Ganzon. his possession was expressly made "subject to the order of the pledgee.000 plus P5. no amount of rationalization can offset it.00.00.000 to P8. After issues were joined. plaintiff brought the appeal to Us. 12 Plaintiff-appellant would also urge Us to rule that constructive delivery is insufficient to make pledge effective.153. While it is true that plaintiff continued operating the vessels after the pledge contract was entered into. In support of the first assignment of error. The parties stipulated as a fact that Exhibit "A" & "1-Bank" is a pledge contract — 3. That a credit line of P50. Without any showing that this was made thru palpable mistake. with a counterclaim for P202.000. the pledgor is regarded as holding the pledged property merely as trustee for the pledgee.
Sec. such delivery is sufficient. the bank could purchase the whole or part of the property sold " free from any right of . the type of delivery will depend upon the nature and the peculiar circumstances of each case. are no longer authoritative in view of the passage of Act 3135. second. y el derecho de no uso de la prenda pertenence al deudor. convinieron que continuaran los coches en poder del deudor para no suspender el trafico. y estas no reclaman perjuicios no se infringio. Ganzon. Nor was it unjustified considering that plaintiff had just defrauded the defendant bank in the huge sum of P184. the objects pledged — carabaos — were easily capable of actual. 45 Phil. 33 of Act 2612. 763 and El Hogar Filipino v. An examination of the peculiar nature of the things pledged in the two cases will readily dispel the apparent contradiction between the two rulings. In the second assignment of error imputed to the lower court plaintiff-appellant attacks the validity of the private sale of the pledged vessels in favor of the defendant bank itself. o sean acreedor. i. for purposes of showing the transfer of control to the pledgee. 178 are still authoritative despite the passage of Act 3135. 1948. vessels used in maritime business. In other words. as amended by Acts 2747 and 2938 only states that if the sale is public. The parties here agreed that the vessels be delivered by the "pledgor to the pledgor who shall hold said property subject to the order of the pledgee. to foreclosure of real estate mortgages.e. pursuant to the terms of pledge contract. manual delivery unto the pledgee. and third. The Supreme Court of Spain. Since the defendant bank was. In Banco Español-Filipino v. Paredes. the objects pledged — goods contained in a warehouse — were hardly capable of actual. that the charter of defendant bank does not allow it to buy the property object of foreclosure in case of private sales. De Poli." Considering the circumstances of this case and the nature of the objects pledged. The stand We have taken is not without precedent. 44 Phil. whatever formalities there are in Act 3135 do not apply to pledge. It is contended first. and is limited. that the cases holding that the statutory requirements as to public sales with prior notice in connection with foreclosure proceedings are waivable. 1863 of the old Civil Code. in a similar case involving Art. the former could take actual possession at any time during the life of the pledge to make more effective its security.000. was not unlawful. Peterson. como ha sucedido en el caso de autos. Its taking of the vessels therefore on April 6.also Banco Español-Filipino v. Regarding the bank's authority to be the purchaser in the foreclosure sale. 409 ruling that symbolic delivery would suffice. 13 has ruled: 14 Que si bien la naturaleza del contrato de prenda consiste en pasar las cosas a poder del acreedor o de un tercero y no quedar en la del deudor. entre otros este articulo. The rulings in Philippine National Bank v. deudor y Sociedad. In Betita v. y ambos convinieron por creerlo util para las partes contratantes. 7 Phil. 15 So.. that the price obtained at the sale is unconscionable. in full control of the vessels thru the plaintiff. There is no merit in the claims. y el de dejar la cosa bajo su responsabilidad al acreedor. as amended. Thus. es lo cierto que todas las partes interesadas. delivery to him of the keys to the warehouse sufficed. manual delivery in the sense that it was impractical as a whole for the particular transaction and would have been an unreasonable requirement. This law refers only. Peterson.
Angeles and Fernando.. PARDO. 144.. the appealed judgment is. He is the only one to blame for not doing so.1äwphï1. J. Avencena and Bonifacio M. DEVELOPMENT BANK OF THE PHILIPPINES (DBP). But in view of the results reached above. RTC. EUGENIO PALILEO.J. petitioner.ñët G. Zaldivar. plaintiff had at the time an obligation to return the P184. JOSE T. WHEREFORE. Dizon. THE HONORABLE CANDIDO VILLANUEVA. vs.redemption on the part of the mortgagor or pledgor. the mortgagor or pledgor could redeem the property. Costs against plaintiff-appellant. as pointed out by the lower court. Abad for respondents." This even argues against plaintiff's case since the import thereof is this if the sale were private and the bank became the purchaser. plaintiff's remedy was to have set aside the sale. Plaintiff-appellant did not come to court with clean hands. respondents. J. Vicente Millora for petitioner. 1986 FILIPINAS MABLE CORPORATION. there is no more need to discuss the same. L-68010 May 30. DON FERRY. He did defraud the defendant bank first. CASIMERO TANEDO.L. We cannot say the lower court erred in disposing of the case as it did. Jesus A.000 fraudulently taken by him from defendant bank. ROLANDO ATIENZA.. it was only to protect its interests after plaintiff had defaulted in the payment of the first promissory note. Regarding the third contention. If the latter countered with the seizure and sale of the pledged vessels pursuant to the pledge contract. LIM. Concepcion. on the assumption that the purchase price was unconscionable. On the whole. Makati.R. He did not avail of this.B. Castro. Hence. BANCOM SYSTEMS CONTROL. THE HONORABLE INTERMEDIATE APPELLATE COURT. Sanchez. GUTIERREZ. JJ.: . The last assignment of error has to do with the damages allegedly suffered by plaintiff-appellant by virtue of the taking of the vessels. as it is hereby. (Bancom). JR. Moreover. C. INC. MENDOZA.. Plaintiff-appellant was not all-too-innocent as he would have Us believe. plaintiff could have recovered the vessels by exercising this right of redemption. No. Sheriff NORVELL R. So ordered. Makalintal. ALVARO TORIO. Presiding Judge of Br. Reyes. concur. SIMON A. affirmed.
000 or P37. it also got back with its left hand. that DBP granted the loan subject. and that instead of helping petitioner get back on its feet.000. and Jose E. In essence. there was failure of consideration with regard to the execution of said deeds as the loan was never delivered to the petitioner. the petitioner alleged in substance that it applied for a loan in the amount of $5. three (3) to be nominated by Bancom and three (3) by DBP. the petitioner entered into a management contract with Bancom whereby the latter agreed to manage the plaintiff company for a period of three years. (e) failure to develop even a square meter of the quarries in Romblon or Cebu.mentioned and other "take it or leave it" conditions. one of whom shall continue to be the chairman of the board. petitioner Filipinas Marble Corporation filed an action for nullification of deeds and damages with prayer for a restraining order and a writ of preliminary injunction against the private respondents.000 loan.. the affairs of the petitioner were placed under the complete control of DBP and Bancom including the disposition and disbursement of the $5. Inc. (a) failure to purchase all the necessary machinery and equipment needed by the petitioner's project for which the approved loan was intended. (c) the key officers/executives [the President and the officers for finance.000.This petition for review seeks to annul the decision and resolution of the appellate court which upheld the trial court's decision denying the petitioner's prayer to enjoin the respondent from foreclosing on its properties.00 . in Filipinos Marble's board.00 loan because it is petitioner's contention that there was no loan at all to secure since what DBP "lent" to petitioner with its right hand. and (d) the $5 Million loan shall be secured by: 1) a final mortgage on the following assets with a total approved value of P48. (b) DBP shall be represented by no less than six (6) regular directors.000. Villegas.. among which are: (a) petitioner shall have to enter into a management contract with respondent Bancom Systems Control. 2) the joint and several signatures with Filipinas Marble of Mr.000. The petitioner further . (b) failure to construct a processing plant. [Bancom].630. DBP shall immediately designate Mr. marketing and purchasing] to be chosen by Bancom for the corporation shall be appointed only with DBP's prior approval and all these officers are to be made directly responsible to DBP. to sixty onerous conditions. after which Bancom resigned with the approval of DBP even before the expiration date of the management contract. In its complaint. Sr. Montelibano and 3) assignment to DBP of the borrower firm's right over its mining claims. that under the management agreement. and (f) nearly causing the loss of petitioner's rights over its Cebu claims. On January 19.00 with respondent Development Bank of the Philippines (DBP) in its desire to develop the fun potentials of its mining claims and deposits. the petitioner in its complaint seeks the annulment of the deeds of mortgage and deed of assignment which it executed in favor of DBP in order to secure the $5..756.600. Trinidad Villegas. DBP completely abandoned the petitioner's project and proceeded to foreclose the properties mortgaged to it by petitioner without previous demand or notice. 1983. leaving petitioner desolate and devastated. (d) purchase of unsuitable lot for the processing plant at Binan.000. that the respondents and their directors/officers mismanaged and misspent the loan. Pelagio M. however. (c) abandonment of imported machinery and equipment at the pier. . Assistant Manager of DBP's Accounting Department as DBP's Comptroller in the firm whose compensation shall be borne by Filipinas Marble. Alvaro Torio. and that. that pursuant to these above. that among the acts and omissions of the respondents are the following.
72 and with arrearages reaching up to 81 % against said total obligation. DBP's right to foreclose is mandatory as the arrearages of petitioner had already amounted to P123. 385 applies only where it is clear that there was a loan or where the loan is not denied' (p. It is a settled rule that when the statute is clear and unambiguous. It having been shown that plaintiff's outstanding obligation as of December 31. irrespective of whoever is responsible for placing them in their positions. which allegedly placed the petitioner under the complete control of the private respondents DBP and Bancom Systems Control Inc. at best.265.D. 385 dated December 7. After a hearing on the preliminary injunction. it disclaims receipt of the $5 million loan nor benefits derived therefrom and bewails the onerous conditions imposed by DBP Resolution No.801. there is no room for interpretation. 1982 amounted to P151.641.D. and all that it has to do is to apply the same. and the capacity of the DBP to be an assignee of the mining lease rights. despite the impressive testimony of the plaintiff's witnesses. the Court believes that it cannot enjoin the defendant Development Bank of the Philippines from complying with the mandatory provisions of the said Presidential Decree.957. Respondent DBP opposed the issuance of a writ of preliminary injunction stating that under Presidential Decree No. 385. the same may be considered material and relevant to the case. the Court finds the provisions of P. that under the same decree. 385 applicable to the instant case. Hence. and while it sympathizes with the plight of the plaintiff and of the pitiful condition it now has found itself. On appeal. 385. for short). 14-petition). the Intermediate Appellate Court upheld the trial court's decision and held: While petitioner concedes 'that Presidential Decree No. their receipt of the money was receipt by the petitioner corporation and that the complaint does not raise any substantial controversy as to the amount due under the mortgage as the issues raised therein refer to the propriety of the manner by which the proceeds of the loan were expended by the petitioner's management. While the evidence so far presented by the plaintiff corporation appears to be persuasive. therefore. be accepted only in a technical sense because the money was received by the officers of the petitioner acting in such capacity and.957.prayed that pending the trial on the merits of the case. (Bancom. The plausibility of petitioner's . it cannot but adhere to the mandatory provisions of P. the trial court immediately issue a restraining order and then a writ of preliminary injunction against the sheriffs to enjoin the latter from proceeding with the foreclosure and sale of the petitioner's properties in Metro Manila and in Romblon.82 as against its total obligation of P151.72.641. the allegedly precipitate manner with which DBP proceeded with the foreclosure. no court can issue any restraining order or injunction against it to stop the foreclosure since Filipinas Marble's arrearages had already reached at least twenty percent of its total obligations. 1977. the trial court issued an order stating: The Court has carefully gone over the evidence presented by both parties. that the alleged non-receipt of the loan proceeds by the petitioner could.
316. With regard to the first assignment of error. it must follow that PD 385 does not and cannot apply.D. and 3. 385 respectively provide: .statement that it did Dot receive the $5 million loan is more apparent than real. is not present in petitioner's case. At the hearing for injunction before the counsel for DBP stressed that $2. 2. It likewise faults the appellate court for upholding the applicability of the said decree. Dissatisfied with the appellate court's decision. Injunction) showed disbursements amounting to millions of pesos for working capital and opening of letter of credits for the acquisition of its machineries and equipment.D. equipment and spare parts for petitioner's Diamond gangsaw which machineries were actually imported by petitioner Filipinas Marble Corporation and arrived in the Philippines. Additionally. the mortgage cannot exist or stand by itself being a mere accessory contract. Sections 1 and 2 of P. No. said court committed grave abuse of discretion in holding that it had no recourse but to apply P. If there was no valid loan contract for failure of consideration. Petitioner does not dispute that releases were made for the purchase of machineries and equipment but claims that such imported machineries were left to the mercy of the elements as they were never delivered to it. xxxxxxxxx Apart from the foregoing. 385. Presidential Decree No. and violative of the due process clause. a summary of releases to petitioner covering the period June 1978 to October 1979 (Exh. There being 'persuasive' evidence that the $5 million proceeds of the loan were not received and did not benefit the petitioner per finding of the lower court which should not be disturbed unless there is grave abuse of discretion. the petitioner maintains that since the trial court found "persuasive evidence" that there might have been a failure of consideration on the contract of loan due to the manner in which the amount of $5 million was spent. Nowhere in the record is it shown or alleged that petitioner has paid in order that it may fall within the exception prescribed on Section 2. 385 because the application of this decree requires the existence of a valid loan which. 2. Therefore. the chattel mortgage has not been registered.83 of the $5 million loan was earmarked to finance the acquisition of machinery. Indeed.625. petitioner is patently not entitled to a writ of preliminary injunction for it has not demonstrated that at least 20% of its outstanding arrearages has been paid after the foreclosure proceedings were initiated. the petitioner filed this instant petition with the following assignments of errors: 1. PD 385 is unconstitutional as a 'class legislation'. however. the same is null and void under Article 2125 of the New Civil Code.
then P. lead that corporation to bankruptcy through mismanagement or misappropriation of its funds. after ruining it. The respondents also argue that since the loan was extended to the corporation.000. P.000. resort to court actions in order to prevent or delay the government's collection of their debts and loans. The government. to foreclose the collaterals and/or securities for any loan. when they become delinquent. temporary or permanent injunction is sought by the borrower(s) or any third party or parties. credits. No restraining order. except after due hearing in which it is established by the borrower.D. In the case at bar. 385 must be peremptorily applied and that there is no way the borrower corporation can prevent the automatic foreclosure of the mortgage on its properties once the arrearages reach twenty percent (20%) of the total obligation no matter who was responsible. and/or guarantees granted by them whenever the arrearages on such account. 385 was never meant to protect officials of government lending institutions who take over the management of a borrower corporation. including interest and other charges. and/or guarantees on which the arrearages are less than twenty percent (20%). credit accommodation.00 loan was actually granted and released to the petitioner corporation and whatever the composition of the management which received the loan is of no moment because this management was acting in behalf of the corporation. This shall be without prejudice to the exercise by the government financial institution of such rights and/or remedies available to them under their respective contracts with their debtors. . and who. by large borrowers who. temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof. is bound by basic principles of fairness and decency under the due process clause of the Bill of Rights. including the right to foreclose on loans. and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the filing of foreclosure proceedings.Section 1.D. It shall be mandatory for government financial institutions after the lapse of sixty (60) days from the issuance of this Decree. including accrued interest and other charges. as appearing in the book of accounts and/or related records of the financial institution concerned. however. accommodations. amount to at least twenty (20%) of the total outstanding obligations. the releases had to be made to the then officers of that borrower corporation. The designated officers of the government financing institution cannot simply walk away and then state that since the loans were obtained in the corporation's name. use the mandatory provisions of the decree to avoid the consequences of their misdeeds. Section 2. which are necessary to finance development projects all over the country. Presidential Decree No. 385 was issued primarily to see to it that government financial institutions are not denied substantial cash inflows. the respondents try to impress upon this Court that the $5. whether such restraining order.
This matter should rightfully be litigated below in the main action. pp. when there is partial failure of consideration.. C. Sherman.. at this point. the mortgage becomes unenforceable to the extent of such failure (Dow. 172 N. to develop the projects of the corporation. 5-6). Ruaya. the extent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under P. 385 to satisfy the whole amount of the loan would be a gross mistake. then the foreclosure of the petitioner's properties under the provisions of P. Court of Appeals. there was failure on the part of the respondent DBP to deliver the consideration for which the mortgage and the assignment of deed were executed.00 loan agreement on April 28. . 59. Tolentino entered into an P80. 56): When Island Savings Bank and Sulpicio M. 385 will have to await the presentation of evidence in a trial on the merits.. p.D. . does not make the real estate mortgage void for lack of consideration. that is. 1965. It may either be a prior or subsequent matter. 82. But when the consideration is subsequent to the mortgage. 2. its employees and their families. 110 SCRA 46 . 1974 ed. no consideration was then in existence. Tolentino executed his real estate mortgage. what the petitioner is trying to point out is that the DBP and Bancom people who managed Filipinas Marble misspent the proceeds of the loan by taking advantage of the positions that they were occupying in the corporation which resulted in the latter's devastation instead of its rehabilitation. The petitioner does not question the authority under which the loan was delivered but stresses that it is precisely this authority which enabled the DBP and Bancom people to misspend and misappropriate the proceeds of the loan thereby defeating its very purpose.J.000. xxxxxxxxx The fact that when Sulpicio M. vs. It would unduly prejudice the petitioner. . Only after trial on the merits of the main case can the true amount of the loan which was applied wisely or not. (1 39 SCRA 46. We cannot. for the benefit of the petitioner be determined.S. And. (Penacio vs. 138). Pending the outcome of such litigation. et al.D. cited in Vol. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. conclude that respondent DBP together with the Bancom people actually misappropriated and misspent the $5 million loan in whole or in part although the trial court found that there is "persuasive" evidence that such acts were committed by the respondent. it is as if the loan was never delivered to it and thus. Poore Vol.Precisely. Court of Appeals.E. 5253.. the mortgage can take effect only when the debt secured by it is created as a binding contract to pay (Parks vs. Consequently.D. 125 SCRA 122 . 385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for the misappropriation of the loan. P. p. even if only in part. they undertook reciprocal obligations. Vol. Therefore. As we have ruled in the case of Central Bank of the Philippines vs. as there was no debt yet because Island Savings Bank had not made any release on the loan. the obligation or promise of each party is the consideration for that of the othe.
the same is null and void. . it is indispensable. thus. It states: Art. Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not affect the immediate parties. xxxxxxxxx The petitioner cannot invoke the above provision to nullify the chattel mortgage it executed in favor of respondent DBP. " As regards the second assignment of error. If the instrument is not recorded. reject the petitioner's argument that since the chattel mortgage involved was not registered. this Court can restrain the respondents from foreclosing on petitioner's properties pending such litigation. 385 cannot be applied and thus. The above conditions lend credence to the petitioner's contention that the "original loan had been converted into 'equity shares'. In addition. we agree with the petitioner that a mortgage is a mere accessory contract and.D. We. This contention is untenable.Under the admitted circumstances of this petition. or preferred shares. to all intents and purposes. we. Conversion into preferred shares of P 2 million of FMCs total obligations with DBP as of the date the legal documents for this refinancing shall have been exempted or not later than 90 days from date of advice of approval of this accommodation. P. therefore. in addition. FMC shall also pay DBP.32 plus interest due thereon which was used for the importation of one Savage Diamond Gangsaw shall be liquidated out of the proceeds of this $5 million loan. Two of the conditions imposed by respondent DBP for the release of the $5 million loan embodied in its letter to petitioner dated December 21. assert that even if the $5 million loan were not existing. 2125. The respondents. however. therefore. the only 'loan' which is the subject of the foreclosure proceedings is the $5 million loan in 1978. its validity would depend on the validity of the loan secured by it. the mortgage on the properties sought to be foreclosed was made to secure previous loans of the petitioner with respondent and therefore. in order that a mortgage may be validly constituted that the document in which it appears be recorded in the Registry of Property. 1977 state: A. The interim loan of $289. out of the proceeds of above foreign currency loan. the mortgage is nevertheless binding between the parties.917. hold that until the trial on the merits of the main case. In addition to the requisites stated in article 2085. the past due amounts on obligation with DBP. the foreclosure is still justified. xxxxxxxxx B.
Inc. we decide the case on a non. For purposes of reference. IN VIEW OF THE FOREGOING. offering to pay the sum of P2. the petition is GRANTED. L-13299 PERFECTO ADRID. we reproduce the pertinent portions of said stipulation of facts: 1. ET AL.00 with 12% interest per annum with right to repurchase Lot . plus 12% interest per annum.000. This Court does not decide questions of a constitutional nature unless absolutely necessary to a decision of a case. Berta College vs. Montemayor. 196 U. intervenors-appellees. Cavite. and asking for accounting of all the produce of the lot since 1938. 1984 and July 3..000. We follow the rule started in Alger Electric. situated in General Trias.. defendant-appellee. vs. The orders of the Intermediate Appellate Court dated April 17. purporting to sell the lot to Eugenio Morga for the sum of P2. 45). SO ORDERED. J. WHEREFORE. 211 U. execution a document entitled “Sale with Right to Repurchase”. 1984 are hereby ANNULLED and SET ASIDE. If there exists some other grounds of construction. (135 SCRA 37. Court of Appeals. Fortunato Jose for appellants. But in 1956. No.S. (See Burton vs. the temporary restraining order issued by this Court on July 23. 1938.. and MAMERTO MORGA. Luisville & Nashville R.: On August 8. converted into one of antichresis. We see no necessity of passing upon the constitutional issues raised by respondent Northern.We find no need to pass upon the constitutional issue raised in the third assignment of error.000 with the right to repurchase the same within two yeas for the same sum of P2. Kentucky. The parties plaintiff and defendant instead of presenting evidence.S. The vendors never repurchased said Lot No. 123 U. ROSARIO MORGA. then owners of No. (Carmen Silangcruz then being already dead) brought the present action against the administratrix of the deceased Eugenio Morga to recover the same Lot No.. ET AL. 550. July 25.R. 550 of the San Francisco Malabon Estate Subdivision. vs. 45). 1984 shall remain in force until the merits of the main case are resolved. Exhibit A. In the meantime. ETC. submitted a stipulation of facts with the prayer that decision be rendered on the basis of such facts. The trial court is ordered to proceed with the trial on the merits of the main case. the spouses Perfecto Adrid and Carmen Silangcruz executed a deed of sale for P2. Siler vs.S. 550. Co. United States.constitutional determination. this on the theory that the original contract of sale with pacto de retro (Exhibit A) was by acts of the parties to the said contract. 1960 G. 283. plaintiff-appellant. 175. Perfecto Adrid and his wife Carmen Silangcruz. 1938.000. Perfecto Adrid and his son. That on August 8.
we have here a clear case of equitable mortgage. and the spouses Eugenio Morga and Genoveva Vasquez on the other. That on August 8. Exh. Cert. 3. “C’. the title of the deceased vendee a retro. with costs. Lot No.844 square meter. 10028. They are likewise ordered to pay the amount of P1. “B”. 550 being given as security. In other words. rendered a decision. 550 of the Malabon Estate within the period of two (2) years from date and covered by Trans. Wherefore judgment is hereby rendered against the plaintiffs. Otherwise. 1957. the herein defendant and intervenors. is a contract of sale with the right to repurchase. That the yearly harvest of palay of this lot No. became consolidated by operation of law. Cert. covering lot 550. That in par. 4. “A” there is stipulation which reads: “Should we Perfecto Adrid and Carmen Silangcruz. 6. . 47. “A”. as stated in Trans. the disposition part of which reads as follows: In view of the foregoing considerations. That said deed of sale was registered in the office of the Register of Deed of Cavite and inscribed at the back of Trans. The parties to the contract must have contemplated the lot remaining in the possession of the vendors . and that the price cavan is P10.00 as attorney’s fees. said possession and yearly harvest of palay were transferred to his heirs. That this lot 550 appears assessed in the names of the spouses Perfecto Adrid and Carmen Silangcruz under Tax Declaration No. We have carefully studied this case. of Title No. examined the document entitled “Sale with Right to Repurchase” (Exhibit A) and the acts of the parties thereto subsequent to its execution and we have come to the conclusion that the intention of the parties was merely for Perfecto and his wife Carmen to borrow the sum of P2. then Eugenio Morga shall be the complete and absolute owner of the same without the necessity of further executing a deed of conveyance or any other document”.00 were being paid by Eugenio Morga.00. Cert. this Court is of the opinion and so holds that the contract entered into between the spouses Perfecto Adrid and Carmen Silangcruz on one hand. The Court of First Instance of Cavite on July 15. 10028. Eugenio Morga and Genoveva Vasquez.000 by the alleged vendors until the same shall have been paid to Eugenio. 550 (is) 30 cavanes net since its area is 35.000 from Eugenio Morga.No. 1939. . and upon his death on August 25. the date of the execution of said deed of sale with the right to repurchase. a copy of which is hereto attached as Exh. 1952. . 11. 10028. 1938. fail to repurchase the abovementioned parcel of land under the stipulations above mentioned. there would be no reason for the agreement made for the payment of 12% interest per annum. the vendee Eugenio Morga took possession of the land and benefited himself of the yearly produce of palay. 5 of the national document Exh. of Title No. of Title No.350. on August 11. The plaintiffs having failed to repurchase the land within the stipulated period of two years from the date of the execution of the contract. This interest must refer to the use of P2. 5. and its yearly taxes amounting to P17. Exh.
Morga according to the contention of the plaintiff. 1929 ADRIANO ARBES.. Paras. Exhibit A.R. after the execution of the contract. it was converted into one of antichresis just because the vendee took possession of the land. G.00 a year. are the following. The defendants are hereby ordered to give up the possession of the lot in question to the appellants upon the payment of P2. 339 this Court said: What characterizes a contract of antichresis is that the creditor acquires the right to receive the fruits of the property of his debtor with the obligation to apply them to the payment of interest. In the case of Alojado vs. decision to take possession of the land. However. but the tax declaration for the lot also remained in the name of said vendors. the appealed decision is hereby reversed. plaintiffs-appellees. and all these years. Besides. The certificate of title remained in the name of the alleged vendors. But this did not convert. the contract provided for the payment of interest which is characteristic of a loan or equitable mortgage. Bautista Angelo. vs. No interest will be paid inasmuch as Eugenio and his heir have received the products of the land in lieu of the payment of interest. which should have been done in 1940. and then to the principal of his credit. VICENTE POLISTICO. 51 Phil. . the creditor. In view of the foregoing.00 for its sale. in lieu of the payment of interest at 12% a year. 31057 September 7. Concepcion.2 The contention of plaintiffs that although the original contract was one of sale with right to repurchase. P300. if any is due. concur. A parcel of land with an annual production of P300.00 a year.000 would be rather inadequate for the supposed sale of Lot No. is clearly untenable. No. Eugenio during his lifetime. Despite the expiration of the two year period for the alleged repurchase. the contract is a sale with the right to repurchase and not an antichresis. JJ.inasmuch as it was considered a mere security. which would only be P240. nor in the acts of the parties subsequent to its execution to show that the parties had entered into a contract of antichresis. ET AL. and his heirs after his death. C. and when such a covenant is not made in the contract which speaks unequivocally of a sale with right of repurchase. that is top say. 550 which has an area of about 3 1\2 hectares and has a yearly production of thirty cavans of palay valued P10. Barrera and Gutierrez David. continued to pay the real estate tax in the name of the vendors. Padilla. ET AL. finding it financially advantageous to receive the products thereof. Lim Siongco.000.000..J. defendants-appellants.. No costs. There is nothing in the document. pending payment of the loan . Labrador.00.00 would or should command more than P2. the contract from a sale with pacto de retro to that of antichresis. Not only this. neither Morga nor his heir have consolidated their title to the land. Endencia. Some of the the reasons behind our conclusion that the present case is one of equitable mortgage.00 a cavan.1 It is also a fact that the price of P2.. as contended by plaintiffs. valued at P300.
" The plaintiffs were members or shareholders... Credits paid.....70 6...... the court appointed Amadeo R.. it is not necessary that all members of the association be made parties to the action. Miscellaneous.00 P109. 345....55 .258...... and accounts of "Turnuhan Polistico & Co... Interest received. (Borlasa vs. which is attached to the record.. This court held then that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their possessions.) The case having been remanded to the court of origin. with the following resume: Income: Member's shares...... Loans on promissory notes.....25 9... commissioner to examine all the books..........55 4.. directors and secretary of said association.: This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico & Co... The first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's demurrer... Loans on realestate...... VILLAMOR.....00 4.. Quintos................ respectively...........Marcelino Lontok and Manuel dela Rosa for appellants.... and by agreement of the parties.. both parties amend... Sumulong & Lavides for appellees..... 68. documents.......45 1... J...... 47 Phil. and the defendants were designated as president-treasurer....... 97.146... It is well to remember that this case is now brought before the consideration of this court for the second time......196... their complaint and their answer..........." and to receive whatever evidence the parties might desire to present..263.....891. The commissioner rendered his report.. so as to include all the members of "Turnuhan Polistico & Co...... of the Insular Auditor's Office.. and requiring the former to amend their complaint within a period.70 Expenses: Premiums to members...." either as plaintiffs or as a defendants.. Polistico............827............569...620....
... supra...... 1..80.... The trial examined the evidence and the commissioner's report. holding that the association "Turnuhan Polistico & Co. 39 Phil.... with costs against the defendants. but the appellants allege that because it is so.. and to the rest of the members of the said association represented by said plaintiffs. 516). to wit: (1) That not all persons having an interest in this association are included as plaintiffs or defendants.. to the plaintiffs in this case.(37 Phil... having examined the reasons for the objection....Salaries.. some charitable . (2) that the objection to the commissioner's report should have been admitted by the court below... despite the praiseworthy efforts of the attorney of the defendants. and especially those referring to the disposition of the association's money.. vs. when approved by the Court.. and sentencing the defendants jointly and severally to return the amount of P24..012... accepting and adopting the findings of fact contained in said report... There is no question that "Turnuhan Polistico & Co......00 1. the trial court having examined all the evidence touching the grounds for the objection and having found that they had been explained away in the commissioner's report. 474).. the decision on the case of Borlasa vs... should not be disturbed.. E.. C. In Tan Dianseng Tan Siu Pic vs..10 85......... McCullogh & Co...... rendered judgment. it was held that the findings of facts made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure stand upon the same basis. Polistico. Echauz Tan Siuco (5 Phil.. The defendants assigned several errors as grounds for their appeal. but we believe they can all be reduced to two points. With regard to the second point. and accepting it.... the court held: "Under section 140 of the Code of Civil Procedure it is made the duty of the court to render judgment in accordance with the report of the referee unless the court shall unless for cause shown set aside the report or recommit it to the referee...80 The defendants objected to the commissioner's report....90 Cash on hand. Miscellaneous. Baguio. we are of opinion that.. the conclusion reached by the court below...... as findings made by the judge himself....... We find no convincing arguments on the appellant's brief to justify a reversal of the trial court's conclusion admitting the commissioner's findings... This provision places upon the litigant parties of the duty of discovering and exhibiting to the court any error that may be contained therein... 962). found the same sufficiently explained in the report and the evidence.S...... as well as the documents showing the uncollected credits of the association. must be followed. but the trial court. 24.686...607. and accepted the findings of fact made in the report....607.........." The appellants stated the grounds for their objection.. And in Kriedt vs..095.. As to the first point...." is unlawful.." is an unlawful partnership (U.
the charitable institution of the domicile of the partnership. during its existence as result of the business in which it was engaged. and must be established for the common benefit of the partners. should be included. as Manresa remarks. paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is decreed. each one's contribution? The authors discuss this point at great length. the contract entered into can have no legal effect. and in that case. He holds that the partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his action. because for the purpose. but Ricci decides the matter quite clearly. how can it give rise to an action in favor of the partners to judicially demand from the manager or the administrator of the partnership capital. those of the province are not necessary parties in this case. which passes to the managing partner for the . We deem in pertinent to quote Manresa's commentaries on article 1666 at length. Commenting on said article Manresa. dispelling all doubts thereon. it is asserted: If the partnership has no valid existence. The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership. to those of the province.institution to whom the partnership funds may be ordered to be turned over. in the case of unlawful partnership. The action which may arise from said article. and it is not necessary for the said parties to base their action to the existence of the partnership. as a clear explanation of the scope and spirit of the provision of the Civil Code which we are concerned. which is to annul and without legal existence by reason of its unlawful object. if it is considered juridically non-existent. Hence. According to said article. as a party defendant. the partner will have to base his action upon the partnership contract. or. but must be given to some charitable institution. And he adds in explanation that the partner makes his contribution. The appellants refer to article 1666 of the Civil Code. When the dissolution of an unlawful partnership is decreed. which provides: A partnership must have a lawful object. the profits shall be given to charitable institutions of the domicile of the partnership. And hence. in default of such. among other things says: When the subscriptions of the members have been paid to the management of the partnership. Appellant's contention on this point is untenable. the profits cannot inure to the benefit of the partners. no charitable institution is a necessary party in the present case of determination of the rights of the parties. but on the fact that of having contributed some money to the partnership capital. and employed by the latter in transactions consistent with the purposes of the partnership may the former demand the return of the reimbursement thereof from the manager or administrator withholding them? Apropos of this. is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership. and it is self evident that what does not exist cannot be a cause of action. and in the default thereof.
purpose of carrying on the business or industry which is the object of the partnership. which must be the basis of the judicial complaint. nor state what to be done with them. should be. upon the dissolution of the unlawful partnership. be given to the charitable institutions of the domicile of the partnership. since this partition or distribution of the profits is one of the juridical effects thereof. vol. which did not describe the purpose to which those profits denied the partners were to be applied. for depriving the partner of the portion of the capital that he contributed. there is no reason. by denying to the partners the action to demand them. for which reason he is not bound to return it and he who has paid in his share is entitled to recover it. or. in such a case. it would be immoral and unjust for the law to permit a profit from an industry prohibited by it. Hence the distinction made in the second paragraph of this article of this Code. the circumstances of the two cases being entirely different. Commentaries on the Spanish Civil Code. and the law will not consent to the latter remaining in the possession of the manager or administrator who has refused to return them. affirmed with costs against the appellants. 262-264) The judgment appealed from. and hence the partners should reimburse the amount of their respective contributions. because this would be an excessive and unjust sanction for. without any consideration. in default of such. and therefor. as we have seen. however. because it only deals with the disposition of the profits. shows that in consequences of said exclusion. and the administrator of the partnership holding said contribution retains what belongs to others. in order to demand the proportional part of the said profits. business or speculation which is the object of the partnership. Wherefore considering this contract asnon-existent. The profits are so applied. and not the contributions. to breathe the breath of life into a partnership contract with an objection forbidden by law. by reason of its illicit object. Our Code does not state whether. the purpose from which the contribution was made has not come into existence. providing that the profits obtained by unlawful means shall not enrich the partners. the defendants shall pay . (Manresa. This is a new rule. as it is hereby. And as said contrast does not exist in the eyes of the law. the partner would have to base his action on the contract which is null and void. Furthermore. to those of the province. provided. but shall upon the dissolution of the partnership. introduced to supply an obvious deficiency of the former law. unprecedented by our law. or in other words. it cannot give rise to the necessary action. XI. but the fact that said contributions are not included in the disposal prescribed profits. because they do not constitute or represent the partner's contribution but are the result of the industry. the amounts contributed are to be returned by the partners. pp. But this is not the case with regard to profits earned in the course of the partnership. the general law must be followed. Any other solution is immoral. being in accordance with law.
2 When the respondent refused to comply. 1 Prior to the expiration of the lease on August 31. the petitioner filed a complaint for ejectment against him in the City Court of Baguio City. effective September 1. 1964. 1987 AREVALO GOMEZ CORPORATION. The monthly rental was fixed at P2. On December 1. that he was given the requisite notice to vacate. on October 2. No. Renato Arevalo. 1979. And it was only on October 2. Feria.: Some agreements deteriorate into misunderstandings. doing business in the name and style of "TIONGSON BAZAAR" and The Honorable SALVADOR J. the defendant has continued occupying the leased premises thereafter and even to this day. for a term of fifteen years. However. Lugtu & Lao for petitioner. respondents. J. VALDEZ. Applying Article 1670 of Civil Code. that the defendants shall deposit this sum of money and other documents evidencing uncollected credits in the office of the clerk of the trial court. petitioner.000.607.. the petitioner through its Vice-President. 70360 March 11. and provided. It is. turning close friends into irreconcilable adversaries and sweet harmony into bitter discord. 1964.00 but in addition to this the respondent agreed to construct on the interior portion of the land leased a three-story building of strong materials without right to reimbursement from the petitioner. upon being duly identified in the manner that it may deem proper. the parties entered into negotiations to fix a new rental but could not come to any agreement.80 from the date of the decision of the court. CRUZ. The cost of the building was to be not less than P150. further. So ordered. ANDERS LAO HIAN LIONG. abundantly clear that under the law. JR.000.00 would be contributed by petitioner. G.00. executed a "Contract of Lease" covering the petitioner's property at Magsaysay Avenue. 1979. therefore. it is admitted that the 15-year lease contract between the parties expired on August 31. or after more than 15 days after the expiration of the original contract of lease. 1979. and for some time thereafter. In the end.R. 1979. This is one of them. an . Baguio City. and respondent Andres Lao HIAN Liong. the trial court held in favor of the defendant as follows: In the case on hand. vs. Feria . in order that said court may distribute them among the members of said association.the legal interest on the sum of P24. the petitioner served on the respondent a written notice to vacate the leased premises in view of the termination of their contract. of which the sum of P45.450. Deogracia Eufemio for respondents.
The petitioner contended that the original lease had not been impliedly renewed but automatically expired on August 31. erred in holding that there was implied renewal ortacita reconduccion despite the refusal of respondent Liong to agree to the increased rental demanded by petitioner prior to the expiration of the contract of lease. particularly its decision in Roxas vs. . 1979. The petition then came to us with the following assignment of errors: 1) Respondent Judge. 6) Respondent judge erred in not granting a new trial for the admission in evidence of the building permit of the new building of respondent Liong which was issued after the decision of the trial court.. erred in admitting parol evidence with respect to the term of the lease. 1979. The respondent.406. the trial judge erred and gravely abused his discretion by extending the lease for five (5) years and respondent judge erred and compounded the grave abuse of discretion by extending the lease for ten (10) years. or until August 31. The respondent judge also increased the new rentals to P18. 6 A motion for reconsideration and for new trial was filed by petitioner but the same was denied. effective September 1. erred in holding that there was implied renewal ortacita reconduccion despite the refusal of petitioner to accept payment of rentals from respondent Liong after the expiration of the Contract of Lease. as well as the trial judge. and fixed the new rentals at P10. 3 The trial court also extended the period of the lease by five years from October 1.00 per month. pursuant to Article 1670 in relation to Article 1687 of the Civil Code. prayed for a longer extension of fifteen years. erred in deciding the case at bar in a way not in accordance with law or with the applicable decisions of this Honorable Court. for his part. 3) Respondent judge. He also claimed that. 2) Respondent judge. 5) Respondent judge. the petitioner had assured him he could stay indefinitely in the disputed premises. as well as the trial judge. 4) Assuming for the sake of argument that Article 1687 of the New Civil Code is applicable. 1979. 1989. 5 The Regional Trial Court of Baguio City affirmed the implied renewal of the lease but modified the appealed judgment by extending the lease for ten years from September 1. 4 Both parties appealed.. 1979. as well as the trial judge. Alcantara. considering the nature of his business (a bazaar) and his investment therein.implied new lease had already set in when the plaintiff commenced its action for ejectment on November 19. . prior to the execution of the contract. as well as the trial judge.600. 1979.00 a month. 113 SCRA 21.
7) Respondent judge erred in not admitting in evidence or taking judicial notice of the Central Bank Certification dated August 21, 1984 showing the three successive devaluations or depreciation of the Philippine peso after the decision of the trial court. 7 We address ourselves first to the submission of the respondent that the factual findings of the court a quo cannot be reviewed in these proceedings which have been filed under Rule 65 of the Rules of Court. That is not exactly correct. We note that, as the caption of the petition indicates, it was filed not only under the said rule but also as an appeal by certiorari under Rule 45, which, while generally limited to questions of law, nevertheless allows review of the judgment a quo when it is based on a misapprehension of facts. 8 We shall apply this exception and treat this petition as solely filed under the latter rule. 9 It is not disputed that the original lease contract between the parties was only for fifteen years expiring on August 31, 1979. The private respondent nonetheless continued occupying the leased premises beyond that date and it was only on October 2, 1979, that he was formally served with notice to vacate. What is in issue then is whether such continued occupancy was with or without the implied acquiescence of the petitioner. The applicable provisions of Civil Code are the following: Article 1669. If the lease was made for a determinate time, it ceases upon the day fixed, without the need of a demand. Article 1670. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to the contrary by either party has previously been given, it is understood that there is an implied new lease, not for the period of the original contract, but for the time established in Article 1682 and 1687. The other terms of the original contract shall be revived. Under the second article, an implied new lease or tacita reconduccion will set in if it is shown that: (a) the term of the original contract of lease has expired; (b) the lessor has not given the lessee a notice to vacate; and (c) the lessee continued enjoying the thing leased for fifteen days with the acquiescence of the lessor. 10 This acquiescence may be inferred from his failure to serve a notice to quit. 11 The petitioner contends that the service of an express notice to quit is not the only way to prevent the implied renewal of the lease. Demanding a higher rental is also a manifestation of non-acquiescence if the lessee does not accept the rate demanded. In other words, failure of agreement on the new conditions of the lease results in an automatic notice to vacate upon the expiration of the original lease. In support of this position, the petitioner relies on the case of Roxas vs. Alcantara, 12 where this Court declared: ... Petitioner's letter of August 11, 1977 was a reminder to private respondent of the impending expiration of the lease contract. Exh. "A", with
a statement that was in effect an offer or proposal to renew the contract on the terms and conditions, namely: (1) that the rental would be P4,000.00 a month; (2) that three years advance rental should be paid by private respondent; and (3) that a 15% yearly increase in rental would be imposed. In other words, petitioner laid down the foregoing stipulations as conditions sine qua non for any subsequent contract that might be negotiated with private respondent. Thus clear from the letter, Exh. "C", is that if private respondent were not agreeable to any or all of the new stipulations, there would be no renewal of the lease. Private respondent was to communicate his reply within fifteen days from receipt of Exh. "C", absent which petitioner would take it to mean that his conditions were acceptable to private respondent and their contract renewed on the specified terms. However, private respondent's letter, Exh. "F", evidently posted before the expiration of the period allowed within which to decide, did not give a categorical affirmative or negative answer to petitioner's proposition, and merely manifested the said lessee's desire to study the matter until end of the following month of September, 1977, or up to the termination of the then existing contract of lease, Exh. "A". Petitioner's failure to reply to the letter, Exh. "F", can only be taken to mean that he acceded to the request for additional time. For the obvious reason that the lease contract (Exh. "A") was expiring, it became more imperative for private respondent to make a final decision within and not later than the extended period which he asked for. Thus, when petitioner did not hear from private respondent at the end of the aforesaid month of September, private respondent ceased to have any legal right to possess and occupy the premises in question commencing the first day of the following month of October. As we see it, Article 1670 applies only where, before the expiration of the lease, no negotiations are held between the lessor and the lessee resulting in its renewal. Where no such talks take place and the lessee is not asked to vacate before the lapse of fifteen days from the end of the lease, the implication is that the lessor is amenable to its renewal. Where the lessor is unwilling in any event to renew the lease for whatever reason, it will be necessary for him to serve on the lessee a formal notice to vacate. As no talks have been held between the lessor and the lessee concerning the renewal of the lease, there can be no inference that the former, by his inaction, intends to discontinue it. In such a case, no less than an express notice to vacate must be made within the statutory 15day period. Applying these principles, the Court holds that the lease was not impliedly renewed in the instant case. It is a matter of record that weeks before the deadline for the notice to vacate, the petitioner had already communicated to the respondent its intention to increase the rental. This increase had to be accepted by the respondent if he wanted the lease to be renewed. Significantly, in its letter to the respondent on September 18, 1979, 13 the petitioner once again rejected the latter's counter-proposal and categorically declared that the increased rental of P35,000.00 was "no longer negotiable." Since this was a
reply to the respondent's letter of September 14, 1979, 14 it is obvious that the increase in rental was notified to the respondent on an earlier date,and before the expiration of the original lease. As of that date, the respondent was already being informed that he would have to vacate the leased premises on August 31, 1979, unless he was willing to pay the increased rental demanded by the lessor. Stated otherwise, the respondent was on that date — which was clearly before the statutory deadline — being served a conditional notice to vacate. The formal notice to vacate sent by the petitioner to the respondent on October 2, 1984, was thus merely areiteration of the implied demand made to him in its previous communications. The demand was that he vacate the leased premises if he could not accept the non-negotiable increased rental of P35,000.00 a month. If the petitioner saw fit to write that letter on the said date, which admitt edly was beyond the 15-day statutory period, it was merely to repeat its insistence on the new rate as an indispensable condition to the renewal of the lease. The legal consequence of its rejection by the respondent was its obligation to vacate the leased premises because of the expiration of the lease. Even if, as urged by the respondent, we should disregard the petitioner's letter of August 31, 1979, because it was not submitted at the trial, there nevertheless are the other letters which were formally offered in evidence by the respondent himself. These are Exhibit "5" and "Exhibit "6", dated September 5 and 14, 1979, respectively, in which he rejected the petitioner's demand for the increased rental of P35,000.00. This could mean only that the demand was made earlier as the said letters were merely a reaction to such demand. These demands, as conditional notices to vacate if the petitioner's new rental was rejected, satisfied the requirement of Article 1670. It should be noted that, after August 1979, the petitioner refused to accept the respondent's payments of the old rentals, demanding, as it had the right to do, the increased rate of P35,000.00. Such a stance negates the conclusion that it was willing to renew the lease under the original conditions and had, by its silence, impliedly agreed to the retention of all its provisions. In fact, far from being silent, the petitioner repeatedly insisted on the new rentals, and, to suit its actions to its words, flatly refused the tender of the old rentals by the respondent. 15 No less worthy of attention is the circumstance that in its letter of September 18, 1979, the respondent counter-proposed a monthly rental of P27,000.00, which the petitioner rejected. 16 It could be illogical to suppose that, having done this, the petitioner would later agree to the implied renewal of the lease for the original rental of only P2,450.00, thereby forfeiting the amount of P24,550.00 every month As the original lease contract expired on August 31, 1979, and was not legally renewed, it follows that the respondent has since then been in illegal possession of the leased premises. That unlawful detainer, which has lasted more than seven years now, during which he has retained all the rights he originally enjoyed as if the lease had been validly renewed, must be terminated immediately.
:p . It is hoped that. Oben & Oben for respondents. and c) pay an attorney's fee in the sum of P30.000.R. ARACELI DIZON-GOMEZ.00. is set aside and a new decision is hereby rendered ordering respondent Andres Lao Hian Liong to: a) vacate the leased premises immediately. EUGENIA DIZONDEL BARRIO and GLORIA DIZON. This decision shall be immediately executory and no motion for reconsideration shall stay its execution. 17 The respondent judge. with interest at the legal rate. 1984. and by way of effecting a reasonable compromise between the parties. From the total amount due shall be deducted the sums judicially deposited by the respondent. and with this pending litigation and its possible consequences in mind. No. Sister MARIA FLORENCIA (MARIA DIZON).00 and the costs of this suit. C. b) pay the petitioner monthly rentals in the amount of P30.000.00 plus legal interest. VICTOR DIZON. MARITA DIZON. for his part.000. JOSEFA DIZON-ASIDO. the decision of the respondent judge dated August 8. The deposits made by the respondent in court shall be deducted from the total amount due from him. ordered by this Court. it appears that between the rate of P35. 1974 BERNARDO DIZON. G. ESTELA DIZON-LACSAMANA. BUENAVENTURANZA DIZON-AMIO. SO ORDERED. Pompeyo Diaz for petitioners. there is a difference of only P8. 1979.00 for every square meter of the 372 square meter floor area of the property leased.600. 1979. and until it is vacated by the respondent.000. using as basis a fair monthly rental value of P50.000. being an experienced businessman. until the leased premises are surrendered to the petitioner. MAKALINTAL.J.00. WHEREFORE.00. We shall also fix the attorney's fee in the sum of P30. he has taken the necessary measures to minimize the other expenses of his relocation if. vs. DOMININA ALVENDIA VDA.000. respondents. substituted by his heirs.Coming finally to the monthly rentals to be paid by the respondent. 18 Considering all the above circumstances. shall be P30. petitioners.00 per month. It is unfortunate that the disagreement could not be ironed out in the spirit of friendship that used to characterize the relations of the parties. DE DIZON. we hereby rule that the rentals to be paid for the use and occupancy of the leased premises beginning September 1.000. from September 1. from the city court of Baguio and up to this Court. taking into account the efforts exerted by counsel in prosecuting this case. L-23399 May 31.00 demanded by the petitioner and the respondent's counter-proposal of P27. MARIANO DIZON. AMBROSIO MAGSAYSAY and NICANOR PADILLA. fixed the monthly rental at P18.00. as it is now.
which negotiations were concluded on March 7. 1953 a new certificate of title was issued to Nicanor Padilla pursuant to the sale. registered owner of a 1. Dizon 1 executed a written contract of lease over a portion of the above-mentioned parcel of land which the latter had been occupying as lessee since 1937 and on which he had constructed a residential house as well as a six-lane bowling alley. Este arrendamiento sera por dos (2) anos desde Abril 1. moneda filipina. The pertinent provisions of the lease contract 2 read: xxx xxx xxx Que el DUENO cede en arrendamiento al INQUILINO una puerta commercial No. 2. 1. 1949 y renovable por igual periodo en condiciones expresas y specificadas que seran convenidas entre las parties. y en cuyo esta levantada una edificacion No. Two years later. 137 Bowling Alley. a stated period. which Ambrosio Magsaysay accepted.00. lot to Nicanor Padilla. continued to occupy the leased premises. so much of the agreed purchase price of P48. m. En el caso de que el DUENO vendiera el terreno. EL INQUILINO se compromete a pagar al DUENO un alquiler mensual de cien pesos (P100. Y se convien mutualmente por y entre las partes siguiente: . Bernardo Dizon. On March 24 Dizon learned that as early as February 19. m. Manila.70 sq.00). xxx xxx xxx The two-year term of the lease contract expired on April 1.171. the counsel of Ambrosio Magsaysay formally advised Bernardo Dizon of the termination of the existing lease at the end of that month.000. se le dara preferencia de comprar el INQUILINO sobre cualquier otro comprador en igualdad de precio y condiciones. and the late Bernardo M. Manila una portion del terreno adjacente a dicha puerta. When Dizon learned of the sale he communicated with Magsaysay and Padilla.70 sq. paying the same monthly rental of P100.00 would be forfeited. on March 3. On March 11. however. 1951 without the parties' having expressly renewed their agreement. 1953 there were negotiations for the sale of the entire 1. 143 Maria Clara. of land located in Sampaloc.171. y que se pagarapor anticipado en o antes del dia 15 de cada mes an la direccion del DUENO. inviting their attention to paragraph 9 of the original written lease contract which gave him the . 1953. 1953 with the execution of an absolute deed of sale in his favor by Ambrosio Magsaysay and of a supplementary agreement embodying the seller's acceptance of the condition that should he fail to completely eject all the tenants on the land within. 1949 Ambrosio Magsaysay. xxx xxx xxx 9.On April 1.
(Emphasis supplied) The Court of Appeals held that "the other terms of the original contract" which are revived in the implied new lease under Article 1670 are only those terms which are germane to the lessee's right of continued enjoyment of the property leased. knew the plaintiff had his residential building and bowling alleys on this land. 1955. revived the other terms thereof. not for the period of the original contract.000. etc.00 for alleged losses in his business. the responsibility for repairs. was included as party-defendant in this case on the allegation that he "7. 19172). if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession. 16174) the decision was affirmed on June 8. The new buyer. reasonable moral damages. P10. or in the alternative. which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is customarily paid — in this case up to the end of the month because the rent was paid monthly. which provides: Art. as to "whether or not at the time of the sale of the disputed property to Nicanor Padilla on March 7. 1670. No. but for the time established in articles 1682 and 1687. But no such presumption may be indulged in with respect to special agreements which ." Because Dizon continued to occupy the leased premises with Magsaysay's acquiescence even after the two-year term of the private written lease contract between them expired on April 1. 1964. On March 25. 1953 he actually commenced suit against Magsaysay and Padilla in the Court of First Instance of Manila (Civil Case No. dismissing the complaint as well as defendant Nicanor Padilla's counterclaim. that defendant Magsaysay be sentenced to pay the plaintiff the sum of P20. petitioners contend that the implied new lease created. although admittedly not for the period of the original contract. 1953 appellant Dizon had a preferential right to purchase it at the same price and terms. he was aware and/or should be aware of the consideration value thereof as well as of the preferred right of said plaintiff to buy the land.R.000. and attorney's fees. Necessarily. that they be ordered to sell the land to him and to pay him damages and attorney's fees. the care of the property. he saw said building and alleys and under the circumstances. presenting the crucial issue. the date when it must be paid.. and before he purchased the land. If at the end of the contract the lessee should continue enjoying the thing leased for fifteen days with the acquiescence of the lessor and unless a notice to the contrary by either party has previously been given. such as the amount of rental. Nicanor Padilla. it is understood that there is an implied new lease. The other terms of the original contract shall be revived. as the Court of Appeals put it. On appeal to the Court of Appeals (CA-G. including the lessee's preferential right of purchase.00 as actual damages.preferential right to purchase the land under the same conditions as those offered by other buyers. praying that the deed of sale between them be declared null and void. Hence this petition for review. citing Article 1670 of the new Civil Code." The trial court rendered judgment on August 18. 1951. . This is a reasonable construction of the provision.
after which the abovenamed rental shall be raised automatically by 20% every three years for as long as defendant needed the premises and can meet and pay the said increases.: Respondent Court of Appeals having affirmed in toto on June 30. REGALADO. After the stipulated term expired." This stipulation embodied the agreement of the parties with respect to renewal of the original contract." petitioner seeks the reversal of such affirmance in the instant petition. G. the defendant to give notice of his intent to renew sixty (60) days before the expiration of the term. The case was terminated by a judicially approved compromise agreement of the parties providing in part: 3. Asuncion for petitioner. 1988 in CA-G. private respondent refused to vacate the premises. No. which states that it was renewable for the same period of two years (upon its expiration on April 1. not the legal provision relied upon by the petitioner. 1951). Benito Villavicencio Dy. docketed therein as Civil Case No. respondents.by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease. 051063-CV. 1990 FRANCISCO LAO LIM. 1 the decision of the Regional Trial Court of Manila. The records show that private respondent entered into a contract of lease with petitioner for a period of three (3) years. Perez for private respondent. 87047 October 31. The judgment of the Court of Appeals is affirmed. SP No. 2 . 87-42719. petitioner filed an ejectment suit against the former in the City Court of Manila. with costs. "con condiciones expresas y specificadas que seran convenidas entre las partes. hence. and while there was nothing in it which was incompatible with the existence of an implied new lease from month to month under the conditions laid down in Article 1670 of the Civil Code. entitled "Francisco Lao Lim vs. J. That the term of the lease shall be renewed every three years retroacting from October 1979 to October 1982. Natividad T. But whatever doubt there may be on this point is dispelled by paragraph (2) of the contract of lease. Branch XLVI in Civil Case No. from 1976 to 1979.R. On this point the express agreement of the parties should govern.R. that is. such incompatibility existed with respect to any implied revival of the lessee's preferential right to purchase. petitioner. 13925. which expired with the termination of the original contract. COURT OF APPEALS and BENITO VILLAVICENCIO DY. Gener E. vs.
3 However. In its decision of September 24. et al. petitioner advised private respondent that he would no longer renew the contract effective October. commencing November. 1985. in its decision of January 28. 1987. It should be noted that a renewal constitutes a new contract of lease although with the same terms and conditions as those in the expired lease. so long as defendants elected to continue the lease by continuing the payment of the rentals. 1985. Contrary to the ruling of respondent court. the disputed stipulation "for as long as the defendant needed the premises and can meet and pay said increases" is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. affirmed the decision of the lower court. 9 where we ruled that in an action for ejectment. 1988 in Civil Case No. and (2) the compromise agreement entered into in the aforesaid Civil Case No. 7 As stated at the outset. It is likewise a suspensive condition because the renewal of the lease. then from 1982 to 1985. The invalidity of a condition in a lease contract similar to the one at bar has been resolved in Encarnacion vs. petitioner advised private respondent that he did not agree to a renewal of the lease contract upon its expiration in October. allows the lessee to stay on the premises as long as he needs it and can pay rents is valid. 114659-CV. because of private respondent's refusal to vacate the premises. said court dismissed the complaint on the grounds that (1) the lease contract has not expired. therefore. Baldomar. the owner would never be able to discontinue it. because it would leave to the lessees the sole power to determine whether the lease should continue or not. As stated therein. this time with the Metropolitan Trial Court of Manila in Civil Case No. 87-42719. private respondent informed petitioner in writing of his intention to renew the contract of lease for another term. 1985. 6 Petitioner appealed to the Regional Trial Court of Manila which. We find the same to be meritorious. 1986. petitioner filed another ejectment suit. The lease contract is for a definite period of three (3) years upon the expiration of which the lease automatically terminates. 4 In reply to said letter. which gives rise to a new lease. this present petition is now before us. 1985. being a resolutory condition and. It should also not be overlooked that said condition is not resolutory in nature because it is not a condition that terminates the lease contract. "(i)f this defense were to be allowed. on August 5. the defense interposed by the lessees that the contract of lease authorized them to continue occupying the premises as long as they paid the rents is untenable. beyond the ambit of Article 1308 of the Civil Code. being a continuous one the period whereof depended upon the lessee's need for the premises and his ability to pay the rents. respondent Court of Appeals affirmed in full said decision of the Regional Trial Court and held that (1) the stipulation in the compromise agreement which. and (2) that a compromise has the effect of res judicata. On April 17. although the owner should . 5 On January 15. depends upon said condition. 1985 to October. conversely. in its formulation. 8 Petitioner's motion for reconsideration having been denied by respondent Court of Appeals. 1988. 051063-CV constitutes res judicata to the case before it.By reason of said compromise agreement the lease continued from 1979 to 1982.
otherwise there is nothing to renew..) The continuance. A contrary interpretation will result in a situation where the continuation and effectivity of the contract will depend only upon the will of the lessee. perpetual leases are not favored in law. which gives the private respondent sixty (60) days before the expiration of the term the right to give notice of his intent to renew. 10 Where the instrument is susceptible of two interpretations. and a lease will be construed as not making such a provision unless it does so clearly. This. is prohibited by the aforesaid article of the Civil Code. 626. completely depriving the owner of any say in the matter. Santos. The interpretation made by respondent court cannot. be upheld. pp. 13 A portion in a lease giving the lessee and his assignee the right to perpetual renewals is not favored by the courts. there could not be a renewal if said lease did not expire. 12 A lease will not be construed to create a right to perpetual renewals unless the language employed indicates dearly and unambiguously that it was the intention and purpose of the parties to do so. Cuyugan vs. of course. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee since the life of the contract is dictated solely by the lessee. read and interpreted in its entirety. is actually to the effect that the last portion thereof. therefore. 3rd ed. Resultantly. the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. 100." thereby requiring the mutual agreement of the parties. the contract of lease should be and is hereby construed as providing for a definite period of three (3) years and that the automatic increase of the rentals by twenty percent (20%) will take effect only if the parties decide to renew the lease. 14 As we have further emphasized: It is also important to bear in mind that in a reciprocal contract like a lease. The compromise agreement should be understood as bearing that import which is most adequate to render it effectual. one which will make it invalid and illegal and another which will make it valid and legal. in violation of Article 1308 of the Civil Code and the aforesaid doctrine in Encarnacion. 11 Moreover. 627. the period of the lease must be deemed to have been agreed upon for the . unless by plain and unambiguous terms the parties have expressed such intention. The use of the word "renew" and the designation of the period of three (3) years clearly confirm that the contract of lease is limited to a specific period and that it is not a continuing lease.desire the lease to continue. Paragraph 3 of the compromise agreement. effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not. and the rule of construction is well settled that a covenant for renewal or for an additional term should not be held to create a right to repeated grants in perpetuity. is subject to the first portion of said paragraph that "the term of the lease shall be renewed every three (3) years. The stipulation provides for a renewal of the lease every three (3) years. nor are covenants for continued renewals tending to create a perpetuity. (8 Manresa. 34 Phil. the latter interpretation should be adopted.
the same will be construed as providing for but one renewal or extension and. said increases" gives private respondent an option to renew the lease. was satisfied when the lease was renewed in 1982 for another three (3) years. volatile costs of living and fluctuations in the value of the domestic currency. there is no identity of subject matter and cause of action. or to the lessor alone for that matter.benefit of both parties. In said case. 16Leases which may have been intended to be renewable in perpetuity will nevertheless be construed as importing but one renewal if there is any uncertainty in that regard. But that presumption cannot reasonably be indulged in casually in an era of rapid economic change." This is in clear contrast to the case at bar wherein. 17 The case of Buccat vs. among other things. to repeat. 18 relied upon by responddent court. Ongsiaco and Cruz v. On the second issue. Alberto should be and are overruled. While it is true that a compromise agreement has the effect of res judicata this doctrine does not apply in the present case. 15 In addition. Koh and Cruz in effect rested upon such a presumption. We hold that the above-quoted rulings in Koh v. (3) it must be a judgment on the merits. therefore. and the clause "for as long as defendant needs the premises and can meet and pay the rents" is not an independent stipulation but is controlled by said fixed term and the option for renewal upon agreement of both parties. A general covenant to renew is satisfied by one renewal and will not be construed to confer the right to more than one renewal unless provision is clearly and expressly made for further renewals. to support its holding that respondent lessee can legally stay on the premises for as long as he needs it and can pay the rents. but the rentals now stipulated shall be subject to review every after ten (10) years by mutual agreement of the parties. The longer the period the more clearly unreasonable such a presumption would be. the fourth requisite is lacking. even assuming that the clause "for as long as the defendant needed the premises and can meet and pay. (2) the court which rendered it had jurisdiction over the subject matter and the parties.. the lease is fixed at a period of three (3) years although subject to renewal upon agreement of the parties. The subject matter in the first ejectment case is the original lease contract while the subject matter in the case at bar is the lease created under the terms provided in the subsequent compromise . and (4) there must be identity between the two cases as to parties. the lease contract provides for an indefinite period since it merely stipulates "(t)hat the lease contract shall remain in full force and effect as long as the land will serve the purpose for which it is intended as a school site of the National Business Institute. We are not aware of any presumption in law that the term of a lease is designed for the benefit of the lessee alone. Although there is identity of parties. marked by. very specific language is necessary to show an intent to grant a unilateral faculty to extend or renew a contract of lease to the lessee alone. It is elementary that for a judgment to be a bar to a subsequent case. Dispo et al. In an age like that we live in. is not in point. subject matter and cause of action. we agree with petitioner that respondent court erred in holding that the action for ejectment is barred by res judicata. 19 In the case at bar. absent language showing that the term was deliberately set for the benefit of the lessee or lessor alone. (1) it must be a final judgment.
cover any cause of action that might arise thereafter. whereby Juana Gonzales. To secure the indebtedness. While the compromise agreement may be res judicata as far as the cause of action and issues in the first ejectment case is concerned. There is also no identity. Private respondent is hereby ordered to immediately vacate and return the possession of the leased premises subject of the present action to petitioner and to pay the monthly rentals due thereon in accordance with the compromise agreement until he shall have actually vacated the same. NAVARRO. In the first ejectment case. defendants Rufino G. as it could not. It did not. Renato A. 1985 under the compromise agreement. PAREDES. registered with the Register of . Jr.agreement. 1963 CONRADO P. 1959. belonging to her. RUFINO G. the cause of action is a similar refusal but with respect to the lease which expired in October. RAMONA REYES. or whether the same evidence would sustain both causes of action.00. PINEDA. for plaintiff-appellee. Pineda and his mother Juana Gonzales (married to Gregorio Pineda). defendants-appellants. the sum of P2. as it did only settle..: On December 14. The test generally applied to determine the identity of causes of action is to consider the identity of facts essential to their maintenance. Deogracias Tañedo. L-18456 November 30. the cause of action was private respondent's refusal to comply with the lease contract which expired on December 31. like the present case which was founded on the expiration of the lease in 1985. Rufino executed a document captioned "DEED OF REAL ESTATE and CHATTEL MORTGAGES". the decision of respondent Court of Appeals is REVERSED and SET ASIDE. by way of Real Estate Mortgage hypothecated a parcel of land. 1959. and the evidence that will support and establish the cause of action in the former will not suffice to support and establish that in the latter. Santos for defendants-appellants. The fact that the compromise agreement was judicially approved does not foreclose any cause of action arising from a violation of the terms thereof. plaintiff-appellee. In the present case. the delict or the wrong in the first case is different from that in the second. Navarro. which necessarily requires a different set of evidence. the lease constituted in 1982 by the compromise agreement is another. This judgment is immediately executory. SO ORDERED. the first case. WHEREFORE. borrowed from plaintiff Conrado P. any cause of action that arises from the application or violation of the compromise agreement cannot be said to have been settled in said first case. The compromise agreement was meant to settle. in the causes of action. 1978. J. G.R. payable 6 months after said date or on June 14. vs. ET AL.500. The lease executed in 1978 is one thing. No. 20 In the case at bar.
the parties submitted a Stipulation of Facts. answering the complaint. defendants again failed to pay and. Vicente Castro. On September 30. the defendants. failed to pay. that the only issue in the case is whether or not the residential house. A-171806. the defendant would no longer ask for further extension and there would be no need for any formal demand. however. San Roque. Came June 30. in view of the foregoing it is most respectfully prayed that this Honorable Court render judgment granting the defendants until January 31. Defendants. having a floor area of 912 square meters. subject of the mortgage therein. They. The motion was set for hearing. stated — Defendants admit that the loan is overdue but deny that portion of paragraph 4 of the First Cause of Action which states that the defendants unreasonably failed and refuse to pay their obligation to the plaintiff the truth being the defendants are hard up these days and pleaded to the plaintiff to grant them more time within which to pay their obligation and the plaintiff refused. both of the province of Tarlac. categorically stated that in the remote event he should fail to make good the obligation on such date (July 30. 25776. that a liability of 12% per annum as interest was agreed. under Transfer Certificate of Title No. 1960. for the second time. claiming that the Answer failed to tender any genuine and material issue. which was given. Both mortgages were contained in one instrument. but the record is not clear what ruling the lower court made on the said motion. defendant Pineda in a document entitled "Promise". located at Bo. until fully paid. In the second extension. defendants. under the said mortgage contract. 1960). within which to pay. under Motor Vehicle Registration Certificate No. which was registered in both the Office of the Register of Deeds and the Motor Vehicles Office of Tarlac. 1961. 1960. registered in his name. On February 24. 1961. upon failure to pay the principal when due and P500. 1960. and Rufino G. after demands made on them. On August 10.Deeds of Tarlac. Pineda. WHEREFORE.00 and 12% per annum interest on the principal. by way of Chattel Mortgage. that the instrument had been registered in the Registry of Property and Motor Vehicles Office. When the mortgage debt became due and payable. effective on the date of maturity. plaintiff presented a Motion for summary Judgment. the authenticity and due execution of the Real Estate and Chattel Mortgages. however. Tarlac. and one motor truck. within which to pay their obligation to the plaintiff. In spite of said promise. plaintiff filed a complaint for foreclosure of the mortgage and for damages. that the indebtedness has been due and unpaid since June 14. failed and refused to pay the obligation. 1960. among others. wherein the defendants admitted the indebtedness. mortgaged his two-story residential house. On November 11. asked for another extension. Tarlac. can be considered a Chattel and the propriety of the attorney's fees. and plaintiff could proceed to take whatever action he might desire to enforce his rights.00 as liquidated damages. 1960. asked and were granted extension up to June 30. erected on a lot belonging to Atty. up to July 30. 1960. the lower court held — . which consisted of liquidated damages in the sum of P500.
et al. until said principal sum and interests are fully paid. Nos.) The trial court did not predicate its decision declaring the deed of chattel mortgage valid solely on the ground that the house mortgaged was erected on the land which belonged to a third person. the only criterion being the union or incorporation with the soil. Pineda was made the subject of the chattel mortgage. In construing arts. Navarro the principal sum of P2. 1. Appellants argue that since only movables can be the subject of a chattel mortgage (sec. 644). etc. (See also the case of Leung Yee v. Orosa.00 with 12% compounded interest per annum from June 14. Co.R.. but also and principally on the doctrine of estoppel. In other words. allegedly committed by the lower court. 1958.. in default of such payment. Appellants contend that article 415 of the New Civil Code. 37 Phil. the Code does not require that the attachment or incorporation be made by the owner of the land. to deliver immediately to the Provincial Sheriff of Tarlac the personal properties mentioned in said Annex "A". plus P500..550. et al. May 30. 1960. 1958). for the reason that it is erected on a land that belongs to a third person. v. irrespective of whether or not said structure and the land on which it is adhered to. (Citing Associated Ins..00 as liquidated damages and the costs of this suit. trees. notwithstanding the fact that the house of the defendant Rufino G. 334 and 335 of . Isabel Iya v. Strong Machinery Co. this Court renders decision in this Case: (a) Dismissing the complaint with regard to defendant Gregorio Pineda. to pay jointly and severally and within ninety (90) days from the receipt of the copy of this decision to the plaintiff Conrado P. such as houses. with the warning that in default of said payment of the properties mentioned in the deed of real estate mortgage and chattel mortgage (Annex "A" to the complaint) be sold to realize said mortgage debt. in accordance with the pertinent provisions of Act 3135. (b) Ordering defendants Juana Gonzales and the spouses Rufino Pineda and Ramon Reyes. immediately after the lapse of the ninety (90) days abovementioned. in classifying a house as immovable property. it is claimed that "a building is an immovable property. plants. L-10838. interests. the fact that the land belongs to another is immaterial. belong to the same owner" (Lopez v.. it is enough that the house adheres to the land. Adriano Valino. Act No. the defendants therein assigning only a single error. 14 of the Chattel Mortgage Law. Feb. because it is nullity. 3952) then the mortgage in question which is the basis of the present action. G. Act 1508. liquidated damages and costs. and Art. cannot give rise to an action for foreclosure. 28. and (c) Ordering the defendants Rufino Pineda and Ramona Reyes. makes no distinction whether the owner of the land is or not the owner of the building. The above judgment was directly appealed to this Court. to wit — In holding that the deed of real estate and chattel mortgages appended to the complaint is valid. in that "the parties have so expressly agreed" in the mortgage to consider the house as chattel "for its smallness and mixed materials of sawali and wood".. WHEREFORE. as amended by Act 4118. L-10817-8. that in case of immovables by incorporation.
Pineda conveyed by way of "Chattel Mortgage" "my personal properties". supra. 61 Phil.. a residential house and a truck.G. It is based partly. with respect to third persons. 632-633). Orosa. therefore.000.. The doctrine. if a house belonging to a person stands on a rented land belonging to another person.G..). p. L-11139. appellant Rufino G.) The view that parties to a deed of chattel mortgagee may agree to consider a house as personal property for the purposes of said contract. Jur. which is. that the principle is predicated on statements by the owner declaring his house to be a chattel. . supra. 1958).) It should be noted. et al. The Iya cases (L10837-38. it may be mortgaged as a personal property is so stipulated in the document of mortgage. it is considered as between the parties as personal property. upon the principles of estoppel . In these cases and in the Leung Yee case.. 209-210. It is undeniable that the parties to a contract may by agreement.C. does not become immobilized by attachment (Valdez v. Jaranillo."There can not be any question that a building of mixed materials may be the subject of a chattel mortgage. for purposes of the application of the Chattel Mortgage Law. "Personal property may retain its character as such where it is so agreed by the parties interested even though annexed to the realty .. (L-10817-18).. N. v. 58. v. the house in question was treated as personal or movable property. 1956.S. [CA]. In a case. New Civil Code).C. the house is considered as an immovable property (Art. . not only because the deed of mortgage considered it as such. of N. 52 O. however. built of materials worth more than P62. who are not parties to the contract.. Abad [CA]. The matter depends on the circumstances and the intention of the parties". The mortgagor himself grouped the house with the truck. a house of mixed materials has been considered as a chattel between them.". No. it has been a constant criterion nevertheless that. Apr. Hence. Castillo. refer to a building or a house of strong materials. by the parties to the contract themselves.. gathered from these cases is that although in some instances. it was one of the parties to the contract of mortgages who assailed its validity. Abad. treat as personal property that whichby nature would be real property" (Standard Oil Co. (42 Am. has been recognized.I. a mortgage house built on a rented land. et al. 5374). was held to be a personal property.. et al. (Evangelista v. permanently adhered to the land. Ofilada.Y. In the case at bar. No. 709). built on land belonging to another. No.the Spanish Civil Code (corresponding to arts..G. v. v. it was held that under certain conditions. 1431. 23. sheets roofing.. supra). "is good only insofar as the contracting parties are concerned. in which case. 48 O. cited in Manarang. but also because it did not form part of the land (Evangelista v. Hodges. in the present case. "a property may have a character different from that imputed to it in said articles. attached permanently to the soil. 222 U. In the case of Lopez v. N. such as a lessee or usufructuary. third persons assailed the validity of the deed of chattel mortgages. May 18. 3954. a conduct that may conceivably estop him from subsequently claiming otherwise (Ladera." (Evangelista v. cited in Davao Sawmill Co. et al. L-8133. and specially in execution proceedings. The cases cited by appellants are not applicable to the present case. sawali and wooden walls and wooden posts. Central Altagracia.R. 2913). the subject building was a theatre. The house which was not even declared for taxation purposes was small and made of light construction materials: G. for it is now well settled that an object placed on land by one who has only a temporary right to the same. inherently a movable property. et al. 8. Alto Surety. G. belonging to the owner of the house himself. In the deed of chattel mortgage. Inc.36 O. 44 Phil. C. 415 and 416.
and Makalintal. . Bautista Angelo. Regala. the decision appealed from.CONFORMABLY WITH ALL THE FOREGOING. as it is hereby affirmed. should be.. Barrera. Dizon. Padilla. concur. JJ. C.. Labrador. with costs against appellants. Bengzon.J.
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