THIRD DIVISION commercial establishment owned by ASI and Melbarose at #514 M.V.
delos Santos
[G.R. NO. 164521 : December 18, 2008]
ALLANDALE SPORTSLINE, INC., AND MELBAROSE R.
SASOT, Petitioners, v. THE GOOD DEVELOPMENT CORPORATION, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, assailing the May 15, 2003 Decision1 of the Court of Appeals (CA) in CA-G.R.
CV No. 59475 which dismissed the petition of Allandale Sportsline, Inc. and
Melbarose R. Sasot from the January 13, 1998 Decision2 of the Regional Trial Court
(RTC) of Pasig City, Branch 158 in Civil Case No. 61053; and the June 12, 2004 CA
Resolution3 which denied petitioners' motion for reconsideration.
The relevant facts are as follows:
Allandale Sportsline, Inc. (ASI) obtained a loan of P204,000.00 from The Good
Development Corp. (GDC) under a Promissory Note signed by Melbarose R. Sasot
(Melbarose) and Allandale R. Sasot (Allandale), President and Vice-President,
respectively, of ASI, with Theresa L. Manipon (Manipon) as one of three co-
makers.4 The Promissory Note provides that the loan is payable in daily equal
installments of P2,000.00 with interest at the rate of 26.002% per annum. In case of
default in the payment of any installment, the entire balance of the obligation shall
become immediately due and payable, and subject to liquidated penalty/ collection
charge equivalent to 2% of the principal.5
To provide additional security, ASI and Melbarose executed in favor of GDC a Deed
of Mortgage6 in which they acceded that:
xxxx should the MORTGAGORS fail to comply with any of the terms of the
promissory note and this mortgage contract, the MORTGAGEE shall automatically
have the absolute right without need of prior notice or demand to forthwith
judicially or extrajudicially foreclose this mortgage and proceed against all or any
of the mortgaged rights, interests and properties for the full satisfaction of the
MORTGAGORS' entire obligation to the MORTGAGEE and, in such event, the
MORTGAGORS shall be further liable to the MORTGAGEE in the same judicial or
extrajudicial foreclosure proceedings for payment of attorney's fees in an amount
equivalent to twenty five (25%) per cent of the unpaid indebtedness but in no case
less that Five hundred pesos (500.00); liquidated damages in an amount equivalent
to twenty-five (25%) percent of said outstanding obligation and all the expenses
and costs incidental to the above proceeding xxx.7 (Emphasis supplied)cralawlibrary
The properties subject of the mortgage are itemized in an inventory attached to the
deed. They include: List A - - all the merchandise and stocks in trade found in the
St., Sampaloc, Manila, valued at P100,000.00; List B - - all the furniture, fixtures,
appliances, equipment and other personal property found in said business
establishment, valued at P3,500.00; and List C - - one Toyota Corona 2DR. HT. with
Motor No. 18R-1474348, valued at P40,000.00 and one Toyota Corolla 4DR. SDN
with Motor No. 4K-5872110, valued at P35,000.00.8
On June 24, 1991, GDC demanded that Melbarose pay the unpaid account
of P179,000.00 or surrender the mortgaged chattels within five days from notice.9
When no payment was made, GDC filed with the RTC a Complaint10 for Replevin
and/or Sum of Money with Damages against ASI, Melbarose, Manipon, Florante
Edrino and John Doe.11 It is significant that plaintiff GDC prayed for alternative reliefs,
to wit:
WHEREFORE, for all the foregoing it is most respectfully prayed of this Honorable
Court that:
1. A Writ of Replevin be issued ordering the seizure of the above described chattels
or personal property with all the accessories or equipments and directing their transfer
to Plaintiff for the purposes of foreclosure &/or transfer in accordance with the law
to satisfy Defendants' obligation in favor of Plaintiff; andcralawlibrary
2. After due notice and trial:
A. to enforce said seizure and Plaintiff's right over aforedescribed chattels and/or
personal property; andcralawlibrary
b. to order Defendants to pay Plaintiff jointly and severally the sum of P43,750.00 as
and for attorney's fees and the sum equivalent to 25% of the obligation as and for
liquidated damages, plus other expenses of litigation and costs of suit.
On the Alternative Cause of Action, in the event that manual delivery of said chattels
or personal property cannot be obtained for some reason or another, to render
judgment ordering Defendants to pay plaintiff, jointly and severally as follows:
1. The sum of P175,000.00 plus interest thereon at 26.002% per annum from date of
maturity until said sum shall have been fully paid.
2. The sum of P43,750.00 as and for Attorney's fees, the sum equivalent to 25% of
the obligation as and for liquidated damages, such other expenses of litigation and
costs of suit.12
The RTC issued a Writ of Replevin,13 and by virtue thereof, the Sheriff seized and
delivered to GDC only one unit of Toyota Corona with Motor No. 18R-1474348 and
two appliances.14
On December 2, 1991, GDC filed an Amended Complaint to include in its application Q - Could you tell this Honorable Court if the auction sale pushed through?cra
for replevin the items under List A.15 After admitting the Amended Complaint, the RTC lawlibrary
issued an Alias Writ of Replevin16over the items in List A, and, by virtue thereof, the
Sheriff seized and delivered to GDC the assorted items enumerated therein. 17 A - Yes, sir.

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

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

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

xxx xxx

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

A - It was being sold by auction sale.

Q - And in turn you were able to sell it to a third party?cra lawlibrary
A - Yes, sir.
Q - And that car was sold already in the amount of P56,000.00, is that correct?cra
lawlibrary
A - P55,000.00.26
Moreover, GDC presented to the RTC a Statement of Account dated August 24,
1992, which indicated that the total outstanding balance of the loan obligation of ASI
and Melbarose was reduced to P191,111.82 after the proceeds of the auction sale
conducted on June 19, 1992 in the amount of P78,750.00 was deducted from the
earlier balance of P266,126.17.27
The RTC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is rendered in favor of the plaintiff
Good Development Corporation against defendants Melbarose Sasot, Allandale
Sportsline Inc., and Ma. Theresa Manipon ordering them to pay the plaintiff jointly and
severally the amount of P269,611.82 plus legal interest thereon effective to date
until the full amount is fully paid, and 25% of the total amount due as liquidated
damages.
SO ORDERED.28 (Emphasis supplied)cralawlibrary
ASI, Sasot and Manipon appealed to the CA, which rendered the Decision assailed
herein, to wit:
WHEREFORE, premises considered, the instant appeal is DENIED. The assailed
decision of the RTC of Pasig City, Branch 158 in Civil Case No. 61053 is hereby
AFFIRMED.
SO ORDERED.29
Their Motion for Reconsideration was also denied by the CA.30
Only ASI and Sasot (petitioners) took the present recourse, raising the following
issues:
I. Whether or not petitioners' check payment of Php171,000.00, PCIB Check No.
851688, to cover the total balance of their loan to respondent, became a valid tender
of payment by virtue of the respondent's acceptance thereof;
II. Whether or not the "parol evidence rule" applies on the promissory note in question
when the co-makers thereon are total strangers to one another;
III. Whether or not petitioners are entitled to the return of their properties pursuant to
Section 9, Rule 60 of the Rules of Court.
IV. Whether or not there is legal basis in the award of liquidated damages.31
The second issue deserves scant consideration for lack of basis. Manipon did not join
in the petition. Hence, the finding of the RTC, as affirmed by the CA, that she was a
co-maker of Promissory Note and a real party-in-interest is already final and
conclusive. Petitioners cannot now question this finding by raising the defense that
Manipon signed the promissory note without knowledge of the nature of her liability
under the instrument. Such defense is personal to Manipon and cannot be invoked by
petitioners, unless it is shown that their interests are so interwoven with
and dependent on Manipon's as to be inseparable. 32 However, in their pleadings,
petitioners do not deny the authenticity and due execution of the Promissory Note,
whereas Manipon has maintained that said instrument was not duly executed; hence,
their defenses are clearly separate and distinct.
Only three issues are left to be resolved.
Anent the first issue, petitioners contend that they were relieved of their obligation to
pay GDC (respondent) when they made several attempts to tender payment but
respondent refused to accept them without any valid reason. Petitioners claim that the
first tender of payment was made on July 3, 1991 when petitioner Sasot sent
respondent a PCIB check postdated October 31, 1991 in the amount
of P171,000.00.33 Respondent rejected the check, citing that the amount was
insufficient for, as of July 4, 1991, the balance of the principal loan was P175,000.00,
not P171,000.00; and its maturity was September 13, 1991, not October 31, 1991.34
On October 15, 1997, petitioners tendered payment of P171,000.00 in cash,35 but
respondent refused to accept it due to the insufficiency of the amount.36 Instead,
respondent sent petitioners a Statement of Account dated October 29, 1991,
indicating that as of October 15, 1991 the total balance due was P228,071.61.37
On October 29, 1991, petitioners tendered cash payment of P174,986.96,38 but
respondent still refused to accept it for insufficiency of the amount. 39
The question then is whether petitioners' tender of payment and respondent's refusal
thereof discharged petitioners from their obligation.
Tender of payment, without more, produces no effect; rather, tender of payment must
be followed by a valid consignation in order to produce the effect of payment and
extinguish an obligation.40
Tender of payment is but a preparatory act to consignation. It is the manifestation by
the debtor of a desire to comply with or pay an obligation. If refused without just
cause, the tender of payment will discharge the debtor of the obligation to pay but
only after a valid consignation of the sum due shall have been made with the proper
court.41
Consignation is the deposit of the proper amount with a judicial authority, before
whom the debtor must establish compliance with the following mandatory
requirements: (1) there was a debt due; (2) the consignation of the obligation had
been made because the creditor to whom tender of payment was made refused to
accept it, or because he was absent or incapacitated, or because several persons
claim to be entitled to receive the amount due, or because the title to the obligation
has been lost; (3) previous notice of the consignation had been given to the person
interested in the performance of the obligation; (4) the amount due was placed at the
disposal of the court; and (5) after the consignation had been made, the person
interested was notified thereof. Failure to prove any of these requirements is enough
ground to render a consignation ineffective.42
Petitioners did not allege or prove that after their tender of payment was refused by
respondents, they attempted or pursued consignation of the payment with the proper
court. Their tender of payment not having been followed by a valid consignation, it
produced no effect whatsoever, least of all the extinguishment of the loan obligation.
Therefore, the first issue of the validity or invalidity of their tender of payment is
completely moot and academic, for either way the discussion will go, it will lead to no
other conclusion but that, without an accompanying valid consignation, the tender of
payment did not result in the payment and extinguishment of the loan obligation. The
Court cannot take cognizance of such a purely hypothetical issue.43
The third and fourth issues are interrelated because their resolution depends on the
nature of the remedy which respondent actually adopted.
As emphasized at the outset, the reliefs respondent prayed for in its Complaint and
Amended Complaint are in the alternative: delivery of the mortgaged properties
preparatory to foreclosure or payment of the unpaid loan. 44
Moreover, after respondent acquired possession of the mortgaged properties through
the writs of replevin, it caused the auction sale of assorted sports outfits, one unit
Sansio Karaoke, one unit Sony T.V. Set and one unit Toyota Corona, and earned
proceeds amounting to P78,750.00.45 While it appears that respondent failed to
obtain the other personal properties covered by the Deed of Mortgage and the writs of
replevin, there is no doubt that it had effectively elected the remedy of extra-judicial
foreclosure of the mortgage security over the remedy of collection of the unpaid loan.
The RTC was aware that respondent had elected one remedy. In its Decision, it cited
the fact that some of the mortgaged properties which were delivered to respondent by
means of the Writs of Replevin had been sold on auction, and acknowledged that the
proceeds from said auction sale should be deducted from the loan account of
petitioners. The RTC noted:
The seized pieces of personal properties by virtue of the writ of replevin and alias writ
of replevin were sold in an auction sale where [respondent] realized P78,750.00 from
the sale.46
xxx
[Respondent] realized P78,500.00[sic] from the auction sale of the seized personal
property by virtue of the writ of replevin. The amount realized from the auction sale is
clearly insufficient to cover the unpaid balance, interest, attorney's fees, costs of the
suit and other expenses incidental to litigation. This amount was deducted from the
[petitioners'] total obligation in the amount of P269,111.82 [sic] resulting in the net
total obligation of P191,111.82 as of August 24, 1992.47 (Emphasis
supplied)cralawlibrary
Yet, it is curious that in the dispositive portion of its Decision, the RTC granted
respondent the remedy of collection of sum of money. The dispositive portion of the
RTC Decision is reproduced below for emphasis:
WHEREFORE, in view of the foregoing, judgment is rendered in favor of the
[respondent] Good Development Corporation against [petitioners] Melbarose Sasot,
Allandale Sportsline Inc., and Ma. Theresa Manipon ordering them to pay the
[respondent] jointly and severally the amount of P269,611.82 [sic] plus legal interest
thereon effective to date until the full amount is fully paid, and 25% of the total amount
due as liquidated damages.
SO ORDERED.
Not only is there no more reference to the conduct of the auction sale of the
mortgaged properties, there is also no longer any acknowledgment that the proceeds
earned from the auction sale should be deducted from the total unpaid loan.
This is a glaring error.
In Bachrach Motor Co., Inc. v. Icarangal,48 the Court held that the remedies available
to any mortgage creditor are alternative, not cumulative or successive, 49 viz.:
For non-payment of a note secured by mortgage, the creditor has a single cause of
action against the debtor. This single cause of action consists in the recovery of the
credit with execution of the security. In other words, the creditor in his action may
make two demands, the payment of the debt and the foreclosure of his mortgage. But
both demands arise from the same cause, the non-payment of the debt, and for that
reason, they constitute a single cause of action. Though the debt and the mortgage
constitute separate agreements, the latter is subsidiary to the former, and both refer
to one and the same obligation. Consequently, there exists only one cause of action
for a single breach of that obligation. Plaintiff, then, by applying the rules above
stated, cannot split up his single cause of action by filing a complaint for payment of
the debt, and thereafter another complaint for foreclosure of the mortgage. If he does
so, the filing of the first complaint will bar the subsequent complaint. By allowing the
creditor to file two separate complaints simultaneously or successively, one to recover
his credit and another to foreclose his mortgage, we will, in effect, be authorizing him
plural redress for a single breach of contract at so much cost to the courts and with so
much vexation and oppression to the debtor. (Emphasis supplied)cralawlibrary
By causing the auction sale of the mortgaged properties, respondent effectively
adopted and pursued the remedy of extra-judicial foreclosure,50 using the writ of
replevin as a tool to get hold of the mortgaged properties. 51 As emphasized in
Bachrach, one effect of respondent's election of the remedy of extra-judicial
foreclosure is its waiver of the remedy of collection of the unpaid loan.
Therefore, there was no more legal basis for the RTC to grant respondent the relief of
collecting from petitioners "the amount of Php269,611.82 [sic] plus legal interest
thereon effective to date until the full amount is fully paid," nor for the CA to affirm it.
However, another effect of its election of the remedy of extra-judicial foreclosure is
that whatever deficiency remains after applying the proceeds of the auction sale to
the total loan obligation may still be recovered by respondent. 52
But to recover any deficiency after foreclosure, the rule is that a mortgage creditor
must institute an independent civil action.53 However, in PCI Leasing & Finance, Inc.
v. Dai54 the Court held that the claim should at least be included in the pre-trial brief.
In said case, the mortgage-creditor had foreclosed on the mortgaged properties and
sold the same at public auction during the trial on the action for damages with
replevin. After judgment on the replevin case was rendered, the mortgage-creditor
filed another case, this time for the deficiency amount. The Court dismissed the
second case on the ground of res judicata, noting that:
Petitioner ignores the fact that it prayed in the replevin case that in the event manual
delivery of the vessel could not be effected, the court "render judgment in its favor by
ordering [herein respondents] to pay x x x the sum of P3,502,095.00 plus interest and
penalty thereon from October 12, 1994 until fully paid as provided in the Promissory
Note."
Since petitioner had extrajudicially foreclosed the chattel mortgage over the
vessel even before the pre-trial of the case, it should have therein raised as
issue during the pre-trial the award of a deficiency judgment. After all, the basis
of its above-stated alternative prayer was the same as that of its prayer for replevin -
the default of respondents in the payment of the monthly installments of their loan.
But it did not. (Emphasis supplied)cralawlibrary
The question in the present case therefore is whether respondent instituted the proper
action for the deficiency amount or raised its claim at the pre-trial.
An examination of the Complaint and Amended Complaint reveals that respondent
did not allege any deficiency account. Nor did it raise the matter in its Pre-Trial
Brief.55 This is only to be expected because the auction sale of the properties was
apparently conducted on June 19, 1992, long after it filed its Complaint/Amended
Complaint and Pre-trial Brief.
However, the Court notes that evidence on the deficiency amount was duly presented
by respondent and examined by petitioners. Respondent's employee Leonila
Buenviaje testified that the proceeds respondent earned from the auction sale of the
mortgaged properties amounted to only P78,750.00.56Another employee, Grace
Borja, testified that after applying the proceeds of P78,750 to the unpaid account of
petitioners, there remained a deficiency of P91,111.82.57 Documentary evidence of
the deficiency amount was also presented in the form of the August 24, 1992
Statement of Account marked Exhibits "F-1" and "F-2."58 Thus, an independent action
to recover the deficiency will merely entail the presentation of the same evidence of
the same claim, in the process taxing the time and resources of the parties and the
courts.59 Therefore, in the higher interest of justice and equity, the Court takes it upon
itself to grant the claim of respondent to the deficiency amount of P191,111.82, as
stated in its August 24, 1992 Statement of Account.
Yet another effect of the election by respondent of the remedy of extra-judicial
foreclosure is the inapplicability of Section 9, Rule 60 of the Rules of Court, which
states:
Section 9. Judgment. - After trial of the issues, the court shall determine who has the
right of possession to and the value of the property and shall render judgment in the
alternative for the delivery thereof to the party entitled to the same, or for its value in
case delivery can not be made and also for such damages as either party may prove,
with costs.
As already discussed, the properties of petitioners which were seized by virtue of the
Writs of Replevin were extra-judicially foreclosed and sold at public auction by
respondent in the exercise of its absolute right under the contract entered into by the
parties, without need of prior notice or demand to forthwith judicially or extra-judicially
foreclose this mortgage and proceed against all or any of the mortgaged rights,
interests and properties for the full satisfaction of the mortgagors' entire obligation to
the mortgagee.
Finally, under the same Deed of Mortgage, it is provided that in case of default,
petitioners shall be liable for liquidated penalty/collection charge in the amount
equivalent to "twenty-five (25%) percent of said outstanding obligation." It being
settled that petitioners defaulted on their loan obligation to respondent, the former are
liable for liquidated damages.
WHEREFORE, the Court PARTLY GRANTS the petition and MODIFIES the May 15,
2003 Decision and June 12, 2004 Resolution of the Court of Appeals (CA) in CA-G.R.
CV No. 59475, as follows:
1. The award in the January 13, 1998 Decision of the Regional Trial Court of Pasig
City, Branch 158 in Civil Case No. 61053, in favor of respondent, in "the amount of
Php269,611.82 plus legal interest thereon effective to date until the full amount is fully
paid" is DELETED;
2. Respondent The Golden Development Corporation is AWARDED P191,111.82 as
the deficiency amount subject to legal interest effective September 12, 1997 up to the
date of full payment;
3. Respondent is AWARDED 25% of the deficiency amount as liquidated damages.
The claim of petitioners Allandale Sportsline, Inc. and Melbarose R. Sasot to recover
properties subject of the writs of replevin is DENIED.No costs. SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 171298 April 15, 2013
SPOUSES OSCAR and THELMA CACAYORIN, Petitioners,
vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION,
INC., Respondent.
DECISION
DEL CASTILLO, J.:
Consignation is necessarily judicial. Article 1258 of the Civil Code specifically
provides that consignation shall be made by depositing the thing or things due at the
disposal of judicial authority. The said provision clearly precludes consignation in
venues other than the courts.
Assailed in this Petition for Review on Certiorari1 are the September 29, 2005
Decision2 of the Court of Appeals (CA) which granted the Petition for Certiorari in CA-
G.R. SP No. 84446 and its January 12, 2006 Resolution3denying petitioners' Motion
for Reconsideration.4
Factual Antecedents
Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and
Police Mutual Benefit Association, Inc. (AFPMBAI), a mutual benefit association duly
organized and existing under Philippine laws and engaged in the business of
developing low-cost housing projects for personnel of the Armed Forces of the
Philippines, Philippine National Police, Bureau of Fire Protection, Bureau of Jail
Management and Penology, and Philippine Coast Guard. He filed an application with
AFPMBAI to purchase a piece of property which the latter owned, specifically Lot 5,
Block 8, Phase I, Kalikasan Mutual Homes, San Pedro, Puerto Princesa City (the
property), through a loan facility.
On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand,
and the Rural Bank of San Teodoro (the Rural Bank) on the other, executed a Loan
and Mortgage Agreement5 with the former as borrowers and the Rural Bank as
lender, under the auspices of Pag-IBIG or Home Development Mutual Funds Home
Financing Program.
The Rural Bank issued an August 22, 1994 letter of guaranty6 informing AFPMBAI
that the proceeds of petitioners approved loan in the amount of 77,418.00 shall be
released to AFPMBAI after title to the property is transferred in petitioners name and
after the registration and annotation of the parties mortgage agreement.
On the basis of the Rural Banks letter of guaranty, AFPMBAI executed in petitioners
favor a Deed of Absolute Sale,7 and a new title Transfer Certificate of Title No.
370178 (TCT No. 37017) was issued in their name, with the corresponding
annotation of their mortgage agreement with the Rural Bank, under Entry No. 3364.9
Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank
closed and was placed under receivership by the Philippine Deposit Insurance
Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to take possession of
petitioners loan documents and TCT No. 37017, while petitioners were unable to pay
the loan/consideration for the property.
AFPMBAI made oral and written demands for petitioners to pay the loan/
consideration for the property.10
In July 2003, petitioners filed a Complaint11 for consignation of loan payment,
recovery of title and cancellation of mortgage annotation against AFPMBAI, PDIC and
the Register of Deeds of Puerto Princesa City. The case was docketed as Civil Case
No. 3812 and raffled to Branch 47 of the Regional Trial Court (RTC) of Puerto
Princesa City (Puerto Princesa RTC). Petitioners alleged in their Complaint that as a
result of the Rural Banks closure and PDICs claim that their loan papers could not be
located, they were left in a quandary as to where they should tender full payment of
the loan and how to secure cancellation of the mortgage annotation on TCT No.
37017. Petitioners prayed, thus:
a. That after the filing of this complaint an order be made allowing the
consignation x x x of Php77,418.00.
b. For the court to compute and declare the amount of interest to be paid by
the plaintiffs and thereafter to allow the consignation of the interest payments
in order to give way for the full discharge of the loan.
c. To order the AFPMBAI to turn over to the custody of the court the loan
records and title (T.C.T. No. 37017) of the plaintiffs if the same are in their
possession.
d. To declare the full payment of the principal loan and interest and ordering
the full discharge from mortgage of the property covered by T.C.T. No.
37017.
e. To order the Register of Deeds of Puerto Princesa City to cancel the
annotation of real estate mortgage under Entry No. 3364 at the back of
T.C.T. No. 37017.
 f. Thereafter, to turn over to the plaintiffs their title free from the aforesaid
mortgage loan.12
AFPMBAI filed a Motion to Dismiss13 claiming that petitioners Complaint falls within
the jurisdiction of the Housing and Land Use Regulatory Board (HLURB) and not the
Puerto Princesa RTC, as it was filed by petitioners in their capacity as buyers of a
subdivision lot and it prays for specific performance of contractual and legal
obligations decreed under Presidential Decree No. 957 14 (PD 957). It added that
since no prior valid tender of payment was made by petitioners, the consignation case
was fatally defective and susceptible to dismissal.
Ruling of the Regional Trial Court
In an October 16, 2003 Order,15 the trial court denied AFPMBAIs Motion to Dismiss,
declaring that since title has been transferred in the name of petitioners and the action
involves consignation of loan payments, it possessed jurisdiction to continue with the
case. It further held that the only remaining unsettled transaction is between
petitioners and PDIC as the appointed receiver of the Rural Bank.
AFPMBAI filed a Motion for Reconsideration,16 which the trial court denied in its
March 19, 2004 Order.17
Ruling of the Court of Appeals
AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a Petition for
Certiorari18 raising the issue of jurisdiction. On September 29, 2005, the CA rendered
the assailed Decision decreeing as follows:
WHEREFORE, premises considered, this Petition is GRANTED. The Assailed 16
October 2003 and 19 March 2004 Orders of the public respondent judge are hereby
ordered VACATED and SET ASIDE.
SO ORDERED.19
The CA held that Civil Case No. 3812 is a case for specific performance of
AFPMBAIs contractual and statutory obligations as owner/developer of Kalikasan
Mutual Homes, which makes PD 957 applicable and thus places the case within the
jurisdiction of the HLURB. It said that since one of the remedies prayed for is the
delivery to petitioners of TCT No. 37017, the case is cognizable exclusively by the
HLURB.
Petitioners moved for reconsideration which was denied by the CA in its January 12,
2006 Resolution.
Hence, the instant Petition.
Issue
The sole issue that must be resolved in this Petition is: Does the Complaint in Civil
Case No. 3812 fall within the exclusive jurisdiction of the HLURB?
Petitioners Arguments
Petitioners assert that the elements which make up a valid case for consignation are
present in their Complaint. They add that since a deed of absolute sale has been
issued in their favor, and possession of the property has been surrendered to them,
not to mention that title has been placed in their name, the HLURB lost jurisdiction
over their case. And for this same reason, petitioners argue that their case may not be
said to be one for specific performance of contractual and legal obligations under PD
957 as nothing more was left to be done in order to perfect or consolidate their title.
Petitioners thus pray that the herein assailed Decision and Resolution of the CA be
set aside, and that the trial court be ordered to continue with the proceedings in Civil
Case No. 3812.
Respondent's Arguments
Respondent, on the other hand, insists in its Comment20 that jurisdiction over
petitioners case lies with the HLURB, as it springs from their contractual relation as
seller and buyer, respectively, of a subdivision lot. The prayer in petitioners
Complaint involves the surrender or delivery of the title after full payment of the
purchase price, which respondent claims are reciprocal obligations in a sale
transaction covered by PD 957. Respondent adds that in effect, petitioners are
exacting specific performance from it, which places their case within the jurisdiction of
the HLURB.
Our Ruling
The Court grants the Petition.
The Complaint makes out a case for consignation.
The settled principle is that "the allegations of the Complaint determine the nature of
the action and consequently the jurisdiction of the courts. This rule applies whether or
not the plaintiff is entitled to recover upon all or some of the claims asserted therein
as this is a matter that can be resolved only after and as a result of the trial." 21
Does the Complaint in Civil Case No. 3812 make out a case for consignation? It
alleges that:
6.0 Not long after however, RBST22 closed shop and defendant Philippine
Deposit Insurance Corporation (PDIC) was appointed as its receiver. The
plaintiffs, through a representative, made a verbal inquiry to the PDIC
regarding the payment of their loan but were told that it has no information or
record of the said loan. This made [sic] the plaintiffs in quandary as to where
 or whom they will pay their loan, which they intend to pay in full, so as to
cancel the annotation of mortgage in their title.
7.0 It was discovered that the loan papers of the plaintiffs, including the
duplicate original of their title, were in the possession of defendant
AFPMBAI. It was unclear though why the said documents including the title
were in the possession of AFPMBAI. These papers should have been in
RBSTs possession and given to PDIC after its closure in the latters capacity
as receiver.
8.0 Plaintiffs are now intending to pay in full their real estate loan but could
not decide where to pay the same because of RBST [sic] closure and PDICs
failure to locate the loan records and title. This courts intervention is now
needed in order to determine to [sic] where or whom the loan should be paid.
9.0 Plaintiffs hereby respectfully prays [sic] for this court to allow the
deposit of the amount of Php77,418.00 as full payment of their principal loan,
excluding interest, pursuant to the Loan and Mortgage Agreement on 4 July
1994.23
From the above allegations, it appears that the petitioners debt is outstanding; that
the Rural Banks receiver, PDIC, informed petitioners that it has no record of their
loan even as it took over the affairs of the Rural Bank, which on record is the
petitioners creditor as per the July 4, 1994 Loan and Mortgage Agreement; that one
way or another, AFPMBAI came into possession of the loan documents as well as
TCT No. 37017; that petitioners are ready to pay the loan in full; however, under the
circumstances, they do not know which of the two the Rural Bank or AFPMBAI
should receive full payment of the purchase price, or to whom tender of payment must
validly be made.
Under Article 1256 of the Civil Code,24 the debtor shall be released from responsibility
by the consignation of the thing or sum due, without need of prior tender of payment,
when the creditor is absent or unknown, or when he is incapacitated to receive the
payment at the time it is due, or when two or more persons claim the same right to
collect, or when the title to the obligation has been lost. Applying Article 1256 to the
petitioners case as shaped by the allegations in their Complaint, the Court finds that
a case for consignation has been made out, as it now appears that there are two
entities which petitioners must deal with in order to fully secure their title to the
property: 1) the Rural Bank (through PDIC), which is the apparent creditor under the
July 4, 1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which is currently in
possession of the loan documents and the certificate of title, and the one making
demands upon petitioners to pay. Clearly, the allegations in the Complaint present a
situation where the creditor is unknown, or that two or more entities appear to
possess the same right to collect from petitioners. Whatever transpired between the
Rural Bank or PDIC and AFPMBAI in respect of petitioners loan account, if any, such
that AFPMBAI came into possession of the loan documents and TCT No. 37017, it
appears that petitioners were not informed thereof, nor made privy thereto.
Indeed, the instant case presents a unique situation where the buyer, through no fault
of his own, was able to obtain title to real property in his name even before he could
pay the purchase price in full. There appears to be no vitiated consent, nor is there
any other impediment to the consummation of their agreement, just as it appears that
it would be to the best interests of all parties to the sale that it be once and for all
completed and terminated. For this reason, Civil Case No. 3812 should at this
juncture be allowed to proceed.
Moreover, petitioners position is buttressed by AFPMBAIs own admission in its
Comment25 that it made oral and written demands upon the former, which naturally
aggravated their confusion as to who was their rightful creditor to whom payment
should be made the Rural Bank or AFPMBAI. Its subsequent filing of the Motion to
Dismiss runs counter to its demands to pay. If it wanted to be paid with alacrity, then it
should not have moved to dismiss Civil Case No. 3812, which was brought precisely
by the petitioners in order to be able to finally settle their obligation in full.
Finally, the lack of prior tender of payment by the petitioners is not fatal to their
consignation case. They filed the case for the exact reason that they were at a loss as
to which between the two the Rural Bank or AFPMBAI was entitled to such a
tender of payment. Besides, as earlier stated, Article 1256 authorizes consignation
alone, without need of prior tender of payment, where the ground for consignation is
that the creditor is unknown, or does not appear at the place of payment; or is
incapacitated to receive the payment at the time it is due; or when, without just cause,
he refuses to give a receipt; or when two or more persons claim the same right to
collect; or when the title of the obligation has been lost.
Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the
HLURB.
On the question of jurisdiction, petitioners case should be tried in the Puerto Princesa
RTC, and not the HLURB. Consignation is necessarily judicial,26 as the Civil Code
itself provides that consignation shall be made by depositing the thing or things due at
the disposal of judicial authority, thus:
Art. 1258. Consignation shall be made by depositing the things due at the disposal of
judicial authority, before whom the tender of payment shall be proved, in a proper
case, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified
thereof. (Emphasis and underscoring supplied)
The above provision clearly precludes consignation in venues other than the
courts.1wphi1 Elsewhere, what may be made is a valid tender of payment, but not
consignation. The two, however, are to be distinguished.
Tender of payment must be distinguished from consignation. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation, which is
the principal, and from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while
consignation is necessarily judicial, and the priority of the first is the attempt to make a
private settlement before proceeding to the solemnities of consignation. (8 Manresa
325).27

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

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

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

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 172346 July 24, 2013
SPOUSES NAMEAL and LOURDES BONROSTRO, Petitioners,
vs.
SPOUSES JUAN and CONSTANCIA LUNA, Respondents.
DECISION
DEL CASTILLO, J.:
Questioned in this case is the Court of Appeals' (CA) disquisition on the matter of
interest.
Petitioners spouses Nameal and Lourdes Bonrostro (spouses Bonrostro) assail
through this Petition for Review on Certiorari1 the April 15, 2005 Decision2 of the CA
in CA-G.R. CV No. 56414 which affirmed with modifications the April 4, 1997
Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch 104 in Civil Case
No. Q-94-18895. They likewise question the CA April17, 2006 Resolution 4 denying
their motion for partial reconsideration.
Factual Antecedents
In 1992, respondent Constancia Luna (Constancia), as buyer, entered into a Contract
to Sell5 with Bliss Development Corporation (Bliss) involving a house and lot identified
as Lot 19, Block 26 of New Capitol Estates in Diliman, Quezon City. Barely a year
after, Constancia, this time as the seller, entered into another Contract to Sell6with
petitioner Lourdes Bonrostro (Lourdes) concerning the same property under the
following terms and conditions:
1. The stipulated price of 1,250,000.00 shall be paid by the VENDEE to the
VENDOR in the following manner:
(a) 200,000.00 upon signing x x x the Contract To Sell,
(b) 300,000.00 payable on or before April 30, 1993,
(c) 330,000.00 payable on or before July 31, 1993,
(d) 417,000.00 payable to the New Capitol Estate, for 15 years at
6,867.12 a month,
2. x x x In the event the VENDEE fails to pay the second installment on time,
the VENDEE will pay starting May 1, 1993 a 2% interest on the 300,000.00
monthly. Likewise, in the event the VENDEE fails to pay the amount of
630,000.00 on the stipulated time, this CONTRACT TO SELL shall likewise
be deemed cancelled and rescinded and x x x 5% of the total contract price
of 1,250,000.00 shall be deemed forfeited in favor of the VENDOR. Unpaid
monthly amortization shall likewise be deducted from the initial down
payment in favor of the VENDOR.7
Immediately after the execution of the said second contract, the spouses Bonrostro
took possession of the property. However, except for the 200,000.00 down payment,
Lourdes failed to pay any of the stipulated subsequent amortization payments.
Ruling of the Regional Trial Court
On January 11, 1994, Constancia and her husband, respondent Juan Luna (spouses
Luna), filed before the RTC a Complaint8 for Rescission of Contract and Damages
against the spouses Bonrostro praying for the rescission of the contract, delivery of
possession of the subject property, payment by the latter of their unpaid obligation,
and awards of actual, moral and exemplary damages, litigation expenses and
attorneys fees.
In their Answer with Compulsory Counterclaim,9 the spouses Bonrostro averred that
they were willing to pay their total balance of 630,000.00 to the spouses Luna after
they sought from them a 60-day extension to pay the same.10 However, during the
time that they were ready to pay the said amount in the last week of October 1993,
Constancia and her lawyer, Atty. Arlene Carbon (Atty. Carbon), did not show up at
their rendezvous. On November 24, 1993, Lourdes sent Atty. Carbon a
letter11 expressing her desire to pay the balance, but received no response from the
latter. Claiming that they are still willing to settle their obligation, the spouses
Bonrostro prayed that the court fix the period within which they can pay the spouses
Luna.
The spouses Bonrostro likewise belied that they were not paying the monthly
amortization to New Capitol Estates and asserted that on November 18, 1993, they
paid Bliss, the developer of New Capitol Estates, the amount of 46,303.44. Later
during trial, Lourdes testified that Constancia instructed Bliss not to accept
amortization payments from anyone as evidenced by her March 4, 1993 letter 12 to
Bliss.
On April 4, 1997, the RTC rendered its Decision13 focusing on the sole issue of
whether the spouses Bonrostros delay in their payment of the installments constitutes
a substantial breach of their obligation under the contract warranting rescission. The
RTC ruled that the delay could not be considered a substantial breach considering
that Lourdes (1) requested for an extension within which to pay; (2) was willing and
ready to pay as early as the last week of October 1993 and even wrote Atty. Carbon
about this on November 24, 1993; (3) gave Constancia a down payment of
200,000.00; and, (4) made payment to Bliss.
The dispositive portion of the said Decision reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
1.) Declaring the Contract to Sell executed by the plaintiff Constancia and
defendant Lourdes with respect to the house and lot located at Blk. 26, Lot
19, New Capitol Estates, Diliman, Quezon City to be in force and effect. And
that Lourdes Bonrostro must remain in the possession of the premises.
2.) Ordering the defendants to pay plaintiffs within 60 days from receipt of
this decision the sum of 300,000.00 plus an interest of 2% per month from
April 1993 to November 1993.
3.) Ordering the defendants to pay plaintiffs within sixty (60) days from
receipt of this decision the sum of 330,000.00 plus an interest of 2% per
month from July 1993 to November 1993.
4.) Ordering the defendants to reimburse plaintiffs the sum of 214,492.62
which plaintiffs paid to Bliss Development Corporation.
No pronouncement as to Cost.
SO ORDERED.14
As their Motion for Reconsideration15 was likewise denied in an Order16 dated July 15,
1997, the spouses Luna appealed to the CA.17
Ruling of the Court of Appeals
In its Decision18 of April 15, 2005, the CA concluded that since the contract entered
into by and between the parties is a Contract to Sell, rescission is not the proper
remedy. Moreover, the subject contract being specifically a contract to sell a real
property on installment basis, it is governed by Republic Act No. 6552 19 or the
Maceda Law, Section 4 of which states:
Sec. 4. In case where less than two years of installment were paid, the seller shall
give the buyer a grace period of not less than sixty days from the date the installment
became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the contract by a notarial act.
(Emphases supplied)
The CA held that while the spouses Luna sent the spouses Bonrostro
letters20 rescinding the contract for non-payment of the sum of 630,000.00, the
same could not be considered as valid and effective cancellation under the Maceda
Law since they were made within the 60-day grace period and were not notarized.
The CA concluded that there being no cancellation effected in accordance with the
procedure prescribed by law, the contract therefore remains valid and subsisting.
The CA also affirmed the RTCs finding that Lourdes was ready to pay her obligation
on November 24, 1993.
However, the CA modified the RTC Decision with respect to interest, viz:
Nevertheless, there is a need to modify the appealed decision insofar as (i) the
interest imposed on the sum of 300,000.00 is only for the period April 1993 to
November 1993; (ii) the interest imposed on the sum of 330,000.00 is 2% per month
and is only for the period July 1993 to November 1993; (iii) it does not impose interest
on the amount of 214,492.62 which was paid by Constancia to BLISS in behalf of
Lourdes x x x
The rule is that no interest shall be due unless it has been expressly stipulated in
writing (Art. 1956, Civil Code). However, the contract does not provide for interest in
case of default in payment of the sum of 330,000.00 to Constancia and the monthly
amortizations to BLISS.
Considering that Lourdes had incurred x x x delay in the performance of her
obligations, she should pay (i) interest at the rate of 2% per month on the sum of
300,000.00 from May 1, 1993 until fully paid and (ii) interest at the legal rate on the
amounts of 330,000.00 and 214,492.62 from the date of default (August 1, 1993
and April 4, 1997 date of the appealed decision, respectively) until the same are fully
paid x x x21
Hence, the dispositive portion of the said Decision:
WHEREFORE, the appealed decision is AFFIRMED with the MODIFICATIONS that
paragraphs 2, 3, and 4 of its dispositive portion shall now read:
2.) Ordering the defendants to pay plaintiffs the sum of 300,000.00 plus
interest thereon at the rate of 2% per month from May 1, 1993 until fully paid;
3.) Ordering the defendants to pay plaintiffs the sum of 330,000.00 plus
interest thereon at the legal rate from August 1, 1993 until fully paid; and
4.) Ordering the defendants to reimburse plaintiffs the sum of 214,492.62,
which plaintiffs paid to Bliss Development Corporation, plus interest thereon
at the legal rate from filing of the complaint until fully reimbursed.
SO ORDERED.22
The spouses Luna no longer assailed the ruling. On the other hand, the spouses
Bonrostro filed a Partial Motion for Reconsideration23 questioning the above-
mentioned modifications. The CA, however, denied for lack of merit the said motion in
a Resolution24 dated April 17, 2006.
Hence, this Petition for Review on Certiorari.
Issue
The basic issue in this case is whether the CA correctly modified the RTC Decision
with respect to interests.
The Parties Arguments
As may be recalled, the RTC under paragraphs 2 and 3 of the dispositive portion of its
Decision ordered the spouses Bonrostro to pay the spouses Luna the sums of
300,000.00 plus interest of 2% per month from April 1993 to November 1993 and
330,000.00 plus interest of 2% per month from July 1993 to November 1993,
respectively. The CA modified these by reckoning the payment of the 2% interest on
the 300,000.00 from May 1, 1993 until fully paid and by imposing interest at the legal
rate on the 330,000.00 reckoned from August 1, 1993 until fully paid.
The spouses Bonrostro harp on the factual finding of the RTC, as affirmed by the CA,
that Lourdes was willing and ready to pay her obligation as evidenced by her
November 24, 1993 letter to Atty. Carbon. They also assert that the sending of the
said letter constitutes a valid tender of payment on their part. Hence, they argue that
they should not be assessed any interest subsequent to the date of the said letter.
Neither should they be ordered to pay interest on the amount of 214,492.62 which
covers the amortizations paid by the spouses Luna to Bliss. They point out that it was
Constancia who prevented them from fulfilling their obligation to pay the amortizations
when she instructed Bliss not to accept payment from them. 25
The spouses Luna, on the other hand, aver that the November 24, 1993 letter of
Lourdes is not equivalent to tender of payment since the mere sending of a letter
expressing the intention to pay, without the accompanying payment, cannot be
considered a valid tender of payment. Also, if the spouses Bonrostro were really
willing and ready to pay at that time and assuming that the spouses Luna indeed
refused to accept payment, the former should have resorted to consignation. Anent
the payment of amortization, the spouses Luna explain that under the parties
Contract to Sell, Lourdes was to assume Constancias balance to Bliss by paying the
monthly amortization in order to avoid the cancellation of the earlier Contract to Sell
entered into by Constancia with Bliss.26 However, since Lourdes was remiss in paying
the same, the spouses Luna were constrained to pay the amortization. They thus
assert that reimbursement to them of the said amount with interest is proper
considering that by reason of such payment, the spouses Bonrostro were spared from
the interests and penalties which would have been imposed by Bliss if the
amortizations remained unpaid.
Our Ruling
The Petition lacks merit.
The spouses Bonrostros reliance on the RTCs factual finding that Lourdes was
willing and ready to pay on November 24, 1993 is misplaced.
As mentioned, the RTC in resolving the Complaint focused on the sole issue of
whether the failure of spouses Bonrostro to pay the installments of 300,000.00 on
April 30, 1993 and 330,000.00 on July 31, 1993 is a substantial breach of their
obligation under the contract as to warrant the rescission of the same.27 The said
court ratiocinated, viz:
After careful evaluation of the evidence testimonial and documentary, the Court
believes that the defendants delay in the payment of the two installments is not so
substantial as to warrant rescission of contract. Although, the defendant failed to pay
the two installments in due time, she was able to communicate with the plaintiffs
through letters requesting for an extension of two months within which to pay the
installments. In fact, on November 24, 1993 defendant informed Atty. Arlene Carbon
that she was ready to pay the installments and the money is ready for pick-up.
However, plaintiff did not bother to get or pick-up the money without any valid reason.
It would be very prejudicial on the part of the defendant if the contract to sell be
rescinded considering that she made a downpayment of 200,000.00 and made
partial amortization to the Bliss Development Corporation. In fact, the defendant
testified that she is willing and ready to pay the balance including the interest on
November 24, 1993.
The Court is of the opinion that the delay in the payment of the balance of the
purchase price of the house and lot is not so substantial as to warrant the rescission
of the contract to sell. The question of whether a breach of contract is substantial
depends upon the attendant circumstance. x x x28
Clearly, the RTC arrived at the above-quoted conclusion based on its mistaken
premise that rescission is applicable to the case. Hence, its determination of whether
there was substantial breach. As may be recalled, however, the CA, in its assailed
Decision, found the contract between the parties as a contract to sell, specifically of a
real property on installment basis, and as such categorically declared rescission to be
not the proper remedy. This is considering that in a contract to sell, payment of the
price is a positive suspensive condition, failure of which is not a breach of contract
warranting rescission under Article 119129 of the Civil Code but rather just an event
that prevents the supposed seller from being bound to convey title to the supposed
buyer.30 Also, and as correctly ruled by the CA, Article 1191 cannot be applied to
sales of real property on installment since they are governed by the Maceda Law. 31
There being no breach to speak of in case of non-payment of the purchase price in a
contract to sell, as in this case, the RTCs factual finding that Lourdes was willing and
able to pay her obligation a conclusion arrived at in connection with the said courts
determination of whether the non-payment of the purchase price in accordance with
the terms of the contract was a substantial breach warranting rescission therefore
loses significance. The spouses Bonrostros reliance on the said factual finding is thus
misplaced. They cannot invoke their readiness and willingness to pay their obligation
on November 24, 1993 as an excuse from being made liable for interest beyond the
said date.
The spouses Bonrostro are liable for interest on the installments due from the date of
default until fully paid.
The spouses Bonrostro assert that Lourdes letter of November 24, 1993 amounts to
tender of payment of the remaining balance amounting to 630,000.00. Accordingly,
thenceforth, accrual of interest should be suspended.
Tender of payment "is the manifestation by the debtor of a desire to comply with or
pay an obligation. If refused without just cause, the tender of payment will discharge
the debtor of the obligation to pay but only after a valid consignation of the sum due
shall have been made with the proper court."32 "Consignation is the deposit of the
proper amount with a judicial authority in accordance with rules prescribed by law,
after the tender of payment has been refused or because of circumstances which
render direct payment to the creditor impossible or inadvisable." 33
"Tender of payment, without more, produces no effect."34 "To have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires
the companion acts of tender of payment and consignation."35
As to the effect of tender of payment on interest, noted civilist Arturo M. Tolentino
explained as follows:
When a tender of payment is made in such a form that the creditor could have
immediately realized payment if he had accepted the tender, followed by a prompt
attempt of the debtor to deposit the means of payment in court by way of
consignation, the accrual of interest on the obligation will be suspended from the date
of such tender. But when the tender of payment is not accompanied by the means of
payment, and the debtor did not take any immediate step to make a consignation,
then interest is not suspended from the time of such tender. x x x x36(Emphasis
supplied)
Here, the subject letter merely states Lourdes willingness and readiness to pay but it
was not accompanied by payment. She claimed that she made numerous telephone
calls to Atty. Carbon reminding the latter to collect her payment, but, neither said
lawyer nor Constancia came to collect the payment. After that, the spouses Bonrostro
took no further steps to effect payment. They did not resort to consignation of the
payment with the proper court despite knowledge that under the contract, non-
payment of the installments on the agreed date would make them liable for interest
thereon. The spouses Bonrostro erroneously assumed that their notice to pay would
excuse them from paying interest. Their claimed tender of payment did not produce
any effect whatsoever because it was not accompanied by actual payment or followed
by consignation. Hence, it did not suspend the running of interest. The spouses
Bonrostro are therefore liable for interest on the subject installments from the date of
default until full payment of the sums of 300,000.00 and 330,000.00.
The spouses Bonrostro are likewise liable for interest on the amount paid by the
spouses Luna to Bliss as amortization.
The spouses Bonrostro want to be relieved from paying interest on the amount of
214,492.62 which the spouses Luna paid to Bliss as amortizations by asserting that
they were prevented by the latter from fulfilling such obligation. They invoke Art. 1186
of the Civil Code which provides that "the condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment."
However, the Court finds Art. 1186 inapplicable to this case. The said provision
explicitly speaks of a situation where it is the obligor who voluntarily prevents
fulfillment of the condition. Here, Constancia is not the obligor but the obligee.
Moreover, even if this significant detail is to be ignored, the mere intention to prevent
the happening of the condition or the mere placing of ineffective obstacles to its
compliance, without actually preventing fulfillment is not sufficient for the application
of Art. 1186.37 Two requisites must concur for its application, to wit: (1) intent to
prevent fulfillment of the condition; and, (2) actual prevention of compliance.38
In this case, while it is undisputed that Constancia indeed instructed Bliss on March 4,
1994 not to accept payment from anyone but her, there is nothing on record to show
that Bliss heeded the instruction of Constancia as to actually prevent the spouses
Bonrostro from making payments to Bliss. There is no showing that subsequent to the
said letter, the spouses Bonrostro attempted to make payment to and was refused by
Bliss. Neither was there a witness presented to prove that Bliss indeed gave effect to
the instruction contained in Constancias letter. While Bliss Project Development
Officer, Mr. Ariel Cordero, testified during trial, nothing could be gathered from his
testimony regarding this except for the fact that Bliss received the said letter.39 In view
of these, the spouses Luna could not be said to have placed an effective obstacle as
to actually prevent the spouses Bonrostro from making amortization payments to
Bliss.
On the other hand, there are telling circumstances which militate against the spouses
Bonrostros claimed keenness to comply with their obligation to pay the monthly
amortization. After the execution of the contract in January 1993, they immediately
took possession of the property but failed to make amortization payments. It was only
after seven months or on November 18, 1993 that they made payments to Bliss in the
amount of 46,303.44.40 Whether the same covers previous unpaid amortizations is
also not clear as the receipt does not indicate the same 41 and per Statement of
Account42 as of March 8, 1994 issued by Bliss, the unpaid monthly amortizations for
February to November 1993 in the total amount of 78,271.69 remained outstanding.
There was also no payment made of the amortizations due on December 4, 1993 and
January 4, 199443 before the filing of the Complaint on January 11, 1994.
On the part of the spouses Luna, it is understandable that they paid the amortizations
due.1wphi1 The assumption of payment of the monthly amortization to Bliss was
made part of the obligations of the spouses Bonrostro under their contract with the
spouses Luna precisely to avoid the cancellation of the earlier contract entered into by
Constancia with Bliss. But as the spouses Bonrostro failed in this obligation, the
spouses Luna were constrained to pay Bliss to avoid the adverse effect of such
failure. This act of the spouses Luna proved to be even more beneficial to the
spouses Bonrostro as the cancellation of the Contract to Sell between Constancia
and Bliss would result in the cancellation of the subsequent Contract to Sell between
Constancia and Lourdes. Also, the spouses Bonrostro were relieved from paying the
penalties that would have been imposed by Bliss if the monthly amortizations covered
by the said payment remained unpaid. The Statements of Account 44 issued by Bliss
clearly state that each monthly amortization is due on or before the fourth day of
every month and a penalty equivalent to 1/10th of 1% per day of delay shall be
imposed for all payments made after due date. That translates to 3% monthly or 36%
per annum rate of interest, three times higher than the 12% per annum rate of interest
correctly imposed by the CA.

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

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

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

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 181723 August 11, 2014
ELIZABETH DEL CARMEN, Petitioner,
vs.
SPOUSES RESTITUTO SABORDO and MIMA MAHILUM-
SABORDO, Respondents.
DECISION
PERALTA, J.:
This treats of the petition for review on certiorari assailing the Decision1 and
Resolution2 of the Court of Appeals (CA), dated May 25, 2007 and January 24, 2008,
respectively, in CA-G.R. CV No. 75013.
The factual and procedural antecedents of the case are as follows:
Sometime in 1961, the spouses Toribio and Eufrocina Suico (Suico spouses), along
with several business partners, entered into a business venture by establishing a rice
and com mill at Mandaue City, Cebu. As part of their capital, they obtained a loan
from the Development Bank of the Philippines (DBP), and to secure the said loan,
four parcels of land owned by the Suico spouses, denominated as Lots 506, 512, 513
and 514, and another lot owned by their business partner, Juliana Del Rosario, were
mortgaged. Subsequently, the Suico spouses and their business partners failed to
pay their loan obligations forcing DBP to foreclose the mortgage. After the Suico
spouses and their partners failed to redeem the foreclosed properties, DBP
consolidated its ownership over the same. Nonetheless, DBP later allowed the Suico
spouses and Reginald and Beatriz Flores (Flores spouses), as substitutes for Juliana
Del Rosario, to repurchase the subject lots by way of a conditional sale for the sum of
240,571.00. The Suico and Flores spouses were able to pay the downpayment and
the first monthly amortization, but no monthly installments were made thereafter.
Threatened with the cancellation of the conditional sale, the Suico and Flores
spouses sold their rights over the said properties to herein respondents Restituto and
Mima Sabordo, subject to the condition that the latter shall pay the balance of the sale
price. On September 3, 1974, respondents and the Suico and Flores spouses
executed a supplemental agreement whereby they affirmed that what was actually
sold to respondents were Lots 512 and 513, while Lots 506 and 514 were given to
them as usufructuaries. DBP approved the sale of rights of the Suico and Flores
spouses in favor of herein respondents. Subsequently, respondents were able to
repurchase the foreclosed properties of the Suico and Flores spouses.
On September 13, 1976, respondent Restituto Sabordo (Restituto) filed with the then
Court of First Instance of Negros Occidental an original action for declaratory relief
with damages and prayer for a writ of preliminary injunction raising the issue of
whether or not the Suico spouses have the right to recover from respondents Lots
506 and 514.
In its Decision dated December 17, 1986, the Regional Trial Court (RTC) of San
Carlos City, Negros Occidental, ruled in favor of the Suico spouses directing that the
latter have until August 31, 1987 within which to redeem or buy back from
respondents Lots 506 and 514.
On appeal, the CA, in its Decision3 in CA-G.R. CV No. 13785, dated April 24, 1990,
modified the RTC decision by giving the Suico spouses until October 31, 1990 within
which to exercise their option to purchase or redeem the subject lots from
respondents by paying the sum of 127,500.00. The dispositive portion of the
CADecision reads as follows:
xxxx
For reasons given, judgment is hereby rendered modifying the dispositive portion of
[the] decision of the lower court to read:
1) The defendants-appellees are granted up to October 31, 1990 within
which toexercise their option to purchase from the plaintiff-appellant
Restituto Sabordo and Mima Mahilum Lot No. 506, covered by Transfer
Certificate of Title No. T-102598 and Lot No. 514, covered by Transfer
Certificate of Title No. T-102599, both of Escalante Cadastre, Negros
Occidental by reimbursing or paying to the plaintiff the sum of ONE
HUNDRED TWENTY-SEVEN THOUSAND FIVE HUNDRED PESOS
(127,500.00);
2) Within said period, the defendants-appellees shall continue to have
usufructuary rights on the coconut trees on Lots Nos. 506 and 514,
Escalante Cadastre, Negros Occidental;
3) The Writ of Preliminary Injunction dated August 12, 1977 shall be effective
untildefendants-appellees shall have exercised their option to purchase
within said period by paying or reimbursing to the plaintiff-appellant the
aforesaid amount.
No pronouncement as to costs.
SO ORDERED.4
In a Resolution5 dated February 13, 1991, the CA granted the Suico spouses an
additional period of 90 days from notice within which to exercise their option to
purchase or redeem the disputed lots.
In the meantime, Toribio Suico (Toribio) died leaving his widow, Eufrocina, and
several others, includingherein petitioner, as legal heirs. Later, they discovered that
respondents mortgaged Lots 506 and 514 with Republic Planters Bank (RPB) as
security for a loan which, subsequently, became delinquent.
Thereafter, claiming that theyare ready with the payment of 127,500.00, but alleging
that they cannot determine as to whom such payment shall be made, petitioner and
her co-heirs filed a Complaint6 with the RTC of San Carlos City, Negros Occidental
seeking to compel herein respondents and RPB to interplead and litigate between
themselves their respective interests on the abovementioned sum of
money.1wphi1 The Complaint also prayed that respondents be directed to substitute
Lots 506 and 514 with other real estate properties as collateral for their outstanding
obligation with RPB and that the latter be ordered toaccept the substitute collateral
and release the mortgage on Lots 506 and 514. Upon filing of their complaint, the
heirs of Toribio deposited the amount of 127,500.00 with the RTC of San Carlos
City, Branch 59.
Respondents filed their Answer7 with Counterclaim praying for the dismissal of the
above Complaint on the grounds that (1) the action for interpleader was improper
since RPB isnot laying any claim on the sum of 127,500.00; (2) that the period
withinwhich the complainants are allowed to purchase Lots 506 and 514 had already
expired; (3) that there was no valid consignation, and (4) that the case is barred by
litis pendenciaor res judicata.
On the other hand, RPB filed a Motion to Dismiss the subject Complaint on the
ground that petitioner and her co-heirs had no valid cause of action and that they
have no primary legal right which is enforceable and binding against RPB.
On December 5, 2001, the RTC rendered judgment, dismissing the Complaint of
petitioner and her co-heirs for lack of merit.8 Respondents' Counterclaim was likewise
dismissed.
Petitioner and her co-heirs filed an appeal with the CA contending that the judicial
deposit or consignation of the amount of 127,500.00 was valid and binding and
produced the effect of payment of the purchase price of the subject lots.
In its assailed Decision, the CA denied the above appeal for lack of merit and affirmed
the disputed RTC Decision.
Petitioner and her co-heirs filed a Motion for Reconsideration,9 but it was likewise
denied by the CA.
Hence, the present petition for review on certiorariwith a lone Assignment of Error, to
wit:
THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE
LOWER COURT WHICH HELD THAT THE JUDICIAL DEPOSIT OF 127,500.00
MADE BY THE SUICOS WITH THE CLERK OF COURT OF THE RTC, SAN
CARLOS CITY, IN COMPLIANCE WITH THE FINAL AND EXECUTORY DECISION
OF THE COURT OF APPEALS IN CA-G.R. CV-13785 WAS NOT VALID.10
Petitioner's main contention is that the consignation which she and her co-heirs made
was a judicial deposit based on a final judgment and, as such, does not require
compliance with the requirements of Articles 125611 and 125712of the Civil Code.
The petition lacks merit. At the outset, the Court quotes withapproval the discussion of
the CA regarding the definition and nature of consignation, to wit: consignation [is]
the act of depositing the thing due with the court or judicial authorities whenever the
creditor cannot accept or refuses to accept payment, and it generally requires a prior
tender of payment. It should be distinguished from tender of payment which is the
manifestation by the debtor to the creditor of his desire to comply with his obligation,
with the offer of immediate performance.Tender is the antecedent of consignation,
thatis, an act preparatory to the consignation, which is the principal, and from which
are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial,
and the priority of the first is the attempt to make a private settlement before
proceeding to the solemnities of consignation. Tender and consignation, where validly
made, produces the effect of payment and extinguishes the obligation. 13
In the case of Arzaga v. Rumbaoa,14 which was cited by petitioner in support of his
contention, this Court ruled that the deposit made with the court by the plaintiff-
appellee in the saidcase is considered a valid payment of the amount adjudged, even
without a prior tender of payment thereof to the defendants-appellants,because the
plaintiff-appellee, upon making such deposit, expressly petitioned the court that the
defendants-appellees be notified to receive the tender of payment.This Court held
that while "[t]he deposit, by itself alone, may not have been sufficient, but with the
express terms of the petition, there was full and complete offer of payment made
directly to defendants-appellants."15 In the instant case, however, petitioner and her
co-heirs, upon making the deposit with the RTC, did not ask the trial court that
respondents be notified to receive the amount that they have deposited. In fact, there
was no tender of payment. Instead, what petitioner and her co-heirs prayed for is
thatrespondents and RPB be directed to interplead with one another to determine
their alleged respective rights over the consigned amount; that respondents be
likewise directed to substitute the subject lots with other real properties as collateral
for their loan with RPB and that RPB be also directed to accept the substitute real
properties as collateral for the said loan. Nonetheless,the trial court correctly ruled
that interpleader is not the proper remedy because RPB did notmake any claim
whatsoever over the amount consigned by petitioner and her co-heirs with the court.
In the cases of Del Rosario v. Sandico16 and Salvante v. Cruz,17 likewise cited as
authority by petitioner, this Court held that, for a consignation or deposit with the court
of an amount due on a judgment to be considered as payment, there must beprior
tender to the judgment creditor who refuses to accept it. The same principle was
reiterated in the later case of Pabugais v. Sahijwani.18 As stated above, tender of
payment involves a positive and unconditional act by the obligor of offering legal
tender currency as payment to the obligee for the formers obligation and demanding
that the latter accept the same.19 In the instant case, the Court finds no cogent reason
to depart from the findings of the CA and the RTC that petitioner and her co-heirs
failed to make a prior valid tender of payment to respondents.

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

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

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

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

SO ORDERED.

[G.R. No. 104726. February 11, 1999]
VICTOR YAM & YEK SUN LENT, doing business under the name and style of
Philippine Printing Works, petitioners, vs. THE COURT OF APPEALS
and MANPHIL INVESTMENT CORPORATION, respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision [1] of the Court of Appeals affirming in
toto the decision of the Regional Trial Court of Manila (Branch 149), ordering petitioners
to pay private respondent the amount of P266,146.88 plus interest, service charge,
penalty fees, and attorneys fees and the costs, otherwise the chattel mortgage given to
secure payment of the loan would be foreclosed.
The following are the facts:
On May 10, 1979, the parties in this case entered into a Loan Agreement with
Assumption of Solidary Liability whereby petitioners were given a loan of P500,000.00
by private respondent. The contract provided for the payment of 12% annual interest,
2% monthly penalty, 1 1/2% monthly service charge, and 10% attorneys
fees.[2] Denominated the first Industrial Guarantee and Loan Fund (IGLF), the loan was
secured by a chattel mortgage on the printing machinery in petitioners establishment. [3]
Petitioners subsequently obtained a second IGLF loan of P300,000.00 evidenced
by two promissory notes, dated July 3, 1981 and September 30, 1981. For this purpose,
a new loan agreement[4] was entered into by the parties containing identical provisions
as the first one, except as to the annual interest which was increased to 14% and the
service charge which was reduced to 1% per annum. The deed of chattel mortgage
was amended correspondingly.[5]
By April 2, 1985, petitioners had paid their first loan of P500,000.00. On November
4, 1985, private respondent was placed under receivership by the Central Bank and
Ricardo Lirio and Cristina Destajo were appointed as receiver and in-house examiner,
respectively.
On May 17, 1986, petitioners made a partial payment of P50,000.00 on the
second loan. They later wrote private respondent a letter, dated June 18, 1986,
proposing to settle their obligation. On July 2, 1986, private respondent, through its
counsel, replied with a counter-offer, namely, that it would reduce the penalty charges
up to P140,000.00, provided petitioners can pay their obligation on or before July 30,
1986.[6]
As of July 31, 1986, petitioners total liability to private respondent
was P727,001.35, broken down as follows:[7]
Principal - P295,469.47
Interest - 165,385.00
Penalties - 254,820.55
Service Charges - 11,326.33
TOTAL P 727,001.35
On this date, petitioners paid P410,854.47 by means of a Pilipinas Bank check, receipt
of which was acknowledged by Destajo.[8] The corresponding voucher for the check
bears the following notation: full payment of IGLF LOAN.[9]
The amount of P410,854.47 was the sum of the principal (P295,469.47) and the
interest (P165,385.00) less the partial payment of P50,000.00. The private respondent
sent two demand letters to petitioners, dated September 4, 1986 and September 25,
1986, seeking payment of the balance of P266,146.88. As petitioners did not respond,
private respondent filed this case in the Regional Trial Court of Metro Manila for
the collection of P266,146.88 plus interests, penalties, and service charges or, in the
alternative, for the foreclosure of the mortgaged machineries.
In their Answer, petitioners claimed that they had fully paid their obligation to
private respondent. They contended that some time after receiving private respondents
letter of July 2, 1986 (concerning the conditional offer to reduce their penalty charges),
petitioner Victor Yam and his wife, Elena Yam, met with Carlos Sobrepeas, president
of respondent corporation, during which the latter agreed to waive the penalties and
service charges, provided petitioners paid the principal and interest, computed as of
July 31, 1986, less the earlier payment of P50,000.00. This is the reason why according
to them they only paid P410,854.47. Petitioners added that this fact of full payment is
reflected in the voucher accompanying the Pilipinas Bank check they issued, which
bore the notation full payment of IGLF loan.
On April 30, 1990, the lower court rendered a decision, the dispositive portion of
which reads:
WHEREFORE, in view of the foregoing, the defendants Victor Yam and Yek Sun Lent
are hereby ordered to pay jointly and severally, the principal loan balance
of P266,146.88 as of September 4, 1986 plus interest at 14% per annum, service
charge at 1% per annum and penalty fees at 2% per month and to pay plaintiff
attorneys fees equivalent to 10% of the amount to be recovered, and to pay the costs
of suit, failing in which, the chattel mortgage instituted on the printing machineries and
equipment described in the Deed of Chattel Mortgage dated May 10, 1979, as
amended, is hereby declared foreclosed and the subject thereof sold in accordance
with law to satisfy the judgment herein rendered.
SO ORDERED.[10]
 On appeal, the Court of Appeals affirmed the decision of the trial court in Moreover, it is to be noted that the alleged agreement to condone the amount in
toto. Hence, this petition. Petitioners reiterate the same assignment of errors made by question was supposedly entered into by the parties sometime in July 1986, that is,
them before the Court of Appeals, to wit:[11] after respondent corporation had been placed under receivership on November 4,
1985. As held in Villanueva v. Court of Appeals [18] the appointment of a receiver
FIRST ASSIGNED ERROR operates to suspend the authority of a [corporation] and of its directors and officers over
its property and effects, such authority being reposed in the receiver. [19] Thus,
Sobrepeas had no authority to condone the debt.
THAT THE LOWER COURT GRIEVOUSLY ERRED IN FAILING TO GIVE
CREDENCE TO THE DOCUMENTARY AS WELL AS TESTIMONIAL EVIDENCE OF Indeed, Mrs. Yam herself testified that when she and her husband sought the
THE PETITIONERS RELATIVE TO THE PAYMENT TO THE RESPONDENT OF release of the chattel mortgage over their property, they were told that only the Central
THE ADDITIONAL LOAN UNDER THE AMENDMENT OF DEED OF CHATTEL Bank would authorize the same because [the CB] is the receiver. [20]Considering this,
MORTGAGE (EXHIBIT K, RESPONDENT) AND AS AGAINST THE TESTIMONY OF petitioners cannot feign ignorance and plead good faith.
RESPONDENTS WITNESS, CRISTINA L. DESTAJO.
The second assignment of error pertains to the petitioners allegation that they did
not receive the two letters of demand sent by private respondent on September 4 and
SECOND ASSIGNED ERROR September 25, 1986. Both the lower court and the Court of Appeals found
otherwise. We have no reason to disturb this factual finding. It is settled that findings of
THAT THE COURT BELOW ERRED IN NOT TOTALLY DISREGARDING EXHIBITS fact of trial courts, adopted and confirmed by the Court of Appeals, are final and
E AND F OF THE RESPONDENTS conclusive and, as a rule, will not be reviewed on appeal. [21]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
The question is whether petitioners are liable for the payment of the penalties and
service charges on their loan which, as of July 31, 1986, amounted to P266,146.88. SO ORDERED.
The answer is in the affirmative. Art. 1270, par. 2 of the Civil Code provides that
express condonation must comply with the forms of donation. [12] Art. 748, par. 3
provides that the donation and acceptance of a movable, the value of which
exceeds P5,000.00, must be made in writing, otherwise the same shall be void. In this
connection, under Art. 417, par. 1, obligations, actually referring to credits,[13] are
considered movable property. In the case at bar, it is undisputed that the alleged
agreement to condone P266,146.88 of the second IGLF loan was not reduced in
writing.[14]
Nonetheless, petitioners insist that the voucher covering the Pilipinas Bank check
for P410,854.47, containing the notation that the amount is in full payment of IGLF loan,
constitutes documentary evidence of such oral agreement. This contention is without
merit. The notation in full payment of IGLF loan merely states petitioners intention in
making the payment, but in no way does it bind private respondent. It would have been
a different matter if the notation appeared in a receipt issued by respondent corporation,
through its receiver, because then it would be an admission against interest. Indeed, if
private respondent really condoned the amount in question, petitioners should have
asked for a certificate of full payment from respondent corporation, as they did in the
case of their first IGLF loan of P500,000.00.[15]
Petitioners, however, contend that the Central Bank examiner assigned to
respondent corporation, Cristina Destajo, signed the voucher in question. Destajo
claimed that, when she signed the voucher, she failed to notice the statement that the
amount of P410,854.47 was being given in full payment of IGLF Loan. She said she
merely took note of the amount and the check number indicated therein. [16] In any
event, Destajo, by countersigning the voucher, did no more than acknowledge receipt
of the payment. She cannot be held to have ascented thereby to the payment in full of
petitioners indebtedness to private respondent. It was obvious she had no authority to
condone any indebtedness, her duties being limited to issuing official receipts,
preparing check vouchers and documentation.[17]

THIRD DIVISION
G.R. No. 178317, September 23, 2015
SPOUSES RICARDO AND ELENA C. GOLEZ, Petitioners, v. MELITON
NEMEO,1 Respondent.
DECISION
VILLARAMA, JR., J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the January 20, 2006 Decision2 and April 18, 2007
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 60638. The appellate
court affirmed with modification the March 16, 1998 Decision4 of the Regional Trial
Court (RTC) of Molave, Zamboanga del Sur, Branch 23, ordering petitioners Spouses
Ricardo and Elena C. Golez to pay respondent Meliton Nemeo the contract amount
in their lease agreement of P143,823.00 with 12% interest per annum plus damages.
The antecedents of the case follow:chanRoblesvirtualLawlibrary
Respondent is the registered owner of a commercial lot located in Molave,
Zamboanga del Sur known as Lot No. 7728 and covered by Original Certificate of
Title No. 0-2,2335 of the Registry of Deeds of Zamboanga del Sur.
On May 31, 1989, respondent entered into a Lease Contract 6 over a portion of Lot
No. 7728 with petitioners as "lessees." The pertinent portion of the contract is quoted
verbatim hereunder:cralawlawlibrary
That, the Party of the First Part/Lessor hereby leased a portion of that Commercial Lot
with an area of 12 meters by 7 meters to the Party of the Second
Part;ChanRoblesVirtualawlibrary
That, the Party of the Second Part shall construct a Commercial Building thereon
amounting to ONE HUNDRED FORTY THREE THOUSAND EIGHT HUNDRED
TWENTY THREE (P143,823.00) PESOS;ChanRoblesVirtualawlibrary
That, the Party of the Second Part shall pay a monthly rental of the space occupied
by the building in the amount of TWO THOUSAND (P2,000) PESOS, of which
amount, the Party of the First Part shall not collect, instead, said amount shall be
used/paid to the herein Lessee as payment of the cost of building built on the
aforesaid lot;ChanRoblesVirtualawlibrary
That, the total amount payable by the herein Lessor to the Lessee includes the
following: a. Building permit fees; b. Cost of building; c. 21 pcs. tables; d. 23 pcs.
chairs; e. 5 pcs[.] benches; f. 1 unit cabinet; g. 3 window trapal; h. 1 unit deepwell
handpump with accessories; j. lighting facilities; and all things permanently attached
to the building; of which the total amount is the one reflected
above;ChanRoblesVirtualawlibrary
That, the term of this contract shall be for FOUR (4) Years only, however, if the
amount of (P143,823.00) shall not be folly paid within the period, the parties hereby
reserves the right to extend this contract, until such time that the above[-]mentioned
amount shall have been fully paid;ChanRoblesVirtualawlibrary
That, as soon as the above amount shall be fully paid, the building shall be deemed
owned by the herein Party of the First Part; however, the Party of the Second Part is
hereby obligated to cause the repair of the building before it shall be turned over to
the Party of the First Part;ChanRoblesVirtualawlibrary
That, this contract shall take effect on June 1, 1989, whereby payment of the rental
shall take effect on the said date[.]
chanrobleslaw
On May 23, 1992, the building subject of the lease contract was burned down.
Because of the destruction of the building, respondent, on May 29, 1992, sent a
letter7 to petitioners demanding the accumulated rentals for the leased property from
March 17, 1989 to June 17, 1992 totaling P78,000.00. As the demand was left
unheeded, respondent filed a complaint8 for collection of rentals plus damages before
the Molave RTC.
Respondent alleged that Ricardo is the proximate cause of the fire that razed the
building to the ground. He also claimed that without his knowledge, petitioners insured
the building with two insurance companies for face values of more than its cost. He
further alleged that Ricardo was charged with arson before the Municipal Trial Court
(MTC) of Molave in relation to the burning of the subject building. He prayed that
petitioners be ordered to pay him P96,000.00 representing the unpaid rentals from
March 17, 1989 until the expiration of the lease and P100,000.00 representing
damages for violating the lease contract. Respondent also sought the issuance of a
writ of attachment in his favor.
Petitioners, for their part, admitted the execution of the contract of lease but dispute
their liability to pay respondent rentals. They contended that under the contract of
lease, the rental payment is amortized over the cost of the subject building, thus,
respondent had already become its co-owner who must suffer the loss of his property.
They also denied liability for the burning of the building contending that it has been
destroyed by a fortuitous event. They admitted though that they insured the building
beyond their insurable interest over it. By way of counterclaim, they alleged that they
extended various cash loans to respondent in the total amount of P11,000.00 starting
April 1989 with an agreed monthly interest of 5%. Because respondent failed to pay
the loan, they claimed that the total demandable amount from him is already
P39,104.00 as of the filing of their Answer. Petitioners are also demanding
P1,000,000.00 in damages from respondent for publicly imputing to them the burning
of the subject building.
On July 9, 1992, Molave MTC Judge Diosdado C. Arriesgado, the investigating judge
on the criminal complaint for arson filed by respondent against Ricardo, issued an
Order9 finding probable cause to indict the latter for arson. The findings of the
investigating judge were approved by Zamboanga del Sur Provincial Prosecutor
Elpidio A. Nacua on September 4, 1992.10 However, upon motion for reconsideration
filed by Ricardo, the criminal case for arson was dismissed in a Resolution11 dated
November 3, 1992 issued by Prosecutor Nacua. This prompted respondent to file a
motion for reconsideration of the resolution issued by the Provincial Prosecutor.
In the meantime, the RTC issued a Pre-trial Order12 dated November 18, 1992, which
stated, among others, the following issues the parties agreed to litigate
on:cralawlawlibrary
Issues submitted by [respondent]:
1. Whether or not under the contract of lease entered into by
[petitioners] and [respondent], [petitioners are] liable for back
rentals to [respondent];ChanRoblesVirtualawlibrary
2. Whether or not [petitioners have] any responsibility to the burning of
the house which is the subject matter of the lease contract.
Issues submitted by [petitioners]:
1. Whether or not [respondent] has unpaid loan in favor of [petitioners]
in the amount of P39,000.00;ChanRoblesVirtualawlibrary
2. Whether or not [petitioners have] the right to claim moral damages
for the alleged character assassination made by the [respondent]
against [petitioners] for having burned the house built on the leased
premises.13 (Emphasis supplied)
chanrobleslaw
During trial, respondent testified on the contract he executed in favor of petitioners;
the subject building built thereon by the latter to be delivered at the end of the term of
the contract; the burning of the subject building; and that after the building was
burned, he demanded payment of rentals from petitioners but said demand remained
unheeded. When respondent was about to present evidence to supposedly prove that
Ricardo was the author of the fire that gutted down the subject building, the trial court
prohibited him and his counsel on the ground that the alleged arson is not the basis of
his complaint. The pertinent portion of respondent's testimony is quoted
hereunder:cralawlawlibrary
ATTY. ACAIN Q : Do you know if the Office of the Chief of Police lile[d] a case of
Arson against defendant Ricardo Golez?
COURT : If your theory is that the defendant is responsible for the burning
of the building[,] why is this collection of rental not damages?
xxxx
ATTY. ACAIN : Our theory, Your Honor, is that recollect (sic) the rental and that
there is a breach of contract.
COURT : Then this evidence of the responsibility of the burning is not
relevant to this case.
ATTY. ACAIN : We submit, Your Honor, but we contend that the defendant is
still violating the contract by burning the subject matter of the
contract. Because the contract says that upon the expiration[,]
this building will go to the lessor. There are two causes of action
here, Your Honor, which is payment of rental and damages,
Your Honor.
COURT : But the claim for damages is based on the non[-] performance of
the contract not on the criminal act of Arson.
ATTY. ACAIN : Yes, Your Honor, but I would like to make it of record, Your
Honor, that he still ha[s] a pending case of Arson against the
defendants, Your Honor, and it is in that case that we are
claiming damages for the building that [was] destroyed, Your
Honor, We are claiming damages as far as this building is
concerned, Your Honor.
chanrobleslaw
Respondent also testified on the damages he was claiming in the amount of
P100,000.00 for petitioners' failure to comply with the agreement "that after four (4)
years the building will be delivered to [him]." "
When it was petitioners' turn to present their evidence, the trial court likewise
prohibited them from proving that Ricardo was not responsible for the burning of the
subject building. The relevant portion of Ricardo's testimony reads:cralawlawlibrary
ATTY. R. Q : Now I am confronting you with a certain receipt from the [F]aith
ALOOT Hospital which is dated May 23, 1992, will you please examine
this document which is merely a xerox copy and tell the court
what is this having a relation to stay in your house? (sic)
ATTY. A. ACAIN : We beg[,] Your Honor[,] incompetent, the witness Your Honor
(sic).........
ATTY. R. : Because at the time Your Honor there was I think an incident
ALOOT which cause for the attention of the witness to the fact that he
should stay in the house. (sic)
ATTY. A. ACAIN : Already answered[,] Your Honor.
COURT : What has this to do with the cause of action[?] [T]he cause of
action is collection of the rental. It is admitted facts that there
was a rented premises (sic) no payment was made and the
house that was supposed to be made as payment of the rental
got burned.
ATTY. R. : Your Honor[,] please[.] [T]here was a claimed (sic) that the
ALOOT defendant[,] Ricardo Golez[,] was responsible [for] the fire on
May 23, 1992.
ATTY. A. ACAIN : He [denied] that already.
ATTY. R. : Yes[,] that is denied but....
ALOOT
COURT : That [has] nothing to do with the cause of action[.] [T]he cause
of action is not the burning of the house[.] [T]he cause of action
is collection of the rental. Now, if the parties was (sic) to
establish that the defendant is responsible for damages for the
burning of the house[,] you can file another case.
ATTY. R. : If the plaintiff agrees[,] Your Honor[,] that there is no claim for
ALOOT the burning of the house...
COURT : The complaint will bear that out[.] [T]here is no claim[.] You point
to any claim of the alleged burning of the house, the court did
not notice anything.16
chanrobleslaw
Ricardo also testified on his counterclaim referring to an indebtedness of respondent
amounting to P11,000.00 as evidenced by a promissory note dated January 1, 1990
signed by the latter. According to him, the loan remained unpaid and ballooned to
P368,362.50 as of December 1995 because of the 5% monthly interest.17 Petitioners
likewise presented two handwritten letters of respondent, one dated May 8,
199118 and another dated January 12, 1992,19 to supposedly prove that said loan
remains outstanding.
On rebuttal, respondent took again the witness stand to refute petitioners' allegation
that his debt was still unpaid. He presented the supposed original of the January 1,
1990 promissory note that was in his possession since July 26, 1990, the date when
he claimed to have paid his debt. He also testified that he wrote the May 8, 1991 and
January 12, 1992 letters to demand from petitioners the previous promissory notes
which were consolidated in the January 1, 1990 promissory note.20
While the trial was ongoing, the Department of Justice (DOJ) through Undersecretary
Ramon S. Esguerra, denied the motion for reconsideration filed by respondent on
February 10, 1994 and upheld the dismissal of the criminal complaint for arson
against Ricardo.21
In a Decision dated March 16, 1998, the trial court ruled in favor of respondent.
The fallo reads:cralawlawlibrary
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants
1. Ordering the defendants jointly and severally to pay the plaintiff the contract
amount of P143,823.00, to bear interest at 12% a year from the filing of this action up
to the time the same is fully paid.
2. Ordering the defendants jointly and severally to pay the plaintiff the following
sums:chanRoblesvirtualLawlibrary
a) Moral damages in the sum of P150,000.00;ChanRoblesVirtualawlibrary
b) Temperate or compensatory damage in the sum of
P100,000.00;ChanRoblesVirtualawlibrary
c) Exemplary damage in the sum [of] P50,000.00;ChanRoblesVirtualawlibrary
d) Litigation expenses in the sum of P15,000.00;ChanRoblesVirtualawlibrary
e) Attorney's fees in the sum of P25,000.00;ChanRoblesVirtualawlibrary
3. Ordering the issuance of a writ of attachment against the properties of the
defendants to secure the payment of the above judgment amounts.
4. Ordering the defendants to pay triple of the cost of this action.
5. Ordering the dismissal of all counterclaims of defendants against the plaintiff.
SO ORDERED.22
chanrobleslaw
The trial court ruled that respondent did not become the co-owner of the subject
building before it was burned down. It held that ownership will only pertain to him as
soon as the amount agreed upon under the contract shall have been fully paid. It
further held that under the law, it would still be necessary for petitioners to deliver the
building to respondent in order that acquisition of the real right of ownership can take
place. It noted that not only was the amount agreed upon under the contract not yet
fully paid, there was no delivery of the building at all to respondent. It ruled that the
building was still wholly owned by petitioners at the time the same was gutted by fire
and thus, they should be the only ones to suffer the loss.
The trial court likewise noted that petitioners have never paid respondent rent for the
leased premises. Since they can no longer deliver the building which the contract
obliged them to deliver, the trial court ruled that they are legally obliged to pay the
rentals for their use and enjoyment of the leased premises to prevent unjust
enrichment on the part of petitioners.
The trial court likewise found that Ricardo is indeed the author of the burning. It took
into consideration the insurance proceeds petitioners would get from the burning of
the building in question.
With regard to the respondent's debt to petitioners, the trial court ruled that since the
promissory note is in the possession of respondent, the debtor, it can be presumed
that it has already been paid. It also found no evidence that respondent consented to
the raising of the interest rate from 3% to 5% which was handwritten on the note by
Ricardo.
The trial court likewise found that petitioners have acted in wanton, fraudulent,
malicious, felonious, oppressive and malevolent manner in the performance of their
contractual obligations towards respondent justifying the award of damages.
Aggrieved, petitioners appealed the trial court's decision to the CA raising the
following arguments:cralawlawlibrary
I
THE LOWER COURT ERRED IN FINDING THAT DEFENDANTS-APPELLANTS
ARE LIABLE WHEN THE TERMS OF THE CONTRACT THAT THE PARTIES
ENTERED INTO CLEARLY SHOW OTHERWISE.
II
THIS CASE BEING PRIMARILY FOR COLLECTION AND PAYMENT OF RENTALS,
THE LOWER COURT ERRED IN FINDING DEFENDANTS-APPELLANTS LIABLE
FOR THE BURNING OF THE BUILDING IN QUESTION.
 III
THE LOWER COURT ERRED IN ISSUING THE QUESTIONED WRIT OF
ATTACHMENT WITHOUT COMPLYING WITH THE PROCEDURAL AS WELL AS
SUBSTANTIVE REQUIREMENTS THEREFOR.
IV
THE LOWER COURT ERRED IN DENYING HEREIN DEFENDANTS-APPELLANTS'
COUNTERCLAIM.
V COUNTERCLAIM AND IN FAILING TO CONSIDER A GLARING
THE LOWER COURT ERRED IN AWARDING EXCESSIVE DAMAGES IN FAVOR
OF PLAINTIFF-APPELLEE.23chanrobleslaw
The CA, in the assailed decision, set aside the writ of attachment and notices of
garnishment issued in favor of respondent. It, however, affirmed the decision of the
trial court in all other respects. It held that the ownership of the subject building still
pertains to petitioners and therefore, they must solely bear the loss. The CA also
ruled that the fact that the building was destroyed before it was delivered to
respondent does not free petitioners from paying back rentals. It held that petitioners
cannot use respondent's land and deprive him of rents due him, otherwise, it would
be a case of unjust enrichment at the expense of respondent.
The CA likewise agreed with the trial court's finding that petitioner Ricardo is liable for
the burning of the building. It took note of respondent's testimony that he saw Ricardo
entering the subject building an hour and a half before the fire; Ricardo's alleged
indifference regarding the fire; the investigating judge's finding of probable cause to
indict Ricardo for arson; and the fact that the latter insured the subject building for
more than its actual value. The appellate court also upheld the award of damages
upon this finding of liability on the part of Ricardo.
The appellate court also upheld the trial court's dismissal of petitioners' counterclaim
on the ground that the possession of respondent of the promissory note evidencing
his debt is prima facie evidence of payment. It ruled that the letters presented by
Ricardo did not suffice to overturn said presumption as they do not conclusively show
that the obligation of respondent remains outstanding.
Hence this petition anchored on the following grounds:cralawlawlibrary
I. THE HONORABLE COURT OF APPEALS AND THE TRIAL
COURT GROSSLY VIOLATED PETITIONERS' RIGHT TO DUE
PROCESS OF LAW WHEN THE CASE WAS DECIDED ON THE
BASIS OF ISSUES AND EVIDENCE EXPRESSLY EXCLUDED BY
THE COURT DURING TRIAL PROPER.
II. THE HONORABLE COURT OF APPEALS AND THE TRIAL
COURT FAILED TO APPLY ART. 1262 OF THE CIVIL CODE
WHEN THE SAME IS CLEARLY AND SQUARELY APPLICABLE
IN THE INSTANT CASE.
III. THE HONORABLE COURT OF APPEALS AND THE TRIAL
COURT FAILED TO CONSIDER THE FACT THAT THERE ARE
NO LEGAL AND FACTUAL BASES FOR THE GRANT OF
DAMAGES IN FAVOR OF RESPONDENT IN THAT HE HAS NOT
PRESENTED A SINGLE PROOF OR EVIDENCE AND THE
LOWER COURTS HAVE NOT CITED ANY LAW REMOTELY
SERVING AS JURAL FOUNDATION FOR THE UNWARRANTED
AWARD OF DAMAGES.
IV. THE HONORABLE COURT OF APPEALS AND THE TRIAL
COURT ERRED IN FAILING TO GRANT PETITIONERS'
EVIDENCE OF ADMISSION OF INDEBTEDNESS BY
RESPONDENT CONSISTING OF TWO HANDWRITTEN
LETTERS WRITTEN IN RESPONDENT'S OWN LANGUAGE
ADMITTING LOAN OBLIGATION WITH PETITIONERS. INSTEAD,
THE TRIAL AND APPELLATE COURTS RELIED ON MERE
DISPUTABLE PRESUMPTION OF LAW WHICH DOES NOT
EVEN FIND APPLICATION IN THE CASE, ALL OF WHICH
COMBINED TO RESULT IN A LOPSIDED DECISION
WARRANTING REVERSAL BY THE HONORABLE SUPREME
COURT.24
chanrobleslaw
Petitioners argue that the trial court itself made it clear to all concerned that the suit is
not based on any alleged arson. They contend that despite said declaration by the
trial court, the latter heavily relied on the result of the preliminary investigation finding
petitioner Ricardo chargeable for arson when the same preliminary investigation was
reversed with finality by the DOJ.
They also fault the trial court for its heavy reliance on the presumption of arson found
in Section 625 of Presidential Decree No. 1613, Amending the Law on Arson,
contending that it is not applicable to the case at bar since first, the issue of arson has
been excluded and second, there was no admission of over-insurance on their part.
Petitioners also felt that they were intentionally misled because they were made to
believe that the issue of arson will not be taken up and yet the trial court made a
finding that petitioner Ricardo had a hand in the burning of the subject building.
Petitioners contend that the transcript of stenographic notes will reveal that they were
stopped by the trial court from presenting evidence to disprove that there was arson.
Petitioners likewise asseverate that they are not liable to pay back rentals insisting the
applicability of Article 126226 to the case at bar. They contend that the "rentals" are
supposed to be "refund" to petitioners for the cost of the subject building and thus, no
"rental" is due. Petitioners also submit that based on the contract, they had an
obligation to deliver a determinate thing, i.e., the subject building, but applying Article
1262, the total loss thereof extinguished their obligation. They likewise point out that
there was no stipulation in the contract making them liable even for fortuitous events
or that the nature of the obligation requires the assumption of risk.
Petitioners further contend that there were no legal nor factual bases for the grant of
damages in favor of respondent. They argue that respondent immediately took
possession of the lot after the fire so at most, the trial court should have awarded
back rentals from 1989 to 1992. They contend that there was no basis to award the
sum of P143,823.00 as it was not a loan or forbearance for the use of money. They
further submit that there was no explanation on the award of moral and temperate
damages.
Petitioners also argue that the presumption in Section 3(h) of Rule 131 of the Rules of
Court is not applicable to the instant case. They cite the letters sent by respondent to
them allegedly acknowledging the obligation and offering payment. They contend that
if the debt has already been paid as ruled by the trial and appellate courts, why would
respondent still offer payment in said letters.
Thus, the main issues for this Court's resolution are: (1) Are petitioners liable to pay
respondent for back rentals?; (2) Are petitioners liable for damages; and (3) Are
petitioners entitled to their counterclaim?
The petition is partly granted.
This Court finds no reason to depart from the ruling of the courts a quo that petitioners
should pay respondent for back rentals. There is no dispute that the contract entered
into by the parties is one of lease. True, it had some modifications such that instead of
paying the rent in the form of money, petitioners will withhold such payment and will
apply the accumulated rent to the cost of the building they built on the leased
property. Thereafter, at the end of the lease period or until such time the cost of the
building has been fully covered by the rent accumulated, petitioners, as lessees will
transfer the ownership of said building to respondent.
Unfortunately, the subject building was gutted down by fire. However, the destruction
of the building should not in any way be made a basis to exempt petitioners from
paying rent for the period they made use of the leased property. Otherwise, this will
be a clear case of unjust enrichment. As held in P. C. Javier & Sons, Inc. v. Court of
Appeals:27cralawlawlibrary
x x x The fundamental doctrine of unjust enrichment is the transfer of value without
just cause or consideration. The elements of this doctrine are: enrichment on the part
of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The;
main objective is to prevent one to enrich himself at the expense of another. It is
commonly accepted that this doctrine simply means that a person shall not be
allowed to profit or enrich himself inequitably at another's expense.chanrobleslaw
In the instant case, there is no dispute that petitioners used the property for several
years for their own benefit having operated a restaurant thereon. Therefore, it would
be the height of of injustice to deprive respondent of compensation due him on the
use of his property by petitioners. The fact that the parties agreed to a different mode
of payment - in this case, a building - does not in any way exempt petitioners from
paying compensation due to respondent for the use of the latter's property because
the building was destroyed.
While we sustain the award of back rentals in favor of respondent, we do not agree
with the amount imposed by the courts a quo. Petitioners should only be liable for rent
during the period within which they were in possession of the leased property,
Respondent himself testified that petitioner Ricardo stayed in the building on the
leased premises just before it was burned down.28 There was no evidence submitted
to prove that petitioners were in possession of the leased property after the fire.
Therefore, petitioners should be made to pay rent until that time only. To order
petitioners to pay for back rentals equivalent to the cost of the building is in the same
way, unjust enrichment this time on the part of respondent considering that the rent
due for the period petitioners occupied the leased premises is way below the cost of
the building.
This Court further finds the awards for moral, "temperate/compensatory" and
exemplary damages lacking in factual and legal bases. As correctly argued by
petitioners, these damages were not pleaded in respondent's complaint nor proven
during trial. A perusal of the complaint, as amended, reveals that respondent was
praying for "P100,000.00 as damages for the violation."29 He did not specifically pray
that it was for moral, temperate or exemplary damages. It is well-settled that in order
that moral damages may be awarded, there must be pleading and proof of moral
suffering, mental anguish, fright and the like.30 And even if the moral damages were
specifically pleaded in his complaint, nothing on the records would show that
respondent testified on said damages.
Even the trial court's finding that petitioner Ricardo was the author of the fire will not
make respondent entitled to moral damages and exemplary damages. As correctly
pointed out by petitioners, both parties were prevented from presenting evidence to
prove or disprove that there was arson. Thus, there cannot be a finding on petitioners'
liability of willful injury as basis of moral damages as provided in Article 2220 31 and
exemplary damages as provided in Article 223232 of the Civil Code. It is also worthy to
note that the criminal complaint for arson filed against petitioner Ricardo was
dismissed with finality by the DOJ thus precluding any criminal liability on his part
regarding the burning of the subject building. There was no evidence presented by
respondent that the dismissal of the criminal complaint was reversed.
As to the award of litigation expenses, we find the same to be justified. As provided
under Article 2208 of the Civil Code, they may be recovered when the defendant's act
or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest. However, we find no basis for a separate award of
attorney's fees since they were not prayed for in both the original and amended
complaints.33
As to the order of the courts a quo for petitioners to pay triple of the cost of the action,
this Court also finds the same without basis. Nowhere in the decision can its factual or
legal justification be found.
This Court likewise affirms the dismissal of petitioners' counterclaims. As correctly
ruled by the trial and appellate courts, the possession of respondent of the promissory
note evidencing his debt to petitioners is prima facie evidence of the payment of the
same as provided in Section 3(h) of Rule 131 of the Rules of Court which
reads:cralawlawlibrary
SEC. 3. Disputable presumptions. - The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other
evidence:chanRoblesvirtualLawlibrary
 Compadre, how's the receipts which show an obligation of P11,000.00 to you? If you
xxxx find them, please bring them to the house because these receipts appear having
already lapsed, nonetheless, if they cannot be located, that's not hard between us.
(h) That an obligation delivered up to the debtor has been
paid;ChanRoblesVirtualawlibrary I shall be waiting.

xxxx Your brother in Christ,

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

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

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

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

Your brother in Christ,

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

[Second letter dated January 12, 1992:]

Dear Compadre,

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

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

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

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

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

In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a
writ of execution of the judgment for attorney's fees in his favor. Gan Tion went on
certiorari to the Court of Appeals, where he pleaded legal compensation, claiming that
Ong Wan Sieng was indebted to him in the sum of P4,320 for unpaid rents. The
appellate court accepted the petition but eventually decided for the respondent,
holding that although "respondent Ong is indebted to the petitioner for unpaid rentals
in an amount of more than P4,000.00," the sum of P500 could not be the subject of
legal compensation, it being a "trust fund for the benefit of the lawyer, which would
have to be turned over by the client to his counsel." In the opinion of said court, the

SECOND DIVISION
[G.R. No. 128448. February 1, 2001]
SPOUSES ALEJANDRO MIRASOL and LILIA E. MIRASOL, petitioners, vs. THE
COURT OF APPEALS, PHILIPPINE NATIONAL BANK, and PHILIPPINE
EXCHANGE CO., INC., respondents.
DECISION
QUISUMBING, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals
dated July 22, 1996, in CA-G.R. CV No. 38607, as well as of its resolution of January
23, 1997, denying petitioners motion for reconsideration. The challenged decision
reversed the judgment of the Regional Trial Court of Bacolod City, Branch 42 in Civil
Case No. 14725.
The factual background of this case, as gleaned from the records, is as follows:
The Mirasols are sugarland owners and planters. In 1973-1974, they produced
70,501.08 piculs[1] of sugar, 25,662.36 of which were assigned for export. The following
crop year, their acreage planted to the same crop was lower, yielding 65,100 piculs of
sugar, with 23,696.40 piculs marked for export.
Private respondent Philippine National Bank (PNB) financed the Mirasols sugar
production venture for crop years, 1973-1974 and 1974-1975 under a crop loan
financing scheme. Under said scheme, the Mirasols signed Credit Agreements, a
Chattel Mortgage on Standing Crops, and a Real Estate Mortgage in favor of PNB. The
Chattel Mortgage empowered PNB as the petitioners attorney-in-fact to negotiate and
to sell the latters sugar in both domestic and export markets and to apply the proceeds
to the payment of their obligations to it.
Exercising his law-making powers under Martial Law, then President Ferdinand
Marcos issued Presidential Decree (P.D.) No. 579[2] in November, 1974. The decree
authorized private respondent Philippine Exchange Co., Inc. (PHILEX) to purchase
sugar allocated for export to the United States and to other foreign markets. The price
and quantity was determined by the Sugar Quota Administration, PNB, the Department
of Trade and Industry, and finally, by the Office of the President. The decree further
authorized PNB to finance PHILEXs purchases. Finally, the decree directed that
whatever profit PHILEX might realize from sales of sugar abroad was to be remitted to
a special fund of the national government, after commissions, overhead expenses and
liabilities had been deducted. The government offices and entities tasked by existing
laws and administrative regulations to oversee the sugar export pegged the purchase
price of export sugar in crop years 1973-1974 and 1974-1975 at P180.00 per picul.
PNB continued to finance the sugar production of the Mirasols for crop years
1975-1976 and 1976-1977. These crop loans and similar obligations were secured by
real estate mortgages over several properties of the Mirasols and chattel mortgages
over standing crops. Believing that the proceeds of their sugar sales to PNB, if properly
accounted for, were more than enough to pay their obligations, petitioners asked PNB
for an accounting of the proceeds of the sale of their export sugar. PNB ignored the
request. Meanwhile, petitioners continued to avail of other loans from PNB and to make
unfunded withdrawals from their current accounts with said bank. PNB then asked
petitioners to settle their due and demandable accounts. As a result of these demands
for payment, petitioners on August 4, 1977, conveyed to PNB real properties valued
at P1,410,466.00 by way of dacion en pago, leaving an unpaid overdrawn account
of P1,513,347.78.
On August 10, 1982, the balance of outstanding sugar crop and other loans owed
by petitioners to PNB stood at P15,964,252.93. Despite demands, the Mirasols failed
to settle said due and demandable accounts. PNB then proceeded to extrajudicially
foreclose the mortgaged properties. After applying the proceeds of the auction sale of
the mortgaged realties, PNB still had a deficiency claim of P12,551,252.93.
Petitioners continued to ask PNB to account for the proceeds of the sale of their
export sugar for crop years 1973-1974 and 1974-1975, insisting that said proceeds, if
properly liquidated, could offset their outstanding obligations with the bank. PNB
remained adamant in its stance that under P.D. No. 579, there was nothing to account
since under said law, all earnings from the export sales of sugar pertained to the
National Government and were subject to the disposition of the President of the
Philippines for public purposes.
On August 9, 1979, the Mirasols filed a suit for accounting, specific performance,
and damages against PNB with the Regional Trial Court of Bacolod City, docketed as
Civil Case No. 14725.
On June 16, 1987, the complaint was amended to implead PHILEX as party-
defendant.
The parties agreed at pre-trial to limit the issues to the following:
1. The constitutionality and/or legality of Presidential Decrees numbered 338, 579,
and 1192;
2. The determination of the total amount allegedly due the plaintiffs from the
defendants corresponding to the allege(d) unliquidated cost price of export sugar
during crop years 1973-1974 and 1974-1975.[3]
After trial on the merits, the trial court decided as follows:
WHEREFORE, the foregoing premises considered, judgment is hereby rendered in
favor of the plaintiffs and against the defendants Philippine National Bank (PNB) and
Philippine Exchange Co., Inc. (PHILEX):
(1)Declaring Presidential Decree 579 enacted on November 12, 1974 and
all circulars, as well as policies, orders and other issuances issued in
furtherance thereof, unconstitutional and therefore, NULL and VOID
being in gross violation of the Bill of Rights;
(2) Ordering defendants PNB and PHILEX to pay, jointly and severally,
plaintiffs the whole amount corresponding to the residue of the
unliquidated actual cost price of 25,662 piculs in export sugar for crop
year 1973-1974 at an average price of P300.00 per picul, deducting
 therefrom however, the amount of P180.00 already paid in advance plus
the allowable deductions in service fees and other charges;
(3) And also, for the same defendants to pay, jointly and severally, same
plaintiffs the whole amount corresponding to the unpaid actual price of
14,596 piculs of export sugar for crop year 1974-1975 at an average rate
of P214.14 per picul minus however, the sum of P180.00 per picul
already paid by the defendants in advance and the allowable deducting
(sic) in service fees and other charges.
The unliquidated amount of money due the plaintiffs but withheld by the defendants,
shall earn the legal rate of interest at 12% per annum computed from the date this
action was instituted until fully paid; and, finally
(4) Directing the defendants PNB and PHILEX to pay, jointly and severally,
plaintiffs the sum of P50,000.00 in moral damages and the amount of
P50,000.00 as attorneys fees, plus the costs of this litigation.
SO ORDERED.[4]
The same was, however, modified by a Resolution of the trial court dated May 14,
1992, which added the following paragraph:
This decision should however, be interpreted without prejudice to whatever benefits
that may have accrued in favor of the plaintiffs with the passage and approval of
Republic Act 7202 otherwise known as the Sugar Restitution Law, authorizing the
restitution of losses suffered by the plaintiffs from Crop year 1974-1975 to Crop year
1984-1985 occasioned by the actuations of government-owned and controlled
agencies. (Underscoring in the original).
SO ORDERED.[5]
The Mirasols then filed an appeal with the respondent court, docketed as CA-G.R.
CV No. 38607, faulting the trial court for not nullifying the dacion en pago and the
mortgage contracts, as well as the foreclosure of their mortgaged properties. Also
faulted was the trial courts failure to award them the full money claims and damages
sought from both PNB and PHILEX.
On July 22, 1996, the Court of Appeals reversed the trial court as follows:
WHEREFORE, this Court renders judgment REVERSING the appealed Decision and
entering the following verdict:
1. Declaring the dacion en pago and the foreclosure of the mortgaged properties
valid;
2. Ordering the PNB to render an accounting of the sugar account of the Mirasol[s]
specifically stating the indebtedness of the latter to the former and the proceeds of
Mirasols 1973-1974 and 1974-1975 sugar production sold pursuant to and in
accordance with P.D. 579 and the issuances therefrom;
3. Ordering the PNB to recompute in accordance with RA 7202 Mirasols
indebtedness to it crediting to the latter payments already made as well as the auction
price of their foreclosed real estate and stipulated value of their properties ceded to
PNB in the dacon (sic) en pago;
4. Whatever the result of the recomputation of Mirasols account, the outstanding
balance or the excess payment shall be governed by the pertinent provisions of RA
7202.
SO ORDERED.[6]
On August 28, 1996, petitioners moved for reconsideration, which the appellate
court denied on January 23, 1997.
Hence, the instant petition, with petitioners submitting the following issues for our
resolution:
1. Whether the Trial Court has jurisdiction to declare a statute unconstitutional without
notice to the Solicitor General where the parties have agreed to submit such issue for
the resolution of the Trial Court.
2. Whether PD 579 and subsequent issuances[7] thereof are unconstitutional.
3. Whether the Honorable Court of Appeals committed manifest error in not applying
the doctrine of piercing the corporate veil between respondents PNB and PHILEX.
4. Whether the Honorable Court of Appeals committed manifest error in upholding the
validity of the foreclosure on petitioners property and in upholding the validity of
the dacion en pago in this case.
5. Whether the Honorable Court of Appeals committed manifest error in not awarding
damages to petitioners grounds relied upon the allowance of the petition.
(Underscored in the original)[8]
On the first issue. It is settled that Regional Trial Courts have the authority and
jurisdiction to consider the constitutionality of a statute, presidential decree, or
executive order.[9] The Constitution vests the power of judicial review or the power to
declare a law, treaty, international or executive agreement, presidential decree, order,
instruction, ordinance, or regulation not only in this Court, but in all Regional Trial
Courts.[10] In J.M. Tuason and Co. v. Court of Appeals, 3 SCRA 696 (1961) we held:
Plainly, the Constitution contemplates that the inferior courts should have jurisdiction
in cases involving constitutionality of any treaty or law, for it speaks of appellate
review of final judgments of inferior courts in cases where such constitutionality
happens to be in issue.[11]
 Furthermore, B.P. Blg. 129 grants Regional Trial Courts the authority to rule on
the conformity of laws or treaties with the Constitution, thus:
SECTION 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive
original jurisdiction:
(1) In all civil actions in which the subject of the litigations is incapable of pecuniary
estimation;
The pivotal issue, which we must address, is whether it was proper for the trial
court to have exercised judicial review.
Petitioners argue that the Court of Appeals erred in finding that it was improper
for the trial court to have declared P.D. No. 579 [12] unconstitutional, since petitioners
had not complied with Rule 64, Section 3, of the Rules of Court.Petitioners contend that
said Rule specifically refers only to actions for declaratory relief and not to an ordinary
action for accounting, specific performance, and damages.
Petitioners contentions are bereft of merit. Rule 64, Section 3 of the Rules of Court
provides:
SEC. 3. Notice to Solicitor General. In any action which involves the validity of a
statute, or executive order or regulation, the Solicitor General shall be notified by the
party attacking the statute, executive order, or regulation, and shall be entitled to be
heard upon such question.
This should be read in relation to Section 1 [c] of P.D. No. 478, [13] which states in
part:
SECTION 1. Functions and Organizations (1) The Office of the Solicitor General
shallhave the following specific powers and functions:
xxx
[c] Appear in any court in any action involving the validity of any treaty, law, executive
order or proclamation, rule or regulation when in his judgment his intervention is
necessary or when requested by the court.
It is basic legal construction that where words of command such as shall, must,
or ought are employed, they are generally and ordinarily regarded as
mandatory.[14] Thus, where, as in Rule 64, Section 3 of the Rules of Court, the word
shall is used, a mandatory duty is imposed, which the courts ought to enforce.
The purpose of the mandatory notice in Rule 64, Section 3 is to enable the
Solicitor General to decide whether or not his intervention in the action assailing the
validity of a law or treaty is necessary. To deny the Solicitor General such notice would
be tantamount to depriving him of his day in court. We must stress that, contrary to
petitioners stand, the mandatory notice requirement is not limited to actions involving
declaratory relief and similar remedies. The rule itself provides that such notice is
required in any action and not just actions involving declaratory relief. Where there is
no ambiguity in the words used in the rule, there is no room for construction.[15] In all
actions assailing the validity of a statute, treaty, presidential decree, order, or
proclamation, notice to the Solicitor General is mandatory.
In this case, the Solicitor General was never notified about Civil Case No. 14725.
Nor did the trial court ever require him to appear in person or by a representative or to
file any pleading or memorandum on the constitutionality of the assailed decree. Hence,
the Court of Appeals did not err in holding that lack of the required notice made it
improper for the trial court to pass upon the constitutional validity of the questioned
presidential decrees.
As regards the second issue, petitioners contend that P.D. No. 579 and its
implementing issuances are void for violating the due process clause and the
prohibition against the taking of private property without just compensation. Petitioners
now ask this Court to exercise its power of judicial review.
Jurisprudence has laid down the following requisites for the exercise of this power:
First, there must be before the Court an actual case calling for the exercise of judicial
review. Second, the question before the Court must be ripe for adjudication. Third, the
person challenging the validity of the act must have standing to challenge. Fourth, the
question of constitutionality must have been raised at the earliest opportunity, and
lastly, the issue of constitutionality must be the very lis mota of the case. [16]
As a rule, the courts will not resolve the constitutionality of a law, if the controversy
can be settled on other grounds.[17] The policy of the courts is to avoid ruling on
constitutional questions and to presume that the acts of the political departments are
valid, absent a clear and unmistakable showing to the contrary. To doubt is to sustain.
This presumption is based on the doctrine of separation of powers. This means that the
measure had first been carefully studied by the legislative and executive departments
and found to be in accord with the Constitution before it was finally enacted and
approved.[18]
The present case was instituted primarily for accounting and specific
performance. The Court of Appeals correctly ruled that PNBs obligation to render an
accounting is an issue, which can be determined, without having to rule on the
constitutionality of P.D. No. 579. In fact there is nothing in P.D. No. 579, which is
applicable to PNBs intransigence in refusing to give an accounting. The governing law
should be the law on agency, it being undisputed that PNB acted as petitioners agent.
In other words, the requisite that the constitutionality of the law in question be the
very lis mota of the case is absent. Thus we cannot rule on the constitutionality of P.D.
No. 579.
Petitioners further contend that the passage of R.A. No. 7202 [19] rendered P.D.
No. 579 unconstitutional, since R.A. No. 7202 affirms that under P.D. 579, the due
process clause of the Constitution and the right of the sugar planters not to be deprived
of their property without just compensation were violated.
A perusal of the text of R.A. No. 7202 shows that the repealing clause of said law
merely reads:
SEC. 10. All laws, acts, executive orders and circulars in conflict herewith are hereby
repealed or modified accordingly.
 The settled rule of statutory construction is that repeals by implication are not
favored.[20] R.A. No. 7202 cannot be deemed to have repealed P.D. No. 579. In
addition, the power to declare a law unconstitutional does not lie with the legislature,
but with the courts.[21] Assuming arguendo that R.A. No. 7202 did indeed repeal P.D.
No. 579, said repeal is not a legislative declaration finding the earlier law
unconstitutional.
To resolve the third issue, petitioners ask us to apply the doctrine of piercing the
veil of corporate fiction with respect to PNB and PHILEX. Petitioners submit that
PHILEX was a wholly-owned subsidiary of PNB prior to the latters privatization.
We note, however, that the appellate court made the following finding of fact:
1. PNB and PHILEX are separate juridical persons and there is no reason to pierce
the veil of corporate personality. Both existed by virtue of separate organic acts. They
had separate operations and different purposes and powers. [22]
Findings of fact by the Court of Appeals are conclusive and binding upon this
Court unless said findings are not supported by the evidence.[23] Our jurisdiction in a
petition for review under Rule 45 of the Rules of Court is limited only to reviewing
questions of law and factual issues are not within its province. [24] In view of the
aforequoted finding of fact, no manifest error is chargeable to the respondent court for
refusing to pierce the veil of corporate fiction.
On the fourth issue, the appellate court found that there were two sets of accounts
between petitioners and PNB, namely:
1. The accounts relative to the loan financing scheme entered into by the Mirasols
with PNB (PNBs Brief, p. 16) On the question of how much the PNB lent the Mirasols
for crop years 1973-1974 and 1974-1975, the evidence recited by the lower court in
its decision was deficient. We are offered (sic) PNB the amount of FIFTEEN MILLION
NINE HUNDRED SIXTY FOUR THOUSAND TWO HUNDRED FIFTY TWO PESOS
and NINETY THREE Centavos (Ps15,964,252.93) but this is the alleged balance the
Mirasols owe PNB covering the years 1975 to 1982.
2. The account relative to the Mirasols current account Numbers 5186 and 5177
involving the amount of THREE MILLION FOUR HUNDRED THOUSAND Pesos
(P3,400,000.00) PNB claims against the Mirasols. (PNBs Brief, p. 17)
In regard to the first set of accounts, besides the proceeds from PNBs sale of sugar
(involving the defendant PHILEX in relation to the export portion of the stock), the
PNB foreclosed the Mirasols mortgaged properties realizing therefrom in 1982
THREE MILLION FOUR HUNDRED THIRTEEN THOUSAND Pesos (P3,413,000.00),
the PNB itself having acquired the properties as the highest bidder.
As to the second set of accounts, PNB proposed, and the Mirasols accepted,
a dacion en pago scheme by which the Mirasols conveyed to PNB pieces of property
valued at ONE MILLION FOUR HUNDRED TEN THOUSAND FOUR HUNDRED
SIXTY-SIX Pesos (Ps1,410,466.00) (PNBs Brief, pp. 16-17).[25]
Petitioners now claim that the dacion en pago and the foreclosure of their
mortgaged properties were void for want of consideration. Petitioners insist that the
loans granted them by PNB from 1975 to 1982 had been fully paid by virtue of legal
compensation. Hence, the foreclosure was invalid and of no effect, since the mortgages
were already fully discharged. It is also averred that they agreed to the dacion only by
virtue of a martial law Arrest, Search, and Seizure Order (ASSO).
We find petitioners arguments unpersuasive. Both the lower court and the
appellate court found that the Mirasols admitted that they were indebted to PNB in the
sum stated in the latters counterclaim.[26] Petitioners nonetheless insist that the same
can be offset by the unliquidated amounts owed them by PNB for crop years 1973-74
and 1974-75. Petitioners argument has no basis in law. For legal compensation to take
place, the requirements set forth in Articles 1278 and 1279 of the Civil Code must be
present. Said articles read as follows:
Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the latter
has been stated;
(3) That the two debts are due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced
by third persons and communicated in due time to the debtor.
In the present case, set-off or compensation cannot take place between the
parties because:
First, neither of the parties are mutually creditors and debtors of each other. Under
P.D. No. 579, neither PNB nor PHILEX could retain any difference claimed by the
Mirasols in the price of sugar sold by the two firms. P.D. No. 579 prescribed where the
profits from the sales are to be paid, to wit:
SECTION 7. x x x After deducting its commission of two and one-half (2-1/2%)
percent of gross sales, the balance of the proceeds of sugar trading operations for
every crop year shall be set aside by the Philippine Exchange Company, Inc,. as
profits which shall be paid to a special fund of the National Government subject to the
disposition of the President for public purposes.
 Thus, as correctly found by the Court of Appeals, there was nothing with which
PNB was supposed to have off-set Mirasols admitted indebtedness.[27]
Second, compensation cannot take place where one claim, as in the instant case,
is still the subject of litigation, as the same cannot be deemed liquidated.[28]
With respect to the duress allegedly employed by PNB, which impugned
petitioners consent to the dacion en pago, both the trial court and the Court of Appeals
found that there was no evidence to support said claim. Factual findings of the trial
court, affirmed by the appellate court, are conclusive upon this Court. [29]
On the fifth issue, the trial court awarded petitioners P50,000.00 in moral
damages and P50,000.00 in attorneys fees. Petitioners now theorize that it was error
for the Court of Appeals to have deleted these awards, considering that the appellate
court found PNB breached its duty as an agent to render an accounting to petitioners.
An agents failure to render an accounting to his principal is contrary to Article
1891 of the Civil Code.[30] The erring agent is liable for damages under Article 1170 of
the Civil Code, which states:

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

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

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

Moral damages are explicitly authorized in breaches of contract where the

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

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

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

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

On July 24, 1990, respondent Atty. Vicente D. Millora (Vicente) obtained a
loan of P400,000.00 from petitioner Dr. Jesus M. Montemayor (Jesus) as evidenced by a
promissory note[5]executed by Vicente. On August 10, 1990, the parties executed a loan
contract[6] wherein it was provided that the loan has a stipulated monthly interest of 2% and that
Vicente had already paid the amount of P100,000.00 as well as the P8,000.00 representing the
interest for the period July 24 to August 23, 1990.
Subsequently and with Vicentes consent, the interest rate was increased to 3.5% or P10,500.00
a month.From March 24, 1991 to July 23, 1991, or for a period of four months, Vicente was
supposed to pay P42,000.00 as interest but was able to pay only P24,000.00. This was the last
payment Vicente made. Jesus made several demands[7] for Vicente to settle his obligation but to
no avail.
Thus, on August 17, 1993, Jesus filed before the RTC of Quezon City a Complaint[8] for Sum of
Money against Vicente which was docketed as Civil Case No. Q-93-17255. On October 19,
Intending to appeal the portion of the RTC Decision which declared him liable to Jesus for the
sum of P300,000.00 with interest at the rate of 12% per annum counted from the filing of the
complaint on August 17, 1993 until fully paid, Vicente filed on July 6, 2000 a Notice of
Appeal.[17] This was however denied by the RTC in an Order[18] dated July 10, 2000 on the
ground that the Decision has already become final and executory on July 1, 2000.[19]
Meanwhile, Jesus filed on July 12, 2000 a Motion for Reconsideration and Clarification[20] of the
June 23, 2000 Order granting Vicentes Motion for the Issuance of a Writ of Execution. Thereafter,
Jesus filed on September 22, 2000 his Motion for the Issuance of a Writ of Execution.[21] After the
hearing on the said motions, the RTC issued an Order[22] dated September 6, 2002 denying both
motions for lack of merit. The Motion for Reconsideration and Clarification was denied for
violating Section 5,[23] Rule 15 of the Rules of Court and likewise the Motion for the Issuance of a
Writ of Execution, for violating Section 6,[24] Rule 15 of the same Rules.
Jesus filed his Motion for Reconsideration[25] thereto on October 10, 2002 but this was eventually
denied by the trial court through its Order[26] dated October 2, 2003.
Ruling of the Court of Appeals
Jesus went to the CA via a Petition for Certiorari[27] under Rule 65 of the
Rules of Court.
On May 19, 2005, the CA issued its Decision the dispositive portion of which provides:
WHEREFORE, the foregoing considered, the petition for certiorari
is DENIED and the assailed Orders are AFFIRMED in toto. No costs.
SO ORDERED.[28]
Not satisfied, Jesus is now before this Court via a Petition for Review on Certiorari under Rule 45
of the Rules of Court.
Issue
NOTWITHSTANDING THE FINALITY OF THE TRIAL COURTS
DECISION OF OCTOBER 27, 1999, AS WELL AS THE ORDERS OF
SEPTEMBER 6, 2002 AND OCTOBER 2, 2003, THE LEGAL ISSUE TO
BE RESOLVED IN THIS CASE IS WHETHER X X X [DESPITE] THE
ABSENCE OF A SPECIFIC AMOUNT IN THE DECISION
REPRESENTING RESPONDENTS COUNTERCLAIM, THE SAME
COULD BE VALIDLY [OFFSET] AGAINST THE SPECIFIC AMOUNT OF
AWARD MENTIONED IN THE DECISION IN FAVOR OF THE
PETITIONER.[29]
Petitioners Arguments
Jesus contends that the trial court grievously erred in ordering the implementation of the RTCs
October 27, 1999 Decision considering that same does fix the amount of attorneys
fees. According to Jesus, such disposition leaves the matter of computation of the attorneys fees
uncertain and, hence, the writ of execution cannot be implemented. In this regard, Jesus points
out that not even the Sheriff who will implement said Decision can compute the judgment
awards. Besides, a sheriff is not clothed with the authority to render judicial functions such as the
computation of specific amounts of judgment awards.
Respondents Arguments
Vicente counter-argues that the October 27, 1999 RTC Decision can no longer be
made subject of review, either by way of an appeal or by way of a special civil action
for certiorari because it had already attained finality when after its promulgation, Jesus did not
even file a motion for reconsideration thereof or interpose an appeal thereto. In fact, it was Vicente
who actually filed a motion for reconsideration and a notice of appeal, which was eventually
denied and disapproved by the trial court.
Our Ruling
The petition lacks merit.
The October 27, 1999 Decision of
the RTC is already final and
executory, hence, immutable.
At the outset, it should be stressed that the October 27, 1999 Decision of the RTC is
already final and executory. Hence, it can no longer be the subject of an appeal. Consequently,
Jesus is bound by the decision and can no longer impugn the same. Indeed, well-settled is the
rule that a decision that has attained finality can no longer be modified even if the modification is
meant to correct erroneous conclusions of fact or law.The doctrine of finality of judgment is
explained in Gallardo-Corro v. Gallardo:[30]
Nothing is more settled in law than that once a judgment attains
finality it thereby becomes immutable and unalterable. It may no longer be
modified in any respect, even if the modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and regardless of
whether the modification is attempted to be made by the court rendering it or
by the highest court of the land. Just as the losing party has the right to file
an appeal within the prescribed period, the winning party also has the
correlative right to enjoy the finality of the resolution of his case. The doctrine
of finality of judgment is grounded on fundamental considerations of public
policy and sound practice, and that, at the risk of occasional errors, the
judgments or orders of courts must become final at some definite time fixed
by law; otherwise, there would be no end to litigations, thus setting to naught
the main role of courts of justice which is to assist in the enforcement of the
rule of law and the maintenance of peace and order by settling justiciable
controversies with finality.[31]
To stress, the October 27, 1999 Decision of the RTC has already attained finality. Such
definitive judgment is no longer subject to change, revision, amendment or reversal. Upon finality
of the judgment, the Court loses its jurisdiction to amend, modify or alter the same. Except for
correction of clerical errors or the making of nunc pro tunc entries which cause no prejudice to
any party, or where the judgment is void, the judgment can neither be amended nor altered after
it has become final and executory. This is the principle of immutability of final judgment.[32]
The amount of attorneys fees is
ascertainable from the RTC
Decision. Thus, compensation is
possible.
Jesus contends that offsetting cannot be made because the October 27, 1999 judgment of the
RTC failed to specify the amount of attorneys fees. He maintains that for offsetting to apply, the
two debts must be liquidated or ascertainable. However, the trial court merely awarded to Vicente
attorneys fees based on quantum meruit without specifying the exact amount thereof.
We do not agree.
For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of the
Civil Code, quoted below, must be present.
ARTICLE 1278. Compensation shall take place when two
persons, in their own right, are creditors and debtors of each other.
ARTICLE 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time
to the debtor.
A debt is liquidated when its existence and amount are determined. It is not necessary
that it be admitted by the debtor. Nor is it necessary that the credit appear in a final judgment in
order that it can be considered as liquidated; it is enough that its exact amount is known. And a
debt is considered liquidated, not only when it is expressed already in definite figures which do
not require verification, but also when the determination of the exact amount depends only on a
simple arithmetical operation x x x.[33]
In Lao v. Special Plans, Inc.,[34] we ruled that:
When the defendant, who has an unliquidated claim, sets it up by way of
counterclaim, and a judgment is rendered liquidating such claim, it can be
compensated against the plaintiffs claim from the moment it is liquidated by
judgment. We have restated this in Solinap v. Hon. Del Rosario[35] where we
held that compensation takes place only if both obligations are liquidated.
In the instant case, both obligations are liquidated. Vicente has the obligation to pay his
debt due to Jesus in the amount of P300,000.00 with interest at the rate of 12% per annum
counted from the filing of the instant complaint on August 17, 1993 until fully paid. Jesus, on the
other hand, has the obligation to pay attorneys fees which the RTC had already determined to
be equivalent to whatever amount recoverable from Vicente. The said attorneys fees were
awarded by the RTC on the counterclaim of Vicente on the basis of quantum meruit for the legal
services he previously rendered to Jesus.
In its Decision, the trial court elucidated on how Vicente had established his entitlement for
attorneys fees based on his counterclaim in this manner:
Defendant, on his counterclaim, has established the existence of a lawyer-client
relationship between him and plaintiff and this was admitted by the latter.
Defendant had represented plaintiff in several court cases which include the
Laguna property case, the various cases filed by Atty. Romulo Reyes
against plaintiff such as the falsification and libel cases and the disbarment
case filed by plaintiff against Atty. Romulo Reyes before the Commission on
Bar Integration. Aside from these cases, plaintiff had made defendant his
consultant on almost everything that involved legal opinions.
More particularly in the Calamba, Laguna land case alone, plaintiff had
agreed to pay defendant a contingent fee of 25% of the value of the property
for the latters legal services as embodied in the Amended Complaint signed
and verified by plaintiff (Exh. 5). Aside from this contingent fee, defendant
had likewise told plaintiff that his usual acceptance fee for a case like the
Laguna land case is P200,000.00 and his appearance fee at that time was
x x x P2,000.00 per appearance but still plaintiff paid nothing.
The lawyer-client relationship between the parties was severed because of the instant
case. The court is however fully aware of defendants stature in life a UP law
graduate, Bar topnotcher in 1957 bar examination, former Senior Provincial
Board Member, Vice-Governor and Governor of the province of
Pangasinan, later as Assemblyman of the Batasang Pambansa and is
considered a prominent trial lawyer since 1958. For all his legal services
rendered to plaintiff, defendant deserves to be compensated at least on a
quantum meruit basis.[36]
The above discussion in the RTC Decision was then immediately followed by the dispositive
portion, viz:
WHEREFORE, premises above-considered, JUDGMENT is hereby
rendered ordering defendant Vicente D. Millora to pay plaintiff Jesus M.
Montemayor the sum of P300.000.00 with interest at the rate of 12% per
annum counted from the filing of the instant complaint on August 17, 1993
until fully paid and whatever amount recoverable from defendant shall
be set off by an equivalent amount awarded by the court on the
counterclaim representing attorneys fees of defendant on the basis of
quantum meruit for legal services previously rendered to plaintiff.
No pronouncement as to attorneys fees and costs of suit.
SO ORDERED.[37] (Emphasis supplied.)
It is therefore clear that in the execution of the RTC Decision, there are two parts to be executed.
The first part is the computation of the amount due to Jesus. This is achieved by doing a simple
arithmetical operation at the time of execution. The principal amount of P300,000.00 is to be
multiplied by the interest rate of 12%.The product is then multiplied by the number of years that
had lapsed from the filing of the complaint on August 17, 1993 up to the date when the judgment
is to be executed. The result thereof plus the principal of P300,000.00 is the total amount that
Vicente must pay Jesus.
The second part is the payment of attorneys fees to Vicente. This is achieved by
following the clear wordings of the above fallo of the RTC Decision which provides that Vicente
is entitled to attorneys fees which is equivalent to whatever amount recoverable from him by
Jesus. Therefore, whatever amount due to Jesus as payment of Vicentes debt is equivalent to
the amount awarded to the latter as his attorneys fees. Legal compensation or set-off then takes
place between Jesus and Vicente and both parties are on even terms such that there is actually
nothing left to execute and satisfy in favor of either party.

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

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

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

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

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

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

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

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

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

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 191555 January 20, 2014
UNION BANK OF THE PHILIPPINES, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on Certiorari1 are the Decision2 dated November 3,
2009 and Resolution3 dated February 26, 2010 of the Court of Appeals (CA) in CA-
G.R. SP No. 93833 which affirmed the Orders4 dated November 9, 2005 and January
30, 2006 of the Regional Trial Court of Makati, Branch 58 5 (RTC) in Civil Case No.
7648 denying the motion to affirm legal compensation6 filed by petitioner Union Bank
of the Philippines (Union Bank) against respondent Development Bank of the
Philippines (DBP).
The Facts
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Banks
predecessor-in-interest, Bancom Development Corporation (Bancom), and to DBP.
On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of
Property In Payment of Debt7(dacion en pago) whereby the former ceded in favor of
the latter certain properties (including a processing plant in Marilao, Bulacan
[processing plant]) in consideration of the following: (a) the full and complete
satisfaction of FIs loan obligations to DBP; and (b) the direct assumption by DBP of
FIs obligations to Bancom in the amount of 17,000,000.00 (assumed obligations). 8
On the same day, DBP, as the new owner of the processing plant, leased back 9 for
20 years the said property to FI (Lease Agreement) which was, in turn, obliged to pay
monthly rentals to be shared by DBP and Bancom.
DBP also entered into a separate agreement10 with Bancom (Assumption Agreement)
whereby the former: (a) confirmed its assumption of FIs obligations to Bancom; and
(b) undertook to remit up to 30% of any and all rentals due from FI to Bancom
(subject rentals) which would serve as payment of the assumed obligations, to be
paid in monthly installments. The pertinent portions of the Assumption Agreement
reads as follows:
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the above
obligations to Bancom which DBP has assumed shall be settled, paid and/or
liquidated by DBP out of a portion of the lease rentals or part of the proceeds of sale
of those properties of the Assignors conveyed to DBP pursuant to the [Deed of
Cession of Property in Payment of Debt dated May 21, 1979] and which are the
subject of [the Lease Agreement] made and executed by and between DBP and [FI],
the last hereafter referred to as the "Lessee" to be effective as of July 31, 1978.
xxxx
4. DBP hereby covenants and undertakes that the amount up to 30% of any and all
rentals due from the Lessee pursuant to the Lease Agreement shall be remitted by
DBP to Bancom at the latters offices at Pasay Road, Makati, Metro Manila within five
(5) days from due dates thereof, and applied in payment of the Assumed Obligations.
Likewise, the amount up to 30% of the proceeds from any sale of the Leased
Properties shall within the same period above, be remitted by DBP to Bancom and
applied in payment or prepayment of the Assumed Obligations. x x x.
Any balance of the Assumed Obligations after application of the entire rentals and or
the entire sales proceeds actually received by Bancom on the Leased Properties shall
be paid by DBP to Bancom not later than December 29, 1998. (Emphases supplied)
Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease
Agreement to Foodmasters Worldwide, Inc. (FW);11 while on May 9, 1984, Bancom
conveyed all its receivables, including, among others, DBPs assumed obligations, to
Union Bank.12
Claiming that the subject rentals have not been duly remitted despite its repeated
demands, Union Bank filed, on June 20, 1984, a collection case against DBP before
the RTC, docketed as Civil Case No. 7648.13 In opposition, DBP countered, among
others, that the obligations it assumed were payable only out of the rental payments
made by FI. Thus, since FI had yet to pay the same, DBPs obligation to Union Bank
had not arisen.14 In addition, DBP sought to implead FW as third party-defendant in
its capacity as FIs assignee and, thus, should be held liable to Union Bank. 15
In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground that it
had ceased to be a real-party-in-interest due to the supervening transfer of its rights,
title and interests over the subject matter to the Asset Privatization Trust (APT). Said
motion was, however, denied by the RTC in an Order dated May 27, 1988. 16
The RTC Ruling in Civil Case No. 7648
Finding the complaint to be meritorious, the RTC, in a Decision17 dated May 8, 1990,
ordered: (a) DBP to pay Union Bank the sum of 4,019,033.59, representing the
amount of the subject rentals (which, again, constitutes 30% of FIs [now FWs] total
rental debt), including interest until fully paid; and (b) FW, as third-party defendant, to
indemnify DBP, as third- party plaintiff, for its payments of the subject rentals to Union
Bank. It ruled that there lies no evidence which would show that DBPs receipt of the
rental payments from FW is a condition precedent to the formers obligation to remit
the subject rentals under the Lease Agreement. Thus, when DBP failed to remit the
subject rentals to Union Bank, it defaulted on its assumed obligations. 18 DBP then
elevated the case on appeal before the CA, docketed as CA-G.R. CV No. 35866.
The CA Ruling in CA-G.R. CV No. 35866
In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside the
RTCs ruling, and consequently ordered: (a) FW to pay DBP the amount of
32,441,401.85 representing the total rental debt incurred under the Lease
Agreement, including 10,000.00 as attorneys fees; and (b) DBP, after having been
paid by FW its unpaid rentals, to remit 30% thereof (i.e., the subject rentals) to Union
Bank.20
It rejected Union Banks claim that DBP has the direct obligation to remit the subject
rentals not only from FWs rental payments but also out of its own resources since
said claim contravened the "plain meaning" of the Assumption Agreement which
specifies that the payment of the assumed obligations shall be made "out of the
portion of the lease rentals or part of the proceeds of the sale of those properties of
[FI] conveyed to DBP."21 It also construed the phrase under the Assumption
Agreement that DBP is obligated to "pay any balance of the Assumed Obligations
after application of the entire rentals and/or the entire sales proceeds actually
received by [Union Bank] on the Leased Properties . . . not later than December 29,
1998" to mean that the lease rentals must first be applied to the payment of the
assumed obligations in the amount of 17,000,000.00, and that DBP would have to
pay out of its own money only in case the lease rentals were insufficient, having only
until December 29, 1998 to do so. Nevertheless, the monthly installments in
satisfaction of the assumed obligations would still have to be first sourced from said
lease rentals as stipulated in the assumption agreement. 22 In view of the foregoing,
the CA ruled that DBP did not default in its obligations to remit the subject rentals to
Union Bank precisely because it had yet to receive the rental payments of FW.23
Separately, the CA upheld the RTCs denial of DBPs motion to dismiss for the reason
that the transfer of its rights, title and interests over the subject matter to the APT
occurred pendente lite, and, as such, the substitution of parties is largely discretionary
on the part of the court.
At odds with the CAs ruling, Union Bank and DBP filed separate petitions for review
on certiorari before the Court, respectively docketed as G.R. Nos. 115963 and
119112, which were thereafter consolidated.
The Courts Ruling in G.R. Nos. 115963 & 119112
The Court denied both petitions in a Resolution24 dated December 13, 1995. First, it
upheld the CAs finding that while DBP directly assumed FIs obligations to Union
Bank, DBP was only obliged to remit to the latter 30% of the lease rentals collected
from FW, from which any deficiency was to be settled by DBP not later than
December 29, 1998.25 Similarly, the Court agreed with the CA that the denial of
DBPs motion to dismiss was proper since substitution of parties, in case of transfers
pendente lite, is merely discretionary on the part of the court, adding further that the
proposed substitution of APT will amount to a novation of debtor which cannot be
done without the consent of the creditor.26
On August 2, 2000, the Courts resolution became final and executory. 27
The RTC Execution Proceedings
On May 16, 2001, Union Bank filed a motion for execution28 before the RTC, praying
that DBP be directed to pay the amount of 9,732,420.555 which represents the
amount of the subject rentals (i.e., 30% of the FWs total rental debt in the amount of
32,441,401.85). DBP opposed29 Union Banks motion, contending that it sought to
effectively vary the dispositive portion of the CAs May 27, 1994 Decision in CA-G.R.
CV No. 35866. Also, on September 12, 2001, DBP filed its own motion for execution
against FW, citing the same CA decision as its basis.
In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the RTC
granted both motions for execution. Anent Union Banks motion, the RTC opined that
the CAs ruling that DBPs payment to Union Bank shall be demandable only upon
payment of FW must be viewed in light of the date when the same was rendered. It
noted that the CA decision was promulgated only on May 27, 1994, which was before
the December 29, 1998 due date within which DBP had to fully pay its obligation to
Union Bank under the Assumption Agreement. Since the latter period had already
lapsed, "[i]t would, thus, be too strained to argue that payment by DBP of its assumed
obligation[s] shall be dependent on [FWs] ability, if not availability, to pay."31 In similar
regard, the RTC granted DBPs motion for execution against FW since its liability to
Union Bank and DBP remained undisputed.
As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Writ of
Execution) and, thereafter, a notice of garnishment33 against DBP were issued.
Records, however, do not show that the same writ was implemented against FW.
DBP filed a motion for reconsideration34 from the Execution Order, averring that the
latter issuance varied the import of the CAs May 27, 1994 Decision in CA-G.R. CV
No. 35866 in that it prematurely ordered DBP to pay the assumed obligations to
Union Bank before FWs payment. The motion was, however, denied on December 5,
2001.35 Thus, DBPs deposits were eventually garnished.36 Aggrieved, DBP filed a
petition for certiorari37 before the CA, docketed as CA-G.R. SP No. 68300.
The CA Ruling in CA-G.R. SP No. 68300
In a Decision38 dated July 26, 2002, the CA dismissed DBPs petition, finding that the
RTC did not abuse its discretion when it issued the October 15, 2001 Writ of
Execution. It upheld the RTCs observation that there was "nothing wrong in the
manner how [said writ] was implemented," as well as "in the zealousness and
promptitude exhibited by Union Bank" in moving for the same. DBP appealed the
CAs ruling before the Court, which was docketed as G.R. No. 155838.
The Courts Ruling in G.R. No. 155838
In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court
granted DBPs appeal, and thereby reversed and set aside the CAs ruling in CA-G.R.
SP No. 68300. It found significant points of variance between the CAs May 27, 1994
Decision in CA-G.R. CV No. 35866, and the RTCs Order of Execution/October 15,
2001 Writ of Execution. It ruled that both the body and the dispositive portion of the
same decision acknowledged that DBPs obligation to Union Bank for remittance of
the lease payments is contingent on FWs prior payment to DBP, and that any
deficiency DBP had to pay by December 29, 1998 as per the Assumption Agreement
cannot be determined until after the satisfaction of FWs own rental obligations to
DBP. Accordingly, the Court: (a) nullified the October 15, 2001 Writ of Execution and
all related issuances thereto; and (b) ordered Union Bank to return to DBP the
amounts it received pursuant to the said writ.40 Dissatisfied, Union Bank moved for
reconsideration which was, however, denied by the Court in a Resolution dated
March 24, 2004 with finality. Thus, the January 13, 2004 Decision attained finality on
April 30, 2004.41 Thereafter, DBP moved for the execution of the said decision before
the RTC. After numerous efforts on the part of Union Bank proved futile, the RTC
issued a writ of execution (September 6, 2005 Writ of Execution), ordering Union
Bank to return to DBP all funds it received pursuant to the October 15, 2001 Writ of
Execution.42
Union Banks Motion to Affirm Legal Compensation
On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm Legal
Compensation,43 praying that the RTC apply legal compensation between itself and
DBP in order to offset the return of the funds it previously received from DBP. Union
Bank anchored its motion on two grounds which were allegedly not in existence prior
to or during trial, namely: (a) on December 29, 1998, DBPs assumed obligations
became due and demandable;44 and (b) considering that FWI became non-
operational and non-existent, DBP became primarily liable to the balance of its
assumed obligation, which as of Union Banks computation after its claimed set-off,
amounted to 1,849,391.87.45
On November 9, 2005, the RTC issued an Order46 denying the above-mentioned
motion for lack of merit, holding that Union Banks stated grounds were already
addressed by the Court in the January 13, 2004 Decision in G.R. No. 155838. With
Union Banks motion for reconsideration therefrom having been denied, it filed a
petition for certiorari47 with the CA, docketed as CA-G.R. SP No. 93833.
Pending resolution, Union Bank issued Managers Check48 No. 099-0003192363
dated April 21, 2006 amounting to 52,427,250.00 in favor of DBP, in satisfaction of
the Writ of Execution dated September 6, 2005 Writ of Execution. DBP, however,
averred that Union Bank still has a balance of 756,372.39 representing a portion of
the garnished funds of DBP,49 which means that said obligation had not been
completely extinguished.
The CA Ruling in CA-G.R. SP No. 93833
In a Decision50 dated November 3, 2009, the CA dismissed Union Banks petition,
finding no grave abuse of discretion on the RTCs part. It affirmed the denial of its
motion to affirm legal compensation considering that: (a) the RTC only implemented
the Courts January 13, 2004 Decision in G.R. No. 155838 which by then had already
attained finality; (b) DBP is not a debtor of Union Bank; and (c) there is neither a
demandable nor liquidated debt from DBP to Union Bank.51
Undaunted, Union Bank moved for reconsideration which was, however, denied in a
Resolution52 dated February 26, 2010; hence, the instant petition.
The Issue Before the Court
The sole issue for the Courts resolution is whether or not the CA correctly upheld the
denial of Union Banks motion to affirm legal compensation.
The Courts Ruling
The petition is bereft of merit. Compensation is defined as a mode of extinguishing
obligations whereby two persons in their capacity as principals are mutual debtors
and creditors of each other with respect to equally liquidated and demandable
obligations to which no retention or controversy has been timely commenced and
communicated by third parties.53 The requisites therefor are provided under Article
1279 of the Civil Code which reads as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.1awp++i1 (Emphases and underscoring supplied)
The rule on legal54 compensation is stated in Article 1290 of the Civil Code which
provides that "[w]hen all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of the
compensation."
In this case, Union Bank filed a motion to seek affirmation that legal compensation
had taken place in order to effectively offset (a) its own obligation to return the funds it
previously received from DBP as directed under the September 6, 2005 Writ of
Execution with (b) DBPs assumed obligations under the Assumption Agreement.
However, legal compensation could not have taken place between these debts for the
apparent reason that requisites 3 and 4 under Article 1279 of the Civil Code are not
present. Since DBPs assumed obligations to Union Bank for remittance of the lease
payments are in the Courts words in its Decision dated January 13, 2004 in G.R.
No. 155838 " contingent on the prior payment thereof by [FW] to DBP," it cannot be
said that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in the
same ruling, the Court observed that any deficiency that DBP had to make up (by
December 29, 1998 as per the Assumption Agreement) for the full satisfaction of the
assumed obligations " cannot be determined until after the satisfaction of
Foodmasters obligation to DBP." In this regard, it cannot be concluded that the same
debt had already been liquidated, and thereby became demandable (requisite 4 of
Article 1279 of the Civil Code).
The aforementioned Court decision had already attained finality on April 30,
200455 and, hence, pursuant to the doctrine of conclusiveness of judgment, the facts
and issues actually and directly resolved therein may not be raised in any future case
between the same parties, even if the latter suit may involve a different cause of
action.56 Its pertinent portions are hereunder quoted for ready reference: 57
Both the body and the dispositive portion of the [CAs May 27, 1994 Decision in CA-
G.R. CV No. 35866] correctly construed the nature of DBPs liability for the lease
payments under the various contracts, to wit:
x x x Construing these three contracts, especially the "Agreement" x x x between DBP
and Bancom as providing for the payment of DBPs assumed obligation out of the
rentals to be paid to it does not mean negating DBPs assumption "for its own
account" of the 17.0 million debt x x x. It only means that they provide a mechanism
for discharging [DBPs] liability. This liability subsists, since under the "Agreement" x x
x, DBP is obligated to pay "any balance of the Assumed Obligations after application
of the entire rentals and or the entire sales proceeds actually received by [Union
Bank] on the Leased Properties not later than December 29, 1998." x x x It only
means that the lease rentals must first be applied to the payment of the 17 million
debt and that [DBP] would have to pay out of its money only in case of insufficiency of
the lease rentals having until December 29, 1998 to do so. In this sense, it is correct
to say that the means of repayment of the assumed obligation is not limited to the
lease rentals. The monthly installments, however, would still have to come from the
lease rentals since this was stipulated in the "Agreement."
xxxx
Since, as already stated, the monthly installments for the payment of the 17 million
debt are to be funded from the lease rentals, it follows that if the lease rentals are not
paid, there is nothing for DBP to remit to [Union Bank], and thus [DBP] should not be
considered in default. It is noteworthy that, as stated in the appealed decision, "as
regards plaintiffs claim for damages against defendant for its alleged negligence in
failing and refusing to enforce a lessors remedies against Foodmasters Worldwide,
Inc., the Court finds no competent and reliable evidence of such claim."
xxxx
WHEREFORE, the decision appealed from is SET ASIDE and another one is
RENDERED,
(i) Ordering third-party defendant-appellee Foodmasters Worldwide, Inc. to
pay defendant and third-party plaintiff-appellant Development Bank of the
Philippines the sum of 32,441,401.85, representing the unpaid rentals from
August 1981 to June 30, 1987, as well as 10,000.00 for attorneys fees;
and
(ii) Ordering defendant and third-party plaintiff-appellant Development Bank
of the Philippines after having been paid by third-party defendant-appellee
the sum of 32,441,401.85, to remit 30% thereof to plaintiff-appellee Union
Bank of the Philippines.
SO ORDERED.
In other words, both the body and the dispositive portion of the aforequoted decision
acknowledged that DBPs obligation to Union Bank for remittance of the lease
payments is contingent on the prior payment thereof by Foodmasters to DBP.
A careful reading of the decision shows that the Court of Appeals, which was affirmed
by the Supreme Court, found that only the balance or the deficiency of the 17 million
principal obligation, if any, would be due and demandable as of December 29, 1998.
Naturally, this deficiency cannot be determined until after the satisfaction of
Foodmasters obligation to DBP, for remittance to Union Bank in the proportion set out
in the 1994 Decision. (Emphases and underscoring supplied; citations omitted)
xxxx
In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in
this case, no legal compensation could have taken place between the above-stated
debts pursuant to Article 1290 of the Civil Code. Perforce, the petition must be
denied, and the denial of Union Bank s motion to affirm legal compensation
sustained.
WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 and
Resolution dated February 26, 2010 of the Court of Appeals in CA-G.R. SP No.
93833 are hereby AFFIRMED.
SO ORDERED.
 Isuzu Dump Truck FUCC 18 June 1992
Republic of the Philippines
SUPREME COURT Isuzu Dump Truck Blue Star 4 July 1992
Manila
Isuzu Dump Truck FUCC 8 July 1992
FIRST DIVISION

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

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

Under review is the decision promulgated on July 26, 2004, 1 whereby the Court of
Appeals CA) affirmed the judgment rendered on May 14 1996 by the Regional Trial Upon presentment of the checks for payment, the respondent learned that FUCC had
Court, Branch 107, in Quezon City adjudging the petitioners defendants) liable to pay ordered the payment stopped. The respondent immediately demanded the full
to the respondent plaintiff) various sums of money and damages. 2 settlement of their obligation from the petitioners, but to no avail. Instead, the
petitioners informed the respondent that they were withholding payment of the checks
Antecedents due to the breakdown of one of the dump trucks they had earlier purchased from
respondent, specifically the second dump truck delivered on May 27, 1992.
Petitioner First United Constructors Corporation (FUCC) and petitioner Blue Star
Construction Corporation (Blue Star) were associate construction firms sharing Due to the refusal to pay, the respondent commenced this action for collection on
financial resources, equipment and technical personnel on a case-to-case basis. April 29, 1993, seeking payment of the unpaid balance in the amount of 735,000.00
From May 27, 1992 to July 8, 1992, they ordered six units of dump trucks from the represented by the two checks.
respondent, a domestic corporation engaged in the business of importing and
reconditioning used Japan-made trucks, and of selling the trucks to interested buyers In their answer, the petitioners averred that they had stopped the payment on the two
who were mostly engaged in the construction business, to wit: checks worth 735,000.00 because of the respondents refusal to repair the second
dump truck; and that they had informed the respondent of the defects in that unit but
the respondent had refused to comply with its warranty, compelling them to incur
TO WHOM expenses for the repair and spare parts. They prayed that the respondent return the
UNIT DATE OF DELIVERY
DELIVERY price of the defective dump truck worth 830,000.00 minus the amounts of their two
checks worth 735,000.00, with 12% per annum interest on the difference of
Isuzu Dump Truck FUCC 27 May 1992 90,000.00 from May 1993 until the same is fully paid; that the respondent should
also reimburse them the sum of 247,950.00 as their expenses for the repair of the
Isuzu Dump Truck FUCC 27 May 1992 dump truck, with 12% per annum interest from December 16, 1992, the date of
demand, until fully paid; and that the respondent pay exemplary damages as
Isuzu Dump Truck FUCC 10 June 1992 determined to be just and reasonable but not less than 500,000, and attorneys fees
of 50,000 plus 1,000.00 per court appearance and other litigation expenses.
It was the position of the respondent that the petitioners were not legally justified in
withholding payment of the unpaid balance of the purchase price of the Hino Prime
Mover and the Isuzu Transit Mixer due the alleged defects in second dump truck
because the purchase of the two units was an entirely different transaction from the
sale of the dump trucks, the warranties for which having long expired.
Judgment of the RTC
On May 14, 1996, the RTC rendered its judgment,3 finding the petitioners liable to pay
for the unpaid balance of the purchase price of the Hino Prime Mover and the Isuzu
Transit Mixer totaling 735,000.00 with legal interest and attorneys fees; and
declaring the respondent liable to pay to the petitioners the sum of 71,350.00 as
costs of the repairs incurred by the petitioners. The RTC held that the petitioners
could not avail themselves of legal compensation because the claims they had set up
in the counterclaim were not liquidated and demandable. The fallo of the judgment
states:
WHEREFORE, judgment is hereby rendered:
1. Ordering defendants, jointly and severally to pay plaintiff the sum of
360,000.00 and 375,000.00 with interest at the legal rate of 12% per
annum computed from February 11, 1993, which is the date of the first
extrajudicial demand, until fully paid;
2. Ordering the defendants, jointly and severally, to pay plaintiff the sum
equivalent to 10% of the principal amount due, for attorneys fees;
3. On the counterclaim, ordering plaintiff to pay defendants the sum of
71,350.00 with interest at the legal rate of 12% per annum computed from
the date of this decision until fully paid;
4. Ordering plaintiff to pay the defendants attorneys fees equivalent to 10%
of the amount due;
5. No pronouncement as to costs.
SO ORDERED.4
Decision of the CA
The petitioners appealed, stating that they could justifiably stop the payment of the
checks in the exercise of their right of recoupment because of the respondents
refusal to settle their claim for breach of warranty as to the purchase of the second
dump truck.
In its decision promulgated on July 26, 2004,5 however, the CA affirmed the judgment
of the RTC. It held that the remedy of recoupment could not be properly invoked by
the petitioners because the transactions were different; that the expenses incurred for
the repair and spare parts of the second dump truck were not a proper subject of
recoupment because they did not arise out of the purchase of the Hino Prime Mover
and the Isuzu Transit Mixer; and that the petitioners claim could not also be the
subject of legal compensation or set-off, because the debts in a set-off should be
liquidated and demandable.
Issues
The petitioners are now before the Court asserting in their petition for review on
certiorari that the CA erred in:
I
x x x NOT UPHOLDING THE RIGHT OF PETITIONER[S] TO
RECOUPMENT UNDER PAR. (1) OF ART. 1599 OF THE CIVIL CODE,
WHICH PROVIDES [FOR] THE RIGHTS AND REMEDIES AVAILABLE TO
A BUYER AGAINST A SELLERS BREACH OF WARRANTY.
II
x x x RULING THAT PETITIONERS CANNOT AVAIL OF COMPENSATION
ALLEGEDLY BECAUSE THEIR CLAIMS AGAINST RESPONDENT ARE
NOT LIQUIDATED AND DEMANDABLE.
III
x x x NOT HOLDING RESPONDENT LIABLE TO PETITIONERS FOR
LEGAL INTEREST COMPUTED FROM THE FIRST EXTRAJUDICIAL
DEMAND, AND FOR ACTUAL EXEMPLARY DAMAGES.6
The petitioners submit that they were justified in stopping the payment of the two
checks due to the respondents breach of warranty by refusing to repair or replace the
defective second dump truck earlier purchased; that the withholding of payments was
an effective exercise of their right of recoupment as allowed by Article 1599(1) of the
Civil Code; due to the sellers breach of warranty that the CAs interpretation (that
recoupment in diminution or extinction of price in case of breach of warranty by the
seller should refer to the reduction or extinction of the price of the same item or unit
sold and not to a different transaction or contract of sale) was not supported by
jurisprudence; that recoupment should not be restrictively interpreted but should
include the concept of compensation or set-off between two parties who had claims
arising from different transactions; and that the series of purchases and the
obligations arising therefrom, being inter-related, could be considered as a single and
ongoing transaction for all intents and purposes.
The respondent counters that the petitioners could not refuse to pay the balance of
the purchase price of the Hino Prime Mover and the Isuzu Transit Mixer on the basis
of the right of recoupment under Article 1599 of the Civil Code; that the buyers
remedy of recoupment related only to the same transaction; and that compensation
was not proper because the claims of the petitioners as alleged in their counterclaim
were not liquidated and demandable.
There is no longer any question that the petitioners were liable to the respondent for
the unpaid balance of the purchase price of the Hino Prime Mover and the Isuzu
Transit Mixer. What remain to be resolved are strictly legal, namely: one, whether or
not the petitioners validly exercised the right of recoupment through the withholding of
payment of the unpaid balance of the purchase price of the Hino Prime Mover and the
Isuzu Transit Mixer; and, two, whether or not the costs of the repairs and spare parts
for the second dump truck delivered to FUCC on May 27, 1992 could be offset for the
petitioners obligations to the respondent.
Ruling
We affirm the decision of the CA with modification.
1.
Petitioners could not validly resort to recoupment against respondent
Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon
which one is sued by means of a legal or equitable right resulting from a counterclaim
arising out of the same transaction.7 It is the setting up of a demand arising from the
same transaction as the plaintiffs claim, to abate or reduce that claim.
The legal basis for recoupment by the buyer is the first paragraph of Article 1599 of
the Civil Code, viz:
Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his
election:
(1) Accept or keep the goods and set up against the seller, the breach of
warranty by way of recoupment in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action against the seller for
damages for the breach of warranty;
(3) Refuse to accept the goods, and maintain an action against the seller for
damages for the breach of warranty;
(4) Rescind the contract of sale and refuse to receive the goods or if the
goods have already been received, return them or offer to return them to the
seller and recover the price or any part thereof which has been paid.
When the buyer has claimed and been granted a remedy in anyone of these ways, no
other remedy can thereafter be granted, without prejudice to the provisions of the
second paragraph of article 1191. (Emphasis supplied)
xxxx
In its decision, the CA applied the first paragraph of Article 1599 of the Civil Code to
this case, explaining thusly:
Paragraph (1) of Article 1599 of the Civil Code which provides for the remedy of
recoupment in diminution or extinction of price in case of breach of warranty by the
seller should therefore be interpreted as referring to the reduction or extinction of the
price of the same item or unit sold and not to a different transaction or contract of
sale. This is more logical interpretation of the said article considering that it talks of
breach of warranty with respect to a particular item sold by the seller. Necessarily,
therefore, the buyers remedy should relate to the same transaction and not to
another.
Defendants-appellants act of ordering the payment on the prime mover and transit
mixer stopped was improper considering that the said sale was a different contract
from that of the dump trucks earlier purchased by defendants-appellants.
The claim of defendants-appellants for breach of warranty, i.e. the expenses paid for
the repair and spare parts of dump truck no. 2 is therefore not a proper subject of
recoupment since it does not arise out of the contract or transaction sued on or the
claim of plaintiff-appellee for unpaid balances on the last two (2) purchases, i. e. the
prime mover and the transit mixer.8
The CA was correct. It was improper for petitioners to set up their claim for repair
expenses and other spare parts of the dump truck against their remaining balance on
the price of the prime mover and the transit mixer they owed to
respondent.1avvphi1 Recoupment must arise out of the contract or transaction upon
which the plaintiffs claim is founded.9To be entitled to recoupment, therefore, the
claim must arise from the same transaction, i.e., the purchase of the prime mover and
the transit mixer and not to a previous contract involving the purchase of the dump
truck. That there was a series of purchases made by petitioners could not be
considered as a single transaction, for the records show that the earlier purchase of
the six dump trucks was a separate and distinct transaction from the subsequent
purchase of the Hino Prime Mover and the Isuzu Transit Mixer. Consequently, the
breakdown of one of the dump trucks did not grant to petitioners the right to stop and
withhold payment of their remaining balance on the last two purchases.
2.
Legal compensation was permissible
Legal compensation takes place when the requirements set forth in Article 1278 and
Article 1279 of the Civil Code are present, to wit:
Article 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other."
Article 1279. In order that compensation may be proper, it is necessary:
 (1) That each of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the debtor.
As to whether petitioners could avail themselves of compensation, both the RTC and
CA ruled that they could not because the claims of petitioners against respondent
were not liquidated and demandable.
The Court cannot uphold the CA and the RTC.
The RTC already found that petitioners were entitled to the amount of 71,350.00
stated in their counterclaim, and the CA concurred in the finding, stating thusly:
It is noteworthy that in the letter of December 16, 1992 (Exh. "1") defendants were
charging plaintiff only for the following items of repair:
1. Cost of repair and spare parts - 46,800.00
2. Cost of repair and spare parts - 24,550.00
71,350.00
Said amounts may be considered to have been spent for repairs covered by the
warranty period of three (3) months. While the invoices (Exhs. "2-B" and "3-A") dated
September 26, 1992 and September 18, 1992, this delay in repairs is attributable to
the fact that when defects were brought to the attention of the plaintiff in the letter of
August 14, 1992 (Exh. "8") which was within the warranty period, the plaintiff did not
respond with the required repairs and actual repairs were undertaken by defendants.
Thereafter, the spare parts covered by Exhibits "2-B" and "3-A" pertain to the engine,
which was covered by the warranty.
x x x. Defendants in their letter of August 14, 1992 (Exhb. "8") demanded correction of
defects. In their letter of August 22, 1992 (Exh. "9") they demanded replacement. In
their letter of August 27, 1992 (Exh. "10"), they demanded replacement/repair. In
September, 1992, they undertook repairs themselves (Exhs. "2-B" and "3-A") and
demanded payment for the expenses in their letter of December 16, 1992 (Exh. "1").
All other items of expenses connected with subsequent breakdowns are no longer
chargeable to plaintiff which granted only a 3-month warranty. x x x10
Considering that preponderant evidence showing that petitioners had spent the
amount of 71,350.00 for the repairs and spare parts of the second dump truck within
the warranty period of three months supported the finding of the two lower courts, the
Court accepts their finding. Verily, factual findings of the trial court, when affirmed by
the CA, are conclusive on the Court when supported by the evidence on record. 11
A debt is liquidated when its existence and amount are determined.12 Accordingly, an
unliquidated claim set up as a counterclaim by a defendant can be set off against the
plaintiffs claim from the moment it is liquidated by judgment.13 Article 1290 of the Civil
Code provides that when all the requisites mentioned in Article 1279 of the Civil Code
are present, compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount. With petitioners expenses for the repair of the dump
truck being already established and determined with certainty by the lower courts, it
follows that legal compensation could take place because all the requirements were
present. Hence, the amount of 71,350.00 should be set off against petitioners
unpaid obligation of 735,000.00, leaving a balance of 663,650.00, the amount
petitioners still owed to respondent.
We deem it necessary to modify the interest rate imposed by the trial and appellate
courts.1wphi1 The legal interest rate to be imposed from February 11, 1993, the
time of the extrajudicial demand by respondent, should be 6% per annum in the
absence of any stipulation in writing in accordance with Article 2209 of the Civil Code,
which provides:
Article 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
WHEREFORE, the Court AFFIRMS the decision promulgated on July 26, 2004 in all
respects subject to the MODIFICATION that petitioners are ordered, jointly and
severally, to pay to respondent the sum of 1 663,650.00, plus interest of 6% per
annum computed from February
11, 1993, the date of the first extrajudicial demand, until fully paid; and ORDERS the
petitioners to pay the costs of suit.
SO ORDERED.
 THIRD DIVISION
G.R. No. 171897, October 14, 2015
PHILIPPINE TRUST COMPANY, Petitioner, v. FLORO ROXAS AND EUFEMIA
ROXAS, Respondents.
DECISION
JARDELEZA, J.:
We consider whether the principle of legal compensation may be applied to offset the
judgment debt of petitioner Philippine Trust Company ("PTC") and the loan obligation
of private respondents Floro and Eufemia Roxas ("Spouses Roxas").
I proceeding with the foreclosure sale while Civil Case No. 130783 is still
The Spouses Roxas procured loans from PTC in the amount of Php 2,523,200 to
finance their real estate business.1 These loans were secured by real estate
mortgages on the Spouses Roxas' real properties. On April 10, 1979, the Spouses
Roxas, PTC, and Roben Construction and Furnishing Group, Inc. entered into "a
contract of building construction," under which PTC granted an additional loan of Php
900,000 to the Spouses Roxas to enable them to finish their ongoing housing projects
located at Cabcaben, Mariveles, Bataan. This was superseded by a new "contract of
building construction" executed by and among PTC, Spouses Roxas, and Rosendo P.
Dominguez, Jr. ("Dominguez"). Dominguez substituted Roben Construction as the
contractor under the same terms and conditions of the contract dated April 10, 1979.
The new contract stipulated that the money loaned from PTC shall be devoted to the
funding of the housing projects, the rentals of which when finished, would then be
used to liquidate the loan. It also provided that PTC may only release the proceeds of
the loan for the purchase of materials and supplies when requested by Dominguez
and with the conformity of the Spouses Roxas.2 Invoices covering materials
previously purchased with the funds should also be submitted to PTC before any
subsequent release of funds is made.3 PTC, however, released to Dominguez the
sum of Php 870,000 out of the Php 900,000 although the Spouses Roxas had agreed
only to the release of not more than Php 450,000, as evidenced by a promissory note
dated April 11, 1979.4
Due to financial difficulties, however, the Spouses Roxas did not finish the housing
project. As a result, they did not receive monthly rentals from prospective lessees of
the houses, which led to missed amortization payments in their loans from PTC.5
On March 28, 1980, Dominguez filed a complaint against PTC and the Spouses
Roxas with the Court of First Instance (CFI) of Manila, 6 Branch XL for breach of the
contract of building construction. This was docketed as Civil Case No. 130783. The
Spouses Roxas in turn filed Civil Case No. 130892 with the CFI of Manila against
Dominguez and the insurance company that issued his performance bond. These two
cases were later consolidated.7
When the Spouses Roxas filed their answer in Civil Case No. 130783, they included a
cross-claim against PTC.8 In response, PTC filed a counterclaim against the Spouses
Roxas on their unpaid loan obligation amounting to Php 3,053,738.50 9 plus interest
and the amount of Php 245,720 as attorney's fees; and, in default of such payments,
the foreclosure of the real estate mortgages executed by the Spouses Roxas in favor
of PTC. After trial on the merits, the trial court rendered a decision in favor of
Dominguez. It denied PTC's counterclaim for lack of sufficient proof, without prejudice
to the filing of a collection suit against the Spouses Roxas. Both PTC and the
Spouses Roxas appealed to the Court of Appeals, docketed as CA-G.R. CV No.
30340. To this date, the same remains pending.10
In a parallel development, while Civil Case No. 130783 was still pending in the trial
court, PTC, on August 31, 1981, filed with the provincial sheriff of Bataan a petition for
extrajudicial foreclosure of the same real estate mortgages, The Spouses Roxas
opposed the petition and filed a verified complaint against PTC for damages with
preliminary injunction in the Regional Trial Court of Bataan docketed as Civil Case
No. 4809 ("Main Case"). The complaint sought to restrain and enjoin the sheriff from
pending.11 On December 26, 1988, the Bataan RTC rendered a Decision in favor of
the Spouses Roxas, the dispositive portion of which reads as follows:cralawlawlibrary
WHEREFORE, the Court hereby renders judgment (a) Ordering the issuance of a writ
of permanent injunction perpetually enjoining defendant Philippine Trust Company
and defendant provincial sheriff of Bataan or any of his deputies from foreclosing
extrajudicially the real estate mortgage(s) executed in its favor by plaintiffs covering
the real properties subject of this action;ChanRoblesVirtualawlibrary
(b) Condemning said defendant bank to pay to plaintiffs: (1) Ordinary damages for
breach of the provisions of the contract of building construction (Exhs. "B" & "26"), in
the sum of One Hundred Thousand Pesos (P100,000.00); (2) Moral damages for the
improvident extrajudicial foreclosure of plaintiffs' mortgage(s) after it had elected
judicial foreclosure thereof, in the amount of Three Hundred Thousand Pesos
(P300,000.00) for both plaintiffs; (3) Exemplary damages by way of example or
correction for the public good in the sum of Fifty Thousand Pesos (P50,000.00); (4)
Attorney's fees in the amount of Fifty Thousand Pesos (P50,000.00); and (5) Double
costs of suit
SO ORDERED.12chanrobleslaw
The Court of Appeals affirmed the decision of the Bataan RTC. The decision became
final and executory, prompting the Spouses Roxas to file a Motion for Execution. PTC
responded by filing an Opposition to the Motion for Execution, where it raised for the
first time legal compensation to offset the judgment debt due to the Spouses Roxas.
On January 25, 1994, the trial court denied PTC's Opposition and issued a writ of
execution, holding that PTC is deemed to have waived legal compensation as a
defense because it failed to invoke the same as an affirmative defense in its answer.
PTC filed a motion for reconsideration of the order, which was denied by the trial court
on April 19, 1994.13 PTC filed another motion for reconsideration, which was again
denied by the trial court on June 7, 1994.14
PTC filed a Petition for Certiorari15 under Rule 65 with the Court of Appeals seeking
the annulment of the trial court's order issuing the writ of execution and its
subsequent orders denying PTC's motions for reconsideration. On November 17,
2005, the Court of Appeals dismissed the petition for lack of merit. It found that not all
requisites of legal compensation under Article 1279 of the Civil Code were present
and that the defense of legal compensation was belatedly raised by PTC, considering
that it was raised for the first time at the execution stage. 16 The Court of Appeals
denied PTC's motion for reconsideration on March 9, 2006.17
PTC then filed this Petition for Review on Certiorari18 under Rule 45, arguing that the
Court of Appeals erred in not finding that all the requisites of legal compensation were
present and in ruling that the defense of compensation was belatedly raised. PTC
claims it did not raise legal compensation as a defense before the Bataan RTC
because the judgment debt was not yet due at the time it filed its answer.
Furthermore, it had already set up as a compulsory counterclaim the loan obligation
of the Spouses Roxas in Civil Case No. 130783, which was pending with the former
CFI of Manila. But because the Manila court denied PTC's counterclaims, PTC
argues there is a change in the situation of the parties that makes execution
inequitable.
In response, the Spouses Roxas assert that the execution of the Bataan RTC
decision is proper because the prevailing party is entitled to a writ of execution as a
matter of right once a judgment becomes final.19 Moreover, the decision in Civil Case
No. 130873 is not a supervening event that warrants the stay of execution.20 The
Spouses Roxas also dispute the applicability of legal compensation because both the
demandability of the loan as well as the exact amount due had been put in issue in
Civil Case No. 130873, which is now pending appeal with the Court of Appeals as
CA-G.R. CV No. 30340.21 The Spouses Roxas maintain that PTC is deemed to have
waived compensation as a defense because it did not raise compensation either in a
motion to dismiss or as an affirmative defense in its answer to the Main
Case.22 Finally, the Spouses Roxas point out that the orders of the Bataan RTC were
challenged by PTC through a Rule 65 petition. Thus, it was incumbent upon PTC to
prove lack or grave abuse of discretion on the part of the Bataan RTC, which PTC
ultimately failed to do.23
The petition has no merit.
II
A received. Whenever it appears that the court has no jurisdiction over the subject-
We agree with the Court of Appeals that it was too late for PTC to set up legal
compensation as a defense because the Main Case had already reached the
execution stage. The rule is that once a decision becomes final and executory,
execution shall issue as a matter of right,24 and the issuance of a writ of execution is
the court's ministerial duty, compellable by mandamus. 25 This is in accordance with
the doctrine of immutability of final judgments, which states that a judgment that has
become final and executory is immutable and unalterable, and may no longer be
modified in any respect, even if the modification is meant to correct what is perceived
to be an erroneous conclusion of fact or law, and regardless of whether the
modification is attempted to be made by the court rendering it or by the highest Court
of the land.26 Although there are recognized exceptions to this doctrine, one of which
is where there is a supervening event that renders execution inequitable or
unjust,27 none obtains in this case.
First, there is nothing unjust or inequitable in the issuance of the writ of execution in
this case because execution will have no effect on the unpaid loan obligation of the
Spouses Roxas to PTC. The Spouses Roxas' unpaid loan obligation to PTC is the
subject of a separate case now pending before the Court of Appeals, CA-G.R. CV No.
30340. Thus, there exists a proper forum where PTC may be allowed to recover
whatever is due from the Spouses Roxas. What is inequitable is to allow PTC to
recover its credit in full in CA-G.R. CV No. 30340 while concurrently being allowed to
offset its judgment debt in this case. In such instance, there would effectively be
double recovery on the part of PTCwhich we cannot sanction because of the
fundamental proscription against unjust enrichment.28
Second, it would be more unjust to stay the execution of a decision that had become
final and executory twenty three (23) years ago. There should be an end to litigation,
for public policy dictates that once a judgment becomes final, executory, and
unappealable, the prevailing party should not be denied the fruits of his victory by
some subterfuge devised by the losing party.29 Unjustified delay in the enforcement of
a judgment sets at naught the role and purpose of the courts to resolve justiciable
controversies with finality.30 To accept PTC's contentions would not only be unfair to
private respondents but, more importantly, would defeat a vital poliey consideration
behind the doctrine of immutability of final judgments.
B
The Bataan RTC and the Court of Appeals also correctly ruled that PTC should have
raised the argument on legal compensation at the trial stage. The 1964 Rules of
Court, which was then in effect at the time the Main Case was filed by the Spouses
Roxas in 1980, provides that:cralawlawlibrary
RULE 9. Effect of Pleadings
Sec. 2. Defenses and objections not pleaded deemed waived. Defenses and
objections not pleaded either in a motion to dismiss or in the answer are
deemed waived; except the failure to state a cause of action which may be alleged
in a later pleading, if one is permitted, or by motion for judgment on the pleadings, or
at the trial on the merits; but in the last instance, the motion shall be disposed of as
provided in section 5 of Rule 10 in the light of any evidence which may have been
matter, it shall dismiss the action.31 (Emphasis added)chanrobleslaw
Although legal compensation takes place by operation of law, it must be alleged and
proved as a defense by the debtor who claims its benefits. Only after it is proved will
its effects retroact to the moment when all the requisites under Article 1279 of the
Civil Code have concurred.32
PTC's contention that it could not have raised legal compensation as a defense
because it was not yet a debtor of the Spouses Roxas when it filed its answer is
unconvincing. Under Rule 8, Section 2 of the 1964 Rules of Court, "[a] party may set
forth two or more statements of a claim or defense alternatively or
hypothetically, either in one cause of action or defense or in separate causes of action
or defenses."33Thus, the defense of compensation would have been proper and
allowed under the rules even if PTC disclaimed any liability at the time it filed its
answer. In Marquez v. Valencia,34 we held that when a defendant failed to set up
such alternative defenses and chosen or elected to rely on one only, the overruling
thereof was a complete determination of the controversy between the parties, which
bars a subsequent action based upon an unpleaded defense. Unmistakably, the
rationale behind this is the proscription against the splitting of causes of action.
In any case, even if PTC were excused from pleading compensation as a defense in
its answer, we note that PTC still failed to raise this defense in its motion for
reconsideration of the Bataan RTC decision and in its subsequent appeal. Hence,
there can be no other conclusion than that PTC is already estopped from raising the
issue of legal compensation.
It is fairly clear to us that the reason why PTC did not raise legal compensation as a
defense in the Main Case is because it was banking on a favorable ruling on its
counterclaim in the other case, Civil Case No. 130873. It was presumably an informed
choice arrived at by PTC and its counsel, with full knowledge of the consequences of
its failure to plead this specific claim/defense in the Main Case. Unfortunately for PTC,
its counterclaim in the other case was disallowed. Having adopted the wrong legal
strategy, PTC cannot now expediently change its theory of the case or its defense at
the execution stage of the Main Case. Following the doctrine of election of
remedies,35 PTC's choice of setting up the Spouses Roxas' unpaid loan obligation as
a counterclaim in Civil Case No. 130873, which has gone to judgment on the merits
but is pending appeal, precludes it from raising compensation of the same loan
obligation for the purpose of opposing the writ of execution in the Main Case.
Equitable in nature, the doctrine of election of remedies is designed to mitigate
possible unfairness to both parties. It rests on the moral premise that it is fair to hold
people responsible for their choices. The purpose of the doctrine is not to prevent any
recourse to any remedy, but to prevent a double redress for a single wrong. 36
III
Even if we assume that legal compensation was not waived and was otherwise timely
raised, we find that not all requisites of legal compensation are present in this case.
Under Article 1279, in order for legal compensation to take place, the following
requisites must concur: (a) that each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other; (b) that both debts consist in a
sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated; (c) that the two debts be due;
(d) that they be liquidated and demandable; and (e) that over neither of them there be
any retention or controversy, commenced by third persons and communicated in due
time to the debtor.
Here, the fourth requisite is absent. A debt is liquidated when its existence and
amount are determined.37 Compensation can only take place between certain and
liquidated debts; it cannot extend to unliquidated, disputed claims. 38 Since the loan
obligation, including its amount and demandability, is still being disputed in CA-G.R.
CVNo. 30340, PTC's credit cannot be considered liquidated as of yet. Consequently,
no legal compensation could have taken place between PTC's loan credit and the
Spouses Roxas' judgment credit.
IV
Finally, we observe that PTC appears to have willfully engaged in forum shopping.
PTC, in its own words, opposed the execution of the Bataan RTC decision because
'"the Decision promulgated on September 4, 1990 by the RTC of Manila, Branch 40
[in Civil Case No. 130783] denied Petitioner's counterclaims."39Forum shopping is
committed by a party who, having received an adverse judgment in one forum, seeks
another opinion in another court, other than by appeal or the special civil action of
certiorari. More accurately, forum shopping is the institution of two or more suits in
different courts, either simultaneously or successively, in order to ask the courts to
rule on the same or related causes and/or to grant the same or substantially the same
reliefs.40
The relief PTC now seeks is compensation of its judgment debt with the Spouses
Roxas' loan obligation. In the other case, Civil Case No. 130783 (now CA-G.R. CV
No. 30340), PTC asks for the payment of the same loan obligation of the Spouses
Roxas. Essentially, PTC is seeking the same relief in both cases: the extinguishment
of the Spouses Roxas' loan obligation. Under Article 1231 of the Civil Code, payment
and compensation are modes of extinguishing an obligation. Although legally distinct,
both must be pleaded in the same case if the obligation sought to be extinguished
and the parties thereto arc identical; otherwise, it would constitute splitting of causes
of action.
Forum shopping exists when the elements of litis pendentia are present, viz.: (a)
identity of parties, or at least such parties as those representing the same interests in
both actions; (b) identity of rights assered and relief prayed for, the relief being
founded on the same facts; and (c) the identity of the two preceding particulars is
such that any judgment rendered in the other action, will, regardless of which party is
successful, amount to res judicata in the action under consideration.41
We find that the elements of litis pendentiaand, as a consequence, forum
shoppingexist in this case. PTC's claim for legal compensation is founded on the
same unpaid loan obligation now being litigated in CA-G.R. CV No. 30340. Although
that case originated from a complaint filed by Dominguez for breach of contract, PTC
counterclaimed the entire unpaid loan obligation, plus interest, owed to it by the
Spouses Roxas. In other words, PTC had squarely put in issue the matter of the
Spouses Roxas' indebtedness arising from the loans the latter obtained from PTC. It
is immaterial that PTC's cause of action in the other case was set forth by way of a
counterclaim, since the latter partakes of the nature of a complaint by the defendant
against the plaintiff.42 On the other hand, while the Main Case originally involved a
different subject matter and cause of action (i.e., the injunction against PTC's
extrajudicial foreclosure and the Spouses Roxas' claim for damages) as that
embraced in CA-G.R. CV No. 30340, the primary issue raised by PTC in its
Opposition to the Motion for Execution, and subsequently in the petition
for certiorari with the Court of Appeals and the present petition, pertained to the same
loan obtained by the Spouses Roxas. Thus, with respect to the Spouses Roxas'
indebtedness to PTC, there is a clear identity of parties, of subject matter, and of
cause of action. Consequently, once a final decision in CA-G.R. CV No. 30340 is
rendered, it will constitute res judicata and bar further litigation on the same loan
obligation, including any dispute on the applicability or non-applicability of legal
compensation.
Forum shopping is an act of malpractice that is prohibited and condemned because it
trifles with the courts and abuses their processes, and degrades the administration of
justice and adds to the already congested court dockets. 43 Under Section 5 of Rule 8,
willful and deliberate forum shopping is a ground for summary dismissal of the case
and constitutes direct contempt of court, as well as a cause for administrative
sanctions. The litigation could have ended promptly if PTC had simply paid its
judgment debt and awaited the final decision in the other case to recover whatever is
due from the Spouses Roxas. Instead, this plainly unmeritorious case had to clog our
docket and take up the valuable time of this Court.

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

SO ORDERED.