54

G.R. No. 193890, March 11, 2015 - ESTANISLAO AND AFRICA SINAMBAN, Petitioners, v. CHINA
BANKING CORPORATION, Respondent.

THIRD DIVISION

G.R. No. 193890, March 11, 2015

ESTANISLAO AND AFRICA SINAMBAN, Petitioners, v. CHINA BANKING

CORPORATION,Respondent.

DECISION

REYES, J.:

Before this Court is a Petition for Review on Certiorari1 of the Decision2 dated May 19, 2010 of the Court
of Appeals (CA) in CA-G.R. CV. No. 66274 modifying the Decision3 dated July 30, 1999 of the Regional
Trial Court (RTC) of San Fernando City, Pampanga, Branch 45 for Sum of Money in Civil Case No.
11708.chanRoblesvirtualLawlibrary

Factual Antecedents

On Februaiy 19, 1990, the spouses Danilo and Magdalena Manalastas (spouses Manalastas) executed a
Real Estate Mortgage (REM)4 in favor of respondent China Banking Corporation (Chinabank) over two
real estate properties covered by Transfer Certificate of Title Nos. 173532-R and 173533-R, Registry of
Deeds of Pampanga, to secure a loan from Chinabank of P700,000.00 intended as working capital in
their rice milling business. During the next few years, they executed several amendments to the mortgage
contract progressively increasing their credit line secured by the aforesaid mortgage. Thus, from
P700,000.00 in 1990, their loan limit was increased to P1,140,000.00 on October 31, 1990, then to
P1,300,000.00 on March 4, 1991, and then to P2,450,000.00 on March 23, 1994. 5 The spouses
Manalastas executed several promissory notes (PNs) in favor of Chinabank. In two of the PNs, petitioners
Estanislao and Africa Sinamban (spouses Sinamban) signed as co-makers.

On November 18, 1998, Chinabank filed a Complaint6 for sum of money, docketed as Civil Case No.
11708, against the spouses Manalastas and the spouses Sinamban (collectively called the defendants)
before the RTC. The complaint alleged that they reneged on their loan obligations under the PNs which
the spouses Manalastas executed in favor of Chinabank on different dates,
namely:chanroblesvirtuallawlibrary

1. PN No. OACL 634-95, dated April 24, 1995, for a loan principal of P1,800,000.00, with interest at
23% per annum; the spouses Manalastas signed alone as makers.7

2. PN No. OACL 636-95, dated May 23, 1995, for a loan principal of P325,000.00, with interest at
21% per annum; the spouses Sinamban signed as solidary co-makers;8
 3. PN No. CLF 5-93, dated February 26, 1991, for a loan principal of P1,300,000.00, with interest at
22.5% per annum; only Estanislao Sinamban signed as solidary co-maker.9

All of the three promissory notes carried an acceleration clause stating that if the borrowers failed to pay
any stipulated interest, installment or loan amortization as they accrued, the notes shall, at the option of
Chinabank and without need of notice, immediately become due and demandable. A penalty clause also
provides that an additional amount shall be paid equivalent to 1/10 of 1% per day of the total amount due
from date of default until fully paid, and the further sum of 10% of the total amount due, inclusive of
interests, charges and penalties, as and for attorney's fees and costs. 10

In Chinabank's Statement of Account11 dated May 18, 1998, reproduced below, the outstanding balances
of the three loans are broken down, as follows:chanroblesvirtuallawlibrary
(a) PN No. OACL 636-95 has an outstanding principal of P325,000.00, cumulative interest of
P184,679.00, and cumulative penalties of P258,050.00, or a total amount due ofP767,729.00;

(b) PN No. OACL 634-95 has an outstanding principal of P1,800,000.00, cumulative interest of
P1,035,787.50, and cumulative penalties of P1,429,200.00, or a total amount due ofP4,264,987.50; and

(c) PN No. CLF 5-93 has an outstanding principal of P148,255.08, cumulative interest of P64,461.84, and
cumulative penalties of P156,541.58, or a total amount due ofP369,258.50. Note that from the original
amount of P1,300,000.00, the loan principal had been reduced to only P148,255.08 as of May 18,
1998.12cralawlawlibrary
CHINA BANKING CORPORATION
San Fernando, Pampanga
SPS. DANILO & MAGDALENA MANALASTAS
STATEMENT OF ACCOUNT
As of May 18, 1998
36%
PENALTY
PN NUMBER PRINCIPAL INTEREST FEE TOTAL

OACL 636-95 325,000.00 184,679.00258,050.00 767,729.00

OACL 634-95 1,800,000.00 1,429,200.00 4,264,987.50
1,035,787.50
CLF 005-93 148,255.08 64,461.84156,541.58 369,258.50
----------------- -----------------
----------------- -----------------
TOTAL P 2.273.255.08 1.843.791.58 5,401,975.00
1.284.928.34
-----------------
TOTAL AMOUNT DUE----------------------------------------- 5,401,975.00

PLUS 10% ATTORNEY'S FEE-------------------------------- 540,197.50

-----------------
5,942,172.50

ADD: OTHER EXPENSES

INSURANCE PREMIUM 22,618.37
POSTING OF NOTICE OF SALE 700.00
PUBLICATION FEE 17,500.00
REGISTRATION OF CERTIFICATE OF SALE (MISC.) 1,000.00
REGISTRATION OF CERTIFICATE OF SALE (REGISTER
OF DEEDS)

Registration
10,923.00
fee
Entry fee 30.00
Legal fund 20.00
BIR 60.00
 certification
Doc. stamps
69,000.00
tax
Capital
276,000.00 356,033.00
Gains tax
-------------
EXPENSES INCURRED ON OCULAR INSPECTION MADE
404.00
ON
TCT#173532-R & TCT#173533-R
ATTORNEY'S FEE 18,000.00
416,255.37
LESS: BID PRICE 4,600,000.00
-------------------
GRAND TOTAL ------------------------------------------------ 1,758,427.8713
On the basis of the above statement of account, and pursuant to the promissory notes, Chinabank
instituted extrajudicial foreclosure proceedings against the mortgage security. The foreclosure sale was
held on May 18, 1998, with Chinabank offering the highest bid of P4,600,000.00, but by then the
defendants' total obligations on the three promissory notes had risen to P5,401,975.00, before attorney's
fees of 10% and auction expenses, leaving a loan deficiency of P1,758,427.87. 14 Thus, in the complaint
before the RTC, Chinabank prayed to direct the defendants to jointly and severally settle the said
deficiency, plus 12% interest per annum after May 18, 1998,15 the date of the auction sale.16

The spouses Sinamban, in their Answer17 dated February 26, 1999, averred that they do not recall having
executed PN No. OACL 636-95 for P325,000.00 on May 23, 1995, or PN No. CLF 5-93 for P1,300,000.00
on February 26, 1991, and had no participation in the execution of PN No. OACL 634-95 for
P1,800,000.00 on April 24, 1995. They however admitted that they signed some PN forms as co-makers
upon the request of the spouses Manalastas who are their relatives; although they insisted that they
derived no money or other benefits from the loans. They denied knowing about the mortgage security
provided by the spouses Manalastas, or that the latter defaulted on their loans. They also refused to
acknowledge the loan deficiency of P1,758,427.87 on the PNs, insisting that the mortgage collateral was
worth more than P10,000,000.00, enough to answer for all the loans, interests and penalties. They also
claimed that they were not notified of the auction sale, and denied that they knew about the Certificate of
Sale18 and the Statement of Account dated May 18, 1998, and insisted that Chinabank manipulated the
foreclosure sale to exclude them therefrom. By way of counterclaim, the Spouses Sinamban prayed for
damages and attorney's fees of 25%, plus litigation expenses and costs of suit.

The spouses Manalastas were declared in default in the RTC Order19 dated April 6, 1999, and Chinabank
was allowed to present evidence ex parte as against them, but at the pre-trial conference held on July 5,
1999, the spouses Sinamban and their counsel also did not appear; 20 hence, in the Order21 dated July 5,
1999, the RTC allowed Chinabank to present evidence ex parte against the defendants before the Branch
Clerk of Court. During the testimony of Rosario D. Yabut, Branch Manager of Chinabank-San Fernando
Branch, all the foregoing facts were adduced and confirmed, particularly the identity of the pertinent loan
documents and the signatures of the defendants. On July 21, 1999, the court admitted the exhibits of
Chinabank and declared the case submitted for decision.22

Ruling of the RTC

On July 30, 1999, the RTC rendered its Decision23 with the following dispositive
portion:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff China Banking
Corporation and against defendant Sps. Danilo and Magdalena Manalastas and defendant Sps.
Estanislao and Africa Sinamban to jointly and severally pay [Chinabank] the amount of P1,758,427.87,
representing the deficiency between the acquisition cost of the foreclosed real estate properties and the
outstanding obligation of defendants at the time of the foreclosure sale; interest at the legal rate of 12%
per annum from and after May 18, 1998; attorney's fees equivalent to 10% of the aforesaid deficiency
amount and the litigation and costs of suit.
SO ORDERED.24cralawlawlibrary
On Motion for Reconsideration25 of the spouses Sinamban dated August 27, 1999, to which Chinabank
filed an Opposition26 dated September 14, 1999, the RTC in its Order27 dated October 22, 1999 set aside
the Decision dated July 30, 1999 with respect to the spouses Sinamban, in this
wise:chanroblesvirtuallawlibrary
As it is undisputed that Exhibit "B" (Promissory Note dated April 24, 1995 in the amount of
P1,800,000.00), was not signed by the Spouses Sinamban it would not be equitable that the said
defendants be made solidarity liable for the payment of the said note as co-makers of their co-defendants
Spouses Manalastas who are the one[s] principally liable thereto. Prescinding from this premise, the
movant spouses could only be held liable for the two (2) promissory notes they have signed, Promissory
Notes dated May 23, 1995 in the amount of P325,000.00 and February 26, 1991 in the amount of
P1,300,000.00, Exhibits "A" and "C", respectively. As the total amount of the said notes is only
P1,625,000.00, so even if we would add the interests due thereon, there is no way that the said
outstanding loan exceed[s] the acquisition cost of the foreclosed real estate properties subject
hereof in the amount of P4,600,000.00. It would appear then that the Spouses Sinamban could not be
held liable for the deficiency in the amount of P1,758,427.87 which should justly be borne alone by the
defendant Spouses Manalastas. Guided by law and equity on the matter, the court will not hesitate to
amend a portion of its assailed decision to serve the interest of justice.cralawred

WHEREFORE, premises considered, the decision dated July 30, 1999 is hereby Reconsidered and
Set Aside with respect to the Spouses Estanislao and Africa Sinamban hereby Relieving them
from any liability arising from the said Decision which is affirmed in toto with respect to Spouses
Manalastas.

SO ORDERED.28 (Emphases ours)

The RTC ruled that the proceeds of the auction were sufficient to answer for the two PNs co-signed by
the spouses Sinamban, including interest and penalties thereon, and therefore the spouses Manalastas
should solely assume the deficiency of P1,758,427.87. Chinabank moved for reconsideration on
November 11, 1999,29 to which the spouses Sinamban filed their comment/opposition on November 23,
1999.30

On December 8, 1999, the RTC set aside its Order dated October 22, 1999 and reinstated its Decision
dated July 30, 1999, with modification, as follows:31ChanRoblesVirtualawlibrary
WHEREFORE, premises considered, the instant Motion for Reconsideration of plaintiff is Granted.

Order dated October 22, 1999 is hereby Set Aside.

Accordingly, the dispositive portion of the Decision dated July 30, 1999 is hereby Modified to read as
follows:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, judgment [is] hereby rendered in favor of plaintiff China Banking
Corporation and against the defendant Sps. Danilo and Magdalena Manalastas and defendant Sps.
Estanislao and Africa Sinamban, ordering them to pay as follows:

1. For defendant Sps. Danilo and Magdalena Manalastas, the amount of P1,758,427.87, the deficiency
between the acquisition cost of the foreclosed real properties and their outstanding obligation;

2. For defendant Sps. Sinamban a percentage of P1,758,427.87, jointly and severally with the defendant
Sps. [Manalastas] only on two (2) promissory notes;

3. The corresponding interests thereon at legal rate:

4. Attorney's fees; and

5. Costs of suit.
SO ORDERED.32cralawlawlibrary
This time the RTC held that the spouses Sinamban must, solidarity with the spouses Manalastas,
proportionately answer for the loan deficiency pertaining to the two PNs they co-signed, since the
mortgage security provided by the spouses Manalastas secured all three PNs and thus also benefited
them as co-makers. But since they did not co-sign PN No. OACL 634-95, the deficiency judgment
pertaining thereto will be the sole liability of the spouses Manalastas.chanRoblesvirtualLawlibrary

Ruling of the CA

From the Order dated December 8, 1999 of the RTC, the spouses Sinamban appealed to the CA on
January 4, 2000, docketed as CA-G.R. CV. No. 66274, interposing the following errors of the
RTC, viz:chanroblesvirtuallawlibrary
I

THE LOWER COURT ERRED WHEN IT HELD DEFENDANTS-APPELLANTS SPS. SINAMBAN LIABLE
TO PAY A PERCENTAGE OF P1,758,427.87, JOINTLY AND SEVERALLY WITH THE DEFENDANTS
SPS. MANALASTAS ON THE TWO PROMISSORY NOTES (EXHIBITS 'C' AND 'A').

II

THE LOWER COURT ERRED WHEN IT RECONSIDERED AND SET ASIDE ITS PREVIOUS ORDER
DATED 22 OCTOBER 1999 RELIEVING DEFENDANTS-APPELLANTS SPS. SINAMBAN FROM ANY
LIABILITY ARISING FROM THE DECISION DATED 30 JULY 1999.

III

THE LOWER COURT ERRED WHEN IT RENDERED THE VAGUE ORDER OF 8 DECEMBER 1999
(ANNEX 'B' HEREOF).33cralawlawlibrary
On May 19, 2010, the CA rendered judgment denying the appeal, the fallo of which
reads:chanroblesvirtuallawlibrary
WHEREFORE, considering the foregoing disquisition, the appeal is DENIED. The Decision dated 30 July
1999 and the Order dated 08 December 1999 of the Regional Trial Court of San Fernando, Pampanga,
Branch 45 in Civil Case No. 11708 are hereby AFFIRMED withMODIFICATION in that:

1. Sps. Danilo and Magdalena Manalastas are solidarily liable for the deficiency amount
of Php507,741.62 (inclusive of 10% attorney's fees) on Promissory Note No. OACL 634-95 dated
24 April 1995;

2. Sps. Estanislao and Africa Sinamban are solidarily liable with Sps. Danilo and Magdalena
Manalastas for the amount of Php844,501.90 (inclusive of 10% attorney's fees) on Promissory
Note No. OACL00636-95 dated 23 May 1995;

3. Estanislao Sinamban and Sps. Danilo and Magdalena Manalastas are solidarity liable for the
amount of Php406,184.35 (inclusive of 10% attorney's fees) on Promissory Note No. CLF 5-93
dated 26 February 1991; and

4. The foregoing amounts shall bear interest at the rate of 12% per annum from 18 November 1998
until fully paid.

SO ORDERED.34 (Some emphasis ours)

Petition for Review to the Supreme Court

In this petition for review, the spouses Sinamban seek to be completely relieved of any liability on the
PNs, solidary or otherwise, by interposing the following issues:chanroblesvirtuallawlibrary
5.1 Whether or not the Honorable Court of Appeals erred in not considering that the Sps. Sinamban's
obligations under PN# OACL 636-95 dated May 23, 1995 in the principal sum of Php325,000.00 and PN#
CLF 5-93 dated February 26, 1991 in the principal sum of Php 1,300,000.00 are more onerous and
burdensome on their part as mere sureties (co-makers) of their co-defendants-spouses Danilo and
Magdalena Manalastas' (hereinafter referred to as the "Sps. Manalastas") obligations over the same,
compared to the Sps. Manalastas' sole obligation under PN# OACL 634-95 dated 24 April 1995 in the
principal amount of Php1,800,000.00, such that the proceeds of the auction sale of the properties
securing all the three (3) promissory notes should first be applied to satisfy the promissory notes signed
by the Sps. Sinamban; and

5.2 Whether or not the Honorable Court of Appeals erred in not considering the facts indubitably showing
that it is the Sps. Sinamban, as the debtors, and not the respondent bank, who are given the choice
under Article 1252 of the Civil Code to have the proceeds of the auction sale applied as payments to their
obligations under PN# OACL 636-95 dated 23 May 1995 and PN# CLF 5-93 dated 26 February
1991.35cralawlawlibrary
Ruling of the Court

The Court modifies the CA decision.

A co-maker of a PN who binds himself with the maker "jointly and severally" renders himself
directly and primarily liable with the maker on the debt, without reference to his solvency.

"A promissory note is a solemn acknowledgment of a debt and a formal commitment to repay it on the
date and under the conditions agreed upon by the borrower and the lender. A person who signs such an
instrument is bound to honor it as a legitimate obligation duly assumed by him through the signature he
affixes thereto as a token of his good faith. If he reneges on his promise without cause, he forfeits the
sympathy and assistance of this Court and deserves instead its sharp repudiation."36

Employing words of common commercial usage and well-accepted legal significance, the three subject
PNs uniformly describe the solidary nature and extent of the obligation assumed by each of the
defendants in Civil Case No. 11708, to wit:chanroblesvirtuallawlibrary
"FOR VALUE RECEIVED, I/We jointly and severally promise to pay to the CHINA BANKING
CORPORATION or its order the sum of PESOS x x x[.]"37 (Emphasis ours)
According to Article 2047 of the Civil Code,38 if a person binds himself solidarily with the principal debtor,
the provisions of Articles 1207 to 1222 of the Civil Code (Section 4, Chapter 3, Title I, Book IV) on joint
and solidary obligations shall be observed. Thus, where there is a concurrence of two or more creditors or
of two or more debtors in one and the same obligation, Article 1207 provides that among them, "[t]here is
a solidary liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity." It is settled that when the obligor or obligors undertake to be "jointly and
severally" liable, it means that the obligation is solidary. 39 In this case, the spouses Sinamban expressly
bound themselves to be jointly and severally, or solidarily, liable with the principal makers of the PNs, the
spouses Manalastas.

Moreover, as the CA pointed out, in Paragraph 5 of the PNs, the borrowers and their co-makers expressly
authorized Chinabank, as follows:chanroblesvirtuallawlibrary
[T]o apply to the payment of this note and/or any other particular obligation or obligations of all or any one
of us to the CHINA BANKING CORPORATION as the said Corporation may select, irrespective of the
dates of maturity, whether or not said obligations are then due, any or all moneys, securities and things of
value which are now or which may hereafter be in its hands on deposit or otherwise to the credit of, or
belonging to, all or any one of us, and the CHINA BANKING CORPORATION is hereby authorized to sell
at public or private sale such securities or things of value for the purpose of applying their proceeds to
such payments.40cralawlawlibrary
Pursuant to Article 1216 of the Civil Code, as well as Paragraph 5 of the PNs, Chinabank opted to
proceed against the co-debtors simultaneously, as implied in its May 18, 1998 statement of
account when it applied the entire amount of its auction bid to the aggregate amount of the loan
obligations.

The PNs were executed to acknowledge each loan obtained from the credit line extended by Chinabank,
which the principal makers and true beneficiaries, the spouses Manalastas, secured with a REM they
executed over their properties. As the RTC noted in its Order dated December 8, 1999, "the real estate
mortgage was constituted to secure all the three (3) promissory notes," concluding that "[j]ust as the
liability of the [spouses] Sinamban was lessened by the foreclosure proceedings, so must they also share
in the deficiency judgment, in proportion to the PNs they co-signed with the [spouses] Manalastas, but not
the entire deficiency judgment of P1,758,427.87."41

Significantly, in modifying the RTC's second amended decision, which provides for the pro
rata distribution of the loan deficiency of P1,758,427.87, the C A first applied the entire net proceeds of
the auction sale of P4,183,744.63 (after auction expenses of P416,255.37), to PN No. OACL 634-95,
which on May 18, 1998 had an outstanding balance of P4,264,987.50, inclusive of interest and penalties,
plus 10% attorney's fees, or a total of P4,691,486.25. Thus, P4,691,486.25 less P4,183,744.63 leaves a
deficiency on PN No. OACL 634-95 of P507/741.62, which is due solely from the spouses Manalastas.

As for PN No. OACL 636-95, the CA ordered the spouses Sinamban to pay, solidarity with the spouses
Manalastas, the entire amount due thereon, P844,501.90, consisting of the loan principal of P767,729.00
plus accrued interest, penalties and 10% attorney's fees; concerning PN No. CLF 5-93, the CA ordered
the spouses Sinamban to pay, solidarity with the spouses Manalastas, the amount of P406,184.35,
consisting of the balance of the loan principal of P369,258.50 plus accrued interest, penalties and 10%
attorney's fees. The CA further ordered the payment of 12% interest per annum from November 18, 1998,
the date of judicial demand, until fully paid, on the above deficiencies.

Article 1216 of the Civil Code provides that "[t]he creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as the debt has not
been fully collected." Article 125242 of the Civil Code does not apply, as urged by the petitioners, because
in the said article the situation contemplated is that of a debtor with several debts due, whereas the
reverse is true, with each solidary debt imputable to several debtors.

While the CA correctly noted that the choice is given to the solidary creditor to determine against whom
he wishes to enforce payment, the CA stated that Chinabank, in the exercise of the aforesaid option,
chose to apply the net proceeds of the extrajudicial foreclosure sale first to the PN solely signed by
spouses Manalastas.43 Thus, the net proceeds were applied first to PN No. OACL 634-95 in the principal
amount of P1,800,000.00, instead of pro rata to all three PNs due.

The Court finds this factual conclusion of the CA not supported by any evidence or any previous
arrangement. To the contrary, as clearly shown in its Statement of Account dated May 18, 1998,
Chinabank opted to apply the entire auction proceeds to the aggregate amount of the three PNs due,
P5,401,975.00 (before attorney's fees and auction expenses). Had it chosen to enforce the debts as ruled
by the CA, the Statement of Account would have shown that the loan due on PN No. OACL 634-95 which
is P4,691,486.25, should have been deducted first from the net auction proceeds of P4,183,744.63,
arriving at a deficiency of P507,741.62 on PN No. OACL 634-95 alone; thereby, leaving no remainder of
the proceeds available to partially settle the other two PNs. As it appears, the auction proceeds are not
even sufficient to cover just PN No. OACL 634-95 alone.

But as the Court has noted, by deducting the auction proceeds from the aggregate amount of the three
loans due, Chinabank in effect opted to apply the entire proceeds of the auction simultaneously to all the
three loans. This implies that each PN will assume a pro rata portion of the resulting deficiency on the
total indebtedness as bears upon each PN's outstanding balance. Contrary to the spouses Sinamban's
insistence, none of the three PNs is more onerous than the others to justify applying the proceeds
according to Article 1254 of the Civil Code, in relation to Articles 1252 and 1253.44 Since each loan,
represented by each PN, was obtained under a single credit line extended by Chinabank for the working
capital requirements of the spouses Manalastas' rice milling business, which credit line was secured also
by a single REM over their properties, then each PN is simultaneously covered by the same mortgage
security, the foreclosure of which will also benefit them proportionately. No PN enjoys any priority or
preference in payment over the others, with the only difference being that the spouses Sinamban are
solidarity liable for the deficiency on two of them.

Pursuant, then, to the order or manner of application of the auction proceeds chosen by Chinabank, the
solidary liability of the defendants pertaining to each PN shall be as follows:chanroblesvirtuallawlibrary
a) PN No. OACL 634-95, with a balance as of May 18, 1998 of P4,264,987.50: its share in the total
deficiency is computed as the ratio of P4,264,987.50 to P5,401,975.00, multiplied by P1,758,427.87,
or P1,388,320.55, (not P507,741.62 as found by the CA);

b) PN No. OACL 636-95, with a balance of P767.729.00 as of May 18, 1998: its share in the deficiency is
computed as the ratio of P767,729.00 to P5,401,975.00, multiplied by P1,758,427.87, or P249,907.87,
(not P844,501.90 as computed by the CA);

c) PN No. CLF 5-93, with an outstanding balance of P369,258.50 as of May 18, 1998: its share in the
deficiency is computed as the ratio of P369,258.50 to P5,401,975.00, multiplied by P1,758,427.87,
or P120,199.45, (not P406,184.35 as found by the CA).

In short, in the CA decision, the spouses Manalastas would be solely liable on PN No. OACL 634-95 for
onlyP507,741.62 (instead of the much bigger amount of P1,388,320.55 which this Court found), whereas
the spouses Sinamban would be solidarily liable with the spouses Manalastas for a total deficiency
ofP1,250,686.25 on PN No. OACL 636-95 and PN No. CLF 5-93. But under the Court's interpretation, the
spouses Sinamban are solidarily liable with the spouses Manalastas for only P370,107.32 on the said two
PNs, for a significant difference of P880,578.93.

Pursuant to Monetary Board Circular No. 799, effective July 1, 2013, the rate of interest for the
loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of an express contract as to such rate of interest, has been reduced to six percent
(6%) per annum.

The subject three PNs bear interests ranging from 21% to 23% per annum, exclusive of penalty of 1% on
the overdue amount per month of delay, whereas in its complaint, Chinabank prayed to recover only the
legal rate of 12% on whatever judgment it could obtain. Meanwhile, the Monetary Board of the Bangko
Sentral ng Pilipinas in its Resolution No. 796 dated May 16, 2013, and now embodied in Monetary Board
Circular No. 799, has effective July 1, 2013 reduced to 6%, from 12%, the legal rate of interest for the
loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of
stipulation.45 Since Chinabank demanded only the legal, not the stipulated, interest rate on the deficiency
and attorney's fees due, the defendants will solidarily pay interest on their shares in the deficiency at the
rate of 12% from November 18, 1998 to June 30, 2013, and 6% from July 1, 2013 until fully
paid.cralawred

WHEREFORE, the Decision of the Court of Appeals dated May 19, 2010 in CA-G.R. CV No. 66274
isMODIFIED. The Decision dated July 30, 1999 and the Order dated December 8, 1999 of the Regional
Trial Court of San Fernando City, Pampanga, Branch 45 in Civil Case No. 11708 are hereby AFFIRMED
with MODIFICATIONS as follows:

1. Spouses Danilo and Magdalena Manalastas are solidarily liable for the deficiency amount
ofP1,388,320.55 (inclusive of 10% attorney's fees) on Promissory Note No. OACL 634-95 dated April 24,
1995;

2. Spouses Estanislao and Africa Sinamban are solidarily liable with spouses Danilo and Magdalena
Manalastas for the deficiency amount of P249,907.87 (inclusive of 10% attorney's fees) on Promissory
Note No. OACL 636-95 dated May 23, 1995;

3. Estanislao Sinamban and spouses Danilo and Magdalena Manalastas are solidarily liable for the
deficiency amount of P120,199.45 (inclusive of 10% attorney's fees) on Promissory Note No. CLF 5-93
dated February 26, 1991; and
4. The foregoing amounts shall bear interest at the rate of twelve percent (12%) per annum from
November 18, 1998 to June 30, 2013, and six percent (6%) per annum from July 1, 2013 until fully paid.

SO ORDERED.chanroblesvirtuallawlibrary

Velasco, Jr., (Chairperson), Peralta, Villarama, Jr., and Jardeleza, JJ., concur.

112

FIRST DIVISION

[G.R. No. 137909. December 11, 2003]

FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses BERNARDINO NAGUIAT and
MARIA PAULINA GERONA-NAGUIAT, respondents.

DECISION
PANGANIBAN, J.:

The failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto grant the
seller the right to rescind the agreement. Unless otherwise stipulated by the parties, rescission is allowed
only when the breach of the contract is substantial and fundamental to the fulfillment of the obligation.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, seeking to nullify
the October 31, 1997 Decision[2] and the February 23, 1999 Resolution[3] of the Court of Appeals (CA) in
CA-GR CV No. 51067. The assailed Decision disposed as follows:

WHEREFORE, modified as indicated above, the decision of the Regional Trial Court is hereby
AFFIRMED.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The facts of the case are summarized by the CA as follows:

Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel of land located at
Malhacan, Meycauayan, Bulacan. A portion thereof was leased to [Respondent Bernardino Naguiat]
sometime in 1970.
On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent Bernardino Naguiat] over
a portion of the aforementioned lot containing an area of 200 square meters. This agreement was
reduced to writing in a document entitled Kasulatan sa Pagbibilihan which reads as follows:

NAGSASALAYSAY:

Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa na nasa Nayon ng
Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at mga kahangga
nitogaya ng sumusunod:

xxxxxxxxx

Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO (P20,000.00) Kualtang Pilipino, ang
NAGBIBILI ay nakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat na DALAWANG DAAN
(200) METROS PARISUKAT, sa lupang nabanggit sa itaas, na ang mga kahangga nito ay gaya ng
sumusunod:

xxxxxxxxx

Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang DALAWANG LIBONG

PISO (P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang kasulatang ito.

Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00) Kualtang Pilipino, ay
babayaran ng BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa araw din ng lagdaan ang
kasulatang ito.

Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g] BUMIBILI ay
magbabayad ng pakinabang o interes ng 12% isang taon, sa taon nilakaran hanggang sa itoy mabayaran
tuluyan ng Bumibili:

Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon ika 5 ng Abril,
1979, sa Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.

(signed) (signed)
BERNARDINO NAGUIAT EULALIO MISTICA
Bumibili Nagbibili

Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment of P2,000.00. He

made another partial payment of P1,000.00 on 7 February 1980. He failed to make any payments
thereafter. Eulalio Mistica died sometime in October 1986.

On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia: that the failure and
refusal of [respondents] to pay the balance of the purchase price constitutes a violation of the contract
which entitles her to rescind the same; that [respondents] have been in possession of the subject portion
and they should be ordered to vacate and surrender possession of the same to [petitioner] ; that the
reasonable amount of rental for the subject land is P200.00 a month; that on account of the unjustified
actuations of [respondents], [petitioner] has been constrained to litigate where she incurred expenses for
attorneys fees and litigation expenses in the sum of P20,000.00.

In their answer and amended answer, [respondents] contended that the contract cannot be rescinded on
the ground that it clearly stipulates that in case of failure to pay the balance as stipulated, a yearly interest
of 12% is to be paid. [Respondent Bernardino Naguiat] likewise alleged that sometime in October 1986,
during the wake of the late Eulalio Mistica, he offered to pay the remaining balance to [petitioner] but the
latter refused and hence, there is no breach or violation committed by them and no damages could yet be
incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the said document; that he is
presently the owner in fee simple of the subject lot having acquired the same by virtue of a Free Patent
Title duly awarded to him by the Bureau of Lands; and that his title and ownership had already become
indefeasible and incontrovertible. As counterclaim, [respondents] pray for moral damages in the amount
of P50,000.00; exemplary damages in the amount of P30,000.00; attorneys fees in the amount
of P10,000.00 and other litigation expenses.

On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the court on 29 July
1992. The motion for reconsideration was likewise denied per its Order of 17 March 1993.

After the presentation of evidence, the court on 27 January 1995 rendered the now assailed judgment,
the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered:

1. Dismissing the complaint and ordering the [petitioner] to pay the [respondents] attorneys fee in the
amount of P10,000.00 and costs of the suit;

2. Ordering the [respondents]:

a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of the purchase price
in the amount of P17,000.00, with interest thereon at the rate of 12% per annum
computed from April 5, 1989 until full payment is made, subject to the application
of the consigned amount to such payment;

b. To return to [petitioner] and the heirs of Eulalio Mistica the extra area of 58 square
meters from the land covered by OCT No. 4917 (M), the corresponding price
therefor based on the prevailing market price thereof.[5] (Citations omitted)

CAs Decision

Disallowing rescission, the CA held that respondents did not breach the Contract of Sale. It
explained that the conclusion of the ten-year period was not a resolutory term, because the Contract had
stipulated that payment -- with interest of 12 percent -- could still be made if respondents failed to pay
within the period. According to the appellate court, petitioner did not disprove the allegation of
respondents that they had tendered payment of the balance of the purchase price during her husbands
funeral, which was well within the ten-year period.
Moreover, rescission would be unjust to respondents, because they had already transferred the land
title to their names. The proper recourse, the CA held, was to order them to pay the balance of the
purchase price, with 12 percent interest.
As to the matter of the extra 58 square meters, the CA held that its reconveyance was no longer
feasible, because it had been included in the title issued to them. The appellate court ruled that the only
remedy available was to order them to pay petitioner the fair market value of the usurped portion.
Hence, this Petition.[6]

Issues
 In her Memorandum,[7] petitioner raises the following issues:

1. Whether or not the Honorable Court of Appeals erred in the application of Art. 1191 of the
New Civil Code, as it ruled that there is no breach of obligation inspite of the lapse of the
stipulated period and the failure of the private respondents to pay.

2. Whether or not the Honorable Court of Appeals [e]rred in ruling that rescission of the contract
is no longer feasible considering that a certificate of title had been issued in favor of the
private respondents.

3. Whether or not the Honorable Court of Appeals erred in ruling that since the 58 sq. m. portion
in question is covered by a certificate of title in the names of private respondents
reconveyance is no longer feasible and proper.[8]

The Courts Ruling

The Petition is without merit.

First Issue:
Rescission in Article 1191

Petitioner claims that she is entitled to rescind the Contract under Article 1191 of the Civil Code,
because respondents committed a substantial breach when they did not pay the balance of the purchase
price within the ten-year period. She further avers that the proviso on the payment of interest did not
extend the period to pay. To interpret it in that way would make the obligation purely potestative and,
thus, void under Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents, as evidenced by
the Kasulatan, was clearly a Contract of Sale. A deed of sale is considered absolute in nature when there
is neither a stipulation in the deed that title to the property sold is reserved to the seller until the full
payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the
moment the buyer fails to pay within a fixed period.[9]
In a contract of sale, the remedy of an unpaid seller is either specific performance or
rescission.[10] Under Article 1191 of the Civil Code, the right to rescind an obligation is predicated on the
violation of the reciprocity between parties, brought about by a breach of faith by one of
them.[11] Rescission, however, is allowed only where the breach is substantial and fundamental to the
fulfillment of the obligation.[12]
In the present case, the failure of respondents to pay the balance of the purchase price within ten
years from the execution of the Deed did not amount to a substantial breach. In theKasulatan, it was
stipulated that payment could be made even after ten years from the execution of the Contract, provided
the vendee paid 12 percent interest. The stipulations of the contract constitute the law between the
parties; thus, courts have no alternative but to enforce them as agreed upon and written.[13]
Moreover, it is undisputed that during the ten-year period, petitioner and her deceased husband
never made any demand for the balance of the purchase price. Petitioner even refused the payment
tendered by respondents during her husbands funeral, thus showing that she was not exactly blameless
for the lapse of the ten-year period. Had she accepted the tender, payment would have been made well
within the agreed period.
 If petitioner would like to impress upon this Court that the parties intended otherwise, she has to
show competent proof to support her contention. Instead, she argues that the period cannot be extended
beyond ten years, because to do so would convert the buyers obligation to a purely potestative obligation
that would annul the contract under Article 1182 of the Civil Code.
This contention is likewise untenable. The Code prohibits purely potestative, suspensive, conditional
obligations that depend on the whims of the debtor, because such obligations are usually not meant to be
fulfilled.[14] Indeed, to allow the fulfillment of conditions to depend exclusively on the debtors will
would be to sanction illusory obligations. [15] TheKasulatan does not allow such thing. First,
nowhere is it stated in the Deed that payment of the purchase price is dependent upon whether
respondents want to pay it or not. Second, the fact that they already made partial payment thereof only
shows that the parties intended to be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Well-settled is the rule that findings of
fact by the CA are generally binding upon this Court and will not be disturbed on appeal, especially when
they are the same as those of the trial court.[16] Petitioner has not given us sufficient reasons to depart
from this rule.

Second Issue:
Rescission Unrelated to Registration

The CA further ruled that rescission in this case would be unjust to respondents, because a
certificate of title had already been issued in their names. Petitioner nonetheless argues that the Court is
still empowered to order rescission.
We clarify. The issuance of a certificate of title in favor of respondents does not determine whether
petitioner is entitled to rescission. It is a fundamental principle in land registration that such title serves
merely as an evidence of an indefeasible and incontrovertible title to the property in favor of the person
whose name appears therein.[17]
While a review of the decree of registration is no longer possible after the expiration of the one-year
period from entry, an equitable remedy is still available to those wrongfully deprived of their property. [18] A
certificate of title cannot be subject to collateral attack and can only be altered, modified or canceled in
direct proceedings in accordance with law.[19] Hence, the CA correctly held that the propriety of the
issuance of title in the name of respondents was an issue that was not determinable in these
proceedings.

Third Issue:
Reconveyance of the Portion Importunately Included

Petitioner argues that it would be reasonable for respondents to pay her the value of the lot, because
the CA erred in ruling that the reconveyance of the extra 58-square meter lot, which had been included in
the certificate of title issued to them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a mode of acquiring ownership
over immovable property, because it does not create or vest title, but merely confirms one already
created or vested.[20] Registration does not give holders any better title than what they actually
have.[21] Land erroneously included in the certificate of title of another must be reconveyed in favor of its
true and actual owner.[22]
Section 48 of Presidential Decree 1529, however, provides that the certificate of title shall not be
subject to collateral attack, alteration, modification, or cancellation except in a direct proceeding. [23] The
cancellation or removal of the extra portion from the title of respondents is not permissible in an action for
rescission of the contract of sale between them and petitioners late husband, because such action is
tantamount to allowing a collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title and for reversion was already
filed by the State in favor of petitioner and the heirs of her husband. [24] Hence, there is no need in this
case to pass upon the right of respondents to the registration of the subject land under their names. For
the same reason, there is no necessity to order them to pay petitioner the fair market value of the extra
58-square meter lot importunately included in the title.
WHEREFORE, the assailed Decision and Resolution are AFFIRMED with the MODIFICATION that
the payment for the extra 58-square meter lot included in respondents title isDELETED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

170

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-44349 October 29, 1976

JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,

vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First Instance of Rizal, Branch XXVI;
COURT OF APPEALS and TROPICAL HOMES, INC., respondents.

Occena Law Office for petitioners.

Serrano, Diokno & Serrano for respondents.

TEEHANKEE, J.:

The Court reverses the Court of Appeals appealed resolution. The Civil Code authorizes the release of an
obligor when the service has become so difficult as to be manifestly beyond the contemplation of the
parties but does not authorize the courts to modify or revise the subdivision contract between the parties
or fix a different sharing ratio from that contractually stipulated with the force of law between the parties.
Private respondent's complaint for modification of the contract manifestly has no basis in law and must
therefore be dismissed for failure to state a cause of action. On February 25, 1975 private respondent
Tropical Homes, Inc. filed a complaint for modification of the terms and conditions of its subdivision
contract with petitioners (landowners of a 55,330 square meter parcel of land in Davao City), making the
following allegations:

"That due to the increase in price of oil and its derivatives and the concomitant worldwide spiralling of
prices, which are not within the control of plaintiff, of all commodities including basis raw materials
required for such development work, the cost of development has risen to levels which are unanticipated,
unimagined and not within the remotest contemplation of the parties at the time said agreement was
entered into and to such a degree that the conditions and factors which formed the original basis of said
contract, Annex 'A', have been totally changed; 'That further performance by the plaintiff under the
contract.

That further performance by the plaintiff under the contract,Annex 'S', will result in
situation where defendants would be unustly enriched at the expense of the plaintiff; will
cause an inequitous distribution of proceeds from the sales of subdivided lots in manifest
actually result in the unjust and intolerable exposure of plaintiff to implacable losses, all
such situations resulting in an unconscionable, unjust and immoral situation contrary to
and in violation of the primordial concepts of good faith, fairness and equity which should
pervade all human relations.

Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the latter's fixed
and sole share and participation an amount equivalent to forty (40%) percent of all cash receifpts fromthe
sale of the subdivision lots"

Respondent pray of the Rizal court of first instance that "after due trial, this Honorable Court render
judgment modifying the terms and conditions of the contract ... by fixing the proer shares that shouls
pertain to the herein parties out of the gross proceeds from the sales of subdivided lots of subjects
subdivision".

Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon denial thereof
and of reconsideration by the lower court elevated the matter on certiorari to respondent Court of
Appeals.

Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary injunction
previously issued by it and dimissed petition on the ground that under Article 1267 of the Civil Code which
provides that

ART. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part. 1

... a positive right is created in favor of the obligor to be released from the performance of
an obligation in full or in part when its performance 'has become so difficult as to be
manifestly beyond the contemplation of the parties.

Hence, the petition at abar wherein petitioners insist that the worldwide increase inprices cited by
respondent does not constitute a sufficient casue of action for modification of the subdivision contrct. After
receipt of respondent's comment, the Court in its Resolution of September 13, 1976 resolved to treat the
petition as special civil actionand declared the case submitted for decision.

The petition must be granted.

While respondent court correctly cited in its decision the Code Commission's report giving the rationale
for Article 1267 of the Civil Code, to wit;

The general rule is that impossibility of performance releases the obligor. However, it is
submitted that when the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to release the obligor in
whole or in part. The intention of the parties should govern and if it appears that the
 service turns out to be so difficult as have been beyond their contemplation, it would be
doing violence to that intention to hold the obligor still responsible. ... 2

It misapplied the same to respondent's complaint.

If respondent's complaint were to be released from having to comply with the subdivision contract,
assuming it could show at the trial that the service undertaken contractually by it had "become so difficult
as to be manifestly beyond the contemplation of the parties", then respondent court's upholding of
respondet's complaint and dismissal of the petition would be justifiable under the cited codal article.
Without said article, respondent would remain bound by its contract under the theretofore prevailing
doctrine that performance therewith is ot excused "by the fact that the contract turns out to be hard and
improvident, unprofitable, or unespectedly burdensome", 3since in case a party desires to be excuse from
performance in the event of such contingencies arising, it is his duty to provide threfor in the contract.

But respondent's complaint seeks not release from the subdivision contract but that the court "render
judgment I modifying the terms and Conditions of the Contract by fixing the proper shares that should
pertain to the herein parties out of the gross proceed., from the sales of subdivided lots of subject
subdivision". The cited article does not grant the courts this authority to remake, modify or revise the
contract or to fix the division of shares between the parties as contractually stipulated with the force of law
between the parties, so as to substitute its own terms for those covenanted by the partiesthemselves.
Respondent's complaint for modification of contract manifestly has no basis in law and therefore states no
cause of action. Under the particular allegations of respondent's complaint and the circumstances therein
averred, the courts cannot even in equity grant the relief sought.

A final procedural note. Respondent cites the general rule that an erroneous order denying a motion to
dismiss is interlocutory and should not be corrected by certiorari but by appeal in due course. This case
however manifestly falls within the recognized exception that certiorari will lie when appeal would not
prove to be a speedy and adequate remedy.' Where the remedy of appeal would not, as in this case,
promptly relieve petitioners from the injurious effects of the patently erroneous order maintaining
respondent's baseless action and compelling petitioners needlessly to go through a protracted trial and
clogging the court dockets by one more futile case, certiorari will issue as the plain, speedy and adequate
remedy of an aggrieved party.

ACCORDINGLY, the resolution of respondent appellate court is reversed and the petition for certiorari is
granted and private respondent's complaint in the lower court is ordered dismissed for failure to state a
sufficient cause of action. With costs in all instances against private respondent.

Makasiar, Muñoz Palma, Concepcion, Jr., and Martin JJ., concur.