G.R. No.

184458 January 14, 2015 On 24 February 1995, Rivera obtained a loan from the Spouses Chua:

RODRIGO RIVERA, Petitioner, PROMISSORY NOTE

vs.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA, Respondents. 120,000.00

x-----------------------x FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA
and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency
G.R. No. 184472 (₱120,000.00) on December 31, 1995.

SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,
vs.
RODRIGO RIVERA, Respondent.
DECISION
PEREZ, J.:
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the
Rules of Court assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 90609
which affirmed with modification the separate rulings of the Manila City trial courts,
the Regional Trial Court, Branch 17 in Civil Case No. 02-1052562 and the Metropolitan
Trial Court (MeTC), Branch 30, in Civil Case No. 163661,3 a case for collection of a sum
of money due a promissory note. While all three (3) lower courts upheld the validity
and authenticity of the promissory note as duly signed by the obligor, Rodrigo Rivera
(Rivera), petitioner in G.R. No. 184458, the appellate court modified the trial courts’
consistent awards: (1) the stipulated interest rate of sixty percent (60%) reduced to
twelve percent (12%) per annumcomputed from the date of judicial or extrajudicial
demand, and (2) reinstatement of the award of attorney’s fees also in a reduced
amount of ₱50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory
note and questions the entire ruling of the lower courts. On the other hand,
petitioners in G.R. No. 184472, Spouses Salvador and Violeta Chua (Spouses Chua),
take exception to the appellate court’s reduction of the stipulated interest rate of sixty
percent (60%) to twelve percent (12%) per annum.
We proceed to the facts.
The parties were friends of long standing having known each other since 1973: Rivera
and Salvador are kumpadres, the former is the godfather of the Spouses Chua’s son.
It is agreed and understood that failure on my part to pay the amount of (120,000.00)
One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the
sum equivalent to FIVE PERCENT (5%) interest monthly from the date of default until
the entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay the further sum
equivalent to twenty percent (20%) of the total amount due and payable as and for
attorney’s fees which in no case shall be less than ₱5,000.00 and to pay in addition the
cost of suit and other incidental litigation expense.
Any action which may arise in connection with this note shall be brought in the proper
Court of the City of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated in the
promissory note, Rivera, as partial payment for the loan, issued and delivered to the
SpousesChua, as payee, a check numbered 012467, dated 30 December 1998, drawn
against Rivera’s current account with the Philippine Commercial International Bank
(PCIB) in the amount of ₱25,000.00.
On 21 December 1998, the Spouses Chua received another check presumably issued
by Rivera, likewise drawn against Rivera’s PCIB current account, numbered 013224,
duly signed and dated, but blank as to payee and amount. Ostensibly, as per
understanding by the parties, PCIB Check No. 013224 was issued in the amount of
₱133,454.00 with "cash" as payee. Purportedly, both checks were simply partial
payment for Rivera’s loan in the principal amount of ₱120,000.00.
Upon presentment for payment, the two checks were dishonored for the reason
"account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at ₱366,000.00
covering the principal of ₱120,000.00 plus five percent (5%) interest per month from
1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera
to no avail. Because of Rivera’s unjustified refusal to pay, the Spouses Chua were
constrained to file a suit on 11 June 1999. The case was raffled before the MeTC,
Branch 30, Manila and docketed as Civil Case No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never
executed the subject Promissory Note; (2) in all instances when he obtained a loan
from the Spouses Chua, the loans were always covered by a security; (3) at the time
of the filing of the complaint, he still had an existing indebtedness to the Spouses Chua,
secured by a real estate mortgage, but not yet in default; (4) PCIB Check No. 132224
signed by him which he delivered to the Spouses Chua on 21 December 1998, should
have been issued in the amount of only 1,300.00, representing the amount he
received from the Spouses Chua’s saleslady; (5) contrary to the supposed agreement,
the Spouses Chua presented the check for payment in the amount of ₱133,454.00;
and (6) there was no demand for payment of the amount of ₱120,000.00 prior to the
encashment of PCIB Check No. 0132224.5
In the main, Rivera claimed forgery of the subject Promissory Note and denied his
indebtedness thereunder.
The MeTC summarized the testimonies of both parties’ respective witnesses:
[The spouses Chua’s] evidence include[s] documentary evidence and oral evidence
(consisting of the testimonies of [the spouses] Chua and NBI Senior Documents
Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI
document examiner (1989); NBI Senior Document Examiner (1994 to the date he
testified); registered criminologist; graduate of 18th Basic Training Course [i]n
Questioned Document Examination conducted by the NBI; twice attended a seminar
on US Dollar Counterfeit Detection conducted by the US Embassy in Manila; attended
a seminar on Effective Methodology in Teaching and Instructional design conducted
by the NBI Academy; seminar lecturer on Questioned Documents, Signature
Verification and/or Detection; had examined more than a hundred thousand
questioned documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported signature of
[Rivera] appearing in the Promissory Note and compared the signature thereon with
the specimen signatures of [Rivera] appearing on several documents. After a thorough
study, examination, and comparison of the signature on the questioned document
(Promissory Note) and the specimen signatures on the documents submitted to him,
he concluded that the questioned signature appearing in the Promissory Note and the
specimen signatures of [Rivera] appearing on the other documents submitted were
written by one and the same person. In connection with his findings, Magbojos
prepared Questioned Documents Report No. 712-1000 dated 8 January 2001, with the
following conclusion: "The questioned and the standard specimen signatures
RODGRIGO RIVERA were written by one and the same person."
[Rivera] testified as follows: he and [respondent] Salvador are "kumpadres;" in May
1998, he obtained a loan from [respondent] Salvador and executed a real estate
mortgage over a parcel of land in favor of [respondent Salvador] as collateral; aside
from this loan, in October, 1998 he borrowed ₱25,000.00 from Salvador and issued
PCIB Check No. 126407 dated 30 December 1998; he expressly denied execution of
the Promissory Note dated 24 February 1995 and alleged that the signature appearing
thereon was not his signature; [respondent Salvador’s] claim that PCIB Check No.
0132224 was partial payment for the Promissory Note was not true, the truth being
that he delivered the check to [respondent Salvador] with the space for amount left
blank as he and [respondent] Salvador had agreed that the latter was to fill it in with
the amount of ₱1,300.00 which amount he owed [the spouses Chua]; however, on 29
December 1998 [respondent] Salvador called him and told him that he had written
₱133,454.00 instead of ₱1,300.00; x x x. To rebut the testimony of NBI Senior
Document Examiner Magbojos, [Rivera] reiterated his averment that the signature
appearing on the Promissory Note was not his signature and that he did not execute
the Promissory Note.6
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: ₱120,000.00 plus
stipulated interest at the rate of 5% per month from 1 January 1996, and legal interest
at the rate of 12% percent per annum from 11 June 1999, as actual and compensatory
damages; 20% of the whole amount due as attorney’s fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the
MeTC, but deleted the award of attorney’s fees to the Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which is hereby deleted, the
rest of the Decision dated October 21, 2002 is hereby AFFIRMED. 8
Both trial courts found the Promissory Note as authentic and validly bore the signature
of Rivera. Undaunted, Rivera appealed to the Court of Appeals which affirmed Rivera’s
liability under the Promissory Note, reduced the imposition of interest on the loan
from 60% to 12% per annum, and reinstated the award of attorney’s fees in favor of
the Spouses Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the
MODIFICATION that the interest rate of 60% per annum is hereby reduced to12% per
annum and the award of attorney’s fees is reinstated atthe reduced amount of
₱50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera in G.R. No.
184458 and the Spouses Chua in G.R. No. 184472, respectively raising the following
issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED
IN UPHOLDING THE RULING OF THE RTC AND M[e]TC THAT THERE
WAS A VALID PROMISSORY NOTE EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED
IN HOLDING THAT DEMAND IS NO LONGER NECESSARY AND IN
APPLYING THE PROVISIONS OF THE NEGOTIABLE INSTRUMENTS
LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED
IN AWARDING ATTORNEY’S FEES DESPITE THE FACT THAT THE SAME
HAS NO BASIS IN FACT AND IN LAW AND DESPITE THE FACT THAT
[THE SPOUSES CHUA] DID NOT APPEAL FROM THE DECISION OF THE
RTC DELETING THE AWARD OF ATTORNEY’S FEES.10
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL
ERROR WHEN IT MODIFIED THE APPEALED JUDGMENT BY REDUCING THE INTEREST
RATE FROM 60% PER ANNUM TO 12% PER ANNUM IN SPITE OF THE FACT THAT
RIVERA NEVER RAISED IN HIS ANSWER THE DEFENSE THAT THE SAID STIPULATED RATE
OF INTEREST IS EXORBITANT, UNCONSCIONABLE, UNREASONABLE, INEQUITABLE,
ILLEGAL, IMMORAL OR VOID.11
As early as 15 December 2008, wealready disposed of G.R. No. 184472 and denied the
petition, via a Minute Resolution, for failure to sufficiently show any reversible error
in the ruling of the appellate court specifically concerning the correct rate of interest
on Rivera’s indebtedness under the Promissory Note.12
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera
questioning the entire ruling of the Court of Appeals in CA-G.R. SP No. 90609.
Rivera continues to deny that heexecuted the Promissory Note; he claims that given
his friendship withthe Spouses Chua who were money lenders, he has been able to
maintain a loan account with them. However, each of these loan transactions was
respectively "secured by checks or sufficient collateral."
Rivera points out that the Spouses Chua "never demanded payment for the loan nor
interest thereof (sic) from [Rivera] for almost four (4) years from the time of the
alleged default in payment [i.e., after December 31, 1995]."13
On the issue of the supposed forgery of the promissory note, we are not inclined to
depart from the lower courts’ uniform rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the promissory
note was forged, only that the signature is not his and varies from his usual signature.
He likewise makes a confusing defense of having previously obtained loans from the
Spouses Chua who were money lenders and who had allowed him a period of "almost
four (4) years" before demanding payment of the loan under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the testimony of
the National Bureau of Investigation (NBI) handwriting expert on the integrity of the
promissory note. On that score, the appellate court aptly disabled Rivera’s contention:
[Rivera] failed to adduce clear and convincing evidence that the signature on the
promissory note is a forgery. The fact of forgery cannot be presumed but must be
proved by clear, positive and convincing evidence. Mere variance of signatures cannot
be considered as conclusive proof that the same was forged. Save for the denial of
Rivera that the signature on the note was not his, there is nothing in the records to
support his claim of forgery. And while it is true that resort to experts is not mandatory
or indispensable to the examination of alleged forged documents, the opinions of
handwriting experts are nevertheless helpful in the court’s determination of a
document’s authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of the
promissory note and the testimony of the NBI witness. In fact, even a perfunctory
comparison of the signatures offered in evidence would lead to the conclusion that
the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must establish
his case by preponderance of evidence, which simply means "evidence which is of
greater weight, or more convincing than that which is offered in opposition to it."
Evaluating the evidence on record, we are convinced that [the Spouses Chua] have
established a prima faciecase in their favor, hence, the burden of evidence has shifted
to [Rivera] to prove his allegation of forgery. Unfortunately for [Rivera], he failed to
substantiate his defense.14 Well-entrenched in jurisprudence is the rule that factual
findings of the trial court, especially when affirmed by the appellate court, are
accorded the highest degree of respect and are considered conclusive between the
parties.15 A review of such findings by this Court is not warranted except upon a
showing of highly meritorious circumstances, such as: (1) when the findings of a trial
court are grounded entirely on speculation, surmises or conjectures; (2) when a lower
court's inference from its factual findings is manifestly mistaken, absurd or impossible;
(3) when there is grave abuse of discretion in the appreciation of facts; (4) when the
findings of the appellate court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a different conclusion; (5) when
there is a misappreciation of facts; (6) when the findings of fact are conclusions
without mention of the specific evidence on which they are based, are premised on
the absence of evidence, or are contradicted by evidence on record. 16 None of these
exceptions obtains in this instance. There is no reason to depart from the separate
factual findings of the three (3) lower courts on the validity of Rivera’s signature
reflected in the Promissory Note.
Indeed, Rivera had the burden ofproving the material allegations which he sets up in
his Answer to the plaintiff’s claim or cause of action, upon which issue is joined,
whether they relate to the whole case or only to certain issues in the case.17
In this case, Rivera’s bare assertion is unsubstantiated and directly disputed by the
testimony of a handwriting expert from the NBI. While it is true that resort to experts
is not mandatory or indispensable to the examination or the comparison of
handwriting, the trial courts in this case, on its own, using the handwriting expert
testimony only as an aid, found the disputed document valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the following: categorical
statement of [respondent] Salvador that [Rivera] signed the Promissory Note before
him, in his ([Rivera’s]) house; the conclusion of NBI Senior Documents Examiner that
the questioned signature (appearing on the Promissory Note) and standard specimen
signatures "Rodrigo Rivera" "were written by one and the same person"; actual view
at the hearing of the enlarged photographs of the questioned signature and the
standard specimen signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed exists, it is beyond
logic for a money lender to extend another loan on May 4, 1998 secured by a real
estate mortgage, when he was already in default and has not been paying any interest
for a loan incurred in February 1995."20
We disagree.
It is likewise likely that precisely because of the long standing friendship of the parties
as "kumpadres," Rivera was allowed another loan, albeit this time secured by a real
estate mortgage, which will cover Rivera’s loan should Rivera fail to pay. There is
nothing inconsistent with the Spouses Chua’s two (2) and successive loan
accommodations to Rivera: one, secured by a real estate mortgage and the other,
secured by only a Promissory Note.
Also completely plausible is thatgiven the relationship between the parties, Rivera was
allowed a substantial amount of time before the Spouses Chua demanded payment of
the obligation due under the Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced claim of forgery
and a discordant defense to assail the authenticity and validity of the Promissory Note.
Although the burden of proof rested on the Spouses Chua having instituted the civil
case and after they established a prima facie case against Rivera, the burden of
evidence shifted to the latter to establish his defense.21 Consequently, Rivera failed to
discharge the burden of evidence, refute the existence of the Promissory Note duly
signed by him and subsequently, that he did not fail to pay his obligation thereunder.
On the whole, there was no question left on where the respective evidence of the
parties preponderated—in favor of plaintiffs, the Spouses Chua. Rivera next argues
that even assuming the validity of the Promissory Note, demand was still necessary in
order to charge him liable thereunder. Rivera argues that it was grave error on the
part of the appellate court to apply Section 70 of the Negotiable Instruments Law
(NIL).22
We agree that the subject promissory note is not a negotiable instrument and the
provisions of the NIL do not apply to this case. Section 1 of the NIL requires the
concurrence of the following elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
 (b) Must contain an unconditional promise or order to pay a sum certain in
money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or
otherwise indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note is:
SECTION 184. Promissory Note, Defined. – A negotiable promissory note within the
meaning of this Act is an unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to bearer. Where a note
is drawn to the maker’s own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents,
the Spouses Chua, and not to order or to bearer, or to the order of the Spouses Chua
as payees. However, even if Rivera’s Promissory Note is not a negotiable instrument
and therefore outside the coverage of Section 70 of the NIL which provides that
presentment for payment is not necessary to charge the person liable on the
instrument, Rivera is still liable under the terms of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the obligation falls due and
becomes demandable—31 December 1995. As of 1 January 1996, Rivera had already
incurred in delay when he failed to pay the amount of ₱120,000.00 due to the Spouses
Chua on 31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears
that the designation of the time when the thing is to be delivered or the
service is to be rendered was a controlling motive for the establishment of
the contract; or
(3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins. (Emphasis
supplied)
There are four instances when demand is not necessary to constitute the debtor in
default: (1) when there is an express stipulation to that effect; (2) where the law so
provides; (3) when the period is the controlling motive or the principal inducement for
the creation of the obligation; and (4) where demand would be useless. In the first two
paragraphs, it is not sufficient that the law or obligation fixes a date for performance;
it must further state expressly that after the period lapses, default will commence.
We refer to the clause in the Promissory Note containing the stipulation of interest:
It is agreed and understood that failure on my part to pay the amount of (₱120,000.00)
One Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the
sum equivalent to FIVE PERCENT (5%) interest monthly from the date of default until
the entire obligation is fully paid for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the
"date of default" until the entire obligation is fully paid for. The parties evidently
agreed that the maturity of the obligation at a date certain, 31 December 1995, will
give rise to the obligation to pay interest. The Promissory Note expressly provided that
after 31 December 1995, default commences and the stipulation on payment of
interest starts.
The date of default under the Promissory Note is 1 January 1996, the day following 31
December 1995, the due date of the obligation. On that date, Rivera became liable for
the stipulated interest which the Promissory Note says is equivalent to 5% a month. In
sum, until 31 December 1995, demand was not necessary before Rivera could be held
liable for the principal amount of ₱120,000.00. Thereafter, on 1 January 1996, upon
default, Rivera became liable to pay the Spouses Chua damages, in the form of
stipulated interest.
The liability for damages of those who default, including those who are guilty of delay,
in the performance of their obligations is laid down on Article 117024 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an
indemnity for damages when the obligor incurs in delay:
Art. 2209. If the obligation consists inthe 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 percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation is for a
sum of money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or
before 31 December 1995; and (3) the Promissory Note provides for an indemnity for
damages upon default of Rivera which is the payment of a 5%monthly interest from
the date of default.
We do not consider the stipulation on payment of interest in this case as a penal clause
although Rivera, as obligor, assumed to pay additional 5% monthly interest on the
principal amount of ₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity
for damages and the payment of interests in case of noncompliance, if there isno
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses
to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the
provisions of this Code.
The penal clause is generally undertaken to insure performance and works as either,
or both, punishment and reparation. It is an exception to the general rules on recovery
of losses and damages. As an exception to the general rule, a penal clause must be
specifically set forth in the obligation.25
In high relief, the stipulation in the Promissory Note is designated as payment of
interest, not as a penal clause, and is simply an indemnity for damages incurred by the
Spouses Chua because Rivera defaulted in the payment of the amount of ₱120,000.00.
The measure of damages for the Rivera’s delay is limited to the interest stipulated in
the Promissory Note. In apt instances, in default of stipulation, the interest is that
provided by law.26
In this instance, the parties stipulated that in case of default, Rivera will pay interest
at the rate of 5% a month or 60% per annum. On this score, the appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly states the date of
payment tobe 31 December 1995. Given this circumstance, demand by the creditor
isno longer necessary in order that delay may exist since the contract itself already
expressly so declares. The mere failure of [Spouses Chua] to immediately demand or
collect payment of the value of the note does not exonerate [Rivera] from his liability
therefrom. Verily, the trial court committed no reversible error when it imposed
interest from 1 January 1996 on the ratiocination that [Spouses Chua] were relieved
from making demand under Article 1169 of the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in
addition to legal interests and attorney’s fees is, indeed, highly iniquitous and
unreasonable. Stipulated interest rates are illegal if they are unconscionable and the
Court is allowed to temper interest rates when necessary. Since the interest rate
agreed upon is void, the parties are considered to have no stipulation regarding the
interest rate, thus, the rate of interest should be 12% per annum computed from the
date of judicial or extrajudicial demand.27
The appellate court found the 5% a month or 60% per annum interest rate, on top of
the legal interest and attorney’s fees, steep, tantamount to it being illegal, iniquitous
and unconscionable. Significantly, the issue on payment of interest has been squarely
disposed of in G.R. No. 184472 denying the petition of the Spouses Chua for failure to
sufficiently showany reversible error in the ruling of the appellate court, specifically
the reduction of the interest rate imposed on Rivera’s indebtedness under the
Promissory Note. Ultimately, the denial of the petition in G.R. No. 184472 is res
judicata in its concept of "bar by prior judgment" on whether the Court of Appeals
correctly reduced the interest rate stipulated in the Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the following
requisites concur: (1) the former judgment or order must be final; (2) the judgment or
order must be on the merits; (3) the decision must have been rendered by a court
having jurisdiction over the subject matter and the parties; and (4) there must be,
between the first and the second action, identity of parties, of subject matter and of
causes of action.28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of parties
and subject matter raising specifically errors in the Decision of the Court of Appeals.
Where the Court of Appeals’ disposition on the propriety of the reduction of the
interest rate was raised by the Spouses Chua in G.R. No. 184472, our ruling thereon
affirming the Court of Appeals is a "bar by prior judgment."
At the time interest accrued from 1 January 1996, the date of default under the
Promissory Note, the then prevailing rate of legal interest was 12% per annum under
Central Bank (CB) Circular No. 416 in cases involving the loan or for bearance of
money.29 Thus, the legal interest accruing from the Promissory Note is 12% per annum
from the date of default on 1 January 1996. However, the 12% per annumrate of legal
interest is only applicable until 30 June 2013, before the advent and effectivity of
Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the rate of
legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP
Circular No. 799 is prospectively applied from 1 July 2013. In short, the applicable rate
of legal interest from 1 January 1996, the date when Rivera defaulted, to date when
this Decision becomes final and executor is divided into two periods reflecting two
rates of legal interest: (1) 12% per annum from 1 January 1996 to 30 June 2013; and
(2) 6% per annum FROM 1 July 2013 to date when this Decision becomes final and
executory.
As for the legal interest accruing from 11 June 1999, when judicial demand was made,
to the date when this Decision becomes final and executory, such is likewise divided
into two periods: (1) 12% per annum from 11 June 1999, the date of judicial demand
to 30 June 2013; and (2) 6% per annum from 1 July 2013 to date when this Decision
becomes final and executor.31 We base this imposition of interest on interest due
earning legal interest on Article 2212 of the Civil Code which provides that "interest
due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent on this point."
From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to
the Spouses Chua could already be determined with reasonable certainty given the
wording of the Promissory Note.32
We cite our recent ruling in Nacar v. Gallery Frames:33
I. When an obligation, regardless of its source, i.e., law, contracts,
quasicontracts, delicts or quasi-delicts is breached, the contravenor can be
held liable for damages. The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or for bearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 6% per annum to be computed from default, i.e.,
from judicial or extra judicial demand under and subject to the
provisions ofArticle 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum.1âwphi1 No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until the demand
can be established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the interest
shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged. 3. When the judgment of
the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, above, shall be 6% per annum from such finality
until its satisfaction, this interim period being deemed to be by then
an equivalent to a for bearance of credit. And, in addition to the
above, judgments that have become final and executory prior to July
1, 2013, shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein. (Emphasis
supplied)
On the reinstatement of the award of attorney’s fees based on the stipulation in the
Promissory Note, weagree with the reduction thereof but not the ratiocination of the
appellate court that the attorney’s fees are in the nature of liquidated damages or
penalty. The interest imposed in the Promissory Note already answers as liquidated
damages for Rivera’s default in paying his obligation. We award attorney’s fees, albeit
in a reduced amount, in recognition that the Spouses Chua were compelled to litigate
and incurred expenses to protect their interests.34 Thus, the award of ₱50,000.00 as
attorney’s fees is proper.
For clarity and to obviate confusion, we chart the breakdown of the total amount
owed by Rivera to the Spouses Chua:
 (5) 6% per annumapplied to the total amount of paragraphs 2 and 3 from 1
Face value of Stipulated Interest Interest due Attorney’s Total
the Promissory A&B earning legal fees Amount July 2013 to date when this Decision becomes final and executor, asinterest
due earning legal interest;
Note interest A & B

February 24, A. January 1, 1996 A. June 11, 1999 Wholesale (6) Attorney’s fees in the amount of ₱50,000.00; and
1995 to to (date of judicial Amount
December 31, June 30, 2013 demand) to (7) 6% per annum interest on the total of the monetary awards from the
1995 June 30, 2013 finality of this Decision until full payment thereof.
B. July 1 2013 to B. July 1, 2013
date when this to date when Costs against petitioner Rodrigo Rivera.
Decision becomes this Decision
final and becomes final SO ORDERED.
executory and executory

₱120,000.00 A. 12 % per A. 12% per ₱50,000.00 Total

annumon the annumon the amount of
principal amount total amount of Columns
of ₱120,000.00 column 2 1-4
B. 6% per B. 6% per
annumon the annumon the
principal amount total amount of
of ₱120,000.00 column 235

The total amount owing to the Spouses Chua set forth in this Decision shall further
earn legal interest at the rate of 6% per annum computed from its finality until full
payment thereof, the interim period being deemed to be a forbearance of credit.

WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the Court of
Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo Rivera is ordered to
pay respondents Spouse Salvador and Violeta Chua the following:

(1) the principal amount of ₱120,000.00;

(2) legal interest of 12% per annumof the principal amount of ₱120,000.00
reckoned from 1 January 1996 until 30 June 2013;

(3) legal interest of 6% per annumof the principal amount of ₱120,000.00

form 1 July 2013 to date when this Decision becomes final and executory;

(4) 12% per annumapplied to the total of paragraphs 2 and 3 from 11 June
1999, date of judicial demand, to 30 June 2013, as interest due earning legal
interest;
G.R. No. L-49852 October 19, 1989
EMILIA TENGCO, petitioner,
vs.
COURT OF APPEALS and BENJAMIN CIFRA JR., respondents.
De Santos, Balgos & Perez for petitioner.
Teofilo F. Manalo for respondents.
PADILLA, J.:
Review on certiorari of the decision* rendered by the Court of Appeals in CA-G.R. NO.
SP-08182, entitled: "Emilia Tengco, petitioner, versus Court of First Instance of Rizal,
etc., et al, respondents," which dismissed herein petitioner's "Appeal by Way
of Certiorari" from the judgment of the Court of First Instance of Rizal in Civil Case No.
C-6625 which affirmed the decision of the Municipal Court of Navotas, Metro Manila,
in Civil Case No. 2092, entitled: "Benjamin Cifra, plaintiff, versus Emilia Tengco
defendant," ordering the herein petitioner (as defendant) to vacate the premises at
No. 164 Int Gov. Pascual St., Navotas, Metro Manila, and to pay the herein private
respondent (as plaintiff) the arrears in rentals and attorney's fees; and the Resolution
denying the herein petitioner's motion for reconsideration of the said Court of Appeals
decision.
The record of the case shows that on 16 September 1976, the herein private
respondent, Benjamin Cifra, Jr., claiming to be the owner of the premises at No. 164
Int Gov. Pascual St., Navotas, Metro Manila, which he had leased to the herein
petitioner, Emilia Tengco, filed an action for unlawful detainer with the Municipal
Court of Navotas, Metro Manila, docketed therein as Civil Case No. 2092, to evict the
petitioner, Emilia Tengco, from the said premises for her alleged failure to comply with
the terms and conditions of the lease contract by failing and refusing to pay the
stipulated rentals despite repeated demands. After trial judgment was rendered
against the petitioner. The decretal portion of the decision reads, as follows:
WHEREFORE, Judgment is hereby rendered in favor of the plaintiff
and against the defendant, ordering the defendant and any and all
persons claiming rights under her to vacate the premises occupied
by her at No. 164 Int Gov. Pascual Street, this town and to surrender
possession thereof to the plaintiff, condemning the defendant to
pay the plaintiff the amount of THREE HUNDRED SEVENTY SIX
(P376.00) PESOS, as rentals in arrears and the sum of TWELVE PESOS
(P12.00), a month from October, 1976 until the premises is fully
vacated. To pay the plaintiff the sum of TWO HUNDRED (P200.00)
PESOS as and for attorney's fees and costs of suit.
From this judgment, the herein petitioner appealed to the Court of First Instance of
Rizal where the appeal was docketed as Civil Case No. C-6625. On 18 May 1978, the
Court of First Instance of Rizal rendered judgment affirming the decision of the
municipal court, the dispositive part of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered
affirming in toto the judgment of the lower court dated September
20, 1 977 without pronouncement as to costs.
Not satisfied, the herein petitioner filed with the respondent Court of Appeals an
"Appeal by Way of Certiorari" which was docketed as CA-G.R. NO. SP-08182. On 29
August 1978, the respondent Court of Appeals promulgated a decision, with the
following disposition:
WHEREFORE, finding that the Decision of the lower Court is
supported by substantial evidence and that its conclusions are not
clearly against the law and jurisprudence, the instant petition is
hereby denied due course and is dismissed outright.
The petitioner filed a motion for reconsideration of the decision but her motion was
denied on 16 January 1979.
Hence, the present recourse.
The petitioner contends that the respondent Court of Appeals erred in sustaining the
decisions of the appellate and trial courts which are allegedly contrary to the evidence
and applicable jurisprudence. The petitioner more particularly claims that (1) the
private respondent Benjamin Cifra, Jr. is not the owner of the leased premises; (2) the
lessor was guilty of mora accipiendi; (3) the petitioner's version of the facts is more
credible than private respondent's; (4) laches had deprived the lessor of the right to
eject her; and (5) the private respondent failed to establish a cause of action against
the petitioner.
We find no merit in the petition. The reasons advanced by the petitioner to support
her petition are the same reasons given by her to the Court of Appeals in support of
her "Appeal by Way of Certiorari" and we find no ground to adopt a different course
from that of the respondent appellate court. In disposing of the petitioner's
contentions, the Court of Appeals said:
Petitioner claims that private respondent had failed to establish his
ownership of the lot in question for while the Certificate of Title
presented by him refers to a parcel of land situated at Bo. Almacen,
Navotas, the premises in question, on the other hand, is situated in
Bo. Sipak Navotas; that it was not with private respondent that she
entered into the lease agreement but with his mother; that her
failure to pay the rentals on the premises was due to the refusal of
the collector to accept her tender of payment; and that laches had
deprived private respondent of whatever right he had against her
considering that the Complaint was filed only in September, 1976
whereas his cause of action arose sometime in February, 1974 when
she defaulted in the payment of rentals.
We find this appeal which We consider as a Petition for Review, to
be without merit.
It should be noted that petitioner admits that she is a lessee on the
premises in question and that she had been in default in the
payment of the rentals thereon since February, 1974 allegedly
because of the refusal of the collector to accept her tender of
payment. However, she claims that the lease agreement was not
with private respondent, but with his mother. The question as to
who is the real lessor of the premises is one of fact and the findings
of the lower court that it was private respondent is entitled to the
highest respect by appellate Courts barring any material evidence
to the contrary. Neither can petitioner question private
respondent's claim of ownership of the leased premises. The tenant
is not permitted to deny the title of his landlord at the time of the
commencement of the relation of landlord and tenant between
them.
Petitioner's excuse for her non-payment of the rentals on the
premises deserves scant consideration. If, indeed, her offer to settle
her obligation was refused by private respondent, she should have
resorted to the judicial deposit of the amount due in order to
release her from responsibility.
Petitioner's claim that private respondent's cause of' action is
barred by laches is untenable. While it is true that petitioner's
arrearages date back to February, 1974, however, a tenant's mere
failure to pay rent does not ipso facto make unlawful his possession
of the leased premises. As held by respondent Court of First
Instance, it is the failure to pay rents after a demand therefor is
made that entitles the lessor to bring an action of Unlawful Detainer.
Moreover, the lessor has the privilege to waive his right to bring an
action against his tenant and give the latter credit for the payment
of the rents and allow him to continue indefinitely in the possession
of the premises. During such period, the tenant would not be in
illegal possession of the premises and the landlord can not maintain
an action until after he has taken steps to convert the legal
possession into an illegal possession. Thus, in the case at bar, the
demand on petitioner to vacate the premises for failure to pay the
rentals thereon was made by private respondent only on August 23,
1976 and the Complaint against petitioner was filed on September
16,1976.
Consequently, petitioner's non-payment of the rentals on the
premises, notwithstanding demand made by private respondent,
and her failure to avail of the remedy provided for in Article 1256 of
the Civil Code, entitles private respondent to eject her from the
premises.
Indeed, the question of whether or not private respondent is the owner of the leased
premises is one of fact which is within the cognizance of the trial court whose findings
thereon will not be disturbed on appeal unless there is a showing that the trial court
had overlooked, misunderstood, or misapplied some fact or circumstance of weight
and substance that would have affected the result of the case. And since the petitioner
has not presented sufficient proof that the leased premises is not the same lot
registered in the name of the private respondent, the findings of the lower courts on
the fact of ownership of the leased premises will not be disturbed.
The maps attached by the petitioner to her Reply to the Comment of the private
respondent which would tend to show that Almacen and Sipac are two (2) different
barangays or sitios, cannot offset the findings of the trial court for lack of proper
Identifications; in fact, these maps do not even indicate where the property at No. 164
Int Gov. Pascual Street is located.
The petitioner's contention that the provisions of Section 1, Commonwealth Act No.
53, should be applied in this case in determining the credibility of witnesses, is
untenable. The said law provides:
Sec. 1. Where a covenant or contract made between the owner of
land and a lessee or tenant on share thereof has not been reduced
to writing or has not been set forth in a document written in a
language known to the lessee or tenant, the testimony of such
 lessee or tenant shall be accepted as prima facieevidence on the
terms of a covenant or contract.
As can be seen, the cited law can be invoked only when there is a dispute between the
owner of the land and the lessee or tenant on share tenancy as to the terms of an
unwritten contract or where the contract is written in a language not known to the
lessee or tenant. In the instant case, there is no dispute as to the terms of the contract
of lease. Hence, the cited law cannot be invoked to support the petitioner's claim that
the private respondent is not the owner of the leased premises or that the petitioner's
version of the facts of the case is more credible than that of the private respondent.
Besides, the petitioner's contention that the private respondent is not the owner of
the leased premises is inconsistent with her claim that she had tendered payment of
the rentals for the month of January 1976 to the private respondent. 1
There is also no merit in the petitioner's contention that the lessor is guilty of mora
accipiendi. The circumstances surrounding the alleged refusal of the lessor (private
respondent) to accept the proffered rentals, according to petitioner, are as follows:
Sometime in 1942, petitioner entered into a verbal lease agreement
with Lutgarda Cifra over the premises in question which belonged
to the lattr. Aside from the amount of rentals, no other condition or
term was agreed upon. The rentals were collected from her
residence by the lessor's collector who went to her house to
demand and collect payment from time to time, with no fixed
frequency (Cf., t.s.n. July 28, 1977, pp. 2-6).
Sometime in 1974, the lessor's collector stopped going to the
petitioner's residence to collect her rentals, as she had done in the
past. The defendant-appellant waited for the collector to come but
the latter never showed up again in his neighborhood. Since no
demand for payment was made upon her, the petitioner decided to
keep the money until the collector comes again to demand and
collect payment.
Sometime in May, 1976, petitioner received a letter (Exh. 1) from
Aurora C. Recto, sister of private respondent, informing the former
that the latter, was the owner of the property in question, was
offering the same for sale.
Sometime later, or in August 1977, petitioner received another
letter, this time from the private respondent, demanding the
surrender of the possession of the premises in question, also
claiming to be the owner of the property.
Upon receipt of this letter, petitioner forthwith went to the
residence of the collector, another sister of the private respondent
to whom she had been paying her rentals, and there tendered
payment but this was refused without any justification (t.s.n. July 26,
1 977, p. 7). 2
Under the circumstances, the refusal to accept the proffered rentals is not without
justification. The ownership of the property had been transferred to the private
respondent and the person to whom payment was offered had no authority to accept
payment. It should be noted that the contract of lease between the petitioner and
Lutgarda Cifra, the former owner of the land, was not in writing and, hence,
unrecorded. The Court has held that a contract of lease executed by the vendor, unless
recorded, ceases to have effect when the property is sold, in the absence of a contrary
agreement. 3 The petitioner cannot claim ignorance of the transfer of ownerhip of the
property because, by her own account, Aurora Recto and the private respondent, at
various times, had informed her of their respective claims to ownership of the
property occupied by the petitioner. The petitioner should have tendered payment of
the rentals to the private respondent and if that was not possible, she should have
consigned such rentals in court.
Finally, we find no merit in the petitioner's contention that the private respondent is
guilty of laches. As the Court of Appeals had stated, the demand for the petitioner to
vacate the premises and to pay arrears in rentals was made on 23 August 1976 and
the complaint seeking her ejectment was filed a few days thereafter, or on 16
September 1976.
For reasons aforestated, the judgment of the Court of Appeals appears to be in accord
with the evidence and the law.
WHEREFORE, the petition is hereby DENIED. Without pronouncement as to costs. This
decision is immediately executory.
SO ORDERED.
[G.R. No. 103577. October 7, 1996]
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C.
GONZALES (for herself and on behalf of Floraida C. Tupper, as attorney-in-fact),
CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS
MABANAG, petitioners, vs. THE COURT OF APPEALS, CONCEPCION D. ALCARAZ
and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-
fact, respondents.
DECISION
MELO, J.:
The petition before us has its roots in a complaint for specific performance to
compel herein petitioners (except the last named, Catalina Balais Mabanag) to
consummate the sale of a parcel of land with its improvements located along
Roosevelt Avenue in Quezon City entered into by the parties sometime in January
1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this
wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter
referred to as Coronels) executed a document entitled Receipt of Down Payment (Exh.
A) in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona)
which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
------------------------------------------
P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No.
119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute the
deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon
execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute
the deed of absolute sale in favor of Ramona and the latter will pay the former the
whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment
of Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).
On February 6, 1985, the property originally registered in the name of the Coronels
father was transferred in their names under TCT No. 327043 (Exh. D; Exh 4)
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One
Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid
Three Hundred Thousand (P300,000.00) Pesos (Exhs. F-3; Exh. 6-C)
For this reason, Coronels canceled and rescinded the contract (Exh. A) with Ramona
by depositing the down payment paid by Concepcion in the bank in trust for Ramona
Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance
against the Coronels and caused the annotation of a notice of lis pendens at the back
of TCT No. 327403 (Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering
the same property with the Registry of Deeds of Quezon City (Exh. F; Exh. 6).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. G; Exh. 7).
On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. H; Exh. 8).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon
City) the parties agreed to submit the case for decision solely on the basis of
documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered
their documentary evidence accordingly marked as Exhibits A through J, inclusive of
their corresponding submarkings. Adopting these same exhibits as their own, then
defendants (now petitioners) accordingly offered and marked them as Exhibits 1
through 10, likewise inclusive of their corresponding submarkings. Upon motion of the
parties, the trial court gave them thirty (30) days within which to simultaneously
submit their respective memoranda, and an additional 15 days within which to submit
their corresponding comment or reply thereto, after which, the case would be
deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo
Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of
Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his
regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as
follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering
defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel
of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT
No. 331582) of the Registry of Deeds for Quezon City, together with all the
improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the
purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No.
331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby
canceled and declared to be without force and effect. Defendants and intervenor and
all other persons claiming under them are hereby ordered to vacate the subject
property and deliver possession thereof to plaintiffs. Plaintiffs claim for damages and
attorneys fees, as well as the counterclaims of defendants and intervenors are hereby
dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners before the new presiding
judge of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada,
thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render
anew decision by the undersigned Presiding Judge should be denied for the following
reasons: (1) The instant case became submitted for decision as of April 14, 1988 when
the parties terminated the presentation of their respective documentary evidence and
when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they
were allowed to file memoranda at some future date did not change the fact that the
hearing of the case was terminated before Judge Roura and therefore the same should
be submitted to him for decision; (2) When the defendants and intervenor did not
object to the authority of Judge Reynaldo Roura to decide the case prior to the
rendition of the decision, when they met for the first time before the undersigned
Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on
November 11, 1988, they were deemed to have acquiesced thereto and they are now
estopped from questioning said authority of Judge Roura after they received the
decision in question which happens to be adverse to them; (3) While it is true that
Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he
was in all respects the Presiding Judge with full authority to act on any pending
incident submitted before this Court during his incumbency. When he returned to his
Official Station at Macabebe, Pampanga, he did not lose his authority to decide or
resolve cases submitted to him for decision or resolution because he continued as
Judge of the Regional Trial Court and is of co-equal rank with the undersigned
Presiding Judge. The standing rule and supported by jurisprudence is that a Judge to
whom a case is submitted for decision has the authority to decide the case
notwithstanding his transfer to another branch or region of the same court (Sec. 9,
Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1,
1989 rendered in the instant case, resolution of which now pertains to the
undersigned Presiding Judge, after a meticulous examination of the documentary
evidence presented by the parties, she is convinced that the Decision of March 1, 1989
is supported by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul
Decision and Render Anew Decision by the Incumbent Presiding Judge dated March
20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the
Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its decision
fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading,
private respondents Reply Memorandum, was filed on September 15, 1993. The case
was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the
voluntary inhibition of the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition
of respondent court in the affirmance of the trial courts decision, we definitely find
the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the
other issues in the case at bar is the precise determination of the legal significance of
the document entitled Receipt of Down Payment which was offered in evidence by
both parties. There is no dispute as to the fact that the said document embodied the
binding contract between Ramona Patricia Alcaraz on the one hand, and the heirs of
Constancio P. Coronel on the other, pertaining to a particular house and lot covered
by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which
reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.
While, it is the position of private respondents that the Receipt of Down Payment
embodied a perfected contract of sale, which perforce, they seek to enforce by means
of an action for specific performance, petitioners on their part insist that what the
document signified was a mere executory contract to sell, subject to certain
suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for
the United States of America, said contract could not possibly ripen into a contract of
absolute sale.
Plainly, such variance in the contending parties contention is brought about by
the way each interprets the terms and/or conditions set forth in said private
instrument. Withal, based on whatever relevant and admissible evidence may be
available on record, this Court, as were the courts below, is now called upon to
adjudge what the real intent of the parties was at the time the said document was
executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere
consent. The essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange
for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a
Contract of Sale because the first essential element is lacking. In a contract to sell, the
prospective seller explicitly reserves the transfer of title to the prospective buyer,
meaning, the prospective seller does not as yet agree or consent to transfer ownership
of the property subject of the contract to sell until the happening of an event, which
for present purposes we shall take as the full payment of the purchase price. What the
seller agrees or obliges himself to do is to fulfill his promise to sell the subject property
when the entire amount of the purchase price is delivered to him. In other words the
full payment of the purchase price partakes of a suspensive condition, the non-
fulfillment of which prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the prospective
buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to pass
until the full payment of the price, such payment being a positive suspensive condition
and failure of which is not a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring binding force.
 Stated positively, upon the fulfillment of the suspensive condition which is the
full payment of the purchase price, the prospective sellers obligation to sell the subject
property by entering into a contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissor of the promise is supported by a consideration distinct
from the price.
A contract to sell may thus be defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject property
despite delivery thereof to the prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon fulfillment of the condition agreed
upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to the property
subject of the sale until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is present, although it is
conditioned upon the happening of a contingent event which may or may not occur. If
the suspensive condition is not fulfilled, the perfection of the contract of sale is
completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777
[1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto automatically transfers to the
buyer by operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the
full payment of the purchase price, ownership will not automatically transfer to the
buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into a
contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract
of sale specially in cases where the subject property is sold by the owner not to the
party the seller contracted with, but to a third person, as in the case at bench. In a
contract to sell, there being no previous sale of the property, a third person buying
such property despite the fulfillment of the suspensive condition such as the full
payment of the purchase price, for instance, cannot be deemed a buyer in bad faith
and the prospective buyer cannot seek the relief of reconveyance of the
property. There is no double sale in such case. Title to the property will transfer to the
buyer after registration because there is no defect in the owner-sellers title per se, but
the latter, of course, may be sued for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive
condition, the sale becomes absolute and this will definitely affect the sellers title
thereto.In fact, if there had been previous delivery of the subject property, the sellers
ownership or title to the property is automatically transferred to the buyer such that,
the seller will no longer have any title to transfer to any third person. Applying Article
1544 of the Civil Code, such second buyer of the property who may have had actual
or constructive knowledge of such defect in the sellers title, or at least was charged
with the obligation to discover such defect, cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyers title. In case a title is issued to the second
buyer, the first buyer may seek reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of
deciphering the real nature of the contract entered into by petitioners and private
respondents.
It is a canon in the interpretation of contracts that the words used therein should
be given their natural and ordinary meaning unless a technical meaning was intended
(Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in
the said Receipt of Down Payment that they --
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No.
1199627 of the Registry of Deeds of Quezon City, in the total amount
of P1,240,000.00.
without any reservation of title until full payment of the entire purchase price, the
natural and ordinary idea conveyed is that they sold their property.
When the Receipt of Down payment is considered in its entirety, it becomes
more manifest that there was a clear intent on the part of petitioners to transfer title
to the buyer, but since the transfer certificate of title was still in the name of
petitioners father, they could not fully effect such transfer although the buyer was
then willing and able to immediately pay the purchase price. Therefore, petitioners-
sellers undertook upon receipt of the down payment from private respondent
Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names
from that of their father, after which, they promised to present said title, now in their
names, to the latter and to execute the deed of absolute sale whereupon, the latter
shall, in turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein
made no express reservation of ownership or title to the subject parcel of
land.Furthermore, the circumstance which prevented the parties from entering into
an absolute contract of sale pertained to the sellers themselves (the certificate of title
was not in their names) and not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court may safely presume that,
had the certificate of title been in the names of petitioners-sellers at that time, there
would have been no reason why an absolute contract of sale could not have been
executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely
promise to sell the property to private respondent upon the fulfillment of the
suspensive condition. On the contrary, having already agreed to sell the subject
property, they undertook to have the certificate of title change to their names and
immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers,
after compliance by the buyer with certain terms and conditions, promised to sell the
property to the latter. What may be perceived from the respective undertakings of
the parties to the contract is that petitioners had already agreed to sell the house and
lot they inherited from their father, completely willing to transfer ownership of the
subject house and lot to the buyer if the documents were then in order. It just so
happened, however, that the transfer certificate of title was then still in the name of
their father. It was more expedient to first effect the change in the certificate of title
so as to bear their names. That is why they undertook to cause the issuance of a new
transfer of the certificate of title in their names upon receipt of the down payment in
the amount of P50,000.00. As soon as the new certificate of title is issued in their
names, petitioners were committed to immediately execute the deed of absolute
sale. Only then will the obligation of the buyer to pay the remainder of the purchase
price arise.
There is no doubt that unlike in a contract to sell which is most commonly
entered into so as to protect the seller against a buyer who intends to buy the property
in installment by withholding ownership over the property until the buyer effects full
payment therefor, in the contract entered into in the case at bar, the sellers were the
ones who were unable to enter into a contract of absolute sale by reason of the fact
that the certificate of title to the property was still in the name of their father. It was
the sellers in this case who, as it were, had the impediment which prevented, so to
speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that
when the said Receipt of Down Payment was prepared and signed by petitioners
Romulo A. Coronel, et. al., the parties had agreed to a conditional contract of sale,
consummation of which is subject only to the successful transfer of the certificate of
title from the name of petitioners father, Constancio P. Coronel, to their names.
The Court significantly notes that this suspensive condition was, in fact, fulfilled
on February 6, 1985 (Exh. D; Exh. 4). Thus, on said date, the conditional contract of
sale between petitioners and private respondent Ramona P. Alcaraz became
obligatory, the only act required for the consummation thereof being the delivery of
the property by means of the execution of the deed of absolute sale in a public
instrument, which petitioners unequivocally committed themselves to do as
evidenced by the Receipt of Down Payment.
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly
applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of
the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a
certificate of title in petitioners names was fulfilled on February 6, 1985, the respective
obligations of the parties under the contract of sale became mutually demandable,
that is, petitioners, as sellers, were obliged to present the transfer certificate of title
already in their names to private respondent Ramona P. Alcaraz, the buyer, and to
immediately execute the deed of absolute sale, while the buyer on her part, was
obliged to forthwith pay the balance of the purchase price amounting
to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition,
petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves to effect the transfer
in our names from our deceased father Constancio P. Coronel, the
transfer certificate of title immediately upon receipt of the
downpayment above-stated". The sale was still subject to this
suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale
subject to a suspensive condition. Only, they contend, continuing in the same
paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the title
to the property under their names, there could be no perfected contract of
sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186 of the
Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than
these mere hypothetical arguments is the fact that the condition herein referred to
was actually and indisputably fulfilled on February 6, 1985, when a new title was issued
in the names of petitioners as evidenced by TCT No. 327403 (Exh. D; Exh. 4).
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as Receipt of Down Payment (Exh. A; Exh. 1), the parties
entered into a contract of sale subject to the suspensive condition that the sellers shall
effect the issuance of new certificate title from that of their fathers name to their
names and that, on February 6, 1985, this condition was fulfilled (Exh. D; Exh. 4).
We, therefore, hold that, in accordance with Article 1187 which pertinently
provides -
Art. 1187. The effects of conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale
became mutually due and demandable as of the time of fulfillment or occurrence of
the suspensive condition on February 6, 1985. As of that point in time, reciprocal
obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19,
1985 because they were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to the extent and value of the inheritance of a person are transmitted
through his death to another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the
decedent Constancio P. Coronel are compulsory heirs who were called to succession
by operation of law. Thus, at the point their father drew his last breath, petitioners
stepped into his shoes insofar as the subject property is concerned, such that any
rights or obligations pertaining thereto became binding and enforceable upon them. It
is expressly provided that rights to the succession are transmitted from the moment
of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850
[1952]).
Be it also noted that petitioners claim that succession may not be declared unless
the creditors have been paid is rendered moot by the fact that they were able to effect
the transfer of the title to the property from the decedents name to their names on
February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of
capacity to enter into an agreement at that time and they cannot be allowed to now
take a posture contrary to that which they took when they entered into the agreement
with private respondent Ramona P. Alcaraz. The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.
Having represented themselves as the true owners of the subject property at the time
of sale, petitioners cannot claim now that they were not yet the absolute owners
thereof at that time.
Petitioners also contend that although there was in fact a perfected contract of
sale between them and Ramona P. Alcaraz, the latter breach her reciprocal obligation
when she rendered impossible the consummation thereof by going to the United
States of America, without leaving her address, telephone number, and Special Power
of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the
Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they
were correct in unilaterally rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract
of sale in the instant case. We note that these supposed grounds for petitioners
rescission, are mere allegations found only in their responsive pleadings, which by
express provision of the rules, are deemed controverted even if no reply is filed by the
plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of
any supporting evidence to substantiate petitioners allegations. We have stressed
time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs.
Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]). Mere
allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of
America on February 6, 1985, we cannot justify petitioners-sellers act of unilaterally
and extrajudicially rescinding the contract of sale, there being no express stipulation
authorizing the sellers to extrajudicially rescind the contract of sale. (cf. Dignos vs. CA,
158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona
P. Alcaraz because although the evidence on record shows that the sale was in the
name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion
D. Alcaraz, Ramonas mother, who had acted for and in behalf of her daughter, if not
also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz
with her own personal Check (Exh. B; Exh. 2) for and in behalf of Ramona P.
Alcaraz. There is no evidence showing that petitioners ever questioned Concepcions
authority to represent Ramona P. Alcaraz when they accepted her personal
check. Neither did they raise any objection as regards payment being effected by a
third person. Accordingly, as far as petitioners are concerned, the physical absence of
Ramona P. Alcaraz is not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar
as her obligation to pay the full purchase price is concerned. Petitioners who are
precluded from setting up the defense of the physical absence of Ramona P. Alcaraz
as above-explained offered no proof whatsoever to show that they actually presented
the new transfer certificate of title in their names and signified their willingness and
readiness to execute the deed of absolute sale in accordance with their
agreement.Ramonas corresponding obligation to pay the balance of the purchase
price in the amount of P1,190,000.00 (as buyer) never became due and demandable
and, therefore, she cannot be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving
reciprocal obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfill his obligation, delay by the other begins. (Emphasis
supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale
between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B.
Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will
apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good
faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof to the person who
presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985
as proof of the second contract of sale was registered with the Registry of Deeds of
Quezon City giving rise to the issuance of a new certificate of title in the name of
Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall
apply.
The above-cited provision on double sale presumes title or ownership to pass to
the buyer, the exceptions being: (a) when the second buyer, in good faith, registers
the sale ahead of the first buyer, and (b) should there be no inscription by either of
the two buyers, when the second buyer, in good faith, acquires possession of the
property ahead of the first buyer. Unless, the second buyer satisfies these
requirements, title or ownership will not transfer to him to the prejudice of the first
buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now
a distinguished member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in
right). Knowledge by the first buyer of the second sale cannot defeat the first buyers
rights except when the second buyer first registers in good faith the second sale
(Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second
buyer of the first sale defeats his rights even if he is first to register, since knowledge
taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No.
58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129
SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good faith in registering his deed
of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor
95843, 02 September 1992). in such assumption disputed between mother and daughter. Thus, We will not touch
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604). this issue and no longer disturb the lower courts ruling on this point.
Petitioners point out that the notice of lis pendens in the case at bar was WHEREFORE, premises considered, the instant petition is hereby DISMISSED and
annotated on the title of the subject property only on February 22, 1985, whereas, the the appealed judgment AFFIRMED.
second sale between petitioners Coronels and petitioner Mabanag was supposedly
perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time SO ORDERED.
petitioner Mabanag, the second buyer, bought the property under a clean title, she
was unaware of any adverse claim or previous sale, for which reason she is a buyer in
good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or
not the second buyer in good faith but whether or not said second buyer registers
such second sale in good faith, that is, without knowledge of any defect in the title of
the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not
have in good faith, registered the sale entered into on February 18, 1985 because as
early as February 22, 1985, a notice of lis pendens had been annotated on the transfer
certificate of title in the names of petitioners, whereas petitioner Mabanag registered
the said sale sometime in April, 1985. At the time of registration, therefore, petitioner
Mabanag knew that the same property had already been previously sold to private
respondents, or, at least, she was charged with knowledge that a previous buyer is
claiming title to the same property. Petitioner Mabanag cannot close her eyes to the
defect in petitioners title to the property at the time of the registration of the
property.
This Court had occasions to rule that:

If a vendee in a double sale registers the sale after he has acquired knowledge that
there was a previous sale of the same property to a third party or that another person
claims said property in a previous sale, the registration will constitute a registration in
bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349
[1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil.
554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners and Ramona P.
Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina
B. Mabanag on February 18, 1985, was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency
between Ramona as principal and Concepcion, her mother, as agent insofar as the
subject contract of sale is concerned, the issue of whether or not Concepcion was also
G.R. No. L-16570 March 9, 1922
SMITH, BELL & CO., LTD., plaintiff-appellant,
vs.
VICENTE SOTELO MATTI, defendant-appellant.
Ross and Lawrence and Ewald E. Selph for plaintiff-appellant.
Ramon Sotelo for defendant-appellant.
ROMUALDEZ, J.:
In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo,
entered into contracts whereby the former obligated itself to sell, and the latter to
purchase from it, two steel tanks, for the total price of twenty-one thousand pesos
(P21,000), the same to be shipped from New York and delivered at Manila "within
three or four months;" two expellers at the price of twenty five thousand pesos
(P25,000) each, which were to be shipped from San Francisco in the month of
September, 1918, or as soon as possible; and two electric motors at the price of two
thousand pesos (P2,000) each, as to the delivery of which stipulation was made,
couched in these words: "Approximate delivery within ninety days. — This is not
guaranteed."
The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of
October, 1918; and the motors on the 27th of February, 1919.
The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these
goods, but Mr. Sotelo refused to receive them and to pay the prices stipulated.
The plaintiff brought suit against the defendant, based on four separate causes of
action, alleging, among other facts, that it immediately notified the defendant of the
arrival of the goods, and asked instructions from him as to the delivery thereof, and
that the defendant refused to receive any of them and to pay their price. The plaintiff,
further, alleged that the expellers and the motors were in good condition. (Amended
complaint, pages 16-30, Bill of Exceptions.)
In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining
and By-Products Co., Inc., denied the plaintiff's allegations as to the shipment of these
goods and their arrival at Manila, the notification to the defendant, Mr. Sotelo, the
latter's refusal to receive them and pay their price, and the good condition of the
expellers and the motors, alleging as special defense that Mr. Sotelo had made the
contracts in question as manager of the intervenor, the Manila Oil Refining and By-
Products Co., Inc which fact was known to the plaintiff, and that "it was only in May,
1919, that it notified the intervenor that said tanks had arrived, the motors and the
expellers having arrived incomplete and long after the date stipulated." As a
counterclaim or set-off, they also allege that, as a consequence of the plaintiff's delay
in making delivery of the goods, which the intervenor intended to use in the
manufacture of cocoanut oil, the intervenor suffered damages in the sums of one
hundred sixteen thousand seven hundred eighty-three pesos and ninety-one centavos
(P116,783.91) for the nondelivery of the tanks, and twenty-one thousand two
hundred and fifty pesos (P21,250) on account of the expellers and the motors not
having arrived in due time.
The case having been tried, the court below absolved the defendants from the
complaint insofar as the tanks and the electric motors were concerned, but rendered
judgment against them, ordering them to "receive the aforesaid expellers and pay the
plaintiff the sum of fifty thousand pesos (P50,00), the price of the said goods, with
legal interest thereon from July 26, 1919, and costs."
Both parties appeal from this judgment, each assigning several errors in the findings
of the lower court.
The principal point at issue in this case is whether or not, under the contracts entered
into and the circumstances established in the record, the plaintiff has fulfilled, in due
time, its obligation to bring the goods in question to Manila. If it has, then it is entitled
to the relief prayed for; otherwise, it must be held guilty of delay and liable for the
consequences thereof.
To solve this question, it is necessary to determine what period was fixed for the
delivery of the goods.
As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar,
and in both of them we find this clause:
To be delivered within 3 or 4 months — The promise or indication of
shipment carries with it absolutely no obligation on our part — Government
regulations, railroad embargoes, lack of vessel space, the exigencies of the
requirement of the United States Government, or a number of causes may
act to entirely vitiate the indication of shipment as stated. In other words, the
order is accepted on the basis of shipment at Mill's convenience, time of
shipment being merely an indication of what we hope to accomplish.
In the contract Exhibit C (page 63 of the record), with reference to the expellers, the
following stipulation appears:
 The following articles, hereinbelow more particularly described, to be
shipped at San Francisco within the month of September /18, or as soon as
possible. — Two Anderson oil expellers . . . .
And in the contract relative to the motors (Exhibit D, page 64, rec.) the following
appears:
Approximate delivery within ninety days. — This is not guaranteed. — This
sale is subject to our being able to obtain Priority Certificate, subject to the
United States Government requirements and also subject to confirmation of
manufactures.
In all these contracts, there is a final clause as follows:
The sellers are not responsible for delays caused by fires, riots on land or on
the sea, strikes or other causes known as "Force Majeure" entirely beyond
the control of the sellers or their representatives.
Under these stipulations, it cannot be said that any definite date was fixed for the
delivery of the goods. As to the tanks, the agreement was that the delivery was to be
made "within 3 or 4 months," but that period was subject to the contingencies
referred to in a subsequent clause. With regard to the expellers, the contract says
"within the month of September, 1918," but to this is added "or as soon as possible."
And with reference to the motors, the contract contains this expression, "Approximate
delivery within ninety days," but right after this, it is noted that "this is not
guaranteed."
The oral evidence falls short of fixing such period.
From the record it appears that these contracts were executed at the time of the world
war when there existed rigid restrictions on the export from the United States of
articles like the machinery in question, and maritime, as well as railroad,
transportation was difficult, which fact was known to the parties; hence clauses were
inserted in the contracts, regarding "Government regulations, railroad embargoes,
lack of vessel space, the exigencies of the requirements of the United States
Government," in connection with the tanks and "Priority Certificate, subject to the
United State Government requirements," with respect to the motors. At the time of
the execution of the contracts, the parties were not unmindful of the contingency of
the United States Government not allowing the export of the goods, nor of the fact
that the other foreseen circumstances therein stated might prevent it.
Considering these contracts in the light of the civil law, we cannot but conclude that
the term which the parties attempted to fix is so uncertain that one cannot tell just
whether, as a matter of fact, those articles could be brought to Manila or not. If that
is the case, as we think it is, the obligations must be regarded as conditional.
Obligations for the performance of which a day certain has been fixed shall
be demandable only when the day arrives.
A day certain is understood to be one which must necessarily arrive, even
though its date be unknown.
If the uncertainty should consist in the arrival or non-arrival of the day, the
obligation is conditional and shall be governed by the rules of the next
preceding section. (referring to pure and conditional obligations). (Art. 1125,
Civ. Code.)
And as the export of the machinery in question was, as stated in the contract,
contingent upon the sellers obtaining certificate of priority and permission of the
United States Government, subject to the rules and regulations, as well as to railroad
embargoes, then the delivery was subject to a condition the fulfillment of which
depended not only upon the effort of the herein plaintiff, but upon the will of third
persons who could in no way be compelled to fulfill the condition. In cases like this,
which are not expressly provided for, but impliedly covered, by the Civil Code, the
obligor will be deemed to have sufficiently performed his part of the obligation, if he
has done all that was in his power, even if the condition has not been fulfilled in
reality.
In such cases, the decisions prior to the Civil Code have held that the obligee
having done all that was in his power, was entitled to enforce performance
of the obligation. This performance, which is fictitious — not real — is not
expressly authorized by the Code, which limits itself only to declare valid
those conditions and the obligation thereby affected; but it is neither
disallowed, and the Code being thus silent, the old view can be maintained
as a doctrine. (Manresa's commentaries on the Civil Code [1907], vol. 8, page
132.)
The decisions referred to by Mr. Manresa are those rendered by the supreme court of
Spain on November 19, 1896, and February 23, 1871.
In the former it is held:
First. That when the fulfillment of the conditions does not depend on the will
of the obligor, but on that of a third person who can in no way be compelled
to carry it out, and it is found by the lower court that the obligor has done all
in his power to comply with the obligation, the judgment of the said court,
 ordering the other party to comply with his part of the contract, is not
contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of the "Novísima
Recopilación," or Law 12, Tit. 11, of Partida 5, when in the said finding of the
lower court, no law or precedent is alleged to have been violated.
(Jurisprudencia Civil published by the directors of the Revista General de
Legislacion y Jurisprudencia [1866], vol. 14, page 656.)
In the second decision, the following doctrine is laid down:
Second. That when the fulfillment of the condition does not depend on the
will of the obligor, but on that of a third person, who can in no way be
compelled to carry it out, the obligor's part of the contract is complied withalf
Belisario not having exercised his right of repurchase reserved in the sale of
Basilio Borja mentioned in paragraph (13) hereof, the affidavit of Basilio Borja
for the consolidacion de dominio was presented for record in the registry of
deeds and recorded in the registry on the same date.
(32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and
three minor children, Vitaliana, Eugenio, and Aureno Belisario as his only
heirs.
(33) That in the execution and sales thereunder, in which C. H. McClure
appears as the judgment creditor, he was represented by the opponent Peter
W. Addison, who prepared and had charge of publication of the notices of
the various sales and that in none of the sales was the notice published more
than twice in a newspaper.
The claims of the opponent-appellant Addison have been very fully and ably
argued by his counsel but may, we think, be disposed of in comparatively few
words. As will be seen from the foregoing statement of facts, he rest his title
(1) on the sales under the executions issued in cases Nos. 435, 450, 454, and
499 of the court of the justice of the peace of Dagupan with the priority of
inscription of the last two sales in the registry of deeds, and (2) on a purchase
from the Director of Lands after the land in question had been forfeited to
the Government for non-payment of taxes under Act No. 1791.
The sheriff's sales under the execution mentioned are fatally defective for
what of sufficient publication of the notice of sale. Section 454 of the Code
of civil Procedure reads in part as follows:
SEC. 454. Before the sale of property on execution, notice thereof must be
given, as follows:
1. In case of perishable property, by posing written notice of the time and
place of the sale in three public places of the municipality or city where the
sale is to take place, for such time as may be reasonable, considering the
character and condition of the property;
2. * * * * * * *
3. In cases of real property, by posting a similar notice particularly describing
the property, for twenty days in three public places of the municipality or city
where the property is situated, and also where the property is to be sold, and
publishing a copy thereof once a week, for the same period, in some
newspaper published or having general circulation in the province, if there
be one. If there are newspaper published in the province in both the Spanish
and English languages, then a like publication for a like period shall be made
in one newspaper published in the Spanish language, and in one published in
the English language: Provided, however, That such publication in a
newspaper will not be required when the assessed valuation of the property
does not exceed four hundred pesos;
4. * * * * * * *
Examining the record, we find that in cases Nos. 435 and 450 the sales took place on
October 14, 1916; the notice first published gave the date of the sale as October 15th,
but upon discovering that October 15th was a Sunday, the date was changed to
October 14th. The correct notice was published twice in a local newspaper, the first
publication was made on October 7th and the second and last on October 14th, the
date of the sale itself. The newspaper is a weekly periodical published every Saturday
afternoon.
In case No. 454 there were only two publications of the notice in a newspaper, the
first publication being made only fourteen days before the date of the sale. In case No.
499, there were also only two publications, the first of which was made thirteen days
before the sale. In the last case the sale was advertised for the hours of from 8:30 in
the morning until 4:30 in the afternoon, in violation of section 457 of the Code of Civil
Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00 in the
morning until 4.30 in the afternoon. In all of the cases the notices of the sale were
prepared by the judgment creditor or his agent, who also took charged of the
publication of such notices.
In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this
court held that if a sheriff sells without the notice prescribe by the Code of Civil
Procedure induced thereto by the judgment creditor and the purchaser at the sale is
the judgment creditor, the sale is absolutely void and not title passes. This must now
be regarded as the settled doctrine in this jurisdiction whatever the rule may be
elsewhere.
It appears affirmatively from the evidence in the present case that there is a
newspaper published in the province where the sale in question took place and that
the assessed valuation of the property disposed of at each sale exceeded P400.
Comparing the requirements of section 454, supra, with what was actually done, it is
self-evident that notices of the sales mentioned were not given as prescribed by the
statute and taking into consideration that in connection with these sales the appellant
Addison was either the judgment creditor or else occupied a position analogous to
that of a judgment creditor, the sales must be held invalid.
The opposition of Adelina Ferrer must also be overruled. She maintained that the land
in question was community property of the marriage of Eulalio Belisario and Paula Ira:
that upon the death of Paula Ira inealed from is modified, and the defendant Mr.
Vicente Sotelo Matti, sentenced to accept and receive from the plaintiff the tanks, the
expellers and the motors in question, and to pay the plaintiff the sum of ninety-six
thousand pesos (P96,000), with legal interest thereon from July 17, 1919, the date of
the filing of the complaint, until fully paid, and the costs of both instances. So ordered.

The conveyance or reconveyance of the land from the Director of Lands is equally
invalid. The provisions of Act No. 1791 pertinent to the purchase or repurchase of land
confiscated for non-payment of taxes are found in section 19 of the Act and read:

. . . In case such redemption be not made within the time above specified the
Government of the Philippine Islands shall have an absolute, indefeasible title
to said real property. Upon the expiration of the said ninety days, if
redemption be not made, the provincial treasurer shall immediately notify
the Director of Lands of the forfeiture and furnish him with a description of
the property, and said Director of Lands shall have full control and custody
thereof to lease or sell the same or any portion thereof in the same manner
as other public lands are leased or sold: Provided, That the original owner, or
his legal representative, shall have the right to repurchase the entire amount
of his said real property, at any time before a sale or contract of sale has been
made by the director of Lands to a third party, by paying therefore the whole
sum due thereon at the time of ejectment together with a penalty of ten per
centum . . . .

The appellant Addison repurchased under the final proviso of the section quoted and
was allowed to do so as the successor in interest of the original owner under the
execution sale above discussed. As we have seen, he acquired no rights under these
sales, was therefore not the successor of the original owner and could only have
obtained a valid conveyance of such titles as the Government might have by following
the procedure prescribed by the Public Land Act for the sale of public lands. he is
entitled to reimbursement for the money paid for the redemption of the land, with
interest, but has acquired no title through the redemption.

The question of the priority of the record of the sheriff's sales over that of the sale
from Belisario to Borja is extensively argued in the briefs, but from our point of view is
of no importance; void sheriff's or execution sales cannot be validated through
inscription in the Mortgage Law registry.
G.R. No. 193890 March 11, 2015
ESTANISLAO and AFRICA SINAMBAN, Petitioners,
vs.
CHINA BANKING CORPORATION, Respondent.
DECISION
REYES, J.:
Before this Court is a Petition for Review on Certiorari1 of the Decision2 dated May 19,
2010 of the Court of Appeals (CA) in CA-G.R. CV. No. 66274 modifying the
Decision3 dated July 30, 1999 of the Regional Trial Court (RTC) of San Fernando City,
Pampanga, Branch 45 for Sum of Money in Civil Case No. 11708.
Factual Antecedents
On February 19, 1990, the spouses Danilo and Magdalena Manalastas (spouses
Manalastas) executed a Real Estate Mortgage (REM)4 in favor of respondent China
Banking Corporation (Chinabank) over two real estate properties covered by Transfer
Certificate of Title Nos. 173532-R and 173533-R, Registry of Deeds of Pampanga, to
secure a loan from Chinabank of ₱700,000.00 intended as working capital in their rice
milling business. During the next few years, they executed several amendments to the
mortgage contract progressively increasing their credit line secured by the aforesaid
mortgage. Thus, from ₱700,000.00 in 1990, their loan limit was increased to
₱1,140,000.00 on October 31, 1990, then to ₱1,300,000.00 on March 4, 1991, and
then to2,450,000.00 on March 23, 1994.5 The spouses Manalastas executed several
promissory notes (PNs) in favor of Chinabank. In two of the PNs, petitioners Estanislao
and Africa Sinamban (spouses Sinamban) signed as co-makers.
On November 18, 1998, Chinabank filed a Complaint6 for sum of money, docketed as
Civil Case No. 11708, against the spouses Manalastas and the spouses Sinamban
(collectively called the defendants) before the RTC. The complaint alleged that they
reneged on their loan obligations under the PNs which the spouses Manalastas
executed in favor of Chinabank on different dates, namely:
1. PN No. OACL 634-95, dated April 24, 1995, for a loan principal of
₱1,800,000.00, with interest at 23% per annum; the spouses Manalastas
signed alone as makers.7
2. PN No. OACL 636-95, dated May 23, 1995, for a loan principal of
325,000.00, with interest at 21% per annum; the spouses Sinamban signed
as solidary co-makers;8
3. PN No. CLF 5-93, dated February 26, 1991, for a loan principal of
₱1,300,000.00, with interest at 22.5% per annum; only Estanislao Sinamban
signed as solidary co-maker.9
All of the three promissory notes carried an acceleration clause stating that if the
borrowers failed to pay any stipulated interest, installment or loan amortization as
they accrued, the notes shall, at the option of Chinabank and without need of notice,
immediately become due and demandable. A penalty clause also provides that an
additional amount shall be paid equivalent to 1/10 of 1% per day of the total amount
due from date of default until fully paid, and the further sum of 10% of the total
amount due, inclusive of interests, charges and penalties, as and for attorney’s fees
and costs.10
In Chinabank’s Statement of Account11 dated May 18, 1998, reproduced below, the
outstanding balances of the three loans are broken down, as follows:
(a) PN No. OACL 636-95 has an outstanding principal of ₱325,000.00,
cumulative interest of ₱184,679.00, and cumulative penalties of
₱258,050.00, or a total amount due of ₱767,729.00; (b) PN No. OACL 634-95
has an outstanding principal of ₱1,800,000.00, cumulative interest of
₱1,035,787.50, and cumulative penalties of 1,429,200.00, or a total amount
due of 4,264,987.50; and
(c) PN No. CLF 5-93 has an outstanding principal of ₱148,255.08, cumulative
interest of ₱64,461.84, and cumulative penalties of ₱156,541.58, or a total
amount due of ₱369,258.50. Note that from the original amount of
₱1,300,000.00, the loan principal had been reduced to only ₱148,255.08 as
of May 18, 1998.12
 CHINA BANKING CORPORATION
Entry fee 30.00
San Fernando, Pampanga
SPS. DANILO & MAGDALENA MANALASTAS Legal fund 20.00
STATEMENT OF ACCOUNT
As of May 18, 1998 BIR 60.00
certification
PN 36% Doc. stamps 69,000.00
NUMBER PRINCIPAL INTEREST PENALTY FEE TOTAL tax
-------------- ------------------- ------------------ ------------------ ------------------
--------- ---- ----- ----- ----- Capital Gains 276,000.00 356,033.00
tax ------------------
OACL 636- 325,000.00 184,679.00 258,050.00 767,729.00 -----
95
EXPENSES INCURRED ON OCULAR INSPECTION 404.00
OACL 634- 1,800,000.00 1,035,787.50 1,429,200.00 4,264,987.50 MADE ON
95 TCT#173532-R & TCT#173533-R
CLF 005- 148,255.08 64,461.84 156,541.58 369,258.50 ATTORNEY’S FEE 18,000.00
93 ------------------- ------------------ ------------------ ------------------
---- ----- ----- ----- 416,255.37
TOTAL P2,273,255.08 1,284,928.34 1,843,791.58 5,401,975.00 LESS: BID PRICE 4,600,000.00
-----------
TOTAL AMOUNT DUE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,401,975.00
- GRAND TOTAL - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1,758,427.87 13

-
PLUS 10% ATTORNEY’S FEE - - - - - - - - - - - - - - - - - - - - - - - - - - 540,197.50
------------------
----- On the basis of the above statement of account, and pursuant to the
5,942,172.50 promissory notes, Chinabank instituted extrajudicial foreclosure proceedings
against the mortgage security. The foreclosure sale was held on May 18,
ADD: OTHER EXPENSES 1998, with Chinabank offering the highest bid of ₱4,600,000.00, but by then
the defendants’ total obligations on the three promissory notes had risen to
INSURANCE PREMIUM 22,618.37
₱5,401,975.00, before attorney’s fees of 10% and auction expenses, leaving
POSTING OF NOTICE OF SALE 700.00 a loan deficiency of ₱1,758,427.87.14 Thus, in the complaint before the RTC,
Chinabank prayed to direct the defendants to jointly and severally settle the
PUBLICATION FEE 17,500.00 said deficiency, plus 12% interest per annum after May 18, 1998, 15 the date
of the auction sale.16
REGISTRATION OF CERTIFICATE OF SALE (MISC.) 1,000.00
The spouses Sinamban, in their Answer17 dated February 26, 1999, averred
REGISTRATION OF CERTIFICATE OF SALE (REGISTER OF DEEDS) that they do not recall having executed PN No. OACL 636-95 for ₱325,000.00
on May 23, 1995, or PN No. CLF 5-93 for ₱1,300,000.00 on February 26, 1991,
Registration 10,923.00
and had no participation in the execution of PN No. OACL 634-95 for
fee
₱1,800,000.00 on April 24, 1995. They however admitted that they signed
some PN forms as co-makers upon the request of the spouses Manalastas
who are their relatives; although they insisted that they derived no money or
other benefits from the loans. They denied knowing about the mortgage
security provided by the spouses Manalastas, or that the latter defaulted on
their loans. They also refused to acknowledge the loan deficiency of
₱1,758,427.87 on the PNs, insisting that the mortgage collateral was worth
more than ₱10,000,000.00, enough to answer for all the loans, interests and
penalties. They also claimed that they were not notified of the auction sale,
and denied that they knew about the Certificate of Sale18 and the Statement
of Account dated May 18, 1998, and insisted that Chinabank manipulated the
foreclosure sale to exclude them therefrom. By way of counterclaim, the
Spouses Sinamban prayed for damages and attorney’s fees of 25%, plus
litigation expenses and costs of suit.
The spouses Manalastas were declared in default in the RTC Order 19 dated
April 6, 1999, and Chinabank was allowed to present evidence ex parte as
against them, but at the pre-trial conference held on July 5, 1999, the spouses
Sinamban and their counsel also did not appear;20 hence, in the
Order21 dated July 5, 1999, the RTC allowed Chinabank to present evidence
ex parte against the defendants before the Branch Clerk of Court. During the
testimony of Rosario D. Yabut, Branch Manager of Chinabank-San Fernando
Branch, all the foregoing facts were adduced and confirmed, particularly the
identity of the pertinent loan documents and the signatures of the
defendants. On July 21, 1999, the court admitted the exhibits of Chinabank
and declared the case submitted for decision.22
Ruling of the RTC
On July 30, 1999, the RTC rendered its Decision23 with the following
dispositive portion: WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiff China Banking Corporation and against
defendant Sps. Danilo and Magdalena Manalastas and defendant Sps.
Estanislao and Africa Sinamban to jointly and severally pay [Chinabank] the
amount of ₱1,758,427.87, representing the deficiency between the
acquisition cost of the foreclosed real estate properties and the outstanding
obligation of defendants at the time of the foreclosure sale; interest at the
legal rate of 12% per annum from and after May 18, 1998; attorney’s fees
equivalent to 10% of the aforesaid deficiency amount and the litigation and
costs of suit.
SO ORDERED.24
On Motion for Reconsideration25 of the spouses Sinamban dated August 27,
1999, to which Chinabank filed an Opposition26 dated September 14, 1999,
the RTC in its Order27 dated October 22, 1999 set aside the Decision dated
July 30, 1999 with respect to the spouses Sinamban, in this wise:
As it is undisputed that Exhibit "B" (Promissory Note dated April 24, 1995 in
the amount of ₱1,800,000.00), was not signed by the Spouses Sinamban it
would not be equitable that the said defendants be made solidarily liable for
the payment of the said note as co-makers of their co-defendants Spouses
Manalastas who are the one[s] principally liable thereto. Prescinding from
this premise, the movant spouses could only be held liable for the two (2)
promissory notes they have signed, Promissory Notes dated May 23, 1995 in
the amount of ₱325,000.00 and February 26, 1991 in the amount of
₱1,300,000.00, Exhibits "A" and "C", respectively. As the total amount of the
said notes is only ₱1,625,000.00, so even if we would add the interests due
thereon, there is no way that the said outstanding loan exceed[s] the
acquisition cost of the foreclosed real estate properties subject hereof in the
amount of ₱4,600,000.00.It would appear then that the Spouses Sinamban
could not be held liable for the deficiency in the amount of ₱1,758,427.87
which should justly be borne alone by the defendant Spouses Manalastas.
Guided by law and equity on the matter, the court will not hesitate to amend
a portion of its assailed decision to serve the interest of justice.
WHEREFORE, premises considered, the decision dated July 30, 1999 is hereby
Reconsidered and Set Aside with respect to the Spouses Estanislao and Africa
Sinamban hereby Relieving them from any liability arising from the said
Decision which is affirmed in toto with respect to Spouses Manalastas.
SO ORDERED.28 (Emphases ours)
The RTC ruled that the proceeds of the auction were sufficient to answer for
the two PNs co-signed by the spouses Sinamban, including interest and
penalties thereon, and therefore the spouses Manalastas should solely
assume the deficiency of ₱1,758,427.87. Chinabank moved for
reconsideration on November 11, 1999,29 to which the spouses Sinamban
filed their comment/opposition on November 23, 1999.30
On December 8, 1999, the RTC set aside its Order dated October 22, 1999
and reinstated its Decision dated July 30, 1999, with modification, as
follows:31
WHEREFORE, premises considered, the instant Motion for Reconsideration
of plaintiff is Granted.
Order dated October 22, 1999 is hereby Set Aside.
Accordingly, the dispositive portion of the Decision dated July 30, 1999 is
hereby Modified to read as follows:
WHEREFORE, premises considered, judgment [is] hereby rendered in favor of
plaintiff China Banking Corporation and against the defendant Sps. Danilo
and Magdalena Manalastas and defendant Sps. Estanislao and Africa
Sinamban, ordering them to pay as follows:
1. For defendant Sps. Danilo and Magdalena Manalastas, the
amount of ₱1,758,427.87, the deficiency between the acquisition
cost of the foreclosed real properties and their outstanding
obligation;
2. For defendant Sps. Sinamban a percentage of ₱1,758,427.87,
jointly and severally with the defendant Sps. [Manalastas] only on
two (2) promissory notes;
3. The corresponding interests thereon at legal rate;
4. Attorney’s fees; and
5. Costs of suit.
SO ORDERED.32
This time the RTC held that the spouses Sinamban must, solidarily with the
spouses Manalastas, proportionately answer for the loan deficiency
pertaining to the two PNs they co-signed, since the mortgage security
provided by the spouses Manalastas secured all three PNs and thus also
benefited them as co-makers. But since they did not co-sign PN No. OACL
634-95, the deficiency judgment pertaining thereto will be the sole liability
of the spouses Manalastas.
Ruling of the CA
From the Order dated December 8, 1999 of the RTC, the spouses Sinamban
appealed to the CA on January 4, 2000, docketed as CA-G.R. CV. No. 66274,
interposing the following errors of the RTC, viz:
I
THE LOWER COURT ERRED WHENIT HELD DEFENDANTSAPPELLANTS SPS.
SINAMBAN LIABLE TO PAY A PERCENTAGE OF ₱1,758,427.87, JOINTLY AND
SEVERALLY WITH THE DEFENDANTS SPS. MANALASTAS ON THE TWO
PROMISSORY NOTES (EXHIBITS ‘C’ AND ‘A’).
II
THE LOWER COURT ERRED WHEN IT RECONSIDERED AND SET ASIDE ITS
PREVIOUS ORDER DATED 22 OCTOBER 1999 RELIEVING DEFENDANTS-
APPELLANTS SPS. SINAMBAN FROM ANY LIABILITY ARISING FROM THE
DECISION DATED 30 JULY 1999.
III
THE LOWER COURT ERRED WHEN IT RENDERED THE VAGUE ORDER OF 8
DECEMBER 1999 (ANNEX ‘B’ HEREOF).33
On May 19, 2010, the CA rendered judgment denying the appeal, the fallo of
which reads: WHEREFORE, considering the foregoing disquisition, the appeal
is DENIED. The Decision dated 30 July 1999 and the Order dated 08 December
1999 of the Regional Trial Court of San Fernando, Pampanga, Branch 45 in
Civil Case No. 11708are hereby AFFIRMED with MODIFICATION in that:
1. Sps. Danilo and Magdalena Manalastas are solidarily liable for the
deficiency amount of Php507,741.62 (inclusive of 10% attorney’s
fees) on Promissory Note No. OACL 634-95 dated 24 April 1995;
2. Sps. Estanislao and Africa Sinamban are solidarily liable with Sps.
Danilo and Magdalena Manalastas for the amount of
Php844,501.90 (inclusive of 10% attorney’s fees) on Promissory
Note No. OACL00636-95 dated 23 May 1995;
3. Estanislao Sinamban and Sps. Danilo and Magdalena Manalastas
are solidarily liable for the amount of Php406,184.35 (inclusive of
10% attorney’s fees) on Promissory Note No. CLF 5-93 dated 26
February 1991; and
4. The foregoing amounts shall bear interest at the rate of 12% per
annum from 18 November 1998 until fully paid.
SO ORDERED.34 (Some emphasis ours)
Petition for Review to the Supreme Court
In this petition for review, the spouses Sinamban seek to be completely
relieved of any liability on the PNs, solidary or otherwise, by interposing the
following issues:
5.1 Whether or not the Honorable Court of Appeals erred in not
considering that the Sps. Sinamban’s obligations under PN# OACL
636-95 dated May 23, 1995 in the principal sum of Php325,000.00
and PN# CLF 5-93 dated February 26, 1991 in the principal sum of
Php1,300,000.00 are more onerous and burdensome on their part
as mere sureties (co-makers) of their co-defendants-spouses Danilo
and Magdalena Manalastas’ (hereinafter referred to as the "Sps.
Manalastas") obligations over the same, compared to the Sps.
Manalastas’ sole obligation under PN# OACL 634-95 dated 24 April
1995 in the principal amount of Php1,800,000.00, such that the
proceeds of the auction sale of the properties securing all the three
(3) promissory notes should first be applied to satisfy the promissory
notes signed by the Sps. Sinamban; and
5.2 Whether or not the Honorable Court of Appeals erred in not
considering the facts indubitably showing that it is the Sps.
Sinamban, as the debtors, and not the respondent bank, who are
given the choice under Article 1252 of the Civil Code to have the
proceeds of the auction sale applied as payments to their
obligations under PN# OACL 636-95 dated 23 May 1995 and PN#
CLF 5-93 dated 26 February 1991.35
Ruling of the Court
The Court modifies the CA decision.
A co-maker of a PN who binds
himself with the maker "jointly and
severally" renders himself directly
and primarily liable with the maker
on the debt, without reference to his
solvency.
"A promissory note is a solemn acknowledgment of a debt and a formal
commitment to repay it on the date and under the conditions agreed upon
by the borrower and the lender. A person who signs such an instrument is
bound to honor it as a legitimate obligation duly assumed by him through the
signature he affixes thereto as a token of his good faith. If he reneges on his
promise without cause, he forfeits the sympathy and assistance of this Court
and deserves instead its sharp repudiation."36
Employing words of common commercial usage and well-accepted legal
significance, the three subject PNs uniformly describe the solidary nature and
extent of the obligation assumed by each of the defendants in Civil Case No.
11708, to wit:
"FOR VALUE RECEIVED, I/We jointly and severally promise to pay to the
CHINA BANKING CORPORATION or its order the sum of PESOS x x
x[.]"37 (Emphasis ours)
According to Article 2047 of the Civil Code,38 if a person binds himself
solidarily with the principal debtor, the provisions of Articles 1207 to 1222 of
the Civil Code (Section 4, Chapter 3,Title I, Book IV) on joint and solidary
obligations shall be observed. Thus, where there is a concurrence of two or
more creditors or of two or more debtors in one and the same obligation,
Article 1207 provides that among them, "[t]here is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity." It is settled that when the obligor or obligors
undertake to be "jointly and severally" liable, it means that the obligation is
solidary.39 In this case, the spouses Sinamban expressly bound themselves to
be jointly and severally, or solidarily, liable with the principal makers of the
PNs, the spouses Manalastas.
Moreover, as the CA pointed out, in Paragraph 5 of the PNs, the borrowers
and their co-makers expressly authorized Chinabank, as follows:
[T]o apply to the payment of this note and/or any other particular obligation
or obligations of all or any one of us to the CHINA BANKING CORPORATION
as the said Corporation may select, irrespective of the dates of maturity,
whether or not said obligations are then due, any or all moneys, securities
and things of value which are now or which may hereafter be in its hands on
deposit or otherwise to the credit of, or belonging to, all or any one of us, and
the CHINA BANKING CORPORATION is hereby authorized to sell at public or
private sale such securities or things of value for the purpose of applying their
proceeds to such payments.40
Pursuant to Article 1216 of the Civil
Code, as well as Paragraph 5 of the
PNs, Chinabank opted to proceed
against the co-debtors
simultaneously, as implied in its
May 18, 1998 statement of
account when it applied the entire
amount of its auction bid to the
aggregate amount of the loan
obligations.
The PNs were executed to acknowledge each loan obtained from the credit
line extended by Chinabank, which the principal makers and true
beneficiaries, the spouses Manalastas, secured with a REM they executed
over their properties. As the RTC noted in its Order dated December 8, 1999,
"the real estate mortgage was constituted to secure all the three (3)
promissory notes," concluding that "[j]ust as the liability of the [spouses]
Sinamban was lessened by the foreclosure proceedings, so must they also
share in the deficiency judgment, in proportion to the PNs they co-signed
with the [spouses] Manalastas, but notthe entire deficiency judgment of
₱1,758,427.87."41
Significantly, in modifying the RTC’s second amended decision, which
provides for the pro rata distribution of the loan deficiency of ₱1,758,427.87,
the CA first applied the entire net proceeds of the auction sale of
₱4,183,744.63 (after auction expenses of ₱416,255.37), to PN No. OACL 634-
95, which on May 18, 1998 had an outstanding balance of ₱4,264,987.50,
inclusive of interest and penalties, plus 10% attorney’s fees, or a total of
₱4,691,486.25. Thus, ₱4,691,486.25 less ₱4,183,744.63 leaves a deficiency
on PN No. OACL 634-95 of ₱507,741.62, which is due solely from the spouses
Manalastas.
As for PN No. OACL 636-95, the CA ordered the spouses Sinamban to pay,
solidarily with the spouses Manalastas, the entire amount due thereon,
₱844,501.90, consisting of the loan principal of ₱767,729.00 plus accrued
interest, penalties and 10% attorney’s fees; concerning PN No. CLF 5-93, the
CA ordered the spouses Sinamban to pay, solidarily with the spouses
Manalastas, the amount of ₱406,184.35, consisting of the balance of the loan
principal of ₱369,258.50 plus accrued interest, penalties and 10% attorney’s
fees. The CA further ordered the payment of 12% interest per annum from
November 18, 1998, the date of judicial demand, until fully paid, on the
above deficiencies.
Article 1216 of the Civil Code provides that "[t]he creditor may proceed
against any one of the solidary debtors or some or all of them simultaneously.
The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so long as the debt
has not been fully collected." Article 125242 of the Civil Code does not apply,
as urged by the petitioners, because in the said article the situation
contemplated is that of a debtor with several debts due, whereas the reverse
is true, with each solidary debt imputable to several debtors.
While the CA correctly noted that the choice is given to the solidary creditor
to determine against whom he wishes to enforce payment, the CA stated that
Chinabank, in the exercise of the aforesaid option, chose to apply the net
proceeds of the extrajudicial foreclosure sale first to the PN solely signed by
spouses Manalastas.43 Thus, the net proceeds were applied first to PN No.
OACL 634-95 in the principal amount of ₱1,800,000.00, instead of pro rata to
all three PNs due.
The Court finds this factual conclusion of the CA not supported by any
evidence or any previous arrangement.1âwphi1 To the contrary, as clearly
shown in its Statement of Account dated May 18, 1998, Chinabank opted to
apply the entire auction proceeds to the aggregate amount of the three PNs
due, ₱5,401,975.00 (before attorney’s fees and auction expenses). Had it
chosen to enforce the debts as ruled by the CA, the Statement of Account
would have shown that the loan due on PN No. OACL 634-95 which is
₱4,691,486.25, should have been deducted first from the net auction
proceeds of ₱4,183,744.63, arriving at a deficiency of ₱507,741.62on PN No.
OACL 634-95 alone; thereby, leaving no remainder of the proceeds available
to partially settle the other two PNs. As it appears, the auction proceeds are
not even sufficient to cover just PN No. OACL 634-95 alone.
But as the Court has noted, by deducting the auction proceeds from the
aggregate amount of the three loans due, Chinabank in effect opted to apply
the entire proceeds of the auction simultaneously to all the three loans. This
implies that each PN will assume a pro rata portion of the resulting deficiency
on the total indebtedness as bears upon each PN’s outstanding balance.
Contrary to the spouses Sinamban’s insistence, none of the three PNs is more
onerous than the others to justify applying the proceeds according to Article
1254 of the Civil Code, in relation to Articles 1252 and 1253.44 Since each
loan, represented by each PN, was obtained under a single credit line
extended by Chinabank for the working capital requirements of the spouses
Manalastas’ rice milling business, which credit line was secured also by a
single REM over their properties, then each PN is simultaneously covered by
the same mortgage security, the foreclosure of which will also benefit them
proportionately. No PN enjoys any priority or preference in payment over the
others, with the only difference being that the spouses Sinamban are
solidarily liable for the deficiency on two of them.
Pursuant, then, to the order or manner of application of the auction proceeds
chosen by Chinabank, the solidary liability of the defendants pertaining to
each PN shall be as follows:
a) PN No. OACL 634-95, with a balance as of May 18, 1998 of
₱4,264,987.50: its share in the total deficiency is computed as the
ratio of ₱4,264,987.50 to ₱5,401,975.00, multiplied by
₱1,758,427.87, or ₱1,388,320.55, (not ₱507,741.62 as found by the
CA);
b) PN No. OACL 636-95, with a balance of ₱767,729.00 as of May 18,
1998: its share in the deficiency is computed as the ratio of
₱767,729.00 to ₱5,401,975.00, multiplied by ₱1,758,427.87, or
₱249,907.87, (not ₱844,501.90 as computed by the CA);
c) PN No. CLF 5-93, with an outstanding balance of ₱369,258.50 as
of May 18, 1998: its share in the deficiency is computed as the ratio
of ₱369,258.50 to ₱5,401,975.00, multiplied by ₱1,758,427.87, or
₱120,199.45, (not ₱406,184.35 as found by the CA).
In short, in the CA decision, the spouses Manalastas would be solely liable on
PN No. OACL 634-95 for only ₱507,741.62(instead of the much bigger
amount of ₱1,388,320.55which this Court found), whereas the spouses
Sinamban would be solidarily liable with the spouses Manalastas for a total
deficiency of ₱1,250,686.25 on PN No. OACL 636-95 and PN No. CLF 5-93.
But under the Court’s interpretation, the spouses Sinamban are solidarily
liable with the spouses Manalastas for only ₱370,107.32on the said two PNs,
for a significant difference of ₱880,578.93.
Pursuant to Monetary Board
Circular No. 799, effective July 1,
2013, the rate of interest for the
loan or forbearance of any money,
goods or credits and the rate
allowed in judgments, in the
absence of an express contract as to
such rate of interest, has been
reduced to six percent (6%) per
annum.
The subject three PNs bear interests ranging from 21% to 23% per annum,
exclusive of penalty of 1% on the overdue amount per month of delay,
whereas in its complaint, Chinabank prayed to recover only the legal rate of
12% on whatever judgment it could obtain. Meanwhile, the Monetary Board
of the Bangko Sentral ng Pilipinas in its Resolution No. 796 dated May 16,
2013, and now embodied in Monetary Board Circular No. 799, has effective
July 1, 2013 reduced to 6%, from 12%, the legal rate of interest for the loan
or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of stipulation.45 Since Chinabank demanded only
the legal, not the stipulated, interest rate on the deficiency and attorney’s
fees due, the defendants will solidarily pay interest on their shares in the
deficiency at the rate of 12% from November 18, 1998 to June 30, 2013, and
6% from July 1, 2013 until fully paid. WHEREFORE, the Decision of the Court
of Appeals dated May 19, 2010 in CA-G.R. CV No. 66274 is MODIFIED. The
Decision dated July 30, 1999 and the Order dated December 8, 1999 of the
Regional Trial Court of San Fernando City, Pampanga, Branch 45 in Civil Case
No. 11708 are hereby AFFIRMED with MODIFICATIONS as follows:
1. Spouses Danilo and Magdalena Manalastas are solidarily liable for
the deficiency amount of 1,388,320.55 (inclusive of 10% attorney’s
fees) on Promissory Note No. OACL 634-95 dated April 24, 1995;
2. Spouses Estanislao and Africa Sinamban are solidarily liable with
spouses Danilo and Magdalena Manalastas for the deficiency
amount of ₱249,907.87(inclusive of 10% attorney’s fees) on
Promissory Note No. OACL 636-95 dated May 23, 1995;
3. Estanislao Sinamban and spouses Danilo and Magdalena
Manalastas are solidarily liable for the deficiency amount of
₱120,199.45 (inclusive of 10% attorney’s fees) on Promissory Note
No. CLF 5-93 dated February 26, 1991; and
4. The foregoing amounts shall bear interest at the rate of twelve
percent (12%) per annum from November 18, 1998 to June 30,
2013, and six percent (6%) per annum from July 1, 2013 until fully
paid.
SO ORDERED.