Republic of the Philippines Sea Fishing Corporation, the sum of P53,643.
00
SUPREME COURT
Manila
SECOND DIVISION
A.M. No. 21901-96 June 27, 1978
REPARATIONS COMMISSION, plaintiff-
appellants,
vs.
UNIVERSAL DEEP-SEA FISHING
CORPORATION and MANILA SURETY
AND FIDELITY CO., INC., defendant-
appellants.
MANILA SURETY & FIDELITY CO.,
INC., third-party plaintiff-appellee,
vs.
PABLO S. SARMIENTO, third-party
defendant-appellant.
CONCEPCION JR., J.:
Appeal of the defendant Universal Deep-Sea
Fishing Corporation, defendant and third-party
plaintiff Manila Surety and Fidelity Co., Inc.,
and third-party defendant Pablo Sarmiento from
the decision of the Court of First Instance of
Manila, the dispositive portion of which reads as
follows:
WHEREFORE, judgment is rendered as
follows:
1. The defendant Universal Deep-Sea Fishing
Corporation is hereby sentenced to pay the
plaintiff the sum of P100,242.04 in the first
cause of action, P141,343.45 in the second cause
of action and P54,500.00 in the third cause of
action, all with interest at the rate of 6% per
annum from August 10, 1962, the date of the
filing of the complaint, until fully paid;
2. Defendant Manila Surety & Fidelity Co., Inc.,
is hereby sentenced to pay the plaintiff, jointly
and severally with defendant Universal Deep-
in the first cause of action, P68,777.77 in the
second cause of action and P54,508.00 in the
third cause of action;
3. Defendant Universal Deep-Sea Fishing
Corporation and Pablo Sarmiento are hereby
sentenced to pay, jointly and severally, the
Manila Surety & Fidelity Co., Inc., the sum of
P53,643.00 and P68,777.77 with interest thereon
at the rate of 12% per annum from August 10,
1962 until fully paid plus P2,000.00 as attorney's
fees;
4. Defendant Universal Deep-Sea Fishing
Corporation is hereby sentenced to pay the
Manila Surety & Fidelity Co., Inc., the sum of
P54,508.00 with interest thereon at the rate of
12% per annum from August 10, 1962, until
fully paid;
5. Defendant Universal Deep-Sea Fishing
Corporation shall pay the costs. 1
It is not disputed that the Universal Deep-Sea
Fishing Corporation, hereinafter referred to as
UNIVERSAL for short. was awarded six (6)
trawl boats by the. Reparations Commission as
end-user of reparations goods. These fishing
boats, christened the M/S UNIFISH 1, M/S
UNIFISH 2. M/S UNIFISH 3. M/S UNIFISH 4,
M/S UNIFISH 5, and M/S UNIFISH 6. were
delivered to UNIVERSAL two at a time, f.o.b.
Japanese port.
The M/S UNIFISH 1 and M/S UNIFISH 2, with
an aggregate purchase price of P536,428.44,
were delivered to UNIVERSAL on November
20,1958, and the contract of Conditional
Purchase and Sale of Reparations Goods,
executed by and between the parties on February
12, 1960, provided among others, that "the first
installment representing 10% of the amount or
FIFTY THREE THOUSAND SIX HUNDRED
FORTY TWO PESOS AND EIGHTY FOUR
CENTAVOS (P53,642.84) shall be paid within
24 months from the date of complete delivery
thereof, the balance shall be paid in the manner
herein stated as shown in the Schedule of
Payments, 2 ... to wit:
TOTAL F.O.B. COST P536,428.44
AMOUNT OF 1st INSTALLMENT (10% OF
F.O.B. COST) P53,642.84
DUE DATE OF 1st INSTALLMENT May 8,
1961
TERM: Ten (10) EQUAL YEARLY
INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%)
PER ANNUM
No. of Installments Date Due
1 May 8, 1962
2 May 8, 1963
3 May 8, 1964
4 May 8, 1965
5 May 8, 1966
6 May 8, 1967
7 May 8, 1968
8 May 8, 1969
9 May 8, 1970
10 May 8, 1971
To guarantee the faithful compliance with the
obligations under said contract, a performance
bond in the amount of P53,643.00, with
UNIVERSAL as principal and the Manila Surety
& Fidelity Co., Inc., as surety, was executed in
favor of the Reparations Commission. 3 A
Corresponding indemnity agreement was
executed to indemnify the surety company for
any damage, loss charges, etc., which it may
sustain or incur as a consequence of having
become a surety upon the performance bond. 4
The M/S UNIFISH 3 and M/S UNIFISH 4, with
a total purchase price of P687,777.76 were
delivered to UNIVERSAL on April 20, 1959 and
the Contract of Conditional Purchase and Sale
Reparations Goods, dated November 25,
1959, 5 provided that "the first installment
representing 10% of the amount or SIXTY-
EIGHT THOUSAND SEVEN HUNDRED
SEVENTY-SEVEN PESOS AND SEVENTY-
SEVEN CENTAVOS shall be paid within 24
months from the date of complete delivery
thereof, the balance shall be paid in the manner
herein stated as shown in the Schedule of
Payments, . . . , to wit:
TOTAL F.O.B. COSTS P687,777.76
AMOUNT OF 1st INSTALLMENT (10% of
F.O.B. COST) P68,777.77
DUE DATE OF 1st INSTALLMENT July,
1961
TERM: Ten (10) EQUAL YEARLY
INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%)
PER ANNUM
No. of Installments Due Date
1 July, 1962
2 July, 1963
3 July, 1964
4 July, 1965
5 July, 1966
6 July, 1967
7 July, 1968
8 July, 1969
9 July, 1970
10 July, 1971
A performance bond in the amount of
P68,777.77, issued by the Manila Surety &
Fidelity Co., Inc., was also submitted to
guarantee the faithful compliance with the
obligations set forth in the contract, 6 and
indemnity agreement was executed in favor of
the surety company in consideration of the said
bond. 7
The delivery of the M/S UNIFISH 5 and M/S
UNIFISH 6 is covered by a contract for the
Utilization of Reparations Goods (M/S
"UNIFISH 5" and M/S "UNIFISH 6") executed
by the parties on February 12, 1960, 8 and the
Schedule of Payments attached thereto,
provided, as follows:
AMOUNT OF 1st INSTALLMENT (10% of
F.O.B. COST) P54,500.00
DUE DATE OF 1st INSTALLMENT Oct.
17, 1961
TERM: TEN (10) EQUAL YEARLY
INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%)
PER ANNUM
No. of Installments Date Due
1 Oct. 17, 1962
2 Oct. 17, 1963
3 Oct. 17, 1964
4 Oct. 17, 1965
5 Oct. 17, 1966

6 Oct. 17, 1967
7 Oct. 17, 1968
8 Oct. 17, 1969
9 Oct. 17, 1970
10 Oct. 17, 1971
A performance bond in judgment, amount of
P54,500.00 issued by judgment, Manila Surety
& Fidelity Co., Inc., 10was submitted, and an
indemnity agreement was executed by
UNIVERSAL in favor of judgment, surety
company. 11
On August 10, 1962, judgment, Reparations
Commission instituted judgment, present action
against UNIVERSAL and judgment, surety
company to recover various amounts of money
due under these contracts. In answer,
UNIVERSAL claimed that judgment, amounts
of money sought to be collected are not yet due
and demandable. The surety company also
contended that judgment, action is premature,
but set up a cross-claim against UNIVERSAL
for reimbursement of whatever amount of
money it may have to pay judgment, plaintiff by
reason of judgment, complaint, including
interest, and for judgment, collection of
accumulated and unpaid premiums on judgment,
bonds with interest thereon. With leave of courts
first obtained, judgment, surety company filed a
third-party complaint against Pablo S.
Sarmiento, one of the indemnitors in judgment,
indemnity agreements. The third-party defendant
Pablo S. Sarmiento denied personal liability
claiming that he signed judgment, indemnity
agreements in question in his capacity as acting
general manager of UNIVERSAL. After
appropriate proceedings and upon judgment,
preceding facts, judgment, trial court rendered
judgment, judgment hereinbefore stated. hence,
this appeal.
(1) The principal issue for resolution is whether
or not judgment, first installments under
judgment, three (3) contracts of conditional
purchase and sale of reparations goods were
already due and demandable when judgment,
complaint was filed. UNIVERSAL contends that
there is an obscurity in judgment, terms of
judgment, contracts in question which were
caused by the plaintiff as to judgment, amounts
and due dates of judgment, first installments
which should have been first fixed before a
creditor can demand its payment from judgment,
debtor. To be explicit. counsel points to
judgment, Schedule of Payment attached to, and
forming a part of, the contract for judgment,
purchase and sale of judgment, M/S UNIFISH 1
and M/S UNIFISH 2 which states that judgment,
amount of first installment is P53,642.84 and
judgment, due date of its payment is May 8,
1961. However, judgment, amount of the first of
succeeding itemized installments is P56,597.20
and judgment, due date is May 8, 1962. In the
case of the M/S UNIFISH 3 and M/S UNIFISH
4, the first installments are P68,777.77 and due
in July, 1961 and P72,565.68 and due in July
1962, respectively. In the contract for the
purchase and sale of the M/S UNIFISH 5 and
M/S UNIFISH 6, the amounts indicated as first
installments are P54,500.00 and P57,501.57, and
the due dates of payment are October 17, 1961
and October 17, 1962, respectively.
The terms of the contracts for the purchase and
sale of the reparations vessels, however, are very
clear and leave no doubt as to the intent of the
contracting parties. Thus, in the contract
concerning the M/S UNIFISH 1 and M/S
UNIFISH 2, the parties expressly agreed that the
first installment representing 10% of the
purchase price or P53,642.84 shall be paid
within 24 months from the date of complete
delivery of the vessel or on May 8, 1961, and the
balance to be paid in ten (10) equal yearly
installments. The amount of P56,597.20 due on
May 8, 1962, which is also claimed to be a "first
installment," is but the first of the ten (10) equal
yearly installments of balance of judgment,
purchase price. In judgment, case
of Reparations Commission vs. Northern Lines,
Inc. et al., 12where judgment, Schedule of
Payments, likewise on RC-LEGAL DEPT
FORM NO. 1, also allegedly indicated two (2)
due dates for judgment, payment of judgment,
first installment, judgment, Court said:
(a) The major premise in appellants' process of
reasoning is that the first installments due on
April 25, 1963, and May 26, 1963, are 'first
installments. although they are not so designated
in judgment, schedule appended to each of
judgment, contracts between judgment, parties.
Appellant's, moreover, assume that judgment,
'first' installment is included in judgment, ten
(10) equal yearly installments'
mentioned subsequently to said 'first'
installment. In feet, however,
only one installment is labeled as 'first' in each
one of said schedules, and that is judgment,
installment due on 'April 25, 1962' - as regards
M/S Don Salvador or Magsaysay - and that due
on 'May 26, 1962'- as regards M/S Don Amando
or Estancia. The schedules do not describe
judgment, 'ten (10) equal yearly installments'
following the one characterized therein as
'first' meaning 'number,' not order or
sequence, of installments and the numerals 1,
2, 3, 4, 5, 6, 7, 8, 9, 10 written before each of
said 'ten (10) equal yearly
installments following the 'first' to accrue after
the due date of said 'first' installment. Just the
same, the parties have not so described (as 'first')
in the schedules forming part of their
contracts the installments numbered '1' in the
list contained in each. Moreover, considering
that the words 'TERMS: Ten (10) EQUAL
YEARLY INSTALLMENTS,' appear after the
lines reading: 'AMOUNT OF 1st
INSTALLMENT (10% OF F.O.B. COSTS)
P174,761.42' and DUE DATE OF 1st
INSTALLMENT April 25, 1962 (or May 26,
1962) and that, subsequently to said 'TERM: Ten
(10) EQUAL YEARLY INSTALLMENTS,'
there is a list of ten (10) equal yearly
installments, it is clear that the latter
do not include the one designated as 'first'
installment.
xxx xxx xxx
(b) The pertinent part of Section 12 of Rep. Act
No. 1789, pursuant to which the vessels in
question were sold to the Buyer reads:
. . . Capital goods . . . disposed of to private
parties as provided for in subsection (a) of
Section two hereof shall be sold on a cash or
credit basis, under rules and regulations as may
be determined by the Commission. Sales on a
credit basis shall be payable in
installments: Provided, That judgment, first
installment shall be paid within twenty-four
months after complete delivery of judgment,
capital goods and judgment, balance within a
period not exceeding ten years, . . . plus
judgment, service provided for in section ten
thereof; Provided further, That judgment, unpaid
balance of judgment, price thereof shall bear
interest at judgment, rate of not more than three
percent per annum. . . . .
It should be noted that, pursuant to judgment,
schedules attached to judgment, contracts with
judgment, Buyer, judgment, 'complete delivery'
of judgment, vessels took place on April 25, and
May 26, 1960, respectively, so that
judgment, the 24 months taxed by law for
judgment, payment of judgment, 'First
installment expired on April 25, 1962 and May
26,1962, which are judgment, very dates stated
in judgment, aforementioned schedules for
judgment, payment of judgment, respective '1st'
installments. What is more, in view of said legal
provision, judgment, Commission had no
authority to agree that the 1st installment shall
be paid on any later date, and judgment, Buyer
must have been aware of this fact. Hence,
judgment, parties could not have intended
judgment, first installments to become due on
April 25, and May 26, 1963 It is, likewise,
obvious - particularly when considered in
relation to judgment, provision above quoted -
that judgment, 'ten (10) equal yearly
installments.' mentioned in the schedules, refer
to the 'balance' of the price to be paid by the
buyer, after deducting judgment, 'first'
installment, so hat, altogether, there would be
'eleven' installments, namely, the first , which
would be the 10% of the F.O.B. cost of the
vessel as agreed upon between 'The
Governments of the Philippines and Japan
and 'ten (10) yearly installments,' representing
the balance of "he amount due to he
Commission from judgment, Buyer, including
tile interest thereon.
Viewing judgment, contracts between judgment,
parties in judgment, light of the foregoing
exposition, judgment, first installment on
judgment, M/S UNIFISH 1 and M/S UNIFISH 2
of judgment, amount of P53,642.84 was due on
May 8, 1961, while judgment, first installments
on judgment, M/S UNIFISH 3 and M/S
UNIFISH 4, and judgment, M/S UNIFISH 5 and
M/S UNIFISH 6 in judgment, amounts of
P68,777.77 and P54,500.00 were due on July 31,
1961 and October 17, 1961, respectively.
Accordingly judgment, obligation of
UNIVERSAL to pay judgment, first installments
on the purchase price of judgment, six (6)
reparations vessels was already due and
demandable when the present action was
commenced on August 10, 1962. Also due and
demanded from UNIVERSAL were the first of
the ten (10) equal yearly installments on the
balance of the purchase price of the M/S
UNIFISH I and M/S UNIFISH 2 in the amount
of P56,597.20 and P72,565.68 on judgment,
M/S UNIFISH 3 and M/S UNIFISH 4. The first
accrued on May 8, 1962, while judgment,
second fell due on July 31, 1962.
(2) The claim of judgment, surety company to
the effect that the trial court erred in not
awarding it the amount of P7,251.42, as
premium is the performance bonds, is well
taken. The payment of premiums on the bonds to
the surety company had been expressly
undertaken by UNIVERSAL in the indemnity
agreements executed by it in favor of judgment,
surety company. The premium is judgment,
consideration for furnishing judgment, bonds
and judgment, obligation to pay judgment, same
subsists for as long as judgment, liability of
judgment, surety shall exist. 13 Hence,
UNIVERSAL should pay judgment, amount of
P7,251.42 to judgment, surety company.
(3) The surety company also claims that
judgment, trial court erred in not applying
judgment, amount of P10,000.00, paid as down
payment by UNIVERSAL to judgment,
Reparations Commission, to judgment,
guaranteed indebtedness. According to
judgment, surety company, under Article 1254
of judgment, Civil rode, where there is no
imputation of payment made by either judgment,
debtor or creditor, The debt which is the most
onerous to the debtor shall be deemed to have
been satisfied, so that the amount of P10,000.00
paid by UNIVERSAL as down payment on the
purchase of the, M/S UNIFISH 1 and M/S
UNIFISH 2 should be applied to the guaranteed
portion of the debt, this releasing part of the
liability hence the obligation of 'The surety
company shall be only P43,643.00, instead of
P53,643.00.
The rules contained in Articles 1252 to 1254 of
judgment, Civil Code apply to a person owing
several debts of judgment, same kind to a single
creditor. They cannot be made applicable to a
person whose obligation as a mere surety is both
contingent and singular, 14 which in this case is
the full and faithful compliance with the terms
of the contract of conditional purchase and sale
of reparations goods, The obligation included
the payment, not only of the first installment in
the amount of P53,643.00, but also of the ten
(10) equal yearly installments of P56,597.20 per
annum. The amount of P10,000.00 was, indeed,
deducted from judgment, amount of P53,643.00,
but then judgment, first of judgment, ten (10)
equal yearly installments had also accrued,
hence, no error was committed in holding
judgment, surety company to judgment, full
extent of its undertaking.
(4) Finally, We find no merit in judgment, claim
of judgment, third-party defendant Pablo S.
Sarmiento that he is not personally liable having
merely executed judgment, indemnity
agreements 15 in his capacity as acting general
manager of UNIVERSAL. Pablo S. Sarmiento
appears to have signed the indemnity agreement
twice the first, in this capacity as acting NEREO J. PACULDO, petitioner, vs. BONIFACIO C.
general manager of UNIVERSAL, and the
second, in his individual capacity. The
indemnity agreements in question state the
following. among others:
In consideration of judgment, responsibility
undertaken by judgment, Company, for
judgment, original bond, and for any renewal,
extension or substitution thereof, judgment,
undersigned, jointly and severally, bind
themselves in favor of judgment, said
COMPANY in judgment, following terms:
xxx xxx xxx
Dated at City of Manila this - - - - day of July
l969.
600 Cottage 3, UNIVERSAL DEEP-SEA
FISHING CORP.
Aguinaldo Com- BY:
pound, Echague, s/PABLO S. SARMIENTO
Manila t/PABLO S. SARMIENTO Signature
s/PABLO S. SARMIENTO Address t/PABLO S.
SARMIENTO Signature
Besides, the "acknowledgment" stated that
"Pablo S. Sarmiento for himself and on behalf of
Universal Deep-Sea Fishing Corporation"
personally appeared before the notary and
acknowledged that judgment, document is his
own free and voluntary act and deed.
WHEREFORE, judgment, judgment appealed
from is hereby affirmed with judgment,
modification that judgment, UNIVERSAL
Deep-Sea Fishing Corporation is further ordered
to pay judgment, Manila Surety & Fidelity Co.,
Inc., judgment, amount of P7,251.42 for
judgment, premiums and documentary stamps
on judgment, performance bonds. Appellants
shall pay proportionate costs.
SO ORDERED.
[G.R. No. 123855. November 20, 2000]
REGALADO, respondent.
DECISION
PARDO, J.:
The case before the Court is an
appeal via certiorari seeking to set aside the
decision of the Court of Appeals[1] which
affirmed that of the Regional Trial Court,
Quezon City, and the Metropolitan Trial Court,
Quezon City ordering the ejectment of petitioner
from the property subject of the controversy.
The facts are as follows:
On December 27, 1990, petitioner Nereo J.
Paculdo (hereafter Nereo) and respondent
Bonifacio C. Regalado (hereafter Bonifacio)
entered into a contract of lease over a 16,478
square meter parcel of land with a wet market
building, located along Don Mariano Marcos
Avenue, Fairview Park, Quezon City. The
contract was for twenty five (25) years,
commencing on January 1, 1991 and ending on
December 31, 2015. For the first five (5) years
of the contract beginning December 27, 1990,
Nereo would pay a monthly rental of
P450,000.00, payable within the first five (5)
days of each month at Bonifacios office, with a
2% penalty for every month of late payment.
Aside from the above lease, petitioner
leased eleven (11) other property from
respondent, ten (10) of which were located
within the Fairview compound, while the
eleventh was located along Quirino Highway,
Quezon City. Petitioner also purchased from
respondent eight (8) units of heavy equipment
and vehicles in the aggregate amount of
P1,020,000.00.
 On account of petitioners failure to pay
P361,895.55[2] in rental for the month of May,
1992, and the monthly rental of P450,000.00 for
the months of June and July 1992, on July 6,
1992, respondent sent a demand letter to
petitioner demanding payment of the
back rentals, and if no payment was made within
fifteen (15) days from receipt of the letter, it
would cause the cancellation of the lease
contract.[3] Another demand letter followed this
on July 17, 1992, reiterating the demand for
payment and for petitioner to vacate the subject
premises. [4]
Without the knowledge of petitioner, on
August 3, 1992, respondent mortgaged the land
subject of the lease contract, including the
improvements which petitioner introduced into
the land amounting to P35,000,000.00, to Monte
de Piedad Savings Bank, as security for a loan in
the amount of P20,000,000.00.[5]
On August 12, 1992, and on subsequent
dates thereafter, respondent refused to accept
petitioners daily rental payments.[6]
On August 20, 1992, petitioner filed with
the Regional Trial Court, Quezon City an action
for injunction and damages seeking to enjoin
respondent from disturbing his possession of the
property subject of the lease contract. [7] On the
same day, respondent filed with the Metropolitan
Trial Court, Quezon City a complaint for
ejectment against petitioner. Attached to the
complaint were the two (2) demand letters dated
July 6 and July 17, 1992.[8]
On August 25, 1992, five (5) days after the
filing of the ejectment complaint, respondent
moved to withdraw the complaint on the ground
that certain details had been omitted in the
complaint and must be re-computed.
On April 22, 1993, respondent re-filed the
ejectment complaint with the Metropolitan Trial
Court, Quezon City. Computed from August
1992 until March 31, 1993, the monthly
reasonable compensation that petitioner was
liable for was in the total sum of P3,924,000.00.
[9]
On January 31, 1994, the Metropolitan Trial
Court, Quezon City rendered a decision in favor
of respondent, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the defendant,
as follows:
1. Ordering the defendant and all persons
claiming right under him to vacate the leased
premises located at Don Mariano Marcos
Avenue, Fairview Park, Quezon City, Metro-
Manila covered by Transfer Certificate of Title
RT-6883 of the Registry of Deeds of Quezon
City;
2. Ordering the defendant to pay the sum of
P527,119.27 representing the unpaid monthly
rentals as of June 30, 1992 plus 2% interest
thereon;
3. Ordering the defendant to pay the sum of
P450,000.00 a month plus 2% interest thereon
starting July 1992 and every month thereafter
until the defendant and all persons claiming
right under him shall have actually vacated the
premises and surrender possession thereof to the
plaintiff;
4. Ordering the defendant to pay the sum of
P5,000,000.00 as and for attorneys fees; and
5. Ordering the defendant to pay the costs of
suit.
SO ORDERED.[10]
 In time, petitioner appealed to the Regional
Trial Court, Quezon City, Branch 220.[11]
On February 19, 1994, respondent, with the
support of fifty (50) armed security guards
forcibly entered the property and took
possession of the wet market building.[12]
On July 6, 1994, the Regional Trial Court,
Quezon City, Branch 220 rendered a decision
affirming in toto the decision of the
Metropolitan Trial Court, to wit:
WHEREFORE, the appealed decision dated
January 31, 1994, for being in accordance with
the evidence presented and the law on the
matter, is hereby affirmed in toto.
Let a writ of execution issue against defendant
and his surety, to answer for the decision of the
lower court.[13]
On the same day, the Regional Trial Court
issued a writ of execution[14] whereupon,
petitioner vacated the subject premises
voluntarily. By July 12, 1994, petitioner had
completely turned over possession of subject
property to respondent.
Meanwhile, on July 21, 1994, petitioner
filed a petition for review with the Court of
Appeals.[15] He alleged that he had paid the
amount of P11,478,121.85 for security deposit
and rentals on the wet market building, but
respondent, without his consent, applied
portions of the payment to his other
obligations. The vouchers and receipts indicated
that the payments made were for rentals. Thus,
at the time of payment petitioner had declared as
to which obligation the payment must be
applied.
On February 10, 1995, the Court of Appeals
promulgated its decision finding that petitioner
impliedly consented to respondents application
of payment to his other obligations and, thus,
dismissed the petition for lack of merit.[16]
On March 3, 1995, petitioner filed a motion
for reconsideration;[17] however, on February 9,
1996 the Court of Appeals denied the motion.[18]
Hence, this appeal.[19]
At issue is whether petitioner was truly in
arrears in the payment of rentals on the subject
property at the time of the filing of the
complaint for ejectment.
As found by the Metropolitan Trial Court
and Regional Trial Court, petitioner made a total
payment of P10,949,447.18, to respondent as of
July 2, 1992.
If the payment made by respondent applied
to petitioners other obligations is set aside, and
the amount petitioner paid be applied purely to
the rentals on the Fairview wet market building,
there would be an excess payment of
P1,049,447.18 as of July 2, 1992. The
computation in such case would be as follows:
Amount paid as of July 2, 1992 P10,949,447.18
Less:
Monthly rent from January 1991-July 1992
P450,000.00 x 19 months P 8,550,000.00
Less:
Security deposit P 1,350,000.00
============
Excess amount paid P 1,049,447.18
In the letter dated November 19, 1991,
respondent proposed that petitioners security
deposit for the Quirino lot, in the amount of
P643,276.48, be applied as partial payment for
his account under the subject lot as well as to
real estate taxes on the Quirino lot. [20] Petitioner
interposed no objection, as evidenced by his
signature signifying his conformity thereto.
In an earlier letter, dated July 15, 1991,
[21]
respondent informed petitioner that the
payment was to be applied not only to
petitioners accounts under both the subject land
and the Quirino lot but also to heavy equipment
bought by the latter from respondent. Petitioner
claimed that the amount applied as payment for
the heavy equipment was critical because it was
equivalent to more than two (2) months rental of
the subject property, which was the basis for the
ejectment case in the Metropolitan Trial Court.
The controversy stemmed from the fact that
unlike the November 19, 1991 letter, which bore
a conformity portion with petitioners signature,
the July 15, 1991 letter did not contain the
signature of petitioner.
In nevertheless concluding that petitioner
gave his consent thereto, the Court of Appeals
upheld both the lower courts and trial courts
findings that petitioner received the second letter
and its attachment and he raised no objection
thereto.
In other words, would petitioners failure to
object to the letter of July 15, 1991 and its
proposed application of payments amount to
consent to such application?
Petitioner submits that his silence is not
consent but is in fact a rejection.
The right to specify which among his
various obligations to the same creditor is to be
satisfied first rests with the debtor,[22] as
provided by law, to wit:
Article 1252. He who has various debts of the
same kind in favor of one and the same creditor,
may declare at the time of making the payment,
to which of them the same must be
applied.Unless the parties so stipulate, or when
the application of payment is made by the party
for whose benefit the term has been constituted,
application shall not be made as to debts which
are not yet due.
If the debtor accepts from the creditor a receipt
in which an application of the payment is made,
the former cannot complain of the same, unless
there is a cause for invalidating the contract. [23]
At the time petitioner made the payments,
he made it clear to respondent that they were to
be applied to his rental obligations on the
Fairview wet market property. Though he
entered into various contracts and obligations
with respondent, including a lease contract over
eleven (11) property in Quezon City and sale of
eight (8) heavy equipment, all the payments
made, about P11, 000,000.00, were to be applied
to rental and security deposit on the Fairview
wet market property.
Respondent Regalado argues that assuming
that petitioner expressed at the time of payment
which among his obligations were to be satisfied
first, petitioner is estopped by his assent to the
application made by the respondent. This assent
is inferred from the silence of petitioner on the
July 15, 1991 letter[24] containing a statement of
the application of payments, which was different
from the application made by petitioner. A big
chunk of the amount paid by petitioner went into
the satisfaction of an obligation which was not
yet due and demandable--the payment of the
eight (8) heavy equipment amounting to about
P1,020,000.00.
The statement of account prepared by
respondent was not the receipt contemplated
under the law. The receipt is the evidence of
payment executed at the time of payment, and
not the statement of account executed several
days thereafter.
There was no clear assent by petitioner to
the change in the manner of application of
payment. The petitioners silence as regards the
application of payment by respondent cannot
mean that he consented thereto. There was no
meeting of the minds. Though an offer may be
made, the acceptance of such offer must be
unconditional and unbounded in order that
concurrence can give rise to a perfected contract.
[25]
Hence, petitioner could not be in estoppel.
Assuming arguendo that, as alleged by
respondent, petitioner did not, at the time the
payments were made, choose the obligation to
be satisfied first, respondent may exercise the
right to apply the payments to the other
obligations of petitioner. But this is subject to
the condition that the petitioner must give his
consent. Petitioners silence is not tantamount to
consent. The consent must be clear and definite.
Under the law, if the debtor did not declare
at the time he made the payment to which of his
debts with the creditor the payment is to be
applied, the law provided the guideline--no
payment is to be made to a debt that is not yet
due[26] and the payment has to be applied first to
the debt most onerous to the debtor.[27]
In the instant case, the purchase price of the
eight (8) heavy equipment was not yet due at the
time the payment was made, for there was no
date set for such payment. Neither was there a LYDIA P. CUBA, petitioner, vs. COURT OF
demand by the creditor to make the obligation to
pay the purchase price due and demandable.
[28]
Hence, the application made by respondent is
contrary to the provisions of the law.
The lease over the Fairview wet market
property is the most onerous among all the
obligations of petitioner to respondent. It was
established that the wet market is a going-
concern and that petitioner has invested about
P35,000,000.00, in the form of improvements,
on the property. Hence, petitioner would stand to
lose more if the lease would be rescinded, than if
the contract of sale of heavy equipment would
not proceed.
The decision of the Court of Appeals was
based on a misapprehension of the facts and the
law on the application of payment. Hence, the
ejectment case subject of the instant petition
must be dismissed, without prejudice to the
determination and settlement of the money
claims of the parties inter se.
WHEREFORE, the Court GRANTS the
petition. The Court REVERSES and
SETS ASIDE the decision of the Court of
Appeals in CA-G. R. SP No. 34634.
ACCORDINGLY, the Court REVERSES
the decision of the Regional Trial Court, Quezon
City, Branch 220 in Civil Case No. 94-20813,
and dismisses the complaint filed with the
Metropolitan Trial Court, Quezon City, Branch
36 in Civil Case No. MTC XXXVI-7089.
No costs.
SO ORDERED.
[G.R. No. 118367. January 5, 1998]
APPEALS, DEVELOPMENT BANK OF
THE PHILIPPINES and AGRIPINA P.
CAPERAL, respondents.
DECISION
DAVIDE, JR., J.:
 These two consolidated cases stemmed
from a complaint[1] filed against the
Development Bank of the Philippines (hereafter
DBP) and Agripina Caperal filed by Lydia Cuba
(hereafter CUBA) on 21 May 1985 with the
Regional Trial Court of Pangasinan, Branch
54. The said complaint sought (1) the
declaration of nullity of DBPs appropriation of
CUBAs rights, title, and interests over a 44-
hectare fishpond located in Bolinao, Pangasinan,
for being violative of Article 2088 of the Civil
Code; (2) the annulment of the Deed of
Conditional Sale executed in her favor by DBP;
(3) the annulment of DBPs sale of the subject
fishpond to Caperal; (4) the restoration of her
rights, title, and interests over the fishpond; and
(5) the recovery of damages, attorneys fees, and
expenses of litigation.
After the joinder of issues following the
filing by the parties of their respective pleadings,
the trial court conducted a pre-trial where CUBA
and DBP agreed on the following facts, which
were embodied in the pre-trial order:[2]
1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond
Lease Agreement No. 2083 (new) dated May 13,
1974 from the Government;
2. Plaintiff Lydia P. Cuba obtained loans from the
Development Bank of the Philippines in the
amounts of P109,000.00; P109,000.00;
and P98,700.00 under the terms stated in the
Promissory Notes dated September 6, 1974;
August 11, 1975; and April 4, 1977;
3. As security for said loans, plaintiff Lydia P. Cuba
executed two Deeds of Assignment of her
Leasehold Rights;
4. Plaintiff failed to pay her loan on the scheduled
dates thereof in accordance with the terms of the
Promissory Notes;
5. Without foreclosure proceedings, whether judicial
or extra-judicial, defendant DBP appropriated
the Leasehold Rights of plaintiff Lydia Cuba
over the fishpond in question;
6. After defendant DBP has appropriated the
Leasehold Rights of plaintiff Lydia Cuba over
the fishpond in question, defendant DBP, in turn,
executed a Deed of Conditional Sale of the
Leasehold Rights in favor of plaintiff Lydia
Cuba over the same fishpond in question;
7. In the negotiation for repurchase, plaintiff Lydia
Cuba addressed two letters to the Manager DBP,
Dagupan City dated November 6, 1979 and
December 20, 1979. DBP thereafter accepted the
offer to repurchase in a letter addressed to
plaintiff dated February 1, 1982;
8. After the Deed of Conditional Sale was executed in
favor of plaintiff Lydia Cuba, a new Fishpond
Lease Agreement No. 2083-A dated March 24,
1980 was issued by the Ministry of Agriculture
and Food in favor of plaintiff Lydia Cuba only,
excluding her husband;
9. Plaintiff Lydia Cuba failed to pay the amortizations
stipulated in the Deed of Conditional Sale;
10. After plaintiff Lydia Cuba failed to pay the
amortization as stated in Deed of Conditional
Sale, she entered with the DBP a temporary
arrangement whereby in consideration for the
deferment of the Notarial Rescission of Deed of
Conditional Sale, plaintiff Lydia Cuba promised
to make certain payments as stated in temporary
Arrangement dated February 23, 1982;
11. Defendant DBP thereafter sent a Notice of
Rescission thru Notarial Act dated March 13,
1984, and which was received by plaintiff Lydia
Cuba;
12. After the Notice of Rescission, defendant DBP
took possession of the Leasehold Rights of the
fishpond in question;
13. That after defendant DBP took possession of the
Leasehold Rights over the fishpond in question,
DBP advertised in the SUNDAY PUNCH the
public bidding dated June 24, 1984, to dispose
of the property;
14. That the DBP thereafter executed a Deed of
Conditional Sale in favor of defendant Agripina
Caperal on August 16, 1984;
15. Thereafter, defendant Caperal was awarded
Fishpond Lease Agreement No. 2083-A on
December 28, 1984 by the Ministry of
Agriculture and Food.
Defendant Caperal admitted only the facts
stated in paragraphs 14 and 15 of the pre-trial
order. [3]
Trial was thereafter had on other matters.
The principal issue presented was whether
the act of DBP in appropriating to itself CUBAs
leasehold rights over the fishpond in question
without foreclosure proceedings was contrary to
Article 2088 of the Civil Code and, therefore,
invalid. CUBA insisted on an affirmative
resolution. DBP stressed that it merely exercised
its contractual right under the Assignments of
Leasehold Rights, which was not a contract of
mortgage. Defendant Caperal sided with DBP.
The trial court resolved the issue in favor of
CUBA by declaring that DBPs taking possession
and ownership of the property without
foreclosure was plainly violative of Article 2088
of the Civil Code which provides as follows:
ART. 2088. The creditor cannot appropriate the
things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary
is null and void.
It disagreed with DBPs stand that the
Assignments of Leasehold Rights were
not contracts of mortgage because (1) they were
given as security for loans, (2) although the
fishpond land in question is still a public land,
CUBAs leasehold rights and interest thereon are
alienable rights which can be the proper subject
of a mortgage; and (3) the intention of the
contracting parties to treat the Assignment of
Leasehold Rights as a mortgage was obvious
and unmistakable; hence, upon CUBAs default,
DBPs only right was to foreclose the
Assignment in accordance with law.
The trial court also declared invalid
condition no. 12 of the Assignment of Leasehold
Rights for being a clear case of pactum
commissorium expressly prohibited and declared
null and void by Article 2088 of the Civil
Code. It then concluded that since DBP never
acquired lawful ownership of CUBAs leasehold
rights, all acts of ownership and possession by
the said bank were void. Accordingly, the Deed
of Conditional Sale in favor of CUBA, the
notarial rescission of such sale, and the Deed of
Conditional Sale in favor of defendant Caperal,
as well as the Assignment of Leasehold Rights
executed by Caperal in favor of DBP, were also
void and ineffective.
As to damages, the trial court found ample
evidence on record that in 1984 the
representatives of DBP ejected CUBA and her
caretakers not only from the fishpond area but
also from the adjoining big house; and that when
CUBAs son and caretaker went there on 15
September 1985, they found the said house
unoccupied and destroyed and CUBAs personal
belongings, machineries, equipment, tools, and
other articles used in fishpond operation which
were kept in the house were missing. The
 missing items were valued at about P550,000. It
further found that when CUBA and her men
were ejected by DBP for the first time in 1979,
CUBA had stocked the fishpond with 250,000
pieces of bangus fish (milkfish), all of which
died because the DBP representatives prevented
CUBAs men from feeding the fish. At the
conservative price of P3.00 per fish, the gross
value would have been P690,000, and after
deducting 25% of said value as reasonable
allowance for the cost of feeds, CUBA suffered
a loss of P517,500. It then set the aggregate of
the actual damages sustained by CUBA
at P1,067,500.
The trial court further found that DBP was
guilty of gross bad faith in falsely representing
to the Bureau of Fisheries that it had foreclosed
its mortgage on CUBAs leasehold rights. Such
representation induced the said Bureau to
terminate CUBAs leasehold rights and to
approve the Deed of Conditional Sale in favor of
CUBA. And considering that by reason of her
unlawful ejectment by DBP, CUBA suffered
moral shock, degradation, social humiliation,
and serious anxieties for which she became sick
and had to be hospitalized the trial court found
her entitled to moral and exemplary
damages. The trial court also held that CUBA
was entitled to P100,000 attorneys fees in view
of the considerable expenses she incurred for
lawyers fees and in view of the finding that she
was entitled to exemplary damages.
In its decision of 31 January 1990, [4]
the
trial court disposed as follows:
WHEREFORE, judgment is hereby rendered in
favor of plaintiff:
1. DECLARING null and void and without any legal
effect the act of defendant Development Bank of
the Philippines in appropriating for its own
interest, without any judicial or extra-judicial
foreclosure, plaintiffs leasehold rights and
interest over the fishpond land in question under
her Fishpond Lease Agreement No. 2083 (new);
2. DECLARING the Deed of Conditional Sale dated
February 21, 1980 by and between the defendant
Development Bank of the Philippines and
plaintiff (Exh. E and Exh. 1) and the acts of
notarial rescission of the Development Bank of
the Philippines relative to said sale (Exhs. 16
and 26) as void and ineffective;
3. DECLARING the Deed of Conditional Sale dated
August 16, 1984 by and between
the Development Bank of the Philippines and
defendant Agripina Caperal (Exh. F and Exh.
21), the Fishpond Lease Agreement No. 2083-A
dated December 28, 1984 of defendant Agripina
Caperal (Exh. 23) and the Assignment of
Leasehold Rights dated February 12, 1985
executed by defendant Agripina Caperal in favor
of the defendant Development Bank of the
Philippines (Exh. 24) as void ab initio;
4. ORDERING defendant Development Bank of the
Philippines and defendant Agripina Caperal,
jointly and severally, to restore to plaintiff the
latters leasehold rights and interests and right of
possession over the fishpond land in question,
without prejudice to the right of defendant
Development Bank of the Philippines to
foreclose the securities given by plaintiff;
5. ORDERING defendant Development Bank of the
Philippines to pay to plaintiff the following
amounts:
a) The sum of ONE MILLION SIXTY-SEVEN
THOUSAND FIVE HUNDRED PESOS
(P1,067,500.00), as and for actual damages;
b) The sum of ONE HUNDRED THOUSAND
(P100,000.00) PESOS as moral damages;
 c) The sum of FIFTY THOUSAND (P50,000.00)
PESOS, as and for exemplary damages;
d) And the sum of ONE HUNDRED THOUSAND
(P100,000.00) PESOS, as and for attorneys fees;
6. And ORDERING defendant Development Bank of
the Philippines to reimburse and pay to
defendant Agripina Caperal the sum of ONE
MILLION FIVE HUNDRED THIRTY-TWO
THOUSAND SIX HUNDRED TEN PESOS
AND SEVENTY-FIVE CENTAVOS
(P1,532,610.75) representing the amounts paid
by defendant Agripina Caperal to defendant
Development Bank of the Philippines under
their Deed of Conditional Sale.
CUBA and DBP interposed separate
appeals from the decision to the Court of
Appeals. The former sought an increase in the
amount of damages, while the latter questioned
the findings of fact and law of the lower court.
In its decision [5] of 25 May 1994, the Court
of Appeals ruled that (1) the trial court erred in
declaring that the deed of assignment was null
and void and that defendant Caperal could not
validly acquire the leasehold rights from DBP;
(2) contrary to the claim of DBP, the assignment
was not a cession under Article 1255 of the Civil
Code because DBP appeared to be the sole
creditor to CUBA - cession presupposes
plurality of debts and creditors; (3) the deeds of
assignment represented the voluntary act of
CUBA in assigning her property rights in
payment of her debts, which amounted to a
novation of the promissory notes executed by
CUBA in favor of DBP; (4) CUBA was
estopped from questioning the assignment of the
leasehold rights, since she agreed to repurchase
the said rights under a deed of conditional sale;
and (5) condition no. 12 of the deed of
assignment was an express authority from
CUBA for DBP to sell whatever right she had
over the fishpond. It also ruled that CUBA was
not entitled to loss of profits for lack
of evidence, but agreed with the trial court as to
the actual damages of P1,067,500. It, however,
deleted the amount of exemplary damages and
reduced the award of moral damages
from P100,000 to P50,000 and attorneys fees,
from P100,000 to P50,000.
The Court of Appeals thus declared as valid
the following: (1) the act of DBP in
appropriating Cubas leasehold rights and interest
under Fishpond Lease Agreement No. 2083; (2)
the deeds of assignment executed by Cuba in
favor of DBP; (3) the deed of conditional sale
between CUBA and DBP; and (4) the deed of
conditional sale between DBP and Caperal, the
Fishpond Lease Agreement in favor of Caperal,
and the assignment of leasehold rights executed
by Caperal in favor of DBP. It then ordered DBP
to turn over possession of the property to
Caperal as lawful holder of the leasehold rights
and to pay CUBA the following amounts:
(a) P1,067,500 as actual damages; P50,000 as
moral damages; and P50,000 as attorneys fees.
Since their motions for reconsideration
were denied,[6] DBP and CUBA filed separate
petitions for review.
In its petition (G.R. No. 118342), DBP
assails the award of actual and moral damages
and attorneys fees in favor of CUBA.
Upon the other hand, in her petition (G.R.
No. 118367), CUBA contends that the Court of
Appeals erred (1) in not holding that the
questioned deed of assignment was a pactum
commissorium contrary to Article 2088 of the
Civil Code; (b) in holding that the deed of
assignment effected a novation of the
promissory notes; (c) in holding that CUBA was
estopped from questioning the validity of the
deed of assignment when she agreed to
repurchase her leasehold rights under a deed of
conditional sale; and (d) in reducing the amounts
of moral damages and attorneys fees, in deleting
the award of exemplary damages, and in not
increasing the amount of damages.
We agree with CUBA that the assignment
of leasehold rights was a mortgage contract.
It is undisputed that CUBA obtained from
DBP three separate loans totalling P335,000,
each of which was covered by a promissory
note. In all of these notes, there was a provision
that: In the event of foreclosure of the mortgage
securing this notes, I/We further bind
myself/ourselves, jointly and severally, to pay
the deficiency, if any. [7]
Simultaneous with the execution of the
notes was the execution of Assignments of
Leasehold Rights [8] where CUBA assigned her
leasehold rights and interest on a 44-hectare
fishpond, together with the improvements
thereon. As pointed out by CUBA, the deeds of
assignment constantly referred to the assignor
(CUBA) as borrower; the assigned rights, as
mortgaged properties; and the instrument itself,
as mortgage contract. Moreover, under condition
no. 22 of the deed, it was provided that failure to
comply with the terms and condition of any of
the loans shall cause all other loans to become
due and demandable and all mortgages shall be
foreclosed. And, condition no. 33 provided that
if foreclosure is actually accomplished, the usual
10% attorneys fees and 10% liquidated damages
of the total obligation shall be imposed. There is,
therefore, no shred of doubt that a mortgage was
intended.
Besides, in their stipulation of facts the
parties admitted that the assignment was by way
of security for the payment of the loans; thus:
3. As security for said loans, plaintiff Lydia P. Cuba
executed two Deeds of Assignment of her
Leasehold Rights.
In Peoples Bank & Trust Co. vs. Odom,
[9]
this Court had the occasion to rule that an
assignment to guarantee an obligation is in effect
a mortgage.
We find no merit in DBPs contention that
the assignment novated the promissory notes in
that the obligation to pay a sum of money the
loans (under the promissory notes) was
substituted by the assignment of the rights over
the fishpond (under the deed of assignment). As
correctly pointed out by CUBA, the said
assignment merely complemented or
supplemented the notes; both could stand
together. The former was only an accessory to
the latter. Contrary to DBPs submission, the
obligation to pay a sum of money remained, and
the assignment merely served as security for the
loans covered by the promissory
notes. Significantly, both the deeds of
assignment and the promissory notes were
executed on the same dates the loans were
granted. Also, the last paragraph of the
assignment stated: The assignor further reiterates
and states all terms, covenants, and conditions
stipulated in the promissory note or notes
covering the proceeds of this loan, making said
promissory note or notes, to all intent and
purposes, an integral part hereof.
Neither did the assignment amount to
payment by cession under Article 1255 of the
Civil Code for the plain and simple reason that
there was only one creditor, the DBP. Article
1255 contemplates the existence of two or more
creditors and involves the assignment of all the
debtors property.
Nor did the assignment constitute dation in
payment under Article 1245 of the civil Code,
which reads: Dation in payment, whereby
property is alienated to the creditor in
satisfaction of a debt in money, shall be
governed by the law on sales. It bears stressing
that the assignment, being in its essence a
mortgage, was but a security and not a
satisfaction of indebtedness.[10]
We do not, however, buy CUBAs argument
that condition no. 12 of the deed of assignment
constituted pactum commissorium. Said
condition reads:
12. That effective upon the breach of any
condition of this assignment, the Assignor
hereby appoints the Assignee his Attorney-in-
fact with full power and authority to take actual
possession of the property above-described,
together with all improvements thereon, subject
to the approval of the Secretary of Agriculture
and Natural Resources, to lease the same or any
portion thereof and collect rentals, to make
repairs or improvements thereon and pay the
same, to sell or otherwise dispose of whatever
rights the Assignor has or might have over said
property and/or its improvements and perform
any other act which the Assignee may deem
convenient to protect its interest. All expenses
advanced by the Assignee in connection with
purpose above indicated which shall bear the
same rate of interest aforementioned are also
guaranteed by this Assignment. Any amount
received from rents, administration, sale or
disposal of said property may be supplied by the
Assignee to the payment of repairs,
improvements, taxes, assessments and other
incidental expenses and obligations and the
balance, if any, to the payment of interest and
then on the capital of the indebtedness secured
hereby. If after disposal or sale of said property
and upon application of total amounts received
there shall remain a deficiency, said Assignor
hereby binds himself to pay the same to the
Assignee upon demand, together with all interest
thereon until fully paid. The power herein
granted shall not be revoked as long as the
Assignor is indebted to the Assignee and all acts
that may be executed by the Assignee by virtue
of said power are hereby ratified.
The elements of pactum commissorium are
as follows: (1) there should be a property
mortgaged by way of security for the payment of
the principal obligation, and (2) there should be
a stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of non-
payment of the principal obligation within the
stipulated period.[11]
Condition no. 12 did not provide that the
ownership over the leasehold rights would
automatically pass to DBP upon CUBAs failure
to pay the loan on time. It merely provided for
the appointment of DBP as attorney-in-fact with
authority, among other things, to sell or
otherwise dispose of the said real rights, in case
of default by CUBA, and to apply the proceeds
to the payment of the loan. This provision is a
standard condition in mortgage contracts and is
in conformity with Article 2087 of the Civil
Code, which authorizes the mortgagee to
foreclose the mortgage and alienate the
mortgaged property for the payment of the
principal obligation.
DBP, however, exceeded the authority
vested by condition no. 12 of the deed of
assignment. As admitted by it during the pre-
trial, it had [w]ithout foreclosure proceedings,
whether judicial or extrajudicial, appropriated
the [l]easehold [r]ights of plaintiff Lydia Cuba
over the fishpond in question. Its contention that
it limited itself to mere administration by
posting caretakers is further belied by the deed
of conditional sale it executed in favor of
CUBA. The deed stated:
WHEREAS, the Vendor [DBP] by virtue of a
deed of assignment executed in its favor by the
herein vendees [Cuba spouses] the
former acquired all the rights and interest of the
latter over the above-described property;
The title to the real estate property [sic] and all
improvements thereon shall remain in the name
of the Vendor until after the purchase price,
advances and interest shall have been fully paid.
(Emphasis supplied).
It is obvious from the above-quoted
paragraphs that DBP had appropriated and taken
ownership of CUBAs leasehold rights merely on
the strength of the deed of assignment.
DBP cannot take refuge in condition no. 12
of the deed of assignment to justify its act of
appropriating the leasehold rights. As stated
earlier, condition no. 12 did not provide that
CUBAs default would operate to vest in DBP
ownership of the said rights. Besides, an
assignment to guarantee an obligation, as in the
present case, is virtually a mortgage and not an
absolute conveyance of title which confers
ownership on the assignee.[12]
At any rate, DBPs act of appropriating
CUBAs leasehold rights was violative of Article
2088 of the Civil Code, which forbids a creditor
from appropriating, or disposing of, the thing
given as security for the payment of a debt.
The fact that CUBA offered and agreed to
repurchase her leasehold rights from DBP did
not estop her from questioning DBPs act of
appropriation. Estoppel is unavailing in this
case.As held by this Court in some cases,
[13]
estoppel cannot give validity to an act that is
prohibited by law or against public
policy. Hence, the appropriation of the leasehold
rights, being contrary to Article 2088 of the
Civil Code and to public policy, cannot be
deemed validated by estoppel.
Instead of taking ownership of the
questioned real rights upon default by CUBA,
DBP should have foreclosed the mortgage, as
has been stipulated in condition no. 22 of the
deed of assignment. But, as admitted by DBP,
there was no such foreclosure. Yet, in its letter
dated 26 October 1979, addressed to the
Minister of Agriculture and Natural Resources
and coursed through the Director of the Bureau
of Fisheries and Aquatic Resources, DBP
declared that it had foreclosed the mortgage and
enforced the assignment of leasehold rights on
March 21, 1979 for failure of said spouses
[Cuba spouces] to pay their loan amortizations.
[14]
This only goes to show that DBP was aware
of the necessity of foreclosure proceedings.
In view of the false representation of DBP
that it had already foreclosed the mortgage, the
Bureau of Fisheries cancelled CUBAs original
lease permit, approved the deed of conditional
sale, and issued a new permit in favor of
CUBA. Said acts which were predicated on such
false representation, as well as the subsequent
acts emanating from DBPs appropriation of the
leasehold rights, should therefore be set
aside. To validate these acts would open the
floodgates to circumvention of Article 2088 of
the Civil Code.
Even in cases where foreclosure
proceedings were had, this Court had not
hesitated to nullify the consequent auction sale
for failure to comply with the requirements laid
down by law, such as Act No. 3135, as amended.
[15]
With more reason that the sale of property
given as security for the payment of a debt be set
aside if there was no prior foreclosure
proceeding.
Hence, DBP should render an accounting of
the income derived from the operation of the
fishpond in question and apply the said income
in accordance with condition no. 12 of the deed
of assignment which provided: Any amount
received from rents, administration, may be
applied to the payment of repairs,
improvements, taxes, assessment, and other
incidental expenses and obligations and the
balance, if any, to the payment of interest and
then on the capital of the indebtedness.
We shall now take up the issue of damages.
Article 2199 provides:
Except as provided by law or by stipulation, one
is entitled to an adequate compensation only for
such pecuniary loss suffered by him as he has
duly proved. Such compensation is referred to as
actual or compensatory damages.
Actual or compensatory damages cannot be
presumed, but must be proved with reasonable
degree of certainty.[16] A court cannot rely on
speculations, conjectures, or guesswork as to the
fact and amount of damages, but must depend
upon competent proof that they have been
suffered by the injured party and on the best
obtainable evidence of the actual amount
thereof.[17] It must point out specific facts which
could afford a basis for measuring whatever
compensatory or actual damages are borne. [18]
In the present case, the trial court awarded
in favor of CUBA P1,067,500 as actual damages
consisting of P550,000 which represented the
value of the alleged lost articles of CUBA
and P517,500 which represented the value of the
230,000 pieces of bangus allegedly stocked in
1979 when DBP first ejected CUBA from the
fishpond and the adjoining house. This award
was affirmed by the Court of Appeals.
We find that the alleged loss of personal
belongings and equipment was not proved by
clear evidence. Other than the testimony of
CUBA and her caretaker, there was no proof as
to the existence of those items before DBP took
over the fishpond in question. As pointed out by
DBP, there was not inventory of the alleged lost
items before the loss which is normal in a
project which sometimes, if not most often, is
left to the care of other persons. Neither was a
single receipt or record of acquisition presented.
Curiously, in her complaint dated 17 May
1985, CUBA included losses of property as
among the damages resulting from DBPs take-
over of the fishpond. Yet, it was only in
September 1985 when her son and a caretaker
went to the fishpond and the adjoining house
that she came to know of the alleged loss of
several articles. Such claim for losses of
property, having been made before knowledge of
the alleged actual loss, was therefore
speculative. The alleged loss could have been a
mere afterthought or subterfuge to justify her
claim for actual damages.
With regard to the award of P517,000
representing the value of the alleged 230,000
pieces of bangus which died when DBP took
possession of the fishpond in March 1979, the
same was not called for. Such loss was not duly
proved; besides, the claim therefor was delayed
unreasonably. From 1979 until after the filing of
her complaint in court in May 1985, CUBA did
not bring to the attention of DBP the alleged
loss. In fact, in her letter dated 24 October 1979,
[19]
she declared:
1. That from February to May 1978, I was then
seriously ill in Manila and within the same
period I neglected the management and
supervision of the cultivation and harvest of the
produce of the aforesaid fishpond thereby
resulting to the irreparable loss in the produce of
the same in the amount of about P500,000.00 to
my great damage and prejudice due to fraudulent
acts of some of my fishpond workers.
Nowhere in the said letter, which was
written seven months after DBP took possession
of the fishpond, did CUBA intimate that upon
DBPs take-over there was a total of 230,000
pieces of bangus, but all of which died because
of DBPs representatives prevented her men from
feeding the fish.
The award of actual damages should,
therefore, be struck down for lack of sufficient
basis.
In view, however, of DBPs act of
appropriating CUBAs leasehold rights which
was contrary to law and public policy, as well as
its false representation to the then Ministry of
Agriculture and Natural Resources that it had
foreclosed the mortgage, an award of moral
damages in the amount of P50,000 is in order
conformably with Article 2219(10), in relation
to Article 21, of the Civil Code. Exemplary or
corrective damages in the amount of P25,000
should likewise be awarded by way of example
or correction for the public good. [20] There being
an award of exemplary damages, attorneys fees
are also recoverable.[21]
WHEREFORE, the 25 May 1994
Decision of the Court of Appeals in CA-G.R.
CV No. 26535 is hereby REVERSED, except as
to the award of P50,000 as moral damages,
which is hereby sustained. The 31 January 1990
Decision of the Regional Trial Court of
Pangasinan, Branch 54, in Civil Case No. A-
1574 is MODIFIED setting aside the finding
that condition no. 12 of the deed of assignment
constituted pactum commissorium and the award
of actual damages; and by reducing the amounts
of moral damages from P100,000 to P50,000;
the exemplary damages, from P50,000
to P25,000; and the attorneys fees,
from P100,000 to P20,000. The Development
Bank of the Philippines is hereby ordered to
render an accounting of the income derived from
the operation of the fishpond in question.
Let this case be REMANDED to the trial
court for the reception of the income statement
of DBP, as well as the statement of the account
of Lydia P. Cuba, and for the determination of
each partys financial obligation to one another.
SO ORDERED. Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-50449 January 30, 1982
FILINVEST CREDIT
CORPORATION, plaintiff-appellee,
vs.
PHILIPPINE ACETYLENE, CO.,
INC., defendant-appellant.
DE CASTRO, J.:
This case is certified to Us by the Court of
Appeals in its Resolution 1 dated March 22,
1979 on the ground that it involves purely
questions of law, as raised in the appeal of the
decision of the Court of First Instance of Manila,
Branch XII in Civil Case No. 91932, the
dispositive portion of which reads as follows:
In view of the foregoing consideration, the court
hereby renders judgment -
l) directing defendant to pay plaintiff:
a) the sum of P22,227.81 which is the
outstanding unpaid obligation of the defendant
under the assigned credit, with 12 %interest
from the date of the firing of the complaint in
this suit until the same is fully paid;
b) the sum equivalent to l5% of P22,227.81 as
and for attorney's fees; and
2) directing plaintiff to deliver to, and defendant
to accept, the motor vehicle, subject of the
chattel may have been changed by the result of
ordinary wear and tear of the vehicle.
Defendant to pay the cost of suit.
SO ORDERED.
The facts, as found in the decision 2 subject of
the instant appeal, are undisputed.
On October 30, 1971, the Philippine Acetylene
Co., Inc., defendant-appellant herein, purchased
from one Alexander Lim, as evidenced by a
Deed of Sale marked as Exhibit G, a motor
vehicle described as Chevorlet, 1969 model with
Serial No. 136699Z303652 for P55,247.80 with
a down payment of P20,000.00 and the balance
of P35,247.80 payable, under the terms and
conditions of the promissory note (Exh. B), at a
monthly installment of P1,036.70 for thirty-four
(34) months, due and payable on the first day of
each month starting December 1971 through and
inclusive September 1, 1974 with 12 % interest
per annum on each unpaid installment, and
attorney's fees in the amount equivalent to 25%
of the total of the outstanding unpaid amount.
As security for the payment of said promissory
note, the appellant executed a chattel mortgage
(Exh. C) over the same motor vehicle in favor of
said Alexander Lim. Subsequently, on
November 2, 1971. Alexander Lim assigned to
the Filinvest Finance Corporation all his rights,
title, and interests in the promissory note and
chattel mortgage by virtue of a Deed of
Assignment (Exh. D).
Thereafter, the Filinvest Finance Corporation, as
a consequence of its merger with the Credit and
Development Corporation assigned to the new
corporation, the herein plaintiff-appellee
Filinvest Credit Corporation, all its rights, title,
and interests on the aforesaid promissory note
and chattel mortgage (Exh. A) which, in effect,
the payment of the unpaid balance owed by
defendant-appellant to Alexander Lim was
financed by plaintiff-appellee such that Lim
became fully paid.
Appellant failed to comply with the terms and
conditions set forth in the promissory note and
chattel mortgage since it had defaulted in the
payment of nine successive installments.
Appellee then sent a demand letter (Exh. 1)
whereby its counsel demanded "that you
(appellant) remit the aforesaid amount in full in
addition to stipulated interest and charges or
return the mortgaged property to my client at its
office at 2133 Taft Avenue, Malate, Manila
within five (5) days from date of this letter
during office hours. " Replying thereto,
appellant, thru its assistant general- manager,
wrote back (Exh. 2) advising appellee of its
decision to "return the mortgaged property,
which return shall be in full satisfaction of its
indebtedness pursuant to Article 1484 of the
New Civil Code." Accordingly, the mortgaged
vehicle was returned to the appellee together
with the document "Voluntary Surrender with
Special Power of Attorney To Sell" 3 executed
by appellant on March 12, 1973 and confirmed
to by appellee's vice-president.
On April 4, 1973, appellee wrote a letter (Exh.
H) to appellant informing the latter that appellee
cannot sell the motor vehicle as there were
unpaid taxes on the said vehicle in the sum of
P70,122.00. On the last portion of the said letter,
appellee requested the appellant to update its
account by paying the installments in arrears and
accruing interest in the amount of P4,232.21 on
or before April 9, 1973.
On May 8, 1973, appellee, in a letter (Exh. 1),
offered to deliver back the motor vehicle to the
appellant but the latter refused to accept it, so
appellee instituted an action for collection of a
sum of money with damages in the Court of
First Instance of Manila on September 14, 1973.
In its answer, appellant, while admitting the
material allegations of the appellee's complaint,
avers that appellee has no cause of action against
it since its obligation towards the appellee was
extinguished when in compliance with the
appellee's demand letter, it returned the
mortgaged property to the appellee, and that
assuming arguendo that the return of the
property did not extinguish its obligation, it was
nonetheless justified in refusing payment since
the appellee is not entitled to recover the same
due to the breach of warranty committed by the
original vendor-assignor Alexander Lim.
After the case was submitted for decision, the
Court of First Instance of Manila, Branch XII
rendered its decision dated February 25, 1974
which is the subject of the instant appeal in this
Court.
Appellant's five assignment of errors may be
reduced to, or said to revolve around two issues:
first, whether or not the return of the mortgaged
motor vehicle to the appellee by virtue of its
voluntary surrender by the appellant totally
extinguished and/or cancelled its obligation to
the appellee; second, whether or not the
warranty for the unpaid taxes on the mortgaged
motor vehicle may be properly raised and
imputed to or passed over to the appellee.
Consistent with its stand in the court a quo,
appellant now reiterates its main contention that
appellee, after giving appellant an option either
to remit payment in full plus stipulated interests
and charges or return the mortgaged motor
vehicle, had elected the alternative remedy of
exacting fulfillment of the obligation, thus,
precluding the exercise of any other remedy
provided for under Article 1484 of the Civil
Code of the Philippines which reads:
Article 1484. Civil Code. - In a contract of sale
of personal property the price of which is
payable in installments, the vendor may exercise
any of the following remedies:
1) Exact fulfillment of the obligation, should the
vendee fail to pay;
2) Cancel the sale, should the vendee's failure to
pay cover two or more installments;
3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
vendee's failure to pay cover two or more
installments. In this case, he shall have no
further action against the purchaser to recover
any unpaid balance of the price. Any agreement
to the contrary shall be void.
In support of the above contention, appellant
maintains that when it opted to return, as in fact
it did return, the mortgaged motor vehicle to the
appellee, said return necessarily had the effect of
extinguishing appellant's obligation for the
unpaid price to the appellee, construing the
return to and acceptance by the appellee of the
mortgaged motor vehicle as a mode of payment,
specifically, dation in payment or dacion en
pago which according to appellant, virtually
made appellee the owner of the mortgaged
motor vehicle by the mere delivery thereof,
citing Articles 1232, 1245, and 1497 of the Civil
Code, to wit:
Article 1232. Payment means not only the
delivery of money but also the performance, in
any manner, of an obligation.
xxx xxx xxx
Article 1245. Dation in payment, whereby
property is alienated to the creditor in
satisfaction of a debt in money, shall be
governed by the law of sales.
xxx xxx xxx
Article 1497. The thing sold shall be understood
as delivered, when it is placed in the control and
possession of the vendee.
Passing at once on the relevant issue raised in
this appeal, We find appellant's contention
devoid of persuasive force. The mere return of
the mortgaged motor vehicle by the mortgagor,
the herein appellant, to the mortgagee, the herein
appellee, does not constitute dation in payment
or dacion en pago in the absence, express or
implied of the true intention of the
parties. Dacion en pago, according to Manresa,
is the transmission of the ownership of a thing
by the debtor to the creditor as an accepted
equivalent of the performance of
obligation. 4 In dacion en pago, as a special
mode of payment, the debtor offers another
thing to the creditor who accepts it as equivalent
of payment of an outstanding debt. The
undertaking really partakes in one sense of the
nature of sale, that is, the creditor is really
buying the thing or property of the debtor,
payment for which is to be charged against the
debtor's debt. As such, the essential elements of
a contract of sale, namely, consent, object
certain, and cause or consideration must be
present. In its modern concept, what actually
takes place in dacion en pago is an objective
novation of the obligation where the thing
offered as an accepted equivalent of the
performance of an obligation is considered as
the object of the contract of sale, while the debt
is considered as the purchase price. 5 In any
case, common consent is an essential
prerequisite, be it sale or innovation to have the
effect of totally extinguishing the debt or
obligation.
The evidence on the record fails to show that the
mortgagee, the herein appellee, consented, or at
least intended, that the mere delivery to, and
acceptance by him, of the mortgaged motor
vehicle be construed as actual payment, more
specifically dation in payment or dacion en
pago. The fact that the mortgaged motor vehicle
was delivered to him does not necessarily mean
that ownership thereof, as juridically
contemplated by dacion en pago, was transferred
from appellant to appellee. In the absence of
clear consent of appellee to the proferred special
mode of payment, there can be no transfer of
ownership of the mortgaged motor vehicle from
appellant to appellee. If at all, only transfer of
possession of the mortgaged motor vehicle took
place, for it is quite possible that appellee, as
mortgagee, merely wanted to secure possession
to forestall the loss, destruction, fraudulent
transfer of the vehicle to third persons, or its
being rendered valueless if left in the hands of
the appellant.
A more solid basis of the true intention of the
parties is furnished by the document executed by
appellant captioned "Voluntary Surrender with
Special Power of Attorney To Sell" dated March
12, 1973, attached as Annex "C" of the
appellant's answer to the complaint. An
examination of the language of the document
reveals that the possession of the mortgaged
motor vehicle was voluntarily surrendered by
the appellant to the appellee authorizing the
latter to look for a buyer and sell the vehicle in
behalf of the appellant who retains ownership
thereof, and to apply the proceeds of the sale to
the mortgage indebtedness, with the undertaking
of the appellant to pay the difference, if any,
between the selling price and the mortgage
obligation. With the stipulated conditions as
stated, the appellee, in essence was constituted
as a mere agent to sell the motor vehicle which
was delivered to the appellee, not as its property,
for if it were, he would have full power of
disposition of the property, not only to sell it as
is the limited authority given him in the special
power of attorney. Had appellee intended to
completely release appellant of its mortgage
obligation, there would be no necessity of
executing the document captioned "Voluntary
Surrender with Special Power of Attorney To
Sell." Nowhere in the said document can We
find that the mere surrender of the mortgaged
motor vehicle to the appellee extinguished
appellant's obligation for the unpaid price.
Appellant would also argue that by accepting the
delivery of the mortgaged motor vehicle,
appellee is estopped from demanding payment
of the unpaid obligation. Estoppel would not he
since, as clearly set forth above, appellee never
accepted the mortgaged motor vehicle in full
satisfaction of the mortgaged debt.
Under the law, the delivery of possession of the
mortgaged property to the mortgagee, the herein
appellee, can only operate to extinguish
appellant's liability if the appellee had actually
caused the foreclosure sale of the mortgaged
property when it recovered possession
thereof. 6 It is worth noting that it is the fact of
foreclosure and actual sale of the mortgaged
chattel that bar the recovery by the vendor of
any balance of the purchaser's outstanding
obligation not satisfied by the sale. 7 As held by
this Court, if the vendor desisted, on his own
initiative, from consummating the auction sale,
such desistance was a timely disavowal of the
remedy of foreclosure, and the vendor can still
sue for specific performance. 8 This is exactly
what happened in the instant case.
On the second issue, there is no dispute that
there is an unpaid taxes of P70,122.00 due on
the mortgaged motor vehicle which, according
to appellant, liability for the breach of warranty
under the Deed of Sale is shifted to the appellee
who merely stepped into the shoes of the
assignor Alexander Lim by virtue of the Deed of
Assignment in favor of appellee. The Deed of
Sale between Alexander Lim and appellant and
the Deed of Assignment between Alexander Lim
and appellee are very clear on this point. There
is a specific provision in the Deed of Sale that
the seller Alexander Lim warrants the sale of the
motor vehicle to the buyer, the herein appellant,
to be free from liens and encumbrances. When
appellee accepted the assignment of credit from
the seller Alexander Lim, there is a specific
agreement that Lim continued to be bound by
the warranties he had given to the buyer, the
herein appellant, and that if it appears
subsequently that "there are such counterclaims,
offsets or defenses that may be interposed by the
debtor at the time of the assignment, such
counterclaims, offsets or defenses shall not
prejudice the FILINVEST FINANCE
CORPORATION and I (Alexander Lim) further
warrant and hold the said corporation free and
harmless from any such claims, offsets, or
defenses that may be availed of." 9
It must be noted that the unpaid taxes on the
motor vehicle is a burden on the property. Since
as earlier shown, the ownership of the
mortgaged property never left the mortgagor, the
herein appellant, the burden of the unpaid taxes
should be home by him, who, in any case, may
not be said to be without remedy under the law,
but definitely not against appellee to whom were
transferred only rights, title and interest, as such SO ORDERED.
is the essence of assignment of credit. 10

WHEREFORE, the judgment appealed from is

hereby affirmed in toto with costs against
defendant-appellant.