REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. MAMBULAO LUMBER COMPANY, ET AL., defendants-ap- pellants.

Public forests; Reforestation charges; Nature of fund collected.Under Section 1 of Republic Act No. 115 the amount collected as reforestation charges from a timber license or concessionaire, shall constitute a fund to be known as the Reforestation und, and the same shall be e!pended b" the #irector of orestr", with the appro$al of the Secretar" of Agriculture and Natural Resources for the reforestation or afforestation, among others, of denuded areas which, upon in$estigation, are found to be needing reforestation or afforestation. Same; Same; Same.%he amount paid b" a icensee as reforestation charges, is in the nature of a ta! which forma part of the Reforestation und, pa"able b" him irrespecti$e of whether the area co$ered b" this license is reforested or not. Said und, as the law e!pressl" pro$ided, shall be e!pended in carr"ing out the purposes pro$ided for thereunder, namel", the reforestation or afforestation, among others, of denuded areas needing reforestation or afforestation. Obligations and contracts; Compensation when parties are not creditor or debtor of each other.&here appellant and appellee are not mutuall" creditors and debtors of each other, the law on compensation is inapplicable. Same; Same; Internal Revenue Ta es.'nternal Re$enue %a!es, such as forest charges, cannot be the sub(ect of set)off or compensation. 't is because ta!es are not in the nature of contracts between the parties but grow out of a dut" to, and are positi$e acts of, the *o$ernment, to the making and enforcing of which, the personal consent of the indi$idual ta!pa"er is not re+uired. A,,-A. from a decision of the /ourt of irst 'nstance of 0anila. %he facts are stated in the opinion of the /ourt. Solicitor !eneral for plaintiff)appellee. "rthur Tordesillas for defendants)appellants. 1ARR-RA, #.$ rom the decision of the /ourt of irst 'nstance of 0anila 2in /i$il /ase No. 341556 ordering it to pa" to plaintiff Republic of the ,hilippines the sum of ,4,758.39 with :; interest thereon from the date of the filing of the complaint until full" paid, plus costs, defendant 0ambulao .umber /ompan" interposed the present appeal.1 %he facts of the case are briefl" stated in the decision of the trial court, to wit< =%he facts of this case are not contested and ma" be briefl" summari>ed as follows< 2a6 under the first cause of action, for forest charges co$ering the period from

September 15, 1?58 to 0a" 84, 1?53, defendants admitted that the" ha$e a liabilit" 51 ,579.39, which liabilit" is co$ered b" a bond e!ecuted b" defendant *eneral 'nsurance a l Sure t" /orporat ion for bulao .umber /ompan", (ointl" and se$erall" in character, on @ul" 8?, 1?53, in fa$or of herein plaintiffA 2b6 under the second cause of action, both defendants admitted a (oint and se$eral liabilit" in fa$or of plaintiff in the sum of ,87:.95, also co$ered b" a bond dated No$ember 89, 1?53A and 2c6 under the third cause of action, both defendants admitted a (oint and se$eral liabilit" in fa$or of plaintiff for ,3,?87.35, also co$ered b" a bond dated @ul" 85, 1?54. %hese three liabilities aggregate to ,4,758.39. 'f the liabilit" of defendants in fa$or of plaintiff in the amount alread" mentioned is admitted, then what is the defense interposed b" the defendantsB %he defense presented b" the defendants is +uite unusual in more wa"s than one. 't appears from -!h. 3 that from @ul" 31, 1?47 to #ecember 8?, 1?55, defendant 0ambulao .umber /ompan" paid to the Republic of the ,hilippines ,7,855.58 for Creforestation chargesC and for the period commencing from April 35, 1?49 to @une 84, 1?47, said defendant paid ,?89.57 to the Republic of the ,hilippines for Creforestation chargesC. %hese reforestation charges were paid to the plaintiff in pursuance of Section 1 of Republic Act 115 which pro$ides that there shall be collected, in addition to the regular forest charges pro$ided under Section 854 of /ommonwealth Act 4:: known as the National 'nternal Re$enue /ode, the amount of ,5.55 on each cubic meter of timber ! ! ! cut out and remo$ed from an" public forest for commercial purposes. %he amount collected shall be e!pended b" the director of forestr", with the appro$al of the secretar" of agriculture and commerce, for reforestation and afforestation of watersheds, denuded areas ! ! ! and other public forest lands, which upon in$estigation, are found needing reforestation or afforestation !!!. %he total amount of the reforestation charges paid b" 0ambulao .umber /ompan" is ,?,189.55, and it is the contention of defendant 0ambulao .umber /ompan" that since the Republic of the ,hilippines has not made use of those reforestation charges collected from it for reforesting the denuded area of the land co$ered b" its license, the Republic of the ,hilippines should refund said amount, or, if it cannot be refunded, at least it should be compensated with what 0ambulao .umber /ompan" owed the Republic of the ,hilippines for reforestation charges. 'n line with this thought, defendant 0ambulao .umber /ompan" wrote the director of forestr", on ebruar" 81, 1?59 letter -!h. 1, in paragraph 4 of which said defendant re+uested =that our account with "our bureau be credited with all the reforestation charges that "ou ha$e imposed on us from @ul" 1, 1?49 to @une 14. 1?5:, amounting to around ,8,?77.:8 ! ! !=. %his letter of defendant 0ambulao .umber /ompan" was answered b" the director of forestr" on 0arch 18, 1?59, marked -!h. 8, in which the director of forestr" +uoted an opinion of the secretar" of (ustice, to the effect that he has no discretion to e!tend the time for pa"ing the reforestation charges and also e!plained wh" not all denuded areas are being reforested.= %he onl" issue to be resol$ed in this appeal is whether the sum of ,?,189.55 paid b" defendant)appellant compan" to plaintiff)appellee as reforestation charges from 1?49 to 1?5: ma" be set off or applied to the pa"ment of the sum of ,4,758.39 as forest charges due and owing from appellant to appellee. 't is appellantCs contention that said sum of ,?,189.55, not ha$ing been used in the reforestation of the area co$ered b" its license, the same is refundable to it or ma" be applied in compensation of said sum of ,4,758.39 due from it as forest charges.

&e find appellantCs claim de$oid of an" merit. Section 1 of Republic Act No. 115, pro$ides< =S-/%'DN 1. %here shall be collected, in addition to the regular forest charges pro$ided for under Section two hundred and si!t")four of /ommonwealth Act Numbered our Eundred Si!t")si!, known as the National 'nternal Re$enue /ode, the amount of fift" centa$os on each cubic meter of timber for the first and second groups and fort" centa$os for the third and fourth groups cut out and remo$ed from an" public forest for commercial purposes. The amount collected shall be e pende d d. b" the #ire ct or of or estr ", with the ap pro Secretar" of Agriculture and Natural Resources 2commerce6, for re forestation and afforestation of watersheds, denuded areas and cogon and open lands within forest reser$es, communal forest, national parks, timber lands, sand dunes, and other public forest lands, which upon investigation% are found needing reforestation or afforestation, or needing to be under forest co$er for the growing of economic trees for timber, tanning, oils, gums. and other minor forest products or medicinal plants, or for watersheds protection, or for pre$ention of erosion and floods and preparation of necessar" plans and estimate of costs and for reconnaissance sur$e" of public forest lands and for such other e!penses as ma" be deemed necessar" for the proper carr"ing out of the purposes of this Act. &"ll revenues collected b' virtue of% and pursuant to% the provisions of the preceding paragraph and from the sale of barks. medical plants and other products deri$ed from plantations as herein pro$ided shall constitute a fund to be (nown as Reforestation )und% to be e!pended e!clusi$el" in carr"ing out the purposes pro$ided for under this Act. All pro$incial or cit" treasurers and their deputies shall act as agents of the #irector of orestr" for the collection of the re$enues or incomes deri$ed from the pro$isions of this Act.= 2'talics supplied.6 Under this pro$ision, it seems +uite clear that the amount collected as reforestation charges from a timber licenses or concessionaire shall constitute a fund to be known as the Reforestation und, and that the same shall be e!pended b" the #irector of orestr", with the appro$al of the Secretar" of Agriculture and Natural Resources for the reforestation or afforestation, among others, of denuded areas which, upon in$estigation, are found to be needing reforestation or afforestation. Note that there is nothingC in the law which re+uires that the amount collected as reforestation charges should be used e!clusi$el" for the reforestation of the area co$ered b" the license of a licensee or concessionaire, and that if not so used, the same should be refunded to him. Dbser$e too, that the licenseeCs area ma" or ma" not be reforested at all, depending on whether the in$estigation thereof b" the #irector of orestr" shows that said area needs reforestation. %he conclusion seems to be that the amount paid b" a licensee as reforestation charges is in the nature of a ta! which forms a part of the Reforestation und, pa"able b" him irrespecti$e of whether the area co$ered b" his license is reforested or not. Said fund, as the law e!pressl" pro$ides, shall be e!pended in carr"ing out the purposes pro$ided for thereunder, namel", the reforestation or afforestation, among others, of denuded areas needing reforestation or afforestation. Appellant maintains that the principle of a compensation in Article 1897 of the new /i$il /ode8 is applicable, such that the sum of B?,189.55 paid b" it as reforestation

charges ma" compensate its indebtedness to appellee in the sum of ,4,758.39 as forest charges. 1ut in the $iew we take of this case, appellant and appellee are not mutuall" creditors and debtors of each other. /onse+uentl", the law on compensation is inapplicable. Dn this point, the trial court correctl" obser$ed< =Under Article 1897, N//, compensation should take place when two persons in their own right are creditors and debtors of each other. &ith respect to the forest charges which the defendant 0ambulao .umber /ompan" has paid to the go$ernment, the" are in the coffers of the go$ernment as ta!es collected, and the go$ernment does not owe an"thing, cr"stal clear that the Republic of the ,hilippines and the 0ambulao .umber /ompan" are not creditors and debtors of each other, because compensation refers to mutual debts, ! ! != And the weight of authorit" is to the effect that internal re$enue ta!es, such as the forest charges in +uestion, can be the sub(ect of set)off or compensation. =A claim for ta!es is not such a debt, demand, contract or (udgment as is allowed to be set)off under the statutes of setoff, which are construed uniforml", in the light of public polic", to e!clude the remed" in an action or an" indebtedness of the state or municipalit" to one who is liable to the state or municipalit" for ta!es. Neither are the" a proper sub(ect of recoupment since the" do not arise out of the contract or transaction sued on. ! ! !.= 275 /.@.S. 93)94.6 =%he general rule, based on grounds of public polic" is well)settled that no set)off is admissible against demands for ta!es le$ied for general or local go$ernmental purposes. %he reason on which the general rule is based, is that ta!es are not in the nature of contracts between the part" and part" but grow out of a dut" to, and are the positi$e acts of the go$ernment, to the making and enforcing of which, the personal consent of indi$idual ta!pa"ers is not re+uired, ! ! ! 'f the ta!pa"er can properl" refuse to pa" his ta! when called upon b" the /ollector, because he has a claim against the go$ernmental bod" which is not included in the ta! le$", it is plain that some legitimate and necessar" e!penditure must be curtailed. 'f the ta!pa"erCs claim is disputed, the collection of the ta! must await and abide the result of a lawsuit, and meanwhile the financial affairs of the go$ernment will be thrown into great confusion.= 249 Am. @ur. 9::)9:9.6 &E-R- DR-, the (udgment of the trial court appealed from is hereb" affirmed in all respects, with costs against the defendant)appellant. So ordered. *eng+on% C.#.% Padilla% *autista "ngelo% ,abrador% Concepcion% Re'es% #.*.,.% Paredes% -i+on and -e ,eon% ##.% concur. #udgment affirmed.

*.R. No. 9571?.September 7, 1?7?. FERMIN ON , petiti!ne", vs. COURT OF APPEALS and MARIANO ON , "esp!ndents. Obligations and Contracts; Re.uisites of Compensation; Case at bar.%his being so, ermin ob$iousl" cannot take refuge in Article 189? of the /i$il /ode, pro$iding as follows< AR%. 189?. 'n order that compensation ma" be proper, it is necessar"< 216 %hat each one of the obligors be bound principall", and that he be at the same time a principal creditor of the otherA 286 %hat both debts consist in a sum of mone", or if the things due are consumable, the" be of the same kind, and also of the same +ualit" if the latter has been statedA 236 %hat the two debts be dueA 246 %hat the" be li+uidated and demandableA 256 %hat o$er neither of them there be an" retention or contro$ers", commenced b" third persons and communicated in due time to the debtor. As the respondent /ourt correctl" obser$ed in holding that the abo$e pro$ision was not applicable< %he instant case does not certainl" satisf" the abo$e because 216 appellant is not a debtor of appellee, it is onl" the latter who is indebted to appellantA 286 the debts, e$en admitting, that the deli$er" of the >ippers to plaintiff is a debt, do not both consist in a sum of mone" nor are the" of the same +ualit" and kind ! ! !. Same; Same; No /udicial set0off in the case at bar; Reasons.%he petitioner sa"s, howe$er, that there was a (udicial set)off under Article 1873 of the /i$il /ode, reading as follows< AR%. 1873. 'f one of the parties to a suit o$er an obligation has a claim for damages against the other, the former ma" set it off b" pro$ing his right to said damages and the amount thereof. %he trouble is that ermin has not pro$ed the right to an" damage as a result of the claimed retention of the >ippers b" 0ariano. %here was also no proof of the amount of such damages as he could not e$en sa" how man" of the >ippers had been earlier withdrawn b" him. ,-%'%'DN to re$iew the decision of the /ourt of Appeals. %he facts are stated in the opinion of the /ourt. Padilla ,aw Office for petitioner. 1eer% 1eer 2 1eer and "lberto O. 3illara+a for respondents. /RUF, #.< %he basic issue in this case is the amount of the indebtedness due from the petitioner ermin Dng to pri$ate respondent 0ariano Dng, his cousin. ermin sa"s it is onl" ,185,555.55 and was sustained b" the trial court.1 0ariano sa"s it is ,1:5,555.55 and was upheld b" the respondent court.8 %he petition pra"s that the decision of the respondent court be re$ersed and that of the trial court reinstated. According to the petitioner, he borrowed from the pri$ate respondent the amount of onl" ,1:5,555.55 and secured its pa"ment with three post)dated checks totaling the same amount.

%hese were< /heck No. 795575 dated September :, 1?97 for ,55,555.55A /heck No. ?57854 dated Dctober 7, 1?97 for ,15,555.55A and /heck No. 779375 dated Dctober 15, 1?97 for ,155,555.55. All were drawn against erminGs Account No. 11)1871 with the /onsolidated 1ank and %rust /orporation.3 Dn @anuar" 83, 1?9?, he issued a fourth check for ,45,555.55 in partial settlement of the loan, which was thereb" reduced to ,185,555.55. %his was /heck No. 5?5:, pa"able to 0ariano Dng, and drawn against erminGs account with the /hina 1anking /orporation.4 %he petitioner sa"s that he stored in 0arianoGs warehouse a +uantit" of >ippers $alued at ,171,555.55, from which he occasionall" made withdrawals in the presence of 0arianoGs son. ermin denies the" were intended to guarantee the pa"ment of his loan and claims the" were merel" deposited there because he had nowhere else to place them. &hen he subse+uentl" tried to get the rest of his >ippers, ermin claims 0ariano refused to release them on the ground of non)pa"ment of the loan. ermin a$ers that he had re+uested 0ariano not to deposit or encash the post)dated checks on maturit" and admits that he had not made good their amount when the" were dishonored.5 -$entuall", 0ariano sued ermin after first sending him a demand for the amount of ,1:5,555.55. 'n his answer, ermin denied liabilit". Ee alleged, first, that the debt had been reduced because of the partial pa"ment he had made and, second, that the balance of ,185,555.55 had been offset b" the sum of ,855,555.55 due from 0ariano. %his amount represented the consideration for the transfer to him of erminGs rights to four stalls in the Hangco 0arket.: %he pri$ate respondent stated in his repl" that the check for ,45,555.55 was issued b" ermin in pa"ment for another obligation owed to 0arianoGs wifeA but he abandoned this defense in his subse+uent pleadings. Ee was to claim later that the original loan was for ,855.555.55 and this was reduced with the pa"ment of the said check, lea$ing a balance of ,1:5,555.55.9 %his amount was e+ui$alent to the face $alue of the remaining three checks which he could not encash. %he petitioner was not consistent either, for he abandoned his original allegation that 0ariano owed him ,855,555.55 for the rights to the market stalls when the latter showed that the consideration was onl" ,85,555.55. ermin was thereafter to in$oke another set)off, to wit, his outstanding loan against the cost of the >ippers, which he said 0ariano had un(ustl" retained. *i$en these contradictions between the parties, and in their own respecti$e positions, one can understand wh" the trial court and the respondent court also could not agree. 't is up to this /ourt now to straighten this mess and to disco$er the truth from the conflicting $ersions of the parties, on the basis of the record before us and the applicable law.

Under Rule 45 of the Rules of /ourt, a re$iew is not a matter of right but of sound (udicial discretion and will be granted onl" if there are special and important reasons therefor, such as< 2a6 &hen the /ourt of Appeals has decided a +uestion of substance, not theretofore determined b" the Supreme /ourt, or has decided it in a wa" probabl" not in accord with law or with the applicable decisions of the Supreme /ourtA and 2b6 &hen the /ourt of Appeals has so far departed from the accepted and usual course of (udicial proceedings, or so far sanctioned such departure b" a lower court, as to call for an e!ercise of the power of super$ision. &e do not see such reasons, or an" similar reasons, in the case at bar. 0oreo$er, the basic issue presented is a factual issue, in contra$ention of the strict limitation in the same Rule that Ionl" +uestions of law ma" be raised in the petition.J &hile this is not to sa" that the factual findings of the /ourt of Appeals are conclusi$e upon this /ourt in e$er" case, the" will be so regarded as a matter of practice and polic" in the absence of a showing that the" come under the accepted e!ceptions as de$eloped and established b" (udicial doctrine. Among such e!ceptions are< 216 when the conclusion is a finding grounded entirel" on speculation, surmise and con(ecturesA 286 when the inference made is manifestl" mistakenA 236 when there is gra$e abuse of discretionA 246 when the (udgment is based on a misapprehension of factsA 256 when the /ourt of Appeals went be"ond the issues of the case and its findings are contrar" to the admissions of both appellant and appelleesA 2:6 when the findings of fact of the /ourt of Appeals are contrar" to those of the trial courtA 296 when said findings of fact are conclusions without citation of specific e$idence on which the" are basedA 276 when the facts set forth in the petition as well as in the petitionerGs main and repl" briefs are not disputed b" the respondentsA and 2?6 when the findings of fact of the /ourt of Appeals are premised on the absence of e$idence and is contradicted b" the e$idence of record.7 Although the factual findings of the respondent court conflict with those of the trial court, this /ourt belie$es nonetheless that the former must be sustained, being more conformable to the e$idence of record. %he simple and incontro$ertible fact is that the post)dated checks issued b" the petitioner and still in the possession of the pri$ate respondent are in the total amount of ,1:5,555.55, which is the same amount claimed b" 0ariano as erminGs outstanding loan. 'f it is true that that sum had reall" been reduced b" ,45,555.55, there would ha$e been a corresponding reduction also in the amount of the post)dated checks issued b" ermin to secure his total indebtedness. %here was none. And if it be argued that the checks were not sufficientl" funded an"wa", then ermin could at least ha$e demanded a receipt from 0ariano for the partial pa"ment allegedl" made to him. No such receipt was e$er introduced in e$idence.

ermin, being an e!perienced businessman, would ha$e taken either of these acts, but he did not. And it is no argument that there was no need for these precautions because, after all, he and 0ariano were cousins who had grown up together. ermin knew well enough that this close relationship did not pre$ent 0ariano from treating their transaction in a totall" businesslike manner. 'f 0ariano had re+uired his cousin to issue the post)dated checks to secure the pa"ment of his loan, ermin would ha$e been no less cautious and asked for acknowledgment of his alleged partial pa"ment. &hat ob$iousl" happened, as found b" the respondent court, is that 0ariano e!tended ermin a loan of ,855,555.55 for which the latter issued four post)dated checks to co$er the said amount. &ith the encashment of the fourth check for ,45,555.55, the loan was reduced b" that amount, lea$ing the remaining first three checks to guarantee the balance of the loan. %he important point to stress is that the reduced loan was e+ui$alent to the total face $alue of the checks. As for the >ippers, it would seem that the petitioner has adopted another ambi$alent position, re(ecting them first as worthless and then later demanding their return as a condition for the pa"ment of his debt. 'n one part of his memorandum, he sa"s that the pri$ate respondent acted unfairl" when he refused to release the >ippers until the" e$entuall" became outmoded and so lost their $alue.? %oward the end of the same memorandum, he sa"s that Ihe will pa" his indebtedness of ,185,555.55 to pri$ate respondent if the >ippers be returned to him.J15 Ee adds, of course, that the" should be Istill in working, worth" and $aluable state or +ualit",J which is a negation of his flat statement 2in the same memorandum6 that Inow the" are $alueless.J11 %he pri$ate respondent denies that he e$er pre$ented the petitioner from getting the >ippers although we take this with a grain of salt. %he likelihood is that 0ariano did detain the >ippers to force the petitioner to pa" his debt, his post)dated checks ha$ing pro$ed worthless. %hat was a reasonable business precaution, assuming he did take it. At an" rate, 0ariano had e!pressl" indicated that he had 2and has6 no ob(ections to the petitioner taking back his >ippers and in fact is charging ermin storage fees for the use of his warehouse.18 Now, to the onl" legal +uestion raised, to wit, the alleged compensation between the reciprocal obligations of the parties. ermin claims the balance of his debt is deemed set off b" the price of the >ippers in the possession of 0ariano, who had the obligation to return them to him. %he flaw in this argument is the assumption that 0ariano had such an obligation, which has not been pro$ed b" ermin. 't has alread" been found that 0ariano had not retained them nor did he ha$e an" need for them as he was in a different business. Ee had not bought them or otherwise owed their $alue to ermin, who was in fact the obligor. ermin does not den" that he deposited the >ippers in 0arianoGs warehouse without pa"ing storage fees or an" other consideration. %his being so, ermin ob$iousl" cannot take refuge in Article 189? of the /i$il /ode, pro$iding as follows<

AR%. 189?.'n order that compensation ma" be proper, it is necessar"< 216 %hat each one of the obligors be bound principall", and that he be at the same time a principal creditor of the otherA 286 %hat both debts consist in a sum of mone", or if the things due are consumable, the" be of the same kind, and also of the same +ualit" if the latter has been statedA 236 %hat the two debts be dueA 246 %hat the" be li+uidated and demandableA 256 %hat o$er neither of them there be an" retention or contro$ers", commenced b" third persons and communicated in due time to the debtor. As the respondent /ourt correctl" obser$ed in holding that the abo$e pro$ision was not applicable< %he instant case does not certainl" satisf" the abo$e because 216 appellant is not a debtor of appellee, it is onl" the latter who is indebted to appellantA 286 the debts, e$en admitting that the deli$er" of the >ippers to plaintiff is a debt, do not both consist in a sum of mone" nor are the" of the same +ualit" and kind ! ! !.13%he petitioner sa"s, howe$er, that there was a (udicial set)off under Article 1873 of the /i$il /ode, reading as follows< AR%.1873.'f one of the parties to a suit o$er an obligation has a claim for damages against the other, the former ma" set it off b" pro$ing his right to said damages and the amount thereof. %he trouble is that ermin has not pro$ed the right to an" damage as a result of the claimed retention of the >ippers b" 0ariano. %here was also no proof of the amount of such damages as he could not e$en sa" how man" of the >ippers had been earlier withdrawn b" him. &e find that the respondent court has not committed an" re$ersible error in holding that the original amount of the petitionerGs indebtedness to the pri$ate respondent was ,855,555.55A that this was subse+uentl" reduced to ,1:5,555.55 with the partial pa"ment of ,45,555.55 made with the /hina 1anking /orporation checkA and that the outstanding loan has not been canceled b" offset or compensation under the pertinent pro$isions of the /i$il /ode. &E-R- DR-, the petition is #-N'-#, with costs against the petitioner. 't is so ordered. Narvasa% 4Chairman5% !anca'co% !ri6o0".uino and 1edialdea% ##., concur.

Petition denied. N!tes.0ere e!tension of pa"ment does not result in a no$ation. 2Tible vs. ".uino, :5 S/RA 859.6 Dffer of pa"ment b" certified check is $alid tender of pa"ment. 21c,aughlin vs. C", 144 S/RA :?3.6

*.R. No. 18?5?7. August 15, 8551 PNB MA#ECOR, petiti!ne", vs. ERAR#O C. UY, "esp!ndent.

Obligations and Contracts; Compensation; 7ords and Phrases; 8,e0gal Compensation9 and 8Conventional Compensation%9 -istinguished;Compensation is a mode of e tinguishing to the concurrent amount the obligations of persons who in their own right and as principals are reciprocall' debtors and creditors of each other. &orth stressing, compensation is a mode of e!tinguishing to the concurrent amount the obligations of persons who in their own right and as principals are reciprocall" debtors and creditors of each other. .egal compensation takes place b" operation of law when all the re+uisites are present, as opposed to con$entional compensation which takes place when the parties agree to compensate their mutual obligations e$en in the absence of some re+uisites. Same; Same; ,egal Compensation; Re.uisites..egal compensation re+uires the concurrence of the following conditions< 216 that each one of the obligors be bound principall", and that he be at the same time a principal creditor of the otherA 286 that both debts consist in a sum of mone", or if the things due are consumable, the" be of the same kind, and also of the same +ualit" if the latter has been statedA 236 that the two debts be dueA 246 that the" be li+uidated and demandableA 256 that o$er neither of them there be an" retention or contro$ers", commenced b" third persons and communicated in due time to the debtor. Same; Same; " letter advising a debtor to settle the matter of implementing an earlier arrangement with the assignee0ban( is not demand letter for pa'ment.&e agree with petitioner that this letter was not one demanding pa"ment, but one that merel" informed petitioner of 216 the con$e"ance of a certain portion of its obligation to ,N-' per a dacion en pago arrangement between ,N-' and ,N1, and 286 the unpaid balance of its obligation after deducting the amount con$e"ed to ,N1. %he import of this letter is not that ,N-' was demanding pa"ment, but that ,N-' was ad$ising petitioner to settle the matter of implementing the earlier arrangement with ,N1. Same; Same; 7here a debtor:s obligation is pa'able on demand and no demand was made% it follows that the obligation is not 'et due% and the obligation ma' not be sub/ect to compensation for lac( of a re.uisite under the law.Since petitionerGs obligation to ,N-' is pa"able on demand, and there being no demand made, it follows that the obligation is not "et due. %herefore, this obligation ma" not be sub(ect to compensation for lack of a re+uisite under the law. &ithout compensation ha$ing taken place, petitioner remains obligated to ,N-' to the e!tent stated in the promissor" note. %his obligation ma" undoubtedl" be garnished in fa$or of respondent to satisf" ,N-'Gs (udgment debt. Same; Same; 7ords and Phrases; The controvers' involving one of the mutual obligations% in order to prevent compensation from ta(ing place% must be communicated in due time% and b' 8in due time9 is meant the period before legal compensation was supposed to ta(e place% considering that legal compensation

operates so long as the re.uisites concur% even without an' conscious intent on the part of the parties.As to respondentGs claim that legal compensation could not ha$e taken place due to the e!istence of a contro$ers" in$ol$ing one of the mutual obligations, we find this matter no longer controlling. Said contro$ers" was not seasonabl" communicated to petitioner as re+uired under Article 189? of the /i$il /ode. %he contro$ers", i.e., the action instituted b" respondent against ,N-', must ha$e been communicated to ,N1 0A#-/DR in due time to pre$ent compensation from taking place. 1" Iin due timeJ should be meant the period before legal compensation was supposed to take place, considering that legal compensation operates so long as the re+uisites concur, e$en without an" conscious intent on the part of the parties. A contro$ers" that is communicated to the parties after that time ma" no longer undo the compensation that had taken place b" force of law, lest the law concerning legal compensation be for naught. Same; Same; The law does not re.uire that the parties: obligations be incurred at the same time;what the law re.uires onl' is that the obligations be due and demandable at the same time.As regards respondentGs a$erment that there was as "et no compensable debt when ,N-' sent petitioner a demand letter on September 1?74, since ,N-' was not "et indebted to petitioner at that time, the law does not re+uire that the partiesG obligations be incurred at the same time. &hat the law re+uires onl" is that the obligations be due and demandable at the same time. Same; Same; "ctions; !arnishment; 7ords and Phrases; !arnishment consists in the citation of some stranger to the litigation% who is debtor to one of the parties to the action% such debtor stranger becoming a forced intervenor.&e had occasion to rule as earl" as 1?81 in Ta'abas ,and Co. v. Sharruf% as follows< I. . . garnishment . . . consists in the citation of some stranger to the litigation, who is debtor to one of the parties to the action. 1" this means such debtor stranger becomes a forced inter$enorA and the court, ha$ing ac+uired (urisdiction o$er his person b" means of the citation, re+uires him to pa" his debt, not to his former creditor, but to the new creditor, who is creditor in the main litigation. 't is merel" a case of in$oluntar" no$ation b" the substitution of one creditor for another. Upon principle the remed" is a species of attachment or e!ecution for reaching an" propert" pertaining to a (udgment debtor which ma" be found owing to such debtor b" a third person.J ,-%'%'DN for re$iew on certiorari of a decision of the /ourt of Appeals. %he facts are stated in the opinion of the /ourt. Santiago% Sarte 2 "ssociates for petitioner. !utierre+% Sundiam 2 3illanueva and #orge Roito N. <irang% #r. for pri$ate respondent. "costa 2 3illanueva ,aw Office collaborating counsel for pri$ate respondent. KU'SU01'N*, #.<

%his is a petition for re$iew on certiorari filed b" petitioner ,N1 0anagement and #e$elopment /orporation 2,N1 0A#-/DR6 seeking to annul the decision of the /ourt of Appeals dated ebruar" 1?, 1??9, and its resolution dated @une 1?, 1??9 in /A)*.R. /L No. 4?:?3, affirming the order of the Regional %rial /ourt of 0anila, 1ranch 37, dated August 81, 1??5 in /i$il /ase No. ?5)98:75. 'n said order, the R%/ directed the garnishment of the credits and recei$ables of ,antranco North -!press, 'nc. 2,N-'6, also known as ,hilippine National -!press, 'nc., in the possession of ,N1 0A#-/DR, and if these were insufficient to co$er the debt of ,N1 0A#-/DR to ,N-', to le$" upon the assets of ,N1 0A#-/DR. %he facts of this case, culled from the decision of the /A,1 are as follows< *uillermo U", doing business under the name *.U. -nterprises, assigned to respondent *erardo U" his recei$ables due from ,antranco North -!press 'nc. 2,N-'6 amounting to ,4,::5,557.55. %he deed of assignment included sales in$oices containing stipulations regarding pa"ment of interest and attorne"Gs fees. Dn @anuar" 83, 1??5, *erardo U" filed with the R%/ a collection suit with an application for the issuance of a writ of preliminar" attachment against ,N-'. Ee sought to collect from ,N-' the amount of ,7,3?9,445.55. Ee alleged that ,N-' was guilt" of fraud in contracting the obligation sued upon, hence his pra"er for a writ of preliminar" attachment. A writ of preliminar" attachment was issued on @anuar" 8:, 1??5, commanding the sheriff Ito attach the properties of the defendant, real or personal, andMor 2of6 an" person representing the defendantJ8 in such amount as to co$er *erardo U"Gs demand. Dn @anuar" 89, 1??5, the sheriff issued a notice of garnishment addressed to the ,hilippine National 1ank 2,N16 attaching the Igoods, effects, credits, monies and all other personal propertiesJ3 of ,N-' in the possession of the bank, and re+uesting a repl" within fi$e da"s. ,N1 0A#-/DR recei$ed a similar notice. Dn 0arch 1??5, the R%/, through the application of *erardo U", issued a subpoena duces tecum for the production of certain documents in the possession of ,N1 and ,N1 0A#-/DR< 216 from ,N1, books of account of ,N-' regarding trust account nos. %)74:1)', 74:1)'', and %)75:5A and 286 from ,N1 0A#-/DR, contracts showing ,N-'Gs recei$ables from the National Real -state #e$elopment /orporation 2NAR-#-/D6, now ,N1 0A#-/DR, from 1?71 up to the period when the documents were re+uested. At the hearing in connection with the subpoena, ,N1 mo$ed to be allowed to submit a position paper on its behalf andMor on behalf of ,N1 0A#-/DR. 'n its position paper dated April 3, 1??5, ,N1 0A#-/DR alleged that it was the owner of the parcel of land located in Kue>on /it" that was leased to ,N-' for use as bus terminal. 0oreo$er, ,N1 0A#-/DR claimed< I8. ,N-' has not been pa"ing its rentals from Dctober 1??5 to 0arch 84, 1??4when it 2,N-'6 $acated the propert". As of the latter date, ,N1

0A#-/DRGs recei$ables against ,N-' amounted to ,7,974,889.47, representing accumulated rentals, inclusi$e of interestA 3. Dn the other hand, ,N1 0A#-/DR has pa"ables to ,N-' in the amount of ,9,774,555.55 as e$idenced b" a promissor" note e!ecuted on Dctober 31, 1?78 b" then NAR-#-/D in fa$or of ,N-'A 4. /onsidering that ,N1 0A#-/DR is a creditor of ,N-' with respect to the ,7,974,889.47 and at the same time its debtor with respect to the ,9,774,555.55, ,N1 0A#-/DR and ,N-' are therefore creditors and debtors of each otherA and 5. 1" force of the law on compensation, both obligations of ,N1 0A#-/DR and ,N-' are alread" considered e!tinguished to the concurrent amount or up to ,9,774,555.55 so that ,N-' is still obligated to pa" ,N1 0A#-/DR the amount of ,?55,889.47. ! ! !J4 Dn the other hand, *erardo U" filed an omnibus motion contro$erting ,N1 0A#-/DRGs claim of compensation. -$en if compensation were possible, according to him, ,N-' would still ha$e sufficient funds in the hands of ,N1 0A#-/DR to full" satisf" his claim. Ee e!plained that< I%he allegation of ,N1 0A#-/DR that it owes ,N-' onl" ! ! ! 2,9,774,555.556 is not accurate. Apparentl", ,N1 0A#-/DR onl" considered the principal amount. 'n the first place, to be precise, the principal debt amounts to e!actl" ! ! ! 2,9,774,?81.156 as clearl" indicated in the ,romissor" Note dated 31 Dctober 1?78 ! ! !. 'n accordance with the stipulations contained in the promissor" note, notice of demand was sent b" ,N-' to ,N1 0A#-/DR 2then NAR-#-/D6 through a letter dated 87 September 1?74 and recei$ed b" the latter on 1 Dctober 1?74 ! ! !. %he second paragraph of the sub(ect promissor" note states that NO Pailure to pa" the abo$e amount b" NAR-#-/D after due notice has been made b" ,N-' would entitle ,N-' to collect an 17; OinterestP per annum from date of notice of demand.G Eence, interest should be computed and start to run from No$ember 1?74 until the present in order to come up with the outstanding debt of ,N1 0A#-/DR to ,N-'. And to be more precise, the outstanding debt of ,N1 0A#-/DR to ,N-' as of April 1??5 amounts to ! ! ! 2,95,713,557.8:6. Eence, e$en if the alleged debt of ,N-' to ,N1 0A#-/DR amounting to ! ! ! 2,7,974,889.476 shall be compensated and deducted from ,N1 0A#-/DRGs debt to ,N-', there shall still be a remainder of ! ! ! ,:9,58?,375.976, largel" sufficient enough to co$er complainantGs claim.J5 Also in his omnibus motion, he pra"ed for an order directing that le$" be made upon all goods, credits, deposits, and other personal properties of ,N-' under the control of ,N1 0A#-/DR, to the e!tent of his demand. ,N1 0A#-/DR opposed his omnibus motion, particularl" the claim that its obligation to ,N-' earned an interest of 17 percent annuall". 't argued that ,N-'Gs letter dated September 87, 1?74 was not a demand letter but merel" a re+uest for the implementation of the arrangement for set)off of recei$ables between ,N-' and ,N1,

as pro$ided in a dacion en pago e!ecuted on @ul" 87, 1?73.: *erardo U" again contro$erted ,N1 0A#-/DRGs arguments. 0eanwhile, in the main case, the R%/ rendered (udgment on @ul" 8:, 1??5 against ,N-'. %he corresponding writ of e!ecution was issued on August 17, 1??5. As regards the issue between ,N-' and ,N1 0A#-/DR, the R%/ issued the assailed order on August 81, 1??5, the decretal portion of which pro$ided< I&E-R- DR-, the Sheriff of this /ourt is hereb" directed to garnishMle$" or cause to be garnishedMle$ied the amount stated in the writ of attachment issued b" this /ourt from the credits and recei$ablesMcollectibles of ,N-' from ,N1 0A#-/DR 2NAR-#-/D6 and to le$" andMor cause to le$" upon the assets of the debtor ,N1 0A#-/DR should its personal assets be insufficient to co$er its debt with ,N-'. urthermore, 0r. Roger .. Lenarosa, Lice),resident, %rust #epartment, ,hilippine National 1ank, and other concerned officials of said bank, isMare hereb" directed to submit the books of accounts of ,antranco North -!press, 'nc.M,hilippine National -!press, 'nc. under %rust Account Nos. %)74:1)', %)74:1)'', %)75:5 with its position paper within fi$e 256 da"s from notice hereof. SD DR#-R-#.J ,etitioner appealed said order to the /A which, howe$er, affirmed the R%/ in a decision dated ebruar" 1?, 1??9. ,etitionerGs motion for reconsideration was denied in a resolution dated @une 1?, 1??9. According to the /A, there could not be an" compensation between ,N-'Gs recei$ables from ,N1 0A#-/DR and the latterGs obligation to the former because ,N1 0A#-/DRGs supposed debt to ,N-' is the sub(ect of attachment proceedings initiated b" a third part", herein respondent *erardo U". %his is a contro$ers" that would pre$ent legal compensation from taking place, per the re+uirements set forth in Article 189? of the /i$il /ode. 0oreo$er, the /A stressed that it was not clear whether, at the time compensation was supposed to ha$e taken place, the rentals being claimed b" petitioner were indeed still unpaid. %he /A pointed out that petitioner did not present e$idence in this regard, apart from a statement of account. %he /A also +uestioned petitionerGs inaction in claiming the unpaid rentals from ,N-', when the latter started defaulting in its pa"ment as earl" as 1??4. %his, according to the /A, indicates that the debt was either alread" settled or not "et demandable and li+uidated. %he /A re(ected petitionerGs contention that Rule 3?, Section 43 of the Re$ised Rules of /ourt applies to the present case. Said rule sets forth the procedure to follow when a person alleged to ha$e propert" or to be indebted to a (udgment obligor claims an interest in the propert" or denies the debt. 'n such a situation, under said Rule the (udgment obligee is re+uired to institute a separate action against such person. %he /A held that there was no need for a separate action here since petitioner had

alread" become a forced inter$enor in the case b" $irtue of the notice of garnishment ser$ed upon it. Eence, this petition. ,etitioner now assigns the following alleged errors for our consideration< ' %E- O/DUR% D A,,-A.SP /D00'%%-# A /.-AR -RRDR 'N %E'N%-R,R-%A%'DN D %E- A,,.'/A1.- .A& E-R-'N &E-N '% RU.-# %EA% %E- R-KU'S'%-S DR .-*A. /D0,-NSA%'DN AS S-% DR%E UN#-R AR%'/.-S 1897 AN# 189? D %E- /'L'. /D#- #D ND% /DN/UR 'N %E- /ASA% 1AR. '' %E- O/DUR% D A,,-A.SP /D00'%%-# A /.-AR -RRDR 'N 'N%-R,R-%'N* %E- ,RDL'S'DNS D S-/%'DN 45, RU.- 3? D %E- RU.-S D /DUR%, ND& S-/%'DN 43, RU.- 3? D %E- R-L'S-# RU.-S D /DUR%, AS A0-N#-# DN 1 @U.H 1??9, 1H RU.'N* %EA% ,-%'%'DN-R ,N1)0A#-/DR, U,DN 1-'N* /'%-# DR AN# S-RL-# &'%E A ND%'/- D *ARN'SE0-N% 1-/A0- A DR/-# 'N%-RL-NDR, E-N/-, #-NH'N* %E- R'*E% D E-R-'N ,-%'%'DN-R %D L-N%'.A%- '%S ,DS'%'DN 'N A U..1.D&N %R'A. AS ,RDL'#-# DR UN#-R S-/. 15, RU.- 59, &E'/E R-0A'NS %E- SA0- RU.- UN#-R %E- R-L'S-# RU.-S D /DUR% AS A0-N#-# DN 1 @U.H 1??9. ''' %E- O/DUR% D A,,-A.SP /D00'%%-# AN -RRDR 'N 'N#'N* %EA% A #-0AN# &AS 0A#- 1H ,AN%RAN/D NDR%E -Q,R-SS, 'N/. %D ,N1 0A#-/DR DR %E- ,AH0-N% D %E- ,RD0'SSDRH ND%- #A%-# 31 D/%D1-R 1?78.9 After considering these assigned errors carefull" insofar as the" raise issues of law, we find that the petition lacks merit. &e shall now discuss the reasons for our conclusion. ,etitioner admits its indebtedness to ,N-', in the principal sum of ,9,774,?81.15, per a promissor" note dated Dctober 31, 1?78 e!ecuted b" its precursor NAR-#-/D in fa$or of ,N-'. 't also admits that the principal amount should earn an interest of 17 percent per annum under the promissor" note, in case NAR-#-/D fails to pa" the principal amount after notice. ,etitioner adds that the recei$ables of ,N-' were thereafter con$e"ed to ,N1 in pa"ment of ,N-'Gs loan obligation to the latter, in accordance with a dacion en pago agreement e!ecuted between ,N-' and ,N1. ,etitioner, howe$er, maintains that there is nothing now that could be sub(ect of attachment or e!ecution in fa$or of respondent since compensation had alread" taken place as between its debt to ,N-' and the latterGs obligation to it, consistent with

Articles 1897, 189?, and 18?5 of the /i$il /ode. ,etitioner assails the /AGs ratiocination that compensation could not ha$e taken place because the recei$ables in +uestion were the sub(ect of attachment proceedings commenced b" a third part" 2respondent6. %his reasoning is contrar" to law, according to petitioner. ,etitioner insists that e$en the Asset ,ri$ati>ation %rust 2A,%6, which now has control o$er ,N-', recogni>ed the set)off between the sub(ect recei$ables as indicated in its repl" to petitionerGs demand for pa"ment of ,N-'Gs unpaid rentals.7 %he A,% stated in its letter< &hile we ha$e long considered the amount of S-L-N 0'..'DN -'*E% EUN#R-# -'*E%H 'L- %EDUSAN# ,-SDS 2,9,775,555.556 which ,N-' had earlier transmitted to "ou as its share in an aborted pro(ect as partial pa"ment for ,N-'Gs unpaid rentals in fa$or of ,N1)0adecor, being a creditor like "our goodself of ,N-', we are unable to be of assistance to "ou regarding "our claim for the balance thereof. &e trust that "ou will understand our common predicament. ,etitioner argues that ,N-'Gs letter dated September 87, 1?74 did not contain a demand for pa"ment but onl" notice of the implementation of the dacion en pago agreement between ,N1 and ,N-'. ,etitioner contends that the /AGs statement that ,N-'Gs obligation to petitioner had either been settled or was not "et demandable is highl" speculati$e and con(ectural. Dn the contrar", petitioner asserts that its failure to institute a (udicial action against ,N-' pro$ed that the recei$ables of petitioner and ,N-' had alread" been sub(ect to legal compensation. ,etitioner submits that Rule 3?, Section 43 of the Re$ised Rules of /ourt applies to the present case. 't asserts that it stands to lose more than ,9 million if not gi$en the opportunit" to present its side in a formal proceeding such as that pro$ided under the cited rule. According to petitioner, it was not an original part" to this case but onl" became in$ol$ed when it was issued a subpoena duces tecum b" the trial court. or his part, respondent claims that the re+uisites for legal compensation are not present in this case, contrar" to petitionerGs assertion. Ee argues that the better rule should be that compensation cannot take place where one of the obligations sought to be compensated is the sub(ect of a suit between a third part" and a part" interested in the compensation, as in this case. 0oreo$er, respondent points out that, while the alleged demand letter sent b" ,N-' to petitioner was dated September 87, 1?74, the unpaid rentals due petitioner from ,N-' accrued during the period Dctober 1??5 to 0arch 1??4, or before petitionerGs obligation to ,N-' became due. %his being so, respondent argues that there can be no compensation since there was as "et no compensable debt in 1?74 when ,N-' demanded pa"ment from petitioner. -$en granting that there had been compensation, according to respondent, ,N-' would still ha$e sufficient funds with petitioner since the ,N1 0A#-/DRGs obligation to ,N-' earned interest.

Respondent echoes the obser$ation of the /A that petitioner failed to file a suit against ,N-' at the time when it should ha$e. %his failure ga$e rise to the presumption that ,N-'Gs obligation might ha$e alread" been settled, wai$ed, or otherwise e!tinguished, according to him. Ee contends that petitionerGs e!planation that it did not sue ,N-' because there had been legal compensation is onl" an afterthought and contrar" to logic and reason. Dn petitionerGs claim that it had been denied due process, respondent a$ers that he did not ha$e to file a separate action against petitioner since this would onl" result in multiplicit" of suits. urthermore, he points out that the order of attachment is an interlocutor" order that ma" not be the sub(ect of appeal. inall", respondent calls the attention of this /ourt to the sale b" ,N1 of its shares in ,N1 0A#-/DR to the I#" *roup,J which in turn assigned its ma(orit" interest to the IAtlanta *roup.J Respondent claims that the #" *roup set aside some ,35 million for e!penses to be incurred in litigating ,N1 0A#-/DRGs pending cases, and asks that his Iclaim o$er this amount, arising from the instant case,J? be gi$en preference in case the ,N-' properties alread" garnished pro$e insufficient to satisf" his claim. %he first and third errors assigned b" petitioner are ob$iousl" interrelated and must be resol$ed together. &orth stressing, compensation is a mode of e!tinguishing to the concurrent amount the obligations of persons who in their own right and as principals are reciprocall' debtors and creditors of each other.15 .egal compensation takes place b" operation of law when all the re+uisites are present,11 as opposed to con$entional compensation which takes place when the parties agree to compensate their mutual obligations e$en in the absence of some re+uisites.18 .egal compensation re+uires the concurrence of the following conditions< 216 that each one of the obligors be bound principall", and that he be at the same time a principal creditor of the otherA 286 that both debts consist in a sum of mone", or if the things due are consumable, the" be of the same kind, and also of the same +ualit" if the latter has been statedA 236 that the two debts be dueA 246 that the" be li+uidated and demandableA 256 that o$er neither of them there be an" retention or contro$ers", commenced b" third persons and communicated in due time to the debtor.13 ,etitioner insists that legal compensation had taken place such that no amount of mone" belonging to ,N-' remains in its hands, and, conse+uentl", there is nothing that could be garnished b" respondent.

&e find, howe$er, that legal compensation could not ha$e occurred because of the absence of one re+uisite in this case< that both debts must be due and demandable. %he /A obser$ed< IUnder the terms of the promissor" note, failure on the part of NAR-#-/D 2,N1 0A#-/DR6 to pa" the $alue of the instrument Nafter due notice has been made b" ,N-' would entitle ,N-' to collect an 17; OinterestP per annum from date of notice of demand.G J14 ,etitioner makes a similar assertion in its petition, that I! ! ! 't has been stipulated that the promissor" note shall earn an interest of 17; per annum in case NAR-#-/D, after notice, fails to pa" the amount stated therein.J 15 ,etitionerGs obligation to ,N-' appears to be pa"able on demand, following the abo$e obser$ation made b" the /A and the assertion made b" petitioner. ,etitioner is obligated to pa" the amount stated in the promissor" note upon receipt of a notice to pa" from ,N-'. 'f petitioner fails to pa" after such notice, the obligation will earn an interest of 17 percent per annum. Respondent alleges that ,N-' had alread" demanded pa"ment. %he alleged demand letter reads in part< I&e wish to inform "ou that as of August 31, 1?74 "our outstanding accounts amounted to ,15,39:,597.:9, inclusi$e of interest. 'n accordance with our pre$ious arrangement, we ha$e con$e"ed in fa$or of the ,hilippine National 1ank ,9,774,?81.15 of said recei$ables from "ou. &ith this con$e"ance, the unpaid balance of "our account will be ,8,4?1,159.59.1: %o forestall further accrual of interest, we re+uest that "ou take up with ,N1 the implementation of said arrangement, ! ! !J19 &e agree with petitioner that this letter was not one demanding pa"ment, but one that merel" informed petitioner of 216 the con$e"ance of a certain portion of its obligation to ,N-' per a dacion en pago arrangement between ,N-' and ,N1, and 286 the unpaid balance of its obligation after deducting the amount con$e"ed to ,N1. %he import of this letter is not that ,N-' was demanding pa"ment, but that ,N-' was ad$ising petitioner to settle the matter of implementing the earlier arrangement with ,N1. Apart from the aforecited letter, no other demand letter appears on record, nor has an" of the parties ad$erted to another demand letter. Since petitionerGs obligation to ,N-' is pa"able on demand, and there being no demand made, it follows that the obligation is not "et due. %herefore, this obligation

ma" not be sub(ect to compensation for lack of a re+uisite under the law. &ithout compensation ha$ing taken place, petitioner remains obligated to ,N-' to the e!tent stated in the promissor" note. %his obligation ma" undoubtedl" be garnished in fa$or of respondent to satisf" ,N-'Gs (udgment debt.17 As to respondentGs claim that legal compensation could not ha$e taken place due to the e!istence of a contro$ers" in$ol$ing one of the mutual obligations, we find this matter no longer controlling. Said contro$ers" was not seasonabl" communicated to petitioner as re+uired under Article 189? of the /i$il /ode. %he contro$ers", i.e., the action instituted b" respondent against ,N-', must ha$e been communicated to ,N1 0A#-/DR in due time to pre$ent compensation from taking place. 1" Iin due timeJ should be meant the period before legal compensation was supposed to take place, considering that legal compensation operates so long as the re+uisites concur, e$en without an" conscious intent on the part of the parties.1? A contro$ers" that is communicated to the parties after that time ma" no longer undo the compensation that had taken place b" force of law, lest the law concerning legal compensation be for naught. ,etitioner had notice of the present contro$ers" when it recei$ed the subpoena duces tecum issued b" the trial court. %he e!act date when petitioner recei$ed the subpoena is not on record, but petitioner was allowed to submit a position paper regarding said subpoena per order of the trial court dated 0arch 89, 1??5.85 &e assume that petitioner had notice of the pending litigation at least no later than this date. Now, was this date before that period when legal compensation would ha$e occurred, assuming all other re+uisites to be presentB /learl", it is not. ,N1 0A#-/DRGs obligation to ,N-' was contracted in 1?78 and the alleged demand letter was sent b" ,N-' to petitioner on September 1?74. Dn the other hand, ,N-'Gs obligation to petitioner, the pa"ment of monthl" rentals, accrued during the period Dctober 1??5 to 0arch 1??4 and a demand to pa" was sent in 1??3. Assuming the other re+uisites to be present, legal compensation of the mutual obligations would ha$e taken place on 0arch 1??4 at the latest. Db$iousl", this was before petitioner recei$ed notice of the pendenc" of this litigation in 1??5. %he contro$ers" communicated to petitioner in 1??5 could not ha$e affected the legal compensation that would ha$e taken place in 1??4. As regards respondentGs a$erment that there was as "et no compensable debt when ,N-' sent petitioner a demand letter on September 1?74, since ,N-' was not "et indebted to petitioner at that time, the law does not re+uire that the partiesG obligations be incurred at the same time. &hat the law re+uires onl" is that the obligations be due and demandable at the same time. /oming now to the second assigned error, which we reser$ed as the last for our discussion, petitioner contends that it did not become a forced inter$enor in the present case e$en after being ser$ed with a notice of garnishment. ,etitioner argues that the correct procedure would ha$e been for respondent to file a separate action against ,N1 0A#-/DR, per Section 43 of Rule 3? of the Rules of /ourt.81 ,etitioner insists it was denied its right to $entilate its claims in a separate, full)blown trial when the courts a .uo ruled that the abo$ementioned rule was inapplicable to the present case.

Dn this score, we had occasion to rule as earl" as 1?81 in Ta'abas ,and Co. v. Sharruf,88 as follows< I. . . garnishment . . . consists in the citation of some stranger to the litigation, who is debtor to one of the parties to the action. 1" this means such debtor stranger becomes a forced inter$enorA and the court, ha$ing ac+uired (urisdiction o$er his person b" means of the citation, re+uires him to pa" his debt, not to his former creditor, but to the new creditor, who is creditor in the main litigation. 't is merel" a case of in$oluntar" no$ation b" the substitution of one creditor for another. Upon principle the remed" is a species of attachment or e!ecution for reaching an" propert" pertaining to a (udgment debtor which ma" be found owing to such debtor b" a third person.J Again, in Perla Compania de Seguros% Inc. v. Ramolete%83 we declared< I%hrough ser$ice of the writ of garnishment, the garnishee becomes a N$irtual part"G to, or a Nforced inter$enorG in, the case and the trial court thereb" ac+uires (urisdiction to bind him to compliance with all orders and processes of the trial court with a $iew to the complete satisfaction of the (udgment of the court.J ,etitioner here became a forced inter$enor b" $irtue of the notice of garnishment ser$ed upon him. 't could ha$e presented e$idence on its behalf. %he /A, in fact, noted that petitioner presented a statement of account purportedl" showing that ,N-' had not "et settled its obligation to petitioner.84 %hat petitioner failed to present an" more proof of its claim, as obser$ed b" the /A, is no longer the fault of the courts. %here is no need for the institution of a separate action under Rule 3?, Section 43, contrar" to petitionerGs claim. %his pro$ision contemplates a situation where the person allegedl" holding propert" of 2or indebted to6 the (udgment debtor claims an ad$erse interest in the propert" 2or denies the debt6. 'n this case, petitioner e!pressl" admits its obligation to ,N-'.85 &E-R- DR-, the petition is #-N'-#. %he assailed decision and resolution of the /ourt of Appeals are A 'R0-#. /osts against petitioner. SD DR#-R-#. *ellosillo 4Chairman5% 1endo+a% *uena and -e ,eon% #r.% ##., concur. Petition denied% /udgment affirmed. N!tes.*arnishment is considered as a species of attachment for reaching credits belonging to the (udgment debtor owing to him from a stranger to the litigation. 2-e la 3ictoria vs. *urgos, 845 S/RA 394 O1??5P6 %he garnishment of a propert" to satisf" a writ of e!ecution operates as an attachment and fastens upon the propert" a lien b" which the propert" is brought

under the control of the court issuing the writ. 2Seven *rothers Shipping Corporation vs. Court of "ppeals, 84: S/RA 33 O1??5P6 A notice of garnishment ser$ed on the secretar" of the president binds the corporation. 2Chemphil = port 2 Import Corporation >C=IC? vs. Court of "ppeals, 851 S/RA 859 O1??5P6 No. .)1:579. Dctober 31, 1?:8. $ICTORIA #. MIAILHE,MONI%UE M. SICHERE,ELIANE M. #E LENC%UESAIN and &ILLIAM ALAIN MIAILHE,petiti!ne"s, vs. RUFINO P. HALILI,and HON.CONRA#O $AS%UE', in (is )apa)it* as +,d-e !f t(e C!,"t !f Fi"st Instan)e !f Manila, "esp!ndents. ,ev' and = ecution; = penses for publication of notice of sale; "ccruing Costs. ,ublication of the notice of sale of the propert" le$ied upon is re+uired b" law, and the e!penditures in relation thereto ma" be deemed as necessar" incident of the e!ecution. As such the" form part of the accruing costs. Obligations and Contracts; = tinction of Obligations; 7hen compensation cannot ta(e place.;/ompensation cannot take place where oneGs claim against another is still the sub(ect of court litigation. DR'*'NA. ,-%'%'DN in the Supreme /ourt. /ertiorari with preliminar" in(unction. %he facts are stated in the opinion of the /ourt. Ross% Selph 2 Carrascoso for petitioners. Roberto P. <alili for respondents. 1-N*FDN, C.#.< 'n this petition for certiorari with preliminar" in(unction, petitioners pra" for annulment of the respondent @udgeGs orders of No$ember 83, #ecember 8, and #ecember 5, 1?5?. 'n August 1?55, in /ase No. 88158 of the /ourt of irst 'nstance of 0anila, abo$e petitioners obtained (udgment for the sum of ,94,455.55 against abo$e respondent Ealili. ,ending appeal of such (udgment before this /ourt, petitioners applied for the issuance of a writ of e!ecution. As respondent did not furnish a supersedeas bond, the trial court issued the writ. /onse+uentl", the 0anila Sheriff le$ied on certain properties of said respondent, ad$ertised them for sale at public auction in two newspapers, and sold them in due course. %his /ourt, on appeal, modified the said (udgment b" reducing the amount from ,94,455.55 to ,4:,755.55.

,ursuant to such modified decision, petitioners returned to respondent Ealili the difference between the sum alread" collected 2through e!ecution pending appeal6, and the amount allowed b" this /ourt, after deducting the following items< 2a6 SheriffGs fees ............................................................... 2b6 /ost of publication in two newspapers of the SheriffGs Notice of Sale ...................................... 2c6 Amount retained b" petitioners for ha$ing se cured another (udgment against respondent Ealili, although respondent Ealili appealed from it and the case is pending hearing .... , 8?9.55 1,445.55

amount of ,8,554.87 (ust as the" are debtors of respondent in the amount still due the latter through the modified decision of the Supreme /ourt in /i$il /ase No. 88158, compensation should take place as regards this amount. After considering the abo$e arguments and respondentGs repl" thereto, we ad(udge as follows< 1. %he writ of e!ecution issued 2pending appeal of /i$il /ase No. 881586 e!pressl" commanded the Sheriff to collect from respondent Ealili the amount of the (udgment of the court Itogether with "our 2sheriffGs6 fees for ser$ice of this e!ecution.J

8,554.87 ,3,941.87

&herefore, Ealili mo$ed for the return of such sums of mone". Eerein petitioners opposed, on the following grounds< 2a6 Under the law, the SheriffGs fees and the cost of the publication in two newspapers of the SheriffGs notice of sale must be borne b" the (udgment debtor, the respondent EaliliA 2b6 Although it is true that respondent Ealili appealed from the decision of the trial court which sentenced him to pa" petitioners the sum of ,8,554.87, compensation had taken place, and unless and until the /ourt of Appeals re$erses the decision of the trial court, petitioners ha$e the right to retain the said sum of ,8,554.87. Resol$ing the issue, respondent (udge in his orders of No$ember 83, 1?5? and #ecember 8, 1?5?, granted EaliliGs petition. And in his order of #ecember 5, 1?5?, he denied the motion to reconsider of petitioners. Eence this petition for certiorari.

Respondent Ealili in the decision modified b" this /ourt, remained in the $er" same position he was in the original decision of the trial courtA he was still the (udgment debtor. %herefore, he should pa" the sheriffGs fees. %he Ino costsJ clause in the decision of this /ourt merel" meant that we did not allow respondent Ealili, who was the appellant in the appealed case, an" costs in this /ourt against petitioners, who were then the appellees. %he doctrine enunciated in the cases of Eilario $s. Eicks1 and ,o ,auco $s. %an @unco8, are not in point to the issue raised in the present case. 'n the aforesaid cases, the decisions of the trial court were reversed b" this /ourt. 'n the instant case, the decision of the trial court was affirmed with onl" a modification as to the amount of reco$er". 'n other words, here, respondent Ealili was still ad(udged liable for his lease obligations. As to the e!pense of publication, Section 14 of Rule 3? of the Rules of /ourt, pro$ides that after the (udgment has been satisfied, an" e!cess in the proceeds of the sale 2of the propert" le$ied upon6 o$er the (udgment and accruing costs% must be deli$ered to the (udgment debtor, unless otherwise directed b" the (udgment or order of the court. #o these Iaccruing costsJ include the e!pense of publicationB

#isputing the $alidit" of the orders, petitioners submit the following contentions< 216 Items of P@AB.CC and PD%EEC.CC;%he writ of e!ecution issued b" the trial court pending appeal of /i$il /ase No. 88158 commanded the sheriff to collect from respondent the amount of the (udgment Itogether with "our lawful fees for ser$ice of this e!ecution.J Under Sections 14, 1: and 17 of Rule 3? of the Rules of /ourt, the sheriffGs fees and cost of publication, which are necessar" e!penses, should be borne b" the (udgment debtor, i.e., Ealili. 't is important to note that this /ourt affirmed the decision of the trial court, with a modification onl" as to the amount of reco$er". 286 Item of P@%CCE.@F'n another /i$il /ase 2/ase No. 875:86 between the same parties, petitioners secured a (udgment against respondent Ealili for the sum of ,8,) 554.87. %his said (udgment is now on appeal. 1ecause petitioners are creditors of this Section 1: of Rule 3?, imposes upon the sheriff the dut" to publish in a newspaper, the notice of sale of the propert" le$ied upon. %he publication being a re+uirement, the e!penditures in relation thereto ma" be deemed as necessar" incident of e!ecution. 't is reasonable to hold that the" form part of the accruing costs. %he abo$e conclusions are strengthened b" Section 17 of the same Rule 3? which allows the (udgment debtor to pre$ent the sale pro$ided he pa"s the amount re+uired b" the e!ecution and Ithe costs that ha$e been incurred therein.J %he sheriffGs fees and costs of publication ha$ing been incurred in connection with the e!ecution, are co$ered b" such IcostsJ clause. %he condition pro$ided in this Section 17 that the (udgment debtor pa"s the costs that ha$e been incurred therein is a clear indication that had there been an e!ecution sale, he 2the (udgment debtor6 would ha$e had to bear these e!penses. Dtherwise, wh" should he be re+uired to pa" the said e!penses should he mo$e to pre$ent the saleB

'n pursuance, therefore, of the e!plicit order of the lower court in its writ of e!ecution, and in accordance with the pro$isions of the Rules of /ourt, petitioners ma" charge respondents Ealili the sheriffGs fees and costs of publication of his notice of sale. ''. Dn the other hand, petitioners contend that the" ha$e a right to retain the sum of ,8,554.87 on the theor" of compensation. &e belie$e that compensation can not take place in this case because petitionersG claim against Ealili is still being the sub(ect of court litigation. 't is a re+uirement, for compensation to take place, that the amount in$ol$ed be certain and li+uidated.3 A//DR#'N*.H, the part of the order of #ecember 8, 1?5? that directed the return of the amounts of ,8?9.55 and ,1,445.55 representing the sheriffGs fees and costs of publication, respecti$el", is re$okedA and that part of the said order directing the repa"ment of the amount of ,8,)554.87 is affirmed. No costs in this instance. Padilla% *autista "ngelo% ,abrador% Concepcion% Re'es% #.*.,.% *arrera% Paredes% -i+on% Regala and 1a(alintal% ##.% concur. Order affirmed and revo(ed accordingl'.

No. .)5:151. ebruar" 85, 1?74. CORA'ON PERE', petiti!ne", vs. HON. COURT OF APPEALS and ME$ER FILMS, INCORPORATE#, "esp!ndents. Contracts; Obligations; No legal compensation can ta(e place where the loan instruments to be set0off are not 'et due and demandable.Since, on the respecti$e dates of maturit", specificall", August :, 1?94 and August 13, 1?94, respecti$el", Ramon /. 0o(ica was still the holder of those bills, it can be safel" assumed that it was he who had asked for the roll)o$ers on the said dates. 0-L-R was bound b" the roll)o$ers since the assignment to it was made onl" on September ?, 1?94. %he ine$itable result of the roll)o$ers of the principals was that 1ill No. 18?7 and 1ill No. 141? were not "et due and demandable as of the date of their assignment b" 0D@'/A to 0-L-R on September ?, 1?94, nor as of Dctober 3, 1?94 when 0-L-R surrendered said 1ills to /DN*-N-R'/. As a conse+uence, no legal compensation could ha$e taken place because, for it to e!ist, the two debts, among other re+uisites, must be due and demandable. Same; Same; "ppeal; Supreme Court ma'% on appeal% consider a factual issue not raised in the trial court nor assigned as errors on appeal.&e note that the !ero! copies of 1ill No. 18?7 and 1ill No. 141? attached b" 0-L-R to its 1rief do not contain the Iroll)o$erJ notations. Eowe$er, 0-L-RGs own e!hibits before respondent Appellate /ourt, -!hibits I3J and I3)AJ, do show those notations and 0-L-R must be held bound b" them. And although this issue ma" not ha$e been s+uarel" raised below, in the interest of substantial (ustice, this /ourt is not pre$ented from considering such a pi$otal factual matter that had been o$erlooked b" the /ourts below. %he Supreme /ourt is clothed with ample authorit" to re$iew palpable errors not assigned as such if it finds that their consideration is necessar" in arri$ing at a (ust decision. Same; Same; 7ords and Phrases; 81one' 1ar(et9 defined.%here is another aspect to this case. &hat is in$ol$ed here is a mone" market transaction. As defined b" .awrence Smith Ithe mone" market is a market dealing in standari>ed short)term credit instruments 2in$ol$ing large amounts6 where lenders and borrowers do not deal directl" with each other but through a middle man or dealer in the open market.J 't in$ol$es Icommercial papersJ which are instruments Ie$idencing indebtedness of an" person or entit" . . ., which are issued, endorsed, sold or transferred or in an" manner con$e"ed to another person or entit", with or without recourseJ. %he fundamental function of the mone" market de$ice in its operation is to match and bring together in a most impersonal manner both the Ifund usersJ and the Ifund suppliers.J %he mone" market is an Iimpersonal marketJ, free from personal considerations.J %he market mechanism is intended to pro$ide +uick mobilit" of mone" and securities.J Same; Same; In mone' mar(et transactions% no notice is given to borrower or issuer of commercial paper of its sale to the investor. "rt. D@FG% Dst paragraph of N.C.C. applicable in such cases as to bar legal compensation between debtor and assignee of creditor:s rights.%he impersonal character of the mone" market de$ice o$erlooks the indi$iduals or entities concerned. %he issuer of a commercial paper in the mone"

market necessaril" knows in ad$ance that it would be e!peditiousl" transacted and transferred to an" in$estorMlender without need of notice to said issuer. 'n practice, no notification is gi$en to the borrower or issuer of commercial paper of the sale or transfer to the in$estor. Same; Same; Same.;Accordingl", we find no applicabilit" herein of Article 1875, 3rd paragraph of the /i$il /ode. Rather, it is the first paragraph of the same legal pro$ision that is applicable< IAR%. 1875. %he debtor who has consented to the assignment of rights made b" a creditor in fa$or of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified b" the debtor at the time he ga$e his consent, that he reser$ed his right to the compensation.J ,-%'%'DN for re$iew on certiorari of a decision of the /ourt of Appeals. %he facts are stated in the opinion of the /ourt. )rancisco ". ,ava% #r. for petitioner. "lberto O. 3illara+a for pri$ate respondent. 0-.-N/'D)E-RR-RA, #.$ %his is a ,etition for Re$iew on /ertiorari of a #ecision of the then /ourt of Appeals. %he rele$ant facts of the case ma" be stated as follows< 1. /DN*-N-R'/ #e$elopment R inance /orporation is, or was, a compan" engaged in Imone" marketJ operations. 8. 2a6 Dn 0a" 7, 1?94, /DN*-N-R'/ issued what was in effect a promissor" note in the amount of ,111,?93.57 in fa$or of bearer No. 54?, later identified as Ramon /. 0D@'/A, or an entit" owned b" him. %hat promissor" note, denominated hereinafter as 1ill 18?7, was to mature on August :, 1?94. 2b6 Dn 0a" 15, 1?94, /DN*-N-R'/ issued another bearer promissor" note for the sum of ,857,:::.:9, also in fa$or of 0D@'/A or an entit" owned b" him. %he note, denominated hereinafter as 1ill 141?, was to mature on August 13, 1?94. 3. Dn @une 5, 1?94, 0-L-R ilms, 'nc. the pri$ate respondent herein, borrowed ,555,555.55 from /DN*-N-R'/, the former issuing in fa$or of the latter a negotiable promissor" note to mature on August 5, 1?94. %hat note shall hereinafter be referred to as N/')5358. &hat ma" be stated in connection with the note is that it had no pro$ision for interest, e!cept that, if not paid on due date, it would be sub(ect to interest at 14; per annum. 4. Dn @ul" 3, 1?94, /DN*-N-R'/ recei$ed ,855,555.55 from petitioner herein 2/DRAFDN, for short6, and issued to her, as 1-AR-R 85?, a

confirmation of sale 2/S6 numbered 53::. Under the terms of /S)53::, /DRAFDN was to be paid ,853,473.33 on August 5, 1?94, /DN*-N-R'/ would make collection on behalf of /DRAFDNA and ",, O)CON!=N=RIC:S INT=R=ST IN NCI0CHG@ 7"S *=IN! TR"NS)=RR=TO <=R. Under this last pro$ision, /DRAFDN, sub(ect to defenses, could ha$e sued 0-L-R for pa"ment of the full amount of ,555,555.55, speciall" if /DN*-N-R'/ should not ob(ect. 't ma" also be noted that while N/') 5358 was not sub(ect to interest prior to August 5, 1?94, /DN*-N-R'/ obligated itself to pa" /DRAFDN interest on August 5, 1?94 in the amount of ,3,473.33, or roughl" an interest rate of 1?; per annum. 5. 2a6 Dn August 5, 1?94, 0-L-R paid ,155,555.55 to /DN*-N-R'/ on account of N/')5358. 2b6 Dn the same date of August 5, 1?94, /DN*-N-R'/ paid /DRAFDN the sum of ,153,473.33, the ,3,473.33 coming from its own funds. :. 2a6 Dn August :, 1?94, /DN*-N-R'/ paid 0D@'/A the interest due on 1ill 18?7, the principal being rolled)o$er to mature on Dctober 4, 1?94. %he roll)o$er was annotated on the original of 1ill 18?7. 2b6 Dn August 13, 1?94, /DN*-N-R'/ paid 0D@'/A the interest due on 1ill 141?, the principal being rolled)o$er to mature on Dctober 11, 1?94. %he roll)o$er was annotated on 1ill 141?. 9. Dn September ?, 1?94, 0D@'/A assigned 1ill 18?7 and 1ill 141? to 0-L-R through a notari+ed deed. 7. Dn Dctober 3, 1?94, 0-L-R surrendered the originals of 1ill 18?7 and 1ill 141? to /DN*-N-R'/, and asked the latter to compute the balance of the account of 0-L-R with /DN*-N-R'/, taking account of the amounts of the two 1ills, which balance 0-L-R would then pa". ?. 2a6 Dn Dctober 9, 1?94, 0-L-R was ser$ed with garnishment b" the ,ro$incial Sheriff of Ri>al in two collection cases filed against /DN*-N-R'/ b" two of its creditors whose credits totaled ,175,:?3.97. 2b6 Dn the same date of Dctober 9, 1?94, /DN*-N-R'/ ad$ised 0-L-R b' telephone that of the original amount of ,555,555.55 of N/')5358, the sum of ,855,555.55 was sold on @ul" 3, 1?94 to a third part", but not naming COR"ION as the third part'. 15. Dn Dctober 7, 1?94, /DN*-N-R'/ confirmed in writing to 0-L-R the pre$ious IsaleJ of ,855,555.55 out of the ,555,555.55 amount of N/')5358A and ad$ised that it could not take account of the assignment to 0-L-R of 1ill 18?7 and 1ill 141?. 11. Dn No$ember 15, 1?94, 0-L-R turned o$er to the ,ro$incial Sheriff of Ri>al 2-!hibit I5J6, the sum of ,9?,35?.95, which 0-L-R had computed as the amount it was still owing /DN*-N-R'/ and which was sub(ect to garnishment.

18. 2a6 Dn Dctober 83, 1?94, /DN*-N-R'/ filed a ,etition for Suspension of ,a"ments in /i$il /ase No. 85818 of the /ourt of irst 'nstance of Ri>al. 'n that petition, 0-L-R was listed as a debtor. 2b6 Dn No$ember 11, 1?94, the /ourt issued an order en(oining /DN*-N-R'/ from making an" pa"ment to creditors. 13. 'n subse+uent proceedings in /i$il /ase No. 85818, the /ourt promulgated an Drder, dated @anuar" 84, 1?95 2-!hibit I15J6, to the effect that 0-L-R was not a debtor of /DN*-N-R'/, and said Drder has become final. 14. 2a6 Dn @ul" 14, 1?95, /DRAFDN filed suit before the /ourt of irst 'nstance of Ri>al against 0-L-R for the reco$er" of ,155,555.55, plus interest, damages, and attorne"Gs fees. She admits that /S)53:: issued to her b" /DN*-N-R'/ was a Iwithout recourseJ instrument. 2b6 %he %rial /ourt rendered (udgment in fa$or of /DRAFDN and, upon her filing a bond, she was able to ha$e e!ecution pending appeal. 0-L-R had to pa" her ,131,1::.55 under the %rial /ourtGs (udgment. 2c6 Dn 0e$erGs appeal, the /ourt of Appeals re$ersed the (udgment of the %rial /ourt. 1efore us, petitioner has made the following Assignments of -rror< A. IRespondent /ourt of Appeals erred gra$el" in appl"ing Article 1:8: of the /i$il /ode, which refers to a debtor who pa"s his creditor before knowledge of an assignment, when what is in$ol$ed principall" in the case at bar is compensation rather than pa"ment. 1. IRespondent /ourt of Appeals erred gra$el" in completel" disregarding the essentiall" impersonal, fluid and mobile nature of mone" market transactions. /. IRespondent /ourt of Appeals erred gra$el" in completel" disregarding the $ital circumstance that respondent 0e$er ilms, 'nc. necessaril" consented in ad$ance to the purchase b" petitioner /ora>on ,ere> of part of its obligation under its Negotiable /ertificate of 'ndebtedness 2N/'6. #. IRespondent /ourt of Appeals erred gra$el" in appl"ing the third parag. of Article 1875 of the /i$il /ode allowing compensation of credits if assignment of credit is made without knowledge of the debtor, and in not appl"ing the first paragraph of said Article 1875 barring the defense of compensation where the debtor has consented to the assignment of rights in fa$or of a third person.

-. IRespondent /ourt of Appeals erred gra$el" in holding that compensation had set in and reduced respondent 0e$erGs obligation to ,9?,35?.95. . IRespondent /ourt of Appeals erred gra$el" in holding that pa"ment b" respondent 0e$er of ,9?,35?.95 to the Sheriff in connection with garnishment in certain ci$il cases against /ongeneric e!tinguished 0e$erGs obligation and could be set up as another defense to the claim of petitioner /ora>on ,ere>. *. IRespondent /ourt of Appeals erred gra$el" in re$ersing the decision of the %rial /ourt, in den"ing the motion for reconsideration of petitioner /ora>on ,ere>, and in granting respondent 0e$erGs motion for resolution andMor clarification b" ordering refund of ,13?,141.:3 with interest at 14; per annum, and ordering pa"ment of ,15,555.55 as attorne"Gs fees.J1 %he foregoing take issue with the following obser$ations and findings of respondent Appellate /ourt< I! ! ! &e agree with the appellant 20-L-R6 that there was legal compensation under Article 189? of the New /i$il /ode which caused the e!tinguishment of the obligation under Negotiable /ertificate of 'ndebtedness No. 5358. I%he original obligation of defendant)appellant to /ongeneric is ,555,555.55 2-!hibit N1G6 out of which it paid ,155,555.55 on the maturit" date of the note lea$ing a balance of ,455,555.55. I1" a #eed of Assignment dated September ?, 1?94 e!ecuted b" Ramon /. 0o(ica in fa$or of the appellant 2-!hibit N8G6, the latter ac+uired the rights of the assignor to two /ongeneric bills Nos. 18?7 for ,111,?93.57 which matured on August :, 1?94 2-!hibit N3G6 and No. 141? for ,857,:::.:9 which matured on August 13, 1?94 2-!hibit N4G6 or a total of ,385,:45.85. As of September ?, 1?94, therefore, said bills were alread" due and demandable. IDn the other hand, appellantGs obligation in fa$or of /ongeneric matured on August 5, 1?94. As a result defendant)appellant became both a debtor and a creditor of /ongeneric. A debtor to the e!tent of ,455,555.55 under the Negotiable /ertificate of 'ndebtedness 2-!hibit N1G6 and a creditor for the sum of ,385,:45.85. 1" operation of law, there was partial compensation to the e!tent of ,385,:45.85 2Articles 1871 R 18?5, New /i$il /ode6. IAs a conse+uence of compensation, the obligation of defendant)appellant to /ongeneric as of September ?, 1?94 was reduced to ,9?,35?.95.

IDn Dctober 9, 1?94, defendant)appellant was ser$ed notices of garnishment in connection with /i$il /ases Nos. 85543 and 85544 of the /ourt of irst 'nstance of Ri>al against /ongeneric. 't consists in the citation of some stranger to the litigation, who is debtor to one of the parties to the action. 1" this means such debtor stranger becomes a forced inter$enor, and the court, ha$ing ac+uired (urisdiction o$er his person b" means of the citation, re+uires him to pa" his debt, not to his former creditor, but to the new creditor, who is the creditor in the main litigation. 't is merel" a case of in$oluntar" no$ation b" the substitution of one creditor for another 2%a"abas .and /o. $s. Sharuff, 41 ,hil. 378, 3796. /onse+uentl", defendant)appellant held the amount it still owed /ongeneric, which is ,9?,35?.95, as an" pa"ment to the creditor b" the debtor after the latter has been (udiciall" ordered to retain the debt shall not be $alid 2see Article 1843, New /i$il /ode6. Dn No$ember 15, 1?95, the garnished amount was deli$ered b" the appellant to the deput" sheriff 2-!hibit N5G6. /onse+uentl", the balance of the obligation of defendant)appellant to /ongeneric in the sum of ,9?,35?.95 was e!tinguished and therefore no longer obligated under its Negotiable /ertificate of 'ndebtedness. I! ! ! the e$idence on record disclosed no notice to defendant)appellant of the purchase b" appellee of part of defendant)appellantGs obligation prior to compensation and conse+uentl" its non)liabilit" to appellee. I,rior to the telephone call of 0r. #umadag to 0r. @esus *. Sanche> on Dctober 9, 1?94 disclosing the sale to appellee b" /ongeneric of part of its promissor" note, appellant was unaware of the sale. 'n fact, it was the first time that it came to know of the transaction 2tsn. pp. 11)18 S, August 15, 1?9:6 so much so that upon maturit" of the note on August 5, 1?94, appellant made a partial pa"ment of ,155,555.55 not to appellee but to /ongeneric. %he telephone ad$ice to the appellant which was confirmed in writing on Dctober 7, 1?94 was too late. 1" that time the entire obligation of appellant was alread" e!tinguished b" pa"ment, compensation and no$ation. A debtor who, before ha$ing knowledge of the assignment, pa"s his creditor is released from his obligation 2Article 1:8:, New /i$il /ode6. IAppellant correctl" in$oked compensation as a defense, for under Article 1875, 3rd paragraph N'f the assignment is made without the knowledge of the debtor, he ma" set up compensation of all credits prior to the same and also later ones until he had knowledge of the assignment.G J 'f, in fact, 1ill No. 18?7 and 1ill No. 141? were due and demandable on September ?, 1?94, the date of the assignment from 0D@'/A to 0-L-R, or on Dctober 3, 1?94, the date of surrender of said 1ills b" 0-L-R to /DN*-N-R'/, it could be rightfull" said that legal compensation had taken place. As pointed out b" /DRAFDN, howe$er, said two bills contain the following notations< I1ill No. 18?7,aid 7M:M94 interest onl", principal roll o$er up to 15M4M94 2Anne!es A) 1, A)8, ,etitionerGs Repl" 1riefA -!h. 3, older of -!hibits6

I1ill No. 141?,aid 7M13M94 interest onl", principal roll o$er up to 15M11M94 2Anne!es A, A)3, ibid.A -!h. 3)A, older of -!hibits6 Since, on the respecti$e dates of maturit", specificall", August :, 1?94 and August 13, 1?94, respecti$el", Ramon /. 0o(ica was still the holder of those bills, it can be safel" assumed that it was he who had asked for the roll)o$ers on the said dates. 0-L-R was bound b" the roll)o$ers since the assignment to it was made onl" on September ?, 1?94. %he ine$itable result of the roll)o$ers of the principals was that 1ill No. 18?7 and 1ill No. 141? were not "et due and demandable as of the date of their assignment b" 0D@'/A to 0-L-R on September ?, 1?94, nor as of Dctober 3, 1?94 when 0-L-R surrendered said 1ills to /DN*-N-R'/. As a conse+uence, no legal compensation could ha$e taken place because, for it to e!ist, the two debts, among other re+uisites, must be due and demandable. IArt. 189?. 'n order that compensation ma" be proper, it is necessar"< I216 %hat each one of the obligors be found principall", and that he be at the same time a principal creditor of the otherA I286 %hat both debts consist in a sum of mone", or if the things due are consumable, the" be of the same kind, and also of the same +ualit" if the latter has been statedA I236 %hat the two debts be dueA I246 %hat the" be li+uidated and demandableA I256 %hat o$er neither of them there be an" retention or contro$ers", commenced b" third persons and communicated in due time to the debtor.J &e note that the !ero! copies of 1ill No. 18?7 and 1ill No. 141? attached b" 0-L-R to its 1rief do not contain the Iroll)o$erJ notations. Eowe$er, 0-L-RGs own e!hibits before respondent Appellate /ourt, -!hibits I3J and I3)AJ, do show those notations and 0-L-R must be held bound b" them. And although this issue ma" not ha$e been s+uarel" raised below, in the interest of substantial (ustice this /ourt is not pre$ented from considering such a pi$otal factual matter that had been o$erlooked b" the /ourts below.8 %he Supreme /ourt is clothed with ample authorit" to re$iew palpable errors not assigned as such if it finds that their consideration is necessar" in arri$ing at a (ust decision.3 %here is another aspect to this case. &hat is in$ol$ed here is a mone" market transaction. As defined b" .awrence Smith Ithe mone" market is a market dealing in standardi>ed short)term credit instruments 2in$ol$ing large amounts6 where lenders and borrowers do not deal directl" with each other but through a middle man or dealer in the open market.J 't in$ol$es Icommercial papersJ which are instruments Ie$idencing indebtedness of an" person or entit" . . ., which are issued, endorsed, sold or transferred or in an" manner con$e"ed to another person or entit", with or without recourseJ.4 %he fundamental function of the mone" market de$ice in its operation is to match and bring together in a most impersonal manner both the Ifund

usersJ and the Ifund suppliers.J %he mone" market is an Iimpersonal marketJ, free from personal considerations.J5 %he market mechanism is intended to pro$ide +uick mobilit" of mone" and securities.J: %he impersonal character of the mone" market de$ice o$erlooks the indi$iduals or entities concerned. %he issuer of a commercial paper in the mone" market necessaril" knows in ad$ance that it would be e!peditiousl" transacted and transferred to an" in$estorMlender without need of notice to said issuer. 'n practice, no notification is gi$en to the borrower or issuer of commercial paper of the sale or transfer to the in$estor. Accordingl", we find no applicabilit" herein of Article 1875, 3rd paragraph of the /i$il /ode. Rather, it is the first paragraph of the same legal pro$ision that is applicable< IAR%. 1875. %he debtor who has consented to the assignment of rights made b" a creditor in fa$or of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified b" the debtor at the time he ga$e his consent, that he reser$ed his right to the compensation.J %here is need to indi$iduate a mone" market transaction, a relati$el" no$el institution in the ,hilippine commercial scene. 't has been intended to facilitate the flow and ac+uisition of capital on an impersonal basis. And as specificall" re+uired b" ,residential #ecree No. :97, the in$esting public must be gi$en ade+uate and effecti$e protection in a$ailing of the credit of a borrower in the commercial paper market. &E-R- DR-, the (udgment of respondent Appellate /ourt, dated September 3, 1?9? as well as its Resolution dated @anuar" 1:, 1?71 is hereb" re$ersed, and that of the then /ourt of irst 'nstance of 0anila, 1ranch QQQ', dated #ecember 89, 1?9:, hereb" reinstated. SD DR#-R-#. Teehan(ee 4Chairman5% Plana% Relova and !utierre+% #r.% ##., concur. #udgment reversed. N!tes.%he debtor who consents to the assignment cannot set up against the assignee compensation which would pertain to him against the creditor)assignor, whether the debts were incurred before or after the assignment. A pro$iso newl" inserted in the /i$il /ode, Art. 1875, entitles the debtor to notif" the assignor that he reser$es his right to the compensation. %his notification must be made at the time such debtor gi$es his consent. Same; Same; "greement prohibiting transfer cannot be invo(ed against assignee who% without notice parted with valuable consideration in good faith.&e find nothing in his I.etter of AgreementJ which can be reasonabl" construed as a prohibition upon ,hilfinance assigning or transferring all or part of #0/ ,N No. 8931, before the maturit" thereof. 't is scarcel" necessar" to add that, e$en had this I.etter of AgreementJ set forth an e!plicit prohibition of transfer upon ,hilfinance, such a prohibition cannot be in$oked against an assignee or transferee of the Note who parted with $aluable consideration in good faith and without notice of such prohibition. 't is not disputed that petitioner was such an assignee or transferee. Same; Corporations; !rounds for piercing the veil of corporate fiction.Secondl", it is not disputed that ,hilfinance and pri$ate respondents #elta and ,ilipinas ha$e been organi>ed as separate corporate entities. ,etitioner asks us to pierce their separate corporate entities, but has been able onl" to cite the presence of a common #irector 0r. Ricardo Sil$erio, Sr., sitting on the 1oards of #irectors of all three 236 companies. ,etitioner has neither alleged nor pro$ed that one or another of the three

*.R. No. 7?858. 0a" 84, 1??3. RAUL SESBRE.O, petiti!ne", vs.HON. COURT OF APPEALS, #ELTA MOTORS CORPORATION and PILIPINAS BAN/, "esp!ndents. Commercial ,aw; Non0negotiable Promissor' Notes; "n instrument though mar(ed non0negotiable% ma' nevertheless be assigned or transferred.A non)negotiable instrument ma", ob$iousl", not be negotiatedA but it ma" be assigned or transferred, absent an e!press prohibition against assignment or transfer written in the face of the instrument< I%he words Jnot negotiable%: stamped on the face of the bill of lading, did not destro' its assignabilit', but the sole effect was to e!empt the bill from the statutor" pro$isions relati$e thereto, and a bill, though not negotiable% ma' be transferred b' assignment; the assignee taking sub(ect to the e+uities between the original parties.J #0/ ,N No. 8931, while marked Inon)negotiable,J was not at the same time stamped Inon)transferrableJ or Inon)assignable.J 't contained no stipulation which prohibited ,hilfinance from assigning or transferring, in whole or in part, that Note. Same; "ssignment of Credit; -ebtor:s consent not needed to effectuate assignment. ;"propos #eltaGs complaint that the partial assignment b" ,hilfinance of #0/ ,N No. 8931 had been effected without the consent of #elta, we note that such consent was not necessar" for the $alidit" and enforceabilit" of the assignment in fa$or of petitioner. #eltaGs argument that ,hilfinanceGs sale or assignment of part of its rights to #0/ ,N No. 8931 constituted con$entional subrogation, which re+uired its 2#eltaGs6 consent, is +uite mistaken.

236 concededl" related companies used the other two 286 as mere alter egos or that the corporate affairs of the other two 286 were administered and managed for the benefit of one. %here is simpl" not enough e$idence of record to (ustif" disregarding the separate corporate personalities of #elta and ,ilipinas and to hold them liable for an" assumed or undetermined liabilit" of ,hilfinance to petitioner. Same; Civil ,aw; )or the protection of investors% depositar' or custodianship agreements made an integral part of mone' mar(et transactions.&e belie$e and so hold that a contract of deposit was constituted b" the act of ,hilfinance in designating ,ilipinas as custodian or depositar" bank. %he depositor was initiall" ,hilfinanceA the obligation of the depositar" was owed, howe$er, to petitioner SesbreSo as beneficiar" of the custodianship or depositar" agreement. &e do not consider that this is a simple case of a stipulation pour autri. %he custodianship or depositar" agreement was established as an integral part of the mone" market transaction entered into b" petitioner with ,hilfinance. ,etitioner bought a portion of #0/ ,N No. 8931A ,hilfinance as assignor)$endor deposited that Note with ,ilipinas in order that the thing sold would be placed outside the control of the $endor. Same; Same; = tinguishment of Obligation; Compensation ma' defeat assignee:s rights before notice of the assignment is given to the debtor.'n other words, petitioner notified -elta of his rights as assignee after compensation had ta(en place b' operation of law because the offsetting instruments had both reached maturit'. 't is a firml" settled doctrine that the rights of an assignee are not an" greater than the rights of the assignor, since the assignee is merel" substituted in the place of the assignor and that the assignee ac+uires his rights sub(ect to the e+uitiesi.e., the defenseswhich the debtor could ha$e set up against the original assignor before notice of the assignment was gi$en to the debtor. At the time that #elta was first put to notice of the assignment in petitionerGs fa$or on 14 @ul" 1?71, #0/ ,N No. 8931 had alread" been discharged b" compensation. Since the assignor ,hilfinance could not ha$e then compelled pa"ment anew b" #elta of #0/ ,N No. 8931, petitioner, as assignee of ,hilfmance, is similarl" disabled from collecting from #elta the portion of the Note assigned to him. Same; Same; Solidar' ,iabilit'.;%he solidar" liabilit" that petitioner seeks to impute to ,ilipinas cannot, howe$er, be lightl" inferred. Under Article 1859 of the /i$il /ode, Ithere is a solidar" liabilit" onl" when the obligation e!pressl" so states, or when the law or the nature of the obligation re+uires solidarit".J %he record here e!hibits no e!press assumption of solidar" liabilit" $is)a)$is petitioner, on the part of ,ilipinas. ,etitioner has not pointed us to an" law which imposed such liabilit" upon ,ilipinas nor has petitioner argued that the $er" nature of the custodianship assumed b" pri$ate respondent ,ilipinas necessaril" implies solidar" liabilit" under the securities, custod" of which was taken b" ,ilipinas. Accordingl", we are unable to hold ,ilipinas solidarit" liable with ,hilfinance and pri$ate respondent #elta under #0/ ,N No. 8931. ,-%'%'DN for re$iew on certiorari of the decision of the /ourt of Appeals. %he facts are stated in the opinion of the /ourt. Salva% 3illanueva 2 "ssociates for #elta 0otors /orporation.

Re'es% Sala+ar 2 "ssociates for ,ilipinas 1ank. -.'/'AND, #.$ Dn ? ebruar" 1?71, petitioner Raul SesbreSo made a mone" market placement in the amount of ,355,555.55 with the ,hilippine Underwriters inance /orporation 2I,hilfinanceJ6, /ebu 1ranchA the placement, with a term of thirt")two 2386 da"s, would mature on 13 0arch 1?71. ,hilfinance, also on ? ebruar" 1?71, issued the following documents to petitioner< 2a6 the /ertificate of /onfirmation of Sale, Iwithout recourse,J No. 854?: of one 216 #elta 0otors /orporation ,romissor" Note 2I#0/ ,NJ6 No. 8931 for a term of 38 da"s at 19.5; per annumA 2b6 the /ertificate of Securities #eli$er" Receipt No. 1:579 indicating the sale of #0/ ,N No. 8931 to petitioner, with the notation that the said securit" was in custodianship of ,ilipinas 1ank, as per #enominated /ustodian Receipt 2I#/RJ6 No. 15755 dated ? ebruar" 1?71A and 2c6 post)dated checks pa"able on 13 0arch 1?71 2i.e., the maturit" date of petitionerGs in$estment6, with petitioner as pa"ee, ,hilfinance as drawer, and 'nsular 1ank of Asia and America as drawee, in the total amount of ,354,533.33. Dn 13 0arch 1?71, petitioner sought to encash the postdated checks issued b" ,hilfinance. Eowe$er, the checks were dishonored for ha$ing been drawn against insufficient funds. Dn 8: 0arch 1?71, ,hilfinance deli$ered to petitioner the #/R No. 15755 issued b" pri$ate respondent ,ilipinas 1ank 2I,ilipinasJ6. 't read as follows< I,'.','NAS 1ANT 0akati Stock -!change 1ldg., A"ala A$enue, 0akati, 0etro 0anila

ebruar" ?, 1??1 LA.U- #A%-

%D Raul SesbreSo

April :, 1?71 0A%UR'%H #A%-

,ilipinas did not deli$er the Note, nor an" certificate of participation in respect thereof, to petitioner. ,etitioner later made similar demand letters, dated 3 @ul" 1?71 and 3 August 1?71,8 again asking pri$ate respondent ,ilipinas for ph"sical deli$er" of the original of #0/ ,N No. 8931. ,ilipinas allegedl" referred all of petitionerGs demand letters to ,hilfinance for written instructions, as had been supposedl" agreed upon in a ISecurities /ustodianship AgreementJ between ,ilipinas and ,hilfinance. ,hilfinance ne$er did pro$ide the appropriate instructionsA ,ilipinas ne$er released #0/ ,N No. 8931, nor an" other instrument in respect thereof, to petitioner. ,etitioner also made a written demand on 14 @ul" 1?713 upon pri$ate respondent #elta for the partial satisfaction of #0/ ,N No. 8931, e!plaining that ,hilfinance, as pa"ee thereof, had assigned to him said Note to the e!tent of ,359,?33.33. #elta, howe$er, denied an" liabilit" to petitioner on the promissor" note, and e!plained in turn that it had pre$iousl" agreed with ,hilfinance to offset its #0/ ,N No. 8931 2along with #0/ ,N No. 89356 against ,hilfinance ,N No. 143)A issued in fa$or of #elta. 'n the meantime, ,hilfinance, on 17 @une 1?71, was placed under the (oint management of the Securities and -!change /ommission 2IS-/J6 and the /entral 1ank. ,ilipinas deli$ered to the S-/ #0/ ,N No. 8931, which to date apparentl" remains in the custod" of the S-/.4 As petitioner had failed to collect his in$estment and interest thereon, he filed on 87 September 1?78 an action for damages with the Regional %rial /ourt 2IR%/J6 of /ebu /it", 1ranch 81, against pri$ate respondents #elta and ,ilipinas.5 %he trial court, in a decision dated 5 August 1?79, dismissed the complaint and counterclaims for lack of merit and for lack of cause of action, with costs against petitioner. ,etitioner appealed to respondent /ourt of Appeals in /.A.)*.R. /L No. 151?5. 'n a decision dated 81 0arch 1?7?, the /ourt of Appeals denied the appeal and held< : I1e that as it ma", from the e$idence on record, if there is an"one that appears liable for the tra$ails of plaintiff)appellant, it is ,hilfinance. As correctl" obser$ed b" the trial court< N%his act of ,hilfinance in accepting the in$estment of plaintiff and charging it against #0/ ,.N. No. 8931 when its entire face $alue was alread" obligated or earmarked for set)off or compensation is difficult to comprehend and ma" ha$e been moti$ated with bad faith. ,hilfinance, therefore, is solel" and legall" obligated to return the in$estment of plaintiff, together with its earnings, and to answer all the damages plaintiff has suffered incident thereto. Unfortunatel" for plaintiff, ,hilfinance was not impleaded as one of the defendants in this case at barA hence, this /ourt is without (urisdiction to pronounce (udgment against it. 2p. 11, #ecision6.G &E-R- DR-, finding no re$ersible error in the decision appealed from, the same is hereb" affirmed in toto. /ost against plaintiff)appellant.J ,etitioner mo$ed for reconsideration of the abo$e #ecision, without success.

ND. 15755 #-ND0'NA%-# /US%D#'AN R-/-',% N%his confirms that as a dul" /ustodian 1ank, and upon instruction of ,E'.',,'NUN#-R&R'%-RS 'NAN/- /DR,DRA%'DN, we ha$e in our custod" the following securities to "ou OsicP the e!tent herein indicated.

S-R'A. 0A%.

A/-

'SSU- R-*'S%-R-# # 1H ED.#-R ,AH--

A0DUN%

NU01- #A%- LA.UR 8931

4):)71 8,355,733.3 #0/ 4

,E'.. UN#-R&R'%-RS 'NAN/- 359,?33.33 /DR,.

&e further certif" that these securities ma" be inspected b" "ou or "our dul" authori>ed representati$e at an" time during regular banking hours. Upon "our written instructions we shall undertake ph"sical deli$er" of the abo$e securities full" assigned to "ou should this #enominated /ustodianship Receipt remain outstanding in "our fa$or thirt" 2356 da"s after its maturit".G ,'.','NAS 1ANT 21" -li>abeth #e Lilla 'llegible Signature6J1 Dn 8 April 1?71, petitioner approached 0s. -li>abeth de Lilla of pri$ate respondent ,ilipinas, 0akati 1ranch, and handed to her a demand letter informing the bank that his placement with ,hilfinance in the amount reflected in the #/R No. 15755 had remained unpaid and outstanding, and that he in effect was asking for the ph"sical deli$er" of the underl"ing promissor" note. ,etitioner then e!amined the original of the #0/ ,N No. 8931 and found< that the securit" had been issued on 15 April 1?75A that it would mature on : April 1?71A that it had a face $alue of ,8,355,733.33, with ,hilfinance as Ipa"eeJ and pri$ate respondent #elta 0otors /orporation 2I#eltaJ6 as ImakerAJ and that on face of the promissor" note was stamped INDN)N-*D%'A1.-.J

Eence, this ,etition for Re$iew on /ertiorari. After consideration of the allegations contained and issues raised in the ,leadings, the /ourt resol$ed to gi$e due course to the petition and re+uired the parties to file their respecti$e memoranda.9 ,etitioner reiterates the assignment of errors he directed at the trial court decision, and contends that respondent /ourt of Appeals gra$el" erred< 2i6 in concluding that he cannot reco$er from pri$ate respondent #elta his assigned portion of #0/ ,N No. 8931A 2ii6 in failing to hold pri$ate respondent ,ilipinas solidarit" liable on the #0/ ,N No. 8931 in $iew of the pro$isions stipulated in #/R No. 15755 issued in fa$or of petitionerA and 2iii6 in refusing to pierce the $eil of corporate entit" between ,hilfinance, and pri$ate respondents #elta and ,ilipinas, considering that the three 236 entities belong to the ISil$erio *roup of /ompaniesJ under the leadership of 0r. Ricardo Sil$erio, Sr.7 %here are at least two 286 sets of relationships which we need to address< firstl", the relationship of petitioner $is)a)$is #eltaA secondl", the relationship of petitioner in respect of ,ilipinas. Actuall", of course, there is a third relationship that is of critical importance< the relationship of petitioner and ,hilfinance. Eowe$er, since ,hilfinance has not been impleaded in this case, neither the trial court nor the /ourt of Appeals ac+uired (urisdiction o$er the person of ,hilfinance. 't is, conse+uentl", not necessar" for present purposes to deal with this third relationship, e!cept to the e!tent it necessaril" impinges upon or intersects the first and second relationships. I &e consider first the relationship between petitioner and #elta. %he /ourt of Appeals in effect held that petitioner ac+uired no rights $is)a)$is #elta in respect of the #elta promissor" note 2#0/ ,N No. 89316 which ,hilfinance sold Iwithout recourseJ to petitioner, to the e!tent of ,354,533.33. %he /ourt of Appeals said on this point< INor could plaintiff)appellant ha$e ac+uired an" right o$er #0/ ,.N. No. 8931 as the same is Nnon)negotiableG as stamped on its face 2-!hibit N:G6, negotiation being defined as the transfer of an instrument from one person to another so as to constitute the transferee the holder of the instrument 2Sec. 35, Negotiable 'nstruments .aw6. A person not a holder cannot sue on the instrument in his own name and cannot demand or recei$e pa"ment 2Section 51, id.6.J? ,etitioner admits that #0/ ,N No. 8931 was non)negotiable but contends that that Note had been $alidl" transferred, in part, to him b" assignment and that as a result of such transfer, #elta as debtor)maker of the Note, was obligated to pa" petitioner the portion of that Note assigned to him b" the pa"ee ,hilfinance. #elta, howe$er, disputes petitionerGs contention and argues<

216 that #0/ ,N No. 8931 was not intended to be negotiated or otherwise transferred b" ,hilfinance as manifested b" the word Inon)negotiableJ stamp across the face of the Note15 and because maker #elta and pa"ee ,hilfinance intended that this Note would be offset against the outstanding obligation of ,hilfinance represented b" ,hilfinance ,N No. 143)A issued to #elta as pa"eeA 286 that the assignment of #0/ ,N No. 8931 b" ,hilfinance was without #eltaGs consent, if not against its instructionsA and 236 assuming 2arguendo onl"6 that the partial assignment in fa$or of petitioner was $alid, petitioner took that Note sub(ect to the defenses a$ailable to #elta, in particular, the offsetting of #0/ ,N No. 8931 against ,hilfmance ,N No. 143)A.11 &e consider #eltaGs arguments seriatim. irstl", it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished from the assignment or transfer of an instrument whether that be negotiable or non)negotiable. Dnl" an instrument +ualif"ing as a negotiable instrument under the rele$ant statute ma" be negotiated either b" indorsement thereof coupled with deli$er", or b" deli$er" alone where the negotiable instrument is in bearer form. A negotiable instrument ma", howe$er, instead of being negotiated, also be assigned or transferred. %he legal conse+uences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A non)negotiable instrument ma", ob$iousl", not be negotiatedA but it ma" be assigned or transferred, absent an e!press prohibition against assignment or transfer written in the face of the instrument< I%he words Jnot negotiable%: stamped on the face of the bill of lading, did not destro' its assignabilit'% but the sole effect was to e!empt the bill from the statutor" pro$isions relati$e thereto, and a bill, though not negotiable% ma' be transferred b' assignment; the assignee taking sub(ect to the e+uities between the original parties.J18 2'talics added6 #0/ ,N No. 8931, while marked Inon)negotiable,J was not at the same time stamped Inon)transferrableJ or Inon)assignable.J 't contained no stipulation which prohibited ,hilfinance from assigning or transferring, in whole or in part, that Note. #elta adduced the I.etter of AgreementJ which it had entered into with ,hilfinance and which should be +uoted in full< IApril 15, 1?75 ,hilippine Underwriters inance /orp. 1ena$ide> St., 0akati 0etro 0anila

Attention< 0r. Alfredo D. 1anaria SL,)%reasurer *-N%.-0-N< %his refers to our outstanding placement of ,4,:51,:::.:9 as e$idenced b" "our ,romissor" Note No. 143)A, dated April 15, 1?75, to mature on April :, 1?71. As agreed upon, we enclose our non)negotiable ,romissor" Note No. 8935 and 8931 for ,8,555,555.55 each, dated April 15, 1?75, to be offsetted OsicP against "our ,N No. 143)A upon co)terminal maturit". ,lease deli$er the proceeds of our ,Ns to our representati$e, 0r. -ric /astillo. Ler" %rul" Hours, 2Sgd.6 lorencio 1. 1iagan Senior Lice ,residentJ13 &e find nothing in his I.etter of AgreementJ which can be reasonabl" construed as a prohibition upon ,hilfinance assigning or transferring all or part of #0/ ,N No. 8931, before the maturit" thereof. 't is scarcel" necessar" to add that, e$en had this I.etter of AgreementJ set forth an e!plicit prohibition of transfer upon ,hilfinance, such a prohibition cannot be in$oked against an assignee or transferee of the Note who parted with $aluable consideration in good faith and without notice of such prohibition. 't is not disputed that petitioner was such an assignee or transferee. Dur conclusion on this point is reinforced b" the fact that what ,hilfinance and #elta were doing b" their e!change of promissor" notes was this< #elta in$ested, b" making a mone" market placement with ,hilfinance, appro!imatel" ,4,:55,555.55 on 15 April 1?75A but promptl", on the same da", borrowed back the bulk of that placement, i.e., ,4,555,555.55, b" issuing its two 286 promissor" notes< #0/ ,N No. 8935 and #0/ ,N No. 8931, both also dated 15 April 1?75. %hus, ,hilfinance was left with not ,4,:55,555.55 but onl" ,:55,555.55 in cash and the two 286 #elta promissor" notes. "propos #eltaGs complaint that the partial assignment b" ,hilfinance of #0/ ,N No. 8931 had been effected without the consent of #elta, we note that such consent was not necessar" for the $alidit" and enforceabilit" of the assignment in fa$or of petitioner.14 #eltaGs argument that ,hilfinanceGs sale or assignment of part of its rights to #0/ ,N No. 8931 constituted con$entional subrogation, which re+uired its 2#eltaGs6 consent, is +uite mistaken. /on$entional subrogation, which in the first place is ne$er lightl" inferred,15 must be clearl" established b" the une+ui$ocal terms of the subtituting obligation or b" the e$ident incompatibilit" of the new and old obligations on e$er" point.1: Nothing of the sort is present in the instant case. 't is in fact difficult to be impressed with #eltaGs complaint, since it released its #0/ ,N No. 8931 to ,hilfinance, an entit" engaged in the business of bu"ing and selling debt instruments and other securities, and more generall", in mone" market

transactions. 'n Pere+ v. Court of "ppeals%19 the /ourt, speaking through 0me. @ustice Eerrera, made the following important statement< I%here is another aspect to this case. &hat is in$ol$ed here is a mone" market transaction. As defined b" .awrence Smith Nthe mone" market is a market dealing in standardi>ed short)term credit instruments 2in$ol$ing large amounts6 where lenders and borrowers do not deal directl" with each other but through a middle man or dealer in the open market.G 't in$ol$es Ncommercial papersG which are instruments Ne$idencing indebtedness of an" person or entit" . . . ., which are issued, endorsed, sold or transferred or in an" manner con$e"ed to another person or entit", with or without recourse.G %he fundamental function of the mone" market de$ice in its operation is to match and bring together in a most impersonal manner both the Nfund usersG and the Nfund suppliers.G The mone' mar(et is an Jimpersonal mar(et:% free from personal considerations.: The mar(et mechanism is intended to provide .uic( mobilit' of mone' and securities.: %he impersonal character of the mone" market de$ice o$erlooks the indi$iduals or entities concerned. The issuer of a commercial paper in the mone' mar(et necessaril' (nows in advance that it would be e peditiousl' transacted and transferred to an' investorKlender without need of notice to said issuer. In practice% no notification is given to the borrower or issuer of commercial paper of the sale or transfer to the investor. %here is no need to indi$iduate a mone" market transaction, a relati$el" no$el institution in the ,hilippine commercial scene. It has been intended to facilitate the flow and ac.uisition of capital on an impersonal basis. And as specificall" re+uired b" ,residential #ecree No. :97, the investing public must be given ade.uate and effective protection in availing of the credit of a borrower in the commercial paper mar(et.917 2/itations omittedA italics supplied6 &e turn to #eltaGs arguments concerning alleged compensation or offsetting between #0/ ,N No. 8931 and ,hilfinance ,N No. 143)A. 't is important to note that at the time Philfinance sold part of its rights under -1C PN No. @BHD to petitioner on A )ebruar' DAFD% no compensation had as 'et ta(en place and indeed none could have ta(en place. %he essential re+uirements of compensation are listed in the /i$il /ode as follows< IArt. 189?. 'n order that compensation ma" be proper, it is necessar"< 216 %hat each one of the obligors be bound principall'% and that he be at the same time a principal creditor of the other; 286 %hat both debts consist in a sum of mone", or if the things due are consumable, the" be of the same kind, and also of the same +ualit" if the latter has been statedA 236That the two debts are dueA 246 %hat the" be li+uidated and demandableA

256 %hat o$er neither of them there be an" retention or contro$ers", commenced b" third persons and communicated in due time to the debtor.J 2'talics supplied6 Dn ? ebruar" 1?71, neither #0/ ,N No. 8931 nor ,hilfinance ,N No. 143)A was due. %his was e!plicitl" recogni>ed b" #elta in its 15 April 1?75 I.etter of AgreementJ with ,hilfinance, where #elta acknowledged that the rele$ant promissor" notes were Ito be offsetted 2sic6 against O,hilfinanceP ,N No. 143)A upon coterminal maturit'.9 As noted, the assignment to petitioner was made on ? ebruar" 1?71 or from fort") nine 24?6 da"s before the Ico)terminal maturit"J date, that is to sa", before an" compensation had taken place. urther, the assignment to petitioner would ha$e pre$ented compensation from taking place between ,hilfinance and #elta, to the e!tent of ,354,533.33, because upon e!ecution of the assignment in fa$or of petitioner, ,hilfinance and #elta would ha$e ceased to be creditors and debtors of each other in their own right to the e!tent of the amount assigned b" ,hilfinance to petitioner. %hus, we conclude that the assignment effected b" ,hilfinance in fa$or of petitioner was a $alid one and that petitioner accordingl" became owner of #0/ ,N No. 8931 to the e!tent of the portion thereof assigned to him. %he record shows, howe$er, that petitioner notified #elta of the fact of the assignment to him onl" on 14 @ul" 1?71,1? that is, after the maturit" not onl" of the mone" market placement made b" petitioner but also of both #0/ ,N No. 8931 and ,hilfinance ,N No. 143)A. 'n other words, petitioner notified -elta of his rights as assignee after compensation had ta(en place b' operation of law because the offsetting instruments had both reached maturit'. 't is a firml" settled doctrine that the rights of an assignee are not an" greater than the rights of the assignor, since the assignee is merel" substituted in the place of the assignor85 and that the assignee ac+uires his rights sub(ect to the e+uitiesi.e., the defenseswhich the debtor could ha$e set up against the original assignor before notice of the assignment was gi$en to the debtor. Article 1875 of the /i$il /ode pro$ides that< IAR%. 1875. %he debtor who has consented to the assignment of rights made b" a creditor in fa$or of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified b" the debtor at the time he ga$e his consent, that he reser$ed his right to the compensation. 'f the creditor communicated the cession to him but the debtor did not consent thereto, the latter ma' set up the compensation of debts pre$ious to the cession, but not of subse+uent ones. 'f the assignment is made without the (nowledge of the debtor% he ma' set up the compensation of all credits prior to the same and also later ones until he had (nowledge of the assignment.J 2'talics supplied6 Article 1:8: of the same /ode states that< Ithe debtor who, before ha$ing knowledge of the assignment, pa"s his creditor shall be released from the obligation.J 'n Sison v. Lap0Tico%81 the /ourt e!plained that<

IOnPo man is bound to remain a debtor< he ma" pa" to him with whom he contracted to pa"A and if he pa" before notice that his debt has been assigned, the law holds him e!onerated, for the reason that it is the dut" of the person who has ac+uired a title b" transfer to demand pa"ment of the debt, to gi$e his debtor notice.J88 At the time that #elta was first put to notice of the assignment in petitionerGs fa$or on 14 @ul" 1?71, #0/ ,N No. 8931 had alread" been discharged b" compensation. Since the assignor ,hilfinance could not ha$e then compelled pa"ment anew b" #elta of #0/ ,N No. 8931, petitioner, as assignee of ,hilfinance, is similarl" disabled from collecting from #elta the portion of the Note assigned to him. 't bears some emphasis that petitioner could ha$e notified #elta of the assignment in his fa$or as soon as that assignment or sale was effected on ? ebruar" 1?71. Ee could ha$e also notified #elta as soon as his mone" market placement matured on 13 0arch 1?71 without pa"ment thereof being made b" ,hilfinanceA at that time, compensation had "et to set in and discharge #0/ ,N No. 8931. Again, petitioner could ha$e notified #elta on 8: 0arch 1?71 when petitioner recei$ed from ,hilfinance the #enominated /ustodianship Receipt 2I#/RJ6 No. 15755 issued b" pri$ate respondent ,ilipinas in fa$or of petitioner. ,etitioner could, in fine, ha$e notified #elta at an" time before the maturit" date of #0/ ,N No. 8931. 1ecause petitioner failed to do so, and because the record is bare of an" indication that ,hilfinance had itself notified #elta of the assignment to petitioner, the /ourt is compelled to uphold the defense of compensation raised b" pri$ate respondent #elta. Df course, ,hilfinance remains liable to petitioner under the terms of the assignment made b" ,hilfinance to petitioner. II &e turn now to the relationship between petitioner and pri$ate respondent ,ilipinas. ,etitioner contends that ,ilipinas became solidaril" liable with ,hilfinance and #elta when ,ilipinas issued #/R No. 15755 with the following words< IUpon "our written instructions, we O,ilipinasP shall underta(e ph"sical deli$er" of the abo$e securities full' assigned to 'ou.J83 %he /ourt is not persuaded. &e find nothing in the #/R that establishes an obligation on the part of ,ilipinas to pa" petitioner the amount of ,359,?33.33 nor an" assumption of liabilit" in solidum with ,hilfinance and #elta under #0/ ,N No. 8931. &e read the #/R as a confirmation on the part of ,ilipinas that< 216 it has in its custod", as dul" constituted custodian bank, #0/ ,N No. 8931 of a certain face $alue, to mature on : April 1?71 and pa"able to the order of ,hilfinanceA 286Pilipinas was% from and after said date of the assignment b" ,hilfinance to petitioner 2? ebruar"6 1?716, holding that Note onbehalf and for the benefit of petitioner% at least to the e tent it had been assigned to petitioner b' pa'ee PhilfinanceA84

236 petitioner ma" inspect the Note either Ipersonall" or b" authori>ed representati$eA at an" time during regular bank hoursA and 246upon written instructions of petitioner% Pilipinas would ph'sicall' deliver the -1C PN No. @BHD 4or a participation therein to the e tent of PHCB%AHH.HH5 Ishould this #enominated /ustodianship Receipt remain outstanding in OpetitionerGsP fa$or thirt" 2356 da"s after its maturit".J %hus, we find nothing written in printers ink on the #/R which could reasonabl" be read as con$erting ,ilipinas into an obligor under the terms of #0/ ,N No. 8931 assigned to petitioner, either upon maturit" thereof or at an" other time. &e note that both in his complaint and in his testimon" before the trial court, petitioner referred merel" to the obligation of pri$ate respondent ,ilipinas to effect ph"sical deli$er" to him of #0/ ,N No. 8931.85 Accordingl", petitionerGs theor" that ,ilipinas had assumed a solidar" obligation to pa" the amount represented b" the portion of the Note assigned to him b" ,hilfinance, appears to be a new theor" constructed onl" after the trial court had ruled against him. %he solidar" liabilit" that petitioner seeks to impute to ,ilipinas cannot, howe$er, be lightl" inferred. Under Article 1859 of the /i$il /ode, Ithere is a solidar" liabilit" onl" when the obligation e!pressl" so states, or when the law or the nature of the obligation re+uires solidarit".J %he record here e!hibits no e!press assumption of solidar" liabilit" $is)a)$is petitioner, on the part of ,ilipinas. ,etitioner has not pointed us to an" law which imposed such liabilit" upon ,ilipinas nor has petitioner argued that the $er" nature of the custodianship assumed b" pri$ate respondent ,ilipinas necessaril" implies solidar" liabilit" under the securities, custod" of which was taken b" ,ilipinas. Accordingl", we are unable to hold ,ilipinas solidarit" liable with ,hilfinance and pri$ate respondent #elta under #0/ ,N No. 8931. &e do not, howe$er, mean to suggest that ,ilipinas has no responsibilit" and liabilit" in respect of petitioner under the terms of the #/R. %o the contrar", we find, after prolonged anal"sis and deliberation, that pri$ate respondent ,ilipinas had breached its undertaking under the #/R to petitioner Sesbreno. &e belie$e and so hold that a contract of deposit was constituted b" the act of ,hilfinance in designating ,ilipinas as custodian or depositar" bank. %he depositor was initiall" ,hilfinanceA the obligation of the depositar" was owed, howe$er, to petitioner Sesbreno as beneficiar" of the custodianship or depositar" agreement. &e do not consider that this is a simple case of a stipulation pour autri. %he custodianship or depositar" agreement was established as an integral part of the mone" market transaction entered into b" petitioner with ,hilfinance. ,etitioner bought a portion of #0/ ,N No. 8931A ,hilfinance as assignor)$endor deposited that Note with ,ilipinas in order that the thing sold would be placed outside the control of the $endor. 'ndeed, the constituting of the depositar" or custodianship agreement was e+ui$alent to constructi$e deli$er" of the Note 2to the e!tent it had been sold or assigned to petitioner6 to petitioner. 't will be seen that custodianship agreements are designed to facilitate transactions in the mone" market b" pro$iding a basis for confidence on the part of the in$estors or placers that the instruments bought b" them are effecti$el" taken out of the pocket, as it were, of the $endors and placed safel" be"ond their reach, that those instruments will be there a$ailable to the placers of funds should the" ha$e need of them. %he depositar" in a contract of deposit is obliged to return

the securit" or the thing deposited upon demand of the depositor 2or, in the presented case, of the beneficiar"6 of the contract, e$en though a term for such return ma" ha$e been established in the said contract.8: Accordingl", an" stipulation in the contract of deposit or custodianship that runs counter to the fundamental purpose of that agreement or which b" the placer)beneficiar", cannot be enforced as against such beneficiar")placer. &e belie$e that the position taken abo$e is supported b" considerations of public polic". 'f there is an" part" that needs the e+uali>ing protection of the law in mone" market transactions, it is the members of the general public who place their sa$ings in such market for the purpose of generating interest re$enues.89 %he custodian bank, if it is not related either in terms of e+uit" ownership or management control to the borrower of the funds, or the commercial paper dealer, is normall" a preferred or traditional banker of such borrower or dealer 2here, ,hilfinance6. %he custodian bank would ha$e e$er" incenti$e to protect the interest of its client the borrower or dealer as against the placer of funds. %he pro$iders of such funds must be safeguarded from the impact of stipulations pri$atel" made between the borrowers or dealers and the custodian banks, and disclosed to fund)pro$iders onl" after trouble has erupted. 'n the case at bar, the custodian)depositar" bank ,ilipinas refused to deli$er the securit" deposited with it when petitioner first demanded ph"sical deli$er" thereof on 8 April 1?71. &e must again note, in this connection, that on 8 April 1?71, #0/ ,N No. 8931 had not "et matured and therefore, compensation or offsetting against ,hilfinance ,N No. 143)A had not "et taken place. 'nstead of compl"ing with the demand of petitioner, ,ilipinas purported to re+uire and await the instructions of ,hilfinance, in ob$ious contra$ention of its undertaking under the #/R to effect ph"sical deli$er" of the Note upon receipt of Iwritten instructionsJ from petitioner Sesbre6o. %he ostensible term written into the #/R 2i.e., Ishould this O#/RP remain outstanding in "our fa$or thirt" O35P da"s after its maturit"J6 was not a defense against petitionerGs demand for ph"sical surrender of the Note on at least three grounds< firstl", such term was ne$er brought to the attention of petitioner SesbreSo at the time the mone" market placement with ,hilfinance was madeA secondl", such term runs counter to the $er" purpose of the custodianship or depositar" agreement as an integral part of a mone" market transactionA and thirdl", it is inconsistent with the pro$isions of Article 1?77 of the /i$il /ode noted abo$e. 'ndeed, in principle, petitioner became entitled to demand ph"sical deli$er" of the Note held b" ,ilipinas as soon as petitionerGs mone" market placement matured on 13 0arch 1?71 without pa"ment from ,hilfinance. &e conclude, therefore, that pri$ate respondent ,ilipinas must respond to petitioner for damages sustained b" him arising out of its breach of dut". 1" failing to deli$er the Note to the petitioner as depositor)beneficiar" of the thing deposited, ,ilipinas effecti$el" and unlawfull" depri$ed petitioner of the Note deposited with it. &hether or not ,ilipinas itself benefited from such con$ersion or unlawful depri$ation inflicted upon petitioner, is of no moment for present purposes. Prima facie% the damages suffered b" petitioner consisted of ,354,533.33, the portion of the #0/ ,N No. 8931 assigned to petitioner but lost b" him b" reason of discharge of the Note b" compensation, plus legal interest of si! percent 2:;6 per annum counting from 14 0arch 1?71.

%he conclusion we ha$e here reached is, of course, without pre(udice to such right of reimbursement as ,ilipinas ma" ha$e vis0a0vis ,hilfinance. III %he third principal contention of petitionerthat ,hilfinance and pri$ate respondents #elta and ,ilipinas should be treated as one corporate entit"need not detain us for long. 'n the first place, as alread" noted, (urisdiction o$er the person of ,hilfinance was ne$er ac+uired either b" the trial court nor b" the respondent /ourt of Appeals. ,etitioner similarl" did not seek to implead ,hilfinance in the ,etition before us. Secondl", it is not disputed that ,hilfinance and pri$ate respondents #elta and ,ilipinas ha$e been organi>ed as separate corporate entities. ,etitioner asks us to pierce their separate corporate entities, but has been able onl" to cite the presence of a common #irector0r. Ricardo Sil$erio, Sr., sitting on the 1oards of #irectors of all three 236 companies. ,etitioner has neither alleged nor pro$ed that one or another of the three 236 concededl" related companies used the other two 286 as mere alter egos or that the corporate affairs of the other two 286 were administered and managed for the benefit of one. %here is simpl" not enough e$idence of record to (ustif" disregarding the separate corporate personalities of #elta and ,ilipinas and to hold them liable for an" assumed or undetermined liabilit" of ,hilfinance to petitioner.87 &E-R- DR-, for all the foregoing, the #ecision and Resolution of the /ourt of Appeals in /.A.)*.R. /L No. 151?5 dated 81 0arch 1?7? and 19 @ul" 1?7?, respecti$el", are hereb" 0D#' '-# and S-% AS'#-, to the e!tent that such #ecision and Resolution had dismissed petitionerGs complaint against ,ilipinas 1ank. ,ri$ate respondent ,ilipinas 1ank is hereb" DR#-R-# to indemnif" petitioner for damages in the amount of ,354,533.33, plus legal interest thereon at the rate of si! percent 2:;6 per annum counted from 8 April 1?71. As so modified, the #ecision and Resolution of the /ourt of Appeals are hereb" A 'R0-#. No pronouncement as to costs. SD DR#-R-#. *idin% -avide% #r.% Romero and 1elo% ##., concur. -ecision and resolution affirmed with modification. N!tes.An assignment of credit is the process of transferring the right of the assignor to the assignee who would then ha$e the right to proceed against the debtor 2Rodrigue+ vs. Court of "ppeals%859 S/RA 5536. /onsent is not necessar" in order that assignment ma" full" produce legal effects 2Rodrigue+ vs. Court of "ppeals%859 S/RA 5536. No. .):81:?. ebruar" 87, 1?73. MIN#ANAO PORTLAN# CEMENT CORPORATION, petiti!ne", vs. COURT OF APPEALS, PAC&EL# STEEL CORPORATION and ATTY. CASIANO P. LA%UIHON, "esp!ndents. Civil ,aw; Obligations; Compensation; "utomatic compensation% re.uisites of% present; = tinguishment of two debts arising from final and e ecutor' /udgments due to compensation b' operation of law; Case at bar.'t is clear from the record that both corporations, petitioner 0indanao ,ortland /ement /orporation 2appellant6 and respondent ,acweld Steel /orporation 2appellee6, were creditors and debtors of each other, their debts to each other consisting in final and e!ecutor" (udgments of the /ourt of irst 'nstance in two 286 separate cases, ordering the pa"ment to each other of the sum of ,15,555.55 b" wa" of attorne"Gs fees. %he two 286 obligations, therefore, respecti$el" offset each other, compensation ha$ing taken effect b" operation of law and e!tinguished both debts to the concurrent amount of ,15,555.55, pursuant to the pro$isions of Arts. 1897, 189? and 18?5 of the /i$il /ode, since all the re+uisites pro$ided in Art. 189? of the said /ode for automatic compensation Ie$en though the creditors and debtors are not aware of the compensationJ were dul" present. Same; Same; Same; #udgments; 3oid alteration of /udgment; Substantial change or amendment of final and e ecutor' /udgment which is be'ond the trial court:s /urisdiction and authorit' is void and would not defeat compensation or set0off of the two obligations.Necessaril", the appealed order of @une 8:, 1?97 granting Att". .a+uihonGs motion for amendment of the (udgment of September 14, 1?9: against

0indanao ,ortland /ement /orporation so as to make the award therein of ,15,555.55 as attorne"Gs fees pa"able directl" to himself as counsel of ,acweld Steel /orporation instead of pa"able directl" to said corporation as pro$ided in the (udgment, which had become final and e!ecutor" long before the issuance of said Iamendator"J order was a $oid alteration of (udgment. 't was a substantial change or amendment be"ond the trial courtGs (urisdiction and authorit" and it could not defeat the compensation or setoff of the two 286 obligations of the corporations to each other which had alread" e!tinguished both debts b" operation of law. ,-%'%'DN to re$iew the orders of the /ourt of Appeals. %he facts are stated in the opinion of the /ourt. Tolentino% !arcia% Cru+ Re'es ,aw Office for petitioner. Casiano P. ,a.uihon for respondents. %--EANT--, #.$ %he /ourt of Appeals 2now 'ntermediate Appellate /ourt6 certified petitionerGs appeal therein as defendant)appellant, docketed as /.A.)*.R. No. :5158 thereof, to this /ourt as in$ol$ing onl" +uestions of law in its Resolution of August 31, 1?78, reading as follows< I%he NStatement of the /ase and the Statement of actsG contained in appellantGs brief follow< S%A%-0-N% D A/%S

same in its order of August 87, 1?97 2Record on Appeal, p. 396, also sub(ect matter of this appeal. N%he writ of e!ecution referred to abo$e which 0,// has in$oked to set)off the amount sought to be collected b" ,acweld through the latterGs law"er, Att". /asiano ,. .a+uihon, is hereunder +uoted in full.G I'n his brief, appellee comments that the statements in appellantGs brief are Nsubstantiall" correct,G as follows< S%A%-0-N% D %E- /ASN%his is an appeal from the Drder of the /ourt of irst 'nstance of 0anila 21ranch Q6 dated @une 8:, 1?97 ordering the appellant 20'N#ANAD ,DR%.AN# /-0-N% /DR,DRA%'DN6 to pa" the amount of ,15,555.55 attorne"Gs fees directl" to Att". /asiano 1. .a+uihon 2Record on Appeal, pp. 84)856 and from the Drder dated August 87, 1?97 den"ing appellantGs motion for reconsideration 2Record on Appeal, p. 396.G I%here was no trial or submission of documentar" e$idence. Against the orders of @une 8:, 1?97, and August 87, 1?97, appellant has brought this appeal to this /ourt, contending that< N%he lower court erred in not holding that the two obligations are e!tinguished reciprocall" b" operation of law.G 2p. :, AppellantGs 1rief6 I%his appeal calls for the application of Arts. 1897, 189? and 18?5 of the /i$il /ode, as urged b" the appellant. Another +uestion is< %he (udgment in /i$il /ase No. 9519? being alread" final at the time the motion under consideration was filed, does not the order of @une 8:, 1?9: constitute a change or alteration of the said (udgment, though issued b" the $er" same court that rendered the (udgmentB I&E-R- DR-, since onl" +uestions of law are in$ol$ed and there is no factual issue left for us to determine, let the records of the appeal in this case be certified to the Eonorable Supreme /ourt for determination.J After considering the briefs of the parties in the appellate court and the additional pleadings re+uired of them b" this /ourt, the /ourt finds merit in the appeal and sets aside the appealed orders of @une 8: and August 87, 1?97 of the /ourt of irst 'nstance 2now Regional %rial /ourt6 of 0anila, 1ranch QQ. 't is clear from the record that both corporations, petitioner 0indanao ,ortland /ement /orporation 2appellant6 and respondent ,acweld Steel /orporation 2appellee6, were creditors and debtors of each other, their debts to each other consisting in final and e!ecutor" (udgments of the /ourt of irst 'nstance in two 286 separate cases, ordering the pa"ment to each other of the sum of ,15,555.55 b" wa" of attorne"Gs fees. %he two 286 obligations, therefore, respecti$el" offset each other, compensation ha$ing taken effect b" operation of law and e!tinguished both debts to the concurrent amount of ,15,555.55, pursuant to the pro$isions of Arts. 1897, 189?

NDn @anuar" 3, 1?97, one Att". /asiano ,. .a+uihon, in behalf of third)part" defendant ,acweld Steel /orporation, filed a pleading addressed to the defendant R %hird),art" ,laintiff 0indanao ,ortland /ement /orporation 20,//6 for short6, herein appellant, entitled Nmotion to direct pa"ment of attorne"Gs fee to counselG 2himself6, in$oking in his motion the fact that in the decision of the court of Sept. 14, 1?9:, 0,// was ad(udged to pa" ,acweld the sum of ,15,555.55 as attorne"Gs fees 2Record on Appeal, pp. 1, :)?6. NDn 0arch 14, 1?97, 0,// filed an opposition to Att". .a+uihonGs motion, stating, as grounds therefor, that said amount is set)off b" a like sum of ,15,555.55 which it 20,//6 has collectible in its fa$or from ,acweld also b" wa" of attorne"Gs fees which 0,// reco$ered from the same /ourt of irst 'nstance of 0anila 21ranch QQ6 in /i$il /ase No. :734:, entitled N,acweld Steel /orporation, et al.,G a writ of e!ecution to this effect ha$ing been issued b" said court 2Record on Appeal, pp. 8, 15)146. IDn @une 8:, 1?97 the court issued the order appealed from 2Record on Appeal, pp. 84)856 and despite 0,//Gs motion for reconsideration of said order, citing the law applicable and Supreme /ourt decisions 2Record on Appeal, pp. 8:)336, denied the

and 18?5 of the /i$il /ode, since all the re+uisites pro$ided in Art. 189? of the said /ode for automatic compensation Ie$en though the creditors and debtors are not aware of the compensationJ were dul" present.UU Necessaril", the appealed order of @une 8:, 1?97 granting Att". .a+uihonGs motion for amendment of the (udgment of September 14, 1?9: against 0indanao ,ortland /ement /orporation so as to make the award therein of ,15,555.55 as attorne"Gs fees pa"able directl" to himself as counsel of ,acweld Steel /orporation instead of pa"able directl" to said corporation as pro$ided in the (udgment, which had become final and e!ecutor" long before the issuance of said Iamendator"J order was a $oid alteration of (udgment. 't was a substantial change or amendment be"ond the trial courtGs (urisdiction and authorit" and it could not defeat the compensation or setoff of the two 286 obligations of the corporations to each other which had alread" e!tinguished both debts b" operation of law. A//DR#'N*.H, the appealed orders are hereb" annulled and set aside. No costs. 1elencio0<errera% Plana% 3as.ue+% Relova and !utierre+% #r.% ##.% concur. Orders annulled and set aside.

obligation occurs at the same time with the change of either in the person of the debtor or creditor a mi!ed no$ation occurs. Same; Same; Same; Novation will not be allowed unless it is clearl' shown b' e press agreement% or b' acts of e.ual import.;%he well settled rule is that no$ation is ne$er presumed. No$ation will not be allowed unless it is clearl" shown b" e!press agreement, or b" acts of e+ual import. %hus, to effect an ob(ecti$e no$ation it is imperati$e that the new obligation e!pressl" declare that the old obligation is thereb" e!tinguished, or that the new obligation be on e$er" point incompatible with the new one. 'n the same $ein, to effect a sub(ecti$e no$ation b" a change in the person of the debtor it is necessar" that the old debtor be released e!pressl" from the obligation, and the third person or new debtor assumes his place in the relation. %here is no no$ation without such release as the third person who has assumed the debtorGs obligation becomes merel" a co)debtor or suret". Same; Same; Same.%he attendant facts herein do not make a case of no$ation. %here is nothing in the records to show the une+ui$ocal intent of the parties to no$ate the three loan agreements through the e!ecution of ,N No. 1#S)35:5. %he pro$isions of ,N No. 1#S)35:5 "ield no indication of the e!tinguishment of, or an incompatibilit" with, the three loan agreements secured b" the real estate mortgages o$er %/% No. 155833. Dn its face, ,N No. 1#S)35:5 has these words t"pewritten< Isecured b" R-0J and I?. /D..A%-RA.. %his is wholl"Mpartl" secured b"< 2!6 real estateJ which strongl" negate petitionersG asse$eration that the consolidation of the three loans effected the discharge of the mortgaged real estate propert". Same; Same; Same; Novation arising from a purported change in the person of the debtor must be clear and e press as it is never presumed.;Neither can it be $alidl" contended that there was a change or substitution in the persons of either the creditor 20etrobank6 or more specificall" the debtors 2petitioners6 upon the consolidation of the loans in ,N No. 1#S 3:55. %he bare fact of petitionersG con$ersion from a partnership to a corporation, without sufficient e$idence, either testimonial or documentar", that the" were e!pressl" released from their obligations, did not make petitioner A@AQ, with its new corporate personalit", a third person or new debtor within the conte!t of a sub(ecti$e no$ation. 'f at all, petitioner A@AQ onl" became a co) debtor or suret". &ithout e!press release of the debtor from the obligation, an" third part" who ma" thereafter assume the obligation shall be considered merel" as co) debtor or suret". No$ation arising from a purported change in the person of the debtor must be clear and e!press because, to repeat, it is ne$er presumed. /learl" then, from the aforediscussed points, neither ob(ecti$e nor sub(ecti$e no$ation occurred here. Same; Same; 1ortgage; "ction to foreclose a mortgage is usuall' limited to the amount mentioned in the mortgage% but where the intent of contracting parties is manifest that the mortgaged propert' shall also answer for future loans or advancements then the same is not improper as it is valid and binding between the parties.;An action to foreclose a mortgage is usuall" limited to the amount mentioned in the mortgage, but where on the four corners of the mortgage contracts, as in this case, the intent of the contracting parties is manifest that the mortgaged propert" shall also answer for future loans or ad$ancements then the same is not improper as it is $alid and binding between the parties. or merel" consolidating and

*.R. No. 117575. September 14, 1??5. A+A0 MAR/ETIN 1 #E$ELOPMENT CORPORATION, ANTONIO TAN, ELISA TAN, TAN YEE, and SPS. MARCIAL SEE and LILIAN TAN, petiti!ne"s, vs. HON. COURT OF APPEALS, METROPOLITAN BAN/ AN# TRUST COMPANY, and THE SHERIFF OF MANILA, "esp!ndents. Civil ,aw; Obligations and Contracts; Novation; Novation is the e tinguishment of an obligation b' the substitution or change of the obligation b' a subse.uent one which e tinguishes or modifies the first% either b' changing the ob/ect or principal conditions% or b' substituting another in place of the debtor% or b' subrogating a third person in the rights of the creditor.;1asic principles on no$ation need to be stressed at the outset. No$ation is the e!tinguishment of an obligation b" the substitution or change of the obligation b" a subse+uent one which e!tinguishes or modifies the first, either b" changing the ob(ect or principal conditions, or b" substituting another in place of the debtor, or b" subrogating a third person in the rights of the creditor. No$ation, unlike other modes of e!tinction of obligations, is a (uridical act with a dual function, namel", it e!tinguishes an obligation and creates a new one in lieu of the old. 't can be ob(ecti$e, sub(ecti$e, or mi!ed. Db(ecti$e no$ation occurs when there is a change of the ob(ect or principal conditions of an e!isting obligation while sub(ecti$e no$ation occurs when there is a change of either the person of the debtor, or of the creditor in an e!isting obligation. &hen the change of the ob(ect or principal conditions of an

e!pedientl" making current the three pre$ious loans, the loan of ,1.5 million under ,N 1#S No. 3:55, secured b" the real estate propert", was correctl" included in the foreclosureGs bid price. %he inclusion of the unsecured loan of ,?95,555.55 under ,N 1#S ND. 3573, howe$er, was found to be improper b" public respondent which ruling we shall not disturb for 0etrobankGs failure to appeal therefrom. Nonetheless, the inclusion of ,N 1#S No. 3573 in the bid price did not in$alidate the foreclosure proceedings. As correctl" pointed out b" the /ourt of Appeals, the proceeds of the auction sale should be applied to the obligation pertaining to ,N 1#S No. 3:55 onl", plus interests, e!penses and other charges accruing thereto. 't is 0etrobankGs dut" as mortgagee to return the surplus in the selling price to the mortgagors. ,-%'%'DN for re$iew on certiorari of a decision of the /ourt of Appeals. %he facts are stated in the opinion of the /ourt. *aldomero S.P. !atbonton% #r. for petitioners. Corpu+ 2 =/ercito ,aw Offices for 0etropolitan 1ank R %rust /o. RAN/'S/D, #.< 'n its 0arch 35, 1??4 decision, public respondent /ourt of Appeals affirmed the trial courtGs (udgment upholding the $alidit" of the e!tra)(udicial foreclosure of the real estate propert" of petitionersspouses 0arcial See and .ilian %an, located at ,aco #istrict, 0anila co$ered b" %/% 155833, b" pri$ate respondent 0etropolitan 1ank and %rust /ompan" 20etrobank6.1 ,etitionersG motion for reconsideration was deniedA hence, this petition for re$iew on certiorari raising the following assignments of errors< I 'RS%< %he Eonorable /ourt of Appeals erred in holding that the consolidation of the three 236 loans granted separatel" to three entities into a single loan of ,1.5 0illion was a mere restructuring and did not effect a no$ation of the loan as to e!tinguish the accessor" mortgage contracts. S-/DN#< %he Eonorable /ourt of Appeals erred in not holding that the consolidated loan of ,1.5 0illion was not accompanied b" the e!ecution of a new R-0, as was done b" the 1ank in the earlier three 236 loans, and hence, was, to all legal intentsMpurposes, unsecured. %E'R#< %he Eonorable /ourt of Appeals erred in holding that the inclusion in the e!tra)(udicial foreclosure of the admittedl" unsecured loan of ,?95,555.55 is a mere error that does not in$alidate said foreclosure, contrar" to the pronouncement in / R / /ommercial /orp. $s. ,N1, 195 S/RA 1. DUR%E< %he Eonorable /ourt of Appeals erred in not declaring as null and $oid the e!tra)(udicial foreclosure undertaken b" 0etrobank on the propert" of Sps. 0arcial See and .ilian %an.J8 %he facts as found b" public respondent /ourt of Appeals are as follows<

I't is not disputed that Hlang)Hlang 0erchandising /ompan", a partnership between Angelita Rodrigue> and Antonio %an, obtained a loan in the amount of ,855,555.55 from the 0etropolitan 1ank and %rust /ompan", and to secure pa"ment of the same, spouses 0arcial See and .ilian %an constituted a real estate mortgage in fa$or of said bank o$er their propert" in the #istrict of ,aco, 0anila, co$ered b" %/% No. 155833 of the Registr" of #eeds of 0anila. %he mortgage was annotated at the back of the title. ISubse+uentl", after the partnership had changed its name to A(a! 0arketing /ompan" albeit without changing its composition, it obtained a loan in the sum of ,155,555.55 from 0etropolitan 1ank and %rust /ompan". Again to secure the loan, spouses 0arcial See and .ilian %an e!ecuted in fa$or of said bank a second real estate mortgage o$er the same propert". As in the first instance, the mortgage was dul" annotated at the back of %/% No. 155833. IDn ebruar" 1?, 1?9?, the partnership 2A(a! 0arketing /ompan"6 was con$erted into a corporation denominated as A(a! 0arketing and #e$elopment /orporation, with the original partners 2Angelita Rodrigue> and Antonio %an6 as incorporators and three 236 additional incorporators, namel", -lisa %an, the wife of Antonio %an, and @ose San #iego and %essie San #iego. A(a! 0arketing and #e$elopment /orporation obtained from 0etropolitan 1ank and %rust /ompan" a loan of ,:55,555.55, the pa"ment of which was secured b" another real estate mortgage e!ecuted b" spouses 0arcial See and .ilian %an in fa$or of said bank o$er the same realt" located in the #istrict of ,aco, 0anila. Again, the third real estate mortgage was annotated at the back of %/% No. 155833. I'n #ecember 1?75, the three 236 loans with an aggregate amount of ,1,555,555.55 were re)structured and consolidated into one 216 loan and A(a! 0arketing and #e$elopment /orporation, represented b" Antonio %an as 1oard /hairmanM,resident and in his personal capacit" as solidar" co)obligor, and -lisa %an as Lice) ,residentM%reasurer and in her personal capacit" as solidar" co)obligor, e!ecuted a ,romissor" Note 2,N6 No. 1#S)3:55.J3 'n their interrelated first and second assignment of errors, petitioners argue that a no$ation occurred when their three 236 loans which are all secured b" the same real estate propert" co$ered b" %/% No. 155833 were consolidated into a single loan of ,1 million under ,romissor" Note No. 1#S)3:55, thereb" e!tinguishing their monetar" obligations and releasing the mortgaged propert" from liabilit". 1asic principles on no$ation need to be stressed at the outset. No$ation is the e!tinguishment of an obligation b" the substitution or change of the obligation b" a subse+uent one which e!tinguishes or modifies the first, either b" changing the ob(ect or principal conditions, or b" substituting another in place of the debtor, or b" subrogating a third person in the rights of the creditor.4 No$ation, unlike other modes of e!tinction of obligations, is a (uridical act with a dual function, namel", it e!tinguishes an obligation and creates a new one in lieu of the old. 't can be ob(ecti$e, sub(ecti$e, or mi!ed. Db(ecti$e no$ation occurs when there is a change of the ob(ect or principal conditions of an e!isting obligation while sub(ecti$e no$ation occurs when there is a change of either the person of the debtor, or of the creditor in an e!isting obligation.5 &hen the change of the ob(ect or principal conditions of an

obligation occurs at the same time with the change of either in the person of the debtor or creditor a mi!ed no$ation occurs.: %he well settled rule is that no$ation is ne$er presumed.9 No$ation will not be allowed unless it is clearl" shown b" e!press agreement, or b" acts of e+ual import. %hus, to effect an ob(ecti$e no$ation it is imperati$e that the new obligation e!pressl" declare that the old obligation is thereb" e!tinguished, or that the new obligation be on e$er" point incompatible with the new one.7 'n the same $ein, to effect a sub(ecti$e no$ation b" a change in the person of the debtor it is necessar" that the old debtor be released e!pressl" from the obligation, and the third person or new debtor assumes his place in the relation.? %here is no no$ation without such release as the third person who has assumed the debtorGs obligation becomes merel" a co)debtor or suret". 15 %he attendant facts herein do not make a case of no$ation. %here is nothing in the records to show the une+ui$ocal intent of the parties to no$ate the three loan agreements through the e!ecution of ,N No. 1#S)35:5. %he pro$isions of ,N No. 1#S)35:5 "ield no indication of the e!tinguishment of, or an incompatibilit" with, the three loan agreements secured b" the real estate mortgages o$er %/% No. 155833. Dn its face, ,N No. 1#S)35:5 has these words t"pewritten< 8secured b' R=19 and 8A.CO,,"T=R",. This is wholl'Kpartl' secured b'$ 4 5 real estate%911 which strongl" negate petitionersG asse$eration that the consolidation of the three loans effected the discharge of the mortgaged real estate propert". Dtherwise, there would be no sense placing these material pro$isions. 0oreo$er, the real estate mortgages contained this common pro$ision, to wit< I%hat for and in consideration of credit accommodations obtained from the 0DR%*A*-- 20etropolitan 1ank and %rust /ompan"6, b" the 0DR%*A*DR andMor A@AQ 0T%*. R #-L. /DR,.MA@AQ 0ART-%'N* /D0,ANHMH.AN*)H.AN* 0-R/EAN#'S'N* /D0,ANH detailed as follows< Nature .oans andMor Ad$ances in current account -ate !ranted -ue "mount or ,ine -ate ,:55,555.55 155,555.55 855,555.55

the absolute owner free from all liens and encumbrances. Eowe$er, if the 0DR%*A*DR shall pa" to the 0DR%*A*--, its successors or assigns, the obligation secured b" this mortgage when due, together with interest, and shall keep and perform all and singular the co$enants and agreements herein contained for the 0DR%*A*DR to keep and perform, then the mortgage shall be $oidA otherwise, it shall remain in full force and effect.J18 %he foregoing shows that petitioners agreed to appl" the real estate propert" to secure obligations that the" ma" thereafter obtain including their renewals or e!tensions with the principals fi!ed at ,:55,555.55, ,155,555.55, and ,855,555.55 which when added ha$e an aggregate sum of ,1.5 million. ,N No. 1#S)3:55 merel" restructured and renewed the three pre$ious loans to e!pedientl" make the loans current. %here was no change in the ob(ect of the prior obligations. %he consolidation of the three loans, contrar" to petitionersG contention, did not release the mortgaged real estate propert" from an" liabilit" because the mortgage annotations at the back of %/% No. 155833, in fact, all remained uncancelled, thus indicating the continuing subsistence of the real estate mortgages. Neither can it be $alidl" contended that there was a change or substitution in the persons of either the creditor 20etrobank6 or more specificall" the debtors 2petitioners6 upon the consolidation of the loans in ,N No. 1#S 3:55. %he bare fact of petitionersG con$ersion from a partnership to a corporation, without sufficient e$idence, either testimonial or documentar", that the" were e!pressl" released from their obligations, did not make petitioner A@AQ, with its new corporate personalit", a third person or new debtor within the conte!t of a sub(ecti$e no$ation. 'f at all, petitioner A@AQ onl" became a co)debtor or suret". &ithout e!press release of the debtor from the obligation, an" third part" who ma" thereafter assume the obligation shall be considered merel" as co)debtor or suret". No$ation arising from a purported change in the person of the debtor must be clear and e!press because, to repeat, it is ne$er presumed. /learl" then, from the aforediscussed points, neither ob(ecti$e nor sub(ecti$e no$ation occurred here. Anent the third assigned error, petitioners posit that the e!tra)(udicial foreclosure is in$alid as it included two unsecured loans< one, the consolidated loan of ,1.5 million under ,N 1#S No. 3:55, and two, the ,?95,555.55 loan under ,N 1#S No. 3573 subse+uentl" e!tended b" 0etrobank. An action to foreclose a mortgage is usuall" limited to the amount mentioned in the mortgage, but where on the four corners of the mortgage contracts, as in this case, the intent of the contracting parties is manifest that the mortgaged propert" shall also answer for future loans or ad$ancements then the same is not improper as it is $alid and binding between the parties.13 or merel" consolidating and e!pedientl" making current the three pre$ious loans, the loan of ,1.5 million under ,N 1#S No. 3:55, secured b" the real estate propert", was correctl" included in the foreclosureGs bid price. %he inclusion of the unsecured loan of ,?95,555.55 under ,N 1#S No. 3573, howe$er, was found to be improper b" public respondent which ruling we shall not disturb for 0etrobankGs failure to appeal therefrom. Nonetheless, the inclusion of ,N 1#S No. 3573 in the bid price did not in$alidate the foreclosure proceedings. As correctl" pointed out b" the /ourt of Appeals, the proceeds of the auction sale should be applied to the obligation pertaining to ,N 1#S No. 3:55 onl", plus interests,

and to secure the pa'ment of the same and those that ma' hereafter be obtained including the renewals or e tension thereof. Ithe principal of all of which is hereb" fi!ed at 2,:55,555.55M,155,555.55M ,855,555.556 . . . as well as those that the 1ORT!"!== ma' have previousl' e tended or ma' later e tend to the 1ORT!"!OR% including interest and e penses or an' other obligation owing to the 1ORT!"!==% whether direct or indirect, principal or secondar", as appears in the accounts, books and records of the 0DR%*A*--, the 0DR%*A*DR hereb" transfer and con$e" b" wa" of mortgage unto the 0DR%*A*--, its successors or assigns, the parcels of land which are described in the list inserted on page three of this document andMor appended hereto, together with all the buildings and impro$ements now e!isting or which ma" hereafter be erected or constructed thereon, of which the 0DR%*A*DR declares that heMit is

e!penses and other charges accruing thereto. 't is 0etrobankGs dut" as mortgagee to return the surplus in the selling price to the mortgagors.14 .astl", petitioners cite as supporting authorit" C 2 C Commercial Corp. v. Philippine National *an(15 where this /ourt en(oined the foreclosure proceedings for including unsecured obligations. ,etitionersG reliance on the C 2 C Commercial Corp. v. Phil. National *an( case is misplaced. 'n that case, the foreclosure sale included pre$iousl" incurred unsecured obligations in fa$or of ,N1 which were not in the contemplation of the mortgage contract, whereas in the instant case, the mortgages were one in pro$iding that the mortgaged real estate propert" shall also secure future ad$ancements or loans, as well as renewals or e!tensions of the same. ,rescinding from the abo$e discussions, the fourth assignment of error ob$iousl" needs no further discussion. &E-R- DR-, the decision appealed from is hereb" A 'R0-# in toto.

Narvasa 4C.#.% Chairman5% Regalado% Puno and 1endo+a% ##., concur. #udgment affirmed in toto. N!tes.2No$ation is the e!tinguishment of an obligation b" the substitution of that obligation with a subse+uent one which terminates it. 2*roadwa' Centrum Condominium Corporation vs. Tropical <ut )ood 1ar(et% Inc., 884 S/RA 358 O1??3P6 'f ob(ecti$e no$ation is to take place, it is essential that the new obligation e!pressl" declare that the obligation is to be e!tinguished or that new obligation be on e$er" point incompatible with the old one. *roadwa' Centrum Condominium Corporation vs. Tropical <ut )ood 1ar(et% Inc., 884 S/RA 358 O1??3P6 A test to determine whether a con$e"ance is a sale or merel" a securit" for the pa"ment of a loan is the continued e!istence of a debt or liabilit" on the part of the mortgagor. 23da. -e "lvare+ vs. Court of "ppeals, 831 S/RA 35? O1??4P6

*.R. No. 75851. No$ember 85, 1??5. ANTONIO ARCIA, +R., petiti!ne", vs. COURT OF APPEALS, LASAL #E$ELOPMENT CORPORATION, "esp!ndents. Civil ,aw; Contracts; Suret'ship; -efinition and nature of Suret'0ship.Suret"ship is a contractual relation resulting from an agreement whereb" one person, the suret", engages to be answerable for the debt, default or miscarriage of another, known as the principal. %he suret"Gs obligation is not an original and direct one for the performance of his own act, but merel" accessor" or collateral to the obligation contracted b" the principal. Ne$ertheless, although the contract of a suret" is in essence secondar" onl" to a $alid principal obligation, his liabilit" to the creditor or promise of the principal is said to be direct, primar" and absoluteA in other words, he is directl" and e+uall" bound with the principal. %he suret" therefore becomes liable for the debt or dut" of another although he possesses no direct or personal interest o$er the obligations nor does he recei$e an" benefit therefrom. Same; Same; Same; The peculiar nature of a suret' agreement is that it is regarded as valid despite the absence of an' direct consideration received b' the suret' either from the principal obligor or from the creditor.%he peculiar nature of a suret" agreement is that it is regarded as $alid despite the absence of an" direct consideration recei$ed b" the suret" either from the principal obligor or from the creditor. A contract of suret", like an" other contract, must generall" be supported b" a sufficient consideration. Eowe$er, the consideration necessar" to support a suret"

obligation need not pass directl" to the suret"A a consideration mo$ing to the principal alone will suffice. Same; Same; Novation; "s a general rule no form of words or writing is necessar' to give effect to a novation.'t is true as a general rule no form of words or writing is necessar" to gi$e effect to a no$ation. Ne$ertheless, since the parties in$ol$ed here are corporations, it must first be pro$ed that the contracts, assuming the" were made, were e!ecuted b" the persons possessing the proper authorit" to bind their respecti$e principals. Anne!es 1)4 are a mere e!change of correspondence between the officers of &0/ and #1,. Although the" contain the pro$isions and proposals that, according to petitioner, should suffice to establish that the original contract between &0/ and ,'SD has been materiall" altered, the" cannot be considered per se sufficient to gi$e rise to a $alid new obligation. Same; Same; Same; Novation of contract cannot be presumed; re.uisites essential for a novation.No$ation of contract cannot be presumed. 'n order that an obligation ma" be e!tinguished b" another which substitutes the same, it is imperati$e that it be so declared in une+ui$ocal terms, or that the old and the new obligations be on e$er" point incompatible with each other 2Art. 18?8, /i$il /ode6. 'n e$er" no$ation there are four essential re+uisites< 216 a pre$ious $alid obligationA 286 the agreement of all the parties to the new contractA 236 the e!tinguishment of the old contractA and 246 $alidit" of the new one. ,-%'%'DN for certiorari to re$iew the decision of the /ourt of Appeals. %he facts are stated in the opinion of the /ourt. Muisumbing% Torres 2 =vangelista for petitioner. R.C. -omingo% #r. 2 "ssociates for pri$ate respondent. /RUF, #.$

$iolated the doctrine of the limited liabilit" of corporationsA and 2d6 the principal obligation had been no$ated. After considering the arguments and e$idence of the parties, the trial court granted the motion and dismissed the complaint on the ground that the suret" agreement was in$alid for absence of consideration. %he plaintiff mo$ed for reconsideration and when this was denied ele$ated the matter to the /ourt of Appeals. 'n a decision dated @une 83, 1?79, the respondent court re$ersed @udge @esus 0. -lbinias and remanded the records of the case for trial on the merits. *arcia then came to this /ourt in this petition for re$iew on certiorari% pleading the same arguments raised in the trial court. %he petitionerGs first ground is that, as found b" the trial court, the suret" agreement was in$alid because no consideration had been paid to him b" ,'SD for e!ecuting the contract and that the amount of the entire loan had been recei$ed and en(o"ed b" &0/. Ee cites the following articles of the /i$il /ode in support of his contention that lack of consideration was a personal defense a$ailable to him as suret"< Art. 8549. 1" guarant" a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. 'f a person binds himself solidaril" with the principal debtor, the pro$isions of Section 4, /hapter 3, %itle ' of this 1ook shall be obser$ed. 'n such case the contract is called a suret"ship. Art. 1888. A solidar" debtor ma", in action filed b" the creditor, a$ail himself of all defenses which are deri$ed from the nature of the obligation and of those which are personal to him, or pertain to his own share. &ith respect to those which personall" belong to the others, he ma" a$ail himself thereof onl" as regards that part of the debt for which the latter are responsible. %he point is not well taken in $iew of the nature and purpose of a suret" agreement.

Dn April 15, 1?99, the &estern 0inolco /orporation 2&0/6 obtained from the ,hilippine 'n$estments S"stems Drgani>ation 2,'SD6 two loans for ,8,555,555.55 and ,1,555,555.55 for which it issued the corresponding promissor" notes pa"able on 0a" 35, 1?99. Dn the same date, Antonio *arcia and -rnest Tahn e!ecuted a suret" agreement binding themsel$es (ointl" and se$erall" for the pa"ment of the loan of ,8,555,555.55 on due date. Upon failure of &0/ to pa" after repeated demands, demand was made on *arcia pursuant to the suret" agreement. *arcia also failed to pa". Eence, on April 5, 1?73, .asal #e$elopment /orporation 2to which the credit had been assigned earlier b" ,'SD6 sued *arcia for reco$er" of the debt in the Regional %rial /ourt of 0akati. Dn 0a" 17, 1?73, *arcia mo$ed to dismiss on the grounds that< 2a6 the complaint stated no cause of actionA 2b6 the suit would result in un(ust enrichment of the plaintiff because he had not recei$ed an" consideration from ,'SDA 2c6 the suret" agreement

Suret"ship is a contractual relation resulting from an agreement whereb" one person, the suret", engages to be answerable for the debt, default or miscarriage of another, known as the principal. %he suret"Gs obligation is not an original and direct one for the performance of his own act, but merel" accessor" or collateral to the obligation contracted b" the principal. Ne$ertheless, although the contract of a suret" is in essence secondar" onl" to a $alid principal obligation, his liabilit" to the creditor or promisee of the principal is said to be direct, primar" and absoluteA1 in other words, he is directl" and e+uall" bound with the principal. %he suret" therefore becomes liable for the debt or dut" of another although he possesses no direct or personal interest o$er the obligations nor does he recei$e an" benefit therefrom.8 %he peculiar nature of a suret" agreement is that it is regarded as $alid despite the absence of an" direct consideration recei$ed b" the suret" either from the principal obligor or from the creditor. A contract of suret", like an" other contract, must generall" be supported b" a sufficient consideration. Eowe$er, the consideration

necessar" to support a suret" obligation need not pass directl" to the suret"A a consideration mo$ing to the principal alone will suffice. 't has been held that if the deli$er" of the original contract is contemporaneous with the deli$er" of the suret"Gs obligation, each contract becomes completed at the same time, and the consideration which supports the principal contract likewise supports the subsidiar" one.3 And this is the kind of suret" contract to which the rule of strict construction applies as opposed to a compensated suret" contract undertaken b" suret" corporations which are organi>ed for the purpose of conducting an indemnit" business at established rates and compensation unlike an ordinar" suret" agreement where the suret" binds his name through moti$es of friendship and accomodation.4 't follows from the abo$e principles that .asal would not be un(ustl" enriched if the petitioner were to be held liable for the obligation contracted b" &0/. %he creditor would onl" be reco$ering the amount of its loan plus its increments. %he petitioner, for his part, can still go against &0/ for the amount he ma" ha$e to pa" .asal as assignee of the ,'SD credit. Regarding the petitionerGs claim that he is liable onl" as a corporate officer of &0/, the suret" agreement shows that he signed the same not in representation of &0/ or as its president but in his personal capacit". Ee is therefore personall" bound. %here is no law that prohibits a corporate officer from binding himself personall" to answer for a corporate debt. &hile the limited liabilit" doctrine is intended to protect the stockholder b" immuni>ing him from personal liabilit" for the corporate debts, he ma" ne$ertheless di$est himself of this protection b" $oluntaril" binding himself to the pa"ment of the corporate debts. %he petitioner cannot therefore take refuge in this doctrine that he has b" his own acts effecti$el" wai$ed. /oncerning the issue of no$ation, we note first the following pro$isions of the memorandum of agreement supposedl" entered into b" &0/ and its creditors which the petitioner argues had the effect of releasing him from the suret" agreement< 'L. Release of #SS %he /R-#'%DRS e!pressl" agree to release and hereb" release the @oint and Se$eral Signatories 2@SS6 of 0'ND./DGs officers from an" liabilit" whatsoe$er on the obligations which the" ha$e personall" guaranteed or secured. An" action therefore against all the aforesaid signatories are wai$ed in $iew of the promissor" notes to be issued b" N#/ which are full" and unconditionall" guaranteed b" the ,hilippine *o$ernment, in pa"ment of 0'ND./DGs obligations to said /R-#'%DRS.! ! ! L'. %he /R-#'%DRS who ha$e filed cases in court against 0'ND./D and who are signatories to this Agreement agree to dismiss the case with pre(udice, accepting the repa"ment scheme set forth in paragraph '' as a (ust and e+uitable procedure for collecting their credits. Significantl", howe$er, the agreement 2Anne! 56 was signed onl" b" #on 0. err" as chairman of the board of directors of &0/ and does not carr" the signature of an" of the creditors.5 Eence, it has no binding force whatsoe$er on such creditors. %he petitioner cites other de$elopments or transactions between the parties to the original loans that he contends had the effect of no$ating the said contracts and conse+uentl"

e!tinguished the suret" agreement. Among these are the e!tension of the original period of pa"ment and the compounding of the interest on the principal obligations, both of which operated to the pre(udice of the petitioner. %he petitioner in$okes Article 859? of the /i$il /ode, which pro$ides< Art. 859?. An e!tension granted to the debtor b" the creditor without the consent of the guarantor e!tinguishes the guarant". %he mere failure on the part of the creditor to demand pa"ment after the debt has become due does not of itself constitute an" e!tension of time referred to herein. Eowe$er, ,aragraph 5 of the suret" agreement clearl" stipulated as follows< %he sureties e!pressl" wai$e all rights to demand pa"ment and notice of non) pa"ment and protest, and agree that the securities of e$er" kind, that now or ma" hereafter be left with the lender, its successors, indorsees or assigns, as collateral, for the said loan, or an" e$idence of debt or obligations, or upon which a lien ma" e!ist ma" be withdrawn or surrendered at an" time, and the time of pa'ment thereof e tended% without notice to or consent b' the sureties% and the liabilit" on this suret"ship shall be solidar", direct and immediate and not contingent upon an" pursuit b" the lender, its successors, indorsees or assigns, of whate$er remedies the lender ma" ha$e against the principal or the securities or liens it ma" possess. 2-mphasis supplied.6 Since in the suret" contract, the petitioner not onl" consented to an e!tension in the pa"ment of the obligation but e$en wai$ed his right to be notified of such e!tension, he cannot now claim that he has been released from his undertaking because of the e!tension granted to the principal. As for the compounded interest, we appl" b" analog" the case of 1ank of the ,hilippine 'slands $. *ooch and Redfern,: which was affirmed in the later case of the 1ank of the ,hilippine 'slands $. Albalade(o R /ia.9 'n the said cases, the respecti$e sureties claimed that since the creditor changed the rate of interest in the principal obligation without their knowledge or consent, the" were relie$ed from liabilit" under their contract. 't was held, howe$er, that the change in the rate of interest was merel" a collateral agreement between the creditor bank and the principal debtor that did not affect the suret". &hen the debtor promised to pa" the e!tra rate of interest on demand of the plaintiff, the liabilit" he assumed was his alone and was separate and apart from the original contract. Eis agreement to pa" the additional rate of interest was an additional burden upon him and him onl". %hat obligation in no wa" affected the original contract of the suret", whose liabilit" remained unchanged.7 %hus, despite the compounding of the interest, the liabilit" of the suret" remains onl" up to the original uncompounded interest, as stipulated in the promissor" note, that is, 19; per annum, with a penalt" charge of 8 1M8; per month until full pa"ment. %he petitioner cites other supposed agreements in support of his theor" of no$ation such as the prepa"ment of the restructured loans of &0/ before the distribution of di$idends to the common stockholders, the proposed sale on installments of its

assets to Negros Dccidental /opperfield 0ines, and the preference gi$en to other creditors of &0/ o$er ,'SD. 1ut we do not think these are material as, to be so, the alteration must change the legal effects of the original contract. %he alleged alterations do not ha$e that effect. 't is a!iomatic, and onl" fair, that the creditors of a corporation must be paid first before di$idends ma" be distributed among the stockholders. Unsecured creditors are gi$en preference in bankruptc" or insol$enc" proceedings because secured creditors can after all go against the securit" gi$en b" the debtor. As for the installment sale of &0/Gs assets to Negros Dccidental /opperfield 0ines, which might make it difficult for the petitioner to reco$er an" amount it ma" ha$e to pa" on the loan of &0/, this was a risk he took when he signed the suret" agreement. As it did not prohibit the alienation of the properties of the principal debtor, the sale to Negros cannot be considered a no$ation of the original agreement. 'n fact, the proposed sale was intended precisel" to enable &0/ to meet its pending obligations. %he most important argument against the alleged no$ation is the failure of the petitioner to establish the $alidit" of the new contract, an essential re+uisite for the no$ation of a pre$ious $alid obligation. ,etitioner insists that the $arious communications made b" &0/ with #1,, together with the memorandum of agreement 2Anne!es 1 to 96, are sufficient to establish the new undertaking made b" &0/ with all its creditors, including #1,. &e do not think so. 't is true as a general rule no form of words or writing is necessar" to gi$e effect to a no$ation.? Ne$ertheless, since the parties in$ol$ed here are corporations, it must first be pro$ed that the contracts, assuming the" were made, were e!ecuted b" the persons possessing the proper authorit" to bind their respecti$e principals. Anne!es 1)4 are a mere e!change of correspondence between the officers of &0/ and #1,. Although the" contain the pro$isions and proposals that, according to petitioner, should suffice to establish that the original contract between &0/ and ,'SD has been materiall" altered, the" cannot be considered per se sufficient to gi$e rise to a $alid new obligation. &0/ was in fact directed b" @oseph &. -dralin, the Assistant -!ecuti$e Dfficer of the #1,, to communicate with Att". Eilario Draolino of the Dffice of the /hief .egal /ounsel for the preparation and e!ecution of the necessar" legal documents to co$er the appro$al and confirmation of the se$eral proposals made. No such documents, as dul" signed b" the parties, were e$er presented in court. Anne!es 5 to 915 are also incomplete documents and not binding without the signatures of the supposed contracting parties. %he argument of subrogation cannot be considered at this stage as it is being in$oked onl" now. 't is settled that an issue not raised in the court a .uo cannot be raised for the first time on appeal because this would be offensi$e to the basic rules of fair pla". 11 As for the alleged substitution of debtors, nowhere in the record can we find e$idence of this claim. %he commitment made b" #1, to the creditors of &0/ was that, although the" had a first mortgage lien o$er substantiall" all the assets of &0/ 2which if foreclosed would lea$e most of its creditors without recourse6, the" would ne$ertheless defer proceedings against those assets and instead allow their sale to N#/ 2with better terms6 to enable &0/ to meet the obligations.18 'n effect, what #1, did was merel" to restructure its credit with &0/ and make additional accommodations in the form of in$estments on preferred and common shares of

stock of &0/. 't was clearl" an effort to assist &0/ perform its obligations with its creditors. 1ut not more than that. /oncerning the promissor" notes supposedl" issued b" N#/ to the creditors of &0/ and with the full and unconditional guarant" of the ,hilippine *o$ernment as contained in Anne! 5, suffice it to repeat that such Anne! 5 2memorandum of agreement between &0/ and #1,6, as well as Anne! : 2addendum to Anne! 5, making ND/D0'N, instead of N#/ as the bu"er6 and Anne! 9 2contract of sale between &0/ and ND/D0'N6, are all not signed b" the contracting parties and therefore ha$e no e$identiar" weight or binding force. &e appro$e the following obser$ations made b" the /ourt of Appeals< No$ation of contract cannot be presumed. 'n order that an obligation ma" be e!tinguished b" another which substitutes the same, it is imperati$e that it be so declared in une+ui$ocal terms, or that the old and the new obligations be on e$er" point incompatible with each other 2Art. 18?8, /i$il /ode6. 'n e$er" no$ation there are four essential re+uisites< 216 a pre$ious $alid obligationA 286 the agreement of all the parties to the new contractA 236 the e!tinguishment of the old contractA and 246 $alidit" of the new one. No$ation re+uires the creation of new contractual relations as well as the e!tinguishment of the old. %here must be a consent of all the parties to the substitution, resulting in the e!tinction of the old obligation and the creation of a $alid new one 2%iu Siuco $. Eabana, 45 ,hil. 9596. %he acceptance of the promissor" note b" the plaintiff is not no$ation of the contract. %he legal doctrine is that an obligation to pa" a sum of mone" is not no$ated in a new instrument b" changing the term of pa"ment and adding other obligations not incompatible with the old one 2'nchausti R /o. $. Hulo, 34 ,hil. ?976. 't is not proper to consider an obligation no$ated as in the case at bar b" the mere granting of e!tension of pa"ment which did not e$en alter its essence. %o sustain no$ation necessitates that the same be so declared in une+ui$ocal terms or that there is complete and substantial incompatibilit" between the two obligations 2Sandico $. ,a+uing, 48 S/RA 3886. An obligation to pa" a sum of mone" is not no$ated in a new instrument wherein the old is ratified b" changing onl" the terms of pa"ment and adding other obligations not incompatible with the old one or wherein the old contract is merel" supplementing the new one 2#ungo $. .opeSa, .)1?399, #ec. 8?, 1?:8, : S/RA 1559A 0agdalena -states, 'nc. $. Rodrigue>, 17 S/RA ?:9A Ri>al /ommercial 1anking /orp. $. 0ilitante, A/ *R /L 54599, Sept. 85, 1?75A 'n$estors inance /orp. $. /ru>, A/ *R /L 54915, No$. 89, 1?756. &E-R- DR-, the petition is #-N'-# and the challenged decision of the respondent court A 'R0-#, with costs against the petitioner. SD DR#-R-#. Narvasa 4Chairman5% !anca'co% !ri6o0".uino and 1edialdea% ##.% concur. Petition denied. -ecision affirmed.

N!te.No$ation is not implied when the parties to the new obligation e!pressl" negated the lapsing of the old obligation. 2Coching'an% #r. vs. R and * Suret' and Insurance Co. Inc.% 151 S/RA 33?.6

polic" would be better ser$ed b" according the appellate court an effecti$e opportunit" to re$iew the decision of the trial court on the merits, rather than b" aborting the right to appeal b" a literal application of the procedural rules relating to pro forma motions for reconsideration.J Pleadings and Practice; Service of Pleadings; The e planation that service was done b' registered mail in lieu of personal service due to limitations in time and distance sufficientl' shows that personal service was not practicable.%he ,etition does state that it was ser$ed on the respecti$e counsels of Sta. 'nes and /uenca Ib" registered mail in lieu of personal ser$ice due to limitations in time and distance.J %his e!planation sufficientl" shows that personal ser$ice was not practicable. 'n an" e$ent, we find no ade+uate reason to re(ect the contention of petitioner and thereb" depri$e it of the opportunit" to full" argue its cause. Novation; Re.uisites; In the absence of an e press agreement% novation ta(es place onl' when the old and the new obligations are incompatible on ever' point.No$ation of a contract is ne$er presumed. 't has been held that IOiPn the absence of an e!press agreement, no$ation takes place onl" when the old and the new obligations are incompatible on e$er" point.J 'ndeed, the following re+uisites must be established< 216 there is a pre$ious $alid obligationA 286 the parties concerned agree to a new contractA 236 the old contract is e!tinguishedA and 246 there is a $alid new contract.

*.R. No. 137544. Dctober 3, 8555. SECURITY BAN/ AN# TRUST COMPANY, INC., petiti!ne", vs.RO#OLFO M. CUENCA, "esp!ndent. "ctions; 1otions for Reconsideration; Pleadings and Practice; " motion for reconsideration is not pro forma /ust because it reiterated the arguments earlier passed upon and re/ected b' the court.Respondent contends that petitionerGs 0otion for Reconsideration of the /A #ecision, in merel" rehashing the arguments alread" passed upon b" the appellate court, was pro formaA that as such, it did not toll the period for filing the present ,etition for Re$iew. /onse+uentl", the ,etition was filed out of time. &e disagree. A motion for reconsideration is not pro forma (ust because it reiterated the arguments earlier passed upon and re(ected b" the appellate court. %he /ourt has e!plained that a mo$ant ma" raise the same arguments, precisel" to con$ince the court that its ruling was erroneous. Same; Same; Same; 7here the circumstances of a case do not show an intent on the part of the movant merel' to dela' the proceedings% the Supreme Court has refused to characteri+e the motion as simpl' pro forma.%here is no clear showing of intent on the part of petitioner to dela" the proceedings. 'n 1ari(ina 3alle' -evelopment Corporation vs. )lo/o, the /ourt e!plained that a pro forma motion had no other purpose than to gain time and to dela" or impede the proceedings. Eence, Iwhere the circumstances of a case do not show an intent on the part of the mo$ant merel" to dela" the proceedings, our /ourt has refused to characteri>e the motion as simpl" pro forma.J 't held< I&e note finall" that because the doctrine relating to pro forma motions for reconsideration impacts upon the realit" and substance of the statutor" right of appeal, that doctrine should be applied reasonabl", rather than literall". %he right to appeal, where it e!ists, is an important and $aluable right. ,ublic

Same; ,oans; That a subse.uent loan agreement e tinguished an obligation earlier obtained under a credit accommodation could be evidenced b' its e plicit provision to 8li.uidate9 the principal and the interest of the earlier indebtedness.&e re(ect these contentions. /learl", the re+uisites of no$ation are present in this case. %he 1?7? .oan Agreement e!tinguished the obligation obtained under the 1?75 credit accommodation. %his is e$ident from its e!plicit pro$ision to Ili+uidateJ the principal and the interest of the earlier indebtedness, as the following shows< I1.58. ,urpose. %he irst .oan shall be applied to li+uidate the principal portion of the 1orrowerGs present total outstanding 'ndebtedness to the .ender 2the I'ndebtednessJ6 while the Second .oan shall be applied to li+uidate the past due interest and penalt" portion of the 'ndebtedness.J 2'talics supplied.6 %he testimon" of an officer of the bank that the proceeds of the 1?7? .oan Agreement were used Ito pa")offJ the original indebtedness ser$es to strengthen this ruling. Same; Same; 7here the subse.uent loan agreement e tinguished the original credit accommodation% the Indemnit' "greement% an accessor' obligation% was also necessaril' e tinguished.Since the 1?7? .oan Agreement had e!tinguished the original credit accommodation, the 'ndemnit" Agreement, an accessor" obligation, was necessaril" e!tinguished also, pursuant to Article 18?: of the /i$il /ode, which pro$ides< IAR%. 18?:. &hen the principal obligation is e!tinguished in conse+uence of a no$ation, accessor" obligations ma" subsist onl" insofar as the" ma" benefit third persons who did not gi$e their consent.J ,oans; !uarant'; "n e tension granted to the debtor b' the creditor without the consent of the guarantor e tinguishes the guarant'; Rationale.%o begin with, the 1?7? .oan Agreement e!pressl" stipulated that its purpose was to Ili+uidate,J not to renew or e!tend, the outstanding indebtedness. 0oreo$er, respondent did not sign or consent to the 1?7? .oan Agreement, which had allegedl" e!tended the original ,7

million credit facilit". Eence, his obligation as a suret" should be deemed e!tinguished, pursuant to Article 859? of the /i$il /ode, which specificall" states that IOaPn e!tension granted to the debtor b" the creditor without the consent of the guarantor e!tinguishes the guarant", ! ! !.J 'n an earlier case, the /ourt e!plained the rationale of this pro$ision in this wise< I%he theor" behind Article 859? is that an e!tension of time gi$en to the principal debtor b" the creditor without the suret"Gs consent would depri$e the suret" of his right to pa" the creditor and to be immediatel" surrogated to the creditorGs remedies against the principal debtor upon the maturit" date. %he suret" is said to be entitled to protect himself against the contingenc" of the principal debtor or the indemnitors becoming insol$ent during the e!tended period.J Same; Same; Suret'ship; "n essential alteration in the terms of a ,oan "greement without the consent of the suret' e tinguishes the latter:s obligation.At the outset, we should emphasi>e that an essential alteration in the terms of the .oan Agreement without the consent of the suret" e!tinguishes the latterGs obligation. As the /ourt held in National 1ank $. Leraguth , IOiPt is fundamental in the law of suret"ship that an" agreement between the creditor and the principal debtor which essentiall" $aries the terms of the principal contract, without the consent of the suret", will release the suret" from liabilit".J Same; Same; Same; =ven as a suret' held himself liable for the credit accommodation or an' modification thereof% such clause should be understood in the conte t of the loan limit and the term.&hile respondent held himself liable for the credit accommodation or an" modification thereof, and the No$ember 35, 1?71 term. 't did not gi$e the bank or Sta. 'nes an" license to modif" the nature and scope of the original credit accommodation, without informing or getting the consent of respondent who was solidaril" liable. %aking the bankGs submission to the e!treme, respondent 2or his successors6 would be liable for loans e$en amounting to, sa", ,155 billion obtained 155 "ears after the e!piration of the credit accommodation, on the ground that he consented to all alterations and e!tensions thereof. Same; Same; Same; It is a well0settled legal principle that if there is an' doubt on the terms and conditions of the suret' agreement% the doubt should be resolved in favor of the suret'; In the absence of an une.uivocal provision that the suret' waived his right to be notified of or to give consent to an' alteration of the credit accommodation% waiver could not be presumed.'t has been held that a contract of suret" Icannot e!tend to more than what is stipulated. 't is strictl" construed against the creditor, e$er" doubt being resol$ed against enlarging the liabilit" of the suret".J .ikewise, the /ourt has ruled that Iit is a well)settled legal principle that if there is an" doubt on the terms and conditions of the suret" agreement, the doubt should be resol$ed in fa$or of the suret" ! ! !. Ambiguous contracts are construed against the part" who caused the ambiguit".J 'n the absence of an une+ui$ocal pro$ision that respondent wai$ed his right to be notified of or to gi$e consent to an" alteration of the credit accommodation, we cannot sustain petitionerGs $iew that there was such a wai$er. Same; Same; Same; The submission that onl' the borrower% not the suret'% is entitled to be notified of an' modification in the original loan accommodation is untenable; such theor' is contrar' to the principle that a suret' cannot assume an obligation more onerous than that of the principal.&e re(ect petitionerGs submission that onl" Sta. 'nes as the borrower, not respondent, was entitled to be notified of an"

modification in the original loan accommodation. ollowing the bankGs reasoning, such modification would not be $alid as to Sta. 'nes if no notice were gi$enA but would still be $alid as to respondent to whom no notice need be gi$en. %he latterGs liabilit" would thus be more burdensome than that of the former. Such untenable theor" is contrar" to the principle that a suret" cannot assume an obligation more onerous than that of the principal. Same; Same; Same; Continuing Sureties; 7ords and Phrases; That the Indemnit' "greement is a continuing suret' does not authori+e the lender to e tend the scope of the principal obligation inordinatel'; " continuing guarant' is one which covers all transactions% including thosearising in the future% which are within the description or contemplation of the contract of guarant'% until the e piration or termination thereof %hat the 'ndemnit" Agreement is a continuing suret" does not authori>e the bank to e!tend the scope of the principal obligation inordinatel". 'n #ino $. /A, the /ourt held that Ia continuing guarant" is one which co$ers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guarant", until the e!piration or termination thereofJ %o repeat, in the present case, the 'ndemnit" Agreement was sub(ect to the two limitations of the credit accommodation< 216 that the obligation should not e!ceed ,7 million, and 286 that the accommodation should e!pire not later than No$ember 35, 1?71. Eence, it was a continuing suret" onl" in regard to loans obtained on or before the aforementioned e!pir" date and not e!ceeding the total of ,7 million. Same; Same; Same; Same; Comprehensive or continuing suret' agreements are in fact .uite commonplace in present da' financial and commercial practice.'n Atok inance /orp. $. /A , 888 S/RA 838, 845, 0a" 17, 1??3, per eliciano, @., the /ourt e!plained the nature of a continuing suret" in this wise< I/omprehensi$e or continuing suret" agreements are in fact +uite commonplace in present da" financial and commercial practice. A bank or financing compan" which anticipates entering into a series of credit transactions with a particular compan", commonl" re+uires the pro(ected principal debtor to e!ecute a continuing suret" agreement along with its sureties. 1" e!ecuting such an agreement, the principal places itself in a position to enter into the pro(ected series of transactions with its creditorA with such suret"ship agreement, there would be no need to e!ecute a separate suret" contract or bond for each financing or credit accommodation e!tended to the principal debtor.J Same; Same; Same; *an(s and *an(ing; It is a common ban(ing practice to re.uire the #SS 48/oint and solidar' signature95 of a ma/or stoc(holder or corporate officer% as an additional securit' for loans granted to corporations.'t is a common banking practice to re+uire the @SS 2I(oint and solidar" signatureJ6 of a ma(or stockholder or corporate officer, as an additional securit" for loans granted to corporations. %here are at least two reasons for this. irst, in case of default, the creditorGs recourse, which is normall" limited to the corporate properties under the $eil of separate corporate personalit", would e!tend to the personal assets of the suret". Second, such suret" would be compelled to ensure that the loan would be used for the purpose agreed upon, and that it would be paid b" the corporation. Same; Same; Same; There is no reason or logic for the lender or the borrower to assume that a former principal officer or stoc(holder would still agree to act as suret' in a subse.uent loan agreement% if at such later time% he was no longer an officer or a

stoc(holder of the debtorcorporation. ollowing this practice, it was therefore logical and reasonable for the bank to ha$e re+uired the @SS of respondent, who was the chairman and president of Sta. 'nes in 1?75 when the credit accommodation was granted. %here was no reason or logic, howe$er, for the bank or Sta. 'nes to assume that he would still agree to act as suret" in the 1?7? .oan Agreement, because at that time, he was no longer an officer or a stockholder of the debtor)corporation. Leril", he was not in a position then to ensure the pa"ment of the obligation. Neither did he ha$e an" reason to bind himself further to a bigger and more onerous obligation. ,-%'%'DN for re$iew on certiorari of a decision of the /ourt of Appeals. %he facts are stated in the opinion of the /ourt. -e *or/a% 1edialdea% *ello% !ueuarra 2 !erodias for petitioner. Carpio% 3illara+a 2 Cru+ for respondent R. /uenca. *eltran% -e !rano% 1endo+a 2 Sarmiento for Sta. 'nes)0elale /orporation. ,AN*AN'1AN, # .< 1eing an onerous undertaking, a suret" agreement is strictl" construed against the creditor, and e$er" doubt is resol$ed in fa$or of the solidar" debtor. %he fundamental rules of fair pla" re+uire the creditor to obtain the consent of the suret" to an" material alteration in the principal loan agreement, or at least to notif" it thereof. Eence, petitioner bank cannot hold herein respondent liable for loans obtained in e!cess of the amount or be"ond the period stipulated in the original agreement, absent an" clear stipulation showing that the latter wai$ed his right to be notified thereof, or to gi$e consent thereto. %his is especiall" true where, as in this case, respondent was no longer the principal officer or ma(or stockholder of the corporate debtor, the time the later obligations were incurred. Ee was thus no longer in a position to compel the debtor to pa" the creditor and had no more reason to bind himself anew to the subse+uent obligations. The Case %his is the main principle used in den"ing the present ,etition for Re$iew under Rule 45 of the Rules of /ourt. ,etitioner assails the #ecember 88, 1??7 #ecision1 of the /ourt of Appeals 2/A6 in /A)*R /L No. 5:853, the dispositi$e portion of which reads as follows< I&E-R- DR-, the (udgment appealed from is hereb" amended in the sense that defendant)appellant Rodolfo 0. /uenca Oherein respondentP is R-.-AS-# from liabilit" to pa" an" amount stated in the (udgment. I urthermore, ORespondentP Rodolfo 0. /uencaGs counterclaim is hereb" -IS1ISS=- for lack of merit.

I'n all other respectOsP, the decision appealed from is "))IR1=-. J8 Also challenged is the April 14, 1??? /A Resolution,3 which denied petitionerGs 0otion for Reconsideration. 0odified b" the /A was the 0arch :, 1??9 #ecision4 of the Regional %rial /ourt 2R%/6 of 0akati /it" 21ranch ::6 in /i$il /ase No. ?3)1?85, which disposed as follows< I&E-R- DR-, (udgment is hereb" rendered ordering defendants Sta. 'nes 0elale /orporation and Rodolfo 0. /uenca to pa", (ointl" and se$erall", plaintiff Securit" 1ank R %rust /ompan" the sum of ,3?,18?,184.93 representing the balance of the loan as of 0a" 15, 1??4 plus 18; interest per annum until full" paid, and the sum of ,155,555.55 as attorne"Gs fees and litigation e!penses and to pa" the costs. SD DR#-R-#.J The Facts %he facts are narrated b" the /ourt of Appeals as follows<5 I%he antecedent material and rele$ant facts are that defendant)appellant Sta. 'nes 0elale 2NSta. 'nesG6 is a corporation engaged in logging operations. 't was a holder of a %imber .icense Agreement issued b" the #epartment of -n$ironment and Natural Resources 2N#-NRG6. IDn 15 No$ember 1?75, O,etitionerP Securit" 1ank and %rust /o. granted appellant Sta. 'nes 0elale /orporation OS'0/P a credit line in the amount of OePight OmPillion OpPesos 2,7,555,555.556 to assist the latter in meeting the additional capitali>ation re+uirements of its logging operations. I%he /redit Appro$al 0emorandum e!pressl" stated that the ,70 /redit .oan acilit" shall be effecti$e until 35 No$ember 1?71< N@D'N% /DN#'%'DNS< N1. Against /hattel 0ortgage on logging trucks andMor in$entories 2e!cept logs6 $alued at 855; of the lines plus @SS of Rodolfo 0. /uencaA N8. Submission of an appropriate 1oard Resolution authori>ing the borrowings, indicating therein the compan"Gs dul" authori>ed signator"MiesA N3. ReasonableMcompensating deposit balances in current account shall be maintained at all timesA in this connection, a 0akati account shall be opened prior to a$ailment on linesA N4. .ines shall e!pire on No$ember 35, 1?71A and

N5. %he bank reser$es the right to amend an" of the aforementioned terms and conditions upon written notice to the 1orrower.G 2-mphasis supplied.6 I%o secure the pa"ment of the amounts drawn b" appellant S'0/ from the abo$e) mentioned credit line, S'0/ e!ecuted a /hattel 0ortgage dated 83 #ecember 1?75 2-!hibit NAG6 o$er some of its machiner" and e+uipment in fa$or of O,etitionerP S1%/. As additional securit" for the pa"ment of the loan, ORespondentP Rodolfo 0. /uenca e!ecuted an 'ndemnit" Agreement dated 19 #ecember 1?75 2-!hibit N1G6 in fa$or of O,etitionerP S1%/ whereb" he solidaril" bound himself with S'0/ as follows< NRodolfo 0. /uenca ! ! ! hereb" binds himself ! ! ! /ointl' and severall' with the client 2S'0/6 in fa$or of the bank for the pa"ment, upon demand and without the benefit of e!cussion of whate$er amount ! ! ! the client ma" be indebted to the bank ! ! ! b" $irtue of aforesaid credit accommodation2s6 including the substitutions% renewals% e tensions% increases% amendments% conversions and revivals of the aforesaid credit accommodation4s5 ! ! !.G 2-mphasis supplied6. IDn 8: No$ember 1?71, four 246 da"s prior to the e!piration of the period of effecti$it" of the ,70)/redit .oan acilit", appellant S'0/ made a first drawdown from its credit line with O,etitionerP S1%/ in the amount of OsPi! OmPillion OoPne OhPundred OtPhousand OpPesos 2,:,155,555.556. %o co$er said drawdown, S'0/ dul" e!ecuted promissor" Note No. %#M%.S)35??)71 for said amount 2-!hibit N/G6. ISometime in 1?75, ORespondentP /uenca resigned as ,resident and /hairman of the 1oard of #irectors of defendant)appellant Sta. 'nes. Subse+uentl", the shareholdings of ORespondentP /uenca in defendant)appellant Sta. 'nes were sold at a public auction relati$e to /i$il /ase No. 17581 entitled NAdolfo A. Angala $s. Uni$ersal Eoldings, 'nc. and Rodolfo 0. /uenca.G Said shares were bought b" Adolfo Angala who was the highest bidder during the public auction. ISubse+uentl", appellant S'0/ repeatedl" a$ailed of its credit line and obtained si! 2:6 other loanOsP from O,etitionerP S1%/ in the aggregate amount of OsPi! OmPillion OtPhree OhPundred OsPi!t")OnPine OtPhousand OnPineteen and 55M155 OpPesos 2,:,3:?,51?.556. Accordingl", S'0/ e!ecuted ,romissor" Notes Nos. #.SM94M9:5M75, #.SM94993M75, #.SM94M97M75, #.SM94M9:5M75, #.SM94M18M7:, and #.SM94M49M7: to co$er the amounts of the abo$ementioned additional loans against the credit line. IAppellant S'0/, howe$er, encountered difficult": in making the amorti>ation pa"ments on its loans and re+uested O,etitionerP S1%/ for a complete restructuring of its indebtedness. S1%/ accommodated appellant S'0/Gs re+uest and signified its appro$al in a letter dated 17 ebruar" 1?77 2-!hibit N*G6 wherein S1%/ and defendant)appellant Sta. 'nes, without notice to or the prior consent of ORespondentP /uenca, agreed to restructure the past due obligations of defendant)appellant Sta. O,etitionerP Securit" 1ank agreed to e!tend to defendant)appellant Sta. 'nes the following loans<

a. %erm loan in the amount of OePight OmPillion OePight OhPundred OtPhousand OpPesos 2,7,755,555.556, to be applied to li+uidate the principal portion of defendant)appellant Sta. 'nes P total outstanding indebtedness to O,etitionerP Securit" 1ank 2cf. ,. 1 of -!hibit N*,G -!pedient, at Lol. '', p. 33:A -!hibit N5) 1)/uenca,G -!pediente, et Lol. ', pp. 33 to 346 and b. %erm loan in the amount of OtPhree OmPillion OfPour OhPundred OtPhousand OpPesos 2,3,455,555.556, to be applied to li+uidate the past due interest and penalt" portion of the indebtedness of defendant)appellant Sta. 'nes to O,etitionerP Securit" 1ank 2cf. -!hibit N*,G -!pediente, at Lol. '', p. 33:A -!hibit N5)1)/uenca,G -!pediente, at Lol. '', pp. 33 to 346.G I't should be pointed out that in restructuring defendant)appellant Sta. 'nesG obligations to O,etitionerP Securit" 1ank, ,romissor" Note No. %#)%.S)35??)71 in the amount of OsPi! OmPillion OoPne OhPundred OtPhousand OpPesos 2,:,155,555.556, which was the onl" loan incurred prior to the e!piration of the ,70)/redit .oan acilit" on 35 No$ember 1?71 and the onl" one co$ered b" the 'ndemnit" Agreement dated 1? #ecember 1?75 2-!hibit N3)/uenca,G -!pediente, at Lol. '', p. 3316, was not segregated from, but was instead lumped together with, the other loans, i.e., ,romissor" Notes Nos. #.SM94M18M7:, #.SM94M87M7: and #.SM94M49M7: 2-!hibits N#,G N-,G and N ,G -!pediente, at Lol. '', pp. 333 to 3356 obtained b" defendant)appellant Sta. 'nes which were not secured b" said 'ndemnit" Agreement. I,ursuant to the agreement to restructure its past due obligations to O,etitionerP Securit" 1ank, defendant)appellant Sta. 'nes thus e!ecuted the following promissor" notes, both dated 5? 0arch 1?77 in fa$or of O,etitionerP Securit" 1ank<

,RD0'SSDRH ND%- ND. R.94M5?:M77 R.94M5?9M77 %D%A. 2-!hibits NEG and N',G -!pediente, at Lol. '', pp. 337 to 3436.

A0DUN% , 7,755,555.55 , 3,455,555.55 ,18,855,555.55

I%o formali>e their agreement to restructure the loan obligations of defendant) appellant Sta. 'nes, O,etitionerP Securit" 1ank and defendant)appellant Sta. 'nes e!ecuted a .oan Agreement dated 31 Dctober 1?7? 2-!hibit N5)/uenca,G -!pediente, at Lol. ', pp. 33 to 416. Section 1.51 of the said .oan Agreement dated 31 Dctober 1?7? pro$ides< N1.51 Amount%he .ender agrees to grant loan to the 1orrower in the aggregate amount of %&-.L- 0'..'DN %&D EUN#R-# %EDUSAN# ,-SDS 2,18,855,555.556, ,hilippines OcPurrenc" 2the N.oanG6. %he loan shall be released in

two 286 tranches of ,7,755,555.55 for the first tranche 2the N irst .oanG6 and ,3,455,555.55 for the second tranche 2the NSecond .oanG6 to be applied in the manner and for the purpose stipulated hereinbelow. N1.58 ,urpose%he irst .oan shall be applied to li.uidate the principal portion of the 1orrowerGs present total outstanding indebtedness to the .ender 2the NindebtednessG6 while the Second .oan shall be applied to li.uidate the past due interest and penalt" portion of the 'ndebtedness.G 2'talics supplied.6 2cf. p. 1 of -!hibit N5)/uenca,G -!pediente, at Lol. ', p. 336 I rom 57 April 1?77 to 58 #ecember 1?77, defendant)appellant Sta. 'nes made further pa"ments to O,etitionerP Securit" 1ank in the amount of OoPne OmPillion OsPe$en OhPundred OfPift")OsPe$en OtPhousand OpPesos 2,1,959,555.556 2-!hibits N7,G N?),)S'0/G up to N?)**)S'0/,G -!pediente, at Lol. '', pp. 37, 95 to 1:56 IAppellant S'0/ defaulted in the pa"ment of its restructured loan obligations to O,etitionerP S1%/ despite demands made upon appellant S'0/ and /U-N/A, the last of which were made through separate letters dated 5 @une 1??1 2-!hibit NTG6 and 89 @une 1??1 2-!hibit N.G6, respecti$el". IAppellants indi$iduall" and collecti$el" refused to pa" the O,etitionerP S1%/. %hus, S1%/ filed a complaint for collection of sum of mone" on 14 @une 1??3, resulting after trial on the merits in a decision b" the court a +uo, ! ! ! from which ORespondentP /uenca appealed. Ruling of the Court of Appeals 'n releasing Respondent /uenca from liabilit", the /A ruled that the 1?7? .oan Agreement had no$ated the 1?75 credit accommodation earlier granted b" the bank to Sta. 'nes. Accordingl", such no$ation e!tinguished the 'ndemnit" Agreement, b" which /uenca, who was then the board chairman and president of Sta. 'nes, had bound himself solidaril" liable for the pa"ment of the loans secured b" that credit accommodation. 't noted that the 1?7? .oan Agreement had been e!ecuted without notice to, much less consent from, /uenca who at the time was no longer a stockholder of the corporation. %he appellate court also noted that the /redit Appro$al 0emorandum had specified that the credit accommodation was for a total amount of ,7 million, and that its e!pir" date was No$ember 35, 1?71. Eence, it ruled that /uenca was liable onl" for loans obtained prior to No$ember 35, 1?71, and onl" for an amount not e!ceeding ,7 million. 't further held that the restructuring of Sta. 'nesG obligation under the 1?7? .oan Agreement was tantamount to a grant of an e!tension of time to the debtor without the consent of the suret". Under Article 859? of the /i$il /ode, such e!tension e!tinguished the suret". %he /A also opined that the suret" was entitled to notice, in case the bank and Sta. 'nes decided to materiall" alter or modif" the principal obligation after the e!pir" date of the credit accommodation.

Eence, this recourse to this /ourt.9 The Issues 'n its 0emorandum, petitioner submits the following for our consideration<7 IA. &hether or not the Eonorable /ourt of Appeals erred in releasing Respondent /uenca from liabilit" as suret" under the 'ndemnit" Agreement for the pa"ment of the principal amount of twel$e million two hundred thousand pesos 2,18,855,555.556 under ,romissor" Note No. R.M94M5?:M77 dated ? 0arch 1?77 and ,romissor" Note No. R.M94M5?9M77 dated ? 0arch 1?77, plus stipulated interests, penalties and other charges due thereonA i. &hether or not the Eonorable /ourt of Appeals erred in ruling that Respondent /uencaGs liabilit" under the 'ndemnit" Agreement co$ered onl" a$ailments on S'0/Gs credit line to the e!tent of eight million pesos 2,7,555,555.556 and made on or before 35 No$ember 1?71A ii. &hether or not the Eonorable /ourt of Appeals erred in ruling that the restructuring of S'0/Gs indebtedness under the ,7 million credit accommodation was tantamount to an e!tension granted to S'0/ without Respondent /uencaGs consent, thus e!tinguishing his liabilit" under the 'ndemnit" Agreement pursuant to Article 859? of the /i$il /odeA iii. &hether or not the Eonorable /ourt of appeals erred in ruling that the restructuring of S'0/Gs indebtedness under the ,7 million credit accommodation constituted a no$ation of the principal obligation, thus e!tinguishing Respondent /uencaGs liabilit" under the indemnit" agreementA 1. &hether or not Respondent /uencaGs liabilit" uncter the 'ndemnit" Agreement was e!tinguished b" the pa"ments made b" S'0/A /. &hether or not petitionerGs 0otion for Reconsideration was pro formaA #. &hether or not ser$ice of the ,etition b" registered mail sufficientl" complied with Section 11, Rule 13 of the 1??9 Rules of /i$il ,rocedure.J #istilling the foregoing, the /ourt will resol$e the following issues< 2a6 whether the 1?7? .oan Agreement no$ated the original credit accommodation and /uencaGs liabilit" under the 'ndemnit" AgreementA and 2b6 whether /uenca wai$ed his right to be notified of and to gi$e consent to an" substitution, renewal, e!tension, increase, amendment, con$ersion or re$i$al of the said credit accommodation. As preliminar" matters, the procedural +uestions raised b" respondent will also be addressed. The Courts Ruling %he ,etition has no merit.

Preliminary Matters: Procedural Motion for Reconsideration !ot Pro Forma

uestions

'n this case, the ,etition does state that it was ser$ed on the respecti$e counsels of Sta. 'nes and /uenca Ib" registered mail in lieu of personal ser$ice due to limitations in time and distance.J14 %his e!planation sufficientl" shows that personal ser$ice was not practicable. 'n an" e$ent, we find no ade+uate reason to re(ect the contention of petitioner and thereb" depri$e it of the opportunit" to full" argue its cause. First Issue:"riginal "#ligation $%tinguished #y !ovation An obligation ma" be e!tinguished b" no$ation, pursuant to Article 18?8 of the /i$il /ode, which reads as follows< IAR%. 18?8. 'n order that an obligation ma" be e!tinguished b" another which substitute the same, it is imperati$e that it be so declared in une+ui$ocal terms, or that the old and the new obligations be on e$er" point incompatible with each other.J No$ation of a contract is ne$er presumed. 't has been held that IOiPn the absence of an e!press agreement, no$ation takes place onl" when the old and the new obligations are incompatible on e$er" point.J15 'ndeed, the following re+uisites must be established< 216 there is a pre$ious $alid obligationA 286 the parties concerned agree to a new contractA 236 the old contract is e!tinguishedA and 246 there is a $alid new contract.1: ,etitioner contends that there was no absolute incompatibilit" between the old and the new obligations, and that the latter did not e!tinguish the earlier one. 't further argues that the 1?7? Agreement did not change the original loan in respect to the parties in$ol$ed or the obligations incurred. 't adds that the terms of the 1?7? /ontract were Inot more onerous.J19 Since the original credit accomodation was not e!tinguished, it concludes that /uenca is still liable under the 'ndemnit" Agreement. &e re(ect these contentions. /learl", the re+uisites of no$ation are present in this case. %he 1?7? .oan Agreement e!tinguished the obligation17 obtained under the 1?75 credit accomodation. %his is e$ident from its e!plicit pro$ision to Ili+uidateJ the principal and the interest of the earlier indebtedness, as the following shows< I1.58. Purpose. %he irst .oan shall be applied to li.uidate the principal portion of the 1orrowerGs present total outstanding 'ndebtedness to the .ender 2the I'ndebtednessJ6 while the Second .oan shall be applied to li.uidate the past due interest and penalt" portion of the 'ndebtedness.J1? 2'talics supplied.6 %he testimon" of an officer85 of the bank that the proceeds of the 1?7? .oan Agreement were used Ito pa")offJ the original indebtedness ser$es to strengthen this ruling.81 urthermore, se$eral incompatibilities between the 1?7? Agreement and the 1?75 original obligation demonstrate that the two cannot coe!ist. &hile the 1?75 credit accommodation had stipulated that the amount of loan was not to e!ceed ,7 million,88 the 1?7? Agreement pro$ided that the loan was ,18.8 million. %he periods for pa"ment were also different.

Respondent contends that petitionerGs 0otion for Reconsideration of the /A #ecision, in merel" rehashing the arguments alread" passed upon b" the appellate court, was pro formaA that as such, it did not toll the period for filing the present ,etition for Re$iew.? /onse+uentl", the ,etition was filed out of time.15 &e disagree. A motion for reconsideration is not pro forma (ust because it reiterated the arguments earlier passed upon and re(ected b" the appellate court. %he /ourt has e!plained that a mo$ant ma" raise the same arguments, precisel" to con$ince the court that its ruling was erroneous.11 0oreo$er, there is no clear showing of intent on the part of petitioner to dela" the proceedings. 'n 1ari(ina 3alle' -evelopment Corporation vs. )lo/o,18 the /ourt e!plained that a pro forma motion had no other purpose than to gain time and to dela" or impede the proceedings. Eence, Iwhere the circumstances of a case do not show an intent on the part of the mo$ant merel" to dela" the proceedings, our /ourt has refused to characteri>e the motion as simpl" pro forma.J 't held< I&e note finall" that because the doctrine relating to pro forma motions for reconsideration impacts upon the realit" and substance of the statutor" right of appeal, that doctrine should be applied reasonabl", rather than literall". %he right to appeal, where it e!ists, is an important and $aluable right. ,ublic polic" would be better ser$ed b" according the appellate court an effecti$e opportunit" to re$iew the decision of the trial court on the merits, rather than b" aborting the right to appeal b" a literal application of the procedural rules relating to pro forma motions for reconsideration.J Section 11, Rule 13 of the 1??9 Rules of /ourt, pro$ides as follows< IS-/. 11. Priorities in modes of service and filing.&hene$er practicable, the ser$ice and filing of pleadings and other papers shall be done personall". -!cept with respect to papers emanating from the court, a resort to other modes must be accompanied b" a written e!planation wh" the ser$ice or filing was not done personall". A $iolation of this Rule ma" be cause to consider the paper as not filed.J Respondent maintains that the present ,etition for Re$iew does not contain a sufficient written e!planation wh" it was ser$ed b" registered mail. &e do not think so. %he /ourt held in Solar =ntertainment v. Ricafort13 that the aforecited rule was mandator", and that Ionl" when personal ser$ice or filing is not practicable ma" resort to other modes be had, which must then be accompanied b" a written e!planation as to wh" personal ser$ice or filing was not practicable to begin with.J

.ikewise, the later contract contained conditions, Ipositi$e co$enantsJ and Inegati$e co$enantsJ not found in the earlier obligation. As an e!ample of a positi$e co$enant, Sta. 'nes undertook Ifrom time to time and upon re+uest b" the .ender, OtoP perform such further acts andMor e!ecute and deli$er such additional documents and writings as ma" be necessar" or proper to effecti$el" carr" out the pro$isions and purposes of this .oan Agreement.J83 .ikewise, S'0/ agreed that it would not create an" mortgage or encumbrance on an" asset owned or hereafter ac+uired, nor would it participate in an" merger or consolidation.84 Since the 1?7? .oan Agreement had e!tinguished the original credit accommodation, the 'ndemnit" Agreement, an accessor" obligation, was necessaril" e!tinguished also, pursuant to Article 18?: of the /i$il /ode, which pro$ides< IAR%. 18?:. &hen the principal obligation is e!tinguished in conse+uence of a no$ation, accessor" obligations ma" subsist onl" insofar as the" ma" benefit third persons who did not gi$e their consent.I Alleged $%tension ,etitioner insists that the 1?7? .oan Agreement was a mere renewal or e!tension of the ,7 million original accommodationA it was not a no$ation.85 %his argument must be re(ected. %o begin with, the 1?7? .oan Agreement e!pressl" stipulated that its purpose was to Ili+uidate,J not to renew or e!tend, the outstanding indebtedness. 0oreo$er, respondent did not sign or consent to the 1?7? .oan Agreement, which had allegedl" e!tended the original ,7 million credit facilit". Eence, his obligation as a suret" should be deemed e!tinguished, pursuant to Article 859? of the /i$il /ode, which specificall" states that IOaPn e!tension granted to the debtor b" the creditor without the consent of the guarantor e!tinguishes the guarant", ! ! !.J 'n an earlier case,8: the /ourt e!plained the rationale of this pro$ision in this wise< I%he theor" behind Article 859? is that an e!tension of time gi$en to the principal debtor b" the creditor without the suret"Gs consent would depri$e the suret" of his right to pa" the creditor and to be immediatel" surrogated to the creditorGs remedies against the principal debtor upon the maturit" date. %he suret" is said to be entitled to protect himself against the contingenc" of the principal debtor or the indemnitors becoming insol$ent during the e!tended period.J &inding !ature of the Credit Approval Memorandum As noted earlier, the appellate court relied on the pro$isions of the /redit Appro$al 0emorandum in holding that the credit accommodation was onl" for ,7 million, and that it was for a period of one "ear ending on No$ember 35, 1?71. ,etitioner ob(ects to the appellate courtGs reliance on that document, contending that it was not a binding agreement because it was not signed b" the parties. 't adds that it was merel" for its internal use.

&e disagree. 't was petitioner itself which presented the said document to pro$e the accommodation. Attached to the /omplaint as Anne! A was a cop" thereof Ie$idencing the accommodation.J89 0oreo$er, in its ,etition before this /ourt, it alluded to the /redit Appro$al 0emorandum in this wise< I4.1 Dn 15 No$ember 1?75, Sta. 'nes 0elale /orporation 2IS'0/J6 was granted b" the 1ank a credit line in the aggregate amount of -ight 0illion ,esos 2,7,555,555.556 to assist S'0/ in meeting the additional capitali>ation re+uirements for its logging operations. or this purpose, the 1ank issued a /redit Appro$al 0emorandum dated 15 No$ember 1?75.J /learl", respondent is estopped from den"ing the terms and conditions of the ,7 million credit accommodation as contained in the $er" document it presented to the courts. 'ndeed, it cannot take ad$antage of that document b" agreeing to be bound onl" b" those portions that are fa$orable to it, while den"ing those that are disad$antageous. 'econd Issue:Alleged (aiver of Consent ,ursuing another course, petitioner contends that Respondent /uenca Iimpliedl" ga$e his consent to an" modification of the credit accommodation or otherwise wai$ed his right to be notified of, or to gi$e consent to, the same.J87 RespondentGs consent or wai$er thereof is allegedl" found in the 'ndemnit" Agreement, in which he held himself liable for the Icredit accommodation including OitsP substitutions, renewals% e tensions, increases, amendments, con$ersions and re$i$al.J 't e!plains that the no$ation of the original credit accommodation b" the 1?7? .oan Agreement is merel" its Irenewal,J which Iconnotes cessation of an old contract and birth of another one ! ! !.J8? At the outset, we should emphasi>e that an essential alteration in the terms of the .oan Agreement without the consent of the suret" e!tinguishes the latterGs obligation. As the /ourt held in National *an( v. 3eraguth,35 IOiPt is fundamental in the law of suret"ship that an" agreement between the creditor and the principal debtor which essentiall" $aries the terms of the principal contract, without the consent of the suret", will release the suret" from liabilit".J 'n this case, petitionerGs assertionthat respondent consented to the alterations in the credit accommodationfinds no support in the te!t of the 'ndemnit" Agreement, which is reproduced hereunder< IRodolfo 0. /uenca of legal age, with postal address cMo Sta. 'nes 0alale orest ,roducts /orp., Alco 1ldg., 3?1 1uendia A$enue -!t., 0akati 0etro 0anila for and in consideration of the credit accommodation in the total amount of eight million pesos 2,7,555,555.556 granted b" the S-/UR'%H 1ANT AN# %RUS% /D0,ANH, a commercial bank dul" organi>ed and e!isting under and b" $irtue of the laws of the ,hilippine, :997 A"ala A$enue, 0akati, 0etro 0anila hereinafter referred to as the 1ANT in fa$or of S%A. 'N-S 0-.A.- DR-S% ,RD#U/%S /DR,., ! ! ! hereinafter referred to as the /.'-N%, with the stipulated interests and charges thereon, e$idenced b" thatMthose certain ,RD0'SSDRH ND%-O2S6P, made, e!ecuted

and deli$ered b" the /.'-N% in fa$or of the 1ANT hereb" bind4s5 himselfKthemselves /ointl' and severall' with the C,I=NT in favor of the *"NN for the pa'ment% upon demand and without benefit of e cussion of whatever amount or amounts the C,I=NT ma' be indebted to the *"NN under and b' virtue of aforesaid credit accommodation4s5 including the substitutions% renewals% e tensions% increases% amendment% conversions and revivals of the aforesaid credit accommodation4s5, as well as of the amount or amounts of such other obligations that the /.'-N% ma" owe the 1ANT, whether direct or indirect, principal or secondar", as appears in the accounts, books and records of the 1ANT, plus interest and e!penses arising from an" agreement or agreements that ma" ha$e heretofore been made, or ma" hereafter be e!ecuted b" and between the parties thereto, including the substitutions, renewals, e!tensions, increases, amendments, con$ersions and re$i$als of the aforesaid credit accommodation2s6, and further bind2s6 himselfMthemsel$es with the /.'-N% in fa$or of the 1ANT for the faithful compliance of all the terms and conditions contained in the aforesaid credit accommodation2s6, all of which are incorporated herein and made part hereof b" reference.J &hile respondent held himself liable for the credit accommodation or an" modification thereof, such clause should be understood in the conte!t of the ,7 million limit and the No$ember 35, 1?71 term. 't did not gi$e the bank or Sta. 'nes an" license to modif" the nature and scope of the original credit accommodation, without informing or getting the consent of respondent who was solidaril" liable. %aking the bankGs submission to the e!treme, respondent 2or his successors6 would be liable for loans e$en amounting to, sa", ,155 billion obtained 155 "ears after the e!piration of the credit accommodation, on the ground that he consented to all alterations and e!tensions thereof. 'ndeed, it has been held that a contract of suret" Icannot e!tend to more than what is stipulated. 't is strictl" construed against the creditor, e$er" doubt being resol$ed against enlarging the liabilit" of the suret".J31 .ikewise, the /ourt has ruled that Iit is a wellsettled legal principle that if there is an" doubt on the terms and conditions of the suret" agreement, the doubt should be resol$ed in fa$or of the suret" ! ! !. Ambiguous contracts are construed against the part" who caused the ambiguit".J38 'n the absence of an une+ui$ocal pro$ision that respondent wai$ed his right to be notified of or to gi$e consent to an" alteration of the credit accommodation, we cannot sustain petitionerGs $iew that there was such a wai$er. 't should also be obser$ed that the /redit Appro$al 0emorandum clearl" shows that the bank did not ha$e absolute authorit" to unilaterall" change the terms of the loan accommodation. 'ndeed, it ma" do so onl" upon notice to the borrower, pursuant to this condition< I5. %he 1ank reser$es the right to amend an" of the aforementioned terms and conditions upon written notice to the 1orrower.J 33 &e re(ect petitionerGs submission that onl" Sta. 'nes as the borrower, not respondent, was entitled to be notified of an" modification in the original loan accommodation.34 ollowing the bankGs reasoning, such modification would not be $alid as to Sta. 'nes if no notice were gi$enA but would still be $alid as to respondent to whom no notice need be gi$en. %he latterGs liabilit" would thus be more burdensome than that of the

former. Such untenable theor" is contrar" to the principle that a suret" cannot assume an obligation more onerous than that of the principal.35 %he present contro$ers" must be distinguished from Philamgen v. 1utuc3: in which the /ourt sustained a stipulation whereb" the suret" consented to be bound not onl" for the specified period, Ibut to an" e!tension thereafter made, an e!tension ! ! ! that could be had without his ha$ing to be notified.J 'n that case, the suret" agreement contained this une+ui$ocal stipulation< I't is hereb" further agreed that in case of an" e!tension of renewal of the bond, we e+uall" bind oursel$es to the /ompan" under the same terms and conditions as herein pro$ided without the necessit" of e!ecuting another indemnit" agreement for the purpose and that we hereb' e.uall' waive our right to be notified of an' renewal or e tension of the bond which ma' be granted under this indemnit' agreement.9 'n the present case, there is no such e!press stipulation. At most, the alleged basis of respondentGs wai$er is $ague and uncertain. 't confers no clear authori>ation on the bank or Sta. 'nes to modif" or e!tend the original obligation without the consent of the suret" or notice thereto. Continuing 'urety /ontending that the 'ndemnit" Agreement was in the nature of a continuing suret", petitioner maintains that there was no need for respondent to e!ecute another suret" contract to secure the 1?7? .oan Agreement. %his argument is incorrect. %hat the 'ndemnit" Agreement is a continuing suret" does not authori>e the bank to e!tend the scope of the principal obligation inordinatel".39 'n -ino v. C",37 the /ourt held that Ia continuing guarant" is one which co$ers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guarant'% until the e piration or termination thereof.9 %o repeat, in the present case, the 'ndemnit" Agreement was sub(ect to the two limitations of the credit accommodation< 216 that the obligation should not e!ceed ,7 million, and 286 that the accommodation should e!pire not later than No$ember 35, 1?71. Eence, it was a continuing suret" onl" in regard to loans obtained on or before the aforementioned e!pir" date and not e!ceeding the total of ,7 million. Accordingl", the suret" of /uenca secured onl" the first loan of ,:.1 million obtained on No$ember 8:, 1??1. 't did not secure the subse+uent loans, purportedl" under the 1?75 credit accommodation, that were obtained in DAFO. /ertainl", he could not ha$e guaranteed the 1?7? .oan Agreement, which was e!ecuted after No$ember 35, 1?71 and which e!ceeded the stipulated ,7 million ceiling. ,etitioner, howe$er, cites the -ino ruling in which the /ourt found the suret" liable for the loan obtained after the pa"ment of the original one, which was co$ered b" a continuing suret" agreement. At the risk of being repetitious, we hold that in -ino, the Suret" Agreement specificall" pro$ided that Ieach suret"ship is a continuing one

which shall remain in full force and effect until this ban( is notified of its revocation.J Since the bank had not been notified of such re$ocation, the suret" was held liable e$en for the subse+uent obligations of the principal borrower. No similar pro$ision is found in the present case. Dn the contrar", respondentGs liabilit" was confined to the 1?75 credit accommodation, the amount and the e!pir" date of which were set down in the /redit Appro$al 0emorandum. 'pecial !ature of the )'' 't is a common banking practice to re+uire the @SS 2I(oint and solidar" signatureJ6 of a ma(or stockholder or corporate officer, as an additional securit" for loans granted to corporations. %here are at least two reasons for this. )irst, in case of default, the creditorGs recourse, which is normall" limited to the corporate properties under the $eil of separate corporate personalit", would e!tend to the personal assets of the suret". Second, such suret" would be compelled to ensure that the loan would be used for the purpose agreed upon, and that it would be paid b" the corporation. ollowing this practice, it was therefore logical and reasonable for the bank to ha$e re+uired the @SS of respondent, who was the chairman and president of Sta. 'nes in 1?75 when the credit accommodation was granted. %here was no reason or logic, howe$er, for the bank or Sta. 'nes to assume that he would still agree to act as suret" in the 1?7? .oan Agreement, because at that time, he was no longer an officer or a stockholder of the debtor)corporation. Leril", he was not in a position then to ensure the pa"ment of the obligation. Neither did he ha$e an" reason to bind himself further to a bigger and more onerous obligation. 'ndeed, the stipulation in the 1?7? .oan Agreement pro$iding for the suret" of respondent, without e$en informing him, smacks of negligence on the part of the bank and bad faith on that of the principal debtor. Since that .oan Agreement constituted a new indebtedness, the old loan ha$ing been alread" li+uidated, the spirit of fair pla" should ha$e impelled Sta. 'nes to ask somebod" else to act as a suret" for the new loan. 'n the same $ein, a little prudence should ha$e impelled the bank to insist on the @SS of one who was in a position to ensure the pa"ment of the loan. -$en a perfunctor" attempt at credit in$estigation would ha$e re$ealed that respondent was no longer connected with the corporation at the time. As it is, the bank is now rel"ing on an unclear 'ndemnit" Agreement in order to collect an obligation that could ha$e been secured b" a fairl" obtained suret". or its defeat in this litigation, the bank has onl" itself to blame. 'n sum, we hold that the 1?7? .oan Agreement e!tinguished b" no$ation the obligation under the 1?75 ,7 million credit accommodation. Eence, the 'ndemnit" Agreement, which had been an accessor" to the 1?75 credit accommodation, was also e!tinguished. urthermore, we re(ect petitionerGs submission that respondent wai$ed his right to be notified of, or to gi$e consent to, an" modification or e!tension of the 1?75 credit accommodation.

'n this light, we find no more need to resol$e the issue of whether the loan obtained before the e!pir" date of the credit accommodation has been paid. &E-R- DR-, the ,etition is #-N'-# and the assailed #ecision A against petitioner. SD DR#-R-#. 1elo 4Chairman5% 3itug% Purisima and !on+aga0Re'es% ##.% concur. Petition denied% /udgment affirmed. N!tes.%he consideration necessar" to support a suret" obligation need not pass directl" to the suret", a consideration mo$ing to the principal alone being sufficienta guarantor or suret" is bound b" the same consideration that makes the contract effecti$e between the principal parties thereto. 27ille Plastic Industries Corporation vs. Court of "ppeals, 85: S/RA 497 O1??:P6 %he mere circumstance of the creditor recei$ing pa"ments from a third part" who ac+uiesced to assume the obligation of the debtor when there is clearl" no agreement to release the debtor from her responsibilit" does not constitute no$ationat most, it onl" creates a (uridical relation of co)debtorship or suret"ship on the part of the third part" to the contractual obligation of the debtor, and the creditor can still enforce the obligation against the debtor. 2Re'es vs. Court of "ppeals, 8:4 S/RA 35 O1??:P6 1" the contract of suret"ship, it is not for the obligee to see to it that the principal pa"s the debt or fulfills the contract, but for the suret" to see to it that the principal pa" or perform. 2Paramount Insurance Corporation vs. Court of "ppeals, 315 S/RA 399 O1???P6 'R0-#. /osts

"ttachment; Corporations; *oth the Revised Rules of Court and the Corporation Code do not re.uire annotation in the corporation:s stoc( and transfer boo(s for the attachment of shares of stoc( to be valid and binding on the corporation and third parties.%he attachment lien ac+uired b" the consortium is $alid and effecti$e. 1oth the Re$ised Rules of /ourt and the /orporation /ode do not re+uire annotation in the corporationGs stock and transfer books for the attachment of shares of stock to be $alid and binding on the corporation and third part". Same; Same; 7ords and Phrases; "ttachments of shares of stoc( are not included in the term 8transfer9 as provided in Sec. OH of the Corporation Code.Are attachments of shares of stock included in the term ItransferJ as pro$ided in Sec. :3 of the /orporation /odeB &e rule in the negati$e. As succinctl" declared in the case of 1onserrat v. Ceron% Ichattel mortgage o$er shares of stock need not be registered in the corporationGs stock and transfer book inasmuch as chattel mortgage o$er shares of stock does not in$ol$e a Itransfer of shares,J and that onl" absolute transfers of shares of stock are re+uired to be recorded in the corporationGs stock and transfer book in order to ha$e Iforce and effect as against third persons.J Same; Same; "n attachment does not constitute an absolute conve'ance of propert' but is primaril' used as a means 8to sei+e the debtor:s propert' in order to secure the debt or claim of the creditor in the event that a /udgment is rendered.9Although the 1onserrat case refers to a chattel mortgage o$er shares of stock, the same ma" be applied to the attachment of the disputed shares of stock in the present contro$ers" since an attachment does not constitute an absolute con$e"ance of propert" but is primaril" used as a means Ito sei>e the debtorGs propert" in order to secure the debt or claim of the creditor in the e$ent that a (udgment is rendered.J Same; Sales; " purchaser of attached propert' ac.uires it sub/ect to an attachment legall' and validl' levied thereon.%he onl" basis, then, for petitioner /-'/Gs claim is the #eed of Sale under which it purchased the disputed shares. 't is, howe$er, a settled rule that a purchaser of attached propert" ac+uires it sub(ect to an attachment legall" and $alidl" le$ied thereon. Same; "ctions; !arnishments; Corporations; Secretaries; " notice of garnishment served on the secretar' of the president binds the corporation./-'/ $igorousl" argues that the consortiumGs writ of attachment o$er the disputed shares of /hemphil is null and $oid, insisting as it does, that the notice of garnishment was not $alidl" ser$ed on the designated officers on 1? @ul" 1?75. 't was ser$ed on %hell" Rui> who was neither the president nor the managing agent of /hemphil. 't makes no difference, /-'/ further a$ers, that %hell" Rui> was the secretar" of the ,resident of /hemphil, for under the abo$e)+uoted pro$ision she is not among the officers so authori>ed or designated to be ser$ed with the notice of garnishment. &e cannot subscribe to such a narrow $iew of the rule on proper ser$ice of writs of attachment. A secretar"Gs ma(or function is to assist his or her superior. EeM she is in effect an e!tension of the latter. Db$iousl", as such, one of her duties is to recei$e letters and notices for and in behalf of her superior, as in the case at bench. %he notice of garnishment was addressed to and was actuall" recei$ed b" /hemphilGs president through his secretar" who formall" recei$ed it for him. %hus, in one case, we ruled that the secretar" of the president ma" be considered an IagentJ of the corporation and held that ser$ice of summons on him is binding on the corporation.

*.R. Nos. 118437)3?. #ecember 18, 1??5. CHEMPHIL E0PORT 1 IMPORT CORPORATION 3CEIC4, petiti!ne", vs. THE HONORABLE COURT OF APPEALS, +AIME Y. ON'ALES, as Assi-nee !f t(e Ban5 !f t(e P(ilippine Islands 3BPI4, RI'AL COMMERCIAL BAN/IN CORPORATION 3RCBC4, LAN# BAN/ OF THE PHILIPPINES 3LBP4, PHILIPPINE COMMERCIAL 1 INTERNATIONAL BAN/ 3PCIB4 and THE PHILIPPINE IN$ESTMENT SYSTEM OR ANI'ATION 3PISO4, "esp!ndents. *.R. No. 1133?4. #ecember 18, 1??5. PHILIPPINE COMMERCIAL IN#USTRIAL BAN/ 3AN# ITS ASSI NEE +AIME Y. ON'ALES4, petiti!ne", vs. HONORABLE COURT OF APPEALS and CHEMPHIL E0PORT AN# IMPORT CORPORATION 3CEIC4, "esp!ndents. Contracts; Subrogation; Classifications of Subrogation; 7ords and Phrases; Subrogation is 8the transfer of all the rights of the creditor to a third person% who substitutes him in all his rights.91" definition, subrogation is Ithe transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. 't ma" either be legal or con$entional. .egal subrogation is that which takes place without agreement but b" operation of law because of certain actsA this is the subrogation referred to in Article 1358. /on$entional subrogation is that which takes place b" agreement of the parties . . .J Same; Same; "genc'; 7here the mone' used to discharge a person:s debt rightfull' belonged to the debtor% the part' pa'ing cannot be considered a third0part' pa'or under "rt. DHC@4@5 of the Civil Code but a mere agent.Since the mone" used to discharge *arciaGs debt rightfull" belonged to him, /' cannot be considered a third part" pa"or under Art. 1358 286. 't was but a conduit, or as aptl" categori>ed b" respondents, merel" an agent as defined in Art. 17:7 of the /i$il /ode.

Same; Same; Same; Compromise "greements; " writ of attachment is not e tinguished b' the e ecution of a compromise agreement among the parties./-'/ argues that a writ of attachment is a mere au!iliar" remed" which, upon the dismissal of the case, dies a natural death. %hus, when the consortium entered into a compromise agreement, which resulted in the termination of their case, the disputed shares were released from garnishment. &e disagree. %o subscribe to /-'/Gs contentions would be to totall" disregard the concept and purpose of a preliminar" attachment. A writ of preliminar" attachment is a pro$isional remed" issued upon order of the court where an action is pending to be le$ied upon the propert" or properties of the defendant therein, the same to be held thereafter b" the Sheriff as securit' for the satisfaction of whatever /udgment might be secured in said action b' the attaching creditor against the defendant. Same; Same; Same; Same; "n attachment lien continues until the debt is paid% or sale is had under e ecution issued on the /udgment or until /udgment is satisfied% or the attachment discharged or vacated in the same manner provided b' law.&e reiterate the rule laid down in *) <omes% Inc. v. C" that an attachment lien continues until the debt is paid, or sale is had under e!ecution issued on the (udgment or until (udgment is satisfied, or the attachment discharged or $acated in the same manner pro$ided b" law. Same; Same; Same; Same; The parties to the compromise agreement should not be deprived of the protection provided b' an attachment lien especiall' in an instance where one reneges on his obligations under the agreement.%he case at bench admits of a peculiar character in the sense that it in$ol$es a compromise agreement. Nonetheless, the rule established in the afore+uoted cases still applies, e$en more so since the terms of the agreement ha$e to be complied with in full b" the parties thereto. %he parties to the compromise agreement should not be depri$ed of the protection pro$ided b" an attachment lien especiall" in an instance where one reneges on his obligations under the agreement, as in the case at bench, where Antonio *arcia failed to hold up his own end of the deal, so to speak. "ctions; Pleadings and Practice; )orum0Shopping; "ppeals; Certiorari; " part' who institutes a separate petition for certiorari instead of /oining his co0parties in their appeal% where such remed' is available% is guilt' of forum shopping.&e $iew with skepticism ,/'1Gs contention that it did not (oin the consortium because it Ihonestl" belie$ed that certiorari was the more efficacious and speed" relief a$ailable under the circumstances.J Rule :5 of the Re$ised Rules of /ourt is not difficult to understand. /ertiorari is a$ailable onl" if there is no appeal or other plain, speed" and ade+uate remed" in the ordinar" course of law. Eence, in instituting a separate petition for certiorari, ,/'1 has deliberatel" resorted to forum)shopping. Same; Same; Same; The rule against forum0shopping has long been established and Supreme Court Circular @F0AD merel' formali+ed the prohibition and provided the appropriate penalties against transgressors.,/'1 cannot hide behind the subterfuge that Supreme /ourt /ircular 87)?1 was not "et in force when it filed the certiorari proceedings in the /ourt of Appeals. %he rule against forum)shopping has long been established. Supreme /ourt /ircular 87)?1 merel" formali>ed the prohibition and pro$ided the appropriate penalties against transgressors.

Same; Same; Same; 7ords and Phrases; 8)orum0Shopping%9 = plained. orum) shopping or the act of a part" against whom an ad$erse (udgment has been rendered in one forum, of seeking another 2and possibl" fa$orable6 opinion in another forum 2other than b" appeal or the special ci$il action of certiorari6, or the institution of two 286 or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a fa$orable disposition, has been characteri>ed as an act of malpractice that is prohibited and condemned as trifling with the /ourts and abusing their processes. 't constitutes improper conduct which tends to degrade the administration of (ustice. 't has also been aptl" described as deplorable because it adds to the congestion of the alread" hea$il" burdened dockets of the courts. ,-%'%'DN for re$iew of a decision of the /ourt of Appeals. %he facts are stated in the opinion of the /ourt. Muasha% "sperilla% "ncheta% Pe6a 2 Nolasco for /hemphil -!port R 'mport /orporation. Ponce =nrile% Ca'etano% Re'es 2 1analastas for R/1/. )ortun 2 Narvasa for @aime H. *on>ales. Rillora+a% "frica% -e Ocampo 2 "frica for ,/'1. Nestor 1e/ia for #"netics R A.0. *arcia. Puruganan% Chato% Tan 2 !eronimo for ,'SD. Sabino *. Padilla I3 for 1,' and .and 1ank. TA,UNAN, #.< 1efore us is a legal tug)of)war between the /hemphil -!port and 'mport /orporation 2hereinafter referred to as /-'/6, on one side, and the ,'SD and @aime *on>ales as assignee of the 1ank of the ,hilippine 'slands 21,'6, Ri>al /ommercial 1anking /orporation 2R/1/6, .and 1ank of the ,hilippines 2.1,6 and ,hilippine /ommercial 'nternational 1ank 2,/'16, on the other 2hereinafter referred to as the consortium6, o$er 1,919,:97 shares of stock 2hereinafter referred to as the Idisputed sharesJ6 in the /hemical 'ndustries of the ,hilippines 2/hemphilM/',6. Dur task is to determine who is the rightful owner of the disputed shares. ,ursuant to our resolution dated 35 0a" 1??4, the instant case is a consolidation of two petitions for re$iew filed before us as follows<

'n *.R. Nos. 118437)3?, /-'/ seeks the re$ersal of the decision of the /ourt of Appeals 2former %welfth #i$ision6 promulgated on 35 @une 1??3 and its resolution of 8? Dctober 1??3, den"ing petitionerGs motion for reconsideration in the consolidated cases entitled I#"netics, 'nc., et al. $. ,'SD, et al.J 2/A)*.R. No. 854:96 and I#"netics, 'nc., et al. $. ,'SD, et al.A /-'/, 'nter$enor)AppelleeJ 2/A)*.R. /L No. 8:5116. %he dispositi$e portion of the assailed decision reads, thus< &E-R- DR-, this /ourt resol$es in these consolidated cases as follows< 1. %he Drders of the Regional %rial /ourt, dated 0arch 85, 1?77, and 0a" 85, 1?77, sub(ect of /A)*.R. /L No. 154:9, are S-% AS'#- and (udgment is hereb" rendered in fa$or of the consortium and against appellee #"netics, 'nc., the amount of the (udgment, to be determined b" Regional %rial /ourt, taking into account the $alue of assets that the consortium ma" ha$e alread" reco$ered and shall ha$e reco$ered in accordance with the other portions of this decision. 8. %he Drders of the Regional %rial /ourt dated #ecember 1?, 1?7? and 0arch 5, 1??5 are hereb" R-L-RS-# and S-% AS'#- and (udgment is hereb" rendered confirming the ownership of the consortium o$er the /hemphil shares of stock, sub(ect of /A)*.R. /L No. 8:511, and the Drder dated September 4, 1?7?, is reinstated. No pronouncement as to costs. SD DR#-R-#.1 'n *.R. No. 1133?4, ,/'1 and its assignee, @aime *on>ales, ask for the annulment of the /ourt of AppealsG decision 2former Special Ninth #i$ision6 promulgated on 8: 0arch 1??3 in I,/'1 $. Eon. @ob 1. 0ada"ag R /-'/J 2/A)*.R. S, ND. 854946 dismissing the petition for certiorari, prohibition and mandamus filed b" ,/'1 and of said courtGs resolution dated 11 @anuar" 1??4 den"ing their motion for reconsideration of its decision.8 %he antecedent facts leading to the aforementioned contro$ersies are as follows< Dn September 85, 1?74, #"netics, 'nc. and Antonio 0. *arcia filed a complaint for declarator" relief andMor in(unction against the ,'SD, 1,', .1,, ,/'1 and R/1/ or the consortium with the Regional %rial /ourt of 0akati, 1ranch 45 2/i$il /ase No. 75896, seeking (udicial declaration, construction and interpretation of the $alidit" of the suret" agreement that #"netics and *arcia had entered into with the consortium and to perpetuall" en(oin the latter from claiming, collecting and enforcing an" purported obligations which #"netics and *arcia might ha$e undertaken in said agreement.3 %he consortium filed their respecti$e answers with counter)claims alleging that the suret" agreement in +uestion was $alid and binding and that #"netics and *arcia were liable under the terms of the said agreement. 't likewise applied for the issuance of a writ of preliminar" attachment against #"netics and *arcia.4

Se$en months later, or on 83 April 1?75, #"netics, Antonio *arcia and 0atri! 0anagement R %rading /orporation filed a complaint for declarator" relief andMor in(unction against the Securit" 1ank R %rust /o. 2S1%/ case6 before the Regional %rial /ourt of 0akati, 1ranch 135 docketed as /i$il /ase No. 153?7.5 Dn 8 @ul" 1?75, the trial court granted S1%/Gs pra"er for the issuance of a writ of preliminar" attachment and on ? @ul" 1?75, a notice of garnishment co$ering *arciaGs shares in /',M/hemphil 2including the disputed shares6 was ser$ed on /hemphil through its then ,resident. %he notice of garnishment was dul" annotated in the stock and transfer books of /hemphil on the same date.: Dn : September 1?75, the writ of attachment in fa$or of S1%/ was lifted. Eowe$er, the same was reinstated on 35 Dctober 1?75.9 'n the meantime, on 18 @ul" 1?75, the Regional %rial /ourt in /i$il /ase No. 7589 2the consortium case6 denied the application of #"netics and *arcia for preliminar" in(unction and instead granted the consortiumGs pra"er for a consolidated writ of preliminar" attachment. Eence, on 1? @ul" 1?75, after the consortium had filed the re+uired bond, a writ of attachment was issued and $arious real and personal properties of #"netics and *arcia were garnished, including the disputed shares.7 %his garnishment, howe$er, was not annotated in /hemphilGs stock and transfer book. Dn 7 September 1?79, ,/'1 filed a motion to dismiss the complaint of #"netics and *arcia for lack of interest to prosecute and to submit its counterclaims for decision, adopting the e$idence it had adduced at the hearing of its application for preliminar" attachment.? Dn 85 0arch 1?77, the Regional %rial /ourt dismissed the complaint of #"netics and *arcia in /i$il /ase No. 7589, as well as the counterclaims of the consortium, thus< Resol$ing defendantGs, ,hilippine /ommercial 'nternational 1ank, I0D%'DN %D #'S0'SS &'%E 0D%'DN %D SU10'% #- -N#AN% ,/'1ANTGs /DUN%-R/.A'0 DR #-/'S'DN, dated September 9, 1?79< 216 %he motion to dismiss is grantedA and the instant case is hereb" ordered dismissed pursuant to Sec. 3, Rule 19 of the Re$ised Rules of /ourt, plaintiff ha$ing failed to compl" with the order dated @ul" 1:, 1?79, and ha$ing not taken further steps to prosecute the caseA and 286 %he motion to submit said defendantGs counterclaim for decision is deniedA there is no needA said counterclaim is likewise dismissed under the authorit" of #alman $. /it" /ourt of #ipolog /it", .):31?4, @anuar" 81, 1?75, wherein the Supreme /ourt stated that if the ci$il case is dismissed, so also is the counterclaim filed therein. IA person cannot eat his cake and ha$e it at the same timeJ 2p. :45, record, Lol. '6.15 %he motions for reconsideration filed b" the consortium were, likewise, denied b" the trial court in its order dated 85 0a" 1?77<

%he /ourt could ha$e stood pat on its order dated 85 0arch 1?77, in regard to which the defendants)banks concerned filed motions for reconsideration. Eowe$er, inasmuch as plaintiffs commented on said motions that< I36. 'n an" e$ent, so as not to undul" foreclose on the rights of the respecti$e parties to refile and prosecute their respecti$e causes of action, plaintiffs manifest their conformit" to the modification of this Eonorable /ourtGs order to indicate that the dismissal of the complaint and the counterclaims is without pre(udice.J 2p. 8, plaintiffsG /D00-N% etc. dated 0a" 85, 1?776. %he /ourt is inclined to so modif" the said order. &E-R- DR-, the order issued on 0arch 85, 1?77, is hereb" modified in the sense that the dismissal of the complaint as well as of the counterclaims of defendants R/1/, .1,, ,/'1 and 1,' shall be considered as without pre(udice 2p. :95, record, Lol. '6.11 Unsatisfied with the aforementioned order, the consortium appealed to the /ourt of Appeals, docketed as /A)*.R. /L No. 854:9. Dn 19 @anuar" 1?7? during the pendenc" of consortiumGs appeal in /A)*.R. /L No. 854:9, Antonio *arcia and the consortium entered into a /ompromise Agreement which the /ourt of Appeals appro$ed on 88 0a" 1?7? and became the basis of its (udgment b" compromise. Antonio *arcia was dropped as a part" to the appeal lea$ing the consortium to proceed solel" against #"netics, 'nc.18 Dn 89 @une 1?7?, entr" of (udgment was made b" the /lerk of /ourt.13 Eereunder +uoted are the salient portions of said compromise agreement< 3. #efendants, in consideration of a$oiding an e!tended litigation, ha$ing agreed to limit their claim against plaintiff Antonio 0. *arcia to a principal sum of ,145 0illion immediatel" demandable and to wai$e all other claims to interest, penalties, attorne"Gs fees and other charges. %he aforesaid compromise amount of indebtedness of ,145 0illion shall earn interest of eighteen percent 217;6 from the date of this /ompromise. 4. ,laintiff Antonio 0. *arcia and herein defendants ha$e no further claims against each other. 5. %his /ompromise shall be without pre(udice to such claims as the parties herein ma" ha$e against plaintiff #"netics, 'nc. :. ,laintiff Antonio 0. *arcia shall ha$e two 286 months from date of this /ompromise within which to work for the entr" and participation of his other creditor, Securit" 1ank and %rust /o., into this /ompromise. Upon the e!piration of this period, without Securit" 1ank and %rust /o. ha$ing (oined, this /ompromise shall be submitted to the /ourt for its information and appro$al 2pp. 89, 87)31, rollo% /A)*.R. /L No. 154:96.14 't appears that on 15 @ul" 1?77, Antonio *arcia under a #eed of Sale transferred to erro /hemicals, 'nc. 2 /'6 the disputed shares and other properties for ,9?,859,331.87. 't was agreed upon that part of the purchase price shall be paid b"

/' directl" to S1%/ for whate$er (udgment credits that ma" be ad(udged in the latterGs fa$or and against Antonio *arcia in the aforementioned S1%/ case.15 Dn : 0arch 1?7?, /', through its ,resident Antonio 0. *arcia, issued a 1ank of America /heck No. 7:5114 in fa$or of S1%/ in the amount of ,35,4:8,7:?.:8.1: S1%/ refused to accept the check claiming that the amount was not sufficient to discharge the debt. %he check was thus consigned b" Antonio *arcia and #"netics with the Regional %rial /ourt as pa"ment of their (udgment debt in the S1%/ case.19 Dn 8: @une 1?7?, /' assigned its 4,11?,:14 shares in /hemphil, which included the disputed shares, to petitioner /-'/. %he shares were registered and recorded in the corporate books of /hemphil in /-'/Gs name and the corresponding stock certificates were issued to it.17 0eanwhile, Antonio *arcia, in the consortium case, failed to compl" with the terms of the compromise agreement he entered into with the consortium on 19 @anuar" 1?7?. As a result, on 17 @ul" 1?7?, the consortium filed a motion for e!ecution which was granted b" the trial court on 11 August 1?7?. Among *arciaGs properties that were le$ied upon on e!ecution were his 1,919,:97 shares in /hemphil 2the disputed shares6 pre$iousl" garnished on 1? @ul" 1?75.1? Dn 88 August 1?7?, the consortium ac+uired the disputed shares of stock at the public auction sale conducted b" the sheriff for ,75,555,555.55.85 Dn the same da", a /ertificate of Sale co$ering the disputed shares was issued to it. Dn 35 VAugust 1?7?,81 the consortium filed a motion 2dated 8? August 1?7?6 to order the corporate secretar" of /hemphil to enter in its stock and transfer books the sheriffGs certificate of sale dated 88 August 1?7?, and to issue new certificates of stock in the name of the banks concerned. %he trial court granted said motion in its order dated 4 September 1?7?, thus< or being legall" proper, defendantGs 0D%'DN %D DR#-R %E- /DR,DRA%S-/R-%ARH D /E-0'/A. 'N#US%R'-S D %E- ,E'.S., 'N/. 2/E-0,E'.6 %D -N%-R 'N %E- S%D/T AN# %RANS -R 1DDTS D /E-0,E'. %E- SE-R' GS /-R%' '/A%- D SA.- #A%-# AU*US% 88, 1?7? AN# %D 'SSU- N-& /-R%' '/A%-S D S%D/T 'N %E- NA0- D %E- #- -N#AN% 1ANTS, dated August 8?, 1?7?, is hereb" granted. &E-R- DR-, the corporate secretar" of the aforesaid corporation, or whoe$er is acting for and in his behalf, is hereb" ordered to 216 record andMor register the /ertificate of Sale dated August 88, 1?7? issued b" #eput" Sheriff /ristobal S. @abson of this /ourtA 286 to cancel the certificates of stock of plaintiff Antonio 0. *arcia and all those which ma" ha$e subse+uentl" been issued in replacement andMor in substitution thereofA and 236 to issue in lieu of the said shares new shares of stock in the name of the defendant 1anks, namel", ,/'1, 1,', R/1/, .1, and ,'SD bank in such proportion as their respecti$e claims would appear in this suit 2p. 78, record, Lol. ''6.88

Dn 8: September 1?7?, /-'/ filed a motion to inter$ene 2dated 85 September 1?7?6 in the consortium case seeking the recall of the abo$ementioned order on grounds that it is the rightful owner of the disputed shares.83 't further alleged that the disputed shares were pre$iousl" owned b" Antonio 0. *arcia but subse+uentl" sold b" him on 15 @ul" 1?77 to erro /hemicals, 'nc. 2 /'6 which in turn assigned the same to /-'/ in an agreement dated 8: @une 1?7?. Dn 89 September 1?7?, the trial court granted /-'/Gs motion allowing it to inter$ene, but limited onl" to the incidents co$ered b" the order dated 4 September 1?7?. 'n the same order, the trial court directed /hemphilGs corporate secretar" to temporaril" refrain from implementing the 4 September 1?7? order.84 Dn 8 Dctober 1?7?, the consortium filed their opposition to /-'/Gs motion for inter$ention alleging that their attachment lien o$er the disputed shares of stocks must pre$ail o$er the pri$ate sale in fa$or of the /-'/ considering that said shares of stock were garnished in the consortiumGs fa$or as earl" as 1? @ul" 1?75.85 Dn 4 Dctober 1?7?, the consortium filed their opposition to /-'/Gs motion to set aside the 4 September 1?7? order and mo$ed to lift the 89 September 1?7? order.8: Dn 18 Dctober 1?7?, the consortium filed a manifestation and motion to lift the 89 September 1?7? order, to reinstate the 4 September 1?7? order and to direct /-'/ to surrender the disputed stock certificates of /hemphil in its possession within twent") four 2846 hours, failing in which the ,resident, /orporate Secretar" and stock and transfer agent of /hemphil be directed to register the names of the banks making up the consortium as owners of said shares, sign the new certificates of stocks e$idencing their ownership o$er said shares and to immediatel" deli$er the stock certificates to them.89 Resol$ing the foregoing motions, the trial court rendered an order dated 1? #ecember 1?7?, the dispositi$e portion of which reads as follows< &E-R- DR-, premises considered, the Urgent 0otion dated September 85, 1?7? filed b" /-'/ is hereb" *RAN%-#. Accordingl", the Drder of September 4, 1?7?, is hereb" S-% AS'#-, and an" and all acts of the /orporate Secretar" of /E-0,E'. andMor whoe$er is acting for and in his behalf, as ma" ha$e alread" been done, carried out or implemented pursuant to the Drder of September 4, 1?7?, are hereb" nullified. ,-R DR/-, the /DNSDR%'U0GS 0otions dated Dctober 3, 1?7? and Dctober 11, 1?7?, are both hereb" denied for lack of merit. %he /ease and #esist Drder dated September 89, 1?7?, is hereb" A made ,-R0AN-N%. SD DR#-R-#.87 'n so ruling, the trial court ratiocinated in this wise< 'R0-# and

After careful and assiduous consideration of the facts and applicable law and (urisprudence, the /ourt holds that /-'/Gs Urgent 0otion to Set Aside the Drder of September 4, 1?7? is impressed with merit. %he /DNSDR%'U0 has admitted that the writ of attachmentM garnishment issued on @ul" 1?, 1?75 on the shares of stock belonging to plaintiff Antonio 0. *arcia was not annotated and registered in the stock and transfer books of /E-0,E'.. Dn the other hand, the prior attachment issued in fa$or of S1%/ on @ul" 8, 1?75 b" 1ranch 135 of this /ourt in /i$il /ase No. 153?7, against the same /E-0,E'. shares of Antonio 0. *arcia, was dul" registered and annotated in the stock and transfer books of /E-0,E'.. %he matter of non)recording of the /onsortiumGs attachment in /hemphilGs stock and transfer book on the shares of Antonio 0. *arcia assumes significance considering /-'/Gs position that /' and later /-'/ ac+uired the /E-0,E'. shares of Antonio 0. *arcia without knowledge of the attachment of the /DNSDR%'U0. %his is also important as /-'/ claims that it has been subrogated to the rights of S1%/ since /-'/Gs predecessor)in)interest, the /', had paid S1%/ the amount of ,35,4:8,7:?.18 pursuant to the #eed of Sale and ,urchase of Shares of Stock e!ecuted b" Antonio 0. *arcia on @ul" 15, 1?77. 1" reason of such pa"ment, sale with the knowledge and consent of Antonio 0. *arcia, /' and /-'/, as part")in)interest to /', are subrogated b" operation of law to the rights of S1%/. %he /ourt is not unaware of the citation in /-'/Gs repl" that Ias between two 286 attaching creditors, the one whose claims was first registered on the books of the corporation en(o" priorit".J 2Samahang 0agsasaka, 'nc. $s. /hua *an, ?: ,hil. ?94.6 %he /ourt holds that a le$" on the shares of corporate stock to be $alid and binding on third persons, the notice of attachment or garnishment must be registered and annotated in the stock and transfer books of the corporation, more so when the shares of the corporation are listed and traded in the stock e!change, as in this case. As a matter of fact, in the /DNSDR%'U0GS motion of August 35, 1?7?, the" specificall" mo$e to Iorder the /orporate Secretar" of /E-0,E'. to enter in the stoc( and transfer boo(s of C<=1P<I, the SheriffGs /ertificate of Sale dated August 88, 1?7?.J %his goes to show that, contrar" to the arguments of the /DNSDR%'U0, in order that attachment, garnishment andMor encumbrances affecting rights and ownership on shares of a corporation to be $alid and binding, the same has to be recorded in the stock and transfer books. Since neither /-'/ nor /' had notice of the /DNSDR%'U0Gs attachment of @ul" 1?, 1?75, /-'/Gs shares of stock in /E-0,E'., legall" ac+uired from Antonio 0. *arcia, cannot be le$ied upon in e!ecution to satisf" his (udgment debts. At the time of the SheriffGs le$" on e!ecution, Antonio 0. *arcia has no more shares in /E-0,E'. which could be le$ied upon.8? Dn 83 @anuar" 1??5, the consortium and ,/'1 filed separate motions for reconsideration of the aforestated order which were opposed b" petitioner /-'/.35 Dn 5 0arch 1??5, the trial court denied the motions for reconsideration.31 Dn 1: 0arch 1??5, the consortium appealed to the /ourt of Appeals 2/A)*.R. No. 8:5116. 'n its Resolution dated ? August 1??5, the /ourt of Appeals consolidated /A) *.R. No. 8:511 with /A)*.R. No. 854:9.38

%he issues raised in the two cases, as formulated b" the /ourt of Appeals, are as follows< ' &E-%E-R DR ND%, UN#-R %E- ,-/U.'AR /'R/U0S%AN/-S D %E- /AS-, %E- %R'A. /DUR% -RR-# 'N #'S0'SS'N* %E- /DUN%-R/.A'0S D %E/DNSDR%'U0 'N /'L'. /AS- ND. 7589A '' &E-%E-R DR ND% %E- #'S0'SSA. D /'L'. /AS- ND. 7589 R-SU.%-# 'N %E- #'S/EAR*- D %E- &R'% D A%%A/E0-N% 'SSU-# %E-R-'N -L-N AS %E- /DNSDR%'U0 A,,-A.-# %E- DR#-R #'S0'SS'N* /'L'. /AS- ND. 7589A ''' &E-%E-R DR ND% %E- @U#*0-N% 1AS-# DN /D0,RD0'S- R-N#-R-# 1H %E'S /DUR% DN 0AH 88, 1?7? EA# %E- - -/% D #'S/EAR*'N* %EA%%A/E0-N%S 'SSU-# 'N /'L'. /AS- ND. 7589A 'L &E-%E-R DR ND% %E- A%%A/E0-N% D SEAR-S D S%D/T, 'N DR#-R %D 1'N# %E'R# ,-RSDNS, 0US% 1- R-/DR#-# 'N %E- S%D/T AN# %RANS -R 1DDT D %E- /DR,DRA%'DNA AN# L &E-%E-R DR ND% -RRD /E-0'/A.S, 'N/. 2 /'6, AN# '%S SU//-SSDR)'N) 'N%-R-S%, /-'/, &-R- SU1RD*A%-# %D %E- R'*E%S D S-/UR'%H 1ANT R %RUS% /D0,ANH 2S1%/6 'N A S-,ARA%- /'L'. A/%'DN. 2%his issue appears to be material as S1%/ is alleged to ha$e obtained an earlier attachment o$er the same /hemphil shares that the consortium seeks to reco$er in the case at bar6.33 Dn : April 1??5, the ,/'1 separatel" filed with the /ourt of Appeals a petition for certiorari, prohibition and mandamus with a pra"er for the issuance of a writ of preliminar" in(unction 2/A)*.R. No. S,)854946, likewise, assailing the $er" same orders dated 1? #ecember 1?7? and 5 0arch 1??5, sub(ect of /A)*.R. No. 8:511.34 Dn 35 @une 1??3, the /ourt of Appeals 2%welfth #i$ision6 in /A)*.R. No. 8:511 and /A)*.R. No. 854:9 rendered a decisioi re$ersing the orders of the trial court and confirming the ownership of the consortium o$er the disputed shares. /-'/Gs motion for reconsideration was denied on 8? Dctober 1??3.35

'n ruling for the consortium, the /ourt of Appeals made the following ratiocination<3: Dn the first issue, it ruled that the e$idence offered b" the consortium in support of its counterclaims, coupled with the failure of #"netics and *arcia to prosecute their case, was sufficient basis for the R%/ to pass upon and determine the consortiumGs counterclaims. %he /ourt of Appeals found no application for the ruling in #alman $. /it" /ourt of #ipolog, 134 S/RA 843 21?756 that Ia person cannot eat his cake and ha$e it at the same time. 'f the ci$il case is dismissed, so also is the counterclaim filed thereinJ because the factual background of the present action is different. 'n the instant case, both #"netics and *arcia and the consortium presented testimonial and documentar" e$idence which clearl" should ha$e supported a (udgment on the merits in fa$or of the consortium. As the consortium correctl" argued, the net atrocious effect of the Regional %rial /ourtGs ruling is that it allows a situation where a part" litigant is forced to plead and pro$e compulsor" counterclaims onl" to be denied those counterclaims on account of the ad$erse part"Gs failure to prosecute his case. Leril", the consortium had no alternati$e but to present its counterclaims in /i$il /ase No. 7589 since its counterclaims are compulsor" in nature. Dn the second issue, the /ourt of Appeals opined that unless a writ of attachment is lifted b" a special order specificall" pro$iding for the discharge thereof, or unless a case has been finall" dismissed against the part" in whose fa$or the attachment has been issued, the attachment lien subsists. &hen the consortium, therefore, took an appeal from the Regional %rial /ourtGs orders of 0arch 85, 1?77 and 0a" 85, 1?77, such appeal had the effect of preser$ing the consortiumGs attachment liens secured at the inception of /i$il /ase No. 7589, in$oking the rule in Olib v. Pastoral% 177 S/RA :?8 21?776 that where the main action is appealed, the attachment issued in the said main case is also considered appealed.Anent the third issue, the compromise agreement between the consortium and *arcia dated 19 @anuar" 1?7? did not result in the abandonment of its attachment lien o$er his properties. Said agreement was appro$ed b" the /ourt of Appeals in a Resolution dated 88 0a" 1?7?. %he (udgment based on the compromise agreement had the effect of preser$ing the said attachment lien as securit" for the satisfaction of said (udgment 2citing *) <omes% Inc. v. C"% 1?5 S/RA 8:8, O1??5P6. As to the fourth issue, the /ourt of Appeals agreed with the consortiumGs position that the attachment of shares of stock in a corporation need not be recorded in the corporationGs stock and transfer book in order to bind third persons. Section 92d6, Rule 59 of the Rules of /ourt was complied with b" the consortium 2through the Sheriff of the trial court6 when the notice of garnishment o$er the /hemphil shares of *arcia was ser$ed on the president of /hemphil on @ul" 1?, 1?75. 'ndeed, to bind third persons, no law re+uires that an attachment of shares of stock be recorded in the stock and transfer book of a corporation. %he statement attributed b" the Regional %rial /ourt to the Supreme /ourt in Samahang 0agsasaka, 'nc. $s. *on>alo /hua *uan, *.R. No. .)9858, ebruar" 85, 1?55 2unreported6, to the effect that Ias between two attaching creditors, the one whose claim was registered first on the books of the corporation en(o"s priorit",J is an obiter

dictum that does not modif" the procedure laid down in Section 92d6, Rule 59 of the Rules of /ourt. %herefore, ruled the /ourt of Appeals, the attachment made o$er the /hemphil shares in the name of *arcia on @ul" 1?, 1?75 was made in accordance with law and the lien created thereb" remained $alid and subsisting at the time *arcia sold those shares to /' 2predecessor)in)interest of appellee /-'/6 in 1?77. Anent the last issue, the /ourt of Appeals re(ected /-'/Gs subrogation theor" based on Art. 1358 286 of the New /i$il /ode stating that the obligation to S1%/ was paid b" *arcia himself and not b" a third part" 2 /'6. %he /ourt of Appeals further opined that while the check used to pa" S1%/ was a /' corporate check, it was funds of *arcia in /' that was used to pa" off S1%/. %hat the funds used to pa" off S1%/ were funds of *arcia has not been refuted b" /' or /-'/. 't is clear, therefore, that there was an attempt on the part of *arcia to use /' and /-'/ as con$enient $ehicles to den" the consortium its right to make itself whole through an e!ecution sale of the /hemphil shares attached b" the consortium at the inception of /i$il /ase No. 7589. %he consortium, therefore, is entitled to the issuance of the /hemphil shares of stock in its fa$or. %he Regional %rial /ourtGs order of September 4, 1?7?, should, therefore, be reinstated in toto. Accordingl", the +uestion of whether or not the attachment lien in fa$or of S1%/ in the S1%/ case is superior to the attachment lien in fa$or of the consortium in /i$il /ase No. 7589 becomes immaterial with respect to the right of inter$enor)appellee /-'/. %he said issue would ha$e been rele$ant had /-'/ established its subrogation to the rights of S1%/. Dn 8: 0arch 1??3, the /ourt of Appeals 2Special Ninth #i$ision6 in /A)*.R. No. S, 85494 rendered a decision den"ing due course to and dismissing ,/'1Gs petition for certiorari on grounds that ,/'1 $iolated the rule against forum)shopping and that no gra$e abuse of discretion was committed b" respondent Regional %rial /ourt in issuing its assailed orders dated 1? #ecember 1?7? and 5 0arch 1??5. ,/'1Gs motion for reconsideration was denied on 11 @anuar" 1??4.39 Dn 9 @ul" 1??3, the consortium, with the e!ception of ,'SD, assigned without recourse all its rights and interests in the disputed shares to @aime *on>ales.37 Dn 3 @anuar" 1??4, /-'/ filed the instant petition for re$iew docketed as *.R. Nos. 118437)3? and assigned the following errors< '. %E- R-S,DN#-N% /DUR% D A,,-A.S *RAL-.H -RR-# 'N S-%%'N* AS'#AN# R-L-RS'N* %E- DR#-RS D %E- R-*'DNA. %R'A. /DUR% #A%-# #-/-01-R 5, 1?7? AN# 0AR/E 5, 1??5 AN# 'N ND% /DN 'R0'N* ,-%'%'DN-RGS D&N-RSE', DL-R %E- #'S,U%-# /E-0,E'. SEAR-S A*A'NS% %E- R'LD.DUS AN# UN DUN#-# /.A'0S D %E- /DNSDR%'U0.

''. %E- R-S,DN#-N% /DUR% D A,,-A.S *RAL-.H -RR-#< 216 'n not holding that the /onsortiumGs attachment o$er the disputed /hemphil shares did not $est an" priorit" right in its fa$or and cannot bind third parties since admittedl" its attachment on 1? @ul" 1?75 was not recorded in the stock and transfer books of /hemphil, and subordinate to the attachment of S1%/ which S1%/ registered and annotated in the stock and transfer books of /hemphil on 8 @ul" 1?75, and that the /onsortiumGs attachment failed to compl" with Sec. 92d6, Rule 59 of the Rules as e$idenced b" the notice of garnishment of the deput" sheriff of the trial court dated 1? @ul" 1?75 2anne! I#J6 which the sheriff ser$ed on a certain %hell" Rui> who was neither ,resident nor managing agent of /hemphilA 286 'n not appl"ing the case law enunciated b" this Eonorable Supreme /ourt in Samahang 0agsasaka, 'nc. $s. *on>alo /hua *uan, ?: ,hil. ?94 that as between two attaching creditors, the one whose claim was registered first in the books of the corporation en(o"s priorit", and which respondent /ourt erroneousl" characteri>ed as mere obiter dictumA 236 'n not holding that the dismissal of the appeal of the /onsortium from the order of the trial court dismissing its counterclaim against Antonio 0. *arcia and the finalit" of the compromise agreement which ended the litigation between the /onsortium and Antonio 0. *arcia in the -'netics case had ipso /ure discharged the /onsortiumGs purported attachment o$er the disputed shares. '''. %E- R-S,DN#-N% /DUR% D A,,-A.S *RAL-.H -RR-# 'N ND% ED.#'N* %EA% /-'/ EA# 1--N SU1RD*A%-# %D %E- R'*E%S D S1%/ S'N/- /-'/GS ,R-#-/-SSDR 'N 'N%-R-S% EA# ,A'# S1%/ ,URSUAN% %D %E- #--# D SA.- AN# ,UR/EAS- D S%D/T -Q-/U%-# 1H AN%DN'D 0. *AR/'A DN @U.H 15, 1?77, AN# %EA% 1H R-ASDN D SU/E ,AH0-N%, &'%E %E/DNS-N% AN# TND&.-#*- D AN%DN'D 0. *AR/'A, /' AN# /-'/, AS ,AR%H 'N 'N%-R-S% %D /', &-R- SU1RD*A%-# 1H D,-RA%'DN D .A& %D %E- R'*E%S D S1%/. 'L. %E- R-S,DN#-N% /DUR% D A,,-A.S *RAL-.H -RR-# AN# 0A#UN&ARRAN%-# 'N -R-N/-S AN# /DN/.US'DNS, &'%EDU% ANH SU,,DR%'N* -L'#-N/-, %EA% %E-R- &AS AN A%%-0,% DN %E- ,AR% D AN%DN'D 0. *AR/'A %D US- /' AN# /-'/ AS /DNL-N'-N% L-E'/.-S %D #-NH %E- /DNSDR%'U0 '%S R'*E%S %D 0AT- '%S-. &ED.- %ERDU*E AN -Q-/U%'DN D %E- /E-0,E'. SEAR-S ,UR,DR%-#.H A%%A/E-# 1H %E/DNSDR%'U0 DN 1? @U.H 1?75.3?

Dn 8 0arch 1??4, ,/'1 filed its own petition for re$iew docketed as *.R. No. 1133?4 wherein it raised the following issues< '. R-S,DN#-N% /DUR% D A,,-A.S /D00'%%-# S-R'DUS -RRDR 'N R-N#-R'N* %E- #-/'S'DN AN# R-SD.U%'DN 'N KU-S%'DN 2ANN-Q-S A AN# 16 'N #- 'AN/- D .A& AN# @UR'S,RU#-N/- 1H 'N#'N* R-S,DN#-N% /-'/ AS EAL'N* 1--N SU1RD*A%-# %D %ER'*E%S D S1%/ 1H %E- ,AH0-N% 1H /' D *AR/'AGS #-1%S %D %E- .A%%-R #-S,'%- %E- A/% %EA% A. /' ,A'# %E- S1%/ #-1% 1H L'R%U- D A /DN%RA/% 1-%&--N /' AN# *AR/'A, %EUS, .-*A. SU1RD*A%'DN #D-S ND% AR'S-A 1. %E- S1%/ #-1% &AS ,A'# 1H *AR/'A E'0S-. AN# ND% 1H /', E-N/-, SU1RD*A%'DN 1H ,AH0-N% /DU.# ND% EAL- D//URR-#A /. /' #'# ND% A/KU'R- ANH R'*E% DL-R %E- #'S,U%-# SEAR-S AS S1%/ EA# ND% H-% .-L'-# U,DN NDR 1DU*E% %EDS- SEAR-S DN -Q-/U%'DN. A//DR#'N*.H, &EA% /' A/KU'R-# RD0 S1%/ &AS S'0,.H A @U#*0-N% /R-#'% AN# AN A%%A/E0-N% .'-N %D S-/UR- '%S SA%'S A/%'DN. ''. R-S,DN#-N% /DUR% D A,,-A.S /D00'%%-# S-R'DUS -RRDR 'N SUS%A'N'N* %E- DR#-RS D %E- %R'A. /DUR% #A%-# #-/-01-R 1?, 1?7? AN# 0AR/E 5, 1??5 &E'/E #-N'-# ,-%'%'DN-RGS D&N-RSE', DL-R %E- #'S,U%-# SEAR-S ND%&'%ES%AN#'N* ,RDL'S'DNS D .A& AN# -Q%AN% @UR'S,RU#-N/- DN %E- 0A%%-R %EA% ,-%'%'DN-R AN# %E/DNSDR%'U0 EAL- ,R- -RR-# S-N'DR R'*E%S %E-R-DL-R. '''. R-S,DN#-N% /DUR% D A,,-A.S /D00'%%-# S-R'DUS -RRDR 'N /DN/.U#'N* %EA% %E- #'S0'SSA. D %E- /D0,.A'N% AN# %E/DUN%-R/.A'0 'N /'L'. /AS- ND. 7589 A.SD R-SU.%-# 'N %E#'S/EAR*- D %E- &R'% D A%%A/E0-N% #-S,'%- %E- RU.'N*S D %E'S EDNDRA1.- /DUR% 'N *) <O1=S 3S. COPRT O) "PP=",S% *.R. NDS. 9:79? AN# 99143, D/%D1-R 3, 1??5, 1?5 S/RA 8:8, AN# 'N O,I* 3S. P"STOR",% *.R. ND. 71185, AU*US% 85, 1??5, 177 S/RA :?8 %D %E- /DN%RARH. 'L. R-S,DN#-N% /DUR% D A,,-A.S -Q/--#-# '%S @UR'S#'/%'DN 'N RU.'N* DN %E- 0-R'%S D %E- 0A'N /AS- ND%&'%ES%AN#'N* %EA% %EDS- 0A%%-RS &-R- ND% DN A,,-A. 1- DR- '%. L. R-S,DN#-N% /DUR% D A,,-A.S /D00'%%-# S-R'DUS -RRDR 'N ED.#'N* %EA% ,-%'%'DN-R 'S *U'.%H D DRU0 SED,,'N* #-S,'%- %E- A/% %EA% S/ /'R/U.AR ND. 87)?1 &AS ND% H-% 'N DR/- AN# - -/% A% %E- %'0- %E- ,-%'%'DN &AS '.-# 1- DRR-S,DN#-N% A,,-..A%- /DUR%, AN# %EA% '%S /DUNS-. A% %EA% %'0- EA# A#-KUA%- 1AS'S %D 1-.'-L- %EA% /-R%'DRAR' AN#

ND% AN A,,-A. D %E- %R'A. /DUR%GS DR#-RS &AS %EA,,RD,R'A%- R-.'- .45 As pre$iousl" stated, the issue boils down to who is legall" entitled to the disputed shares of /hemphil. &e shall resol$e this contro$ers" b" e!amining the $alidit" of the claims of each part" and, thus, determine whose claim has priorit". C$ICs claim /-'/ traces its claim o$er the disputed shares to the attachment lien obtained b" S1%/ on 8 @ul" 1?75 against Antonio *arcia in /i$il /ase No. 153?7. 't a$ers that when /', /-'/Gs predecessor)in)interest, paid S1%/ the due obligations of *arcia to the said bank pursuant to the #eed of Absolute Sale and ,urchase of Shares of Stock,41 /', and later /-'/, was subrogated to the rights of S1%/, particularl" to the latterGs aforementioned attachment lien o$er the disputed shares. /-'/ argues that S1%/Gs attachment lien is superior as it was obtained on 8 @ul" 1?75, ahead of the consortiumGs purported attachment on 1? @ul" 1?75. 0ore importantl", said /-'/ lien was dul" recorded in the stock and transfer books of /hemphil. /-'/Gs subrogation theor" is una$ailing. 1" definition, subrogation is Ithe transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. 't ma" either be legal or con$entional. .egal subrogation is that which takes place without agreement but b" operation of law because of certain actsA this is the subrogation referred to in article 1358. /on$entional subrogation is that which takes place b" agreement of the parties . . .J48 /-'/Gs theor" is premised on Art. 1358286 of the /i$il /ode which states< Art. 1358. 't is presumed that there is legal subrogation< 216 &hen a creditor pa"s another creditor who is preferred, e$en without the debtorGs knowledgeA 286 7hen a third person% not interested in the obligation% pa's with the e press or tacit approval of the debtor; 236 &hen, e$en without the knowledge of the debtor, a person interested in the fulfillment of the obligation pa"s, without pre(udice to the effects of confusion as to the latterGs share. 2'talics ours.6 #espite, howe$er, its multitudinous arguments, /-'/ presents an erroneous interpretation of the concept of subrogation. An anal"sis of the situations in$ol$ed would re$eal the clear inapplicabilit" of Art. 1358286.

Antonio *arcia sold the disputed shares to /' for a consideration of ,9?,859,331.87. /', howe$er, did not pa" the entire amount to *arcia as it was obligated to deli$er part of the purchase price directl" to S1%/ pursuant to the following stipulation in the #eed of Sale< 1anner of Pa'ment Pa'ment of the Purchase Price shall be made in accordance with the following order of preference pro$ided that in no instance shall the total amount paid b" the 1u"er e!ceed the ,urchase ,rice< a. *u'er shall pa' directl' to the Securit' *an( and Trust Co. the amount determined b' the Supreme Court as due and owing in favor of the said ban( b' the Seller. %he foregoing amount shall be paid within fifteen 2156 da"s from the date the decision of the Supreme /ourt in the case entitled IAntonio 0. *arcia, et al. $s. /ourt of Appeals, et al.J *.R. Nos. 78878)73 becomes final and e!ecutor". 43 2'talics ours.6 Eence, when /' issued the 1A check to S1%/ in the amount of ,35,4:8,7:?.:8 to pa" *arciaGs indebtedness to the said bank, it was in effect pa"ing with *arciaGs mone", no longer with its own, because said amount was part of the purchase price which /' owed *arcia in pa"ment for the sale of the disputed shares b" the latter to the former. %he mone" IpaidJ b" /' to S1%/, thus properl" belonged to *arcia. 't is as if *arcia himself paid his own debt to S1%/ but through a third part" /'. 't is, therefore, of no conse+uence that what was used to pa" S1%/ was a corporate check of /'. As we ha$e earlier stated, said check no longer represented /' funds but *arciaGs mone", being as it was part of /'Gs pa"ment for the ac+uisition of the disputed shares. %he /' check should not be taken at face $alue, the attendant circumstances must also be considered. %he afore+uoted contractual stipulation in the #eed of Sale dated 15 @ul" 1?77 between Antonio *arcia and /' is nothing more but an arrangement for the sake of con$enience. ,a"ment was to be effected in the aforesaid manner so as to pre$ent mone" from changing hands needlessl". 1esides, the $er" purpose of *arcia in selling the disputed shares and his other properties was to Isettle certain ci$il suits filed against him.J44 Since the mone" used to discharge *arciaGs debt rightfull" belonged to him, /' cannot be considered a third part" pa"or under Art 1358 286. 't was but a conduit, or as aptl" categori>ed b" respondents, merel" an agent as defined in Art. 17:7 of the /i$il /ode< Art. 17:7. 1" the contract of agenc" a person binds himself to render some ser$ice or to do something in representation or on behalf of another, with the consent or authorit" of the latter. /' was merel" fulfilling its obligation under the aforementioned #eed of Sale.

Additionall", /' is not a disinterested part" as re+uired b" Art. 1358 286 since the benefits of the e!tinguishment of the obligation would redound to none other but itself.45 ,a"ment of the (udgment debt to S1%/ resulted in the discharge of the attachment lien on the disputed shares purchased b" /'. %he latter would then ha$e a free and IcleanJ title to said shares. 'n sum, /-'/, for its failure to fulfill the re+uirements of Art. 1358 286, was not subrogated to the rights of S1%/ against Antonio *arcia and did not ac+uire S1%/Gs attachment lien o$er the disputed shares which, in turn, had alread" been lifted or discharged upon satisfaction b" *arcia, through /', of his debt to the said bank.4: %he rule laid down in the case of Samahang 1agsasa(a% Inc. v. Chua !uan%49 that as between two attaching creditors the one whose claim was registered ahead on the books of the corporation en(o"s priorit", clearl" has no application in the case at bench As we ha$e ampl" discussed, since /-'/ was not subrogated to S1%/Gs right as attaching creditor, which right in turn, had alread" terminated after *arcia paid his debt to S1%/, it cannot, therefore, be categori>ed as an attaching creditor in the present contro$ers". /-'/ cannot resurrect and claim a right which no longer e!ists. %he issue in the instant case, then, is priorit" between an attaching creditor 2the consortium6 and a purchaser 2 /'M/-'/6 of the disputed shares of stock and not between two attaching creditorsthe sub(ect matter of the aforestated Samahang 0agsasaka case. /-'/, likewise, argues that the consortiumGs attachment lien o$er the disputed /hemphil shares is null and $oid and not binding on third parties due to the latterGs failure to register said lien in the stock and transfer books of /hemphil as mandated b" the rule laid down b" the Samahang 0agsasaka $. /hua *uan.47 %he attachment lien ac+uired b" the consortium is $alid and effecti$e. 1oth the Re$ised Rules of /ourt and the /orporation /ode do not re+uire annotation in the corporationGs stock and transfer books for the attachment of shares of stock to be $alid and binding on the corporation and third part". Section 94 of the /orporation /ode which enumerates the instances where registration in the stock and transfer books of a corporation pro$ides< Sec. 94. 1ooks to be keptA stock transfer agent. Stoc( corporations must also (eep a boo( to be (nown as the stoc( and transfer boo(% in which must be (ept a record of all stocks in the names of the stockholders alphabeticall" arrangedA the installments paid and unpaid on all stock for which subscription has been made, and the date of pa"ment of an" settlementA a statement of ever' alienation% sale or transfer of stoc( made% the date thereof% and b' and to whom made; and such other entries as the b")laws ma" prescribe. %he stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection b" an" director or stockholder of the corporation at reasonable hours on business da"s. 2'talics ours.6 Section :3 of the same /ode states<

S-/. :3. Certificate of stoc( and transfer of shares.%he capital stock of stock corporations shall be di$ided into shares for which certificates signed b" the president or $ice president, countersigned b" the secretar" or assistant secretar", and sealed with the seal of the corporation shall be issued in accordance with the b")laws. Shares of stoc( so issued are personal propert' and ma' be transferred b' deliver' of the certificate or certificates indorsed b' the owner or his attorne'0infact or other person legall' authori+ed to ma(e the transfer No transfer% however% shall be valid% e cept as between the parties% until the transfer is recorded in the boo(s of the corporation so as to show the names of the parties to the transaction% the date of the transfer% the number of the certificate or certificates and the number of shares transferred. No shares of stock against which the corporation holds an" unpaid claim shall be transferable in the books of the corporation. 2'talics ours.6 Are attachments of shares of stock included in the term ItransferJ as pro$ided in Sec :3 of the /orporation /odeB &e rule in the negati$e As succinctl" declared in the case of 1onserrat v. Ceron%4? Ichattel mortgage o$er shares of stock need not be registered in the corporationGs stock and transfer book inasmuch as chattel mortgage o$er shares of stock does not in$ol$e a Itransfer of shares,J and that onl" absolute transfers of shares of stock are re+uired to be recorded in the corporationGs stock and transfer book in order to ha$e Iforce and effect as against third persons.J %he word ItransferenciaJ 2transfer6 is defined b" the I#iccionario de la Academia de la .engua /astellanaJ as Iaccion " efecto de transfeirJ 2the act and effect of transferring6A and the $erb Itransferir,J as Iceder or renunciar en otro el derecho o dominio +ue se tiene sobre una cosa, haciendole dueno de ellaJ 2to assign or wai$e the right in, or absolute ownership of, a thing in fa$or of another, making him the owner thereof6. 'n the .aw #ictionar" of I&ords and ,hrases,J third series, $olume 9, p. 57:9, the word ItransferJ is defined as follows< I%ransferJ means an" act b" which propert" of one person is $ested in another, and Itransfer of shares,J as used in Uniform Stock %ransfer Act 2/omp. St. Supp. :?56, implies an" means whereb" one ma" be di$ested of and another ac+uire ownership of stock. 2&allach $s. Stein ON.@.P, 13: A., 85?, 815.6J 'n the case of Noble $s. t. Smith &holesale *rocer" /o. 2189 ,ac, 14, 19A 34 Dkl., ::8A 4: ..R.A. ON.S.P, 4556, cited in &ords and ,hrases, second series, $ol. 4, p. ?97, the following appears< IA NtransferG is the act b" which the owner of a thing deli$ers it to another with the intent of passing the rights which he has in it to the latter, and a chattel mortgage is not within the meaning of such term.J Although the 1onserrat case refers to a chattel mortgage o$er shares of stock, the same ma" be applied to the attachment of the disputed shares of stock in the present contro$ers" since an attachment does not constitute an absolute con$e"ance of propert" but is primaril" used as a means Ito sei>e the debtorGs propert" in order to secure the debt or claim of the creditor in the e$ent that a (udgment is rendered.J51

Tnown commentators on the /orporation /ode e!pound, thus< Shares of stock being personal propert", ma" be the sub(ect matter of pledge and chattel mortgage. Such collateral transfers are howe$er not co$ered b" the registration re+uirement of Section :3, since our Supreme /ourt has held that such pro$ision applies onl" to absolute transfers thus, the registration in the corporate books of pledges and chattel mortgages of shares cannot ha$e an" legal effect.58 2'talics ours.6 %he re+uirement that the transfer shall be recorded in the books of the corporation to be $alid as against third persons has reference onl" to absolute transfers or absolute con$e"ance of the ownership or title to a share. /onse+uentl", the entr" or notation on the books of the corporation of pledges and chattel mortgages on shares is not necessar" to their $alidit" 2although it is ad$isable to do so6 since the" do not in$ol$e absolute alienation of ownership of stock 20onserrat $s. /eron, 57 ,hil. 4:? O1?33PA /hua *uan $s. Samahang 0agsasaka, 'nc., :8 ,hil. 498 O1?35P6. %o affect third persons, it is enough that the date and description of the shares pledged appear in a public instrument. 2Art. 85?:, /i$il /ode.6 &ith respect to a chattel mortgage constituted on shares of stock, what is necessar" is its registration in the /hattel 0ortgage Registr". 2Act No. 1557 and Art. 8145, /i$il /ode.653 /-'/Gs reliance on the Samahang 0agsasaka case is misplaced. Nowhere in the said decision was it categoricall" stated that annotation of the attachment in the corporate books is mandator" for its $alidit" and for the purpose of gi$ing notice to third persons. %he onl" basis, then, for petitioner /-'/Gs claim is the #eed of Sale under which it purchased the disputed shares. 't is, howe$er, a settled rule that a purchaser of attached propert" ac+uires it sub(ect to an attachment legall" and $alidl" le$ied thereon.54 Dur corollar" in+uir" is whether or not the consortium has indeed a prior $alid and e!isting attachment lien o$er the disputed shares. )aime *on+ales,Consortiums Claim 's the consortiumGs attachment lien o$er the disputed shares $alidB /-'/ $igorousl" argues that the consortiumGs writ of attachment o$er the disputed shares of /hemphil is null and $oid, insisting as it does, that the notice of garnishment was not $alidl" ser$ed on the designated officers on 1? @ul" 1?75. %o support its contention, /-'/ presented the sheriffGs notice of garnishment55 dated 1? @ul" 1?75 which showed on its face that said notice was recei$ed b" one %hell" Rui> who was neither the president nor managing agent of /hemphil. 't makes no

difference, /-'/ further a$ers, that %hell" Rui> was the secretar" of the ,resident of /hemphil, for under the abo$e)+uoted pro$ision she is not among the officers so authori>ed or designated to be ser$ed with the notice of garnishment. &e cannot subscribe to such a narrow $iew of the rule on proper ser$ice of writs of attachment. A secretar"Gs ma(or function is to assist his or her superior. EeM she is in effect an e!tension of the latter. Db$iousl", as such, one of her duties is to recei$e letters and notices for and in behalf of her superior, as in the case at bench. %he notice of garnishment was addressed to and was actuall" recei$ed b" /hemphilGs president through his secretar" who formall" recei$ed it for him. %hus, in one case,5: we ruled that the secretar" of the president ma" be considered an IagentJ of the corporation and held that ser$ice of summons on him is binding on the corporation. 0oreo$er, the ser$ice and receipt of the notice of garnishment on 1? @ul" 1?75 was dul" acknowledged and confirmed b" the corporate secretar" of /hemphil, Rolando Na$arro and his successor A$elino /ru> through their respecti$e certifications dated 15 August 1?7?59 and 81 August 1?7?.57 &e rule, therefore, that there was substantial compliance with Sec. 92d6, Rule 59 of the Rules of /ourt. #id the compromise agreement between Antonio *arcia and the consortium discharge the latterGs attachment lien o$er the disputed sharesB /-'/ argues that a writ of attachment is a mere au!iliar" remed" which, upon the dismissal of the case, dies a natural death. %hus, when the consortium entered into a compromise agreement,5? which resulted in the termination of their case, the disputed shares were released from garnishment. &e disagree. %o subscribe to /-'/Gs contentions would be to totall" disregard the concept and purpose of a preliminar" attachment. A writ of preliminar" attachment is a pro$isional remed" issued upon order of the court where an action is pending to be le$ied upon the propert" or properties of the defendant therein, the same to be held thereafter b" the Sheriff as securit' for the satisfaction of whatever /udgment might be secured in said action b' the attaching creditor against the defendant.:5 2'talics ours.6 Attachment is a (uridical institution which has for its purpose to secure the outcome of the trial% that is% the satisfaction of the pecuniar' obligation reall" contracted b" a person or belie$ed to ha$e been contracted b" him, either b" $irtue of a ci$il obligation emanating from contract or from law, or b" $irtue of some crime or misdemeanor that he might ha$e committed, and the writ issued, granted it, is e!ecuted b" attaching and safel" keeping all the mo$able propert" of the defendant, or so much thereof as ma" be sufficient to satisf" the plaintiffGs demands ! ! !.:1 2'talics ours.6

%he chief purpose of the remed" of attachment is to secure a contingent hen on defendant:s propert' until plaintiff can% b' appropri ate proceedings% obtain a /udgment and have such propert' applied to its satisfaction% or to make some pro$ision for unsecured debts in cases where the means of satisfaction thereof are liable to be remo$ed be"ond the (urisdiction, or improperl" disposed of or concealed, or otherwise placed be"ond the reach of creditors.:8 2'talics ours.6 &e reiterate the rule laid down in *) <omes% Inc. v. C":3 that an attachment lien continues until the debt is paid, or sale is had under e!ecution issued on the (udgment or until (udgment is satisfied, or the attachment discharged or $acated in the same manner pro$ided b" law. &e e!pounded in said case that< %he appointment of a rehabilitation recei$er who took control and custod" of 1 has not necessaril" secured the claims of Roa and 0endo>a. 'n the e$ent that the recei$ership is terminated with such claims not ha$ing been satisfied, the creditors ma" also find themsel$es without securit" therefor in the ci$il action because of the dissolution of the attachment. %his should not be permitted Ea$ing pre$iousl" obtained the issuance of the writ in good faith, the" should not be depri$ed of its protection if the rehabilitation plan does not succeed and the ci$il action is resumed. As we ruled in *o$ernment of the ,hilippine 'slands $. 0ercado< Attachment is in the nature of a proceeding in rem. 't is against the particular propert". %he attaching creditor thereb" ac+uires specific hen upon the attached propert" which ripens into a (udgment against the res when the order of sale is made. Such a proceeding is in effect a finding that the propert" attached is an indebted thing and a $irtual condemnation of it to pa" the ownerGs debt. %he law does not pro$ide the length of time an attachment lien shall continue after the rendition of (udgment, and it must therefore necessaril" continue until the debt is paid, or sale is had under e!ecution issued on the (udgment or until (udgment is satisfied, or the attachment discharged or $acated insome manner pro$ided b" law. 't has been held that the lien obtained b" attachment stands upon as high e+uitable grounds as a mortgage lien< %he lien or securit" obtained b" an attachment e$en before (udgment, is a fi!ed and positi$e securit", a specific lien, and, although whether it will e$er be made a$ailable to the creditor depends on contingencies, its e!istence is in no wa" contingent, conditioned or inchoate. 't is a $ested interest, an actual and substantial securit", affording specific securit" for satisfaction of the debt put in suit, which constitutes a cloud on the legal title, and is as specific as if created b" $irtue of a $oluntar" act of the debtor and stands upon as high e+uitable grounds as a mortgage. 2Corpus #uris Secundum% 433, and authorities therein cited.6 %he case at bench admits of a peculiar character in the sense that it in$ol$es a compromise agreement. Nonetheless, the rule established in the afore+uoted cases still applies, e$en more so since the terms of the agreement ha$e to be complied with in full b" the parties thereto. %he parties to the compromise agreement should not be depri$ed of the protection pro$ided b" an attachment lien especiall" in an instance

where one reneges on his obligations under the agreement, as in the case at bench, where Antonio *arcia failed to hold up his own end of the deal, so to speak. 0oreo$er, a $iolation of the terms and conditions of a compromise agreement entitles the aggrie$ed part" to a writ of e!ecution. 'n "beno/ar 2 Tana v. C"% et al.%:4 we held< %he non)fulfillment of the terms and conditions of a compromise agreement appro$ed b" the /ourt (ustifies e!ecution thereof and the issuance of the writ for said purpose is the /ourtGs ministerial dut" enforceable b" mandamus. .ikewise we ruled in Canoni+ado v. *enite+<:5 A (udicial compromise ma" be enforced b" a writ of e!ecution. 'f a part" fails or refuses to abide b" the compromise, the other part" ma" enforce the compromise or regard it as rescinded and insist upon his original demand. 'f we were to rule otherwise, we would in effect create a back door b" which a debtor can easil" escape his creditors. /onse+uentl", we would be faced with an anomalous situation where a debtor, in order to bu" time to dispose of his properties, would enter into a compromise agreement he has no intention of honoring in the first place. %he purpose of the pro$isional remed" of attachment would thus be lost. 't would become, in analog", a declawed and toothless tiger. rom the foregoing, it is clear that the consortium andMor its assignee @aime *on>ales ha$e the better right o$er the disputed shares. &hen /-'/ purchased the disputed shares from Antonio *arcia on 15 @ul" 1?77, it took the shares sub(ect to the prior, $alid and e!isting attachment lien in fa$or of and obtained b" the consortium. Forum 'hopping in *.R. !o. --../0 &e uphold the decision of the /ourt of Appeals finding ,/'1 guilt" of forum) shopping.:: %he /ourt of Appeals opined< %rue it is, that petitioner ,/'1 was not a part" to the appeal made b" the four other banks belonging to the consortium, but e+uall" true is the rule that where the rights and liabilities of the parties appealing are so interwo$en and dependent on each other as to be inseparable, a re$ersal of the appealed decision as to those who appealed, operates as a re$ersal to all and will inure to the benefit of those who did not (oin the appeal 2%ropical Eomes $s. ortun, 1:? S/RA 75, p. ?5, citing Alling $s. &en>el, 133 'll. 8:4)897A 4 /.@. 185:6. Such principal, premised upon communalit" of interest of the parties, is recogni>ed in this (urisdiction 2#irector of .ands $s. Re"es, :? S/RA 4156. %he four other banks which were part of the consortium, filed their notice of appeal under date of 0arch 1:, 1??5, furnishing a cop" thereof upon the law"ers of petitioner. %he petition for certiorari in the present case was filed on April 15, 1??5,

long after the other members of the consortium had appealed from the assailed order of #ecember 1?, 1?7?. &e $iew with skepticism ,/'1Gs contention that it did not (oin the consortium because it Ihonestl" belie$ed that certiorari was the more efficacious and speed" relief a$ailable under the circumstances.J:9 Rule :5 of the Re$ised Rules of /ourt is not difficult to understand. /ertiorari is a$ailable onl" if there is no appeal or other plain, speed" and ade+uate remed" in the ordinar" course of law. Eence, in instituting a separate petition for certiorari, ,/'1 has deliberatel" resorted to forum)shopping. ,/'1 cannot hide behind the subterfuge that Supreme /ourt /ircular 87)?1 was not "et in force when it filed the certiorari proceedings in the /ourt of Appeals. %he rule against forum)shopping has long been established.:7 Supreme /ourt /ircular 87)?1 merel" formali>ed the prohibition and pro$ided the appropriate penalties against transgressors. 't alarms us to reali>e that we ha$e to constantl" repeat our warning against forum) shopping. &e cannot o$er)emphasi>e its ill)effects, one of which is aptl" demonstrated in the case at bench where we are confronted with two di$isions of the /ourt of Appeals issuing contradictor" decisions:? one in fa$or of /-'/ and the other in fa$or of the consortiumM@aime *on>ales. orum)shopping or the act of a part" against whom an ad$erse (udgment has been rendered in one forum, of seeking another 2and possibl" fa$orable6 opinion in another forum 2other than b" appeal or the special ci$il action of certiorari6, or the institution of two 286 or more actions or proceedings grounded on the same cause on the supposition that one or the other court would make a fa$orable disposition,95 has been characteri>ed as an act of malpractice that is prohibited and condemned as trifling with the /ourts and abusing their processes. 't constitutes improper conduct which tends to degrade the administration of (ustice. 't has also been aptl" described as deplorable because it adds to the congestion of the alread" hea$il" burdened dockets of the courts.91 &E-R- DR-, premises considered the appealed decision in *.R. Nos. 118437)3? is hereb" A 'R0-# and the appealed decision in *.R. No. 1133?4, insofar as it ad(udged the /-'/ the rightful owner of the disputed shares, is hereb" R-L-RS-#. 0oreo$er, for wantonl" resorting to forum)shopping, ,/'1 is hereb" R-,R'0AN#-# and &ARN-# that a repetition of the same or similar acts in the future shall be dealt with more se$erel". SD DR#-R-#. Regalado% -avide% #r.% Romero% *ellosillo% 1elo% 1endo+a%)rancisco and <ermosisima% #r.% ##.% concur. Narvasa% C.#.% No part. Related to counsel of a part". )eliciano% #.% Dn official lea$e.

Padilla% #.% No part, former counsel of one of the respondents. Puno% #.% No part due to prior cases in /ourt of Appeals. 3itug% #.% No partpersonal reasons. Panganiban% #.% No part. A.0. *arcia and R.0. *arcia were former clients. #udgment in !.R. Nos. DD@EHF0HA affirmed% while in !.R. No. DDHHAE reversed insofar as its order ma(ing C=IC owner of disputed shares. PCI* reprimanded and warned for forumshopping. N!te. or forum)shopping to e!ist, both actions must in$ol$e the same transactions, same essential facts and circumstances, and that the actions must also raise identical causes of action, sub(ect matter, and issues. 2International Container Terminal Services% Inc. vs. Court of "ppeals% 84? S/RA 37? O1??5P6 d