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G.R. No.

L-46658 May 13, 1991 the latter decided to foreclose the real estate mortgages executed
by the spouses Arroyo in its favor.
PHILIPPINE NATIONAL BANK, petitioner,
vs. On July 18, 1975, PNB filed with the City Sheriff of Quezon City a
HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of petition for extra-judicial foreclosure under Act 3138, as amended
the Court of First Instance of Rizal, Branch XXI and TAYABAS by Act 4118 and under Presidential Decree No. 385 of the real estate
CEMENT COMPANY, INC., respondents. mortgage over the properties known as the La Vista property
covered by TCT No. 55323. 6 PNB likewise filed a similar petition with
The Chief Legal Counsel for petitioner. the City Sheriff of Bacolod, Negros Occidental with respect to the
Ortille Law Office for private respondent. mortgaged properties located at Isabela, Negros Occidental and
covered by OCT No. RT 1615.

FERNAN, C.J.: The foreclosure sale of the La Vista property was scheduled on
August 11, 1975. At the auction sale, PNB was the highest bidder
with a bid price of P1,000,001.00. However, when said property was
In this petition for certiorari, petitioner Philippine National Bank
about to be awarded to PNB, the representative of the mortgagor-
(PNB) seeks to annul and set aside the orders dated March 4, 1977
spouses objected and demanded from the PNB the difference
and May 31, 1977 rendered in Civil Case No. 24422 1 of the Court of
between the bid price of P1,000,001.00 and the indebtedness of
First Instance of Rizal, Branch XXI, respectively granting private
P499,060.25 of the Arroyo spouses on their personal account. It was
respondent Tayabas Cement Company, Inc.'s application for a writ of
the contention of the spouses Arroyo's representative that the
preliminary injunction to enjoin the foreclosure sale of certain
foreclosure proceedings referred only to the personal account of the
properties in Quezon City and Negros Occidental and denying
mortgagor spouses without reference to the account of TCC.
petitioner's motion for reconsideration thereof.

To remedy the situation, PNB filed a supplemental petition on


In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the
August 13, 1975 requesting the Sheriff's Office to proceed with the
Arroyo Spouses), obtained a loan of P580,000.00 from petitioner
sale of the subject real properties to satisfy not only the amount of
bank to purchase 60% of the subscribed capital stock, and thereby
P499,060.25 owed by the spouses Arroyos on their personal account
acquire the controlling interest of private respondent Tayabas
but also the amount of P35,019,901.49 exclusive of interest,
Cement Company, Inc. (TCC). 2 As security for said loan, the spouses
commission charges and other expenses owed by said spouses as
Arroyo executed a real estate mortgage over a parcel of land
sureties of TCC. 7 Said petition was opposed by the spouses Arroyo
covered by Transfer Certificate of Title No. 55323 of the Register of
and the other bidder, Jose L. Araneta.
Deeds of Quezon City known as the La Vista property.

On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff


Thereafter, TCC filed with petitioner bank an application and
Diana L. Dungca issued a resolution finding that the questions raised
agreement for the establishment of an eight (8) year deferred letter
by the parties required the reception and evaluation of evidence,
of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd.
hence, proper for adjudication by the courts of law. Since said
of Tokyo, Japan, to cover the importation of a cement plant
questions were prejudicial to the holding of the foreclosure sale, she
machinery and equipment.
ruled that her "Office, therefore, cannot properly proceed with the
foreclosure sale unless and until there be a court ruling on the
Upon approval of said application and opening of an L/C by PNB in aforementioned issues." 8
favor of Toyo Menka Kaisha, Ltd. for the account of TCC, the Arroyo
spouses executed the following documents to secure this loan
Thus, in May, 1976, PNB filed with the Court of First Instance of
accommodation: Surety Agreement dated August 5, 1964 3 and
Quezon City, Branch V a petition for mandamus 9against said Diana
Covenant dated August 6, 1964. 4
Dungca in her capacity as City Sheriff of Quezon City to compel her
to proceed with the foreclosure sale of the mortgaged properties
The imported cement plant machinery and equipment arrived from covered by TCT No. 55323 in order to satisfy both the personal
Japan and were released to TCC under a trust receipt agreement. obligation of the spouses Arroyo as well as their liabilities as sureties
Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding of TCC. 10
drawings against the L/C as scheduled. TCC, however, failed to remit
and/or pay the corresponding amount covered by the drawings.
On September 6, 1976, the petition was granted and Dungca was
Thus, on May 19, 1968, pursuant to the trust receipt agreement,
directed to proceed with the foreclosure sale of the mortgaged
PNB notified TCC of its intention to repossess, as it later did, the
properties covered by TCT No. 55323 pursuant to Act No. 3135 and
imported machinery and equipment for failure of TCC to settle its
to issue the corresponding Sheriff's Certificate of Sale. 11
obligations under the L/C. 5

Before the decision could attain finality, TCC filed on September 14,
In the meantime, the personal accounts of the spouses Arroyo,
1976 before the Court of First Instance of Rizal, Pasig, Branch XXI a
which included another loan of P160,000.00 secured by a real estate
complaint 12 against PNB, Dungca, and the Provincial Sheriff of
mortgage over parcels of agricultural land known as Hacienda Bacon
Negros Occidental and Ex-Officio Sheriff of Bacolod City
located in Isabela, Negros Occidental, had likewise become due. The
seeking, inter alia, the issuance of a writ of preliminary injunction to
spouses Arroyo having failed to satisfy their obligations with PNB,
restrain the foreclosure of the mortgages over the La Vista property
and Hacienda Bacon as well as a declaration that its obligation with
1
PNB had been fully paid by reason of the latter's repossession of the A trust receipt, therefore, is a security agreement,
imported machinery and equipment. 13 pursuant to which a bank acquires a "security interest" in
the goods.1wphi1 It secures an indebtedness and there
On October 5, 1976, the CFI, thru respondent Judge Gregorio can be no such thing as security interest that secures no
Pineda, issued a restraining order 14 and on March 4, 1977, granted a obligation. As defined in our laws:
writ of preliminary injunction. 15 PNB's motion for reconsideration
was denied, hence this petition. (h) "Security interest" means a property interest
in goods, documents or instruments to secure
Petitioner PNB advances four grounds for the setting aside of the performance of some obligations of the
writ of preliminary injunction, namely: a) that it contravenes P.D. entrustee or of some third persons to the
No. 385 which prohibits the issuance of a restraining order against a entruster and includes title, whether or not
government financial institution in any action taken by such expressed to be absolute, whenever such title is
institution in compliance with the mandatory foreclosure provided in substance taken or retained for security only.
in Section 1 thereof; b) that the writ countermands a final decision
of a co-equal and coordinate court; c) that the writ seeks to prohibit xxx xxx xxx
the performance of acts beyond the court's territorial jurisdiction;
and, d) private respondent TCC has not shown any clear legal right Contrary to the allegation of the VINTOLAS, IBAA did not
or necessity to the relief of preliminary injunction. become the real owner of the goods. It was merely the
holder of a security title for the advances it had made to
Private respondent TCC counters with the argument that P.D. No. the VINTOLAS. The goods the VINTOLAS had purchased
385 does not apply to the case at bar, firstly because no foreclosure through IBAA financing remain their own property and
proceedings have been instituted against it by PNB and secondly, they hold it at their own risk. The trust receipt
because its account under the L/C has been fully satisfied with the arrangement did not convert the IBAA into an investor; the
repossession of the imported machinery and equipment by PNB. latter remained a lender and creditor.

The resolution of the instant controversy lies primarily on the xxx xxx xxx
question of whether or not TCC's liability has been extinguished by
the repossession of PNB of the imported cement plant machinery Since the IBAA is not the factual owner of the goods, the
and equipment. VINTOLAS cannot justifiably claim that because they have
surrendered the goods to IBAA and subsequently
We rule for the petitioner PNB. It must be remembered that PNB deposited them in the custody of the court, they are
took possession of the imported cement plant machinery and absolutely relieved of their obligation to pay their loan
equipment pursuant to the trust receipt agreement executed by and because of their inability to dispose of the goods. The fact
between PNB and TCC giving the former the unqualified right to the that they were unable to sell the seashells in question
possession and disposal of all property shipped under the Letter of does not affect IBAA's right to recover the advances it had
Credit until such time as all the liabilities and obligations under said made under the Letter of Credit.
letter had been discharged. 16 In the case of Vintola vs. Insular Bank
of Asia and America 17 wherein the same argument was advanced by PNB's possession of the subject machinery and equipment being
the Vintolas as entrustees of imported seashells under a trust precisely as a form of security for the advances given to TCC under
receipt transaction, we said: the Letter of Credit, said possession by itself cannot be considered
payment of the loan secured thereby. Payment would legally result
Further, the VINTOLAS take the position that their only after PNB had foreclosed on said securities, sold the same and
obligation to IBAA has been extinguished inasmuch as, applied the proceeds thereof to TCC's loan obligation. Mere
through no fault of their own, they were unable to dispose possession does not amount to foreclosure for foreclosure denotes
of the seashells, and that they have relinquished the procedure adopted by the mortgagee to terminate the rights of
possession thereof to the IBAA, as owner of the goods, by the mortgagor on the property and includes the sale itself. 18
depositing them with the Court.
Neither can said repossession amount to dacion en pago. Dation in
The foregoing submission overlooks the nature and payment takes place when property is alienated to the creditor in
mercantile usage of the transaction involved. A letter of satisfaction of a debt in money and the same is governed by
credit-trust receipt arrangement is endowed with its own sales. 19 Dation in payment is the delivery and transmission of
distinctive features and characteristics. Under that set-up, ownership of a thing by the debtor to the creditor as an accepted
a bank extends a loan covered by the Letter of Credit, with equivalent of the performance of the obligation. 20 As aforesaid, the
the trust receipt as a security for the loan. In other words, repossession of the machinery and equipment in question was
the transaction involves a loan feature represented by the merely to secure the payment of TCC's loan obligation and not for
letter of credit, and a security feature which is in the the purpose of transferring ownership thereof to PNB in satisfaction
covering trust receipt. of said loan. Thus, no dacion en pago was ever accomplished.

xxx xxx xxx Proceeding from this finding, PNB has the right to foreclose the
mortgages executed by the spouses Arroyo as sureties of TCC. A

2
surety is considered in law as being the same party as the debtor in [G.R. No. 149420. October 8, 2003]
relation to whatever is adjudged touching the obligation of the
latter, and their liabilities are interwoven as to be inseparable. 21 As
sureties, the Arroyo spouses are primarily liable as original
promissors and are bound immediately to pay the creditor the SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL.,
amount outstanding. 22 INC., respondent.

Under Presidential Decree No. 385 which took effect on January 31,
1974, government financial institutions like herein petitioner PNB
are required to foreclose on the collaterals and/or securities for any DECISION
loan, credit or accommodation whenever the arrearages on such
account amount to at least twenty percent (20%) of the total YNARES-SANTIAGO, J.:
outstanding obligations, including interests and charges, as
appearing in the books of account of the financial institution Respondent KJS ECO-FORMWORK System Phil., Inc. is a
concerned. 23 It is further provided therein that "no restraining corporation engaged in the sale of steel scaffoldings, while
order, temporary or permanent injunction shall be issued by the petitioner Sonny L. Lo, doing business under the name and style
court against any government financial institution in any action Sans Enterprises, is a building contractor. On February 22, 1990,
taken by such institution in compliance with the mandatory petitioner ordered scaffolding equipments from respondent worth
foreclosure provided in Section 1 hereof, whether such restraining P540,425.80.[1] He paid a downpayment in the amount of
order, temporary or permanent injunction is sought by the P150,000.00. The balance was made payable in ten monthly
borrower(s) or any third party or parties . . ." 24 installments.

It is not disputed that the foreclosure proceedings instituted by PNB Respondent delivered the scaffoldings to
against the Arroyo spouses were in compliance with the mandate of petitioner.[2] Petitioner was able to pay the first two monthly
P.D. 385. This being the case, the respondent judge acted in excess installments. His business, however, encountered financial
of his jurisdiction in issuing the injunction specifically proscribed difficulties and he was unable to settle his obligation to respondent
under said decree. despite oral and written demands made against him.[3]

On October 11, 1990, petitioner and respondent executed a


Another reason for striking down the writ of preliminary injunction Deed of Assignment,[4] whereby petitioner assigned to respondent
complained of is that it interfered with the order of a co-equal and his receivables in the amount of P335,462.14 from Jomero Realty
coordinate court. Since Branch V of the CFI of Rizal had already Corporation. Pertinent portions of the Deed provide:
acquired jurisdiction over the question of foreclosure of mortgage
over the La Vista property and rendered judgment in relation WHEREAS, the ASSIGNOR is the contractor for the construction of a
thereto, then it retained jurisdiction to the exclusion of all other residential house located at Greenmeadow Avenue, Quezon
coordinate courts over its judgment, including all incidents relative City owned by Jomero Realty Corporation;
to the control and conduct of its ministerial officers, namely the
sheriff thereof. 25 The foreclosure sale having been ordered by
WHEREAS, in the construction of the aforementioned residential
Branch V of the CFI of Rizal, TCC should not have filed injunction
house, the ASSIGNOR purchased on account scaffolding equipments
proceedings with Branch XXI of the same CFI, but instead should
from the ASSIGNEE payable to the latter;
have first sought relief by proper motion and application from the
former court which had exclusive jurisdiction over the foreclosure
proceeding. 26 WHEREAS, up to the present the ASSIGNOR has an obligation to the
ASSIGNEE for the purchase of the aforementioned scaffoldings now
in the amount of Three Hundred Thirty Five Thousand Four Hundred
This doctrine of non-interference is premised on the principle that a
Sixty Two and 14/100 Pesos (P335,462.14);
judgment of a court of competent jurisdiction may not be opened,
modified or vacated by any court of concurrent jurisdiction. 27
NOW, THEREFORE, for and in consideration of the sum of Three
Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100
Furthermore, we find the issuance of the preliminary injunction
Pesos (P335,462.14), Philippine Currency which represents part of
directed against the Provincial Sheriff of Negros Occidental and ex-
the ASSIGNORs collectible from Jomero Realty Corp., said ASSIGNOR
officio Sheriff of Bacolod City a jurisdictional faux pas as the Courts
hereby assigns, transfers and sets over unto the ASSIGNEE all
of First Instance, now Regional Trial Courts, can only enforce their
collectibles amounting to the said amount of P335, 462.14;
writs of injunction within their respective designated territories. 28

And the ASSIGNOR does hereby grant the ASSIGNEE, its successors
WHEREFORE, the instant petition is hereby granted. The assailed
and assigns, the full power and authority to demand, collect,
orders are hereby set aside. Costs against private respondent.
receive, compound, compromise and give acquittance for the same
or any part thereof, and in the name and stead of the said
Gutierrez, Jr., Feliciano, Bidin and Davide, Jr., JJ., concur. ASSIGNOR;

And the ASSIGNOR does hereby agree and stipulate to and with said
ASSIGNEE, its successors and assigns that said debt is justly owing

3
and due to the ASSIGNOR for Jomero Realty Corporation and that Deed; (2) the object of the Deed did not exist at the time of the
said ASSIGNOR has not done and will not cause anything to be done transaction, rendering it void pursuant to Article 1409 of the Civil
to diminish or discharge said debt, or delay or to prevent the Code; and (3) petitioner violated the terms of the Deed of
ASSIGNEE, its successors or assigns, from collecting the same; Assignment when he failed to execute and do all acts and deeds as
shall be necessary to effectually enable the respondent to recover
And the ASSIGNOR further agrees and stipulates as aforesaid that the collectibles.[12]
the said ASSIGNOR, his heirs, executors, administrators, or assigns, Petitioner filed a motion for reconsideration of the said
shall and will at times hereafter, at the request of said ASSIGNEE, its decision, which was denied by the Court of Appeals.[13]
successors or assigns, at his cost and expense, execute and do all
such further acts and deeds as shall be reasonably necessary to In this petition for review, petitioner assigns the following
effectually enable said ASSIGNEE to recover whatever collectibles errors:
said ASSIGNOR has in accordance with the true intent and meaning
of these presents. xxx[5] (Italics supplied) I

However, when respondent tried to collect the said credit THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE
from Jomero Realty Corporation, the latter refused to honor the ERROR IN DECLARING THE DEED OF ASSIGNMENT (EXH. 4) AS
Deed of Assignment because it claimed that petitioner was also NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE
indebted to it.[6]On November 26, 1990, respondent sent a HEARSAY CLAIM.
letter[7] to petitioner demanding payment of his obligation, but
petitioner refused to pay claiming that his obligation had been II
extinguished when they executed the Deed of Assignment.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
Consequently, on January 10, 1991, respondent filed an action THAT THE DEED OF ASSIGNMENT (EXH. 4) DID NOT
for recovery of a sum of money against the petitioner before the EXTINGUISH PETITIONERS OBLIGATION ON THE WRONG
Regional Trial Court of Makati, Branch 147, which was docketed as NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS
Civil Case No. 91-074.[8] WARRANTY THEREUNDER.

During the trial, petitioner argued that his obligation was III
extinguished with the execution of the Deed of Assignment of
credit. Respondent, for its part, presented the testimony of its THE HONORABLE COURT OF APPEALS ERRED IN
employee, AlmedaBaaga, who testified that Jomero Realty refused REVERSING THE DECISION OF THE TRIAL COURT AND IN
to honor the assignment of credit because it claimed that petitioner ORDERING PAYMENT OF INTERESTS AND ATTORNEYS
had an outstanding indebtedness to it. FEES.[14]

On August 25, 1994, the trial court rendered a The petition is without merit.
decision[9] dismissing the complaint on the ground that the An assignment of credit is an agreement by virtue of which the
assignment of credit extinguished the obligation. The decretal owner of a credit, known as the assignor, by a legal cause, such as
portion thereof provides: sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to
WHEREFORE, in view of the foregoing, the Court hereby renders another, known as the assignee, who acquires the power to enforce
judgment in favor of the defendant and against the plaintiff, it to the same extent as the assignor could enforce it against the
dismissing the complaint and ordering the plaintiff to pay the debtor.[15]
defendant attorneys fees in the amount of P25,000.00.
Corollary thereto, in dacion en pago, as a special mode of
payment, the debtor offers another thing to the creditor who
Respondent appealed the decision to the Court of accepts it as equivalent of payment of an outstanding debt.[16] In
Appeals. On April 19, 2001, the appellate court rendered a order that there be a valid dation in payment, the following are the
decision,[10] the dispositive portion of which reads: requisites: (1) There must be the performance of the prestation in
lieu of payment (animo solvendi) which may consist in the delivery
WHEREFORE, finding merit in this appeal, the court REVERSES the of a corporeal thing or a real right or a credit against the third
appealed Decision and enters judgment ordering defendant- person; (2) There must be some difference between
appellee Sonny Lo to pay the plaintiff-appellant KJS ECO- the prestation due and that which is given in substitution
FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five (aliud pro alio); (3) There must be an agreement between the
Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with creditor and debtor that the obligation is immediately extinguished
legal interest of 6% per annum from January 10, 1991 (filing of the by reason of the performance of a prestation different from that
Complaint) until fully paid and attorneys fees equivalent to 10% of due.[17] The undertaking really partakes in one sense of the nature of
the amount due and costs of the suit. sale, that is, the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtors
SO ORDERED.[11] debt. As such, the vendor in good faith shall be responsible, for the
existence and legality of the credit at the time of the sale but not for
the solvency of the debtor, in specified circumstances.[18]
In finding that the Deed of Assignment did not extinguish the
obligation of the petitioner to the respondent, the Court of Appeals
held that (1) petitioner failed to comply with his warranty under the
4
Hence, it may well be that the assignment of credit, which is in AGRIFINA AQUINTEY, petitioner,
the nature of a sale of personal property,[19] produced the effects of vs.
a dation in payment which may extinguish the SPOUSES FELICIDAD AND RICO TIBONG, respondents.
obligation.[20] However, as in any other contract of sale, the vendor
or assignor is bound by certain warranties. More specifically, the DECISION
first paragraph of Article 1628 of the Civil Code provides:
CALLEJO, SR., J.:
The vendor in good faith shall be responsible for the existence and
legality of the credit at the time of the sale, unless it should have
Before us is a petition for review under Rule 45 of the Revised Rules
been sold as doubtful; but not for the solvency of the debtor, unless
on Civil Procedure of the Decision1 of the Court of Appeals in CA-G.R.
it has been so expressly stipulated or unless the insolvency was prior
CV No. 78075, which affirmed with modification the Decision2 of the
to the sale and of common knowledge.
Regional Trial Court (RTC), Branch 61, Baguio City, and the
Resolution3 of the appellate court denying reconsideration thereof.
From the above provision, petitioner, as vendor or assignor, is
bound to warrant the existence and legality of the credit at the time
The Antecedents
of the sale or assignment. When Jomero claimed that it was no
longer indebted to petitioner since the latter also had an unpaid
obligation to it, it essentially meant that its obligation to petitioner On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of
has been extinguished by compensation.[21] In other words, Baguio City, a complaint for sum of money and damages against the
respondent alleged the non-existence of the credit and asserted its respondents, spouses Felicidad and Rico Tibong. Agrifina alleged
claim to petitioners warranty under the assignment. Therefore, it that Felicidad had secured loans from her on several occasions, at
behooved on petitioner to make good its warranty and paid the monthly interest rates of 6% to 7%. Despite demands, the spouses
obligation. Tibong failed to pay their outstanding loan, amounting
to P773,000.00 exclusive of interests. The complaint contained the
Furthermore, we find that petitioner breached his obligation following prayer:
under the Deed of Assignment, to wit:
WHEREFORE, premises considered, it is most respectfully
And the ASSIGNOR further agrees and stipulates as aforesaid that prayed of this Honorable Court, after due notice and
the said ASSIGNOR, his heirs, executors, administrators, or assigns, hearing, to render judgment ordering defendants to pay
shall and will at times hereafter, at the request of said ASSIGNEE, its plaintiff the following:
successors or assigns, at his cost and expense, execute and do all
such further acts and deeds as shall be reasonably necessary to
a). SEVEN HUNDRED SEVENTY-THREE
effectually enable said ASSIGNEE to recover whatever collectibles
THOUSAND PESOS (P773,000.00) representing
said ASSIGNOR has in accordance with the true intent and meaning
the principal obligation of the defendants with
of these presents.[22] (underscoring ours)
the stipulated interests of six (6%) percent per
month from May 11, 1999 to date and or those
Indeed, by warranting the existence of the credit, petitioner that are stipulated on the contracts as
should be deemed to have ensured the performance thereof in case mentioned from paragraph two (2) of the
the same is later found to be inexistent. He should be held liable to complaint.
pay to respondent the amount of his indebtedness.

Hence, we affirm the decision of the Court of Appeals ordering b). FIFTEEN PERCENT (15%) of the total
petitioner to pay respondent the sum of P335,462.14 with legal accumulated obligations as attorney's fees.
interest thereon. However, we find that the award by the Court of
Appeals of attorneys fees is without factual basis. No evidence or c). Actual expenses representing the filing fee
testimony was presented to substantiate this claim. Attorneys fees, and other charges and expenses to be incurred
being in the nature of actual damages, must be duly substantiated during the prosecution of this case.
by competent proof.

WHEREFORE, in view of the foregoing, the Decision of the Further prays for such other relief and remedies just and
Court of Appeals dated April 19, 2001 in CA-G.R. CV No. 47713, equitable under the premises.4
ordering petitioner to pay respondent the sum of P335,462.14 with
legal interest of 6% per annum from January 10, 1991 until fully paid Agrifina appended a copy of the Counter-Affidavit executed by
is AFFIRMED with MODIFICATION. Upon finality of this Decision, the Felicidad in I.S. No. 93-334, as well as copies of the promissory notes
rate of legal interest shall be 12% per annum, inasmuch as the and acknowledgment receipts executed by Felicidad covering the
obligation shall thereafter become equivalent to a forbearance of loaned amounts.5
credit.[23] The award of attorneys fees is DELETED for lack of
evidentiary basis. In their Answer with Counterclaim,6 spouses Tibong admitted that
they had secured loans from Agrifina. The proceeds of the loan were
SO ORDERED.
then re-lent to other borrowers at higher interest rates. They,
likewise, alleged that they had executed deeds of assignment in
G.R. No. 166704 December 20, 2006 favor of Agrifina, and that their debtors had executed promissory

5
notes in Agrifina's favor. According to the spouses Tibong, this execute deeds of assignment over Felicidad's debtors. The lawyer
resulted in a novation of the original obligation to Agrifina. They also suggested that Felicidad's debtors execute promissory notes in
insisted that by virtue of these documents, Agrifina became the new Agrifina's favor, to "turn over" their loans from Felicidad. This
collector of their debtors; and the obligation to pay the balance of arrangement would facilitate collection of Felicidad's account.
their loans had been extinguished. Agrifina agreed to the proposal.19 Agrifina, Felicidad, and the latter's
debtors had a conference20 where Atty. A-ayo explained that
The spouses Tibong specifically denied the material averments in Agrifina could apply her collections as payments of Felicidad's
paragraphs 2 and 2.1 of the complaint. While they did not state the account.21
total amount of their loans, they declared that they did not receive
anything from Agrifina without any written receipt.7 They prayed for From August 7, 1990 to October, 1990, Felicidad executed deeds of
that the complaint be dismissed. assignment of credits (obligations)22 duly notarized by Atty. A-ayo, in
which Felicidad transferred and assigned to Agrifina the total
In their Pre-Trial Brief, the spouses Tibong maintained that they amount of P546,459.00 due from her debtors.23 In the said deeds,
have never obtained any loan from Agrifina without the benefit of a Felicidad confirmed that her debtors were no longer indebted to her
written document.8 for their respective loans. For her part, Agrifina conformed to the
deeds of assignment relative to the loans of Virginia Morada and
Corazon Dalisay.24 She was furnished copies of the deeds as well as
On August 17, 2000, the trial court issued a Pre-Trial Order where
the promissory notes.25
the following issues of the case were defined:

The following debtors of Felicidad executed promissory notes where


Whether or not plaintiff is entitled to her claim
they obliged themselves to pay directly to Agrifina:
of P773,000.00;

Agrifina narrated that Felicidad showed to her the way to the


Whether or not plaintiff is entitled to stipulated interests
debtors' houses to enable her to collect from them. One of the
in the promissory notes; and
debtors, Helen Cabang, did not execute any promissory note but
conformed to the Deed of Assignment of Credit which Felicidad
Whether or not the parties are entitled to their claim for executed in favor of Agrifina.27 Eliza Abance conformed to the deed
damages.9 of assignment for and in behalf of her sister, Fely Cirilo.28 Edna
Papat-iw was not able to affix her signature on the deed of
The Case for Petitioner assignment nor sign the promissory note because she was in Taipei,
Taiwan.29
Agrifina and Felicidad were classmates at the University of
Pangasinan. Felicidad's husband, Rico, also happened to be a distant Following the execution of the deeds of assignment and promissory
relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to notes, Agrifina was able to collect the total amount of P301,000.00
lend money to Felicidad. According to Felicidad, Agrifina would be from Felicidad's debtors.30 In April 1990, she tried to collect the
earning interests higher than those given by the bank for her money. balance of Felicidad's account, but the latter told her to wait until
Felicidad told Agrifina that since she (Felicidad) was engaged in the her debtors had money.31 When Felicidad reneged on her promise,
sale of dry goods at the GP Shopping Arcade, she would use the Agrifina filed a complaint in the Office of the Barangay Captain for
money to buy bonnels and thread.10 Thus, Agrifina lent a total sum the collection of P773,000.00. However, no settlement was arrived
of P773,000.00 to Felicidad, and each loan transaction was covered at.32
by either a promissory note or an acknowledgment receipt. 11Agrifina
stated that she had lost the receipts signed by Felicidad for the The Case for Respondents
following amounts: P100,000.00, P34,000.00 and P2,000.00.12 The
particulars of the transactions are as follows:
Felicidad testified that she and her friend Agrifina had been engaged
in the money-lending business.33 Agrifina would lend her money
According to Agrifina, Felicidad was able to pay only her loans with monthly interest,34 and she, in turn, would re-lend the money
amounting to P122,600.00.14 to borrowers at a higher interest rate. Their business relationship
turned sour when Agrifina started complaining that she (Felicidad)
In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. was actually earning more than Agrifina.35 Before the respective
126804 dated August 25, 1990 in the amount of P50,000.00 as maturity dates of her debtors' loans, Agrifina asked her to pay her
partial payment.15 However, the check was dishonored for having account since Agrifina needed money to buy a house and lot in
been drawn against insufficient funds.16 Agrifina then filed a criminal Manila. However, she told Agrifina that she could not pay yet, as her
case against Felicidad in the Office of the City Prosecutor. An debtors' loan payments were not yet due.36 Agrifina then came to
Information for violation of Batas Pambansa Bilang 22 was filed her store every afternoon to collect from her, and persuaded her to
against Felicidad, docketed as Criminal Case No. 11181-R. After trial, go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested
the court ordered Felicidad to pay P50,000.00. Felicidad complied that she indorse the accounts of her debtors to Agrifina so that the
and paid the face value of the check.17 latter would be the one to collect from her debtors and she would
no longer have any obligation to Agrifina.38 She then executed deeds
In the meantime, Agrifina learned that Felicidad had re-loaned the of assignment in favor of Agrifina covering the sums of money due
amounts to other borrowers.18 Agrifina sought the assistance of from her debtors. She signed the deeds prepared by Atty. A-ayo in
Atty. Torres G. A-ayo who advised her to require Felicidad to the presence of Agrifina.39 Some of the debtors signed the
6
promissory notes which were likewise prepared by the lawyer. WHEREFORE, in view of the foregoing, the decision dated
Thereafter, Agrifina personally collected from Felicidad's January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil
debtors.40 Felicidad further narrated that she received P250,000.00 Case No. 4370-R is hereby MODIFIED. Defendants-
from one of her debtors, Rey Rivera, and remitted the payment to appellants are hereby ordered to pay the balance of the
Agrifina.41 total indebtedness in the amount of P51,341.00 plus the
stipulated interest of 6% per month from May 11, 1999
Agrifina testified, on rebuttal, that she did not enter into a re- until the finality of this decision.
lending business with Felicidad. When she asked Felicidad to
consolidate her loans in one document, the latter told her to seek SO ORDERED.48
the assistance of Atty. A-ayo.42 The lawyer suggested that Felicidad
assign her credits in order to help her collect her loans.43 She agreed The appellate court sustained the trial court's ruling that Felicidad's
to the deeds of assignment to help Felicidad collect from the obligation to Agrifina had not been novated by the deeds of
debtors.44 assignment and promissory notes executed in the latter's favor.
Although Agrifina was subrogated as a new creditor in lieu of
On January 20, 2003, the trial court rendered its Decision45 in favor Felicidad, Felicidad's obligation to Agrifina under the loan
of Agrifina. The fallo of the decision reads: transaction remained; there was no intention on their part to novate
the original obligation. Nonetheless, the appellate court held that
WHEREFORE, judgment is rendered in favor of the plaintiff the legal effects of the deeds of assignment could not be totally
and against the defendants ordering the latter to pay the disregarded. The assignments of credits were onerous, hence, had
plaintiffs (sic) the following amounts: the effect of payment, pro tanto, of the outstanding obligation. The
fact that Agrifina never repudiated or rescinded such assignments
only shows that she had accepted and conformed to it.
1. P472,000 as actual obligation with the stipulated
Consequently, she cannot collect both from Felicidad and her
interest of 6% per month from May 11, 1999 until the said
individual debtors without running afoul to the principle of unjust
obligation is fully paid. However, the amount of P50,000
enrichment. Agrifina's primary recourse then is against Felicidad's
shall be deducted from the total accumulated interest for
individual debtors on the basis of the deeds of assignment and
the same was already paid by the defendant as admitted
promissory notes.
by the plaintiff in her complaint,

The CA further declared that the deeds of assignment executed by


2. P25,000 as attorney's fees,
Felicidad had the effect of payment of her outstanding obligation to
Agrifina in the amount of P585,659.00. It ruled that, since an
3. [T]o pay the costs. assignment of credit is in the nature of a sale, the assignors
remained liable for the warranties as they are responsible for the
SO ORDERED.46 existence and legality of the credit at the time of the assignment.

The trial court ruled that Felicidad's obligation had not been novated Both parties moved to have the decision reconsidered,49 but the
by the deeds of assignment and the promissory notes executed by appellate court denied both motions on December 21, 2004.50
Felicidad's borrowers. It explained that the documents did not
contain any express agreement to novate and extinguish Felicidad's Agrifina, now petitioner, filed the instant petition, contending that
obligation. It declared that the deeds and notes were separate
contracts which could stand alone from the original indebtedness of
1. The Honorable Court of Appeals erred in ruling that the
Felicidad. Considering, however, Agrifina's admission that she was
deeds of assignment in favor of petitioner has the effect of
able to collect from Felicidad's debtors the total amount
payment of the original obligation even as it ruled out that
of P301,000.00, this should be deducted from the latter's
the original obligation and the assigned credit are distinct
accountability.47 Hence, the balance, exclusive of interests,
and separate and can stand independently from each
amounted to P472,000.00.
other;

On appeal, the CA affirmed with modification the decision of the


2. The Honorable Court of Appeals erred in passing upon
RTC and stated that, based on the promissory notes and
issues raised for the first time on appeal; and
acknowledgment receipts signed by Felicidad, the appellants
secured loans from the appellee in the total principal amount of
only P637,000.00, not P773,000.00 as declared by the trial court. 3. The Honorable Court of Appeals erred in resolving fact
The CA found that, other than Agrifina's bare testimony that she had not in issue.51
lost the promissory notes and acknowledgment receipts, she failed
to present competent documentary evidence to substantiate her Petitioner avers that the appellate court erred in ruling that
claim that Felicidad had, likewise, borrowed the amounts respondents' original obligation amounted to only P637,000.00
of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total (instead of P773,000.00) simply because she lost the promissory
account, P585,659.00 was covered by the deeds of assignment and notes/receipts which evidenced the loans executed by respondent
promissory notes; hence, the balance of Felicidad's account Felicidad Tibong. She insists that the issue of whether Felicidad
amounted to only P51,341.00. The fallo of the decision reads: owed her less than P773,000.00 was not raised by respondents

7
during pre-trial and in their appellate brief; the appellate court was new creditor. In fine, respondents are no longer liable to petitioner
thus proscribed from taking cognizance of the issue. for the balance of their loan account inclusive of interests.
Respondents also insist that petitioner failed to prove that she
Petitioner avers that respondents failed to deny, in their verified (petitioner) was merely authorized to collect the accounts of the
answer, that they had secured the P773,000.00 loan; hence, original debtors so as to to facilitate the payment of respondents'
respondents are deemed to have admitted the allegation in the loan obligation.
complaint that the loans secured by respondent from her amounted
to P773,000.00. As gleaned from the trial court's pre-trial order, the The Issues
main issue is whether or not she should be made to pay this
amount. The threshold issues are: (1) whether respondent Felicidad Tibong
borrowed P773,000.00 from petitioner; and (2) whether the
Petitioner further maintains that the CA erred in deducting the total obligation of respondents to pay the balance of their loans, including
amount of P585,659.00 covered by the deeds of assignment interest, was partially extinguished by the execution of the deeds of
executed by Felicidad and the promissory notes executed by the assignment in favor of petitioner, relative to the loans of Edna
latter's debtors, and that the balance of respondents' account was Papat-iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in the
only P51,341.00. Moreover, the appellate court's ruling that there total amount of P371,000.00.
was no novation runs counter to its holding that the primary
recourse was against Felicidad's debtors. Petitioner avers that of the The Ruling of the Court
11 deeds of assignment and promissory notes, only two bore her
signature.52 She insists that she is not bound by the deeds which she
We have carefully reviewed the brief of respondents as appellants in
did not sign. By assigning the obligation to pay petitioner their loan
the CA, and find that, indeed, they had raised the issue of whether
accounts, Felicidad's debtors merely assumed the latter's obligation
they received P773,000.00 by way of loans from petitioner. They
and became co-debtors to petitioner. Respondents were not
averred that, as gleaned from the documentary evidence of
released from their obligation under their loan transactions, and she
petitioner in the RTC, the total amount they borrowed was
had the option to demand payment from them or their debtors.
only P673,000.00. They asserted that petitioner failed to adduce
Citing the ruling of this Court in Magdalena Estates, Inc. v.
concrete evidence that they received P773,000.00 from her.55
Rodriguez,53 petitioner insists that the first debtor is not released
from responsibility upon reaching an agreement with the creditor.
The payment by a third person of the first debtor's obligation does We agree, however, with petitioner that the appellate court erred in
not constitute novation, and the creditor can still enforce the reversing the finding of the RTC simply because petitioner failed to
obligation against the original debtor. Petitioner also cites the ruling present any document or receipt signed by Felicidad.
of this Court in Guerrero v. Court of Appeals.54
Section 10, Rule 8 of the Rules of Civil Procedure requires a
In their Comment on the petition, respondents aver that by virtue of defendant to "specify each material allegation of fact the truth of
respondent Felicidad's execution of the deeds of assignment, and which he does not admit and, whenever practicable, x x x set forth
the original debtors' execution of the promissory notes (along with the substance of the matters upon which he relies to support his
their conformity to the deeds of assignment with petitioner's denial.56
consent), their loan accounts with petitioner amounting
to P585,659.00 had been effectively extinguished. Respondents Section 11, Rule 8 of the same Rules provides that allegations of the
point out that this is in accordance with Article 1291, paragraph 2, of complaint not specifically denied are deemed admitted.57
the Civil Code. Thus, the original debtors of respondents had been
substituted as petitioner's new debtors. The purpose of requiring the defendant to make a specific denial is
to make him disclose the matters alleged in the complaint which he
Respondents counter that petitioner had been subrogated to their succinctly intends to disprove at the trial, together with the matter
right to collect the loan accounts of their debtors. In fact, petitioner, which he relied upon to support the denial. The parties are
as the new creditor of respondents' former debtors had been able to compelled to lay their cards on the table.58
collect the latter's loan accounts which amounted to P301,000.00.
The sums received by respondents' debtors were the same loans A denial is not made specific simply because it is so qualified by the
which they obliged to pay to petitioner under the promissory notes defendant. A general denial does not become specific by the use of
executed in petitioner's favor. the word "specifically." When matters of whether the defendant
alleges having no knowledge or information sufficient to form a
Respondents aver that their obligation to petitioner cannot stand or belief are plainly and necessarily within the defendant's knowledge,
exist separately from the original debtors' obligation to petitioner as an alleged "ignorance or lack of information" will not be considered
the new creditor. If allowed to collect from them as well as from as a specific denial. Section 11, Rule 8 of the Rules also provides that
their original debtors, petitioner would be enriching herself at the material averments in the complaint other than those as to the
expense of respondents. Thus, despite the fact that petitioner had amount of unliquidated damages shall be deemed admitted when
collected P172,600.00 from respondents and P301,000.00 from the not specifically denied.59 Thus, the answer should be so definite and
original debtors, petitioner still sought to collect P773,000.00 from certain in its allegations that the pleader's adversary should not be
them in the RTC. Under the deeds of assignment executed by left in doubt as to what is admitted, what is denied, and what is
Felicidad and the original debtors' promissory notes, the original covered by denials of knowledge as sufficient to form a belief.60
debtors' accounts were assigned to petitioner who would be the

8
In the present case, petitioner alleged the following in her collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga,
complaint: Gelacio, and Manuel. Petitioner cannot again collect the same
amount from respondents; otherwise, she would be enriching
2. That defendants are indebted to the plaintiff in the herself at their expense. Neither can petitioner collect from
principal amount of SEVEN HUNDRED SEVENTY-THREE respondents more than P103,500.00 which she had already
THOUSAND PESOS (P773,000.00) Philippine Currency with collected from Nimo, Cantas, Rivera, Donguis, Fernandez and
a stipulated interest which are broken down as follows. Ramirez.
The said principal amounts was admitted by the
defendants in their counter-affidavit submitted before the There is no longer a need for the Court to still resolve the issue of
court. Such affidavit is hereby attached as Annex "A;"61 whether respondents' obligation to pay the balance of their loan
account to petitioner was partially extinguished by the promissory
xxxx notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog,
Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because,
as admitted by petitioner, she was able to collect the amounts under
H) The sum of THIRTY FOUR THOUSAND PESOS
the notes from said debtors and applied them to respondents'
(P34,000.00) with interest at six (6%) per cent per month
accounts.
and payable on October 19, 1989, however[,] the receipt
for the meantime cannot be recovered as it was misplaced
by the plaintiff but the letter of defendant FELICIDAD Under Article 1231(b) of the New Civil Code, novation is enumerated
TIBONG is hereby attached as Annex "H" for the as one of the ways by which obligations are extinguished.
appreciation of the Honorable court; Obligations may be modified by changing their object or principal
creditor or by substituting the person of the debtor.63 The burden to
prove the defense that an obligation has been extinguished by
I) The sum of ONE HUNDRED THOUSAND PESOS
novation falls on the debtor.64 The nature of novation was
(P100,000.00) with interest at five (5%) percent per
extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps.
month, obtained on July 14, 1989 and payable on October
Oscar Soriano, Jr.,65 as follows:
14, 1989. Such receipt was lost but admitted by the
defendants in their counter-affidavit as attached [to] this
complaint and marked as Annex "A" mentioned in Novation may either be extinctive or modificatory, much
paragraph one (1); x x x62 being dependent on the nature of the change and the
intention of the parties. Extinctive novation is never
presumed; there must be an express intention to novate;
In their Answer, respondents admitted that they had secured loans
in cases where it is implied, the acts of the parties must
from petitioner. While the allegations in paragraph 2 of the
clearly demonstrate their intent to dissolve the old
complaint were specifically denied, respondents merely averred that
obligation as the moving consideration for the emergence
petitioner and respondent Felicidad entered into an agreement for
of the new one. Implied novation necessitates that the
the lending of money to interested borrowers at a higher interest
incompatibility between the old and new obligation be
rate. Respondents failed to declare the exact amount of the loans
total on every point such that the old obligation is
they had secured from petitioner. They also failed to deny the
completely superseded by the new one. The test of
allegation in paragraph 2 of the complaint that respondent Felicidad
incompatibility is whether they can stand together, each
signed and submitted a counter-affidavit in I.S. No. 93-334 where
one having an independent existence; if they cannot and
she admitted having secured loans from petitioner in the amount
are irreconciliable, the subsequent obligation would also
of P773,000.00. Respondents, likewise, failed to deny the allegation
extinguish the first.
in paragraph 2(h) of the complaint that respondents had secured
a P34,000.00 loan payable on October 19, 1989, evidenced by a
receipt which petitioner had misplaced. Although respondents An extinctive novation would thus have the twin effects of,
specifically denied in paragraph 2.11 of their Answer the allegations first, extinguishing an existing obligation and, second,
in paragraph 2(I) of the complaint, they merely alleged that "they creating a new one in its stead. This kind of novation
have not received sums of money from the plaintiff without any presupposes a confluence of four essential requisites: (1) a
receipt therefor." previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of
the old obligation; and (4) the birth of a valid new
Respondents, likewise, failed to specifically deny another allegation
obligation. Novation is merely modificatory where the
in the complaint that they had secured a P100,000.00 loan from
change brought about by any subsequent agreement is
petitioner on July 14, 1989; that the loan was payable on October
merely incidental to the main obligation (e.g., a change in
14, 1989; and evidenced by a receipt which petitioner claimed to
interest rates or an extension of time to pay); in this
have lost. Neither did respondents deny the allegation that
instance, the new agreement will not have the effect of
respondents admitted their loan of P100,000.00 in the counter-
extinguishing the first but would merely supplement it or
affidavit of respondent Felicidad, which was appended to the
supplant some but not all of its provisions.66 (Citations
complaint as Annex "A." In fine, respondents had admitted the
Omitted)
existence of their P773,000.00 loan from petitioner.

Novation which consists in substituting a new debtor (delegado) in


We agree with the finding of the CA that petitioner had no right to
the place of the original one (delegante) may be made even without
collect from respondents the total amount of P301,000.00, which
the knowledge or against the will of the latter but not without the
includes more than P178,980.00 which respondent Felicidad
9
consent of the creditor. Substitution of the person of the debtor elements of a contract of sale, namely, consent, object certain, and
may be effected by delegacion, meaning, the debtor offers, and the cause or consideration must be present. In its modern concept, what
creditor (delegatario), accepts a third person who consents to the actually takes place in dacion en pago is an objective novation of the
substitution and assumes the obligation. Thus, the consent of those obligation where the thing offered as an accepted equivalent of the
three persons is necessary.67 In this kind of novation, it is not enough performance of an obligation is considered as the object of the
to extend the juridical relation to a third person; it is necessary that contract of sale, while the debt is considered as the purchase price.
the old debtor be released from the obligation, and the third person In any case, common consent is an essential prerequisite, be it sale
or new debtor take his place in the relation.68 Without such release, or novation, to have the effect of totally extinguishing the debt or
there is no novation; the third person who has assumed the obligation.76
obligation of the debtor merely becomes a co-debtor or a surety. If
there is no agreement as to solidarity, the first and the new debtor The requisites for dacion en pago are: (1) there must be a
are considered obligated jointly.69 performance of the prestation in lieu of payment (animo solvendi)
which may consist in the delivery of a corporeal thing or a real right
In Di Franco v. Steinbaum,70 the appellate court ruled that as to the or a credit against the third person; (2) there must be some
consideration necessary to support a contract of novation, the rule difference between the prestation due and that which is given in
is the same as in other contracts. The consideration need not be substitution (aliud pro alio); and (3) there must be an agreement
pecuniary or even beneficial to the person promising. It is sufficient between the creditor and debtor that the obligation is immediately
if it be a loss of an inconvenience, such as the relinquishment of a extinguished by reason of the performance of a prestation different
right or the discharge of a debt, the postponement of a remedy, the from that due.77
discontinuance of a suit, or forbearance to sue.
All the requisites for a valid dation in payment are present in this
In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of case. As gleaned from the deeds, respondent Felicidad assigned to
Appeals ruled that the theory of novation is that the new debtor petitioner her credits "to make good" the balance of her obligation.
contracts with the old debtor that he will pay the debt, and also to Felicidad testified that she executed the deeds to enable her to
the same effect with the creditor, while the latter agrees to accept make partial payments of her account, since she could not comply
the new debtor for the old. A novation is not made by showing that with petitioner's frenetic demands to pay the account in cash.
the substituted debtor agreed to pay the debt; it must appear that Petitioner and respondent Felicidad agreed to relieve the latter of
he agreed with the creditor to do so. Moreover, the agreement her obligation to pay the balance of her account, and for petitioner
must be based on the consideration of the creditor's agreement to to collect the same from respondent's debtors.
look to the new debtor instead of the old. It is not essential that
acceptance of the terms of the novation and release of the debtor Admittedly, some of respondents' debtors, like Edna Papat-iw, were
be shown by express agreement. Facts and circumstances not able to affix their conformity to the deeds. In an assignment of
surrounding the transaction and the subsequent conduct of the credit, however, the consent of the debtor is not essential for its
parties may show acceptance as clearly as an express agreement, perfection; the knowledge thereof or lack of it affecting only the
albeit implied.72 efficaciousness or inefficaciousness of any payment that might have
been made. The assignment binds the debtor upon acquiring
We find in this case that the CA correctly found that respondents' knowledge of the assignment but he is entitled, even then, to raise
obligation to pay the balance of their account with petitioner was against the assignee the same defenses he could set up against the
extinguished, pro tanto, by the deeds of assignment of credit assignor78 necessary in order that assignment may fully produce
executed by respondent Felicidad in favor of petitioner. legal effects. Thus, the duty to pay does not depend on the consent
of the debtor. The purpose of the notice is only to inform that
An assignment of credit is an agreement by virtue of which the debtor from the date of the assignment. Payment should be made
owner of a credit, known as the assignor, by a legal cause, such as to the assignee and not to the original creditor.
sale, dation in payment, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to The transfer of rights takes place upon perfection of the contract,
another, known as the assignee, who acquires the power to enforce and ownership of the right, including all appurtenant accessory
it to the same extent as the assignor could enforce it against the rights, is acquired by the assignee79 who steps into the shoes of the
debtor.73 It may be in the form of sale, but at times it may constitute original creditor as subrogee of the latter80 from that amount, the
a dation in payment, such as when a debtor, in order to obtain a ownership of the right is acquired by the assignee. The law does not
release from his debt, assigns to his creditor a credit he has against a require any formal notice to bind the debtor to the assignee, all that
third person.74 the law requires is knowledge of the assignment. Even if the debtor
had not been notified, but came to know of the assignment by
In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en whatever means, the debtor is bound by it. If the document of
pago is the delivery and transmission of ownership of a thing by the assignment is public, it is evidence even against a third person of the
debtor to the creditor as an accepted equivalent of the performance facts which gave rise to its execution and of the date of the latter.
of the obligation. It is a special mode of payment where the debtor The transfer of the credit must therefore be held valid and effective
offers another thing to the creditor who accepts it as equivalent of from the moment it is made to appear in such instrument, and third
payment of an outstanding debt. The undertaking really partakes in persons must recognize it as such, in view of the authenticity of the
one sense of the nature of sale, that is, the creditor is really buying document, which precludes all suspicion of fraud with respect to the
the thing or property of the debtor, payment for which is to be date of the transfer or assignment of the credit.81
charged against the debtor's obligation. As such, the essential

10
As gleaned from the deeds executed by respondent Felicidad hence, if the assignment was prepared by the assignee, it will be
relative to the accounts of her other debtors, petitioner was construed most strictly against him or her.85 One who chooses the
authorized to collect the amounts of P6,000.00 from Cabang, words by which a right is given ought to be held to the strict
and P63,600.00 from Cirilo. They obliged themselves to pay interpretation of them, rather than the other who only accepts
petitioner. Respondent Felicidad, likewise, unequivocably declared them.86
that Cabang and Cirilo no longer had any obligation to her.
Considering all the foregoing, we find that respondents still have a
Equally significant is the fact that, since 1990, when respondent balance on their account to petitioner in the principal amount
Felicidad executed the deeds, petitioner no longer attempted to of P33,841.00, the difference between their loan of P773,000.00
collect from respondents the balance of their accounts. It was only less P585,659.00, the payment of respondents' other debtors
in 1999, or after nine (9) years had elapsed that petitioner amounting to P103,500.00, and the P50,000.00 payment made by
attempted to collect from respondents. In the meantime, petitioner respondents.
had collected from respondents' debtors the amount
of P301,000.00. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
Decision and Resolution of the Court of Appeals
While it is true that respondent Felicidad likewise authorized are AFFIRMED with MODIFICATION in that the balance of the
petitioner in the deeds to collect the debtors' accounts, and for the principal account of the respondents to the petitioner is P33,841.00.
latter to pay the same directly, it cannot thereby be considered that No costs.
respondent merely authorized petitioner to collect the accounts of
respondents' debtors and for her to apply her collections in partial SO ORDERED.
payments of their accounts. It bears stressing that petitioner, as
assignee, acquired all the rights and remedies passed by Felicidad, as
assignee, at the time of the assignment.82 Such rights and remedies
include the right to collect her debtors' obligations to her.
SOCIAL SECURITY SYSTEM
Petitioner cannot find solace in the Court's ruling in Magdalena ,
Estates. In that case, the Court ruled that the mere fact that - versus -
novation does not follow as a matter of course when the creditor .
receives a guaranty or accepts payments from a third person who ATLANTIC GULF AND PACIFIC
has agreed to assume the obligation when there is no agreement COMPANY OF MANILA, INC. and
that the first debtor would be released from responsibility. Thus, the SEMIRARA COAL CORPORATION
creditor can still enforce the obligation against the original debtor.

In the present case, petitioner and respondent Felicidad agreed that


the amounts due from respondents' debtors were intended to In this Petition for Review on Certiorari[1] under Rule 45 of the 1997
"make good in part" the account of respondents. Case law is that, an Rules of Civil Procedure, petitioner Republic of
assignment will, ordinarily, be interpreted or construed in
accordance with the rules of construction governing contracts the Philippines represented by the Social Security System (SSS)
generally, the primary object being always to ascertain and carry out assails the Decision[2]dated 31 August 2006 of the Eleventh Division
the intention of the parties. This intention is to be derived from a
consideration of the whole instrument, all parts of which should be of the Court of Appeals and its Resolution[3] dated 19 December
given effect, and is to be sought in the words and language
2006 denying petitioners Motion for Reconsideration.
employed.83

Indeed, the Court must not go beyond the rational scope of the Following are the antecedents culled from the decision of the Court
words used in construing an assignment, words should be construed
of Appeals:
according to their ordinary meaning, unless something in the
assignment indicates that they are being used in a special sense. So,
if the words are free from ambiguity and expressed plainly the On 13 February 2004, Atlantic Gulf and Pacific Company of Manila,
purpose of the instrument, there is no occasion for interpretation;
but where necessary, words must be interpreted in the light of the Inc. (AG & P) and Semirara Coal Corporation (SEMIRARA)
particular subject matter.84 And surrounding circumstances may be (collectively referred to as private respondents) filed a complaint for
considered in order to understand more perfectly the intention of
the parties. Thus, the object to be accomplished through the specific performance and damages against SSS before
assignment, and the relations and conduct of the parties may be
the Regional Trial Court of Batangas City, Branch 3, docketed as Civil
considered in construing the document.
Case No. 7441. The complaint alleged that:
Although it has been said that an ambiguous or uncertain xxx
assignment should be construed most strictly against the assignor,
the general rule is that any ambiguity or uncertainty in the meaning 3. Sometime in 2000, plaintiff informed the SSS in writing
of an assignment will be resolved against the party who prepared it; of its premiums and loan amortization delinquencies

11
covering the period from January 2000 to May 2000 follow ups with SSS as to the status of its submitted Deed
amounting to P7.3 Million. AG&P proposed to pay its said of Assignment;
arrears by end of 2000, but requested for the 12. On February 28, 2003, or more than a year after the
condonation of all penalties; approval of AG&Ps proposal, defendant sent the revised
4. In turn, the defendant suggested two (2) options to copy of the Deed of Assignment to AG&P. However, the
AG&P, either to pay by installment or through dacion en amount of the plaintiffs obligation appearing in the
pago; approved Deed of Assignment has
5. AG&P chose to settle its obligation with the SSS ballooned from P29,261,902.45
under the second option, that is through dacion en to P40,846,610.64 allegedly because of the additional
pago of its 5,999 sq. m. property situated interests and penalty charges assessed on plaintiffs
in Baguio City covered by TCT No. 3941 with an appraised outstanding obligation from April 2001, the date of
value of about P80.0 Million. SSS proposes to carve-out approval of the proposal, up to January 2003;
from the said property an area sufficient to cover 13. AG&P demanded for the waiver and deletion of the
plaintiffs delinquencies. AG&P, however, is not amenable additional interests on the ground that delay in the
to subdivide its Baguio property; approval of the deed and the subsequent delay in
6. AG&P then made another proposal to SSS. This conveyance of the property in defendants name was
time, offering as payment a portion of its 58,153 square solely attributable to the defendant; hence, to charge
meter-lot, situated in F.S. Sebastian, Sto. Nio, San Pascual, plaintiffs with additional interests and penalties
Batangas. In addition, SSS informed AG&P of its decision amounting to more than P10,000,000.00, would be
to include other companies within the umbrella of DMCI unreasonable.;
group with arrearages with the SSS. In the process of 14. AG&P and SEMIRARA maintain their willingness to
elimination of the companies belonging to the DMCI settle their alleged obligation of P29,261,902.45 to SSS.
group with possible outstanding obligation with the SSS, it Defendant, however, refused to accept the payment
was only SEMIRARA which was left with outstanding through dacion en pago, unless plaintiffs also pay the
delinquencies with the SSS. Thus, SEMIRARAs inclusion in additional interests and penalties being charged;
the proposed settlement through dacion en pago;
7. AG&P was, thereafter, directed by the defendant to xxx
submit certain documents, such as Transfer Certificate of
Title, Tax Declaration covering the subject lot, and the
proposed subdivision plan, which requirements AG&P
immediately complied; Instead of filing an answer, SSS moved for the dismissal of the
8. On April 4, 2001, SSS, in its Resolution No. 270, complaint for lack of jurisdiction and non-exhaustion of
finally approved AG&Ps proposal to settle its and
SEMIRARAs delinquencies through dacion en pago, which administrative remedies. In an order dated 28 July 2004, the trial
as of March 31, 2001 amounted court granted SSSs motion and dismissed private respondents
to P29,261,902.45. Approval of AG&Ps proposal was
communicated to it by Ms. Aurora E.L. Ortega, Vice- complaint. The pertinent portions of the assailed order are as
President, NCR-Group of the SSS in a letter dated April 23,
follows:
2001. ;
9. As a result of the approval of the dacion en pago,
posting of contributions and loan amortization to Clearly, the motion is triggered on the issue of the courts
individual member accounts, both for AG&P and jurisdiction over the subject matter and the nature of the
SEMIRARA employees, was effected immediately instant complaint. The length and breadth of the
thereafter. Thus, the benefits of the member-employees complaint as perused, boils down to the questions of
of both companies were restored; premium and loan amortization delinquencies of the
10. From the time of the approval of AG&Ps proposal up plaintiff, the option taken for the payment of the same in
to the present, AG&P is (sic) religiously remitting the favor of the defendant and the disagreement between the
premium contributions and loan amortization of its parties as to the amount of the unpaid contributions and
member-employees to the defendant; salary loan repayments. In other words, said questions are
11. To effect the property transfer, a Deed of Assignment directly related to the collection of contributions due the
has to be executed between the plaintiffs and the defendant. Republic Act No. 1161 as amended by R.A. No.
defendant. Because of SSS failure to come up with the 8282, specifically provides that any dispute arising under
required Deed of Assignment to effect said transfer, the said Act shall be cognizable by the Commission and
AG&P prepared the draft and submitted it to the Office of any case filed with respect thereto shall be heard by the
the Vice-President NCR thru SSS Baclaran Branch in July Commission. Hence, a procedural process mandated by a
2001. Unfortunately, the defendant failed to take any special law.
action on said Deed of Assignment causing AG&P to re-
submit it to the same office of the Vice-President NCR in Observingly, the running dispute between plaintiffs and
December 2001. From its original submission of the Deed defendant originated from the disagreement as to the
of Assignment in July 2001 to its re-submission in amount of unpaid contributions and the amount of the
December 2001, and SSS returning of the revised draft in penalties imposed appurtenant thereto. The
February 28, 2003 AG&P was consistent in its regular alleged dacion en pago is crystal clear manifestation of

12
offering a special form of payment which to the mind of
the court will produce effect only upon acceptance by the Now before the Court, SSS insists on the Social Security Commissions
offeree and the observance and compliance of the (the Commission) jurisdiction over the complaint pursuant to
required formalities by the parties. No matter in what
form it may be, still the court believes that the subject Section 5 (a) of Republic Act (R.A.) No. 8282. SSS maintains the
matter is the payment of contributions and the Commissions jurisdiction over all disputes arising from the
corresponding penalties which are within the ambit of Sec.
5 (a) of R.A. No. 1161, as amended by R.A. No. 8282. provisions of R.A. No. 1161, amended by R.A. No. 8282 to the
exclusion of trial courts.[6]
WHEREFORE, the Court having no jurisdiction over the The main issue in this case pertains to which body has jurisdiction to
subject matter of the instant complaint, the motion is
granted and this case is hereby ordered DISMISSED. entertain a controversy arising from the non-implementation of
a dacion en pago agreed upon by the parties as a means of
SO ORDERED.[4]
settlement of private respondents liabilities.
Private respondents moved for the reconsideration of the order but
At the outset, it is well to restate the rule that what determines the
the same was denied in an Order dated 15 September 2004.
nature of the action as well as the tribunal or body which has
Consequently, private respondents filed an appeal before the Court jurisdiction over the case are the allegations in the complaint. [7]
of Appeals alleging that the trial court erred in its pronouncement
The pertinent provision of law detailing the jurisdiction of the
that it had no jurisdiction over the subject matter of the complaint
Commission is Section 5(a) of R.A. No. 1161, as amended by R.A. No.
and in granting the motion to dismiss.
8282, otherwise known as the Social Security Act of 1997, to wit:
The Court of Appeals reversed and set aside the trial courts
challenged order, granted private respondents appeal and ordered SEC. 5. Settlement of Disputes. (a) Any dispute
arising under this Act with respect to coverage,
the trial court to proceed with the civil case with dispatch. From the benefits, contributions and penalties thereon or
any other matter related thereto, shall be
averments in their complaint, the appellate court observed that
cognizable by the Commission, and any case filed
private respondents are seeking to implement the Deed of with respect thereto shall be heard by the
Commission, or any of its members, or by
Assignment which they had drafted and submitted to SSS sometime hearing officers duly authorized by the
in July 2001, pursuant to SSSs letter addressed to AG& P dated 23 Commission and decided within the mandatory
period of twenty (20) days after the submission
April 2001 approving AG&P and SEMIRARAS delinquencies of the evidence. The filing, determination and
through dacion en pago, which as of 31 March 2001, amounted settlement of disputes shall be governed by the
rules and regulations promulgated by the
to P29,261,902.45. The appellate court thus held that the subject of Commission.
the complaint is no longer the payment of the premium and loan
The law clearly vests upon the Commission jurisdiction
amortization delinquencies, as well as the penalties appurtenant
over disputes arising under this Act with respect to coverage,
thereto, but the enforcement of the dacion en pago pursuant to SSS
benefits, contributions and penalties thereon or any matter related
Resolution No. 270. The action then is one for specific performance
thereto... Dispute is defined as a conflict or controversy.[8]
which case law holds is an action incapable of pecuniary estimation
falling under the jurisdiction of the Regional Trial Court.[5]
From the allegations of respondents complaint, it readily
SSS filed a motion for reconsideration of the appellate courts appears that there is no longer any dispute with respect to
decision but the same was denied in a Resolution dated 19 respondents accountability to the SSS. Respondents had, in
December 2006. fact, admitted their delinquency and offered to settle them by way
of dacion en pago subsequently approved by the SSS in Resolution
No. 270-s. 2001. SSS stated in said resolution that the dacion en

13
jurisdiction in the municipal courts or in the
pago proposal of AG&P Co. of Manila and Semirara Coals courts of first instance would depend on the
Corporation to pay their liabilities in the total amount amount of the claim. However, where the basic
issue is something other than the right to
of P30,652,710.71 as of 31 March 2001 by offering their 5.8 ha. recover a sum of money, where the money claim
property located in San Pascual, Batangas, be, as it is hereby, is purely incidental to, or a consequence of, the
principal relief sought, this Court has considered
approved..[9] This statement unequivocally evinces its consent to such actions as cases where the subject of the
litigation may not be estimated in terms of
the dacion en pago. In Vda. de Jayme v. Court of Appeals,[10] the
money, and are cognizable exclusively by courts
Court ruled significantly as follows: of first instance (now Regional Trial Courts).[14]

In fine, the Court finds the decision of the Court of Appeals


Dacion en pago is the delivery and
transmission of ownership of a thing by the in accord with law and jurisprudence.
debtor to the creditor as an accepted
equivalent of the performance of the
obligation. It is a special mode of payment WHEREFORE, the petition is DENIED. The Decision dated 31 August
where the debtor offers another thing to the 2006 of the Court of Appeals Eleventh Division in CA-G.R. CV No.
creditor who accepts it as equivalent of
payment of an outstanding debt. The 83775 AFFIRMED.
undertaking really partakes in one sense of
the nature of sale, that is the creditor is Let the case be remanded to the trial court for further proceedings.
really buying the thing or property of the
debtor, payment for which is to be charged SO ORDERED.
against the debtors debt. As such, the
essential elements of a contract of sale,
namely, consent, object certain, and cause
or consideration must be present. In its Yuson vs. Vitain
modern concept, what actually takes place
in dacion en pago is an objective novation of
the obligation where the thing offered as an
accepted equivalent of the performance of The Case
an obligation is considered as the object of
the contract of sale, while the debt is Before us is a Letter-Complaint[1] for the disbarment of
considered as the purchase price. In any
Atty. Jeremias R. Vitan, filed by Mar Yuson with the Commission on
case, common consent is an essential
prerequisite, be it sale or novation, to have Bar Discipline (CBD) of the Integrated Bar of the Philippines (IBP).
the effect of totally extinguishing the debt or
obligation.[11] Respondent was accused of taking advantage of complainants

generosity and credulity.


The controversy, instead, lies in the non-implementation
of the approved and agreed dacion en pago on the part of the SSS. On August 5, 2004, IBP-CBD directed Atty. Vitan to submit

As such, respondents filed a suit to obtain its enforcement which is, his Answer within 15 days from receipt of the Order;[2] otherwise, he
doubtless, a suit for specific performance and one incapable of would be considered in default and the case heard ex parte.
pecuniary estimation beyond the competence of the
Commission.[12] Pertinently, the Court ruled in Singson v. Isabela Because respondent failed to submit his Answer within

Sawmill,[13] as follows: the given period, the CBD considered his failure and non-appearance

as a waiver of his right to participate in the proceedings. [3] Thus, the


In determining whether an action is
one the subject matter of which is not capable of hearing scheduled for August 11, 2005, pushed through, with the
pecuniary estimation this Court has adopted the
criterion of first ascertaining the nature of the original copies of the checks he had issued presented by
principal action or remedy sought. If it is
primarily for the recovery of a sum of money, complainant as evidence. Afterwards, the CBD issued an Order
the claim is considered capable of pecuniary
estimation, and whether submitting the case for Resolution.[4] On August 23, 2005,

14
Commissioner Milagros V. San Juan rendered her Report and Commerce in Escolta, Manila. The six dishonored checks

Recommendation.[5] were presented during the hearing before the IBP commissioner.[10]

Respondent denied having received a copy of the Complainant maintained that he had repeatedly tried to

Complaint against him and alleged that it was only on August 24, recover the debt, only to be turned away empty-handed each

2005, that he received the Order submitting the case for time. He conceded, though, that respondent had given an

resolution. Thus, he filed an Urgent Motion to Revive/Re-open and undisclosed amount covered by the checks dated January and

with Leave to Admit Attached Answer.[6] February 2003.[11] The amounts covered by the dishonored checks

remained unpaid.
In its Resolution No. XVII-2005-101 dated October 22,

2005, the IBP Board of Directors adopted and approved, with This development prompted complainant to seek the aid

modification, the investigating commissioners Report and of the IBP National Committee on Legal Aid (NCLA) in obtaining

Recommendation. Upon respondent was imposed the penalty of payment. On November 14, 2003, the IBP-NCLA, through Deputy

suspension from the practice of law for two years, after the board Director Rosalie J. de la Cruz, sent him a letter.[12] It informed him of

found that he had taken advantage of complainant through deceit the impending administrative case and advised him to confer with

and dishonesty. The lawyer was further ordered to give back the complainant, presumably to settle the matter. Upon receipt[13] of

money he had received from complainant. the letter, he again gave assurances that he would pay the loan in

time for the debut.[14]


The Facts

When the date passed without any payment, complainant


Complainant Mar Yuson was a taxi driver with eight
demanded a collateral to secure the loan. Thus, in his favor,
children. In October 2002, he received a sum of money by way of
Atty. Vitan executed a document denominated as a Deed of
inheritance. According to him, he and his wife intended to use the
Absolute Sale, covering the latters parcel of land located in Sta. Maria,
money to purchase a taxi, repair their dilapidated house, and hold a
Bulacan. According to complainant, their intention was to transfer
debut party for their daughter.[7]
the title of the property to him temporarily, so that he could either

They were able to purchase a secondhand taxi, and Atty. sell or mortgage[15] it. It was further agreed that, if it was mortgaged,

Vitan helped him with all the legal matters concerning this respondent would redeem it as partial or full payment of the

purchase. Regrettably, their other plans were put on hold, because loan.[16]

the lawyer borrowed P100,000 from them in December 2002. It was


Curiously, however, the parties executed a second Deed of
agreed that the loan would be repaid before the end of the
Absolute Sale,[17] this time in favor of Atty. Vitan, with complainant
following year,[8] in time for the debut on November 24, 2003.[9]
as vendor. The purpose of this particular document was not

To guarantee payment, respondent executed in favor of explained by either party.

complainant several postdated checks to cover the loaned amount.


On April 12, 2004, complainant was able to
Those checks, however, turned out to be worthless, because they
mortgage[18] the property for P30,000.[19] Contrary to their earlier
had been drawn against the lawyers closed account in the Bank of
agreement, respondent did not redeem it from the mortgagee and,
15
instead, simply sent complainant a letter[20] dated July 7, 2004, Report of the Investigating Commissioner

promising to pay on or before July 12, 2004. As this promise was not
In her Report and Recommendation, Commissioner San
fulfilled, the mortgagee demanded payment from complainant and
Juan recommended that Atty. Vitan be suspended until his
thereby allegedly exposed the latter to shame and ridicule.[21]
restitution of the amount he had borrowed. She held that

On July 19, 2004, IBP-NCLA sent another letter[22] on respondent, having taken advantage of complainant and thus shown

behalf of complainant. Respondent was informed that an dishonesty and untrustworthiness, did not deserve to retain his

administrative case would be filed against him, unless he settled his membership in the bar.

obligations by July 30, 2004, the date given by complainant.


On November 24, 2005, the Supreme Court received the

On August 30, 2004, the IBP-NCLA received the IBP Resolution adopting, with modification, the Report and

reply[23] dated July 30, 2004, submitted by Atty. Vitan who explained Recommendation of the investigating commissioner.

that he had already settled his obligation. He maintained that he had The Courts Ruling

in fact executed, in complainants favor, a Deed of Absolute Sale over


We agree with the findings of the IBP Board of Governors,
his 203-square-meter residential property in Sta. Maria, Bulacan. He
but reduce the period of suspension to six months.
clarified that [their] understanding was that [complainant] ha[d] the

option to use, mortgage or sell [the property] and return to me the Respondents Administrative Liability
excess of the proceeds after obtaining his money represented by my
Lawyers are instruments for the administration of justice.
six (6) dishonored checks.[24] Interestingly, respondent attached the
They are expected to maintain not only legal proficiency but also a
Deed of Absolute Sale in which he was the vendee and complainant
high standard of ethics, honesty, integrity and fair dealing. In this
the vendor.[25] It appears that this was the second Deed of Absolute
way, the peoples faith and confidence in the judicial system is
Sale, also referred to in the Complaint.[26]
ensured.[32]
Only after the IBP investigating commissioner had
In the present case, Atty. Vitan undoubtedly owed money
rendered her Report and Recommendation[27] did Atty. Vitan submit
to complainant. In a letter[33] to IBP Deputy Director de la Cruz,
his Answer to the Letter-Complaint. He called the second document
respondent admitted having incurred the P100,000 loan. It was only
a Counter Deed of Sale, executed as a sort of collateral/security for
in his Answer[34] that the lawyer suddenly denied that he had
the account of [his] liaison officer [Evelyn Estur].[28] He admitted
personally incurred this obligation. This time, he pointed to his
having given several postdated checks amounting to P100,000,
employee, Estur, as the true debtor. We find his version of the facts
supposedly to guarantee the indebtedness of Estur to
implausible.
complainant. Atty. Vitan argued for the first time that it was she who

had incurred the debts, and that he had acted only as a character First, the story involving a certain Evelyn Estur was clearly
reference and/or guarantor.[29] He maintained that he had given in a mere afterthought, conjured simply to escape his liability. If it were
to the one-sided transactions, because he was completely true that it was she who owed the money, he should have
spellbound by complainants seeming sincerity and kindness.[30] To mentioned this alleged fact in his letter to the IBP NCLA deputy
corroborate his statements, he attached Esturs Affidavit.[31]
16
director. Instead, respondent was completely silent about Estur and comport themselves in a manner that will secure and preserve the

merely asserted that he had already settled his debt with respect and confidence of the public for the legal profession.[40]

complainant.
Atty. Vitan contends that his obligation was already

Second, the promise of Atty. Vitan to settle his obligations extinguished, because he had allegedly sold his Bulacan property to

on particular dates is contained in two handwritten notes signed by complainant.[41] Basically, respondent is asserting that what had

him and worded as follows: transpired was a dation in payment. Governed by the law on sales, it

I undertake to settle the financial is a transaction that takes place when a piece of property is
obligations of P100,000 plus before the end of
alienated to the creditor in satisfaction of a debt in money. [42] It
the year.[35]
involves delivery and transmission of ownership of a thing -- by the
Mar:
debtor to the creditor -- as an accepted equivalent of the
We will settle on July 12, 2004, on or
before said date.[36] performance of the obligation.[43]

Going over the records of this case, we find the contention


The wordings of these promissory notes disclose that he
of Atty. Vitan undeserving of credence. The records reveal that he
had a personal obligation to complainant, without any mention
did not really intend to sell and relinquish ownership over his
of Estur at all. If it were true that Atty. Vitan had executed those
property in Sta. Maria, Bulacan, notwithstanding the execution of a
notes for the account of his liaison officer, he should have used
Deed of Absolute Sale in favor of complainant. The second Deed of
words to that effect. As a lawyer, he was aware that the preparation
Absolute Sale, which reconveyed the property to respondent, is
of promissory notes was not a mere formality; it had legal
proof that he had no such intention. This second Deed, which he
consequences. It is quite far-fetched for a lawyer to assume the role
referred to as his safety net,[44] betrays his intention to counteract
of guarantor, without saying so in the notes.
the effects of the first one .
A lawyer may be disciplined for evading the payment of a
In a manner of speaking, Atty. Vitan was taking back with
debt validly incurred.[37] In this case, the failure of Atty. Vitan to pay
his right hand what he had given with his left. The second Deed of
his debt for over three years despite repeated demands puts in
Absolute Sale returned the parties right back where they started, as
question his standing as a member of the bar. Worse, he made
if there were no sale in favor of complainant to begin with. In effect,
several promises to pay his debt promptly, but reneged on all of
on the basis of the second Deed of Sale, respondent took back and
them. He even started to hide from complainant according to the
asserted his ownership over the property despite having allegedly
latter .[38]
sold it. Thus, he fails to convince us that there was a bona
Failure to honor just debts, particularly from clients, fide dation in payment or sale that took place between the parties;
constitutes dishonest conduct that does not speak well of a member that is, that there was an extinguishment of obligation.
of the bar.[39] It is vital that a lawyers conduct be kept beyond
It appears that the true intention of the parties was to use
reproach and above suspicion at all times. Rule 1.01 of the Code of
the Bulacan property to facilitate payment. They only made it
Professional Responsibility clearly provides that lawyers must not
appear that the title had been transferred to complainant to
engage in unlawful, immoral or deceitful conduct. They must

17
Rule 1.01 A lawyer shall not engage in
authorize him to sell or mortgage the unlawful, dishonest, immoral or deceitful
property.[45] Atty. Vitan himself admitted in his letter dated July 30, conduct.

2004, that their intention was to convert the property into cash, so
Any wrongdoing, whether professional or nonprofessional,
that payment could be obtained by complainant and the excess
indicating unfitness for the profession justifies disciplinary action.[48]
returned to respondent.[46] The records, however, do not show that

the proceeds derived were sufficient to discharge the obligation of There is yet another reason to find

the lawyer fully; thus, he is still liable to the extent of the deficiency. Atty. Vitan administratively liable. In his letter of July 30, 2004, was

an admission that the personal checks he issued in favor of


We hasten to add, however, that this administrative case
complainant had all been dishonored.[49] Whether those checks
is not the proper venue for us to determine the extent of the
were issued for the account of respondent or of Estur is not
remaining liability. This Court will not act as a collection agency from
important. The fact remains that the lawyer knowingly issued
faltering debtors, when the amount of the indebtedness is indefinite
worthless checks and thus revealed his disposition to defraud
and disputed.[47]
complainant.

Nevertheless, the records satisfactorily reveal the failure


The act of a lawyer in issuing a check without sufficient
of respondent to live up to his duties as a lawyer in consonance with
funds to cover them -- or, worse, drawn against a closed account --
the strictures of the Lawyers Oath, the Code of Professional
constitutes such willful dishonesty and unethical conduct as to
Responsibility, and the Canons of Professional Ethics, thereby
undermine the public confidence in the law and in lawyers.[50] The
degrading not only his person but his profession as well. So far, we
act also manifests a low regard for the Oath taken by the lawyer
find that his lack of sincerity in fulfilling his obligations is revealed by
upon joining the profession, whose image should be held in high
his acts of issuing promissory notes and reneging on them; executing
esteem, not seriously and irreparably tarnished.[51]
a simulated Deed of Absolute Sale; and breaking his promise to

redeem the property from the mortgagee. Moreover, the inimical effect of the issuance of worthless

checks has been recognized by this Court in an earlier case, from


The repeated failure of Atty. Vitan to fulfill his promise
which we quote:
puts in question his integrity and character. Indeed, not only his
[T]he effect [of issuance of worthless
integrity as an individual but, more important, his stature as a checks] transcends the private interests of the
parties directly involved in the transaction and
member of the bar is affected by his acts of welching on his
touches the interests of the community at
promises and misleading complainant. Canon 1 and Rule 1.01 of the large. The mischief it creates is not only a
wrong to the payee or holder, but also an injury
Code of Professional Responsibility explicitly state thus: to the public since the circulation of valueless
commercial papers can very well pollute the
channels of trade and commerce, injure the
CANON 1 A lawyer shall uphold the banking system and eventually hurt the welfare
constitution, obey the laws of the land and of society and the public interest.[52]
promote respect for law and legal processes.

18
look for a rock crusher which they could buy. Mr. Mercurio referred
We have also held that the deliberate failure to pay just the private respondents to the Rizal Consolidated Corporation which
then had for sale one such machinery described as:
debts and the issuance of worthless checks constitute gross

misconduct,[53] for which a lawyer may be sanctioned with one years ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT
(RECONDITIONED) [sic]
suspension from the practice of law,[54] or a suspension of six
JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16
months upon partial payment of the obligation.[55]

3 UNITS PRODUCT CONVEYOR


In the instant case, complainant himself admits that
75 HP ELECTRIC MOTOR
respondent had already paid the amounts covered by the January

and February checks.[56] Thus, there has been a partial payment that 8 PCS. BRAND NEW TIRES CHASSIS NO. 19696 GOOD
RUNNING CONDITION 3
justifies a modification of IBPs recommended penalty.
Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went
to inspect the machine at the Rizal Consolidated's plant site.
WHEREFOR Atty. Jeremias R. Vitan is hereby found guilty
Apparently satisfied with the machine, the private respondents
of gross misconduct and SUSPENDED from the practice of law for six signified their intent to purchase the same. They were however
confronted with a problem-the rock crusher carried a cash price tag
(6) months, effective upon his receipt of this Decision, with the of P 550,000.00. Bent on acquiring the machinery, the private
respondents applied for financial assistance from the petitioner,
warning that a repetition of the same or any other misconduct will Filinvest Credit Corporation. The petitioner agreed to extend to the
private respondents financial aid on the following conditions: that
be dealt with more severely. the machinery be purchased in the petitioner's name; that it be
leased (with option to purchase upon the termination of the lease
period) to the private respondents; and that the private respondents
Let a copy of this Decision be entered in respondents
execute a real estate mortgage in favor of the petitioner as security
record as a member of the Bar, and notice served on the Integrated for the amount advanced by the latter. Accordingly, on May
18,1981, a contract of lease of machinery (with option to purchase)
Bar of the Philippines and on the Office of the Court Administrator was entered into by the parties whereby the private respondents
agreed to lease from the petitioner the rock crusher for two years
for circulation to all courts in the country. SO ORDERED. starting from July 5, 1 981 payable as follows:

P10,000.00 - first 3 months

G.R. No. 82508 September 29, 1989 23,000.00 - next 6 months

FILINVEST CREDIT CORPORATION, petitioner, 24,800.00 - next 15 months


vs.
THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY The contract likewise stipulated that at the end of the two-year
BANG,*respondents. period, the machine would be owned by the private respondents.
Thus, the private respondents issued in favor of the petitioner a
Labaquis, Loyola, Angara and Associates for petitioner. check for P150,550.00, as initial rental (or guaranty deposit), and
twenty-four (24) postdated checks corresponding to the 24 monthly
rentals. In addition, to guarantee their compliance with the lease
Alfredo 1. Raya for private respondents. contract, the private respondents executed a real estate mortgage
over two parcels of land in favor of the petitioner. The rock crusher
SARMIENTO, J.: was delivered to the private respondents on June 9, 1981. Three
months from the date of delivery, or on September 7, 1981,
This is a petition for review on certiorari of the decision, 1 dated however, the private respondents, claiming that they had only
March 17, 1988, of the Court of Appeals which affirmed with tested the machine that month, sent a letter-complaint to the
modification the decision 2 of the Regional Trial Court of Quezon, petitioner, alleging that contrary to the 20 to 40 tons per hour
Branch LIX, Lucena City. The controversy stemmed from the capacity of the machine as stated in the lease contract, the machine
following facts: The private respondents, the spouses Jose Sy Bang could only process 5 tons of rocks and stones per hour. They then
and Iluminada Tan, were engaged in the sale of gravel produced demanded that the petitioner make good the stipulation in the lease
from crushed rocks and used for construction purposes. In order to contract. They followed that up with similar written complaints to
increase their production, they engaged the services of Mr. Ruben the petitioner, but the latter did not, however, act on them.
Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to
19
Subsequently, the private respondents stopped payment on the crusher. The petitioner denies being the seller of the rock crusher
remaining checks they had issued to the petitioner. 5 and only admits having financed its acquisition by the private
respondents. Further, the petitioner absolves itself of any liability
As a consequence of the non-payment by the private respondents of arising out of the lease contract it signed with the private
the rentals on the rock crusher as they fell due despite the repeated respondents due to the waiver of warranty made by the latter. The
written demands, the petitioner extrajudicially foreclosed the real petitioner likewise maintains that the private respondents being
estate mortgage. 6 On April 18, 1983, the private respondents presumed to be knowledgeable about machineries, should be held
received a Sheriff s Notice of Auction Sale informing them that their responsible for the detection of defects in the machine they had
mortgaged properties were going to be sold at a public auction on acquired, and on account of that, they are estopped from claiming
May 25, 1983 at 10:00 o'clock in the morning at the Office of the any breach of warranty. Finally, the petitioner interposed the
Provincial Sheriff in Lucena City to satisfy their indebtedness to the defense of prescription, invoking Article 1571 of the Civil Code,
petitioner. 7 To thwart the impending auction of their properties, the which provides:
private respondents filed before the Regional Trial Court of Quezon,
on May 4, 1983, 8 a complaint against the petitioner, for the Art. 1571. Actions arising from the provisions of the preceding ten
rescission of the contract of lease, annullment of the real estate articles shall be barred after six months, from the delivery of the
mortgage, and for injunction and damages, with prayer for the thing sold.
issuance of a writ of preliminary injunction. 9 On May 23, 1983, three
days before the scheduled auction sale, the trial court issued a We find the petitioner's first contention untenable. While it is
temporary restraining order commanding the Provincial Sheriff of accepted that the petitioner is a financing institution, it is not,
Quezon, and the petitioner, to refrain and desist from proceeding however, immune from any recourse by the private respondents.
with the public auction. 10 Two years later, on September 4, 1985, Notwithstanding the testimony of private respondent Jose Sy Bang
the trial court rendered a decision in favor of the private that he did not purchase the rock crusher from the petitioner, the
respondents, the dispositive portion of which reads: fact that the rock crusher was purchased from Rizal Consolidated
Corporation in the name and with the funds of the petitioner proves
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: beyond doubt that the ownership thereof was effectively
transferred to it. It is precisely this ownership which enabled the
1. making the injunction permanent; petitioner to enter into the "Contract of Lease of Machinery and
Equipment" with the private respondents.
2. rescinding the contract of lease of the machinery and equipment
and ordering the plaintiffs to return to the defendant corporation Be that as it may, the real intention of the parties should prevail. The
the machinery subject of the lease contract, and the defendant nomenclature of the agreement cannot change its true essence, i.e.,
corporation to return to plaintiffs the sum of P470,950.00 it received a sale on installments. It is basic that a contract is what the law
from the latter as guaranty deposit and rentals with legal interest defines it and the parties intend it to be, not what it is called by the
thereon until the amount is fully restituted; parties. 13 It is apparent here thatthe intent of the parties to the
subject contract is for the so-called rentals to be the installment
payments. Upon the completion of the payments, then the rock
3. annulling the real estate mortgage constituted over the properties
crusher, subject matter of the contract, would become the property
of the plaintiffs covered by Transfer Certificate of Title Nos. T32480
of the private respondents. This form of agreement has been
and T-5779 of the Registry of Deeds of Lucena City;
criticized as a lease only in name. Thus in Vda. de Jose v.
Barrueco 14 we stated:
4. ordering the defendant corporation to pay plaintiffs P30,000.00 as
attorney's fees and the costs of the suit.
Sellers desirous of making conditional sales of their goods, but who
do not wish openly to make a bargain in that form, for one reason or
SO ORDERED. 11 another, have frequently resorted to the device of making contracts
in the form of leases either with options to the buyer to purchase for
Dissatisfied with the trial court's decision, the petitioner elevated a small consideration at the end of term, provided the so-called rent
the case to the respondent Court of Appeals. has been duly paid, or with stipulations that if the rent throughout
the term is paid, title shall thereupon vest in the lessee. It is obvious
On March 17, 1988, the appellate court, finding no error in the that such transactions are leases only in name. The so-called rent
appealed judgment, affirmed the same in toto. 12Hence, this must necessarily be regarded as payment of the price in installments
petition. since the due payment of the agreed amount results, by the terms
of bargain, in the transfer of title to the lessee. 15

Before us, the petitioner reasserts that the private respondents'


cause of action is not against it (the petitioner), but against either The importance of the criticism is heightened in the light of Article
the Rizal Consolidated Corporation, the original owner-seller of the 1484 of the new Civil Code which provides for the remedies of an
subject rock crusher, or Gemini Motors Sales which served as a unpaid seller of movables on installment basis.
conduit facilitator of the purchase of the said machine. The
petitioner argues that it is a financing institution engaged in quasi- Article 1484. In a contract of sale of personal property the
banking activities, primarily the lending of money to entrepreneurs price of which is payable in installments, the vendor may
such as the private respondents and the general public, but certainly exercise any of the following remedies:
not the leasing or selling of heavy machineries like the subject rock
20
(1) Exact fulfillment of the obligation, should the vendee Moreover, considering that between the parties, it is the private
fail to pay; respondents, by reason of their business, who are presumed to be
more knowledgeable, if not experts, on the machinery subject of the
(2) Cancel the sale, should the vendee's failure to pay contract, they should not therefore be heard now to complain of any
cover two or more installments; alleged deficiency of the said machinery. It is their failure or neglect
to exercise the caution and prudence of an expert, or, at least, of a
prudent man, in the selection, testing, and inspection of the rock
(3) Foreclose the chattel mortgage or the thing sold, if one
crusher that gave rise to their difficulty and to this conflict. A well-
has been constituted, should the vendee's failure to pay
established principle in law is that between two parties, he, who by
cover two or more installments. In this case, he shall have
his negligence caused the loss, shall bear the same.
no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the
contrary shall be void. At any rate, even if the private respondents could not be adjudged
as negligent, they still are precluded from imputing any liability on
the petitioner. One of the stipulations in the contract they entered
Under the aforequoted provision, the seller of movables in
into with the petitioner is an express waiver of warranties in favor of
installments, in case the buyer fails to pay two or more installments
the latter. By so signing the agreement, the private respondents
may elect to pursue either of the following remedies: (1) exact
absolved the petitioner from any liability arising from any defect or
fulfillment by the purchaser of the obligation; (2) cancel the sale; or
deficiency of the machinery they bought. The stipulation on the
(3) foreclose the mortgage on the purchased property if one was
machine's production capacity being "typewritten" and that of the
constituted thereon. It is now settled that the said remedies are
waiver being "printed" does not militate against the latter's
alternative and not cumulative and therefore, the exercise of one
effectivity. As such, whether "a capacity of 20 to 40 tons per hour" is
bars the exercise of the others.
a condition or a description is of no moment. What stands is that the
private respondents had expressly exempted the petitioner from
Indubitably, the device contract of lease with option to buy is at any warranty whatsoever. Their Contract of Lease Of Machinery And
times resorted to as a means to circumvent Article 1484, particularly Equipment states:
paragraph (3) thereof.Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains,
WARRANTY-LESSEE absolutely releases the lessor from any liability
likewise, the right to repossess the same, without going through the
whatsoever as to any and all matters in relation to warranty in
process of foreclosure, in the event the vendee-lessee defaults in
accordance with the provisions hereinafter stipulated. 17
the payment of the installments. There arises therefore no need to
constitute a chattel mortgage over the movable sold. More
important, the vendor, after repossessing the property and, in Taking into account that due to the nature of its business and its
effect, canceling the contract of sale, gets to keep all the mode of providing financial assistance to clients, the petitioner deals
installments-cum-rentals already paid. It is thus for these reasons in goods over which it has no sufficient know-how or expertise, and
that Article 1485 of the new Civil Code provides that: the selection of a particular item is left to the client concerned, the
latter, therefore, shoulders the responsibility of protecting himself
against product defects. This is where the waiver of warranties is of
Article 1485. The preceding article shall be applied to
paramount importance. Common sense dictates that a buyer
contracts purporting to be leases of personal property with
inspects a product before purchasing it (under the principle of
option to buy, when the lessor has deprived the lessee of
caveat emptor or "buyer beware") and does not return it for defects
possession or enjoyment of the thing. (Emphasis ours.)
discovered later on, particularly if the return of the product is not
covered by or stipulated in a contract or warranty. In the case at bar,
Unfortunately, even with the foregoing findings, we however fail to to declare the waiver as non-effective, as the lower courts did,
find any reason to hold the petitioner liable for the rock crusher's would impair the obligation of contracts. Certainly, the waiver in
failure to produce in accordance with its described capacity. question could not be considered a mere surplusage in the contract
According to the petitioner, it was the private respondents who between the parties. Moreover, nowhere is it shown in the records
chose, inspected, and tested the subject machinery. It was only after of the case that the private respondent has argued for its nullity or
they had inspected and tested the machine, and found it to their illegality. In any event, we find no ambiguity in the language of the
satisfaction, that the private respondents sought financial aid from waiver or the release of warranty. There is therefore no room for
the petitioner. These allegations of the petitioner had never been any interpretation as to its effect or applicability vis-a- vis the
rebutted by the private respondents. In fact, they were even deficient output of the rock crusher. Suffice it to say that the private
admitted by the private respondents in the contract they signed. respondents have validly excused the petitioner from any warranty
Thus: on the rock crusher. Hence, they should bear the loss for any defect
found therein.
LESSEE'S SELECTION, INSPECTION AND VERIFICATION.-The LESSEE
hereby confirms and acknowledges that he has independently WHEREFORE, the Petition is GRANTED; the Decision of the Court of
inspected and verified the leased property and has selected and Appeals dated March 17, 1988 is hereby REVERSED AND SET ASIDE,
received the same from the Dealer of his own choosing in good and another one rendered DISMISSING the complaint. Costs against
order and excellent running and operating condition and on the the private respondents.
basis of such verification, etc. the LESSEE has agreed to enter into
this Contract." 16
SO ORDERED.

21
[G.R. No. 115966. March 20, 2003] kahilingan sa hukuman upang magkaroon ng sariling titulo; nalilibot
ng batong mohon na nagsisilbing hanganan sa bawat sulok.

Na ang UNANG BAHAGI ay inialok sa IKALAWANG BAHAGI upang


JUANA ALMIRA, RENATO GARCIA, ROGELIO GARCIA, RODOLFO bilihin ang lupang nabanggit sa kabuuang halagang ISANG DAAN AT
GARCIA, ROSITA GARCIA, RHODORA GARCIA, ROSALINDA LIMAMPUNG LIBONG (P150,000.00) PISO, Salaping Pilipino, at ang
GARCIA, ROLANDO GARCIA and RAFAEL GARCIA IKALAWANG BAHAGI ay sumangayon na bilhin ang naulit na lupa
Represented in this suit by EDGARDO batay sa sumusunod na mga pasubali at Kasunduan:
ALVAREZ, petitioners, vs. COURT OF APPEALS AND
FEDERICO BRIONES, respondents. (1) Na pinatutunayan ng UNANG BAHAGI na tinanggap
nila sa buong kasiyahan ng kalooban buhat sa
DECISION IKALAWANG BAHAGI ang halagang ANIMNAPU AT
LIMANG LIBONG (P65,000.00) PISO, salaping Pilipino,
AZCUNA, J.: bilang paunang bayad, at ang nalalabing WALUMPU
AT LIMANG LIBONG (85,000.00) PISO, ay babayaran
Before us is a petition for review on certiorari assailing the ng IKALAWANG BAHAGI sa UNANG BAHAGI sa loob
decision rendered by the Court of Appeals in C.A. G.R. CV No. ng anim na buwan simula sa takda ng kasulatang
40954[1] which reversed the decision of the Regional Trial Court, ito, sa pasubali na ang kaukulang titulo sa lupang
Branch 32, of San Pedro, Laguna that rescinded the Kasunduan ng nabanggit ay maipagkakaloob ng UNANG BAHAGI;
Pagbibilihan[2] entered into between petitioners and private
respondent over a portion of a parcel of land situated in Sta. Rosa, (2) Na ang UNANG BAHAGI ang siyang mananagot
Laguna. tungkol sa anumang kasulatang inihanda ukol sa
pagbibilihang ito, gayundin sa gastos sa notaryo
The facts of the case are as follows: publiko, capital gains tax at pagpapatala ng
kasulatan sa lalawigan ng Laguna;
Petitioners are the wife and the children of the late Julio
Garcia who inherited from his mother, Maria Alibudbud, a portion of (3) Na ang UNANG BAHAGI ay lalagda sa isang
a 90,655 square-meter property denominated as Lot 1642 of the Sta. Kasulatan ng Bilihang Tuluyan matapos na
Rosa Estate in Barangay Caingin, Sta. Rosa, Laguna and covered by mabayarang lahat ng IKALAWANG BAHAGI ang
TCT No. RT-1076. Lot 1642 was co-owned and registered in the kaukulang kabuuang halaga ng lupang nabanggit.
names of three persons with the following shares: Vicente de
Guzman (), Enrique Hemedes (1/4), and Francisco Alibudbud, the Respondent took possession of the property subject of
father of Maria Alibudbud (). Although there was no separate title in the Kasunduan and made various payments to petitioners
the name of Julio Garcia, there were tax declarations in his name to amounting to P58,500.00. However, upon failure of petitioners to
the extent of his grandfathers share covering an area of 21,460 deliver to him a separate title to the property in the name of Julio
square meters. On July 5, 1984, petitioners, as heirs of Julio Garcia, Garcia, he refused to make further payments, prompting petitioners
and respondent Federico Briones entered into a Kasunduan ng to file a civil action before the Regional Trial Court of San Pedro,
Pagbibilihan (Kasunduan for brevity) over the 21,460 square-meter Laguna, Branch 32, on May 13, 1991 for (a) rescission of
portion for the sum of P150,000.00. Respondent paid P65,000.00 the Kasunduan; (b) return by respondent to petitioners of the
upon execution of the contract while the balance of P85,000.00 was possession of the subject parcel of land; and (c) payment by
made payable within six (6) months from the date of the execution respondent of damages in favor of petitioners.
of the instrument. At the time of the execution of Petitioners alleged that respondent was bound to pay the
the Kasunduan, petitioners allegedly informed respondent that TCT balance of the purchase price within six (6) months from the date of
No. RT-1076 was in the possession of their cousin, Conchalina the execution of the Kasunduan and upon delivery to him of TCT No.
Alibudbud who having bought Vicente de Guzmans share, owned RT-1076. Petitioners claimed that they approached respondent
the bigger portion of Lot 1642. This notwithstanding, respondent several times to deliver TCT No. RT-1076 but respondent told them
willingly entered into the Kasunduan provided that the full payment that he did not have money to pay the balance of the purchase
of the purchase price will be made upon delivery to him of the price.[4]Respondent, on the other hand, filed a counterclaim for
title.[3] damages and averred that he refused to make further payments
The Kasunduan provides: because of petitioners failure to deliver to him a separate title in the
name of Julio Garcia.
Na ang UNANG BAHAGI ay siyang magkakamayari (co-owners), On November 26, 1992, the trial court rendered a decision,
bilang tagapagmana ng yumaong Julio Garcia sa isang lagay na the dispositive portion of which reads:
lupang taniman ng palay, matatagpuan sa nayon ng Caingin, Santa
Rosa, Laguna, may buong lawak na 21,460 metrong parisukat, WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
humigit kumulang, na lalong makikilala sa mga katangiang and against the defendant decreeing the rescission of the Kasunduan
inilalahad sa pahayag ng Buwis Bilang 3472 na ganito ang ng Pagbibilihan dated July 5, 1984 and ordering the defendant to
natutunguhan: Mga kahanggan: Hilaga-1641-Nazario Lauriles; return and restore possession of the property subject of the
Timog-Barique Hemedez; Silangan- Vicente de Guzman; at Kanluran- Kasunduan ng Pagbibilihan to the plaintiffs. For paucity of evidence,
Francisco Alibudbod; hinalagahan para sa pagbabayad ng buwis no judgment can be rendered on the other reliefs prayed for in the
pampamahalaan ng P12,720.00; at kasalukuyang may nabibinbing complaint.

22
On the other hand, plaintiffs are hereby ordered to refund to the dismissed respondents appeal in the first place for failure of
defendant the downpayment of P65,000.00 and the partial payment respondent to comply with Circular No. 28-91[6] requiring parties to
of the balance totaling to P58,500.00 plus legal interest. Defendants submit a certification of non-forum shopping in petitions filed before
counterclaim is hereby dismissed for lack of merit. Costs against the Supreme Court and the Court of Appeals. Petitioners lament that
defendant.[5] although they raised the issue regarding respondents procedural
lapse early on at the appellate court, the latter still entertained
In its decision, the trial court noted that proceedings for the respondents appeal.
issuance of a separate title covering the property subject of sale As a rule, our jurisdiction in cases brought before us from the
entail time and the parties could not have intended delivery by Court of Appeals under Rule 45 of the Rules of Court is limited to
petitioners to respondent of a separate title in the name of Julio reviewing errors of law. Factual findings of the appellate court are
Garcia as a condition for respondents payment of the full purchase generally binding on us.[7] However, this principle is subject to
price within six months from the time of the execution of certain exceptions such as the situation in this case where the trial
the Kasunduan. Said court observed that even if petitioners were court and the appellate court arrived at diverse factual findings.[8]
obliged to deliver a separate title in the name of Julio Garcia to
respondent, the latter appeared to have insufficient funds to settle The subject of conflicting interpretations between the parties
his obligation as indicated by the fact that his payments amounting pertains to the provision in the Kasunduan which states:
to P58,500.00 were made in trickles, having been given on thirty-
nine occasions within a span of two years from the time of the (1) Na pinatutunayan ng UNANG BAHAGI na tinanggap nila sa
execution of the Kasunduan. It concluded that respondent refused buong kasiyahan ng kalooban buhat sa IKALAWANG BAHAGI ang
to complete payment of the full purchase price not because of the halagang ANIMNAPU AT LIMANG LIBO (P65,000.00) PISO, Salaping
failure of petitioners to deliver a separate title in the name of Julio Pilipino, bilang paunang bayad, at ang nalalabing WALUMPU AT
Garcia but because respondent simply did not have sufficient funds LIMANG LIBONG (85,000.00) PISO ay babayaran ng IKALAWANG
at hand. BAHAGI sa UNANG BAHAGI sa loob ng anim na buwan simula sa
The Court of Appeals, however, noting that takda ng kasulatang ito, sa pasubali na ang kaukulang titulo ng
the Kasunduan made no reference to TCT No. RT-1076, reversed the lupang nabanggit ay maipagkakaloob ng UNANG BAHAGI sa
decision of the trial court, and dismissed the complaint. The IKALAWANG BAHAGI
appellate court opined that the parties intended to refer to a
separate title over the 21,460 square meter lot when Petitioners allege that the kaukulang titulo ng lupang
the Kasunduan mentioned a kaukulang titulo ng lupang nabanggit refers to TCT No. RT-1076 and not to a separate title in
nabanggit since it was the portion which was covered by a separate the name of Julio Garcia. Petitioners stress the implausibility of
tax declaration in the name of Julio Garcia and it was the portion delivering the separate title to respondent within six (6) months
that petitioners could sell. The appellate court noted that the from the time of the execution of the Kasunduan considering that
actuations of the parties subsequent to the execution of issuance of the title required prior settlement of the estates of
the Kasunduan confirmed respondents claim that a separate title to Francisco Alibudbud, Vicente de Guzman and Enrique Hemedes;
the property subject of the Kasunduan should be delivered to him. partition of Lot 1642; and segregation of the portion pertaining to
Nevertheless, respondents counterclaim for damages was dismissed the share acquired by Julio Garcia. Respondent, for his part, insists
on the ground that the filing of the complaint for rescission was not that the kaukulang titulo ng lupang nabanggit refers to a separate
attended by malice, there being an honest difference of opinion title in the name of Julio Garcia. He argues that he only acceded to
between the parties as to the interpretation of the Kasunduan. the Kasunduan upon having been assured by petitioners that they
would be able to deliver to him a separate title in the name of Julio
Feeling aggrieved by the aforesaid decision, petitioners filed Garcia. Petitioners allegedly told respondent that there was a
before us the instant petition for certiorari, raising issues which may pending petition in the court of Bian for the issuance of a separate
essentially be summarized as follows: (1) whether payment of the title to the subject property.[9]
balance of the purchase price is conditioned upon delivery of a
separate title in the name of Julio Garcia; (2) whether petitioners are It is basic in the interpretation and construction of contracts
entitled to rescind the Kasunduan for failure of respondent to that the literal meaning of the stipulations shall control if the terms
complete payment of the purchase price; and (3) whether the Court of the contract are clear and leave no doubt on the intention of the
of Appeals should have dismissed respondents appeal for failure to contracting parties. However, if the terms of the agreement are
comply with Circular 28-91. ambiguous, resort is made to contract interpretation which is the
determination of the meaning attached to written or spoken words
Petitioners contend that the Kasunduan never made a that make the contract.[10] To ascertain the true intention of the
reference to a title in the name of Julio Garcia and that there was parties, their subsequent or contemporaneous actions must be
nothing in the actuations of the parties which would indicate that principally considered.
full payment of the purchase price is conditioned upon the delivery
to respondent of said title. Petitioners allege that respondent The tenor of the correspondence between petitioners and
refused to give further payments not because of their failure to respondent shows that the parties intended that a separate title to
deliver a separate title in the name of Julio Garcia but because he the property in the name of Julio Garcia shall be delivered to
simply did not have sufficient funds to complete payment of the respondent as a condition for the latters payment of the balance of
purchase price. Petitioners ask for rescission of the purchase price. Thus, petitioner Juana Almiras letter dated July
the Kasunduan pursuant to Article 1191 of the Civil Code on the 24, 1986 to respondent reads:
ground that respondent failed to complete payment of the purchase
price. They further aver that the appellate court should have

23
Ang totoo po ngayon ay kailangan naming ang halagang LABING name of Julio Garcia prevented respondent from completing
LIMANG LIBO (P15,000.00) PISO, yan po ang dahilan kung bakit kami payment of the purchase price.
ay sumulat sa inyo, sapagkat sa mga unang naghawak at nag-ayos
ng papeles ng lupang ito ay hindi nila naayos at hindi nila natapos, That the parties agreed on delivery of a separate title in the
kaya po kami ay nakakita at malaki po ang nagastos naming sa una name of Julio Garcia as a condition for respondents payment of the
na walang nangyari, kaya nga itong huli ay lalong lumaki balance of the purchase price is bolstered by the fact that there was
already an approved subdivision plan of the 21,460 square-meter lot
years before petitioners filed an action in court for rescission.[15] The
Unawain po naman ninyo kami sa halagang kailangan naming para parties evidently assumed petitioners would be able to deliver a
sa huling gumagawa ng Titulo ng lupa para naman po maayos na separate title in the name of Julio Garcia to respondent within six (6)
ito.[11] months from the time of the execution of the Kasunduan since there
was already a pending petition in court for the issuance of a
Respondent signified his willingness to pay the balance of the separate title to 21,460 square-meter lot at that time.
purchase price but reminded petitioners of their obligation to Unfortunately, the petitioners were not able to secure a separate
deliver title to the property in the following reply: title in the name of Julio Garcia within the stipulated period.

Finally, we note that, as quoted earlier, the Kasunduan itself in


Hindi lingid sa inyong kaalaman na sa ilalim ng naubit na Kasunduan
its opening paragraph refers to the subject property being sold
ng Pagbibilihan ay maliwanag ang inyong tungkulin na ipagkaboob
as buong lawak na 21,640 metrong parisukat, x x x at sa
sa amin ang kaukulang titulo ng lupa sa boob ng anim (6) na buwan
kasalukuyan may nabibinbing kahilingan sa hukuman upang
simula sa takda ng nasabing kasulatan at kami naman ay
magkaroon ng sariling titulo; x x x. The next paragraph of
nahahandang magbayad ng lahat ng nalababing kabayaran x x x at
the Kasunduan, therefore, which speaks of ang kaukulang titulo sa
tuwing kayo ay kukuha ng pera ang lagi niyong idinadahilan ay ang
lupang nabanggit, clearly refers to the separate title being applied
diumano ay paglalakad tungkol sa titulo. x x x[12]
for, even without resort to extraneous evidence.

Had the parties intended that petitioners deliver TCT No. RT- Petitioners, however, insist that it was respondents counsel
1076 instead of a separate title in the name of Julio Garcia to who prepared the Kasunduan and any ambiguity therein should be
respondent, then there would have been no need for petitioners to construed against respondent pursuant to Article 1377 of the Civil
ask for partial sums on the ground that this would be used to pay for Code which states that the interpretation of obscure words or
the processing of the title to the property. Petitioners had only to stipulations in a contract shall not favor the party who caused the
present the existing title, TCT No. RT-1076, to respondent and obscurity.
demand the balance of the purchase price. This, petitioners did not
We find no reason to apply Article 1377 of the Civil Code in
do. Instead, they were content to ask small sums from respondent
this case where the evident intention of the parties can be readily
on thirty-nine occasions for two years before filing an action in court
discerned by their subsequent and contemporaneous acts. While it
for rescission of the Kasunduan another five years later. It is readily
is true that the Kasunduan was prepared by the counsel of
discernible from the tenor of various receipts[13] issued by
respondent, there is no indication that respondent took unfair
petitioners that the sums given by respondent on these thirty-nine
advantage of petitioners when he had the terms of
occasions were made upon request of petitioners seeking
the Kasunduan drawn by his counsel. Petitioners freely assented to
respondents indulgence. A letter[14] dated October 11, 1984 and
the Kasunduan which is written entirely in a language spoken and
addressed to respondents father, Tata Omy, whom respondent
understood by both parties. That petitioners were fully aware of the
authorized to give payments during the time he was working abroad
terms of the Kasunduan is evidenced by their attempts to comply
reads:
with their obligation by securing a subdivision plan and technical
description[16] of the property subject of sale.
Tata Omy,
Having ruled that the kaukulang titulo ng lupang
Ako si Rogelio A. Garcia ang sumulat nito at ang maydala ay si nabanggit refers to a separate title in the name of Julio Garcia, we
Rolando Garcia na kapatid kong bunso at ito ay pinagawa ng aking proceed to the issue as to whether petitioners may rescind
ina si Juana Garcia. Ang dahilan ay mayroon silang nabiling t.v. 17 the Kasunduan pursuant to Article 1191 of the Civil Code for failure
inches at ngayon ay naririto sa amin. Kaya ako ay labis na nahihiya of respondent to give full payment of the balance of the purchase
sa inyo ni Viring ngunit ano ang magagawa ko para diyan kaya kayo price.
na ang bahalang magpasensiya sa amin. Ang kailangan nila ay The rights of the parties are governed by the terms and the
halagang P800.00 at para mabili nila ang T. V. + P200.00 nature of the contract they enter into. Hence, although the nature
of the Kasunduan was never placed in dispute by both parties, it is
Ang gumagalang, necessary to ascertain whether the Kasunduan is a contract to sell or
(Sgd.) Rogelio Garcia a contract of sale before the issue as to whether petitioners may ask
for rescission of the contract may be resolved. In a contract to sell,
Received: P1,000.00 ownership is, by agreement, reserved to the vendor and is not to
By( Sgd). Rosita Garcia pass until full payment of the purchase price; whereas, in contract of
sale, title to the property passes to the vendee upon delivery of the
thing sold.[17]Non-payment by the vendee in a contract of sale
There is thus no basis to conclude that insufficiency of funds
entitles the vendor to demand specific performance or rescission of
rather than failure of petitioners to deliver a separate title in the
the contract, with damages, under Article 1191 of the Civil Code.

24
Although both parties have consistently referred to objective they seek, which is to protect the parties substantive
the Kasunduan as a contract to sell, a careful reading of the rights.[22]
provisions of the Kasunduan reveals that it is a contract of sale. A
deed of sale is absolute in nature in the absence of any stipulation WHEREFORE, the petition is DENIED and the decision
reserving title to the vendor until full payment of the purchase price. rendered by the Court of Appeals in CA G.R. No. 40954 entitled,
In such cases ownership of the thing sold passes to the vendee upon Juana Almira, et al., plaintiffs-appellees v. Federico
actual or constructive delivery thereof.[18] There is nothing in Briones, defendant-appellant is AFFIRMED. No costs.
the Kasunduan which expressly provides that petitioners retain title SO ORDERED.
or ownership of the property, until full payment of the purchase
price. The absence of such stipulation in the Kasunduan coupled
with the fact that respondent took possession of the property upon
the execution of the Kasunduan indicate that the parties have G.R. No. 165168 July 9, 2010
contemplated a contract of absolute sale.

Stated otherwise, there was a perfected contract of sale. The SPS. NONILON (MANOY) and IRENE MONTECALVO, Petitioners,
parties agreed on the sale of a determinate object, i.e., 21, 460 vs.
square meters of Lot 1642, covered by a tax declaration in the name HEIRS (Substitutes) OF EUGENIA T. PRIMERO, represented by their
of Julio Garcia, and the price certain therefor, without any Attorney-in-Fact, ALFREDO T. PRIMERO, JR., Respondents.
reservation of title on the part of petitioners. Ownership was
effectively conveyed by petitioners to respondent, who was given DECISION
possession of the property. The delivery of a separate title in the
name of Julio Garcia was a condition imposed on respondents
DEL CASTILLO, J.:
obligation to pay the balance of the purchase price. It was not a
condition imposed on the perfection of the contract of sale.
In Laforteza v. Machuca,[19] we stated that the fact that the Jurisprudence is replete with rulings that in civil cases, the party who
obligation to pay the balance of the purchase price was made alleges a fact has the burden of proving it. Burden of proof is the
subject to the condition that the seller first deliver the reconstituted duty of a party to present evidence on the facts in issue necessary to
title of the property does not make the agreement a contract to sell prove the truth of his claim or defense by the amount of evidence
for such condition is not inconsistent with a contract of sale. required by law.11 In this case, the petitioners awfully failed to
discharge their burden to prove by preponderance of evidence that
Addressing now the issue as to whether rescission of the Agreement they entered into with respondents' predecessor-in-
the Kasunduan by petitioners may prosper, we rule in the negative. interest is a contract of sale and not a mere contract to sell, or that
The power to rescind is only given to the injured party. The injured said Agreement was novated after the latter subsequently entered
party is the party who has faithfully fulfilled his obligation or is ready into an oral contract of sale with them over a determinate portion of
and willing to perform with his obligation. In the case at bar, the subject property more than a decade ago.
petitioners were not ready, willing and able to comply with their
obligation to deliver a separate title in the name of Julio Garcia to
Petitioners filed this appeal from the Decision of the Court of
respondent. Therefore, they are not in a position to ask for
Appeals (CA) affirming the Regional Trial Court's (RTC's) dismissal of
rescission of the Kasunduan. Moreover, respondents obligation to
their action for specific performance where they sought to compel
pay the balance of the purchase price was made subject to delivery
the respondents to convey the property subject of their purported
by petitioners of a separate title in the name of Julio Garcia within
oral contract of sale.
six (6) months from the time of the execution of the Kasunduan, a
condition with which petitioners failed to comply. Failure to comply
with a condition imposed on the performance of an obligation gives Factual Antecedents
the other party the option either to refuse to proceed with the sale
or to waive that condition under Article 1545 of the Civil The property involved in this case is a portion of a parcel of land
Code.[20] Hence, it is the respondent who has the option either to known as Lot No. 263 located at Sabayle Street, Iligan City. Lot No.
refuse to proceed with the sale or to waive the performance of the 263 has an area of 860 square meters covered by Original Certificate
condition imposed on his obligation to pay the balance of the of Title (OCT) No. 0-2712registered in the name of Eugenia Primero
purchase price. (Eugenia), married to Alfredo Primero, Sr. (Alfredo).

It follows that, not having established that they were ready,


able and willing to comply with their obligation to deliver to In the early 1980s, Eugenia leased the lot to petitioner Irene
respondent a separate title in the name of Julio Garcia, petitioners Montecalvo (Irene) for a monthly rental of P500.00. On January 13,
may not ask for rescission of the Kasunduan nor recover damages. 1985, Eugenia entered into an un-notarized Agreement3 with Irene,
where the former offered to sell the property to the latter
As regards the issue that the appellate court should have for P1,000.00 per square meter. They agreed that Irene would
dismissed respondents appeal for failure of respondent to comply deposit the amount of P40,000.00 which shall form part of the down
with Circular No. 28-91 requiring the submission of a certificate of payment equivalent to 50% of the purchase price. They also
non-forum shopping in petitions filed before us and the Court of stipulated that during the term of negotiation of 30 to 45 days from
Appeals, suffice it to say that when technicality deserts its function receipt of said deposit, Irene would pay the balance of P410,000.00
of being an aid to justice, the courts are justified in exempting from on the down payment. In case Irene defaulted in the payment of the
its operations a particular case.[21] Procedural rules are intended to down payment, the deposit would be returned within 10 days from
insure the orderly conduct of litigation, because of the higher the lapse of said negotiation period and the Agreement deemed

25
terminated. However, if the negotiations pushed through, the Eugenia's husband, Alfredo, was already dead. Eugenia merely
balance of the full value of P860,000.00 or the net amount managed or administered the subject property and had no authority
of P410,000.00 would be paid in 10 equal monthly installments from to dispose of the same since it was a conjugal property. In addition,
receipt of the down payment, with interest at the prevailing rate. respondents asserted that the deposit of P40,000.00 was retained as
rental for the subject property.
Irene failed to pay the full down payment within the stipulated 30-
45-day negotiation period. Nonetheless, she continued to stay on Respondents likewise presented Sylvia, who testified that the
the disputed property, and still made several payments with an receipts issued to petitioners were for the lot rentals.8 Another sister
aggregate amount of P293,000.00. On the other hand, Eugenia did of Atty. Primero, Corazon, testified that petitioners were their
not return the P40,000.00 deposit to Irene, and refused to accept tenants in subject land, which she co-owns with her mother
further payments only in 1992. Eugenia.9 She denied having sold the purported 293-square meter
portion of Lot No. 263 to the petitioners.10
Thereafter, Irene caused a survey of Lot No. 263 and the segregation
of a portion equivalent to 293 square meters in her favor. However, As rebuttal witness, petitioners presented Engr. Ravacio, a surveyor
Eugenia opposed her claim and asked her to vacate the property. who undertook the segregation of the 293-square meter portion out
Then on May 13, 1996, Eugenia and the heirs of her deceased of the subject property.11
husband Alfredo filed a complaint for unlawful detainer against
Irene and her husband, herein petitioner Nonilon Montecalvo On October 22, 2001, the RTC rendered a Decision: 12 (1) dismissing
(Nonilon) before the Municipal Trial Court (MTC) of Iligan City. the complaint and the counterclaim for lack of legal and factual
During the preliminary conference, the parties stipulated that the bases; (2) ordering petitioners to pay respondents P2,500.00
issue to be resolved was whether their Agreement had been representing rentals due, applying therefrom the amount deposited
rescinded and novated. Hence, the MTC dismissed the case for lack and paid; and (3) ordering petitioner to pay 12% legal interest from
of jurisdiction since the issue is not susceptible of pecuniary finality of decision until full payment of the amount due.13
estimation. The MTC's Decision dismissing the ejectment case
became final as Eugenia and her children did not appeal therefrom.4
Aggrieved, petitioners appealed the Decision of the trial court to the
CA.
On June 18, 1996, Irene and Nonilon retaliated by instituting Civil
Case No. II-3588 with the RTC of Lanao del Norte for specific
Proceedings before the Court of Appeals
performance, to compel Eugenia to convey the 293-square meter
portion of Lot No. 263.5
Both parties filed their respective briefs before the appellate
court.14 Thereafter, on November 28, 2003, the CA rendered a
Proceedings before the Regional Trial Court
Decision15 affirming the RTC Decision.16

Trial on the merits ensued and the contending parties adduced their
Petitioners timely filed a Motion for Reconsideration.17 However, in
respective testimonial and documentary evidence before the trial
a Resolution18 dated June 27, 2004, the CA resolved to deny the
court.
same for lack of merit.19

Irene testified that after their Agreement for the purpose of


Issues
negotiating the sale of Lot No. 263 failed to materialize, she and
Eugenia entered into an oral contract of sale and agreed that the
amount of P40,000.00 she earlier paid shall be considered as down Petitioners thus filed this Petition for Review on Certiorari anchored
payment. Irene claimed that she made several payments amounting on the following grounds.
to P293,000.00 which prompted Eugenia's daughters Corazon
Calacat (Corazon) and Sylvia Primero (Sylvia) to ask Engr. Antonio 1. WHETHER AN ORAL CONTRACT OF SALE OF A PORTION
Ravacio (Engr. Ravacio) to conduct a segregation survey on the OF [A] LOT IS BINDING [UPON] THE SELLER.
subject property. Thereafter, Irene requested Eugenia to execute
the deed of sale, but the latter refused to do so because her son, 2. WHETHER A SELLER IN AN ORAL CONTRACT OF SALE OF
Atty. Alfredo Primero, Jr. (Atty. Primero), would not agree. A PORTION OF [A] LOT CAN BE COMPELLED TO EXECUTE
THE REQUIRED DEED OF SALE AFTER THE AGREED
On March 22, 1999, herein respondents filed with the court a quo a CONSIDERATION WAS PAID AND POSSESSION THEREOF
"Notice of Death of the Defendant"6manifesting that Eugenia passed DELIVERED TO AND ENJOYED BY THE BUYER.
away on February 28, 1999 and that the decedent's surviving legal
heirs agreed to appoint their co-heir Atty. Primero, to act as their 3. WHETHER THE BUYER HAS A RIGHT TO ENFORCE AN
representative in said case. In an Order7 dated April 8, 1999, the trial ORAL CONTRACT OF SALE AFTER THE PORTION SOLD IS
court substituted the deceased defendant with Atty. Primero. SEGREGATED BY AGREEMENT OF THE PARTIES.

Respondents, on the other hand, presented the testimony of Atty. 4. WHETHER THE SELLER IS BOUND BY THE HANDWRITTEN
Primero to establish that Eugenia could not have sold the disputed RECEIPTS PREPARED AND SIGNED BY HER EXPRESSLY
portion of Lot No. 263 to the petitioners. According to Atty. Primero, INDICATING PAYMENTS OF LOTS.
at the time of the signing of the Agreement on January 13, 1985,

26
5. WHETHER THE TRIAL COURT COULD RENDER A WITNESSETH:
JUDGMENT ON ISSUES NOT DEFINED IN THE PRE-TRIAL
ORDER. 1. That the OWNER is the true and absolute owner of a
parcel of land located at Sabayle St. immediately fronting
Our Ruling the St. Peter's College which is presently leased to the
INTERESTED PARTY;
The petition lacks merit.
2. That the property referred to contains an area of EIGHT
The Agreement dated January 13, 1985 is a contract to sell. Hence, HUNDRED SIXTY SQUARE METERS at the value of One
with petitioners' non-compliance with its terms and conditions, the Thousand Pesos (P1,000.00) per square meters;
obligation of the respondents to deliver and execute the
corresponding deed of sale never arose. 3. That this agreement is entered into for the purpose of
negotiating the sale of the above referred property
The CA found that the Agreement dated January 13, 1985 is not a between the same parties herein under the following
contract of sale but a mere contract to sell, the efficacy of which is terms and conditions, to wit:
dependent upon the resolutory condition that Irene pay at least 50%
of the purchase price as down payment within 30-45 days from the a) That the term of this negotiation is for a
day Eugenia received the P40,000.00 period of Thirty to Forty Five (30-45) days from
receipt of a deposit;
deposit.20 Said court further found that such condition was
admittedly not met.21 b) That Forty Thousand Pesos (P40,000.00) shall
be deposited to demonstrate the interest of the
Petitioners admit that the Agreement dated January 13, 1985 is at Interested Party to acquire the property referred
most, "a preliminary agreement for an eventual to above, which deposit shall not earn any
contract."22 However, they argue that contrary to the findings of the interest;
appellate court, it was not only the buyer, Irene, who failed to meet
the condition of paying the balance of the 50% down c) That should the contract or agreement push
payment.23 They assert that the Agreement explicitly required through the deposit shall form part of the down
Eugenia to return the deposit of P40,000.00 within 10 days, in case payment of Fifty percent (50%) of the total or
Irene failed to pay the balance of the 50% down payment within the full value. Otherwise the deposit shall be
stipulated period.24 Thus, petitioners posit that for the cancellation returned within TEN (10) days from the lapse of
clause to operate, two conditions must concur, namely, (1) buyer the period of negotiation;
fails to pay the balance of the 50% down payment within the agreed
period and (2) seller should return the deposit of P40,000.00 within 4. That should this push through, the balance of Four
10 days if the first condition was not complied with. Petitioners Hundred Ten Thousand on the down payment shall be
conclude that since both seller and buyer failed to discharge their made upon execution of the Agreement to Sell and the
reciprocal obligations, being in pari delictu, the seller could not balance of the full value of Eight Hundred Sixty Thousand
repudiate their agreement to sell. or Four Hundred Ten Thousand Pesos shall be paid in
equal monthly installment within Ten (10) months from
The petitioners' contention is without merit. receipt of the down payment with [sic] according to
prevailing interest.
There is no dispute as to the due execution and existence of the
Agreement. The issue thus presented is whether the said Agreement IN WITNESS WHEREOF, the parties have signed these presents in the
is a contract of sale or a contract to sell. For a better understanding City of Iligan this 13th day of January 1985.
and resolution of the issue at hand, it is apropos to reproduce herein
the Agreement in haec verba:
(Signed) (Signed)
IRENE PEPITO MONTECALVO EUGENIA TORRES PRIMERO
Agreement

SIGNED IN THE PRESENCE OF:


This Agreement, made and executed by and between:

EUGENIA T. PRIMERO, a Filipino of legal age and residing in (Signed) (Signed)


Camague, Iligan City (hereinafter called the OWNER)

- and - In Salazar v. Court of Appeals,25 we distinguished a contract of sale


from a contract to sell in that in a contract of sale the title to the
property passes to the buyer upon the delivery of the thing sold; in
IRENE P. MONTECALVO, Filipino of legal age and presently residing
a contract to sell, ownership is, by agreement, reserved in the seller
at Sabayle St., Iligan City (hereinafter [called] the INTERESTED
and is not to pass to the buyer until full payment of the purchase
PARTY);

27
price. Otherwise stated, in a contract of sale, the seller loses interest of the respondents to deliver and execute the
ownership over the property and cannot recover it until and unless corresponding deed of sale never arose.
the contract is resolved or rescinded; whereas, in a contract to sell,
title is retained by the seller until full payment of the price.26 In the The fact that the predecessor-in-interest of the respondents failed
latter contract, payment of the price is a positive suspensive to return the P40,000.00 deposit subsequent to the expiration of the
condition, failure of which is not a breach but an event that prevents period of negotiation did not prevent the respondents from
the obligation of the vendor to convey title from becoming repudiating the Agreement. The obligation of the respondent to
effective.27 convey the property never came to pass as the petitioners did not
comply with the positive suspensive condition of full payment of the
In the Agreement, Eugenia, as owner, did not convey her title to the purchase price within the period as stipulated.
disputed property to Irene since the Agreement was made for the
purpose of negotiating the sale of the 860-square meter property.28 The alleged oral contract of sale for the 293-square meter portion of
the property was not proved by preponderant evidence. Hence,
On this basis, we are more inclined to characterize the agreement as petitioners cannot compel the successors-in-interest of the
a contract to sell rather than a contract of sale. Although not by deceased Eugenia to execute a deed of absolute sale in their favor.
itself controlling, the absence of a provision in the Agreement
transferring title from the owner to the buyer is taken as a strong Petitioners alleged in their Complaint that in 1992, Eugenia refused
indication that the Agreement is a contract to sell.29 to accept further payments and suggested that she will convey to
petitioners 293 square meters of her 860-square meter property, in
In a contract to sell, the prospective seller explicitly reserves the proportion to payments already made. Thus, Eugenia caused the
transfer of title to the prospective buyer, meaning, the prospective segregation of the area where the petitioners' building now stands,
seller does not as yet agree or consent to transfer ownership of the consisting of 293 square meters.1avvphi1
property subject of the contract to sell until the happening of an
event, which for present purposes we shall take as the full payment In support of their contention, petitioners presented the testimony
of the purchase price.30 What the seller agrees or obliges himself to of Irene, who testified that Eugenia segregated for them an area of
do is to fulfill his promise to sell the subject property when the 293 square meters for the agreed price of P1,000.00 per square
entire amount of the purchase price is delivered to him.31 In other meter.35 The total purchase price allegedly agreed upon by the
words, the full payment of the purchase price partakes of a parties, amounting to P293,000.00, corresponded to the amount of
suspensive condition, the non-fulfillment of which prevents the payments already made by Irene.36 They likewise presented (1) 82
obligation to sell from arising and thus, ownership is retained by the receipts covering the period October 13, 1986 to July 10, 1994;37 (2)
prospective seller without further remedies by the prospective the testimony of the surveyor, Engr. Ravacio, to show that the
buyer.32 A contract to sell is commonly entered into in order to segregation survey of the 293-square meter portion of the property
protect the seller against a buyer who intends to buy the property in was made with the knowledge and consent of Eugenia; and (3) the
installment by withholding ownership over the property until the resulting subdivision plan.
buyer effects full payment therefor.33
On the other hand, respondents counter that the alleged contract of
In this case, the Agreement expressly provided that it was "entered sale is contradicted by petitioners' own evidence.
into for the purpose of negotiating the sale of the above referred
property between the same parties herein x x x." The term of the
We cannot sustain the contention of the petitioners. The primal
negotiation shall be for a period of 30-45 days from receipt of
issue to be resolved is whether the parties subsequently entered
the P40,000.00 deposit and the buyer has to pay the balance of the
into a contract of sale over the segregated 293-square meter portion
50% down payment amounting to P410,000.00 within the said
of Lot No. 263. It is a fundamental principle that for a contract of
period of negotiation. Thereafter, an Agreement to Sell shall be
sale to be valid, the following elements must be present: (a) consent
executed by the parties and the remainder of the purchase price
or meeting of the minds; (b) determinate subject matter; and (3)
amounting to another P410,000.00 shall be paid in 10 equal monthly
price certain in money or its equivalent.38 Until the contract of sale is
installments from receipt of the down payment. The assumption of
perfected, it cannot, as an independent source of obligation, serve
both parties that the purpose of the Agreement was for negotiating
as a binding juridical relation between the parties.39
the sale of Lot No. 263, in its entirety, for a definite price, with a
specific period for payment of a specified down payment, and the
execution of a subsequent contract for the sale of the same on Contrary to petitioners' allegations that the 82 receipts indicated
installment payments leads to no other conclusion than that the that they were issued "for payment of lot (at Sabayle)",40 a cursory
predecessor-in-interest of the herein respondents and the herein examination thereof shows that the receipts from 1986 to 1992 do
petitioner Irene entered into a contract to sell. not consistently indicate "Sabayle Lot" or "Sabayle Lot Deposit".
More than half of the receipts presented merely indicated receipt of
differing sums of money from the petitioners. In addition, the
As stated in the Agreement, the payment of the purchase price, in
receipts for the years 1993 to 1994 do not establish installment
installments within the period stipulated, constituted a positive
payments for the purchase of the disputed portion of Lot No. 263.
suspensive condition, the failure of which is not really a breach but
Rather, the receipts indicate that the same were issued as proof of
an event that prevents the obligation of the seller to convey title in
"cash advance",41 "cash for groceries, electric bill, water bill,
accordance with Article 1184 of the Civil Code.34 Hence, for
telephone/long distance",42 "cash",43 "cash for mktg"44 and "x x x
petitioners' failure to comply with the terms and conditions laid
cash to be paid a month after".45 These are not consistent with the
down in the Agreement, the obligation of the predecessor-in-
allegation of the petitioners that they have paid the full amount of
28
the purchase price for the 293-square meter portion of the lot by submitted by the petitioners as evidence in the trial court, that the
1992. property is used predominantly for commercial purposes.54 The
assessment by the trial court of the area where the property is
Moreover, the testimony of petitioners' witness, surveyor Engr. located is therefore fairly grounded.
Ravacio, shows that Eugenia was neither around when the survey
was conducted nor gave her express consent to the conduct of the Furthermore, the trial court also had factual basis in arriving at the
same.46 On the other hand, respondents' witness, Sylvia, testified said conclusion, the same being based on the un-rebutted testimony
that the receipts issued to the petitioners were for the lot of a witness who is a real estate broker. With respect to the
rentals.47 In addition, respondents' third witness, Corazon, testified prevailing valuation of the property in litigation, witness Atty.
that petitioners were their tenants in subject land, which she co- Primero, a licensed real estate broker testified that:
owns with her mother Eugenia, and disclaimed any sale of any
portion of their lot to the petitioners.48 x x x There is no fixed pricing for each year because it always
depends on the environment so that if the price in 1986, as you
Thirdly, since the surveyor himself, Engr. Ravacio, admitted that were referring to 1986, it would have risen or increased
Eugenia did not give her express consent to the conduct of the from P1,000.00, then it would increase to P3,000.00, then it would
segregation plan, the resulting subdivision plan, submitted by the increase to P7,000.00 and again increase to P15,000.00 and right
petitioners to the trial court to prove that Eugenia caused the now the current price of property in that area is P25,000.00 per
segregation of the 293-square meter area, cannot be appreciated. square meter.55

Section 1 of Rule 133 of the Rules of Court provides that in civil The RTC rightly modified the rental award to P2,500.00 per month,
cases, the party having the burden of proof must establish his case considering that it is settled jurisprudence that courts may take
by a preponderance of evidence. However, the evidence presented judicial notice of the general increase in rentals, particularly in
by the petitioners, as considered above, fails to convince this Court business establishments.
that Eugenia gave her consent to the purported oral deed of sale for
the 293-square meter portion of her property. We are hence in WHEREFORE, the petition is DENIED. The November 28, 2003
agreement with the finding of the CA that there was no contract of Decision of the Court of Appeals affirming the October 22, 2001
sale between the parties. As a consequence, petitioners cannot Decision of the Regional Trial Court of Lanao del Norte, Branch 2, is
rightfully compel the successors-in-interest of Eugenia to execute a hereby AFFIRMED.
deed of absolute sale in their favor.
SO ORDERED.
The courts below correctly modified the rental award to P2,500.00
per month.

Lastly, petitioners argue that the courts below erred in imposing


a P2,500.00 monthly rental from 1985 onwards, since said amount is Mila Reyes vs. Tuparan
far greater than the last agreed monthly rental (December 1984)
of P500.00. Subject of this petition for review is the February 13,
2009 Decision[1] of the Court of Appeals (CA) which affirmed with
In its Decision, the CA affirmed the ruling of the RTC "that the trial
modification the February 22, 2006 Decision[2] of the Regional Trial
court had authority to fix a reasonable value for the continued use
and occupancy of the leased premises after the termination of the Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-
lease contract, and that it was not bound by the stipulated rental in 92, an action for Rescission of Contract with Damages.
the contract of lease since it is equally settled that upon termination
or expiration of the contract of lease, the rental stipulated therein On September 10, 1992, Mila A. Reyes (petitioner) filed a
may no longer be the reasonable value for the use and occupation of complaint for Rescission of Contract with Damages against Victoria
the premises as a result of the change or rise in values. Moreover,
T. Tuparan (respondent) before the RTC. In her Complaint, petitioner
the trial court can take judicial notice of the general increase in
rentals of real estate especially of business establishments".49 The alleged, among others, that she was the registered owner of a 1,274
appellate court likewise held that the petitioners failed to discharge square meter residential and commercial lot located in
their burden to show that the said price was exorbitant or Karuhatan, Valenzuela City, and covered by TCT No. V-4130; that on
unconscionable.50 Hence, the CA found no reason to disturb the trial that property, she put up a three-storey commercial building known
court's decision ordering the petitioners to pay P2,500.00 as as RBJ Building and a residential apartment building; that since 1990,
monthly rentals.51 The appellate court further held that "to deprive
she had been operating a drugstore and cosmetics store on the
Eugenia of the rentals due her as the owner-lessor of the subject
ground floor of RBJ Building where she also had been residing while
property would result to unjust enrichment on the part of Irene."52
the other areas of the buildings including the sidewalks were being
The courts below correctly took judicial notice of the nature of the leased and occupied by tenants and street vendors.
leased property subject of the case at bench based on its location
and commercial viability. As described in the Agreement, the In December 1989, respondent leased from petitioner a
property is immediately in front of St. Peter's College.53 More space on the ground floor of the RBJ Building for her pawnshop
significantly, it is stated in the Declaration of Real Property
29
business for a monthly rental of 4,000.00. A close friendship After petitioners verbal acceptance of all the
developed between the two which led to the respondent investing conditions/concessions, both parties worked together to obtain FSL
thousands of pesos in petitioners financing/lending business Banks approval for respondent to assume her (petitioners)
from February 7, 1990 to May 27, 1990, with interest at the rate of outstanding bank account. The assumption would be part of
6% a month. respondents purchase price for petitioners mortgaged real
properties. FSL Bank approved their proposal on the condition that
On June 20, 1988, petitioner mortgaged the subject real
petitioner would sign or remain as co-maker for the mortgage
properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL
obligation assumed by respondent.
Bank) to secure a loan of 2,000,000.00 payable in installments.
On November 15, 1990, petitioners outstanding account on the On November 26, 1990, the parties and FSL Bank
mortgage reached 2,278,078.13. Petitioner then decided to sell her executed the corresponding Deed of Conditional Sale of Real
real properties for at least 6,500,000.00 so she could liquidate her Properties with Assumption of Mortgage. Due to their close personal
bank loan and finance her businesses. As a gesture of friendship, friendship and business relationship, both parties chose not to
respondent verbally offered to conditionally buy petitioners real reduce into writing the other terms of their agreement mentioned in
properties for 4,200,000.00 payable on installment basis without paragraph 11 of the complaint. Besides, FSL Bank did not want to
interest and to assume the bank loan. To induce the petitioner to incorporate in the Deed of Conditional Sale of Real Properties with
accept her offer, respondent offered the following Assumption of Mortgage any other side agreement between
conditions/concessions: petitioner and respondent.

Under the Deed of Conditional Sale of Real Properties


with Assumption of Mortgage, respondent was bound to pay the
1. That the conditional sale will be
cancelled if the plaintiff (petitioner) can find a petitioner a lump sum of 1.2 million pesos without interest as part
buyer of said properties for the amount of of the purchase price in three (3) fixed installments as follows:
6,500,000.00 within the next three (3) months
provided all amounts received by the plaintiff a) 200,000.00 due January 31, 1991
from the defendant (respondent) including
payments actually made by defendant to b) 200,000.00 due June 30, 1991
Farmers Savings and Loan Bank would be
refunded to the defendant with additional c) 800,000.00 due December 31, 1991
interest of six (6%) monthly;

2. That the plaintiff would continue


using the space occupied by her and drugstore Respondent, however, defaulted in the payment of her
and cosmetics store without any rentals for the obligations on their due dates. Instead of paying the amounts due in
duration of the installment payments;
lump sum on their respective maturity dates, respondent paid
3. That there will be a lease for fifteen petitioner in small amounts from time to time. To compensate for
(15) years in favor of the plaintiff over the space her delayed payments, respondent agreed to pay petitioner an
for drugstore and cosmetics store at a monthly interest of 6% a month. As of August 31, 1992, respondent had only
rental of only 8,000.00 after full payment of the
paid 395,000.00, leaving a balance of 805,000.00 as principal on
stipulated installment payments are made by the
the unpaid installments and 466,893.25 as unpaid accumulated
defendant;
interest.
4. That the defendant will undertake
the renewal and payment of the fire insurance Petitioner further averred that despite her success in
policies on the two (2) subject buildings finding a prospective buyer for the subject real properties within the
following the expiration of the then existing fire 3-month period agreed upon, respondent reneged on her promise
insurance policy of the plaintiff up to the time
to allow the cancellation of their deed of conditional sale. Instead,
that plaintiff is fully paid of the total purchase
price of 4,200,000.00.[3] respondent became interested in owning the subject real properties
and even wanted to convert the entire property into a modern

30
commercial complex. Nonetheless, she consented because thereon worth more than 4,800,000.00. As the parties could no
respondent repeatedly professed friendship and assured her that all longer be restored to their original positions, rescission could not be
their verbal side agreement would be honored as shown by the fact resorted to.
that since December 1990, she (respondent) had not collected any
rentals from the petitioner for the space occupied by her drugstore
and cosmetics store.
Respondent added that as a result of their business
On March 19, 1992, the residential building was gutted by relationship, petitioner was able to obtain from her a loan in the
fire which caused the petitioner to lose rental income in the amount amount of 400,000.00 with interest and took several pieces of
of 8,000.00 a month since April 1992. Respondent neglected to jewelry worth 120,000.00. Petitioner also failed and refused to pay
renew the fire insurance policy on the subject buildings.
the monthly rental of 20,000.00 since November 16, 1990 up to
the present for the use and occupancy of the ground floor of the
Since December 1990, respondent had taken possession
building on the subject real property, thus, accumulating arrearages
of the subject real properties and had been continuously collecting
in the amount of 470,000.00 as of October 1992.
and receiving monthly rental income from the tenants of the
buildings and vendors of the sidewalk fronting the RBJ building
without sharing it with petitioner.
Ruling of the RTC
On September 2, 1992, respondent offered the amount of
751,000.00 only payable on September 7, 1992, as full payment of
the purchase price of the subject real properties and demanded the
On February 22, 2006, the RTC handed down its decision finding that
simultaneous execution of the corresponding deed of absolute sale.
respondent failed to pay in full the 4.2 million total purchase price
Respondents Answer of the subject real properties leaving a balance of 805,000.00. It
stated that the checks and receipts presented by respondent refer
Respondent countered, among others, that the tripartite
to her payments of the mortgage obligation with FSL Bank and not
agreement erroneously designated by the petitioner as a Deed of
the payment of the balance of 1,200,000.00. The RTC also
Conditional Sale of Real Property with Assumption of Mortgage was
considered the Deed of Conditional Sale of Real Property with
actually a pure and absolute contract of sale with a term period. It
Assumption of Mortgage executed by and among the two parties
could not be considered a conditional sale because the acquisition of
and FSL Bank a contract to sell, and not a contract of sale. It was of
contractual rights and the performance of the obligation therein did
the opinion that although the petitioner was entitled to a rescission
not depend upon a future and uncertain event. Moreover, the
of the contract, it could not be permitted because her non-payment
capital gains and documentary stamps and other miscellaneous
in full of the purchase price may not be considered as substantial
expenses and real estate taxes up to 1990 were supposed to be paid
and fundamental breach of the contract as to defeat the object of
by petitioner but she failed to do so.
the parties in entering into the contract.[4] The RTC believed that the
respondents offer stated in her counsels letter dated September 2,
Respondent further averred that she successfully rescued
1992 to settle what she thought was her unpaid balance of
the properties from a definite foreclosure by paying the assumed
751,000.00 showed her sincerity and willingness to settle her
mortgage in the amount of 2,278,078.13 plus interest and other
obligation. Hence, it would be more equitable to give respondent a
finance charges. Because of her payment, she was able to obtain a
chance to pay the balance plus interest within a given period of
deed of cancellation of mortgage and secure a release of mortgage
time.
on the subject real properties including petitioners ancestral
residential property in Sta. Maria, Bulacan.

Petitioners claim for the balance of the purchase price of


Finally, the RTC stated that there was no factual or legal basis to
the subject real properties was baseless and unwarranted because
award damages and attorneys fees because there was no proof that
the full amount of the purchase price had already been paid, as she
either party acted fraudulently or in bad faith.
did pay more than 4,200,000.00, the agreed purchase price of the
subject real properties, and she had even introduced improvements
31
Thus, the dispositive portion of the RTC Decision reads: Ruling of the CA

On February 13, 2009, the CA rendered its decision affirming with


modification the RTC Decision. The CA agreed with the RTC that the
WHEREFORE, judgment is hereby rendered as
follows: contract entered into by the parties is a contract to sell but ruled
that the remedy of rescission could not apply because the
respondents failure to pay the petitioner the balance of the

1. Allowing the defendant to pay the plaintiff purchase price in the total amount of 805,000.00 was not a breach
within thirty (30) days from the finality hereof the amount of contract, but merely an event that prevented the seller
of 805,000.00, representing the unpaid purchase price of (petitioner) from conveying title to the purchaser (respondent). It
the subject property, with interest thereon at 2% a month reasoned that out of the total purchase price of the subject property
from January 1, 1992 until fully paid. Failure of the
in the amount of 4,200,000.00, respondents remaining unpaid
defendant to pay said amount within the said period shall
cause the automatic rescission of the contract (Deed of balance was only 805,000.00. Since respondent had already paid a
Conditional Sale of Real Property with Assumption of substantial amount of the purchase price, it was but right and just to
Mortgage) and the plaintiff and the defendant shall be allow her to pay the unpaid balance of the purchase price plus
restored to their former positions relative to the subject interest. Thus, the decretal portion of the CA Decision reads:
property with each returning to the other whatever
benefits each derived from the transaction; WHEREFORE, premises considered, the
Decision dated 22 February 2006 and Order
dated 22 December 2006 of the Regional Trial
Court of Valenzuela City, Branch 172 in Civil Case
2. Directing the defendant to allow the plaintiff No. 3945-V-92 are AFFIRMED with
to continue using the space occupied by her for drugstore MODIFICATION in that defendant-appellant
and cosmetic store without any rental pending payment of Victoria T. Tuparan is hereby ORDERED to pay
the aforesaid balance of the purchase price. plaintiff-appellee/appellant Mila A. Reyes, within
30 days from finality of this Decision, the amount
of 805,000.00 representing the unpaid balance
3. Ordering the defendant, upon her full of the purchase price of the subject property,
payment of the purchase price together with interest, to plus interest thereon at the rate of 6% per
execute a contract of lease for fifteen (15) years in favor of annum from 11 September 1992 up to finality of
the plaintiff over the space for the drugstore and cosmetic this Decision and, thereafter, at the rate of 12%
store at a fixed monthly rental of 8,000.00; and per annum until full payment. The ruling of the
trial court on the automatic rescission of the
Deed of Conditional Sale with Assumption of
Mortgage is hereby DELETED. Subject to the
4. Directing the plaintiff, upon full payment to foregoing, the dispositive portion of the trial
her by the defendant of the purchase price together with courts decision is AFFIRMED in all other respects.
interest, to execute the necessary deed of sale, as well as
to pay the Capital Gains Tax, documentary stamps and SO ORDERED.[6]
other miscellaneous expenses necessary for securing the
BIR Clearance, and to pay the real estate taxes due on the After the denial of petitioners motion for reconsideration
subject property up to 1990, all necessary to transfer and respondents motion for partial reconsideration, petitioner filed
ownership of the subject property to the defendant.
the subject petition for review praying for the reversal and setting
aside of the CA Decision anchored on the following

No pronouncement as to damages, attorneys


fees and costs.

SO ORDERED.[5]

32
ASSIGNMENT OF ERRORS D. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION AND/OR MISAPPRECIATION OF
A. THE COURT OF APPEALS SERIOUSLY
FACTS RESULTING INTO THE DENIAL OF THE
ERRED AND ABUSED ITS DISCRETION IN
CLAIM OF PETITIONER REYES FOR ACTUAL
DISALLOWING THE OUTRIGHT RESCISSION OF
DAMAGES WHICH CORRESPOND TO THE
THE SUBJECT DEED OF CONDITIONAL SALE OF
MILLIONS OF PESOS OF RENTALS/FRUITS OF
REAL PROPERTIES WITH ASSUMPTION OF
THE SUBJECT REAL PROPERTIES WHICH
MORTGAGE ON THE GROUND THAT
RESPONDENT TUPARAN COLLECTED
RESPONDENT TUPARANS FAILURE TO PAY
CONTINUOUSLY SINCE DECEMBER 1990, EVEN
PETITIONER REYES THE BALANCE OF THE
WITH THE UNPAID BALANCE OF 805,000.00
PURCHASE PRICE OF 805,000.00 IS NOT A
AND DESPITE THE FACT THAT RESPONDENT DID
BREACH OF CONTRACT DESPITE ITS OWN
NOT CONTROVERT SUCH CLAIM OF THE
FINDINGS THAT PETITIONER STILL RETAINS
PETITIONER AS CONTAINED IN HER AMENDED
OWNERSHIP AND TITLE OVER THE SUBJECT
COMPLAINT DATED APRIL 22, 2006.
REAL PROPERTIES DUE TO RESPONDENTS
REFUSAL TO PAY THE BALANCE OF THE TOTAL E. THE COURT OF APPEALS SERIOUSLY
PURCHASE PRICE OF 805,000.00 WHICH IS ERRED AND ABUSED ITS DISCRETION IN THE
EQUAL TO 20% OF THE TOTAL PURCHASE PRICE APPRECIATION OF FACTS RESULTING INTO THE
OF 4,200,000.00 OR 66% OF THE STIPULATED DENIAL OF THE CLAIM OF PETITIONER REYES
LAST INSTALLMENT OF 1,200,000.00 PLUS THE FOR THE 29,609.00 BACK RENTALS THAT WERE
INTEREST THEREON. IN EFFECT, THE COURT OF COLLECTED BY RESPONDENT TUPARAN FROM
APPEALS AFFIRMED AND ADOPTED THE TRIAL THE OLD TENANTS OF THE PETITIONER.
COURTS CONCLUSION THAT THE RESPONDENTS
NON-PAYMENT OF THE 805,000.00 IS ONLY A F. THE COURT OF APPEALS SERIOUSLY
SLIGHT OR CASUAL BREACH OF CONTRACT. ERRED AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONERS EARLIER URGENT
MOTION FOR ISSUANCE OF A PRELIMINARY
B. THE COURT OF APPEALS SERIOUSLY MANDATORY AND PROHIBITORY INJUNCTION
ERRED AND ABUSED ITS DISCRETION IN DATED JULY 7, 2008 AND THE SUPPLEMENT
DISREGARDING AS GROUND FOR THE THERETO DATED AUGUST 4, 2008 THEREBY
RESCISSION OF THE SUBJECT CONTRACT THE CONDONING THE UNJUSTIFIABLE
OTHER FRAUDULENT AND MALICIOUS ACTS FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO
COMMITTED BY THE RESPONDENT AGAINST RESOLVE WITHIN ELEVEN (11) YEARS THE
THE PETITIONER WHICH BY THEMSELVES PETITIONERS THREE (3) SEPARATE MOTIONS
SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE FOR PRELIMINARY INJUNCTION/ TEMPORARY
PERIOD OF THIRTY (30) DAYS TO THE RESTRAINING ORDER, ACCOUNTING AND
RESPONDENT WITHIN WHICH TO PAY TO THE DEPOSIT OF RENTAL INCOME DATED MARCH
PETITIONER THE 805,000.00 PLUS INTEREST 17, 1995, AUGUST 19, 1996 AND JANUARY 7,
THEREON. 2006 THEREBY PERMITTING THE RESPONDENT
TO UNJUSTLY ENRICH HERSELF BY
C. EVEN ASSUMING ARGUENDO THAT
CONTINUOUSLY COLLECTING ALL THE
PETITIONER IS NOT ENTITLED TO THE
RENTALS/FRUITS OF THE SUBJECT REAL
RESCISSION OF THE SUBJECT CONTRACT, THE
PROPERTIES WITHOUT ANY ACCOUNTING AND
COURT OF APPEALS STILL SERIOUSLY ERRED
COURT DEPOSIT OF THE COLLECTED
AND ABUSED ITS DISCRETION IN REDUCING THE
RENTALS/FRUITS AND THE PETITIONERS
INTEREST ON THE 805,000.00 TO ONLY 6% PER
URGENT MOTION TO DIRECT DEFENDANT
ANNUM STARTING FROM THE DATE OF FILING
VICTORIA TUPARAN TO PAY THE
OF THE COMPLAINT ON SEPTEMBER 11, 1992
ACCUMULATED UNPAID REAL ESTATE TAXES
DESPITE THE PERSONAL COMMITMENT OF THE
AND SEF TAXES ON THE SUBJECT REAL
RESPONDENT AND AGREEMENT BETWEEN THE
PROPERTIES DATED JANUARY 13,
PARTIES THAT RESPONDENT WILL PAY
2007 THEREBY EXPOSING THE SUBJECT REAL
INTEREST ON THE 805,000.00 AT THE RATE OF
PROPERTIES TO IMMINENT AUCTION SALE BY
6% MONTHLY STARTING THE DATE OF
THE CITY TREASURER OF VALENZUELA CITY.
DELINQUENCY ON DECEMBER 31, 1991

33
G. THE COURT OF APPEALS SERIOUSLY Finally, the petitioner asserts that her claim for damages
ERRED AND ABUSED ITS DISCRETION IN
or lost income as well as for the back rentals in the amount of
DENYING THE PETITIONERS CLAIM FOR MORAL
AND EXEMPLARY DAMAGES AND ATTORNEYS 29,609.00 has been fully substantiated and, therefore, should have
FEES AGAINST THE RESPONDENT. been granted by the CA. Her claim for moral and exemplary
damages and attorneys fees has been likewise substantiated.

In sum, the crucial issue that needs to be resolved is


whether or not the CA was correct in ruling that there was no legal Position of the Respondent
basis for the rescission of the Deed of Conditional Sale with
The respondent counters that the subject Deed of Conditional Sale
Assumption of Mortgage.
with Assumption of Mortgage entered into between the parties is a
contract to sell and not a contract of sale because the title of the
subject properties still remains with the petitioner as she failed to
Position of the Petitioner
pay the installment payments in accordance with their agreement.

The petitioner basically argues that the CA should have granted the Respondent echoes the RTC position that her inability to pay the full
rescission of the subject Deed of Conditional Sale of Real Properties
balance on the purchase price may not be considered as a
with Assumption of Mortgage for the following reasons: substantial and fundamental breach of the subject contract and it
would be more equitable if she would be allowed to pay the balance
including interest within a certain period of time. She claims that as
1. The subject deed of conditional sale early as 1992, she has shown her sincerity by offering to pay a
is a reciprocal obligation whose outstanding
certain amount which was, however, rejected by the petitioner.
characteristic is reciprocity arising from identity
of cause by virtue of which one obligation is
Finally, respondent states that the subject deed of conditional sale
correlative of the other.
explicitly provides that the installment payments shall not bear any
2. The petitioner was rescinding not interest. Moreover, petitioner failed to prove that she was entitled
enforcing the subject Deed of Conditional Sale to back rentals.
pursuant to Article 1191 of the Civil Code
because of the respondents failure/refusal to The Courts Ruling
pay the 805,000.00 balance of the total
purchase price of the petitioners properties
within the stipulated period ending December The petition lacks merit.
31, 1991.
The Court agrees with the ruling of the courts below that
3. There was no slight or casual breach
the subject Deed of Conditional Sale with Assumption of Mortgage
on the part of the respondent because she
entered into by and among the two parties and FSL Bank
(respondent) deliberately failed to comply with
her contractual obligations with the petitioner on November 26, 1990 is a contract to sell and not a contract of
by violating the terms or manner of payment of sale. The subject contract was correctly classified as a contract to
the 1,200,000.00 balance and unjustly enriched sell based on the following pertinent stipulations:
herself at the expense of the petitioner by
collecting all rental payments for her personal
benefit and enjoyment.
8. That the title and ownership of the
Furthermore, the petitioner claims that the respondent is subject real properties shall remain with the First
Party until the full payment of the Second Party
liable to pay interest at the rate of 6% per month on her unpaid
of the balance of the purchase price and
installment of 805,000.00 from the date of the liquidation of the mortgage obligation
delinquency, December 31, 1991, because she obligated herself to of 2,000,000.00. Pending payment of the
do so. balance of the purchase price and liquidation of
the mortgage obligation that was assumed by
34
the Second Party, the Second Party shall not sell, xxx
transfer and convey and otherwise encumber
the subject real properties without the written Sale, by its very nature, is a consensual contract
consent of the First and Third Party. because it is perfected by mere consent. The essential
elements of a contract of sale are the following:

9. That upon full payment by the


Second Party of the full balance of the purchase a) Consent or meeting of the minds,
price and the assumed mortgage obligation that is, consent to transfer
herein mentioned the Third Party shall issue the ownership in exchange for the
corresponding Deed of Cancellation of Mortgage price;
and the First Party shall execute the
b) Determinate subject matter; and
corresponding Deed of Absolute Sale in favor of
the Second Party.[7]
c) Price certain in money or its
equivalent.
Based on the above provisions, the title and ownership of
the subject properties remains with the petitioner until the
respondent fully pays the balance of the purchase price and the
Under this definition, a Contract to Sell may not
assumed mortgage obligation. Thereafter, FSL Bank shall then issue be considered as a Contract of Sale because the first
the corresponding deed of cancellation of mortgage and the essential element is lacking. In a contract to sell, the
petitioner shall execute the corresponding deed of absolute sale in prospective seller explicitly reserves the transfer of title to
favor of the respondent. the prospective buyer, meaning, the prospective seller
does not as yet agree or consent to transfer ownership of
Accordingly, the petitioners obligation to sell the subject the property subject of the contract to sell until the
happening of an event, which for present purposes we
properties becomes demandable only upon the happening of the
shall take as the full payment of the purchase price. What
positive suspensive condition, which is the respondents full payment the seller agrees or obliges himself to do is to fulfill his
of the purchase price. Without respondents full payment, there can promise to sell the subject property when the entire
be no breach of contract to speak of because petitioner has no amount of the purchase price is delivered to him. In other
obligation yet to turn over the title. Respondents failure to pay in full words, the full payment of the purchase price partakes of
a suspensive condition, the non-fulfillment of which
the purchase price is not the breach of contract contemplated under
prevents the obligation to sell from arising and, thus,
Article 1191 of the New Civil Code but rather just an event that
ownership is retained by the prospective seller without
prevents the petitioner from being bound to convey title to the further remedies by the prospective buyer.
respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson[8] is
enlightening:
xxx xxx xxx

The Court holds that the contract entered into Stated positively, upon the fulfillment of the
by the Spouses Nabus and respondents was a contract to suspensive condition which is the full payment of the
sell, not a contract of sale. purchase price, the prospective sellers obligation to sell
the subject property by entering into a contract of sale
A contract of sale is defined in Article 1458 of with the prospective buyer becomes demandable as
the Civil Code, thus: provided in Article 1479 of the Civil Code which states:

Art. 1458. By the contract of sale, one of the


contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the Art. 1479. A promise to buy and sell a
other to pay therefor a price certain in money or its determinate thing for a price certain is reciprocally
equivalent. demandable.

35
An accepted unilateral promise to buy or to sell a unless the contract is resolved or rescinded;
determinate thing for a price certain is binding upon the whereas, in a contract to sell, title is retained by
promissor if the promise is supported by a consideration the vendor until full payment of the price. In the
distinct from the price. latter contract, payment of the price is a positive
suspensive condition, failure of which is not a
breach but an event that prevents the obligation
of the vendor to convey title from becoming
A contract to sell may thus be defined as a
effective.
bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the It is not the title of the contract, but its express
prospective buyer upon fulfillment of the condition agreed terms or stipulations that determine the kind of contract
upon, that is, full payment of the purchase price. entered into by the parties. In this case, the contract
entitled Deed of Conditional Sale is actually a contract to
sell. The contract stipulated that as soon as the full
consideration of the sale has been paid by the vendee, the
A contract to sell as defined hereinabove, may
corresponding transfer documents shall be executed by
not even be considered as a conditional contract of sale
the vendor to the vendee for the portion sold. Where the
where the seller may likewise reserve title to the property
vendor promises to execute a deed of absolute sale upon
subject of the sale until the fulfillment of a suspensive
the completion by the vendee of the payment of the price,
condition, because in a conditional contract of sale, the
the contract is only a contract to sell. The aforecited
first element of consent is present, although it is
stipulation shows that the vendors reserved title to the
conditioned upon the happening of a contingent event
subject property until full payment of the purchase price.
which may or may not occur. If the suspensive condition is
not fulfilled, the perfection of the contract of sale is
completely abated. However, if the suspensive condition is
fulfilled, the contract of sale is thereby perfected, such xxx
that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership
thereto automatically transfers to the buyer by operation
Unfortunately for the Spouses Pacson, since the
of law without any further act having to be performed by
Deed of Conditional Sale executed in their favor was
the seller.
merely a contract to sell, the obligation of the seller to sell
In a contract to sell, upon the fulfillment of the becomes demandable only upon the happening of the
suspensive condition which is the full payment of the suspensive condition. The full payment of the purchase
purchase price, ownership will not automatically transfer price is the positive suspensive condition, the failure of
to the buyer although the property may have been which is not a breach of contract, but simply an event that
previously delivered to him. The prospective seller still has prevented the obligation of the vendor to convey title
to convey title to the prospective buyer by entering into a from acquiring binding force. Thus, for its non-fulfilment,
contract of absolute sale. there is no contract to speak of, the obligor having failed
to perform the suspensive condition which enforces a
Further, Chua v. Court of Appeals, cited this juridical relation. With this circumstance, there can be no
distinction between a contract of sale and a contract to rescission or fulfillment of an obligation that is still non-
sell: existent, the suspensive condition not having occurred as
yet. Emphasis should be made that the breach
contemplated in Article 1191 of the New Civil Code is the
obligors failure to comply with an obligation already
In a contract of sale, the title to the
extant, not a failure of a condition to render binding that
property passes to the vendee upon the delivery
obligation. [Emphases and underscoring supplied]
of the thing sold; in a contract to sell, ownership
is, by agreement, reserved in the vendor and is Consistently, the Court handed down a similar ruling in the
not to pass to the vendee until full payment of 2010 case of Heirs of Atienza v. Espidol, [9] where it was written:
the purchase price. Otherwise stated, in a
contract of sale, the vendor loses ownership
over the property and cannot recover it until and

36
Regarding the right to cancel the contract for Unless the parties stipulated it, rescission is allowed only
non-payment of an installment, there is need to initially
when the breach of the contract is substantial and fundamental to
determine if what the parties had was a contract of sale
or a contract to sell. In a contract of sale, the title to the the fulfillment of the obligation. Whether the breach is slight or
property passes to the buyer upon the delivery of the substantial is largely determined by the attendant
thing sold. In a contract to sell, on the other hand, the circumstances.[11] In the case at bench, the subject contract
ownership is, by agreement, retained by the seller and is stipulated the following important provisions:
not to pass to the vendee until full payment of the
purchase price. In the contract of sale, the buyers non-
payment of the price is a negative resolutory condition; in
the contract to sell, the buyers full payment of the price is 2. That the purchase price of
a positive suspensive condition to the coming into effect of 4,200,000.00 shall be paid as follows:
the agreement. In the first case, the seller has lost and
cannot recover the ownership of the property unless he
takes action to set aside the contract of sale. In the second a) 278,078.13 received in cash by the
case, the title simply remains in the seller if the buyer does First Party but directly paid to the Third Party as
not comply with the condition precedent of making partial payment of the mortgage obligation of
payment at the time specified in the contract. Here, it is the First Party in order to reduce the amount to
quite evident that the contract involved was one of a 2,000,000.00 only as of November 15, 1990;
contract to sell since the Atienzas, as sellers, were to
retain title of ownership to the land until respondent
Espidol, the buyer, has paid the agreed price. Indeed,
there seems no question that the parties understood this b) 721,921.87 received in cash by the
to be the case. First Party as additional payment of the Second
Party;

Admittedly, Espidol was unable to pay the


second installment of P1,750,000.00 that fell due in c) 1,200,000.00 to be paid in
December 2002. That payment, said both the RTC and the installments as follows:
CA, was a positive suspensive condition failure of which
was not regarded a breach in the sense that there can be
no rescission of an obligation (to turn over title) that did
1. 200,000.00 payable
not yet exist since the suspensive condition had not
on or before January
taken place. x x x. [Emphases and underscoring supplied]
31, 1991;

Thus, the Court fully agrees with the CA when it resolved: 2. 200,000.00 payable
Considering, however, that the Deed of Conditional Sale was not on or before June 30,
cancelled by Vendor Reyes (petitioner) and that out of the total 1991;

purchase price of the subject property in the amount of


3. 800,000.00 payable
4,200,000.00, the remaining unpaid balance of Tuparan on or
(respondent) is only 805,000.00, a substantial amount of the before December 31,
purchase price has already been paid. It is only right and just to 1991;
allow Tuparan to pay the said unpaid balance of the purchase price
Note: All the installments shall not
to Reyes.[10] bear any interest.

Granting that a rescission can be permitted under Article d) 2,000,000.00 outstanding


1191, the Court still cannot allow it for the reason that, considering balance of the mortgage obligation as
of November 15, 1990 which is hereby assumed
the circumstances, there was only a slight or casual breach in the
by the Second Party.
fulfillment of the obligation.

xxx
37
3. That the Third Party hereby evidence on record to prove that respondent acted fraudulently and
acknowledges receipts from the Second
maliciously against the petitioner. In the case of Heirs of Atienza v.
Party P278,078.13 as partial payment of the loan
obligation of First Party in order to reduce the Espidol,[13] it was stated:
account to only 2,000,000.00 as of November
15, 1990 to be assumed by the Second Party
effective November 15, 1990.[12] Respondents are not entitled to moral
damages because contracts are not referred to
From the records, it cannot be denied that respondent in Article 2219 of the Civil Code, which
paid to FSL Bank petitioners mortgage obligation in the amount of enumerates the cases when moral damages may
2,278,078.13, which formed part of the purchase price of the be recovered. Article 2220 of the Civil Code
allows the recovery of moral damages in
subject property. Likewise, it is not disputed that respondent paid
breaches of contract where the defendant acted
directly to petitioner the amount of 721,921.87 representing the fraudulently or in bad faith. However, this case
additional payment for the purchase of the subject property. Clearly, involves a contract to sell, wherein full payment
out of the total price of 4,200,000.00, respondent was able to pay of the purchase price is a positive suspensive
the total amount of 3,000,000.00, leaving a balance of condition, the non-fulfillment of which is not a
breach of contract, but merely an event that
1,200,000.00 payable in three (3) installments.
prevents the seller from conveying title to the
purchaser. Since there is no breach of contract
Out of the 1,200,000.00 remaining balance, respondent
in this case, respondents are not entitled to
paid on several dates the first and second installments of moral damages.
200,000.00 each. She, however, failed to pay the third and last
installment of 800,000.00 due on December 31, 1991.
Nevertheless, on August 31, 1992, respondent, through counsel, In the absence of moral, temperate,
offered to pay the amount of 751,000.00, which was rejected by liquidated or compensatory damages, exemplary
petitioner for the reason that the actual balance was 805,000.00 damages cannot be granted for they are allowed
excluding the interest charges. only in addition to any of the four kinds of
damages mentioned.
Considering that out of the total purchase price of
4,200,000.00, respondent has already paid the substantial amount
of 3,400,000.00, more or less, leaving an unpaid balance of only
WHEREFORE, the petition is DENIED.
805,000.00, it is right and just to allow her to settle, within a
reasonable period of time, the balance of the unpaid purchase price.
The Court agrees with the courts below that the respondent showed SO ORDERED.
her sincerity and willingness to comply with her obligation when she
offered to pay the petitioner the amount of 751,000.00.

On the issue of interest, petitioner failed to substantiate


her claim that respondent made a personal commitment to pay a 6%
monthly interest on the 805,000.00 from the date of
delinquency, December 31, 1991. As can be gleaned from the
contract, there was a stipulation stating that: All the installments
shall not bear interest. The CA was, however, correct in imposing
interest at the rate of 6% per annum starting from the filing of the
complaint on September 11, 1992.

Finally, the Court upholds the ruling of the courts below


regarding the non-imposition of damages and attorneys fees. Aside
from petitioners self-serving statements, there is not enough

38