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THIRD DIVISION commercial establishment owned by ASI and Melbarose at #514 M.V.

delos Santos
St., Sampaloc, Manila, valued at P100,000.00; List B - - all the furniture, fixtures,
[G.R. NO. 164521 : December 18, 2008] appliances, equipment and other personal property found in said business
establishment, valued at P3,500.00; and List C - - one Toyota Corona 2DR. HT. with
Motor No. 18R-1474348, valued at P40,000.00 and one Toyota Corolla 4DR. SDN
ALLANDALE SPORTSLINE, INC., AND MELBAROSE R. with Motor No. 4K-5872110, valued at P35,000.00.8
SASOT, Petitioners, v. THE GOOD DEVELOPMENT CORPORATION, Respondent.
On June 24, 1991, GDC demanded that Melbarose pay the unpaid account
DECISION of P179,000.00 or surrender the mortgaged chattels within five days from notice.9

AUSTRIA-MARTINEZ, J.: When no payment was made, GDC filed with the RTC a Complaint10 for Replevin
and/or Sum of Money with Damages against ASI, Melbarose, Manipon, Florante
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Edrino and John Doe.11 It is significant that plaintiff GDC prayed for alternative reliefs,
Court, assailing the May 15, 2003 Decision1 of the Court of Appeals (CA) in CA-G.R. to wit:
CV No. 59475 which dismissed the petition of Allandale Sportsline, Inc. and
Melbarose R. Sasot from the January 13, 1998 Decision2 of the Regional Trial Court WHEREFORE, for all the foregoing it is most respectfully prayed of this Honorable
(RTC) of Pasig City, Branch 158 in Civil Case No. 61053; and the June 12, 2004 CA Court that:
Resolution3 which denied petitioners' motion for reconsideration.
1. A Writ of Replevin be issued ordering the seizure of the above described chattels
The relevant facts are as follows: or personal property with all the accessories or equipments and directing their transfer
to Plaintiff for the purposes of foreclosure &/or transfer in accordance with the law
Allandale Sportsline, Inc. (ASI) obtained a loan of P204,000.00 from The Good to satisfy Defendants' obligation in favor of Plaintiff; andcralawlibrary
Development Corp. (GDC) under a Promissory Note signed by Melbarose R. Sasot
(Melbarose) and Allandale R. Sasot (Allandale), President and Vice-President, 2. After due notice and trial:
respectively, of ASI, with Theresa L. Manipon (Manipon) as one of three co-
makers.4 The Promissory Note provides that the loan is payable in daily equal
installments of P2,000.00 with interest at the rate of 26.002% per annum. In case of A. to enforce said seizure and Plaintiff's right over aforedescribed chattels and/or
default in the payment of any installment, the entire balance of the obligation shall personal property; andcralawlibrary
become immediately due and payable, and subject to liquidated penalty/ collection
charge equivalent to 2% of the principal.5 b. to order Defendants to pay Plaintiff jointly and severally the sum of P43,750.00 as
and for attorney's fees and the sum equivalent to 25% of the obligation as and for
To provide additional security, ASI and Melbarose executed in favor of GDC a Deed liquidated damages, plus other expenses of litigation and costs of suit.
of Mortgage6 in which they acceded that:
On the Alternative Cause of Action, in the event that manual delivery of said chattels
xxxx should the MORTGAGORS fail to comply with any of the terms of the or personal property cannot be obtained for some reason or another, to render
promissory note and this mortgage contract, the MORTGAGEE shall automatically judgment ordering Defendants to pay plaintiff, jointly and severally as follows:
have the absolute right without need of prior notice or demand to forthwith
judicially or extrajudicially foreclose this mortgage and proceed against all or any 1. The sum of P175,000.00 plus interest thereon at 26.002% per annum from date of
of the mortgaged rights, interests and properties for the full satisfaction of the maturity until said sum shall have been fully paid.
MORTGAGORS' entire obligation to the MORTGAGEE and, in such event, the
MORTGAGORS shall be further liable to the MORTGAGEE in the same judicial or 2. The sum of P43,750.00 as and for Attorney's fees, the sum equivalent to 25% of
extrajudicial foreclosure proceedings for payment of attorney's fees in an amount the obligation as and for liquidated damages, such other expenses of litigation and
equivalent to twenty five (25%) per cent of the unpaid indebtedness but in no case costs of suit.12
less that Five hundred pesos (500.00); liquidated damages in an amount equivalent
to twenty-five (25%) percent of said outstanding obligation and all the expenses
and costs incidental to the above proceeding xxx.7 (Emphasis supplied)cralawlibrary The RTC issued a Writ of Replevin,13 and by virtue thereof, the Sheriff seized and
delivered to GDC only one unit of Toyota Corona with Motor No. 18R-1474348 and
two appliances.14
The properties subject of the mortgage are itemized in an inventory attached to the
deed. They include: List A - - all the merchandise and stocks in trade found in the
On December 2, 1991, GDC filed an Amended Complaint to include in its application Q - Could you tell this Honorable Court if the auction sale pushed through?cra
for replevin the items under List A.15 After admitting the Amended Complaint, the RTC lawlibrary
issued an Alias Writ of Replevin16over the items in List A, and, by virtue thereof, the
Sheriff seized and delivered to GDC the assorted items enumerated therein. 17 A - Yes, sir.

It appears that a Second Alias Writ of Replevin18 was issued over one unit Toyota Q - How much were you able to realize from the auction sale?
Corolla with Motor No. 4K-5872110, but the records do not indicate that the Sheriff
made a return on the writ.
xxx
Meanwhile, ASI and Melbarose filed their Answer with Counterclaim.19 They claimed
that their loan obligation to GDC was only for P200,000.00, and after A - We had pulled amounting to P55,050.00. The Karaoke - P3,200.00; the t.v.
deducting P18,000.00, which amount was retained by GDC as advanced interest - P500.00; and athletic uniforms amounting to P20,000.00.
payment, and P29,000.00, which represents payments made from June 4, 1991 to
July 8, 1991, their unpaid obligation was only P171,000.00;20 that they repeatedly Q - So, all in all how much could that be?
tendered payment of this amount, but GDC rejected their efforts for no valid reason;
that the unreasonable refusal of GDC to accept their tender of payment relieved them xxx
of their loan obligation;21that its Complaint being obviously without merit, GDC should
be held liable to them for damages.22
A - More than P78,000.00. I think P78,750.00.25
Manipon filed a separate Answer in which she did not deny the authenticity of her
signature on the Promissory Note, but argued that she did not knowingly or voluntarily On cross-examination, the same witness further described the auction sale:
sign the instrument as a co-maker, for at that time she was under the impression that
the instrument she was signing was her own loan application with GDC.23 ATTY. QUINONES:

In its Pre-Trial Order dated May 22, 1992, the RTC identified only these issues: (a) xxx
whether GDC was entitled to collect P175,000.00, as well as the interests, attorney's
fees and other expenses and costs; (b) whether ASI and Melbarose made a valid
Q - Are you sure that these has been sold already, Miss Buenviaje?cra lawlibrary
tender of payment; (c) whether Manipon was a real party-in-interest; and (d) whether
the prevailing party was entitled to damages.24
A - Yes, sir.
However, it is significant that at the trial that ensued, GDC disclosed that after it
obtained possession of the properties subject of the writs of replevin, it caused the Q - When was it sold?cra lawlibrary
auction sale of some of them and realized proceeds amounting to P78,750.00.
A - I forgot the exact date.
While there is no certificate of sale in the records of the case, respondent's witness
Leonila Buenviaje testified thus: Q - Do you have any document that those items were already sold?cra lawlibrary

ATTY. MAMARIL: A - We have a certificate of sale from the Sheriff.

xxx xxx

Q - In this case, Miss witness, you were able to seize by way of a writ of replevin Q - And the car Toyota Corona was also seized and sold?cra lawlibrary
some properties of the defendants. What did you do with these properties?cra
lawlibrary
A - Yes, sir.

A - It was being sold by auction sale.


Q - And in turn you were able to sell it to a third party?cra lawlibrary
A - Yes, sir. IV. Whether or not there is legal basis in the award of liquidated damages.31

Q - And that car was sold already in the amount of P56,000.00, is that correct?cra The second issue deserves scant consideration for lack of basis. Manipon did not join
lawlibrary in the petition. Hence, the finding of the RTC, as affirmed by the CA, that she was a
co-maker of Promissory Note and a real party-in-interest is already final and
A - P55,000.00.26 conclusive. Petitioners cannot now question this finding by raising the defense that
Manipon signed the promissory note without knowledge of the nature of her liability
under the instrument. Such defense is personal to Manipon and cannot be invoked by
Moreover, GDC presented to the RTC a Statement of Account dated August 24, petitioners, unless it is shown that their interests are so interwoven with
1992, which indicated that the total outstanding balance of the loan obligation of ASI
and Melbarose was reduced to P191,111.82 after the proceeds of the auction sale
conducted on June 19, 1992 in the amount of P78,750.00 was deducted from the and dependent on Manipon's as to be inseparable. 32 However, in their pleadings,
earlier balance of P266,126.17.27 petitioners do not deny the authenticity and due execution of the Promissory Note,
whereas Manipon has maintained that said instrument was not duly executed; hence,
their defenses are clearly separate and distinct.
The RTC rendered a Decision, the dispositive portion of which reads:
Only three issues are left to be resolved.
WHEREFORE, in view of the foregoing, judgment is rendered in favor of the plaintiff
Good Development Corporation against defendants Melbarose Sasot, Allandale
Sportsline Inc., and Ma. Theresa Manipon ordering them to pay the plaintiff jointly and Anent the first issue, petitioners contend that they were relieved of their obligation to
severally the amount of P269,611.82 plus legal interest thereon effective to date pay GDC (respondent) when they made several attempts to tender payment but
until the full amount is fully paid, and 25% of the total amount due as liquidated respondent refused to accept them without any valid reason. Petitioners claim that the
damages. first tender of payment was made on July 3, 1991 when petitioner Sasot sent
respondent a PCIB check postdated October 31, 1991 in the amount
of P171,000.00.33 Respondent rejected the check, citing that the amount was
SO ORDERED.28 (Emphasis supplied)cralawlibrary insufficient for, as of July 4, 1991, the balance of the principal loan was P175,000.00,
not P171,000.00; and its maturity was September 13, 1991, not October 31, 1991.34
ASI, Sasot and Manipon appealed to the CA, which rendered the Decision assailed
herein, to wit: On October 15, 1997, petitioners tendered payment of P171,000.00 in cash,35 but
respondent refused to accept it due to the insufficiency of the amount.36 Instead,
WHEREFORE, premises considered, the instant appeal is DENIED. The assailed respondent sent petitioners a Statement of Account dated October 29, 1991,
decision of the RTC of Pasig City, Branch 158 in Civil Case No. 61053 is hereby indicating that as of October 15, 1991 the total balance due was P228,071.61.37
AFFIRMED.
On October 29, 1991, petitioners tendered cash payment of P174,986.96,38 but
SO ORDERED.29 respondent still refused to accept it for insufficiency of the amount. 39

Their Motion for Reconsideration was also denied by the CA.30 The question then is whether petitioners' tender of payment and respondent's refusal
thereof discharged petitioners from their obligation.
Only ASI and Sasot (petitioners) took the present recourse, raising the following
issues: Tender of payment, without more, produces no effect; rather, tender of payment must
be followed by a valid consignation in order to produce the effect of payment and
I. Whether or not petitioners' check payment of Php171,000.00, PCIB Check No. extinguish an obligation.40
851688, to cover the total balance of their loan to respondent, became a valid tender
of payment by virtue of the respondent's acceptance thereof; Tender of payment is but a preparatory act to consignation. It is the manifestation by
the debtor of a desire to comply with or pay an obligation. If refused without just
II. Whether or not the "parol evidence rule" applies on the promissory note in question cause, the tender of payment will discharge the debtor of the obligation to pay but
when the co-makers thereon are total strangers to one another; only after a valid consignation of the sum due shall have been made with the proper
court.41

III. Whether or not petitioners are entitled to the return of their properties pursuant to
Section 9, Rule 60 of the Rules of Court.
Consignation is the deposit of the proper amount with a judicial authority, before [Respondent] realized P78,500.00[sic] from the auction sale of the seized personal
whom the debtor must establish compliance with the following mandatory property by virtue of the writ of replevin. The amount realized from the auction sale is
requirements: (1) there was a debt due; (2) the consignation of the obligation had clearly insufficient to cover the unpaid balance, interest, attorney's fees, costs of the
been made because the creditor to whom tender of payment was made refused to suit and other expenses incidental to litigation. This amount was deducted from the
accept it, or because he was absent or incapacitated, or because several persons [petitioners'] total obligation in the amount of P269,111.82 [sic] resulting in the net
claim to be entitled to receive the amount due, or because the title to the obligation total obligation of P191,111.82 as of August 24, 1992.47 (Emphasis
has been lost; (3) previous notice of the consignation had been given to the person supplied)cralawlibrary
interested in the performance of the obligation; (4) the amount due was placed at the
disposal of the court; and (5) after the consignation had been made, the person Yet, it is curious that in the dispositive portion of its Decision, the RTC granted
interested was notified thereof. Failure to prove any of these requirements is enough respondent the remedy of collection of sum of money. The dispositive portion of the
ground to render a consignation ineffective.42 RTC Decision is reproduced below for emphasis:

Petitioners did not allege or prove that after their tender of payment was refused by WHEREFORE, in view of the foregoing, judgment is rendered in favor of the
respondents, they attempted or pursued consignation of the payment with the proper [respondent] Good Development Corporation against [petitioners] Melbarose Sasot,
court. Their tender of payment not having been followed by a valid consignation, it Allandale Sportsline Inc., and Ma. Theresa Manipon ordering them to pay the
produced no effect whatsoever, least of all the extinguishment of the loan obligation. [respondent] jointly and severally the amount of P269,611.82 [sic] plus legal interest
Therefore, the first issue of the validity or invalidity of their tender of payment is thereon effective to date until the full amount is fully paid, and 25% of the total amount
completely moot and academic, for either way the discussion will go, it will lead to no due as liquidated damages.
other conclusion but that, without an accompanying valid consignation, the tender of
payment did not result in the payment and extinguishment of the loan obligation. The
Court cannot take cognizance of such a purely hypothetical issue.43 SO ORDERED.

The third and fourth issues are interrelated because their resolution depends on the Not only is there no more reference to the conduct of the auction sale of the
nature of the remedy which respondent actually adopted. mortgaged properties, there is also no longer any acknowledgment that the proceeds
earned from the auction sale should be deducted from the total unpaid loan.
As emphasized at the outset, the reliefs respondent prayed for in its Complaint and
Amended Complaint are in the alternative: delivery of the mortgaged properties This is a glaring error.
preparatory to foreclosure or payment of the unpaid loan. 44
In Bachrach Motor Co., Inc. v. Icarangal,48 the Court held that the remedies available
Moreover, after respondent acquired possession of the mortgaged properties through to any mortgage creditor are alternative, not cumulative or successive, 49 viz.:
the writs of replevin, it caused the auction sale of assorted sports outfits, one unit
Sansio Karaoke, one unit Sony T.V. Set and one unit Toyota Corona, and earned For non-payment of a note secured by mortgage, the creditor has a single cause of
proceeds amounting to P78,750.00.45 While it appears that respondent failed to action against the debtor. This single cause of action consists in the recovery of the
obtain the other personal properties covered by the Deed of Mortgage and the writs of credit with execution of the security. In other words, the creditor in his action may
replevin, there is no doubt that it had effectively elected the remedy of extra-judicial make two demands, the payment of the debt and the foreclosure of his mortgage. But
foreclosure of the mortgage security over the remedy of collection of the unpaid loan. both demands arise from the same cause, the non-payment of the debt, and for that
reason, they constitute a single cause of action. Though the debt and the mortgage
The RTC was aware that respondent had elected one remedy. In its Decision, it cited constitute separate agreements, the latter is subsidiary to the former, and both refer
the fact that some of the mortgaged properties which were delivered to respondent by to one and the same obligation. Consequently, there exists only one cause of action
means of the Writs of Replevin had been sold on auction, and acknowledged that the for a single breach of that obligation. Plaintiff, then, by applying the rules above
proceeds from said auction sale should be deducted from the loan account of stated, cannot split up his single cause of action by filing a complaint for payment of
petitioners. The RTC noted: the debt, and thereafter another complaint for foreclosure of the mortgage. If he does
so, the filing of the first complaint will bar the subsequent complaint. By allowing the
creditor to file two separate complaints simultaneously or successively, one to recover
The seized pieces of personal properties by virtue of the writ of replevin and alias writ his credit and another to foreclose his mortgage, we will, in effect, be authorizing him
of replevin were sold in an auction sale where [respondent] realized P78,750.00 from plural redress for a single breach of contract at so much cost to the courts and with so
the sale.46 much vexation and oppression to the debtor. (Emphasis supplied)cralawlibrary

xxx By causing the auction sale of the mortgaged properties, respondent effectively
adopted and pursued the remedy of extra-judicial foreclosure,50 using the writ of
replevin as a tool to get hold of the mortgaged properties. 51 As emphasized in the deficiency amount was also presented in the form of the August 24, 1992
Bachrach, one effect of respondent's election of the remedy of extra-judicial Statement of Account marked Exhibits "F-1" and "F-2."58 Thus, an independent action
foreclosure is its waiver of the remedy of collection of the unpaid loan. to recover the deficiency will merely entail the presentation of the same evidence of
the same claim, in the process taxing the time and resources of the parties and the
Therefore, there was no more legal basis for the RTC to grant respondent the relief of courts.59 Therefore, in the higher interest of justice and equity, the Court takes it upon
collecting from petitioners "the amount of Php269,611.82 [sic] plus legal interest itself to grant the claim of respondent to the deficiency amount of P191,111.82, as
thereon effective to date until the full amount is fully paid," nor for the CA to affirm it. stated in its August 24, 1992 Statement of Account.

However, another effect of its election of the remedy of extra-judicial foreclosure is Yet another effect of the election by respondent of the remedy of extra-judicial
that whatever deficiency remains after applying the proceeds of the auction sale to foreclosure is the inapplicability of Section 9, Rule 60 of the Rules of Court, which
the total loan obligation may still be recovered by respondent. 52 states:

But to recover any deficiency after foreclosure, the rule is that a mortgage creditor Section 9. Judgment. - After trial of the issues, the court shall determine who has the
must institute an independent civil action.53 However, in PCI Leasing & Finance, Inc. right of possession to and the value of the property and shall render judgment in the
v. Dai54 the Court held that the claim should at least be included in the pre-trial brief. alternative for the delivery thereof to the party entitled to the same, or for its value in
In said case, the mortgage-creditor had foreclosed on the mortgaged properties and case delivery can not be made and also for such damages as either party may prove,
sold the same at public auction during the trial on the action for damages with with costs.
replevin. After judgment on the replevin case was rendered, the mortgage-creditor
filed another case, this time for the deficiency amount. The Court dismissed the As already discussed, the properties of petitioners which were seized by virtue of the
second case on the ground of res judicata, noting that: Writs of Replevin were extra-judicially foreclosed and sold at public auction by
respondent in the exercise of its absolute right under the contract entered into by the
Petitioner ignores the fact that it prayed in the replevin case that in the event manual parties, without need of prior notice or demand to forthwith judicially or extra-judicially
delivery of the vessel could not be effected, the court "render judgment in its favor by foreclose this mortgage and proceed against all or any of the mortgaged rights,
ordering [herein respondents] to pay x x x the sum of P3,502,095.00 plus interest and interests and properties for the full satisfaction of the mortgagors' entire obligation to
penalty thereon from October 12, 1994 until fully paid as provided in the Promissory the mortgagee.
Note."
Finally, under the same Deed of Mortgage, it is provided that in case of default,
Since petitioner had extrajudicially foreclosed the chattel mortgage over the petitioners shall be liable for liquidated penalty/collection charge in the amount
vessel even before the pre-trial of the case, it should have therein raised as equivalent to "twenty-five (25%) percent of said outstanding obligation." It being
issue during the pre-trial the award of a deficiency judgment. After all, the basis settled that petitioners defaulted on their loan obligation to respondent, the former are
of its above-stated alternative prayer was the same as that of its prayer for replevin - liable for liquidated damages.
the default of respondents in the payment of the monthly installments of their loan.
But it did not. (Emphasis supplied)cralawlibrary WHEREFORE, the Court PARTLY GRANTS the petition and MODIFIES the May 15,
2003 Decision and June 12, 2004 Resolution of the Court of Appeals (CA) in CA-G.R.
The question in the present case therefore is whether respondent instituted the proper CV No. 59475, as follows:
action for the deficiency amount or raised its claim at the pre-trial.
1. The award in the January 13, 1998 Decision of the Regional Trial Court of Pasig
An examination of the Complaint and Amended Complaint reveals that respondent City, Branch 158 in Civil Case No. 61053, in favor of respondent, in "the amount of
did not allege any deficiency account. Nor did it raise the matter in its Pre-Trial Php269,611.82 plus legal interest thereon effective to date until the full amount is fully
Brief.55 This is only to be expected because the auction sale of the properties was paid" is DELETED;
apparently conducted on June 19, 1992, long after it filed its Complaint/Amended
Complaint and Pre-trial Brief. 2. Respondent The Golden Development Corporation is AWARDED P191,111.82 as
the deficiency amount subject to legal interest effective September 12, 1997 up to the
However, the Court notes that evidence on the deficiency amount was duly presented date of full payment;
by respondent and examined by petitioners. Respondent's employee Leonila
Buenviaje testified that the proceeds respondent earned from the auction sale of the 3. Respondent is AWARDED 25% of the deficiency amount as liquidated damages.
mortgaged properties amounted to only P78,750.00.56Another employee, Grace
Borja, testified that after applying the proceeds of P78,750 to the unpaid account of The claim of petitioners Allandale Sportsline, Inc. and Melbarose R. Sasot to recover
petitioners, there remained a deficiency of P91,111.82.57 Documentary evidence of properties subject of the writs of replevin is DENIED.No costs. SO ORDERED.
The Rural Bank issued an August 22, 1994 letter of guaranty6 informing AFPMBAI
Republic of the Philippines that the proceeds of petitioners approved loan in the amount of 77,418.00 shall be
SUPREME COURT released to AFPMBAI after title to the property is transferred in petitioners name and
Manila after the registration and annotation of the parties mortgage agreement.

SECOND DIVISION On the basis of the Rural Banks letter of guaranty, AFPMBAI executed in petitioners
favor a Deed of Absolute Sale,7 and a new title Transfer Certificate of Title No.
370178 (TCT No. 37017) was issued in their name, with the corresponding
G.R. No. 171298 April 15, 2013 annotation of their mortgage agreement with the Rural Bank, under Entry No. 3364.9

SPOUSES OSCAR and THELMA CACAYORIN, Petitioners, Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank
vs. closed and was placed under receivership by the Philippine Deposit Insurance
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to take possession of
INC., Respondent. petitioners loan documents and TCT No. 37017, while petitioners were unable to pay
the loan/consideration for the property.
DECISION
AFPMBAI made oral and written demands for petitioners to pay the loan/
DEL CASTILLO, J.: consideration for the property.10

Consignation is necessarily judicial. Article 1258 of the Civil Code specifically In July 2003, petitioners filed a Complaint11 for consignation of loan payment,
provides that consignation shall be made by depositing the thing or things due at the recovery of title and cancellation of mortgage annotation against AFPMBAI, PDIC and
disposal of judicial authority. The said provision clearly precludes consignation in the Register of Deeds of Puerto Princesa City. The case was docketed as Civil Case
venues other than the courts. No. 3812 and raffled to Branch 47 of the Regional Trial Court (RTC) of Puerto
Princesa City (Puerto Princesa RTC). Petitioners alleged in their Complaint that as a
Assailed in this Petition for Review on Certiorari1 are the September 29, 2005 result of the Rural Banks closure and PDICs claim that their loan papers could not be
Decision2 of the Court of Appeals (CA) which granted the Petition for Certiorari in CA- located, they were left in a quandary as to where they should tender full payment of
G.R. SP No. 84446 and its January 12, 2006 Resolution3denying petitioners' Motion the loan and how to secure cancellation of the mortgage annotation on TCT No.
for Reconsideration.4 37017. Petitioners prayed, thus:

Factual Antecedents a. That after the filing of this complaint an order be made allowing the
consignation x x x of Php77,418.00.

Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and


Police Mutual Benefit Association, Inc. (AFPMBAI), a mutual benefit association duly b. For the court to compute and declare the amount of interest to be paid by
organized and existing under Philippine laws and engaged in the business of the plaintiffs and thereafter to allow the consignation of the interest payments
developing low-cost housing projects for personnel of the Armed Forces of the in order to give way for the full discharge of the loan.
Philippines, Philippine National Police, Bureau of Fire Protection, Bureau of Jail
Management and Penology, and Philippine Coast Guard. He filed an application with c. To order the AFPMBAI to turn over to the custody of the court the loan
AFPMBAI to purchase a piece of property which the latter owned, specifically Lot 5, records and title (T.C.T. No. 37017) of the plaintiffs if the same are in their
Block 8, Phase I, Kalikasan Mutual Homes, San Pedro, Puerto Princesa City (the possession.
property), through a loan facility.
d. To declare the full payment of the principal loan and interest and ordering
On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand, the full discharge from mortgage of the property covered by T.C.T. No.
and the Rural Bank of San Teodoro (the Rural Bank) on the other, executed a Loan 37017.
and Mortgage Agreement5 with the former as borrowers and the Rural Bank as
lender, under the auspices of Pag-IBIG or Home Development Mutual Funds Home e. To order the Register of Deeds of Puerto Princesa City to cancel the
Financing Program. annotation of real estate mortgage under Entry No. 3364 at the back of
T.C.T. No. 37017.
f. Thereafter, to turn over to the plaintiffs their title free from the aforesaid The sole issue that must be resolved in this Petition is: Does the Complaint in Civil
mortgage loan.12 Case No. 3812 fall within the exclusive jurisdiction of the HLURB?

AFPMBAI filed a Motion to Dismiss13 claiming that petitioners Complaint falls within Petitioners Arguments
the jurisdiction of the Housing and Land Use Regulatory Board (HLURB) and not the
Puerto Princesa RTC, as it was filed by petitioners in their capacity as buyers of a Petitioners assert that the elements which make up a valid case for consignation are
subdivision lot and it prays for specific performance of contractual and legal present in their Complaint. They add that since a deed of absolute sale has been
obligations decreed under Presidential Decree No. 957 14 (PD 957). It added that issued in their favor, and possession of the property has been surrendered to them,
since no prior valid tender of payment was made by petitioners, the consignation case not to mention that title has been placed in their name, the HLURB lost jurisdiction
was fatally defective and susceptible to dismissal. over their case. And for this same reason, petitioners argue that their case may not be
said to be one for specific performance of contractual and legal obligations under PD
Ruling of the Regional Trial Court 957 as nothing more was left to be done in order to perfect or consolidate their title.

In an October 16, 2003 Order,15 the trial court denied AFPMBAIs Motion to Dismiss, Petitioners thus pray that the herein assailed Decision and Resolution of the CA be
declaring that since title has been transferred in the name of petitioners and the action set aside, and that the trial court be ordered to continue with the proceedings in Civil
involves consignation of loan payments, it possessed jurisdiction to continue with the Case No. 3812.
case. It further held that the only remaining unsettled transaction is between
petitioners and PDIC as the appointed receiver of the Rural Bank. Respondent's Arguments

AFPMBAI filed a Motion for Reconsideration,16 which the trial court denied in its Respondent, on the other hand, insists in its Comment20 that jurisdiction over
March 19, 2004 Order.17 petitioners case lies with the HLURB, as it springs from their contractual relation as
seller and buyer, respectively, of a subdivision lot. The prayer in petitioners
Ruling of the Court of Appeals Complaint involves the surrender or delivery of the title after full payment of the
purchase price, which respondent claims are reciprocal obligations in a sale
AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a Petition for transaction covered by PD 957. Respondent adds that in effect, petitioners are
Certiorari18 raising the issue of jurisdiction. On September 29, 2005, the CA rendered exacting specific performance from it, which places their case within the jurisdiction of
the assailed Decision decreeing as follows: the HLURB.

WHEREFORE, premises considered, this Petition is GRANTED. The Assailed 16 Our Ruling
October 2003 and 19 March 2004 Orders of the public respondent judge are hereby
ordered VACATED and SET ASIDE. The Court grants the Petition.

SO ORDERED.19 The Complaint makes out a case for consignation.

The CA held that Civil Case No. 3812 is a case for specific performance of The settled principle is that "the allegations of the Complaint determine the nature of
AFPMBAIs contractual and statutory obligations as owner/developer of Kalikasan the action and consequently the jurisdiction of the courts. This rule applies whether or
Mutual Homes, which makes PD 957 applicable and thus places the case within the not the plaintiff is entitled to recover upon all or some of the claims asserted therein
jurisdiction of the HLURB. It said that since one of the remedies prayed for is the as this is a matter that can be resolved only after and as a result of the trial." 21
delivery to petitioners of TCT No. 37017, the case is cognizable exclusively by the
HLURB. Does the Complaint in Civil Case No. 3812 make out a case for consignation? It
alleges that:
Petitioners moved for reconsideration which was denied by the CA in its January 12,
2006 Resolution. 6.0 Not long after however, RBST22 closed shop and defendant Philippine
Deposit Insurance Corporation (PDIC) was appointed as its receiver. The
Hence, the instant Petition. plaintiffs, through a representative, made a verbal inquiry to the PDIC
regarding the payment of their loan but were told that it has no information or
Issue record of the said loan. This made [sic] the plaintiffs in quandary as to where
or whom they will pay their loan, which they intend to pay in full, so as to pay the purchase price in full. There appears to be no vitiated consent, nor is there
cancel the annotation of mortgage in their title. any other impediment to the consummation of their agreement, just as it appears that
it would be to the best interests of all parties to the sale that it be once and for all
7.0 It was discovered that the loan papers of the plaintiffs, including the completed and terminated. For this reason, Civil Case No. 3812 should at this
duplicate original of their title, were in the possession of defendant juncture be allowed to proceed.
AFPMBAI. It was unclear though why the said documents including the title
were in the possession of AFPMBAI. These papers should have been in Moreover, petitioners position is buttressed by AFPMBAIs own admission in its
RBSTs possession and given to PDIC after its closure in the latters capacity Comment25 that it made oral and written demands upon the former, which naturally
as receiver. aggravated their confusion as to who was their rightful creditor to whom payment
should be made the Rural Bank or AFPMBAI. Its subsequent filing of the Motion to
8.0 Plaintiffs are now intending to pay in full their real estate loan but could Dismiss runs counter to its demands to pay. If it wanted to be paid with alacrity, then it
not decide where to pay the same because of RBST [sic] closure and PDICs should not have moved to dismiss Civil Case No. 3812, which was brought precisely
failure to locate the loan records and title. This courts intervention is now by the petitioners in order to be able to finally settle their obligation in full.
needed in order to determine to [sic] where or whom the loan should be paid.
Finally, the lack of prior tender of payment by the petitioners is not fatal to their
9.0 Plaintiffs hereby respectfully prays [sic] for this court to allow the consignation case. They filed the case for the exact reason that they were at a loss as
deposit of the amount of Php77,418.00 as full payment of their principal loan, to which between the two the Rural Bank or AFPMBAI was entitled to such a
excluding interest, pursuant to the Loan and Mortgage Agreement on 4 July tender of payment. Besides, as earlier stated, Article 1256 authorizes consignation
1994.23 alone, without need of prior tender of payment, where the ground for consignation is
that the creditor is unknown, or does not appear at the place of payment; or is
incapacitated to receive the payment at the time it is due; or when, without just cause,
From the above allegations, it appears that the petitioners debt is outstanding; that he refuses to give a receipt; or when two or more persons claim the same right to
the Rural Banks receiver, PDIC, informed petitioners that it has no record of their collect; or when the title of the obligation has been lost.
loan even as it took over the affairs of the Rural Bank, which on record is the
petitioners creditor as per the July 4, 1994 Loan and Mortgage Agreement; that one
way or another, AFPMBAI came into possession of the loan documents as well as Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the
TCT No. 37017; that petitioners are ready to pay the loan in full; however, under the HLURB.
circumstances, they do not know which of the two the Rural Bank or AFPMBAI
should receive full payment of the purchase price, or to whom tender of payment must On the question of jurisdiction, petitioners case should be tried in the Puerto Princesa
validly be made. RTC, and not the HLURB. Consignation is necessarily judicial,26 as the Civil Code
itself provides that consignation shall be made by depositing the thing or things due at
Under Article 1256 of the Civil Code,24 the debtor shall be released from responsibility the disposal of judicial authority, thus:
by the consignation of the thing or sum due, without need of prior tender of payment,
when the creditor is absent or unknown, or when he is incapacitated to receive the Art. 1258. Consignation shall be made by depositing the things due at the disposal of
payment at the time it is due, or when two or more persons claim the same right to judicial authority, before whom the tender of payment shall be proved, in a proper
collect, or when the title to the obligation has been lost. Applying Article 1256 to the case, and the announcement of the consignation in other cases.
petitioners case as shaped by the allegations in their Complaint, the Court finds that
a case for consignation has been made out, as it now appears that there are two The consignation having been made, the interested parties shall also be notified
entities which petitioners must deal with in order to fully secure their title to the thereof. (Emphasis and underscoring supplied)
property: 1) the Rural Bank (through PDIC), which is the apparent creditor under the
July 4, 1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which is currently in
possession of the loan documents and the certificate of title, and the one making The above provision clearly precludes consignation in venues other than the
demands upon petitioners to pay. Clearly, the allegations in the Complaint present a courts.1wphi1 Elsewhere, what may be made is a valid tender of payment, but not
situation where the creditor is unknown, or that two or more entities appear to consignation. The two, however, are to be distinguished.
possess the same right to collect from petitioners. Whatever transpired between the
Rural Bank or PDIC and AFPMBAI in respect of petitioners loan account, if any, such Tender of payment must be distinguished from consignation. Tender is the
that AFPMBAI came into possession of the loan documents and TCT No. 37017, it antecedent of consignation, that is, an act preparatory to the consignation, which is
appears that petitioners were not informed thereof, nor made privy thereto. the principal, and from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while
Indeed, the instant case presents a unique situation where the buyer, through no fault consignation is necessarily judicial, and the priority of the first is the attempt to make a
of his own, was able to obtain title to real property in his name even before he could
private settlement before proceeding to the solemnities of consignation. (8 Manresa
325).27

While it may be true that petitioners claim relates to the terms and conditions of the
sale of AFPMBAIs subdivision lot, this is overshadowed by the fact that since the
Complaint in Civil Case No. 3812 pleads a case for consignation, the HLURB is
without jurisdiction to try it, as such case may only be tried by the regular courts.

WHEREFORE, premises considered, the Petition is GRANTED. The September 29,


2005 Decision and January 12, 2006 Resolution of the Court of Appeals in CA-G.R.
SP No. 84446 are ANNULLED and SET ASIDE. The October 16, 2003 and March 19,
2004 Orders of the Regional Trial Court of Puerto Princesa City, Branch 47, are
REINSTATED, and the case is REMANDED to the said court for continuation of the
proceedings.

SO ORDERED.
(d) 417,000.00 payable to the New Capitol Estate, for 15 years at
Republic of the Philippines 6,867.12 a month,
SUPREME COURT
Manila 2. x x x In the event the VENDEE fails to pay the second installment on time,
the VENDEE will pay starting May 1, 1993 a 2% interest on the 300,000.00
SECOND DIVISION monthly. Likewise, in the event the VENDEE fails to pay the amount of
630,000.00 on the stipulated time, this CONTRACT TO SELL shall likewise
be deemed cancelled and rescinded and x x x 5% of the total contract price
G.R. No. 172346 July 24, 2013 of 1,250,000.00 shall be deemed forfeited in favor of the VENDOR. Unpaid
monthly amortization shall likewise be deducted from the initial down
SPOUSES NAMEAL and LOURDES BONROSTRO, Petitioners, payment in favor of the VENDOR.7
vs.
SPOUSES JUAN and CONSTANCIA LUNA, Respondents. Immediately after the execution of the said second contract, the spouses Bonrostro
took possession of the property. However, except for the 200,000.00 down payment,
DECISION Lourdes failed to pay any of the stipulated subsequent amortization payments.

DEL CASTILLO, J.: Ruling of the Regional Trial Court

Questioned in this case is the Court of Appeals' (CA) disquisition on the matter of On January 11, 1994, Constancia and her husband, respondent Juan Luna (spouses
interest. Luna), filed before the RTC a Complaint8 for Rescission of Contract and Damages
against the spouses Bonrostro praying for the rescission of the contract, delivery of
Petitioners spouses Nameal and Lourdes Bonrostro (spouses Bonrostro) assail possession of the subject property, payment by the latter of their unpaid obligation,
through this Petition for Review on Certiorari1 the April 15, 2005 Decision2 of the CA and awards of actual, moral and exemplary damages, litigation expenses and
in CA-G.R. CV No. 56414 which affirmed with modifications the April 4, 1997 attorneys fees.
Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch 104 in Civil Case
No. Q-94-18895. They likewise question the CA April17, 2006 Resolution 4 denying In their Answer with Compulsory Counterclaim,9 the spouses Bonrostro averred that
their motion for partial reconsideration. they were willing to pay their total balance of 630,000.00 to the spouses Luna after
they sought from them a 60-day extension to pay the same.10 However, during the
Factual Antecedents time that they were ready to pay the said amount in the last week of October 1993,
Constancia and her lawyer, Atty. Arlene Carbon (Atty. Carbon), did not show up at
their rendezvous. On November 24, 1993, Lourdes sent Atty. Carbon a
In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a Contract letter11 expressing her desire to pay the balance, but received no response from the
to Sell5 with Bliss Development Corporation (Bliss) involving a house and lot identified latter. Claiming that they are still willing to settle their obligation, the spouses
as Lot 19, Block 26 of New Capitol Estates in Diliman, Quezon City. Barely a year Bonrostro prayed that the court fix the period within which they can pay the spouses
after, Constancia, this time as the seller, entered into another Contract to Sell6with Luna.
petitioner Lourdes Bonrostro (Lourdes) concerning the same property under the
following terms and conditions:
The spouses Bonrostro likewise belied that they were not paying the monthly
amortization to New Capitol Estates and asserted that on November 18, 1993, they
1. The stipulated price of 1,250,000.00 shall be paid by the VENDEE to the paid Bliss, the developer of New Capitol Estates, the amount of 46,303.44. Later
VENDOR in the following manner: during trial, Lourdes testified that Constancia instructed Bliss not to accept
amortization payments from anyone as evidenced by her March 4, 1993 letter 12 to
(a) 200,000.00 upon signing x x x the Contract To Sell, Bliss.

(b) 300,000.00 payable on or before April 30, 1993, On April 4, 1997, the RTC rendered its Decision13 focusing on the sole issue of
whether the spouses Bonrostros delay in their payment of the installments constitutes
a substantial breach of their obligation under the contract warranting rescission. The
(c) 330,000.00 payable on or before July 31, 1993,
RTC ruled that the delay could not be considered a substantial breach considering
that Lourdes (1) requested for an extension within which to pay; (2) was willing and
ready to pay as early as the last week of October 1993 and even wrote Atty. Carbon
about this on November 24, 1993; (3) gave Constancia a down payment of The CA held that while the spouses Luna sent the spouses Bonrostro
200,000.00; and, (4) made payment to Bliss. letters20 rescinding the contract for non-payment of the sum of 630,000.00, the
same could not be considered as valid and effective cancellation under the Maceda
The dispositive portion of the said Decision reads: Law since they were made within the 60-day grace period and were not notarized.
The CA concluded that there being no cancellation effected in accordance with the
procedure prescribed by law, the contract therefore remains valid and subsisting.
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
The CA also affirmed the RTCs finding that Lourdes was ready to pay her obligation
1.) Declaring the Contract to Sell executed by the plaintiff Constancia and on November 24, 1993.
defendant Lourdes with respect to the house and lot located at Blk. 26, Lot
19, New Capitol Estates, Diliman, Quezon City to be in force and effect. And
that Lourdes Bonrostro must remain in the possession of the premises. However, the CA modified the RTC Decision with respect to interest, viz:

2.) Ordering the defendants to pay plaintiffs within 60 days from receipt of Nevertheless, there is a need to modify the appealed decision insofar as (i) the
this decision the sum of 300,000.00 plus an interest of 2% per month from interest imposed on the sum of 300,000.00 is only for the period April 1993 to
April 1993 to November 1993. November 1993; (ii) the interest imposed on the sum of 330,000.00 is 2% per month
and is only for the period July 1993 to November 1993; (iii) it does not impose interest
on the amount of 214,492.62 which was paid by Constancia to BLISS in behalf of
3.) Ordering the defendants to pay plaintiffs within sixty (60) days from Lourdes x x x
receipt of this decision the sum of 330,000.00 plus an interest of 2% per
month from July 1993 to November 1993.
The rule is that no interest shall be due unless it has been expressly stipulated in
writing (Art. 1956, Civil Code). However, the contract does not provide for interest in
4.) Ordering the defendants to reimburse plaintiffs the sum of 214,492.62 case of default in payment of the sum of 330,000.00 to Constancia and the monthly
which plaintiffs paid to Bliss Development Corporation. amortizations to BLISS.

No pronouncement as to Cost. Considering that Lourdes had incurred x x x delay in the performance of her
obligations, she should pay (i) interest at the rate of 2% per month on the sum of
SO ORDERED.14 300,000.00 from May 1, 1993 until fully paid and (ii) interest at the legal rate on the
amounts of 330,000.00 and 214,492.62 from the date of default (August 1, 1993
As their Motion for Reconsideration15 was likewise denied in an Order16 dated July 15, and April 4, 1997 date of the appealed decision, respectively) until the same are fully
1997, the spouses Luna appealed to the CA.17 paid x x x21

Ruling of the Court of Appeals Hence, the dispositive portion of the said Decision:

In its Decision18 of April 15, 2005, the CA concluded that since the contract entered WHEREFORE, the appealed decision is AFFIRMED with the MODIFICATIONS that
into by and between the parties is a Contract to Sell, rescission is not the proper paragraphs 2, 3, and 4 of its dispositive portion shall now read:
remedy. Moreover, the subject contract being specifically a contract to sell a real
property on installment basis, it is governed by Republic Act No. 6552 19 or the 2.) Ordering the defendants to pay plaintiffs the sum of 300,000.00 plus
Maceda Law, Section 4 of which states: interest thereon at the rate of 2% per month from May 1, 1993 until fully paid;

Sec. 4. In case where less than two years of installment were paid, the seller shall 3.) Ordering the defendants to pay plaintiffs the sum of 330,000.00 plus
give the buyer a grace period of not less than sixty days from the date the installment interest thereon at the legal rate from August 1, 1993 until fully paid; and
became due.
4.) Ordering the defendants to reimburse plaintiffs the sum of 214,492.62,
If the buyer fails to pay the installments due at the expiration of the grace period, the which plaintiffs paid to Bliss Development Corporation, plus interest thereon
seller may cancel the contract after thirty days from receipt by the buyer of the notice at the legal rate from filing of the complaint until fully reimbursed.
of cancellation or the demand for rescission of the contract by a notarial act.
(Emphases supplied) SO ORDERED.22
The spouses Luna no longer assailed the ruling. On the other hand, the spouses The Petition lacks merit.
Bonrostro filed a Partial Motion for Reconsideration23 questioning the above-
mentioned modifications. The CA, however, denied for lack of merit the said motion in The spouses Bonrostros reliance on the RTCs factual finding that Lourdes was
a Resolution24 dated April 17, 2006. willing and ready to pay on November 24, 1993 is misplaced.

Hence, this Petition for Review on Certiorari. As mentioned, the RTC in resolving the Complaint focused on the sole issue of
whether the failure of spouses Bonrostro to pay the installments of 300,000.00 on
Issue April 30, 1993 and 330,000.00 on July 31, 1993 is a substantial breach of their
obligation under the contract as to warrant the rescission of the same.27 The said
The basic issue in this case is whether the CA correctly modified the RTC Decision court ratiocinated, viz:
with respect to interests.
After careful evaluation of the evidence testimonial and documentary, the Court
The Parties Arguments believes that the defendants delay in the payment of the two installments is not so
substantial as to warrant rescission of contract. Although, the defendant failed to pay
the two installments in due time, she was able to communicate with the plaintiffs
As may be recalled, the RTC under paragraphs 2 and 3 of the dispositive portion of its through letters requesting for an extension of two months within which to pay the
Decision ordered the spouses Bonrostro to pay the spouses Luna the sums of installments. In fact, on November 24, 1993 defendant informed Atty. Arlene Carbon
300,000.00 plus interest of 2% per month from April 1993 to November 1993 and that she was ready to pay the installments and the money is ready for pick-up.
330,000.00 plus interest of 2% per month from July 1993 to November 1993, However, plaintiff did not bother to get or pick-up the money without any valid reason.
respectively. The CA modified these by reckoning the payment of the 2% interest on It would be very prejudicial on the part of the defendant if the contract to sell be
the 300,000.00 from May 1, 1993 until fully paid and by imposing interest at the legal rescinded considering that she made a downpayment of 200,000.00 and made
rate on the 330,000.00 reckoned from August 1, 1993 until fully paid. partial amortization to the Bliss Development Corporation. In fact, the defendant
testified that she is willing and ready to pay the balance including the interest on
The spouses Bonrostro harp on the factual finding of the RTC, as affirmed by the CA, November 24, 1993.
that Lourdes was willing and ready to pay her obligation as evidenced by her
November 24, 1993 letter to Atty. Carbon. They also assert that the sending of the The Court is of the opinion that the delay in the payment of the balance of the
said letter constitutes a valid tender of payment on their part. Hence, they argue that purchase price of the house and lot is not so substantial as to warrant the rescission
they should not be assessed any interest subsequent to the date of the said letter. of the contract to sell. The question of whether a breach of contract is substantial
Neither should they be ordered to pay interest on the amount of 214,492.62 which depends upon the attendant circumstance. x x x28
covers the amortizations paid by the spouses Luna to Bliss. They point out that it was
Constancia who prevented them from fulfilling their obligation to pay the amortizations
when she instructed Bliss not to accept payment from them. 25 Clearly, the RTC arrived at the above-quoted conclusion based on its mistaken
premise that rescission is applicable to the case. Hence, its determination of whether
there was substantial breach. As may be recalled, however, the CA, in its assailed
The spouses Luna, on the other hand, aver that the November 24, 1993 letter of Decision, found the contract between the parties as a contract to sell, specifically of a
Lourdes is not equivalent to tender of payment since the mere sending of a letter real property on installment basis, and as such categorically declared rescission to be
expressing the intention to pay, without the accompanying payment, cannot be not the proper remedy. This is considering that in a contract to sell, payment of the
considered a valid tender of payment. Also, if the spouses Bonrostro were really price is a positive suspensive condition, failure of which is not a breach of contract
willing and ready to pay at that time and assuming that the spouses Luna indeed warranting rescission under Article 119129 of the Civil Code but rather just an event
refused to accept payment, the former should have resorted to consignation. Anent that prevents the supposed seller from being bound to convey title to the supposed
the payment of amortization, the spouses Luna explain that under the parties buyer.30 Also, and as correctly ruled by the CA, Article 1191 cannot be applied to
Contract to Sell, Lourdes was to assume Constancias balance to Bliss by paying the sales of real property on installment since they are governed by the Maceda Law. 31
monthly amortization in order to avoid the cancellation of the earlier Contract to Sell
entered into by Constancia with Bliss.26 However, since Lourdes was remiss in paying
the same, the spouses Luna were constrained to pay the amortization. They thus There being no breach to speak of in case of non-payment of the purchase price in a
assert that reimbursement to them of the said amount with interest is proper contract to sell, as in this case, the RTCs factual finding that Lourdes was willing and
considering that by reason of such payment, the spouses Bonrostro were spared from able to pay her obligation a conclusion arrived at in connection with the said courts
the interests and penalties which would have been imposed by Bliss if the determination of whether the non-payment of the purchase price in accordance with
amortizations remained unpaid. the terms of the contract was a substantial breach warranting rescission therefore
loses significance. The spouses Bonrostros reliance on the said factual finding is thus
misplaced. They cannot invoke their readiness and willingness to pay their obligation
Our Ruling
on November 24, 1993 as an excuse from being made liable for interest beyond the The spouses Bonrostro are likewise liable for interest on the amount paid by the
said date. spouses Luna to Bliss as amortization.

The spouses Bonrostro are liable for interest on the installments due from the date of The spouses Bonrostro want to be relieved from paying interest on the amount of
default until fully paid. 214,492.62 which the spouses Luna paid to Bliss as amortizations by asserting that
they were prevented by the latter from fulfilling such obligation. They invoke Art. 1186
The spouses Bonrostro assert that Lourdes letter of November 24, 1993 amounts to of the Civil Code which provides that "the condition shall be deemed fulfilled when the
tender of payment of the remaining balance amounting to 630,000.00. Accordingly, obligor voluntarily prevents its fulfillment."
thenceforth, accrual of interest should be suspended.
However, the Court finds Art. 1186 inapplicable to this case. The said provision
Tender of payment "is the manifestation by the debtor of a desire to comply with or explicitly speaks of a situation where it is the obligor who voluntarily prevents
pay an obligation. If refused without just cause, the tender of payment will discharge fulfillment of the condition. Here, Constancia is not the obligor but the obligee.
the debtor of the obligation to pay but only after a valid consignation of the sum due Moreover, even if this significant detail is to be ignored, the mere intention to prevent
shall have been made with the proper court."32 "Consignation is the deposit of the the happening of the condition or the mere placing of ineffective obstacles to its
proper amount with a judicial authority in accordance with rules prescribed by law, compliance, without actually preventing fulfillment is not sufficient for the application
after the tender of payment has been refused or because of circumstances which of Art. 1186.37 Two requisites must concur for its application, to wit: (1) intent to
render direct payment to the creditor impossible or inadvisable." 33 prevent fulfillment of the condition; and, (2) actual prevention of compliance.38

"Tender of payment, without more, produces no effect."34 "To have the effect of In this case, while it is undisputed that Constancia indeed instructed Bliss on March 4,
payment and the consequent extinguishment of the obligation to pay, the law requires 1994 not to accept payment from anyone but her, there is nothing on record to show
the companion acts of tender of payment and consignation."35 that Bliss heeded the instruction of Constancia as to actually prevent the spouses
Bonrostro from making payments to Bliss. There is no showing that subsequent to the
said letter, the spouses Bonrostro attempted to make payment to and was refused by
As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino Bliss. Neither was there a witness presented to prove that Bliss indeed gave effect to
explained as follows: the instruction contained in Constancias letter. While Bliss Project Development
Officer, Mr. Ariel Cordero, testified during trial, nothing could be gathered from his
When a tender of payment is made in such a form that the creditor could have testimony regarding this except for the fact that Bliss received the said letter.39 In view
immediately realized payment if he had accepted the tender, followed by a prompt of these, the spouses Luna could not be said to have placed an effective obstacle as
attempt of the debtor to deposit the means of payment in court by way of to actually prevent the spouses Bonrostro from making amortization payments to
consignation, the accrual of interest on the obligation will be suspended from the date Bliss.
of such tender. But when the tender of payment is not accompanied by the means of
payment, and the debtor did not take any immediate step to make a consignation, On the other hand, there are telling circumstances which militate against the spouses
then interest is not suspended from the time of such tender. x x x x36(Emphasis Bonrostros claimed keenness to comply with their obligation to pay the monthly
supplied) amortization. After the execution of the contract in January 1993, they immediately
took possession of the property but failed to make amortization payments. It was only
Here, the subject letter merely states Lourdes willingness and readiness to pay but it after seven months or on November 18, 1993 that they made payments to Bliss in the
was not accompanied by payment. She claimed that she made numerous telephone amount of 46,303.44.40 Whether the same covers previous unpaid amortizations is
calls to Atty. Carbon reminding the latter to collect her payment, but, neither said also not clear as the receipt does not indicate the same 41 and per Statement of
lawyer nor Constancia came to collect the payment. After that, the spouses Bonrostro Account42 as of March 8, 1994 issued by Bliss, the unpaid monthly amortizations for
took no further steps to effect payment. They did not resort to consignation of the February to November 1993 in the total amount of 78,271.69 remained outstanding.
payment with the proper court despite knowledge that under the contract, non- There was also no payment made of the amortizations due on December 4, 1993 and
payment of the installments on the agreed date would make them liable for interest January 4, 199443 before the filing of the Complaint on January 11, 1994.
thereon. The spouses Bonrostro erroneously assumed that their notice to pay would
excuse them from paying interest. Their claimed tender of payment did not produce On the part of the spouses Luna, it is understandable that they paid the amortizations
any effect whatsoever because it was not accompanied by actual payment or followed due.1wphi1 The assumption of payment of the monthly amortization to Bliss was
by consignation. Hence, it did not suspend the running of interest. The spouses made part of the obligations of the spouses Bonrostro under their contract with the
Bonrostro are therefore liable for interest on the subject installments from the date of spouses Luna precisely to avoid the cancellation of the earlier contract entered into by
default until full payment of the sums of 300,000.00 and 330,000.00. Constancia with Bliss. But as the spouses Bonrostro failed in this obligation, the
spouses Luna were constrained to pay Bliss to avoid the adverse effect of such
failure. This act of the spouses Luna proved to be even more beneficial to the
spouses Bonrostro as the cancellation of the Contract to Sell between Constancia
and Bliss would result in the cancellation of the subsequent Contract to Sell between
Constancia and Lourdes. Also, the spouses Bonrostro were relieved from paying the
penalties that would have been imposed by Bliss if the monthly amortizations covered
by the said payment remained unpaid. The Statements of Account 44 issued by Bliss
clearly state that each monthly amortization is due on or before the fourth day of
every month and a penalty equivalent to 1/10th of 1% per day of delay shall be
imposed for all payments made after due date. That translates to 3% monthly or 36%
per annum rate of interest, three times higher than the 12% per annum rate of interest
correctly imposed by the CA.

Hence, the resulting situation is that the spouses Luna are constrained to part with
their money while the spouses Bonrostro, despite being remiss in their obligation to
pay the monthly amortization, are relieved from paying higher penalties at the
expense of the former. This is aside from the fact that the spouses Bonrostro are in
continued possession of the subject property and are enjoying the beneficial use
thereof. Under the circumstances and considering that the spouses Bonrostro are
obviously in delay in complying with their obligation to pay the amortizations due from
February 1993 to January 1995 for which the spouses Luna paid 214,492.62, 45 the
CA correctly ordered the reimbursement to the latter of the said amount with interest.
"Delay in the performance of an obligation is looked upon with disfavor because,
when a party to a contract incurs delay, the other party who performs his part of the
contract suffers damages thereby."46 As discussed, the spouses Luna obviously
suffered damages brought about by the failure of the spouses Bonrostro to comply
with their obligation on time. "And, sans elaboration of the matter at hand, damages
take the form of interest x x x."47

Under Article 2209 of the Civil Code, "if the obligation consists in the payment of a
sum of money, and the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of the interest agreed upon, and in
the absence of stipulation, the legal interest x x x." There being no stipulation on
interest in case of delay in the payment of amortization, the CA thus correctly
imposed interest at the legal rate which is now 12% per annum.

WHEREFORE, the Petition for Review on Certiorari is DENIED and the assailed
Decision dated April 15, 2005 and the Resolution dated April 17, 2006 of the Court of
Appeals in CA-G.R. CV No. 56414 are AFFIRMED.

SO ORDERED.
On September 13, 1976, respondent Restituto Sabordo (Restituto) filed with the then
Republic of the Philippines Court of First Instance of Negros Occidental an original action for declaratory relief
SUPREME COURT with damages and prayer for a writ of preliminary injunction raising the issue of
Manila whether or not the Suico spouses have the right to recover from respondents Lots
506 and 514.
THIRD DIVISION
In its Decision dated December 17, 1986, the Regional Trial Court (RTC) of San
Carlos City, Negros Occidental, ruled in favor of the Suico spouses directing that the
G.R. No. 181723 August 11, 2014 latter have until August 31, 1987 within which to redeem or buy back from
respondents Lots 506 and 514.
ELIZABETH DEL CARMEN, Petitioner,
vs. On appeal, the CA, in its Decision3 in CA-G.R. CV No. 13785, dated April 24, 1990,
SPOUSES RESTITUTO SABORDO and MIMA MAHILUM- modified the RTC decision by giving the Suico spouses until October 31, 1990 within
SABORDO, Respondents. which to exercise their option to purchase or redeem the subject lots from
respondents by paying the sum of 127,500.00. The dispositive portion of the
DECISION CADecision reads as follows:

PERALTA, J.: xxxx

This treats of the petition for review on certiorari assailing the Decision1 and For reasons given, judgment is hereby rendered modifying the dispositive portion of
Resolution2 of the Court of Appeals (CA), dated May 25, 2007 and January 24, 2008, [the] decision of the lower court to read:
respectively, in CA-G.R. CV No. 75013.
1) The defendants-appellees are granted up to October 31, 1990 within
The factual and procedural antecedents of the case are as follows: which toexercise their option to purchase from the plaintiff-appellant
Restituto Sabordo and Mima Mahilum Lot No. 506, covered by Transfer
Sometime in 1961, the spouses Toribio and Eufrocina Suico (Suico spouses), along Certificate of Title No. T-102598 and Lot No. 514, covered by Transfer
with several business partners, entered into a business venture by establishing a rice Certificate of Title No. T-102599, both of Escalante Cadastre, Negros
and com mill at Mandaue City, Cebu. As part of their capital, they obtained a loan Occidental by reimbursing or paying to the plaintiff the sum of ONE
from the Development Bank of the Philippines (DBP), and to secure the said loan, HUNDRED TWENTY-SEVEN THOUSAND FIVE HUNDRED PESOS
four parcels of land owned by the Suico spouses, denominated as Lots 506, 512, 513 (127,500.00);
and 514, and another lot owned by their business partner, Juliana Del Rosario, were
mortgaged. Subsequently, the Suico spouses and their business partners failed to 2) Within said period, the defendants-appellees shall continue to have
pay their loan obligations forcing DBP to foreclose the mortgage. After the Suico usufructuary rights on the coconut trees on Lots Nos. 506 and 514,
spouses and their partners failed to redeem the foreclosed properties, DBP Escalante Cadastre, Negros Occidental;
consolidated its ownership over the same. Nonetheless, DBP later allowed the Suico
spouses and Reginald and Beatriz Flores (Flores spouses), as substitutes for Juliana 3) The Writ of Preliminary Injunction dated August 12, 1977 shall be effective
Del Rosario, to repurchase the subject lots by way of a conditional sale for the sum of untildefendants-appellees shall have exercised their option to purchase
240,571.00. The Suico and Flores spouses were able to pay the downpayment and within said period by paying or reimbursing to the plaintiff-appellant the
the first monthly amortization, but no monthly installments were made thereafter. aforesaid amount.
Threatened with the cancellation of the conditional sale, the Suico and Flores
spouses sold their rights over the said properties to herein respondents Restituto and
Mima Sabordo, subject to the condition that the latter shall pay the balance of the sale No pronouncement as to costs.
price. On September 3, 1974, respondents and the Suico and Flores spouses
executed a supplemental agreement whereby they affirmed that what was actually SO ORDERED.4
sold to respondents were Lots 512 and 513, while Lots 506 and 514 were given to
them as usufructuaries. DBP approved the sale of rights of the Suico and Flores In a Resolution5 dated February 13, 1991, the CA granted the Suico spouses an
spouses in favor of herein respondents. Subsequently, respondents were able to additional period of 90 days from notice within which to exercise their option to
repurchase the foreclosed properties of the Suico and Flores spouses. purchase or redeem the disputed lots.
In the meantime, Toribio Suico (Toribio) died leaving his widow, Eufrocina, and CARLOS CITY, IN COMPLIANCE WITH THE FINAL AND EXECUTORY DECISION
several others, includingherein petitioner, as legal heirs. Later, they discovered that OF THE COURT OF APPEALS IN CA-G.R. CV-13785 WAS NOT VALID.10
respondents mortgaged Lots 506 and 514 with Republic Planters Bank (RPB) as
security for a loan which, subsequently, became delinquent. Petitioner's main contention is that the consignation which she and her co-heirs made
was a judicial deposit based on a final judgment and, as such, does not require
Thereafter, claiming that theyare ready with the payment of 127,500.00, but alleging compliance with the requirements of Articles 125611 and 125712of the Civil Code.
that they cannot determine as to whom such payment shall be made, petitioner and
her co-heirs filed a Complaint6 with the RTC of San Carlos City, Negros Occidental The petition lacks merit. At the outset, the Court quotes withapproval the discussion of
seeking to compel herein respondents and RPB to interplead and litigate between the CA regarding the definition and nature of consignation, to wit: consignation [is]
themselves their respective interests on the abovementioned sum of the act of depositing the thing due with the court or judicial authorities whenever the
money.1wphi1 The Complaint also prayed that respondents be directed to substitute creditor cannot accept or refuses to accept payment, and it generally requires a prior
Lots 506 and 514 with other real estate properties as collateral for their outstanding tender of payment. It should be distinguished from tender of payment which is the
obligation with RPB and that the latter be ordered toaccept the substitute collateral manifestation by the debtor to the creditor of his desire to comply with his obligation,
and release the mortgage on Lots 506 and 514. Upon filing of their complaint, the with the offer of immediate performance.Tender is the antecedent of consignation,
heirs of Toribio deposited the amount of 127,500.00 with the RTC of San Carlos thatis, an act preparatory to the consignation, which is the principal, and from which
City, Branch 59. are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial,
Respondents filed their Answer7 with Counterclaim praying for the dismissal of the and the priority of the first is the attempt to make a private settlement before
above Complaint on the grounds that (1) the action for interpleader was improper proceeding to the solemnities of consignation. Tender and consignation, where validly
since RPB isnot laying any claim on the sum of 127,500.00; (2) that the period made, produces the effect of payment and extinguishes the obligation. 13
withinwhich the complainants are allowed to purchase Lots 506 and 514 had already
expired; (3) that there was no valid consignation, and (4) that the case is barred by In the case of Arzaga v. Rumbaoa,14 which was cited by petitioner in support of his
litis pendenciaor res judicata. contention, this Court ruled that the deposit made with the court by the plaintiff-
appellee in the saidcase is considered a valid payment of the amount adjudged, even
On the other hand, RPB filed a Motion to Dismiss the subject Complaint on the without a prior tender of payment thereof to the defendants-appellants,because the
ground that petitioner and her co-heirs had no valid cause of action and that they plaintiff-appellee, upon making such deposit, expressly petitioned the court that the
have no primary legal right which is enforceable and binding against RPB. defendants-appellees be notified to receive the tender of payment.This Court held
that while "[t]he deposit, by itself alone, may not have been sufficient, but with the
On December 5, 2001, the RTC rendered judgment, dismissing the Complaint of express terms of the petition, there was full and complete offer of payment made
petitioner and her co-heirs for lack of merit.8 Respondents' Counterclaim was likewise directly to defendants-appellants."15 In the instant case, however, petitioner and her
dismissed. co-heirs, upon making the deposit with the RTC, did not ask the trial court that
respondents be notified to receive the amount that they have deposited. In fact, there
was no tender of payment. Instead, what petitioner and her co-heirs prayed for is
Petitioner and her co-heirs filed an appeal with the CA contending that the judicial thatrespondents and RPB be directed to interplead with one another to determine
deposit or consignation of the amount of 127,500.00 was valid and binding and their alleged respective rights over the consigned amount; that respondents be
produced the effect of payment of the purchase price of the subject lots. likewise directed to substitute the subject lots with other real properties as collateral
for their loan with RPB and that RPB be also directed to accept the substitute real
In its assailed Decision, the CA denied the above appeal for lack of merit and affirmed properties as collateral for the said loan. Nonetheless,the trial court correctly ruled
the disputed RTC Decision. that interpleader is not the proper remedy because RPB did notmake any claim
whatsoever over the amount consigned by petitioner and her co-heirs with the court.
Petitioner and her co-heirs filed a Motion for Reconsideration,9 but it was likewise
denied by the CA. In the cases of Del Rosario v. Sandico16 and Salvante v. Cruz,17 likewise cited as
authority by petitioner, this Court held that, for a consignation or deposit with the court
Hence, the present petition for review on certiorariwith a lone Assignment of Error, to of an amount due on a judgment to be considered as payment, there must beprior
wit: tender to the judgment creditor who refuses to accept it. The same principle was
reiterated in the later case of Pabugais v. Sahijwani.18 As stated above, tender of
payment involves a positive and unconditional act by the obligor of offering legal
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE tender currency as payment to the obligee for the formers obligation and demanding
LOWER COURT WHICH HELD THAT THE JUDICIAL DEPOSIT OF 127,500.00 that the latter accept the same.19 In the instant case, the Court finds no cogent reason
MADE BY THE SUICOS WITH THE CLERK OF COURT OF THE RTC, SAN
to depart from the findings of the CA and the RTC that petitioner and her co-heirs
failed to make a prior valid tender of payment to respondents.

It is settled that compliance with the requisites of a valid consignation is


mandatory.20 Failure to comply strictly with any of the requisites will render the
consignation void. One of these requisites is a valid prior tender of payment. 21

Under Article 1256, the only instances where prior tender of payment is excused are:
(1) when the creditor is absent or unknown, or does not appear at the place of
payment; (2) when the creditor is incapacitated to receive the payment at the time it is
due; (3) when, without just cause, the creditor refuses to give a receipt; (4) when two
or more persons claim the same right to collect; and (5) when the title of the obligation
has been lost. None of these instances are present in the instant case. Hence, the
fact that the subject lots are in danger of being foreclosed does not excuse petitioner
and her co-heirs from tendering payment to respondents, as directed by the court.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals,
dated May 25, 2007, and its Resolution dated January 24, 2008, both in CA-G.R. CV
No. 75013, are AFFIRMED.

SO ORDERED.
Principal - P295,469.47

Interest - 165,385.00
[G.R. No. 104726. February 11, 1999]
Penalties - 254,820.55

Service Charges - 11,326.33


VICTOR YAM & YEK SUN LENT, doing business under the name and style of
Philippine Printing Works, petitioners, vs. THE COURT OF APPEALS
TOTAL P 727,001.35
and MANPHIL INVESTMENT CORPORATION, respondents.

On this date, petitioners paid P410,854.47 by means of a Pilipinas Bank check, receipt
DECISION
of which was acknowledged by Destajo.[8] The corresponding voucher for the check
MENDOZA, J.: bears the following notation: full payment of IGLF LOAN.[9]
The amount of P410,854.47 was the sum of the principal (P295,469.47) and the
This is a petition for review of the decision [1] of the Court of Appeals affirming in interest (P165,385.00) less the partial payment of P50,000.00. The private respondent
toto the decision of the Regional Trial Court of Manila (Branch 149), ordering petitioners sent two demand letters to petitioners, dated September 4, 1986 and September 25,
to pay private respondent the amount of P266,146.88 plus interest, service charge, 1986, seeking payment of the balance of P266,146.88. As petitioners did not respond,
penalty fees, and attorneys fees and the costs, otherwise the chattel mortgage given to private respondent filed this case in the Regional Trial Court of Metro Manila for
secure payment of the loan would be foreclosed. the collection of P266,146.88 plus interests, penalties, and service charges or, in the
alternative, for the foreclosure of the mortgaged machineries.
The following are the facts:
In their Answer, petitioners claimed that they had fully paid their obligation to
On May 10, 1979, the parties in this case entered into a Loan Agreement with private respondent. They contended that some time after receiving private respondents
Assumption of Solidary Liability whereby petitioners were given a loan of P500,000.00 letter of July 2, 1986 (concerning the conditional offer to reduce their penalty charges),
by private respondent. The contract provided for the payment of 12% annual interest, petitioner Victor Yam and his wife, Elena Yam, met with Carlos Sobrepeas, president
2% monthly penalty, 1 1/2% monthly service charge, and 10% attorneys of respondent corporation, during which the latter agreed to waive the penalties and
fees.[2] Denominated the first Industrial Guarantee and Loan Fund (IGLF), the loan was service charges, provided petitioners paid the principal and interest, computed as of
secured by a chattel mortgage on the printing machinery in petitioners establishment. [3] July 31, 1986, less the earlier payment of P50,000.00. This is the reason why according
Petitioners subsequently obtained a second IGLF loan of P300,000.00 evidenced to them they only paid P410,854.47. Petitioners added that this fact of full payment is
by two promissory notes, dated July 3, 1981 and September 30, 1981. For this purpose, reflected in the voucher accompanying the Pilipinas Bank check they issued, which
a new loan agreement[4] was entered into by the parties containing identical provisions bore the notation full payment of IGLF loan.
as the first one, except as to the annual interest which was increased to 14% and the On April 30, 1990, the lower court rendered a decision, the dispositive portion of
service charge which was reduced to 1% per annum. The deed of chattel mortgage which reads:
was amended correspondingly.[5]
By April 2, 1985, petitioners had paid their first loan of P500,000.00. On November WHEREFORE, in view of the foregoing, the defendants Victor Yam and Yek Sun Lent
4, 1985, private respondent was placed under receivership by the Central Bank and are hereby ordered to pay jointly and severally, the principal loan balance
Ricardo Lirio and Cristina Destajo were appointed as receiver and in-house examiner, of P266,146.88 as of September 4, 1986 plus interest at 14% per annum, service
respectively. charge at 1% per annum and penalty fees at 2% per month and to pay plaintiff
attorneys fees equivalent to 10% of the amount to be recovered, and to pay the costs
On May 17, 1986, petitioners made a partial payment of P50,000.00 on the of suit, failing in which, the chattel mortgage instituted on the printing machineries and
second loan. They later wrote private respondent a letter, dated June 18, 1986, equipment described in the Deed of Chattel Mortgage dated May 10, 1979, as
proposing to settle their obligation. On July 2, 1986, private respondent, through its amended, is hereby declared foreclosed and the subject thereof sold in accordance
counsel, replied with a counter-offer, namely, that it would reduce the penalty charges with law to satisfy the judgment herein rendered.
up to P140,000.00, provided petitioners can pay their obligation on or before July 30,
1986.[6]
SO ORDERED.[10]
As of July 31, 1986, petitioners total liability to private respondent
was P727,001.35, broken down as follows:[7]
On appeal, the Court of Appeals affirmed the decision of the trial court in Moreover, it is to be noted that the alleged agreement to condone the amount in
toto. Hence, this petition. Petitioners reiterate the same assignment of errors made by question was supposedly entered into by the parties sometime in July 1986, that is,
them before the Court of Appeals, to wit:[11] after respondent corporation had been placed under receivership on November 4,
1985. As held in Villanueva v. Court of Appeals [18] the appointment of a receiver
FIRST ASSIGNED ERROR operates to suspend the authority of a [corporation] and of its directors and officers over
its property and effects, such authority being reposed in the receiver. [19] Thus,
Sobrepeas had no authority to condone the debt.
THAT THE LOWER COURT GRIEVOUSLY ERRED IN FAILING TO GIVE
CREDENCE TO THE DOCUMENTARY AS WELL AS TESTIMONIAL EVIDENCE OF Indeed, Mrs. Yam herself testified that when she and her husband sought the
THE PETITIONERS RELATIVE TO THE PAYMENT TO THE RESPONDENT OF release of the chattel mortgage over their property, they were told that only the Central
THE ADDITIONAL LOAN UNDER THE AMENDMENT OF DEED OF CHATTEL Bank would authorize the same because [the CB] is the receiver. [20]Considering this,
MORTGAGE (EXHIBIT K, RESPONDENT) AND AS AGAINST THE TESTIMONY OF petitioners cannot feign ignorance and plead good faith.
RESPONDENTS WITNESS, CRISTINA L. DESTAJO.
The second assignment of error pertains to the petitioners allegation that they did
not receive the two letters of demand sent by private respondent on September 4 and
SECOND ASSIGNED ERROR September 25, 1986. Both the lower court and the Court of Appeals found
otherwise. We have no reason to disturb this factual finding. It is settled that findings of
THAT THE COURT BELOW ERRED IN NOT TOTALLY DISREGARDING EXHIBITS fact of trial courts, adopted and confirmed by the Court of Appeals, are final and
E AND F OF THE RESPONDENTS conclusive and, as a rule, will not be reviewed on appeal. [21]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
The question is whether petitioners are liable for the payment of the penalties and
service charges on their loan which, as of July 31, 1986, amounted to P266,146.88. SO ORDERED.
The answer is in the affirmative. Art. 1270, par. 2 of the Civil Code provides that
express condonation must comply with the forms of donation. [12] Art. 748, par. 3
provides that the donation and acceptance of a movable, the value of which
exceeds P5,000.00, must be made in writing, otherwise the same shall be void. In this
connection, under Art. 417, par. 1, obligations, actually referring to credits,[13] are
considered movable property. In the case at bar, it is undisputed that the alleged
agreement to condone P266,146.88 of the second IGLF loan was not reduced in
writing.[14]
Nonetheless, petitioners insist that the voucher covering the Pilipinas Bank check
for P410,854.47, containing the notation that the amount is in full payment of IGLF loan,
constitutes documentary evidence of such oral agreement. This contention is without
merit. The notation in full payment of IGLF loan merely states petitioners intention in
making the payment, but in no way does it bind private respondent. It would have been
a different matter if the notation appeared in a receipt issued by respondent corporation,
through its receiver, because then it would be an admission against interest. Indeed, if
private respondent really condoned the amount in question, petitioners should have
asked for a certificate of full payment from respondent corporation, as they did in the
case of their first IGLF loan of P500,000.00.[15]
Petitioners, however, contend that the Central Bank examiner assigned to
respondent corporation, Cristina Destajo, signed the voucher in question. Destajo
claimed that, when she signed the voucher, she failed to notice the statement that the
amount of P410,854.47 was being given in full payment of IGLF Loan. She said she
merely took note of the amount and the check number indicated therein. [16] In any
event, Destajo, by countersigning the voucher, did no more than acknowledge receipt
of the payment. She cannot be held to have ascented thereby to the payment in full of
petitioners indebtedness to private respondent. It was obvious she had no authority to
condone any indebtedness, her duties being limited to issuing official receipts,
preparing check vouchers and documentation.[17]
above;ChanRoblesVirtualawlibrary
THIRD DIVISION
That, the term of this contract shall be for FOUR (4) Years only, however, if the
amount of (P143,823.00) shall not be folly paid within the period, the parties hereby
G.R. No. 178317, September 23, 2015 reserves the right to extend this contract, until such time that the above[-]mentioned
amount shall have been fully paid;ChanRoblesVirtualawlibrary
SPOUSES RICARDO AND ELENA C. GOLEZ, Petitioners, v. MELITON
NEMEO,1 Respondent. That, as soon as the above amount shall be fully paid, the building shall be deemed
owned by the herein Party of the First Part; however, the Party of the Second Part is
DECISION hereby obligated to cause the repair of the building before it shall be turned over to
the Party of the First Part;ChanRoblesVirtualawlibrary

VILLARAMA, JR., J.: That, this contract shall take effect on June 1, 1989, whereby payment of the rental
shall take effect on the said date[.]
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil chanrobleslaw
Procedure, as amended, assailing the January 20, 2006 Decision2 and April 18, 2007
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 60638. The appellate On May 23, 1992, the building subject of the lease contract was burned down.
court affirmed with modification the March 16, 1998 Decision4 of the Regional Trial
Court (RTC) of Molave, Zamboanga del Sur, Branch 23, ordering petitioners Spouses Because of the destruction of the building, respondent, on May 29, 1992, sent a
Ricardo and Elena C. Golez to pay respondent Meliton Nemeo the contract amount letter7 to petitioners demanding the accumulated rentals for the leased property from
in their lease agreement of P143,823.00 with 12% interest per annum plus damages. March 17, 1989 to June 17, 1992 totaling P78,000.00. As the demand was left
unheeded, respondent filed a complaint8 for collection of rentals plus damages before
The antecedents of the case follow:chanRoblesvirtualLawlibrary the Molave RTC.

Respondent is the registered owner of a commercial lot located in Molave, Respondent alleged that Ricardo is the proximate cause of the fire that razed the
Zamboanga del Sur known as Lot No. 7728 and covered by Original Certificate of building to the ground. He also claimed that without his knowledge, petitioners insured
Title No. 0-2,2335 of the Registry of Deeds of Zamboanga del Sur. the building with two insurance companies for face values of more than its cost. He
further alleged that Ricardo was charged with arson before the Municipal Trial Court
On May 31, 1989, respondent entered into a Lease Contract 6 over a portion of Lot (MTC) of Molave in relation to the burning of the subject building. He prayed that
No. 7728 with petitioners as "lessees." The pertinent portion of the contract is quoted petitioners be ordered to pay him P96,000.00 representing the unpaid rentals from
verbatim hereunder:cralawlawlibrary March 17, 1989 until the expiration of the lease and P100,000.00 representing
damages for violating the lease contract. Respondent also sought the issuance of a
That, the Party of the First Part/Lessor hereby leased a portion of that Commercial Lot writ of attachment in his favor.
with an area of 12 meters by 7 meters to the Party of the Second
Part;ChanRoblesVirtualawlibrary Petitioners, for their part, admitted the execution of the contract of lease but dispute
their liability to pay respondent rentals. They contended that under the contract of
That, the Party of the Second Part shall construct a Commercial Building thereon lease, the rental payment is amortized over the cost of the subject building, thus,
amounting to ONE HUNDRED FORTY THREE THOUSAND EIGHT HUNDRED respondent had already become its co-owner who must suffer the loss of his property.
TWENTY THREE (P143,823.00) PESOS;ChanRoblesVirtualawlibrary They also denied liability for the burning of the building contending that it has been
destroyed by a fortuitous event. They admitted though that they insured the building
That, the Party of the Second Part shall pay a monthly rental of the space occupied beyond their insurable interest over it. By way of counterclaim, they alleged that they
by the building in the amount of TWO THOUSAND (P2,000) PESOS, of which extended various cash loans to respondent in the total amount of P11,000.00 starting
amount, the Party of the First Part shall not collect, instead, said amount shall be April 1989 with an agreed monthly interest of 5%. Because respondent failed to pay
used/paid to the herein Lessee as payment of the cost of building built on the the loan, they claimed that the total demandable amount from him is already
aforesaid lot;ChanRoblesVirtualawlibrary P39,104.00 as of the filing of their Answer. Petitioners are also demanding
P1,000,000.00 in damages from respondent for publicly imputing to them the burning
That, the total amount payable by the herein Lessor to the Lessee includes the of the subject building.
following: a. Building permit fees; b. Cost of building; c. 21 pcs. tables; d. 23 pcs.
chairs; e. 5 pcs[.] benches; f. 1 unit cabinet; g. 3 window trapal; h. 1 unit deepwell On July 9, 1992, Molave MTC Judge Diosdado C. Arriesgado, the investigating judge
handpump with accessories; j. lighting facilities; and all things permanently attached on the criminal complaint for arson filed by respondent against Ricardo, issued an
to the building; of which the total amount is the one reflected Order9 finding probable cause to indict the latter for arson. The findings of the
investigating judge were approved by Zamboanga del Sur Provincial Prosecutor
Elpidio A. Nacua on September 4, 1992.10 However, upon motion for reconsideration ATTY. ACAIN : We submit, Your Honor, but we contend that the defendant is
filed by Ricardo, the criminal case for arson was dismissed in a Resolution11 dated still violating the contract by burning the subject matter of the
November 3, 1992 issued by Prosecutor Nacua. This prompted respondent to file a contract. Because the contract says that upon the expiration[,]
motion for reconsideration of the resolution issued by the Provincial Prosecutor. this building will go to the lessor. There are two causes of action
here, Your Honor, which is payment of rental and damages,
In the meantime, the RTC issued a Pre-trial Order12 dated November 18, 1992, which Your Honor.
stated, among others, the following issues the parties agreed to litigate COURT : But the claim for damages is based on the non[-] performance of
on:cralawlawlibrary the contract not on the criminal act of Arson.
ATTY. ACAIN : Yes, Your Honor, but I would like to make it of record, Your
Issues submitted by [respondent]: Honor, that he still ha[s] a pending case of Arson against the
defendants, Your Honor, and it is in that case that we are
claiming damages for the building that [was] destroyed, Your
1. Whether or not under the contract of lease entered into by
Honor, We are claiming damages as far as this building is
[petitioners] and [respondent], [petitioners are] liable for back
concerned, Your Honor.
rentals to [respondent];ChanRoblesVirtualawlibrary
chanrobleslaw
2. Whether or not [petitioners have] any responsibility to the burning of Respondent also testified on the damages he was claiming in the amount of
the house which is the subject matter of the lease contract. P100,000.00 for petitioners' failure to comply with the agreement "that after four (4)
years the building will be delivered to [him]." "
Issues submitted by [petitioners]:
When it was petitioners' turn to present their evidence, the trial court likewise
1. Whether or not [respondent] has unpaid loan in favor of [petitioners] prohibited them from proving that Ricardo was not responsible for the burning of the
in the amount of P39,000.00;ChanRoblesVirtualawlibrary subject building. The relevant portion of Ricardo's testimony reads:cralawlawlibrary

2. Whether or not [petitioners have] the right to claim moral damages ATTY. R. Q : Now I am confronting you with a certain receipt from the [F]aith
for the alleged character assassination made by the [respondent] ALOOT Hospital which is dated May 23, 1992, will you please examine
against [petitioners] for having burned the house built on the leased this document which is merely a xerox copy and tell the court
premises.13 (Emphasis supplied) what is this having a relation to stay in your house? (sic)
ATTY. A. ACAIN : We beg[,] Your Honor[,] incompetent, the witness Your Honor
(sic).........
chanrobleslaw ATTY. R. : Because at the time Your Honor there was I think an incident
ALOOT which cause for the attention of the witness to the fact that he
During trial, respondent testified on the contract he executed in favor of petitioners; should stay in the house. (sic)
the subject building built thereon by the latter to be delivered at the end of the term of ATTY. A. ACAIN : Already answered[,] Your Honor.
the contract; the burning of the subject building; and that after the building was COURT : What has this to do with the cause of action[?] [T]he cause of
burned, he demanded payment of rentals from petitioners but said demand remained action is collection of the rental. It is admitted facts that there
unheeded. When respondent was about to present evidence to supposedly prove that was a rented premises (sic) no payment was made and the
Ricardo was the author of the fire that gutted down the subject building, the trial court house that was supposed to be made as payment of the rental
prohibited him and his counsel on the ground that the alleged arson is not the basis of got burned.
his complaint. The pertinent portion of respondent's testimony is quoted ATTY. R. : Your Honor[,] please[.] [T]here was a claimed (sic) that the
hereunder:cralawlawlibrary ALOOT defendant[,] Ricardo Golez[,] was responsible [for] the fire on
May 23, 1992.
ATTY. ACAIN Q : Do you know if the Office of the Chief of Police lile[d] a case of ATTY. A. ACAIN : He [denied] that already.
Arson against defendant Ricardo Golez? ATTY. R. : Yes[,] that is denied but....
COURT : If your theory is that the defendant is responsible for the burning ALOOT
of the building[,] why is this collection of rental not damages? COURT : That [has] nothing to do with the cause of action[.] [T]he cause
xxxx of action is not the burning of the house[.] [T]he cause of action
ATTY. ACAIN : Our theory, Your Honor, is that recollect (sic) the rental and that is collection of the rental. Now, if the parties was (sic) to
there is a breach of contract. establish that the defendant is responsible for damages for the
COURT : Then this evidence of the responsibility of the burning is not burning of the house[,] you can file another case.
relevant to this case. ATTY. R. : If the plaintiff agrees[,] Your Honor[,] that there is no claim for
ALOOT the burning of the house...
COURT : The complaint will bear that out[.] [T]here is no claim[.] You point 4. Ordering the defendants to pay triple of the cost of this action.
to any claim of the alleged burning of the house, the court did
not notice anything.16 5. Ordering the dismissal of all counterclaims of defendants against the plaintiff.
chanrobleslaw
SO ORDERED.22
Ricardo also testified on his counterclaim referring to an indebtedness of respondent chanrobleslaw
amounting to P11,000.00 as evidenced by a promissory note dated January 1, 1990
signed by the latter. According to him, the loan remained unpaid and ballooned to The trial court ruled that respondent did not become the co-owner of the subject
P368,362.50 as of December 1995 because of the 5% monthly interest.17 Petitioners building before it was burned down. It held that ownership will only pertain to him as
likewise presented two handwritten letters of respondent, one dated May 8, soon as the amount agreed upon under the contract shall have been fully paid. It
199118 and another dated January 12, 1992,19 to supposedly prove that said loan further held that under the law, it would still be necessary for petitioners to deliver the
remains outstanding. building to respondent in order that acquisition of the real right of ownership can take
place. It noted that not only was the amount agreed upon under the contract not yet
On rebuttal, respondent took again the witness stand to refute petitioners' allegation fully paid, there was no delivery of the building at all to respondent. It ruled that the
that his debt was still unpaid. He presented the supposed original of the January 1, building was still wholly owned by petitioners at the time the same was gutted by fire
1990 promissory note that was in his possession since July 26, 1990, the date when and thus, they should be the only ones to suffer the loss.
he claimed to have paid his debt. He also testified that he wrote the May 8, 1991 and
January 12, 1992 letters to demand from petitioners the previous promissory notes The trial court likewise noted that petitioners have never paid respondent rent for the
which were consolidated in the January 1, 1990 promissory note.20 leased premises. Since they can no longer deliver the building which the contract
obliged them to deliver, the trial court ruled that they are legally obliged to pay the
While the trial was ongoing, the Department of Justice (DOJ) through Undersecretary rentals for their use and enjoyment of the leased premises to prevent unjust
Ramon S. Esguerra, denied the motion for reconsideration filed by respondent on enrichment on the part of petitioners.
February 10, 1994 and upheld the dismissal of the criminal complaint for arson
against Ricardo.21 The trial court likewise found that Ricardo is indeed the author of the burning. It took
into consideration the insurance proceeds petitioners would get from the burning of
In a Decision dated March 16, 1998, the trial court ruled in favor of respondent. the building in question.
The fallo reads:cralawlawlibrary
With regard to the respondent's debt to petitioners, the trial court ruled that since the
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the promissory note is in the possession of respondent, the debtor, it can be presumed
defendants that it has already been paid. It also found no evidence that respondent consented to
the raising of the interest rate from 3% to 5% which was handwritten on the note by
1. Ordering the defendants jointly and severally to pay the plaintiff the contract Ricardo.
amount of P143,823.00, to bear interest at 12% a year from the filing of this action up
to the time the same is fully paid. The trial court likewise found that petitioners have acted in wanton, fraudulent,
malicious, felonious, oppressive and malevolent manner in the performance of their
2. Ordering the defendants jointly and severally to pay the plaintiff the following contractual obligations towards respondent justifying the award of damages.
sums:chanRoblesvirtualLawlibrary
Aggrieved, petitioners appealed the trial court's decision to the CA raising the
a) Moral damages in the sum of P150,000.00;ChanRoblesVirtualawlibrary following arguments:cralawlawlibrary

b) Temperate or compensatory damage in the sum of I


P100,000.00;ChanRoblesVirtualawlibrary
THE LOWER COURT ERRED IN FINDING THAT DEFENDANTS-APPELLANTS
c) Exemplary damage in the sum [of] P50,000.00;ChanRoblesVirtualawlibrary ARE LIABLE WHEN THE TERMS OF THE CONTRACT THAT THE PARTIES
ENTERED INTO CLEARLY SHOW OTHERWISE.
d) Litigation expenses in the sum of P15,000.00;ChanRoblesVirtualawlibrary
II
e) Attorney's fees in the sum of P25,000.00;ChanRoblesVirtualawlibrary
THIS CASE BEING PRIMARILY FOR COLLECTION AND PAYMENT OF RENTALS,
3. Ordering the issuance of a writ of attachment against the properties of the THE LOWER COURT ERRED IN FINDING DEFENDANTS-APPELLANTS LIABLE
defendants to secure the payment of the above judgment amounts. FOR THE BURNING OF THE BUILDING IN QUESTION.
III III. THE HONORABLE COURT OF APPEALS AND THE TRIAL
COURT FAILED TO CONSIDER THE FACT THAT THERE ARE
THE LOWER COURT ERRED IN ISSUING THE QUESTIONED WRIT OF NO LEGAL AND FACTUAL BASES FOR THE GRANT OF
ATTACHMENT WITHOUT COMPLYING WITH THE PROCEDURAL AS WELL AS DAMAGES IN FAVOR OF RESPONDENT IN THAT HE HAS NOT
SUBSTANTIVE REQUIREMENTS THEREFOR. PRESENTED A SINGLE PROOF OR EVIDENCE AND THE
LOWER COURTS HAVE NOT CITED ANY LAW REMOTELY
IV SERVING AS JURAL FOUNDATION FOR THE UNWARRANTED
AWARD OF DAMAGES.
THE LOWER COURT ERRED IN DENYING HEREIN DEFENDANTS-APPELLANTS'
COUNTERCLAIM. IV. THE HONORABLE COURT OF APPEALS AND THE TRIAL
COURT ERRED IN FAILING TO GRANT PETITIONERS'
V COUNTERCLAIM AND IN FAILING TO CONSIDER A GLARING
EVIDENCE OF ADMISSION OF INDEBTEDNESS BY
THE LOWER COURT ERRED IN AWARDING EXCESSIVE DAMAGES IN FAVOR RESPONDENT CONSISTING OF TWO HANDWRITTEN
OF PLAINTIFF-APPELLEE.23chanrobleslaw LETTERS WRITTEN IN RESPONDENT'S OWN LANGUAGE
ADMITTING LOAN OBLIGATION WITH PETITIONERS. INSTEAD,
The CA, in the assailed decision, set aside the writ of attachment and notices of THE TRIAL AND APPELLATE COURTS RELIED ON MERE
garnishment issued in favor of respondent. It, however, affirmed the decision of the DISPUTABLE PRESUMPTION OF LAW WHICH DOES NOT
trial court in all other respects. It held that the ownership of the subject building still EVEN FIND APPLICATION IN THE CASE, ALL OF WHICH
pertains to petitioners and therefore, they must solely bear the loss. The CA also COMBINED TO RESULT IN A LOPSIDED DECISION
ruled that the fact that the building was destroyed before it was delivered to WARRANTING REVERSAL BY THE HONORABLE SUPREME
respondent does not free petitioners from paying back rentals. It held that petitioners COURT.24
cannot use respondent's land and deprive him of rents due him, otherwise, it would
be a case of unjust enrichment at the expense of respondent. chanrobleslaw

The CA likewise agreed with the trial court's finding that petitioner Ricardo is liable for Petitioners argue that the trial court itself made it clear to all concerned that the suit is
the burning of the building. It took note of respondent's testimony that he saw Ricardo not based on any alleged arson. They contend that despite said declaration by the
entering the subject building an hour and a half before the fire; Ricardo's alleged trial court, the latter heavily relied on the result of the preliminary investigation finding
indifference regarding the fire; the investigating judge's finding of probable cause to petitioner Ricardo chargeable for arson when the same preliminary investigation was
indict Ricardo for arson; and the fact that the latter insured the subject building for reversed with finality by the DOJ.
more than its actual value. The appellate court also upheld the award of damages
upon this finding of liability on the part of Ricardo. They also fault the trial court for its heavy reliance on the presumption of arson found
in Section 625 of Presidential Decree No. 1613, Amending the Law on Arson,
The appellate court also upheld the trial court's dismissal of petitioners' counterclaim contending that it is not applicable to the case at bar since first, the issue of arson has
on the ground that the possession of respondent of the promissory note evidencing been excluded and second, there was no admission of over-insurance on their part.
his debt is prima facie evidence of payment. It ruled that the letters presented by
Ricardo did not suffice to overturn said presumption as they do not conclusively show Petitioners also felt that they were intentionally misled because they were made to
that the obligation of respondent remains outstanding. believe that the issue of arson will not be taken up and yet the trial court made a
finding that petitioner Ricardo had a hand in the burning of the subject building.
Hence this petition anchored on the following grounds:cralawlawlibrary Petitioners contend that the transcript of stenographic notes will reveal that they were
stopped by the trial court from presenting evidence to disprove that there was arson.
I. THE HONORABLE COURT OF APPEALS AND THE TRIAL
COURT GROSSLY VIOLATED PETITIONERS' RIGHT TO DUE Petitioners likewise asseverate that they are not liable to pay back rentals insisting the
PROCESS OF LAW WHEN THE CASE WAS DECIDED ON THE applicability of Article 126226 to the case at bar. They contend that the "rentals" are
BASIS OF ISSUES AND EVIDENCE EXPRESSLY EXCLUDED BY supposed to be "refund" to petitioners for the cost of the subject building and thus, no
THE COURT DURING TRIAL PROPER. "rental" is due. Petitioners also submit that based on the contract, they had an
obligation to deliver a determinate thing, i.e., the subject building, but applying Article
II. THE HONORABLE COURT OF APPEALS AND THE TRIAL 1262, the total loss thereof extinguished their obligation. They likewise point out that
COURT FAILED TO APPLY ART. 1262 OF THE CIVIL CODE there was no stipulation in the contract making them liable even for fortuitous events
WHEN THE SAME IS CLEARLY AND SQUARELY APPLICABLE or that the nature of the obligation requires the assumption of risk.
IN THE INSTANT CASE.
Petitioners further contend that there were no legal nor factual bases for the grant of during the period within which they were in possession of the leased property,
damages in favor of respondent. They argue that respondent immediately took Respondent himself testified that petitioner Ricardo stayed in the building on the
possession of the lot after the fire so at most, the trial court should have awarded leased premises just before it was burned down.28 There was no evidence submitted
back rentals from 1989 to 1992. They contend that there was no basis to award the to prove that petitioners were in possession of the leased property after the fire.
sum of P143,823.00 as it was not a loan or forbearance for the use of money. They Therefore, petitioners should be made to pay rent until that time only. To order
further submit that there was no explanation on the award of moral and temperate petitioners to pay for back rentals equivalent to the cost of the building is in the same
damages. way, unjust enrichment this time on the part of respondent considering that the rent
due for the period petitioners occupied the leased premises is way below the cost of
Petitioners also argue that the presumption in Section 3(h) of Rule 131 of the Rules of the building.
Court is not applicable to the instant case. They cite the letters sent by respondent to
them allegedly acknowledging the obligation and offering payment. They contend that This Court further finds the awards for moral, "temperate/compensatory" and
if the debt has already been paid as ruled by the trial and appellate courts, why would exemplary damages lacking in factual and legal bases. As correctly argued by
respondent still offer payment in said letters. petitioners, these damages were not pleaded in respondent's complaint nor proven
during trial. A perusal of the complaint, as amended, reveals that respondent was
Thus, the main issues for this Court's resolution are: (1) Are petitioners liable to pay praying for "P100,000.00 as damages for the violation."29 He did not specifically pray
respondent for back rentals?; (2) Are petitioners liable for damages; and (3) Are that it was for moral, temperate or exemplary damages. It is well-settled that in order
petitioners entitled to their counterclaim? that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like.30 And even if the moral damages were
The petition is partly granted. specifically pleaded in his complaint, nothing on the records would show that
respondent testified on said damages.
This Court finds no reason to depart from the ruling of the courts a quo that petitioners
should pay respondent for back rentals. There is no dispute that the contract entered Even the trial court's finding that petitioner Ricardo was the author of the fire will not
into by the parties is one of lease. True, it had some modifications such that instead of make respondent entitled to moral damages and exemplary damages. As correctly
paying the rent in the form of money, petitioners will withhold such payment and will pointed out by petitioners, both parties were prevented from presenting evidence to
apply the accumulated rent to the cost of the building they built on the leased prove or disprove that there was arson. Thus, there cannot be a finding on petitioners'
property. Thereafter, at the end of the lease period or until such time the cost of the liability of willful injury as basis of moral damages as provided in Article 2220 31 and
building has been fully covered by the rent accumulated, petitioners, as lessees will exemplary damages as provided in Article 223232 of the Civil Code. It is also worthy to
transfer the ownership of said building to respondent. note that the criminal complaint for arson filed against petitioner Ricardo was
dismissed with finality by the DOJ thus precluding any criminal liability on his part
Unfortunately, the subject building was gutted down by fire. However, the destruction regarding the burning of the subject building. There was no evidence presented by
of the building should not in any way be made a basis to exempt petitioners from respondent that the dismissal of the criminal complaint was reversed.
paying rent for the period they made use of the leased property. Otherwise, this will
be a clear case of unjust enrichment. As held in P. C. Javier & Sons, Inc. v. Court of As to the award of litigation expenses, we find the same to be justified. As provided
Appeals:27cralawlawlibrary under Article 2208 of the Civil Code, they may be recovered when the defendant's act
or omission has compelled the plaintiff to litigate with third persons or to incur
x x x The fundamental doctrine of unjust enrichment is the transfer of value without expenses to protect his interest. However, we find no basis for a separate award of
just cause or consideration. The elements of this doctrine are: enrichment on the part attorney's fees since they were not prayed for in both the original and amended
of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The; complaints.33
main objective is to prevent one to enrich himself at the expense of another. It is
commonly accepted that this doctrine simply means that a person shall not be As to the order of the courts a quo for petitioners to pay triple of the cost of the action,
allowed to profit or enrich himself inequitably at another's expense.chanrobleslaw this Court also finds the same without basis. Nowhere in the decision can its factual or
legal justification be found.
In the instant case, there is no dispute that petitioners used the property for several
years for their own benefit having operated a restaurant thereon. Therefore, it would This Court likewise affirms the dismissal of petitioners' counterclaims. As correctly
be the height of of injustice to deprive respondent of compensation due him on the ruled by the trial and appellate courts, the possession of respondent of the promissory
use of his property by petitioners. The fact that the parties agreed to a different mode note evidencing his debt to petitioners is prima facie evidence of the payment of the
of payment - in this case, a building - does not in any way exempt petitioners from same as provided in Section 3(h) of Rule 131 of the Rules of Court which
paying compensation due to respondent for the use of the latter's property because reads:cralawlawlibrary
the building was destroyed.
SEC. 3. Disputable presumptions. - The following presumptions are satisfactory if
While we sustain the award of back rentals in favor of respondent, we do not agree uncontradicted, but may be contradicted and overcome by other
with the amount imposed by the courts a quo. Petitioners should only be liable for rent evidence:chanRoblesvirtualLawlibrary
Compadre, how's the receipts which show an obligation of P11,000.00 to you? If you
xxxx find them, please bring them to the house because these receipts appear having
already lapsed, nonetheless, if they cannot be located, that's not hard between us.
(h) That an obligation delivered up to the debtor has been
paid;ChanRoblesVirtualawlibrary I shall be waiting.

xxxx Your brother in Christ,


chanrobleslaw
(SGD.) COMPADRE MELING NEMEO35
Unfortunately for petitioners, the evidence they presented failed to contradict the chanrobleslaw
above presumption as they did not conclusively show that respondent's obligation to
them remains outstanding. The two letters written by respondent to petitioner Ricardo To the Court's mind, the letters of respondent were written to demand the surrender
which were relied on by petitioners to refute the presumption are quoted hereunder of the three previous promissory notes he executed before they were consolidated
verbatim:cralawlawlibrary into one promissory note with the amount of P11,000.00. Thus, they cannot prove that
respondent acknowledges that his obligation remains outstanding. This being the
[First Letter dated May 8, 1991:] case, the presumption still stands.

Dear Compadre, WHEREFORE, the petition is PARTLY GRANTED. The January 20, 2006 Decision of
the Court of Appeals in CA-G.R. CV No. 60638 is AFFIRMED with
Please return to me now the three (3) receipts or promissory notes with the total MODIFICATIONS. As modified, petitioners Spouses Ricardo and Elena C. Golez
amount of P10,900.00 because we have already consolidated my indebtedness to are ORDERED to pay respondent Meliton Nemeo:chanRoblesvirtualLawlibrary
you by making it to P11,000.00. You were even the one that personally made/drafted
the consolidated amount which I signed and you made me pay interest as appearing 1) Back rentals with a monthly rate of P2,000.00 for the period commencing June 1,
in the consolidated receipt that you made on January 1, 1990. 1989 to May 23, 1992 and shall earn a corresponding interest of six percent (6%) per
annum, to be computed from May 29, 1992 until full
Up to now that you still have in your possession the three (3) receipts or promissory satisfaction;ChanRoblesVirtualawlibrary
notes which were consolidated into one and you only made [promises] to return,
although you furnished me xerox copies from those originals. 2) Litigation expenses amounting to P15,000.00. All other awards are DELETED.

It is painful on my part by not returning those originals and I now entertained No pronouncement as to costs.
suspicion that you have ill design against me but please Compadre do not do it to me
because I am poor as compared to you. SO ORDERED.

You know there's God that is looking on to all of us.

Your brother in Christ,

(SGD.) MELING D. NEMEO, SR.34

[Second letter dated January 12, 1992:]

Dear Compadre,

How are you together with the members of your family? It's already a long time that
we have not met each other. Accordingly, you must have been occupied by your
Pawnshop business at Molave and at Ipil.

How's your plan to run for Vice Mayor? You seemed to be silent. Please let me know
whether or not you will proceed because I might be committed for another whom we
do not know its background or ability to perform the duties of the office.
requisites of legal compensation, namely, that the parties must be creditors and
debtors of each other in their own right (Art. 1278, Civil Code) and that each one of
Republic of the Philippines them must be bound principally and at the same time be a principal creditor of the
SUPREME COURT other (Art. 1279), are not present in the instant case, since the real creditor with
Manila respect to the sum of P500 was the defendant's counsel.

EN BANC This is not an accurate statement of the nature of an award for attorney's fee's. The
award is made in favor of the litigant, not of his counsel, and is justified by way of
indemnity for damages recoverable by the former in the cases enumerated in Article
G.R. No. L-22490 May 21, 1969 2208 of the Civil Code.1 It is the litigant, not his counsel, who is the judgment creditor
and who may enforce the judgment by execution. Such credit, therefore, may properly
GAN TION, petitioner, be the subject of legal compensation. Quite obviously it would be unjust to compel
vs. petitioner to pay his debt for P500 when admittedly his creditor is indebted to him for
HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of more than P4,000.
the Court of First Instance of Manila, ONG WAN SIENG and THE SHERIFF OF
MANILA, respondents. WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of
execution issued by the Court of First Instance of Manila in its Civil Case No. 49535 is
Burgos and Sarte for petitioner. set aside. Costs against respondent.
Roxas, Roxas, Roxas and Associates for respondents.
Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
MAKALINTAL, J.: Teehankee and Barredo JJ., took no part.
Concepcion, C.J., and Castro, J., are on leave.
The sole issue here is whether or not there has been legal compensation between
petitioner Gan Tion and respondent Ong Wan Sieng.

Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the
latter filed an ejectment case against the former, alleging non-payment of rents for
August and September of that year, at P180 a month, or P360 altogether. The
defendant denied the allegation and said that the agreed monthly rental was only
P160, which he had offered to but was refused by the plaintiff. The plaintiff obtained a
favorable judgment in the municipal court (of Manila), but upon appeal the Court of
First Instance, on July 2, 1962, reversed the judgment and dismissed the complaint,
and ordered the plaintiff to pay the defendant the sum of P500 as attorney's fees.
That judgment became final.

On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was
increasing the rent to P180 a month, effective November 1st, and at the same time
demanded the rents in arrears at the old rate in the aggregate amount of P4,320.00,
corresponding to a period from August 1961 to October 1963.lwphi1.et

In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a
writ of execution of the judgment for attorney's fees in his favor. Gan Tion went on
certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that
Ong Wan Sieng was indebted to him in the sum of P4,320 for unpaid rents. The
appellate court accepted the petition but eventually decided for the respondent,
holding that although "respondent Ong is indebted to the petitioner for unpaid rentals
in an amount of more than P4,000.00," the sum of P500 could not be the subject of
legal compensation, it being a "trust fund for the benefit of the lawyer, which would
have to be turned over by the client to his counsel." In the opinion of said court, the
unfunded withdrawals from their current accounts with said bank. PNB then asked
SECOND DIVISION petitioners to settle their due and demandable accounts. As a result of these demands
[G.R. No. 128448. February 1, 2001] for payment, petitioners on August 4, 1977, conveyed to PNB real properties valued
at P1,410,466.00 by way of dacion en pago, leaving an unpaid overdrawn account
SPOUSES ALEJANDRO MIRASOL and LILIA E. MIRASOL, petitioners, vs. THE of P1,513,347.78.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK, and PHILIPPINE
EXCHANGE CO., INC., respondents. On August 10, 1982, the balance of outstanding sugar crop and other loans owed
by petitioners to PNB stood at P15,964,252.93. Despite demands, the Mirasols failed
to settle said due and demandable accounts. PNB then proceeded to extrajudicially
DECISION foreclose the mortgaged properties. After applying the proceeds of the auction sale of
the mortgaged realties, PNB still had a deficiency claim of P12,551,252.93.
QUISUMBING, J.:
Petitioners continued to ask PNB to account for the proceeds of the sale of their
This is a petition for review on certiorari of the decision of the Court of Appeals export sugar for crop years 1973-1974 and 1974-1975, insisting that said proceeds, if
dated July 22, 1996, in CA-G.R. CV No. 38607, as well as of its resolution of January properly liquidated, could offset their outstanding obligations with the bank. PNB
23, 1997, denying petitioners motion for reconsideration. The challenged decision remained adamant in its stance that under P.D. No. 579, there was nothing to account
reversed the judgment of the Regional Trial Court of Bacolod City, Branch 42 in Civil since under said law, all earnings from the export sales of sugar pertained to the
Case No. 14725. National Government and were subject to the disposition of the President of the
Philippines for public purposes.
The factual background of this case, as gleaned from the records, is as follows:
On August 9, 1979, the Mirasols filed a suit for accounting, specific performance,
The Mirasols are sugarland owners and planters. In 1973-1974, they produced and damages against PNB with the Regional Trial Court of Bacolod City, docketed as
70,501.08 piculs[1] of sugar, 25,662.36 of which were assigned for export. The following Civil Case No. 14725.
crop year, their acreage planted to the same crop was lower, yielding 65,100 piculs of
sugar, with 23,696.40 piculs marked for export. On June 16, 1987, the complaint was amended to implead PHILEX as party-
defendant.
Private respondent Philippine National Bank (PNB) financed the Mirasols sugar
production venture for crop years, 1973-1974 and 1974-1975 under a crop loan The parties agreed at pre-trial to limit the issues to the following:
financing scheme. Under said scheme, the Mirasols signed Credit Agreements, a
Chattel Mortgage on Standing Crops, and a Real Estate Mortgage in favor of PNB. The 1. The constitutionality and/or legality of Presidential Decrees numbered 338, 579,
Chattel Mortgage empowered PNB as the petitioners attorney-in-fact to negotiate and and 1192;
to sell the latters sugar in both domestic and export markets and to apply the proceeds
to the payment of their obligations to it.
2. The determination of the total amount allegedly due the plaintiffs from the
Exercising his law-making powers under Martial Law, then President Ferdinand defendants corresponding to the allege(d) unliquidated cost price of export sugar
Marcos issued Presidential Decree (P.D.) No. 579[2] in November, 1974. The decree during crop years 1973-1974 and 1974-1975.[3]
authorized private respondent Philippine Exchange Co., Inc. (PHILEX) to purchase
sugar allocated for export to the United States and to other foreign markets. The price After trial on the merits, the trial court decided as follows:
and quantity was determined by the Sugar Quota Administration, PNB, the Department
of Trade and Industry, and finally, by the Office of the President. The decree further
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in
authorized PNB to finance PHILEXs purchases. Finally, the decree directed that
favor of the plaintiffs and against the defendants Philippine National Bank (PNB) and
whatever profit PHILEX might realize from sales of sugar abroad was to be remitted to
Philippine Exchange Co., Inc. (PHILEX):
a special fund of the national government, after commissions, overhead expenses and
liabilities had been deducted. The government offices and entities tasked by existing
laws and administrative regulations to oversee the sugar export pegged the purchase (1)Declaring Presidential Decree 579 enacted on November 12, 1974 and
price of export sugar in crop years 1973-1974 and 1974-1975 at P180.00 per picul. all circulars, as well as policies, orders and other issuances issued in
furtherance thereof, unconstitutional and therefore, NULL and VOID
PNB continued to finance the sugar production of the Mirasols for crop years being in gross violation of the Bill of Rights;
1975-1976 and 1976-1977. These crop loans and similar obligations were secured by
real estate mortgages over several properties of the Mirasols and chattel mortgages (2) Ordering defendants PNB and PHILEX to pay, jointly and severally,
over standing crops. Believing that the proceeds of their sugar sales to PNB, if properly plaintiffs the whole amount corresponding to the residue of the
accounted for, were more than enough to pay their obligations, petitioners asked PNB unliquidated actual cost price of 25,662 piculs in export sugar for crop
for an accounting of the proceeds of the sale of their export sugar. PNB ignored the year 1973-1974 at an average price of P300.00 per picul, deducting
request. Meanwhile, petitioners continued to avail of other loans from PNB and to make
therefrom however, the amount of P180.00 already paid in advance plus Mirasols 1973-1974 and 1974-1975 sugar production sold pursuant to and in
the allowable deductions in service fees and other charges; accordance with P.D. 579 and the issuances therefrom;
(3) And also, for the same defendants to pay, jointly and severally, same
plaintiffs the whole amount corresponding to the unpaid actual price of 3. Ordering the PNB to recompute in accordance with RA 7202 Mirasols
14,596 piculs of export sugar for crop year 1974-1975 at an average rate indebtedness to it crediting to the latter payments already made as well as the auction
of P214.14 per picul minus however, the sum of P180.00 per picul price of their foreclosed real estate and stipulated value of their properties ceded to
already paid by the defendants in advance and the allowable deducting PNB in the dacon (sic) en pago;
(sic) in service fees and other charges.
4. Whatever the result of the recomputation of Mirasols account, the outstanding
The unliquidated amount of money due the plaintiffs but withheld by the defendants, balance or the excess payment shall be governed by the pertinent provisions of RA
shall earn the legal rate of interest at 12% per annum computed from the date this 7202.
action was instituted until fully paid; and, finally
SO ORDERED.[6]
(4) Directing the defendants PNB and PHILEX to pay, jointly and severally,
plaintiffs the sum of P50,000.00 in moral damages and the amount of On August 28, 1996, petitioners moved for reconsideration, which the appellate
P50,000.00 as attorneys fees, plus the costs of this litigation. court denied on January 23, 1997.
Hence, the instant petition, with petitioners submitting the following issues for our
SO ORDERED.[4] resolution:

The same was, however, modified by a Resolution of the trial court dated May 14, 1. Whether the Trial Court has jurisdiction to declare a statute unconstitutional without
1992, which added the following paragraph: notice to the Solicitor General where the parties have agreed to submit such issue for
the resolution of the Trial Court.
This decision should however, be interpreted without prejudice to whatever benefits
that may have accrued in favor of the plaintiffs with the passage and approval of 2. Whether PD 579 and subsequent issuances[7] thereof are unconstitutional.
Republic Act 7202 otherwise known as the Sugar Restitution Law, authorizing the
restitution of losses suffered by the plaintiffs from Crop year 1974-1975 to Crop year
1984-1985 occasioned by the actuations of government-owned and controlled 3. Whether the Honorable Court of Appeals committed manifest error in not applying
agencies. (Underscoring in the original). the doctrine of piercing the corporate veil between respondents PNB and PHILEX.

SO ORDERED.[5] 4. Whether the Honorable Court of Appeals committed manifest error in upholding the
validity of the foreclosure on petitioners property and in upholding the validity of
the dacion en pago in this case.
The Mirasols then filed an appeal with the respondent court, docketed as CA-G.R.
CV No. 38607, faulting the trial court for not nullifying the dacion en pago and the
mortgage contracts, as well as the foreclosure of their mortgaged properties. Also 5. Whether the Honorable Court of Appeals committed manifest error in not awarding
faulted was the trial courts failure to award them the full money claims and damages damages to petitioners grounds relied upon the allowance of the petition.
sought from both PNB and PHILEX. (Underscored in the original)[8]

On July 22, 1996, the Court of Appeals reversed the trial court as follows: On the first issue. It is settled that Regional Trial Courts have the authority and
jurisdiction to consider the constitutionality of a statute, presidential decree, or
WHEREFORE, this Court renders judgment REVERSING the appealed Decision and executive order.[9] The Constitution vests the power of judicial review or the power to
entering the following verdict: declare a law, treaty, international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation not only in this Court, but in all Regional Trial
1. Declaring the dacion en pago and the foreclosure of the mortgaged properties Courts.[10] In J.M. Tuason and Co. v. Court of Appeals, 3 SCRA 696 (1961) we held:
valid;
Plainly, the Constitution contemplates that the inferior courts should have jurisdiction
2. Ordering the PNB to render an accounting of the sugar account of the Mirasol[s] in cases involving constitutionality of any treaty or law, for it speaks of appellate
specifically stating the indebtedness of the latter to the former and the proceeds of review of final judgments of inferior courts in cases where such constitutionality
happens to be in issue.[11]
Furthermore, B.P. Blg. 129 grants Regional Trial Courts the authority to rule on required in any action and not just actions involving declaratory relief. Where there is
the conformity of laws or treaties with the Constitution, thus: no ambiguity in the words used in the rule, there is no room for construction.[15] In all
actions assailing the validity of a statute, treaty, presidential decree, order, or
SECTION 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive proclamation, notice to the Solicitor General is mandatory.
original jurisdiction: In this case, the Solicitor General was never notified about Civil Case No. 14725.
Nor did the trial court ever require him to appear in person or by a representative or to
(1) In all civil actions in which the subject of the litigations is incapable of pecuniary file any pleading or memorandum on the constitutionality of the assailed decree. Hence,
estimation; the Court of Appeals did not err in holding that lack of the required notice made it
improper for the trial court to pass upon the constitutional validity of the questioned
The pivotal issue, which we must address, is whether it was proper for the trial presidential decrees.
court to have exercised judicial review. As regards the second issue, petitioners contend that P.D. No. 579 and its
Petitioners argue that the Court of Appeals erred in finding that it was improper implementing issuances are void for violating the due process clause and the
for the trial court to have declared P.D. No. 579 [12] unconstitutional, since petitioners prohibition against the taking of private property without just compensation. Petitioners
had not complied with Rule 64, Section 3, of the Rules of Court.Petitioners contend that now ask this Court to exercise its power of judicial review.
said Rule specifically refers only to actions for declaratory relief and not to an ordinary Jurisprudence has laid down the following requisites for the exercise of this power:
action for accounting, specific performance, and damages. First, there must be before the Court an actual case calling for the exercise of judicial
Petitioners contentions are bereft of merit. Rule 64, Section 3 of the Rules of Court review. Second, the question before the Court must be ripe for adjudication. Third, the
provides: person challenging the validity of the act must have standing to challenge. Fourth, the
question of constitutionality must have been raised at the earliest opportunity, and
lastly, the issue of constitutionality must be the very lis mota of the case. [16]
SEC. 3. Notice to Solicitor General. In any action which involves the validity of a
statute, or executive order or regulation, the Solicitor General shall be notified by the As a rule, the courts will not resolve the constitutionality of a law, if the controversy
party attacking the statute, executive order, or regulation, and shall be entitled to be can be settled on other grounds.[17] The policy of the courts is to avoid ruling on
heard upon such question. constitutional questions and to presume that the acts of the political departments are
valid, absent a clear and unmistakable showing to the contrary. To doubt is to sustain.
This should be read in relation to Section 1 [c] of P.D. No. 478, [13] which states in This presumption is based on the doctrine of separation of powers. This means that the
part: measure had first been carefully studied by the legislative and executive departments
and found to be in accord with the Constitution before it was finally enacted and
approved.[18]
SECTION 1. Functions and Organizations (1) The Office of the Solicitor General
shallhave the following specific powers and functions: The present case was instituted primarily for accounting and specific
performance. The Court of Appeals correctly ruled that PNBs obligation to render an
xxx accounting is an issue, which can be determined, without having to rule on the
constitutionality of P.D. No. 579. In fact there is nothing in P.D. No. 579, which is
applicable to PNBs intransigence in refusing to give an accounting. The governing law
[c] Appear in any court in any action involving the validity of any treaty, law, executive should be the law on agency, it being undisputed that PNB acted as petitioners agent.
order or proclamation, rule or regulation when in his judgment his intervention is In other words, the requisite that the constitutionality of the law in question be the
necessary or when requested by the court. very lis mota of the case is absent. Thus we cannot rule on the constitutionality of P.D.
No. 579.
It is basic legal construction that where words of command such as shall, must,
or ought are employed, they are generally and ordinarily regarded as Petitioners further contend that the passage of R.A. No. 7202 [19] rendered P.D.
mandatory.[14] Thus, where, as in Rule 64, Section 3 of the Rules of Court, the word No. 579 unconstitutional, since R.A. No. 7202 affirms that under P.D. 579, the due
shall is used, a mandatory duty is imposed, which the courts ought to enforce. process clause of the Constitution and the right of the sugar planters not to be deprived
of their property without just compensation were violated.
The purpose of the mandatory notice in Rule 64, Section 3 is to enable the
Solicitor General to decide whether or not his intervention in the action assailing the A perusal of the text of R.A. No. 7202 shows that the repealing clause of said law
validity of a law or treaty is necessary. To deny the Solicitor General such notice would merely reads:
be tantamount to depriving him of his day in court. We must stress that, contrary to
petitioners stand, the mandatory notice requirement is not limited to actions involving SEC. 10. All laws, acts, executive orders and circulars in conflict herewith are hereby
declaratory relief and similar remedies. The rule itself provides that such notice is repealed or modified accordingly.
The settled rule of statutory construction is that repeals by implication are not Petitioners now claim that the dacion en pago and the foreclosure of their
favored.[20] R.A. No. 7202 cannot be deemed to have repealed P.D. No. 579. In mortgaged properties were void for want of consideration. Petitioners insist that the
addition, the power to declare a law unconstitutional does not lie with the legislature, loans granted them by PNB from 1975 to 1982 had been fully paid by virtue of legal
but with the courts.[21] Assuming arguendo that R.A. No. 7202 did indeed repeal P.D. compensation. Hence, the foreclosure was invalid and of no effect, since the mortgages
No. 579, said repeal is not a legislative declaration finding the earlier law were already fully discharged. It is also averred that they agreed to the dacion only by
unconstitutional. virtue of a martial law Arrest, Search, and Seizure Order (ASSO).
To resolve the third issue, petitioners ask us to apply the doctrine of piercing the We find petitioners arguments unpersuasive. Both the lower court and the
veil of corporate fiction with respect to PNB and PHILEX. Petitioners submit that appellate court found that the Mirasols admitted that they were indebted to PNB in the
PHILEX was a wholly-owned subsidiary of PNB prior to the latters privatization. sum stated in the latters counterclaim.[26] Petitioners nonetheless insist that the same
can be offset by the unliquidated amounts owed them by PNB for crop years 1973-74
We note, however, that the appellate court made the following finding of fact: and 1974-75. Petitioners argument has no basis in law. For legal compensation to take
place, the requirements set forth in Articles 1278 and 1279 of the Civil Code must be
1. PNB and PHILEX are separate juridical persons and there is no reason to pierce present. Said articles read as follows:
the veil of corporate personality. Both existed by virtue of separate organic acts. They
had separate operations and different purposes and powers. [22] Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
Findings of fact by the Court of Appeals are conclusive and binding upon this
Court unless said findings are not supported by the evidence.[23] Our jurisdiction in a Art. 1279. In order that compensation may be proper, it is necessary:
petition for review under Rule 45 of the Rules of Court is limited only to reviewing
questions of law and factual issues are not within its province. [24] In view of the
aforequoted finding of fact, no manifest error is chargeable to the respondent court for (1) That each one of the obligors be bound principally, and that he be at the
refusing to pierce the veil of corporate fiction. same time a principal creditor of the other;

On the fourth issue, the appellate court found that there were two sets of accounts (2) That both debts consist in a sum of money, or if the things due are
between petitioners and PNB, namely: consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
1. The accounts relative to the loan financing scheme entered into by the Mirasols
with PNB (PNBs Brief, p. 16) On the question of how much the PNB lent the Mirasols (3) That the two debts are due;
for crop years 1973-1974 and 1974-1975, the evidence recited by the lower court in
its decision was deficient. We are offered (sic) PNB the amount of FIFTEEN MILLION
NINE HUNDRED SIXTY FOUR THOUSAND TWO HUNDRED FIFTY TWO PESOS (4) That they be liquidated and demandable;
and NINETY THREE Centavos (Ps15,964,252.93) but this is the alleged balance the
Mirasols owe PNB covering the years 1975 to 1982. (5) That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
2. The account relative to the Mirasols current account Numbers 5186 and 5177
involving the amount of THREE MILLION FOUR HUNDRED THOUSAND Pesos In the present case, set-off or compensation cannot take place between the
(P3,400,000.00) PNB claims against the Mirasols. (PNBs Brief, p. 17) parties because:
First, neither of the parties are mutually creditors and debtors of each other. Under
In regard to the first set of accounts, besides the proceeds from PNBs sale of sugar P.D. No. 579, neither PNB nor PHILEX could retain any difference claimed by the
(involving the defendant PHILEX in relation to the export portion of the stock), the Mirasols in the price of sugar sold by the two firms. P.D. No. 579 prescribed where the
PNB foreclosed the Mirasols mortgaged properties realizing therefrom in 1982 profits from the sales are to be paid, to wit:
THREE MILLION FOUR HUNDRED THIRTEEN THOUSAND Pesos (P3,413,000.00),
the PNB itself having acquired the properties as the highest bidder.
SECTION 7. x x x After deducting its commission of two and one-half (2-1/2%)
percent of gross sales, the balance of the proceeds of sugar trading operations for
As to the second set of accounts, PNB proposed, and the Mirasols accepted, every crop year shall be set aside by the Philippine Exchange Company, Inc,. as
a dacion en pago scheme by which the Mirasols conveyed to PNB pieces of property profits which shall be paid to a special fund of the National Government subject to the
valued at ONE MILLION FOUR HUNDRED TEN THOUSAND FOUR HUNDRED disposition of the President for public purposes.
SIXTY-SIX Pesos (Ps1,410,466.00) (PNBs Brief, pp. 16-17).[25]
Thus, as correctly found by the Court of Appeals, there was nothing with which
PNB was supposed to have off-set Mirasols admitted indebtedness.[27]
Second, compensation cannot take place where one claim, as in the instant case,
is still the subject of litigation, as the same cannot be deemed liquidated.[28]
With respect to the duress allegedly employed by PNB, which impugned
petitioners consent to the dacion en pago, both the trial court and the Court of Appeals
found that there was no evidence to support said claim. Factual findings of the trial
court, affirmed by the appellate court, are conclusive upon this Court. [29]
On the fifth issue, the trial court awarded petitioners P50,000.00 in moral
damages and P50,000.00 in attorneys fees. Petitioners now theorize that it was error
for the Court of Appeals to have deleted these awards, considering that the appellate
court found PNB breached its duty as an agent to render an accounting to petitioners.
An agents failure to render an accounting to his principal is contrary to Article
1891 of the Civil Code.[30] The erring agent is liable for damages under Article 1170 of
the Civil Code, which states:

Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for
damages.

Article 1170 of the Civil Code, however, must be construed in relation to Article
2217 of said Code which reads:

Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral damages may be
recovered if they are the proximate result of the defendants wrongful act or omission.

Moral damages are explicitly authorized in breaches of contract where the


defendant acted fraudulently or in bad faith.[31] Good faith, however, is always
presumed and any person who seeks to be awarded damages due to the acts of
another has the burden of proving that the latter acted in bad faith, with malice, or with
ill motive. In the instant case, petitioners have failed to show malice or bad faith [32] on
the part of PNB in failing to render an accounting. Absent such showing, moral
damages cannot be awarded.
Nor can we restore the award of attorneys fees and costs of suit in favor of
petitioners. Under Article 2208 (5) of the Civil Code, attorneys fees are allowed in the
absence of stipulation only if the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiffs plainly valid, just, and demandable claim. As earlier
stated, petitioners have not proven bad faith on the part of PNB and PHILEX.
WHEREFORE, the instant petition is DENIED and the assailed decision of the
respondent court in CA-G.R. CV 38607 AFFIRMED. Costs against petitioners.
SO ORDERED.
1993, Vicente filed his Answer[9] interposing a counterclaim for attorneys fees of not less
Republic of the Philippines than P500,000.00. Vicente claimed that he handled several cases for Jesus but he was
Supreme Court summarily dismissed from handling them when the instant complaint for sum of money was filed.
Manila
Ruling of the Regional Trial Court
FIRST DIVISION
In its Decision[10] dated October 27, 1999, the RTC ordered Vicente to pay Jesus his
JESUS M. MONTEMAYOR, G.R. No. 168251 monetary obligation amounting to P300,000.00 plus interest of 12% from the time of the filing of
Petitioner, the complaint on August 17, 1993 until fully paid. At the same time, the trial court found merit in
Vicentes counterclaim and thus ordered Jesus to pay Vicente his attorneys fees which is
Present: equivalent to the amount of Vicentes monetary liability, and which shall be set-off with the amount
Vicente is adjudged to pay Jesus, viz:
CORONA, C.J., Chairperson,
- versus - LEONARDO-DE CASTRO BERSAMIN, WHEREFORE, premises above-considered [sic], JUDGMENT is hereby
DEL CASTILLO, and rendered ordering defendant Vicente D. Millora to pay plaintiff Jesus M.
VILLARAMA, JR., JJ. Montemayor the sum of P300,000.00 with interest at the rate of 12% per
annum counted from the filing of the instant complaint on August 17, 1993
until fully paid and whatever amount recoverable from defendant shall be set
VICENTE D. MILLORA, Promulgated: off by an equivalent amount awarded by the court on the counterclaim
Respondent. July 27, 2011 representing attorneys fees of defendant on the basis of quantum meruit for
x-------------------------------------------------------------------x legal services previously rendered to plaintiff.

DECISION No pronouncement as to attorneys fees and costs of suit.

DEL CASTILLO, J.: SO ORDERED.[11]

When the dispositive portion of a judgment is clear and unequivocal, it must be executed strictly
according to its tenor. On December 8, 1999, Vicente filed a Motion for Reconsideration[12] to which Jesus filed an
Opposition.[13] On March 15, 2000, Vicente filed a Motion for the Issuance of a Writ of
This Petition for Review on Certiorari[1] assails the Decision[2] dated May 19, 2005 of Execution[14] with respect to the portion of the RTC Decision which awarded him attorneys fees
the Court of Appeals (CA) in CA-G.R. SP No. 81075, which dismissed the petition under his counterclaim. Jesus filed his Urgent Opposition to Defendants Motion for the Issuance
for certiorari seeking to annul and set aside the Orders dated September 6, 2002[3] and October of a Writ of Execution[15] dated May 31, 2000.
2, 2003[4] of the Regional Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-93-
17255. In an Order[16] dated June 23, 2000, the RTC denied Vicentes Motion for Reconsideration but
granted his Motion for Issuance of a Writ of Execution of the portion of the decision concerning
Factual Antecedents the award of attorneys fees.

On July 24, 1990, respondent Atty. Vicente D. Millora (Vicente) obtained a Intending to appeal the portion of the RTC Decision which declared him liable to Jesus for the
loan of P400,000.00 from petitioner Dr. Jesus M. Montemayor (Jesus) as evidenced by a sum of P300,000.00 with interest at the rate of 12% per annum counted from the filing of the
promissory note[5]executed by Vicente. On August 10, 1990, the parties executed a loan complaint on August 17, 1993 until fully paid, Vicente filed on July 6, 2000 a Notice of
contract[6] wherein it was provided that the loan has a stipulated monthly interest of 2% and that Appeal.[17] This was however denied by the RTC in an Order[18] dated July 10, 2000 on the
Vicente had already paid the amount of P100,000.00 as well as the P8,000.00 representing the ground that the Decision has already become final and executory on July 1, 2000.[19]
interest for the period July 24 to August 23, 1990.
Meanwhile, Jesus filed on July 12, 2000 a Motion for Reconsideration and Clarification[20] of the
Subsequently and with Vicentes consent, the interest rate was increased to 3.5% or P10,500.00 June 23, 2000 Order granting Vicentes Motion for the Issuance of a Writ of Execution. Thereafter,
a month.From March 24, 1991 to July 23, 1991, or for a period of four months, Vicente was Jesus filed on September 22, 2000 his Motion for the Issuance of a Writ of Execution.[21] After the
supposed to pay P42,000.00 as interest but was able to pay only P24,000.00. This was the last hearing on the said motions, the RTC issued an Order[22] dated September 6, 2002 denying both
payment Vicente made. Jesus made several demands[7] for Vicente to settle his obligation but to motions for lack of merit. The Motion for Reconsideration and Clarification was denied for
no avail. violating Section 5,[23] Rule 15 of the Rules of Court and likewise the Motion for the Issuance of a
Writ of Execution, for violating Section 6,[24] Rule 15 of the same Rules.
Thus, on August 17, 1993, Jesus filed before the RTC of Quezon City a Complaint[8] for Sum of
Money against Vicente which was docketed as Civil Case No. Q-93-17255. On October 19,
Jesus filed his Motion for Reconsideration[25] thereto on October 10, 2002 but this was eventually
denied by the trial court through its Order[26] dated October 2, 2003. The petition lacks merit.

Ruling of the Court of Appeals The October 27, 1999 Decision of


the RTC is already final and
Jesus went to the CA via a Petition for Certiorari[27] under Rule 65 of the executory, hence, immutable.
Rules of Court.

On May 19, 2005, the CA issued its Decision the dispositive portion of which provides: At the outset, it should be stressed that the October 27, 1999 Decision of the RTC is
already final and executory. Hence, it can no longer be the subject of an appeal. Consequently,
WHEREFORE, the foregoing considered, the petition for certiorari Jesus is bound by the decision and can no longer impugn the same. Indeed, well-settled is the
is DENIED and the assailed Orders are AFFIRMED in toto. No costs. rule that a decision that has attained finality can no longer be modified even if the modification is
SO ORDERED.[28] meant to correct erroneous conclusions of fact or law.The doctrine of finality of judgment is
explained in Gallardo-Corro v. Gallardo:[30]

Not satisfied, Jesus is now before this Court via a Petition for Review on Certiorari under Rule 45 Nothing is more settled in law than that once a judgment attains
of the Rules of Court. finality it thereby becomes immutable and unalterable. It may no longer be
modified in any respect, even if the modification is meant to correct what is
Issue perceived to be an erroneous conclusion of fact or law, and regardless of
whether the modification is attempted to be made by the court rendering it or
NOTWITHSTANDING THE FINALITY OF THE TRIAL COURTS by the highest court of the land. Just as the losing party has the right to file
DECISION OF OCTOBER 27, 1999, AS WELL AS THE ORDERS OF an appeal within the prescribed period, the winning party also has the
SEPTEMBER 6, 2002 AND OCTOBER 2, 2003, THE LEGAL ISSUE TO correlative right to enjoy the finality of the resolution of his case. The doctrine
BE RESOLVED IN THIS CASE IS WHETHER X X X [DESPITE] THE of finality of judgment is grounded on fundamental considerations of public
ABSENCE OF A SPECIFIC AMOUNT IN THE DECISION policy and sound practice, and that, at the risk of occasional errors, the
REPRESENTING RESPONDENTS COUNTERCLAIM, THE SAME judgments or orders of courts must become final at some definite time fixed
COULD BE VALIDLY [OFFSET] AGAINST THE SPECIFIC AMOUNT OF by law; otherwise, there would be no end to litigations, thus setting to naught
AWARD MENTIONED IN THE DECISION IN FAVOR OF THE the main role of courts of justice which is to assist in the enforcement of the
PETITIONER.[29] rule of law and the maintenance of peace and order by settling justiciable
controversies with finality.[31]

Petitioners Arguments
To stress, the October 27, 1999 Decision of the RTC has already attained finality. Such
Jesus contends that the trial court grievously erred in ordering the implementation of the RTCs definitive judgment is no longer subject to change, revision, amendment or reversal. Upon finality
October 27, 1999 Decision considering that same does fix the amount of attorneys of the judgment, the Court loses its jurisdiction to amend, modify or alter the same. Except for
fees. According to Jesus, such disposition leaves the matter of computation of the attorneys fees correction of clerical errors or the making of nunc pro tunc entries which cause no prejudice to
uncertain and, hence, the writ of execution cannot be implemented. In this regard, Jesus points any party, or where the judgment is void, the judgment can neither be amended nor altered after
out that not even the Sheriff who will implement said Decision can compute the judgment it has become final and executory. This is the principle of immutability of final judgment.[32]
awards. Besides, a sheriff is not clothed with the authority to render judicial functions such as the
computation of specific amounts of judgment awards. The amount of attorneys fees is
ascertainable from the RTC
Respondents Arguments Decision. Thus, compensation is
possible.
Vicente counter-argues that the October 27, 1999 RTC Decision can no longer be
made subject of review, either by way of an appeal or by way of a special civil action
for certiorari because it had already attained finality when after its promulgation, Jesus did not Jesus contends that offsetting cannot be made because the October 27, 1999 judgment of the
even file a motion for reconsideration thereof or interpose an appeal thereto. In fact, it was Vicente RTC failed to specify the amount of attorneys fees. He maintains that for offsetting to apply, the
who actually filed a motion for reconsideration and a notice of appeal, which was eventually two debts must be liquidated or ascertainable. However, the trial court merely awarded to Vicente
denied and disapproved by the trial court. attorneys fees based on quantum meruit without specifying the exact amount thereof.

We do not agree.
Our Ruling
For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the Laguna property case, the various cases filed by Atty. Romulo Reyes
Civil Code, quoted below, must be present. against plaintiff such as the falsification and libel cases and the disbarment
case filed by plaintiff against Atty. Romulo Reyes before the Commission on
ARTICLE 1278. Compensation shall take place when two Bar Integration. Aside from these cases, plaintiff had made defendant his
persons, in their own right, are creditors and debtors of each other. consultant on almost everything that involved legal opinions.

ARTICLE 1279. In order that compensation may be proper, it is necessary: More particularly in the Calamba, Laguna land case alone, plaintiff had
agreed to pay defendant a contingent fee of 25% of the value of the property
(1) That each one of the obligors be bound principally, and that for the latters legal services as embodied in the Amended Complaint signed
he be at the same time a principal creditor of the other; and verified by plaintiff (Exh. 5). Aside from this contingent fee, defendant
had likewise told plaintiff that his usual acceptance fee for a case like the
(2) That both debts consist in a sum of money, or if the things Laguna land case is P200,000.00 and his appearance fee at that time was
due are consumable, they be of the same kind, and also of the same x x x P2,000.00 per appearance but still plaintiff paid nothing.
quality if the latter has been stated;
The lawyer-client relationship between the parties was severed because of the instant
(3) That the two debts be due; case. The court is however fully aware of defendants stature in life a UP law
graduate, Bar topnotcher in 1957 bar examination, former Senior Provincial
(4) That they be liquidated and demandable; Board Member, Vice-Governor and Governor of the province of
Pangasinan, later as Assemblyman of the Batasang Pambansa and is
(5) That over neither of them there be any retention or considered a prominent trial lawyer since 1958. For all his legal services
controversy, commenced by third persons and communicated in due time rendered to plaintiff, defendant deserves to be compensated at least on a
to the debtor. quantum meruit basis.[36]

A debt is liquidated when its existence and amount are determined. It is not necessary The above discussion in the RTC Decision was then immediately followed by the dispositive
that it be admitted by the debtor. Nor is it necessary that the credit appear in a final judgment in portion, viz:
order that it can be considered as liquidated; it is enough that its exact amount is known. And a
debt is considered liquidated, not only when it is expressed already in definite figures which do WHEREFORE, premises above-considered, JUDGMENT is hereby
not require verification, but also when the determination of the exact amount depends only on a rendered ordering defendant Vicente D. Millora to pay plaintiff Jesus M.
simple arithmetical operation x x x.[33] Montemayor the sum of P300.000.00 with interest at the rate of 12% per
annum counted from the filing of the instant complaint on August 17, 1993
In Lao v. Special Plans, Inc.,[34] we ruled that: until fully paid and whatever amount recoverable from defendant shall
be set off by an equivalent amount awarded by the court on the
When the defendant, who has an unliquidated claim, sets it up by way of counterclaim representing attorneys fees of defendant on the basis of
counterclaim, and a judgment is rendered liquidating such claim, it can be quantum meruit for legal services previously rendered to plaintiff.
compensated against the plaintiffs claim from the moment it is liquidated by
judgment. We have restated this in Solinap v. Hon. Del Rosario[35] where we No pronouncement as to attorneys fees and costs of suit.
held that compensation takes place only if both obligations are liquidated.
SO ORDERED.[37] (Emphasis supplied.)
In the instant case, both obligations are liquidated. Vicente has the obligation to pay his
debt due to Jesus in the amount of P300,000.00 with interest at the rate of 12% per annum
counted from the filing of the instant complaint on August 17, 1993 until fully paid. Jesus, on the It is therefore clear that in the execution of the RTC Decision, there are two parts to be executed.
other hand, has the obligation to pay attorneys fees which the RTC had already determined to The first part is the computation of the amount due to Jesus. This is achieved by doing a simple
be equivalent to whatever amount recoverable from Vicente. The said attorneys fees were arithmetical operation at the time of execution. The principal amount of P300,000.00 is to be
awarded by the RTC on the counterclaim of Vicente on the basis of quantum meruit for the legal multiplied by the interest rate of 12%.The product is then multiplied by the number of years that
services he previously rendered to Jesus. had lapsed from the filing of the complaint on August 17, 1993 up to the date when the judgment
is to be executed. The result thereof plus the principal of P300,000.00 is the total amount that
In its Decision, the trial court elucidated on how Vicente had established his entitlement for Vicente must pay Jesus.
attorneys fees based on his counterclaim in this manner:
The second part is the payment of attorneys fees to Vicente. This is achieved by
Defendant, on his counterclaim, has established the existence of a lawyer-client following the clear wordings of the above fallo of the RTC Decision which provides that Vicente
relationship between him and plaintiff and this was admitted by the latter. is entitled to attorneys fees which is equivalent to whatever amount recoverable from him by
Defendant had represented plaintiff in several court cases which include the Jesus. Therefore, whatever amount due to Jesus as payment of Vicentes debt is equivalent to
the amount awarded to the latter as his attorneys fees. Legal compensation or set-off then takes
place between Jesus and Vicente and both parties are on even terms such that there is actually
nothing left to execute and satisfy in favor of either party.

In fact, the RTC, in addressing Jesus Motion for Reconsideration and Clarification dated July 12,
2000 had already succinctly explained this matter in its Order dated September 6, 2002, viz:

Notwithstanding the tenor of the said portion of the judgment, still,


there is nothing to execute and satisfy in favor of either of the herein
protagonists because the said decision also states clearly that whatever
amount recoverable from defendant shall be SET-OFF by an
equivalent amount awarded by the Court on the counterclaim
representing attorneys fees of defendant on the basis of quantum
meruit for legal services previously rendered to plaintiff x x x.

Said dispositive portion of the decision is free from any ambiguity.


It unequivocably ordered that any amount due in favor of plaintiff and against
defendant is set off by an equivalent amount awarded to defendant in the
form of counterclaims representing attorneys fees for past legal services he
rendered to plaintiff.

It will be an exercise in futility and a waste of so precious time and


unnecessary effort to enforce satisfaction of the plaintiffs claims against
defendant, and vice versa because there is in fact a setting off of each others
claims and liabilities under the said judgment which has long become
final.[38] (Emphasis in the original.)

A reading of the dispositive portion of the RTC Decision would clearly show that no ambiguity of
any kind exists. Furthermore, if indeed there is any ambiguity in the dispositive portion as claimed
by Jesus, the RTC had already clarified it through its Order dated September 6, 2002
by categorically stating that the attorneys fees awarded in the counterclaim of Vicente is of an
amount equivalent to whatever amount recoverable from him by Jesus. This clarification is not
an amendment, modification, correction or alteration to an already final decision as it is conceded
that such cannot be done anymore. What the RTC simply did was to state in categorical terms
what it obviously meant in its decision. Suffice it to say that the dispositive portion of the decision
is clear and unequivocal such that a reading of it can lead to no other conclusion, that is, any
amount due in favor of Jesus and against Vicente is set off by an equivalent amount in the form
of Vicentes attorneys fees for past legal services he rendered for Jesus.

WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The assailed Decision
of the Court of Appeals dated May 19, 2005 in CA-G.R. SP No. 81075 which dismissed the
petition for certiorari seeking to annul and set aside the Orders dated September 6, 2002 and
October 2, 2003 of the Regional Trial Court of Quezon City, Branch 98 in Civil Case No. Q-93-
17255, is hereby AFFIRMED.

SO ORDERED.
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the above
Republic of the Philippines obligations to Bancom which DBP has assumed shall be settled, paid and/or
SUPREME COURT liquidated by DBP out of a portion of the lease rentals or part of the proceeds of sale
Manila of those properties of the Assignors conveyed to DBP pursuant to the [Deed of
Cession of Property in Payment of Debt dated May 21, 1979] and which are the
subject of [the Lease Agreement] made and executed by and between DBP and [FI],
SECOND DIVISION the last hereafter referred to as the "Lessee" to be effective as of July 31, 1978.

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

UNION BANK OF THE PHILIPPINES, Petitioner, 4. DBP hereby covenants and undertakes that the amount up to 30% of any and all
vs. rentals due from the Lessee pursuant to the Lease Agreement shall be remitted by
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent. DBP to Bancom at the latters offices at Pasay Road, Makati, Metro Manila within five
(5) days from due dates thereof, and applied in payment of the Assumed Obligations.
DECISION Likewise, the amount up to 30% of the proceeds from any sale of the Leased
Properties shall within the same period above, be remitted by DBP to Bancom and
PERLAS-BERNABE, J.: applied in payment or prepayment of the Assumed Obligations. x x x.

Assailed in this petition for review on Certiorari1 are the Decision2 dated November 3, Any balance of the Assumed Obligations after application of the entire rentals and or
2009 and Resolution3 dated February 26, 2010 of the Court of Appeals (CA) in CA- the entire sales proceeds actually received by Bancom on the Leased Properties shall
G.R. SP No. 93833 which affirmed the Orders4 dated November 9, 2005 and January be paid by DBP to Bancom not later than December 29, 1998. (Emphases supplied)
30, 2006 of the Regional Trial Court of Makati, Branch 58 5 (RTC) in Civil Case No.
7648 denying the motion to affirm legal compensation6 filed by petitioner Union Bank Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease
of the Philippines (Union Bank) against respondent Development Bank of the Agreement to Foodmasters Worldwide, Inc. (FW);11 while on May 9, 1984, Bancom
Philippines (DBP). conveyed all its receivables, including, among others, DBPs assumed obligations, to
Union Bank.12
The Facts
Claiming that the subject rentals have not been duly remitted despite its repeated
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Banks demands, Union Bank filed, on June 20, 1984, a collection case against DBP before
predecessor-in-interest, Bancom Development Corporation (Bancom), and to DBP. the RTC, docketed as Civil Case No. 7648.13 In opposition, DBP countered, among
others, that the obligations it assumed were payable only out of the rental payments
made by FI. Thus, since FI had yet to pay the same, DBPs obligation to Union Bank
On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of had not arisen.14 In addition, DBP sought to implead FW as third party-defendant in
Property In Payment of Debt7(dacion en pago) whereby the former ceded in favor of its capacity as FIs assignee and, thus, should be held liable to Union Bank. 15
the latter certain properties (including a processing plant in Marilao, Bulacan
[processing plant]) in consideration of the following: (a) the full and complete
satisfaction of FIs loan obligations to DBP; and (b) the direct assumption by DBP of In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground that it
FIs obligations to Bancom in the amount of 17,000,000.00 (assumed obligations). 8 had ceased to be a real-party-in-interest due to the supervening transfer of its rights,
title and interests over the subject matter to the Asset Privatization Trust (APT). Said
motion was, however, denied by the RTC in an Order dated May 27, 1988. 16
On the same day, DBP, as the new owner of the processing plant, leased back 9 for
20 years the said property to FI (Lease Agreement) which was, in turn, obliged to pay
monthly rentals to be shared by DBP and Bancom. The RTC Ruling in Civil Case No. 7648

DBP also entered into a separate agreement10 with Bancom (Assumption Agreement) Finding the complaint to be meritorious, the RTC, in a Decision17 dated May 8, 1990,
whereby the former: (a) confirmed its assumption of FIs obligations to Bancom; and ordered: (a) DBP to pay Union Bank the sum of 4,019,033.59, representing the
(b) undertook to remit up to 30% of any and all rentals due from FI to Bancom amount of the subject rentals (which, again, constitutes 30% of FIs [now FWs] total
(subject rentals) which would serve as payment of the assumed obligations, to be rental debt), including interest until fully paid; and (b) FW, as third-party defendant, to
paid in monthly installments. The pertinent portions of the Assumption Agreement indemnify DBP, as third- party plaintiff, for its payments of the subject rentals to Union
reads as follows: Bank. It ruled that there lies no evidence which would show that DBPs receipt of the
rental payments from FW is a condition precedent to the formers obligation to remit
the subject rentals under the Lease Agreement. Thus, when DBP failed to remit the proposed substitution of APT will amount to a novation of debtor which cannot be
subject rentals to Union Bank, it defaulted on its assumed obligations. 18 DBP then done without the consent of the creditor.26
elevated the case on appeal before the CA, docketed as CA-G.R. CV No. 35866.
On August 2, 2000, the Courts resolution became final and executory. 27
The CA Ruling in CA-G.R. CV No. 35866
The RTC Execution Proceedings
In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside the
RTCs ruling, and consequently ordered: (a) FW to pay DBP the amount of On May 16, 2001, Union Bank filed a motion for execution28 before the RTC, praying
32,441,401.85 representing the total rental debt incurred under the Lease that DBP be directed to pay the amount of 9,732,420.555 which represents the
Agreement, including 10,000.00 as attorneys fees; and (b) DBP, after having been amount of the subject rentals (i.e., 30% of the FWs total rental debt in the amount of
paid by FW its unpaid rentals, to remit 30% thereof (i.e., the subject rentals) to Union 32,441,401.85). DBP opposed29 Union Banks motion, contending that it sought to
Bank.20 effectively vary the dispositive portion of the CAs May 27, 1994 Decision in CA-G.R.
CV No. 35866. Also, on September 12, 2001, DBP filed its own motion for execution
It rejected Union Banks claim that DBP has the direct obligation to remit the subject against FW, citing the same CA decision as its basis.
rentals not only from FWs rental payments but also out of its own resources since
said claim contravened the "plain meaning" of the Assumption Agreement which In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the RTC
specifies that the payment of the assumed obligations shall be made "out of the granted both motions for execution. Anent Union Banks motion, the RTC opined that
portion of the lease rentals or part of the proceeds of the sale of those properties of the CAs ruling that DBPs payment to Union Bank shall be demandable only upon
[FI] conveyed to DBP."21 It also construed the phrase under the Assumption payment of FW must be viewed in light of the date when the same was rendered. It
Agreement that DBP is obligated to "pay any balance of the Assumed Obligations noted that the CA decision was promulgated only on May 27, 1994, which was before
after application of the entire rentals and/or the entire sales proceeds actually the December 29, 1998 due date within which DBP had to fully pay its obligation to
received by [Union Bank] on the Leased Properties . . . not later than December 29, Union Bank under the Assumption Agreement. Since the latter period had already
1998" to mean that the lease rentals must first be applied to the payment of the lapsed, "[i]t would, thus, be too strained to argue that payment by DBP of its assumed
assumed obligations in the amount of 17,000,000.00, and that DBP would have to obligation[s] shall be dependent on [FWs] ability, if not availability, to pay."31 In similar
pay out of its own money only in case the lease rentals were insufficient, having only regard, the RTC granted DBPs motion for execution against FW since its liability to
until December 29, 1998 to do so. Nevertheless, the monthly installments in Union Bank and DBP remained undisputed.
satisfaction of the assumed obligations would still have to be first sourced from said
lease rentals as stipulated in the assumption agreement. 22 In view of the foregoing,
the CA ruled that DBP did not default in its obligations to remit the subject rentals to As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Writ of
Union Bank precisely because it had yet to receive the rental payments of FW.23 Execution) and, thereafter, a notice of garnishment33 against DBP were issued.
Records, however, do not show that the same writ was implemented against FW.
Separately, the CA upheld the RTCs denial of DBPs motion to dismiss for the reason
that the transfer of its rights, title and interests over the subject matter to the APT DBP filed a motion for reconsideration34 from the Execution Order, averring that the
occurred pendente lite, and, as such, the substitution of parties is largely discretionary latter issuance varied the import of the CAs May 27, 1994 Decision in CA-G.R. CV
on the part of the court. No. 35866 in that it prematurely ordered DBP to pay the assumed obligations to
Union Bank before FWs payment. The motion was, however, denied on December 5,
2001.35 Thus, DBPs deposits were eventually garnished.36 Aggrieved, DBP filed a
At odds with the CAs ruling, Union Bank and DBP filed separate petitions for review petition for certiorari37 before the CA, docketed as CA-G.R. SP No. 68300.
on certiorari before the Court, respectively docketed as G.R. Nos. 115963 and
119112, which were thereafter consolidated.
The CA Ruling in CA-G.R. SP No. 68300
The Courts Ruling in G.R. Nos. 115963 & 119112
In a Decision38 dated July 26, 2002, the CA dismissed DBPs petition, finding that the
RTC did not abuse its discretion when it issued the October 15, 2001 Writ of
The Court denied both petitions in a Resolution24 dated December 13, 1995. First, it Execution. It upheld the RTCs observation that there was "nothing wrong in the
upheld the CAs finding that while DBP directly assumed FIs obligations to Union manner how [said writ] was implemented," as well as "in the zealousness and
Bank, DBP was only obliged to remit to the latter 30% of the lease rentals collected promptitude exhibited by Union Bank" in moving for the same. DBP appealed the
from FW, from which any deficiency was to be settled by DBP not later than CAs ruling before the Court, which was docketed as G.R. No. 155838.
December 29, 1998.25 Similarly, the Court agreed with the CA that the denial of
DBPs motion to dismiss was proper since substitution of parties, in case of transfers
pendente lite, is merely discretionary on the part of the court, adding further that the The Courts Ruling in G.R. No. 155838
In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court the Courts January 13, 2004 Decision in G.R. No. 155838 which by then had already
granted DBPs appeal, and thereby reversed and set aside the CAs ruling in CA-G.R. attained finality; (b) DBP is not a debtor of Union Bank; and (c) there is neither a
SP No. 68300. It found significant points of variance between the CAs May 27, 1994 demandable nor liquidated debt from DBP to Union Bank.51
Decision in CA-G.R. CV No. 35866, and the RTCs Order of Execution/October 15,
2001 Writ of Execution. It ruled that both the body and the dispositive portion of the Undaunted, Union Bank moved for reconsideration which was, however, denied in a
same decision acknowledged that DBPs obligation to Union Bank for remittance of Resolution52 dated February 26, 2010; hence, the instant petition.
the lease payments is contingent on FWs prior payment to DBP, and that any
deficiency DBP had to pay by December 29, 1998 as per the Assumption Agreement
cannot be determined until after the satisfaction of FWs own rental obligations to The Issue Before the Court
DBP. Accordingly, the Court: (a) nullified the October 15, 2001 Writ of Execution and
all related issuances thereto; and (b) ordered Union Bank to return to DBP the The sole issue for the Courts resolution is whether or not the CA correctly upheld the
amounts it received pursuant to the said writ.40 Dissatisfied, Union Bank moved for denial of Union Banks motion to affirm legal compensation.
reconsideration which was, however, denied by the Court in a Resolution dated
March 24, 2004 with finality. Thus, the January 13, 2004 Decision attained finality on The Courts Ruling
April 30, 2004.41 Thereafter, DBP moved for the execution of the said decision before
the RTC. After numerous efforts on the part of Union Bank proved futile, the RTC
issued a writ of execution (September 6, 2005 Writ of Execution), ordering Union The petition is bereft of merit. Compensation is defined as a mode of extinguishing
Bank to return to DBP all funds it received pursuant to the October 15, 2001 Writ of obligations whereby two persons in their capacity as principals are mutual debtors
Execution.42 and creditors of each other with respect to equally liquidated and demandable
obligations to which no retention or controversy has been timely commenced and
communicated by third parties.53 The requisites therefor are provided under Article
Union Banks Motion to Affirm Legal Compensation 1279 of the Civil Code which reads as follows:

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

On November 9, 2005, the RTC issued an Order46 denying the above-mentioned (3) That the two debts be due;
motion for lack of merit, holding that Union Banks stated grounds were already
addressed by the Court in the January 13, 2004 Decision in G.R. No. 155838. With
(4) That they be liquidated and demandable;
Union Banks motion for reconsideration therefrom having been denied, it filed a
petition for certiorari47 with the CA, docketed as CA-G.R. SP No. 93833.
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
Pending resolution, Union Bank issued Managers Check48 No. 099-0003192363
debtor.1awp++i1 (Emphases and underscoring supplied)
dated April 21, 2006 amounting to 52,427,250.00 in favor of DBP, in satisfaction of
the Writ of Execution dated September 6, 2005 Writ of Execution. DBP, however,
averred that Union Bank still has a balance of 756,372.39 representing a portion of The rule on legal54 compensation is stated in Article 1290 of the Civil Code which
the garnished funds of DBP,49 which means that said obligation had not been provides that "[w]hen all the requisites mentioned in Article 1279 are present,
completely extinguished. compensation takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of the
compensation."
The CA Ruling in CA-G.R. SP No. 93833

In this case, Union Bank filed a motion to seek affirmation that legal compensation
In a Decision50 dated November 3, 2009, the CA dismissed Union Banks petition,
had taken place in order to effectively offset (a) its own obligation to return the funds it
finding no grave abuse of discretion on the RTCs part. It affirmed the denial of its
previously received from DBP as directed under the September 6, 2005 Writ of
motion to affirm legal compensation considering that: (a) the RTC only implemented
Execution with (b) DBPs assumed obligations under the Assumption Agreement. WHEREFORE, the decision appealed from is SET ASIDE and another one is
However, legal compensation could not have taken place between these debts for the RENDERED,
apparent reason that requisites 3 and 4 under Article 1279 of the Civil Code are not
present. Since DBPs assumed obligations to Union Bank for remittance of the lease (i) Ordering third-party defendant-appellee Foodmasters Worldwide, Inc. to
payments are in the Courts words in its Decision dated January 13, 2004 in G.R. pay defendant and third-party plaintiff-appellant Development Bank of the
No. 155838 " contingent on the prior payment thereof by [FW] to DBP," it cannot be Philippines the sum of 32,441,401.85, representing the unpaid rentals from
said that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in the August 1981 to June 30, 1987, as well as 10,000.00 for attorneys fees;
same ruling, the Court observed that any deficiency that DBP had to make up (by and
December 29, 1998 as per the Assumption Agreement) for the full satisfaction of the
assumed obligations " cannot be determined until after the satisfaction of
Foodmasters obligation to DBP." In this regard, it cannot be concluded that the same (ii) Ordering defendant and third-party plaintiff-appellant Development Bank
debt had already been liquidated, and thereby became demandable (requisite 4 of of the Philippines after having been paid by third-party defendant-appellee
Article 1279 of the Civil Code). the sum of 32,441,401.85, to remit 30% thereof to plaintiff-appellee Union
Bank of the Philippines.
The aforementioned Court decision had already attained finality on April 30,
200455 and, hence, pursuant to the doctrine of conclusiveness of judgment, the facts SO ORDERED.
and issues actually and directly resolved therein may not be raised in any future case
between the same parties, even if the latter suit may involve a different cause of In other words, both the body and the dispositive portion of the aforequoted decision
action.56 Its pertinent portions are hereunder quoted for ready reference: 57 acknowledged that DBPs obligation to Union Bank for remittance of the lease
payments is contingent on the prior payment thereof by Foodmasters to DBP.
Both the body and the dispositive portion of the [CAs May 27, 1994 Decision in CA-
G.R. CV No. 35866] correctly construed the nature of DBPs liability for the lease A careful reading of the decision shows that the Court of Appeals, which was affirmed
payments under the various contracts, to wit: by the Supreme Court, found that only the balance or the deficiency of the 17 million
principal obligation, if any, would be due and demandable as of December 29, 1998.
x x x Construing these three contracts, especially the "Agreement" x x x between DBP Naturally, this deficiency cannot be determined until after the satisfaction of
and Bancom as providing for the payment of DBPs assumed obligation out of the Foodmasters obligation to DBP, for remittance to Union Bank in the proportion set out
rentals to be paid to it does not mean negating DBPs assumption "for its own in the 1994 Decision. (Emphases and underscoring supplied; citations omitted)
account" of the 17.0 million debt x x x. It only means that they provide a mechanism
for discharging [DBPs] liability. This liability subsists, since under the "Agreement" x x xxxx
x, DBP is obligated to pay "any balance of the Assumed Obligations after application
of the entire rentals and or the entire sales proceeds actually received by [Union In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in
Bank] on the Leased Properties not later than December 29, 1998." x x x It only this case, no legal compensation could have taken place between the above-stated
means that the lease rentals must first be applied to the payment of the 17 million debts pursuant to Article 1290 of the Civil Code. Perforce, the petition must be
debt and that [DBP] would have to pay out of its money only in case of insufficiency of denied, and the denial of Union Bank s motion to affirm legal compensation
the lease rentals having until December 29, 1998 to do so. In this sense, it is correct sustained.
to say that the means of repayment of the assumed obligation is not limited to the
lease rentals. The monthly installments, however, would still have to come from the
lease rentals since this was stipulated in the "Agreement." WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 and
Resolution dated February 26, 2010 of the Court of Appeals in CA-G.R. SP No.
93833 are hereby AFFIRMED.
xxxx

SO ORDERED.
Since, as already stated, the monthly installments for the payment of the 17 million
debt are to be funded from the lease rentals, it follows that if the lease rentals are not
paid, there is nothing for DBP to remit to [Union Bank], and thus [DBP] should not be
considered in default. It is noteworthy that, as stated in the appealed decision, "as
regards plaintiffs claim for damages against defendant for its alleged negligence in
failing and refusing to enforce a lessors remedies against Foodmasters Worldwide,
Inc., the Court finds no competent and reliable evidence of such claim."

xxxx
Isuzu Dump Truck FUCC 18 June 1992
Republic of the Philippines
SUPREME COURT Isuzu Dump Truck Blue Star 4 July 1992
Manila
Isuzu Dump Truck FUCC 8 July 1992
FIRST DIVISION

G.R. No. 164985 January 15, 2014 The parties established a good business relationship, with the respondent extending
service and repair work to the units purchased by the petitioners. The respondent also
practiced liberality towards the petitioners in the latters manner of payment by later
FIRST UNITED CONSTRUCTORS CORPORATION and BLUE STAR on agreeing to payment on terms for subsequent purchases.
CONSTRUCTION CORPORATION,Petitioners,
vs.
BAYANIHAN AUTOMOTIVE CORPORATION, Respondent. On September 19, 1992, FUCC ordered from the respondent one unit of Hino Prime
Mover that the respondent delivered on the same date. On September 29, 1992,
FUCC again ordered from the respondent one unit of Isuzu Transit Mixer that was
DECISION also delivered to the petitioners. For the two purchases, FUCC partially paid in cash,
and the balance through post-dated checks, as follows:
BERSAMIN, J.:

This case concerns the applicability of the legal principles of recoupment and BANK/CHECK NO. DATE AMOUNT
compensation.
Pilipinas Bank 18027379 23 November 1992 360,000.00
The Case
Pilipinas Bank 18027384 1 December 1992 375,000.00

Under review is the decision promulgated on July 26, 2004, 1 whereby the Court of
Appeals CA) affirmed the judgment rendered on May 14 1996 by the Regional Trial Upon presentment of the checks for payment, the respondent learned that FUCC had
Court, Branch 107, in Quezon City adjudging the petitioners defendants) liable to pay ordered the payment stopped. The respondent immediately demanded the full
to the respondent plaintiff) various sums of money and damages. 2 settlement of their obligation from the petitioners, but to no avail. Instead, the
petitioners informed the respondent that they were withholding payment of the checks
Antecedents due to the breakdown of one of the dump trucks they had earlier purchased from
respondent, specifically the second dump truck delivered on May 27, 1992.
Petitioner First United Constructors Corporation (FUCC) and petitioner Blue Star
Construction Corporation (Blue Star) were associate construction firms sharing Due to the refusal to pay, the respondent commenced this action for collection on
financial resources, equipment and technical personnel on a case-to-case basis. April 29, 1993, seeking payment of the unpaid balance in the amount of 735,000.00
From May 27, 1992 to July 8, 1992, they ordered six units of dump trucks from the represented by the two checks.
respondent, a domestic corporation engaged in the business of importing and
reconditioning used Japan-made trucks, and of selling the trucks to interested buyers In their answer, the petitioners averred that they had stopped the payment on the two
who were mostly engaged in the construction business, to wit: checks worth 735,000.00 because of the respondents refusal to repair the second
dump truck; and that they had informed the respondent of the defects in that unit but
the respondent had refused to comply with its warranty, compelling them to incur
TO WHOM expenses for the repair and spare parts. They prayed that the respondent return the
UNIT DATE OF DELIVERY
DELIVERY price of the defective dump truck worth 830,000.00 minus the amounts of their two
checks worth 735,000.00, with 12% per annum interest on the difference of
Isuzu Dump Truck FUCC 27 May 1992 90,000.00 from May 1993 until the same is fully paid; that the respondent should
also reimburse them the sum of 247,950.00 as their expenses for the repair of the
Isuzu Dump Truck FUCC 27 May 1992 dump truck, with 12% per annum interest from December 16, 1992, the date of
demand, until fully paid; and that the respondent pay exemplary damages as
Isuzu Dump Truck FUCC 10 June 1992 determined to be just and reasonable but not less than 500,000, and attorneys fees
of 50,000 plus 1,000.00 per court appearance and other litigation expenses.
It was the position of the respondent that the petitioners were not legally justified in the petitioners because the transactions were different; that the expenses incurred for
withholding payment of the unpaid balance of the purchase price of the Hino Prime the repair and spare parts of the second dump truck were not a proper subject of
Mover and the Isuzu Transit Mixer due the alleged defects in second dump truck recoupment because they did not arise out of the purchase of the Hino Prime Mover
because the purchase of the two units was an entirely different transaction from the and the Isuzu Transit Mixer; and that the petitioners claim could not also be the
sale of the dump trucks, the warranties for which having long expired. subject of legal compensation or set-off, because the debts in a set-off should be
liquidated and demandable.
Judgment of the RTC
Issues
On May 14, 1996, the RTC rendered its judgment,3 finding the petitioners liable to pay
for the unpaid balance of the purchase price of the Hino Prime Mover and the Isuzu The petitioners are now before the Court asserting in their petition for review on
Transit Mixer totaling 735,000.00 with legal interest and attorneys fees; and certiorari that the CA erred in:
declaring the respondent liable to pay to the petitioners the sum of 71,350.00 as
costs of the repairs incurred by the petitioners. The RTC held that the petitioners I
could not avail themselves of legal compensation because the claims they had set up
in the counterclaim were not liquidated and demandable. The fallo of the judgment
states: x x x NOT UPHOLDING THE RIGHT OF PETITIONER[S] TO
RECOUPMENT UNDER PAR. (1) OF ART. 1599 OF THE CIVIL CODE,
WHICH PROVIDES [FOR] THE RIGHTS AND REMEDIES AVAILABLE TO
WHEREFORE, judgment is hereby rendered: A BUYER AGAINST A SELLERS BREACH OF WARRANTY.

1. Ordering defendants, jointly and severally to pay plaintiff the sum of II


360,000.00 and 375,000.00 with interest at the legal rate of 12% per
annum computed from February 11, 1993, which is the date of the first
extrajudicial demand, until fully paid; x x x RULING THAT PETITIONERS CANNOT AVAIL OF COMPENSATION
ALLEGEDLY BECAUSE THEIR CLAIMS AGAINST RESPONDENT ARE
NOT LIQUIDATED AND DEMANDABLE.
2. Ordering the defendants, jointly and severally, to pay plaintiff the sum
equivalent to 10% of the principal amount due, for attorneys fees;
III
3. On the counterclaim, ordering plaintiff to pay defendants the sum of
71,350.00 with interest at the legal rate of 12% per annum computed from x x x NOT HOLDING RESPONDENT LIABLE TO PETITIONERS FOR
the date of this decision until fully paid; LEGAL INTEREST COMPUTED FROM THE FIRST EXTRAJUDICIAL
DEMAND, AND FOR ACTUAL EXEMPLARY DAMAGES.6
4. Ordering plaintiff to pay the defendants attorneys fees equivalent to 10%
of the amount due; The petitioners submit that they were justified in stopping the payment of the two
checks due to the respondents breach of warranty by refusing to repair or replace the
defective second dump truck earlier purchased; that the withholding of payments was
5. No pronouncement as to costs. an effective exercise of their right of recoupment as allowed by Article 1599(1) of the
Civil Code; due to the sellers breach of warranty that the CAs interpretation (that
SO ORDERED.4 recoupment in diminution or extinction of price in case of breach of warranty by the
seller should refer to the reduction or extinction of the price of the same item or unit
Decision of the CA sold and not to a different transaction or contract of sale) was not supported by
jurisprudence; that recoupment should not be restrictively interpreted but should
include the concept of compensation or set-off between two parties who had claims
The petitioners appealed, stating that they could justifiably stop the payment of the arising from different transactions; and that the series of purchases and the
checks in the exercise of their right of recoupment because of the respondents obligations arising therefrom, being inter-related, could be considered as a single and
refusal to settle their claim for breach of warranty as to the purchase of the second ongoing transaction for all intents and purposes.
dump truck.
The respondent counters that the petitioners could not refuse to pay the balance of
In its decision promulgated on July 26, 2004,5 however, the CA affirmed the judgment the purchase price of the Hino Prime Mover and the Isuzu Transit Mixer on the basis
of the RTC. It held that the remedy of recoupment could not be properly invoked by of the right of recoupment under Article 1599 of the Civil Code; that the buyers
remedy of recoupment related only to the same transaction; and that compensation xxxx
was not proper because the claims of the petitioners as alleged in their counterclaim
were not liquidated and demandable. In its decision, the CA applied the first paragraph of Article 1599 of the Civil Code to
this case, explaining thusly:
There is no longer any question that the petitioners were liable to the respondent for
the unpaid balance of the purchase price of the Hino Prime Mover and the Isuzu Paragraph (1) of Article 1599 of the Civil Code which provides for the remedy of
Transit Mixer. What remain to be resolved are strictly legal, namely: one, whether or recoupment in diminution or extinction of price in case of breach of warranty by the
not the petitioners validly exercised the right of recoupment through the withholding of seller should therefore be interpreted as referring to the reduction or extinction of the
payment of the unpaid balance of the purchase price of the Hino Prime Mover and the price of the same item or unit sold and not to a different transaction or contract of
Isuzu Transit Mixer; and, two, whether or not the costs of the repairs and spare parts sale. This is more logical interpretation of the said article considering that it talks of
for the second dump truck delivered to FUCC on May 27, 1992 could be offset for the breach of warranty with respect to a particular item sold by the seller. Necessarily,
petitioners obligations to the respondent. therefore, the buyers remedy should relate to the same transaction and not to
another.
Ruling
Defendants-appellants act of ordering the payment on the prime mover and transit
We affirm the decision of the CA with modification. mixer stopped was improper considering that the said sale was a different contract
from that of the dump trucks earlier purchased by defendants-appellants.
1.
Petitioners could not validly resort to recoupment against respondent The claim of defendants-appellants for breach of warranty, i.e. the expenses paid for
the repair and spare parts of dump truck no. 2 is therefore not a proper subject of
Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon recoupment since it does not arise out of the contract or transaction sued on or the
which one is sued by means of a legal or equitable right resulting from a counterclaim claim of plaintiff-appellee for unpaid balances on the last two (2) purchases, i. e. the
arising out of the same transaction.7 It is the setting up of a demand arising from the prime mover and the transit mixer.8
same transaction as the plaintiffs claim, to abate or reduce that claim.
The CA was correct. It was improper for petitioners to set up their claim for repair
The legal basis for recoupment by the buyer is the first paragraph of Article 1599 of expenses and other spare parts of the dump truck against their remaining balance on
the Civil Code, viz: the price of the prime mover and the transit mixer they owed to
respondent.1avvphi1 Recoupment must arise out of the contract or transaction upon
which the plaintiffs claim is founded.9To be entitled to recoupment, therefore, the
Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his claim must arise from the same transaction, i.e., the purchase of the prime mover and
election: the transit mixer and not to a previous contract involving the purchase of the dump
truck. That there was a series of purchases made by petitioners could not be
(1) Accept or keep the goods and set up against the seller, the breach of considered as a single transaction, for the records show that the earlier purchase of
warranty by way of recoupment in diminution or extinction of the price; the six dump trucks was a separate and distinct transaction from the subsequent
purchase of the Hino Prime Mover and the Isuzu Transit Mixer. Consequently, the
(2) Accept or keep the goods and maintain an action against the seller for breakdown of one of the dump trucks did not grant to petitioners the right to stop and
damages for the breach of warranty; withhold payment of their remaining balance on the last two purchases.

(3) Refuse to accept the goods, and maintain an action against the seller for 2.
damages for the breach of warranty; Legal compensation was permissible

(4) Rescind the contract of sale and refuse to receive the goods or if the Legal compensation takes place when the requirements set forth in Article 1278 and
goods have already been received, return them or offer to return them to the Article 1279 of the Civil Code are present, to wit:
seller and recover the price or any part thereof which has been paid.
Article 1278. Compensation shall take place when two persons, in their own right, are
When the buyer has claimed and been granted a remedy in anyone of these ways, no creditors and debtors of each other."
other remedy can thereafter be granted, without prejudice to the provisions of the
second paragraph of article 1191. (Emphasis supplied) Article 1279. In order that compensation may be proper, it is necessary:
(1) That each of the obligors be bound principally, and that he be at the demanded payment for the expenses in their letter of December 16, 1992 (Exh. "1").
same time a principal creditor of the other; All other items of expenses connected with subsequent breakdowns are no longer
chargeable to plaintiff which granted only a 3-month warranty. x x x10
(2) That both debts consists in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the Considering that preponderant evidence showing that petitioners had spent the
latter has been stated; amount of 71,350.00 for the repairs and spare parts of the second dump truck within
the warranty period of three months supported the finding of the two lower courts, the
(3) That the two debts be due; Court accepts their finding. Verily, factual findings of the trial court, when affirmed by
the CA, are conclusive on the Court when supported by the evidence on record. 11
(4) That they be liquidated and demandable;
A debt is liquidated when its existence and amount are determined.12 Accordingly, an
unliquidated claim set up as a counterclaim by a defendant can be set off against the
(5) That over neither of them there be any retention or controversy, plaintiffs claim from the moment it is liquidated by judgment.13 Article 1290 of the Civil
commenced by third persons and communicated in due time to the debtor. Code provides that when all the requisites mentioned in Article 1279 of the Civil Code
are present, compensation takes effect by operation of law, and extinguishes both
As to whether petitioners could avail themselves of compensation, both the RTC and debts to the concurrent amount. With petitioners expenses for the repair of the dump
CA ruled that they could not because the claims of petitioners against respondent truck being already established and determined with certainty by the lower courts, it
were not liquidated and demandable. follows that legal compensation could take place because all the requirements were
present. Hence, the amount of 71,350.00 should be set off against petitioners
The Court cannot uphold the CA and the RTC. unpaid obligation of 735,000.00, leaving a balance of 663,650.00, the amount
petitioners still owed to respondent.

The RTC already found that petitioners were entitled to the amount of 71,350.00
stated in their counterclaim, and the CA concurred in the finding, stating thusly: We deem it necessary to modify the interest rate imposed by the trial and appellate
courts.1wphi1 The legal interest rate to be imposed from February 11, 1993, the
time of the extrajudicial demand by respondent, should be 6% per annum in the
It is noteworthy that in the letter of December 16, 1992 (Exh. "1") defendants were absence of any stipulation in writing in accordance with Article 2209 of the Civil Code,
charging plaintiff only for the following items of repair: which provides:

1. Cost of repair and spare parts - 46,800.00 Article 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
2. Cost of repair and spare parts - 24,550.00
stipulation, the legal interest, which is six per cent per annum.

71,350.00 WHEREFORE, the Court AFFIRMS the decision promulgated on July 26, 2004 in all
respects subject to the MODIFICATION that petitioners are ordered, jointly and
severally, to pay to respondent the sum of 1 663,650.00, plus interest of 6% per
Said amounts may be considered to have been spent for repairs covered by the annum computed from February
warranty period of three (3) months. While the invoices (Exhs. "2-B" and "3-A") dated
September 26, 1992 and September 18, 1992, this delay in repairs is attributable to 11, 1993, the date of the first extrajudicial demand, until fully paid; and ORDERS the
the fact that when defects were brought to the attention of the plaintiff in the letter of petitioners to pay the costs of suit.
August 14, 1992 (Exh. "8") which was within the warranty period, the plaintiff did not
respond with the required repairs and actual repairs were undertaken by defendants.
SO ORDERED.
Thereafter, the spare parts covered by Exhibits "2-B" and "3-A" pertain to the engine,
which was covered by the warranty.

x x x. Defendants in their letter of August 14, 1992 (Exhb. "8") demanded correction of
defects. In their letter of August 22, 1992 (Exh. "9") they demanded replacement. In
their letter of August 27, 1992 (Exh. "10"), they demanded replacement/repair. In
September, 1992, they undertook repairs themselves (Exhs. "2-B" and "3-A") and
THIRD DIVISION When the Spouses Roxas filed their answer in Civil Case No. 130783, they included a
cross-claim against PTC.8 In response, PTC filed a counterclaim against the Spouses
Roxas on their unpaid loan obligation amounting to Php 3,053,738.50 9 plus interest
G.R. No. 171897, October 14, 2015 and the amount of Php 245,720 as attorney's fees; and, in default of such payments,
the foreclosure of the real estate mortgages executed by the Spouses Roxas in favor
PHILIPPINE TRUST COMPANY, Petitioner, v. FLORO ROXAS AND EUFEMIA of PTC. After trial on the merits, the trial court rendered a decision in favor of
ROXAS, Respondents. Dominguez. It denied PTC's counterclaim for lack of sufficient proof, without prejudice
to the filing of a collection suit against the Spouses Roxas. Both PTC and the
DECISION Spouses Roxas appealed to the Court of Appeals, docketed as CA-G.R. CV No.
30340. To this date, the same remains pending.10

JARDELEZA, J.: In a parallel development, while Civil Case No. 130783 was still pending in the trial
court, PTC, on August 31, 1981, filed with the provincial sheriff of Bataan a petition for
We consider whether the principle of legal compensation may be applied to offset the extrajudicial foreclosure of the same real estate mortgages, The Spouses Roxas
judgment debt of petitioner Philippine Trust Company ("PTC") and the loan obligation opposed the petition and filed a verified complaint against PTC for damages with
of private respondents Floro and Eufemia Roxas ("Spouses Roxas"). preliminary injunction in the Regional Trial Court of Bataan docketed as Civil Case
No. 4809 ("Main Case"). The complaint sought to restrain and enjoin the sheriff from
I proceeding with the foreclosure sale while Civil Case No. 130783 is still
pending.11 On December 26, 1988, the Bataan RTC rendered a Decision in favor of
The Spouses Roxas procured loans from PTC in the amount of Php 2,523,200 to the Spouses Roxas, the dispositive portion of which reads as follows:cralawlawlibrary
finance their real estate business.1 These loans were secured by real estate
mortgages on the Spouses Roxas' real properties. On April 10, 1979, the Spouses WHEREFORE, the Court hereby renders judgment (a) Ordering the issuance of a writ
Roxas, PTC, and Roben Construction and Furnishing Group, Inc. entered into "a of permanent injunction perpetually enjoining defendant Philippine Trust Company
contract of building construction," under which PTC granted an additional loan of Php and defendant provincial sheriff of Bataan or any of his deputies from foreclosing
900,000 to the Spouses Roxas to enable them to finish their ongoing housing projects extrajudicially the real estate mortgage(s) executed in its favor by plaintiffs covering
located at Cabcaben, Mariveles, Bataan. This was superseded by a new "contract of the real properties subject of this action;ChanRoblesVirtualawlibrary
building construction" executed by and among PTC, Spouses Roxas, and Rosendo P.
Dominguez, Jr. ("Dominguez"). Dominguez substituted Roben Construction as the (b) Condemning said defendant bank to pay to plaintiffs: (1) Ordinary damages for
contractor under the same terms and conditions of the contract dated April 10, 1979. breach of the provisions of the contract of building construction (Exhs. "B" & "26"), in
The new contract stipulated that the money loaned from PTC shall be devoted to the the sum of One Hundred Thousand Pesos (P100,000.00); (2) Moral damages for the
funding of the housing projects, the rentals of which when finished, would then be improvident extrajudicial foreclosure of plaintiffs' mortgage(s) after it had elected
used to liquidate the loan. It also provided that PTC may only release the proceeds of judicial foreclosure thereof, in the amount of Three Hundred Thousand Pesos
the loan for the purchase of materials and supplies when requested by Dominguez (P300,000.00) for both plaintiffs; (3) Exemplary damages by way of example or
and with the conformity of the Spouses Roxas.2 Invoices covering materials correction for the public good in the sum of Fifty Thousand Pesos (P50,000.00); (4)
previously purchased with the funds should also be submitted to PTC before any Attorney's fees in the amount of Fifty Thousand Pesos (P50,000.00); and (5) Double
subsequent release of funds is made.3 PTC, however, released to Dominguez the costs of suit
sum of Php 870,000 out of the Php 900,000 although the Spouses Roxas had agreed
only to the release of not more than Php 450,000, as evidenced by a promissory note SO ORDERED.12chanrobleslaw
dated April 11, 1979.4
The Court of Appeals affirmed the decision of the Bataan RTC. The decision became
Due to financial difficulties, however, the Spouses Roxas did not finish the housing final and executory, prompting the Spouses Roxas to file a Motion for Execution. PTC
project. As a result, they did not receive monthly rentals from prospective lessees of responded by filing an Opposition to the Motion for Execution, where it raised for the
the houses, which led to missed amortization payments in their loans from PTC.5 first time legal compensation to offset the judgment debt due to the Spouses Roxas.

On March 28, 1980, Dominguez filed a complaint against PTC and the Spouses On January 25, 1994, the trial court denied PTC's Opposition and issued a writ of
Roxas with the Court of First Instance (CFI) of Manila, 6 Branch XL for breach of the execution, holding that PTC is deemed to have waived legal compensation as a
contract of building construction. This was docketed as Civil Case No. 130783. The defense because it failed to invoke the same as an affirmative defense in its answer.
Spouses Roxas in turn filed Civil Case No. 130892 with the CFI of Manila against PTC filed a motion for reconsideration of the order, which was denied by the trial court
Dominguez and the insurance company that issued his performance bond. These two on April 19, 1994.13 PTC filed another motion for reconsideration, which was again
cases were later consolidated.7 denied by the trial court on June 7, 1994.14
PTC filed a Petition for Certiorari15 under Rule 65 with the Court of Appeals seeking is where there is a supervening event that renders execution inequitable or
the annulment of the trial court's order issuing the writ of execution and its unjust,27 none obtains in this case.
subsequent orders denying PTC's motions for reconsideration. On November 17,
2005, the Court of Appeals dismissed the petition for lack of merit. It found that not all First, there is nothing unjust or inequitable in the issuance of the writ of execution in
requisites of legal compensation under Article 1279 of the Civil Code were present this case because execution will have no effect on the unpaid loan obligation of the
and that the defense of legal compensation was belatedly raised by PTC, considering Spouses Roxas to PTC. The Spouses Roxas' unpaid loan obligation to PTC is the
that it was raised for the first time at the execution stage. 16 The Court of Appeals subject of a separate case now pending before the Court of Appeals, CA-G.R. CV No.
denied PTC's motion for reconsideration on March 9, 2006.17 30340. Thus, there exists a proper forum where PTC may be allowed to recover
whatever is due from the Spouses Roxas. What is inequitable is to allow PTC to
PTC then filed this Petition for Review on Certiorari18 under Rule 45, arguing that the recover its credit in full in CA-G.R. CV No. 30340 while concurrently being allowed to
Court of Appeals erred in not finding that all the requisites of legal compensation were offset its judgment debt in this case. In such instance, there would effectively be
present and in ruling that the defense of compensation was belatedly raised. PTC double recovery on the part of PTCwhich we cannot sanction because of the
claims it did not raise legal compensation as a defense before the Bataan RTC fundamental proscription against unjust enrichment.28
because the judgment debt was not yet due at the time it filed its answer.
Furthermore, it had already set up as a compulsory counterclaim the loan obligation Second, it would be more unjust to stay the execution of a decision that had become
of the Spouses Roxas in Civil Case No. 130783, which was pending with the former final and executory twenty three (23) years ago. There should be an end to litigation,
CFI of Manila. But because the Manila court denied PTC's counterclaims, PTC for public policy dictates that once a judgment becomes final, executory, and
argues there is a change in the situation of the parties that makes execution unappealable, the prevailing party should not be denied the fruits of his victory by
inequitable. some subterfuge devised by the losing party.29 Unjustified delay in the enforcement of
a judgment sets at naught the role and purpose of the courts to resolve justiciable
In response, the Spouses Roxas assert that the execution of the Bataan RTC controversies with finality.30 To accept PTC's contentions would not only be unfair to
decision is proper because the prevailing party is entitled to a writ of execution as a private respondents but, more importantly, would defeat a vital poliey consideration
matter of right once a judgment becomes final.19 Moreover, the decision in Civil Case behind the doctrine of immutability of final judgments.
No. 130873 is not a supervening event that warrants the stay of execution.20 The
Spouses Roxas also dispute the applicability of legal compensation because both the B
demandability of the loan as well as the exact amount due had been put in issue in
Civil Case No. 130873, which is now pending appeal with the Court of Appeals as The Bataan RTC and the Court of Appeals also correctly ruled that PTC should have
CA-G.R. CV No. 30340.21 The Spouses Roxas maintain that PTC is deemed to have raised the argument on legal compensation at the trial stage. The 1964 Rules of
waived compensation as a defense because it did not raise compensation either in a Court, which was then in effect at the time the Main Case was filed by the Spouses
motion to dismiss or as an affirmative defense in its answer to the Main Roxas in 1980, provides that:cralawlawlibrary
Case.22 Finally, the Spouses Roxas point out that the orders of the Bataan RTC were
challenged by PTC through a Rule 65 petition. Thus, it was incumbent upon PTC to RULE 9. Effect of Pleadings
prove lack or grave abuse of discretion on the part of the Bataan RTC, which PTC
ultimately failed to do.23 Sec. 2. Defenses and objections not pleaded deemed waived. Defenses and
objections not pleaded either in a motion to dismiss or in the answer are
The petition has no merit. deemed waived; except the failure to state a cause of action which may be alleged
in a later pleading, if one is permitted, or by motion for judgment on the pleadings, or
II at the trial on the merits; but in the last instance, the motion shall be disposed of as
provided in section 5 of Rule 10 in the light of any evidence which may have been
A received. Whenever it appears that the court has no jurisdiction over the subject-
matter, it shall dismiss the action.31 (Emphasis added)chanrobleslaw
We agree with the Court of Appeals that it was too late for PTC to set up legal
compensation as a defense because the Main Case had already reached the Although legal compensation takes place by operation of law, it must be alleged and
execution stage. The rule is that once a decision becomes final and executory, proved as a defense by the debtor who claims its benefits. Only after it is proved will
execution shall issue as a matter of right,24 and the issuance of a writ of execution is its effects retroact to the moment when all the requisites under Article 1279 of the
the court's ministerial duty, compellable by mandamus. 25 This is in accordance with Civil Code have concurred.32
the doctrine of immutability of final judgments, which states that a judgment that has
become final and executory is immutable and unalterable, and may no longer be PTC's contention that it could not have raised legal compensation as a defense
modified in any respect, even if the modification is meant to correct what is perceived because it was not yet a debtor of the Spouses Roxas when it filed its answer is
to be an erroneous conclusion of fact or law, and regardless of whether the unconvincing. Under Rule 8, Section 2 of the 1964 Rules of Court, "[a] party may set
modification is attempted to be made by the court rendering it or by the highest Court forth two or more statements of a claim or defense alternatively or
of the land.26 Although there are recognized exceptions to this doctrine, one of which
hypothetically, either in one cause of action or defense or in separate causes of action IV
or defenses."33Thus, the defense of compensation would have been proper and
allowed under the rules even if PTC disclaimed any liability at the time it filed its Finally, we observe that PTC appears to have willfully engaged in forum shopping.
answer. In Marquez v. Valencia,34 we held that when a defendant failed to set up PTC, in its own words, opposed the execution of the Bataan RTC decision because
such alternative defenses and chosen or elected to rely on one only, the overruling '"the Decision promulgated on September 4, 1990 by the RTC of Manila, Branch 40
thereof was a complete determination of the controversy between the parties, which [in Civil Case No. 130783] denied Petitioner's counterclaims."39Forum shopping is
bars a subsequent action based upon an unpleaded defense. Unmistakably, the committed by a party who, having received an adverse judgment in one forum, seeks
rationale behind this is the proscription against the splitting of causes of action. another opinion in another court, other than by appeal or the special civil action of
certiorari. More accurately, forum shopping is the institution of two or more suits in
In any case, even if PTC were excused from pleading compensation as a defense in different courts, either simultaneously or successively, in order to ask the courts to
its answer, we note that PTC still failed to raise this defense in its motion for rule on the same or related causes and/or to grant the same or substantially the same
reconsideration of the Bataan RTC decision and in its subsequent appeal. Hence, reliefs.40
there can be no other conclusion than that PTC is already estopped from raising the
issue of legal compensation. The relief PTC now seeks is compensation of its judgment debt with the Spouses
Roxas' loan obligation. In the other case, Civil Case No. 130783 (now CA-G.R. CV
It is fairly clear to us that the reason why PTC did not raise legal compensation as a No. 30340), PTC asks for the payment of the same loan obligation of the Spouses
defense in the Main Case is because it was banking on a favorable ruling on its Roxas. Essentially, PTC is seeking the same relief in both cases: the extinguishment
counterclaim in the other case, Civil Case No. 130873. It was presumably an informed of the Spouses Roxas' loan obligation. Under Article 1231 of the Civil Code, payment
choice arrived at by PTC and its counsel, with full knowledge of the consequences of and compensation are modes of extinguishing an obligation. Although legally distinct,
its failure to plead this specific claim/defense in the Main Case. Unfortunately for PTC, both must be pleaded in the same case if the obligation sought to be extinguished
its counterclaim in the other case was disallowed. Having adopted the wrong legal and the parties thereto arc identical; otherwise, it would constitute splitting of causes
strategy, PTC cannot now expediently change its theory of the case or its defense at of action.
the execution stage of the Main Case. Following the doctrine of election of
remedies,35 PTC's choice of setting up the Spouses Roxas' unpaid loan obligation as Forum shopping exists when the elements of litis pendentia are present, viz.: (a)
a counterclaim in Civil Case No. 130873, which has gone to judgment on the merits identity of parties, or at least such parties as those representing the same interests in
but is pending appeal, precludes it from raising compensation of the same loan both actions; (b) identity of rights assered and relief prayed for, the relief being
obligation for the purpose of opposing the writ of execution in the Main Case. founded on the same facts; and (c) the identity of the two preceding particulars is
Equitable in nature, the doctrine of election of remedies is designed to mitigate such that any judgment rendered in the other action, will, regardless of which party is
possible unfairness to both parties. It rests on the moral premise that it is fair to hold successful, amount to res judicata in the action under consideration.41
people responsible for their choices. The purpose of the doctrine is not to prevent any
recourse to any remedy, but to prevent a double redress for a single wrong. 36 We find that the elements of litis pendentiaand, as a consequence, forum
shoppingexist in this case. PTC's claim for legal compensation is founded on the
III same unpaid loan obligation now being litigated in CA-G.R. CV No. 30340. Although
that case originated from a complaint filed by Dominguez for breach of contract, PTC
Even if we assume that legal compensation was not waived and was otherwise timely counterclaimed the entire unpaid loan obligation, plus interest, owed to it by the
raised, we find that not all requisites of legal compensation are present in this case. Spouses Roxas. In other words, PTC had squarely put in issue the matter of the
Under Article 1279, in order for legal compensation to take place, the following Spouses Roxas' indebtedness arising from the loans the latter obtained from PTC. It
requisites must concur: (a) that each one of the obligors be bound principally, and that is immaterial that PTC's cause of action in the other case was set forth by way of a
he be at the same time a principal creditor of the other; (b) that both debts consist in a counterclaim, since the latter partakes of the nature of a complaint by the defendant
sum of money, or if the things due are consumable, they be of the same kind, and against the plaintiff.42 On the other hand, while the Main Case originally involved a
also of the same quality if the latter has been stated; (c) that the two debts be due; different subject matter and cause of action (i.e., the injunction against PTC's
(d) that they be liquidated and demandable; and (e) that over neither of them there be extrajudicial foreclosure and the Spouses Roxas' claim for damages) as that
any retention or controversy, commenced by third persons and communicated in due embraced in CA-G.R. CV No. 30340, the primary issue raised by PTC in its
time to the debtor. Opposition to the Motion for Execution, and subsequently in the petition
for certiorari with the Court of Appeals and the present petition, pertained to the same
Here, the fourth requisite is absent. A debt is liquidated when its existence and loan obtained by the Spouses Roxas. Thus, with respect to the Spouses Roxas'
amount are determined.37 Compensation can only take place between certain and indebtedness to PTC, there is a clear identity of parties, of subject matter, and of
liquidated debts; it cannot extend to unliquidated, disputed claims. 38 Since the loan cause of action. Consequently, once a final decision in CA-G.R. CV No. 30340 is
obligation, including its amount and demandability, is still being disputed in CA-G.R. rendered, it will constitute res judicata and bar further litigation on the same loan
CVNo. 30340, PTC's credit cannot be considered liquidated as of yet. Consequently, obligation, including any dispute on the applicability or non-applicability of legal
no legal compensation could have taken place between PTC's loan credit and the compensation.
Spouses Roxas' judgment credit.
Forum shopping is an act of malpractice that is prohibited and condemned because it
trifles with the courts and abuses their processes, and degrades the administration of
justice and adds to the already congested court dockets. 43 Under Section 5 of Rule 8,
willful and deliberate forum shopping is a ground for summary dismissal of the case
and constitutes direct contempt of court, as well as a cause for administrative
sanctions. The litigation could have ended promptly if PTC had simply paid its
judgment debt and awaited the final decision in the other case to recover whatever is
due from the Spouses Roxas. Instead, this plainly unmeritorious case had to clog our
docket and take up the valuable time of this Court.

WHEREFORE, the petition for review is DENIED for lack of merit. The Decision dated
November 17, 2005 and Resolution dated March 9, 2006 of the Court of Appeals in
CA-G.R. SP No. 35203 are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.