G.R. No.
L-69560 June 30, 1988 after deducting this amount, private respondent is still
THE INTERNATIONAL CORPORATE BANK
INC., petitioner,
vs.
THE IMMEDIATE APPELLATE COURT, HON. ZOILO
AGUINALDO, as presiding Judge of the Regional
Trial Court of Makati, Branch 143, NATIVIDAD M.
FAJARDO, and SILVINO R. PASTRANA, as Deputy
and Special Sheriff, respondents.
PARAS, J.:
This is a petition for review on certiorari of the Decision
of the Court of Appeals dated October 31, 1984 in AC-
G.R. SP No. 02912 entitled "THE INTERNATIONAL
CORPORATE BANK, INC. v. Hon. ZOILO AGUINALDO, et
al.," dismissing petitioner's petition for certiorari
against the Regional Trial Court of Makati (Branch 143)
for lack of merit, and of its Resolution dated January 7,
1985, denying petitioner's motion for reconsideration
of the aforementioned Decision.
Petitioner also prays that upon filing of the petition, a
restraining order be issued ex-parte, enjoining
respondents or any person acting in their behalf, from
enforcing or in any manner implementing the Order of
the respondent trial court dated February 13 and
March 9, 1984, and January 10 and January 11, 1985.
The facts of this case, as found by the trial court and
subsequently adopted by the Court of Appeals, are as
follows:
In the early part of 1980, private respondent secured
from petitioner's predecessors-in-interest, the then
Investment and Underwriting Corp. of the Philippines
and Atrium Capital Corp., a loan in the amount of
P50,000,000.00. To secure this loan, private
respondent mortgaged her real properties in Quiapo,
Manila and in San Rafael, Bulacan, which she claimed
have a total market value of P110,000,000.00. Of this
loan, only the amount of P20,000,000.00 was approved
for release. The same amount was applied to pay her
other obligations to petitioner, bank charges and fees.
Thus, private respondent's claim that she did not
receive anything from the approved loan.
On September 11, 1980, private respondent made a
money market placement with ATRIUM in the amount
of P1,046,253.77 at 17% interest per annum for a
period of 32 days or until October 13, 1980, its
maturity date. Meanwhile, private respondent allegedly
failed to pay her mortgaged indebtedness to the bank
so that the latter refused to pay the proceeds of the
money market placement on maturity but applied the
amount instead to the deficiency in the proceeds of the
auction sale of the mortgaged properties. With Atrium
being the only bidder, said properties were sold in its
favor for only P20,000,000.00. Petitioner claims that
Page 1 of 14
indebted in the amount of P6.81 million.
On November 17, 1982, private respondent filed a
complaint with the trial court against petitioner for
annulment of the sheriff's sale of the mortgaged
properties, for the release to her of the balance of her
loan from petitioner in the amount of P30,000,000,00,
and for recovery of P1,062,063.83 representing the
proceeds of her money market investment and for
damages. She alleges in her complaint, which was
subsequently amended, that the mortgage is not yet
due and demandable and accordingly the foreclosure
was illegal; that per her loan agreement with petitioner
she is entitled to the release to her of the balance of
the loan in the amount of P30,000,000.00; that
petitioner refused to pay her the proceeds of her
money market placement notwithstanding the fact that
it has long become due and payable; and that she
suffered damages as a consequence of petitioner's
illegal acts.
In its answer, petitioner denies private respondent's
allegations and asserts among others, that it has the
right to apply or set off private respondent's money
market claim of P1,062,063.83. Petitioner thus
interposes counterclaims for the recovery of
P5,763,741.23, representing the balance of its
deficiency claim after deducting the proceeds of the
money market placement, and for damages.
The trial court subsequently dismissed private
respondent's cause of action concerning the annulment
of the foreclosure sale, for lack of jurisdiction, but left
the other causes of action to be resolved after trial.
Private respondent then filed separate complaints in
Manila and in Bulacan for annulment of the foreclosure
sale of the properties in Manila and in Bulacan,
respectively.
On December 15, 1983, private respondent filed a
motion to order petitioner to release in her favor the
sum of P1,062,063.83, representing the proceeds of
the money market placement, at the time when she
had already given her direct testimony on the merits of
the case and was being cross-examined by counsel. On
December 24, 1983, petitioner filed an opposition
thereto, claiming that the proceeds of the money
market investment had already been applied to partly
satisfy its deficiency claim, and that to grant the
motion would be to render judgment in her favor
without trial and make the proceedings moot and
academic. However, at the hearing on February 9,
1984, counsel for petitioner and private respondent
jointly manifested that they were submitting for
resolution said motion as well as the opposition thereto
on the basis of the pleadings and of the evidence
which private respondent had already presented.
On February 13, 1984, respondent judge issued an
order granting the motion, as follows:
IN VIEW OF THE FOREGOING, the
defendant International Corporate Bank
 is hereby ordered to deliver to the
plaintiff Natividad M. Pajardo the
amount of P1,062,063.83 covered by
the repurchase agreement with Serial
No. AOY-14822 (Exhibit "A'), this
amount represented the principal of
P1,046,253.77 which the plaintiff held
including its interest as of October 13,
1980, conditioned upon the plaintiff
filing a bond amount to P1,062,063.83
to answer for all damages which the
said defendant bank may suffer in the
event that the Court should finally
decide that the plaintiff was not
entitled to the said amount.
Petitioner filed a motion for reconsideration to the
aforesaid order, asserting among other things that said
motion is not verified, and therefore a mere scrap of
paper. Private respondent however manifested that
since she testified in open court and was cross-
examined by counsel for petitioner on the motion for
release of the proceeds of the money market
placement, the defect had already been cured. On
March 9, 1984, the respondent judge issued an order
denying petitioner's motion for reconsideration. (CA
Decision, Rollo, pp. 109-111).
On March 13, 1984, petitioner filed a special civil action
for certiorari and prohibition with preliminary injunction
with the Court of Appeals, (a) for the setting aside and
annulment of the Orders dated February 13, 1984 and
March 9,1984, issued by the respondent trial court, and
(b) for an order commanding or directing the
respondent trial judge to desist from enforcing and/or
implementing and/or executing the aforesaid Orders.
The temporary restraining order prayed for was issued
by respondent Court of Appeals on March 22, 1984.
(Please see CA Decision, Rollo, p. 114, last paragraph).
In a decision rendered on October 31, 1984 (Rollo, pp.
109-14), the Court of Appeals dismissed said petition
finding—(a) that while the Motion for the release of the
proceeds of the money market investment in favor of
private respondent was not verified by her, that defect
was cured when she testified under oath to
substantiate her allegations therein: (b) that, petitioner
cannot validly claim it was denied due process for the
reason that it was given ample time to be heard, as it
was in fact heard when it filed an Opposition to the
motion and a motion for reconsideration; (c) that the
circumstances of this case prevent legal compensation
from taking place because the question of whether
private respondent is indebted to petitioner in the
amount of 6.81 million representing the deficiency
balance after the foreclosure of the mortgage executed
to secure the loan extended to her, is vigorously
disputed; (d) that the release of the proceeds of the
money market investment for private respondent will
not make the causes of action of the case pending
before the trial court moot and academic nor will it
cause irreparable damage to petitioner, private
respondent having filed her bond in the amount of
P1,062,063.83 to answer for all damages which the
former may suffer in the event that the court should
Page 2 of 14
finally decide that private respondent is not entitled to
the return of said amount (CA Decision, Rello, pp. 112-
114).
The dispositive portion of the aforementioned Decision
reads:
... We hold that the respondent court
cannot be successfully charged with
grave abuse of discretion amounting to
lack of jurisdiction when it issued its
Orders of February 13, 1984 and March
9, 1984, based as they are on a correct
appreciation of the import of the
parties' evidence and the applicable
law.
IN VIEW WHEREOF, the petition is
dismissed for lack of merit and the
temporary restraining order issued by
this Court on March 22, 1984 is lifted.
(Ibid., p. 114).
Petitioner moved for the reconsideration of the above
decision (Annex "S", Rollo, pp. 116-124), but for the
reason that the same failed to raise any issue that had
not been considered and passed upon by the
respondent Court of Appeals, it was denied in a
Resolution dated January 7, 1985 (CA Resolution, Rollo,
p. 126).
Having been affirmed by the Court of Appeals, the trial
court issued a Writ of Execution to implement its Order
of February 13, 1984 (Annex "BB", Rollo, p. 188) and
by virtue thereof, a levy was made on petitioner's
personal property consisting of 20 motor vehicles
(Annex "U", Rollo, p. 127).
On January 9, 1985, herein private respondent (then
plaintiff) filed in the trial court an ex-parte motion
praying that the four branches of the petitioner such
as: Baclaran Branch, Paranaque, Metro Manila; Ylaya
Branch, Divisoria, Metro Manila; Cubao Branch, Quezon
City and Binondo Branch, Sta. Cruz, Manila, be ordered
to pay the amount of P250,000.00 each, and the main
office of the petitioner bank at Paseo de Roxas, Makati,
Metro Manila, be ordered to pay the amount of
P62,063.83 in order to answer for the claim of private
respondent amounting to P1,062,063.83.
Thereupon, on January 10, 1985, the trial court issued
an Order (Annex "V", Rollo, p. 129) granting the above-
mentioned prayers.
Acting on the ex-parte motion by the plaintiff (now
private respondent), the trial court, on January 11,
1984, ordered the President of defendant International
Corporate Bank (now petitioner) and all its employees
and officials concemed to deliver to the sheriff the 20
motor vehicles levied by virtue of the Writ of Execution
dated December 12, 1984 (Annex "W", Rollo, p. 131).
The petitioner having failed to comply with the above-
cited Order, the respondent trial court issued two (2)
more Orders: the January 16, 1985 (Annex "CC," Rollo,
p. 190) and January 21, 1985 Orders (Annex "DD",
Rollo, p. 191), directing several employees mentioned
therein to show cause wily they should not be cited in
contempt.
Hence, this petition for review on certiorari with prayer
for a restraining order and for a writ of preliminary
injunction.
Three days after this petition was filed, or specifically
on January 18, 1985, petitioner filed an urgent motion
reiterating its prayer for the issuance of an ex-
parte restraining order (Rollo, p. 132).
Simultaneous with the filing of the present petition,
petitioner, as defendant, filed with the trial court
an ex-partemotion to suspend the implementation of
any and all orders and writs issued pursuant to Civil
Case No. 884 (Annex "A", Rollo, p. 135).
This Court's resolution dated January 21, 1985, without
giving due course to the petition, resolved (a) to
require the respondents to comment: (b) to issue,
effective immediately and until further orders from this
Court, a Temporary Restraining Order enjoining the
respondents from enforcing or in any manner
implementing the questioned Orders dated February
13, 1984, March 9, 1984, January 10, 1985 and January
11 and 16, 1985, issued in Civil Case No. 884.
The corresponding writ was issued on the same day
(Rollo, pp. 139-140).
As required, the Comment of private respondent was
filed on January 28, 1985 (Rollo, pp. 141- 150).
Thereafter, petitioner moved for leave to file a
supplemental petition on the ground that after it had
filed this present petition, petitioner discovered that
the bond filed with, and approved by, the respondent
lower court showed numerous material erasures,
alterations and/or additions (Rollo, p. 151), which the
issuing insurance company certified as having been
done without its authority or consent (Annex "Z", Rollo,
p. 178).
The Supplemental Petition was actually filed on
February 1, 1985 (Rollo, pp. 154-171). It pointed out
the erasures, alterations and/or additions in the bond
as follows:
a. below "Civil Case No. 884" after the
words, "Plaintiff's Bond," the phrase
"For Levying of Attachment" was
erased or deleted;
b. in lines 2 and 3 after the word
"order," the phrase "approving
Page 3 of 14
plaintiff's motion dated Dec. 15, 1983,
was inserted or added;
c. in line 3, the phrases "Of
attachment" and "ordered that a writ of
attachment issue' were erased or
deleted;
d also in line 3 after the words "the
court has" the phrase "approved the
Motion was likewise inserted or added;
e. in line 9, the phrase "and of the
levying of said attachment" was also
erased or deleted;
f. in line 13, the word "attachment" was
likewise erased or deleted;
g. also in line 13 after the deletion of
word "attachment" the phrase "release
of the P1,062,063.83 to the plaintiff
was similarly inserted or added."
Petitioner contended therein that in view of the
foregoing facts, the genuineness, due execution and
authenticity as well as the validity and enforceability of
the bond (Rello, p. 174) is now placed in issue and
consequently, the bond may successfully be
repudiated as falsified and, therefore, without any
force and effect and the bonding company may
thereby insist that it has been released from any
hability thereunder.
Also, petitioner pointed as error the respondent trial
court's motu proprio transferring Civil Case No. 884 to
the Manila Branch of the same Court arguing that
improper venue, as a ground for, and unless raised in,
a Motion to Dismiss, may be waived by the parties and
the court may not pre-empt the right of the parties to
agree between or among themselves as to the venue
of their choice in litigating their justiciable controversy
(Supplemental Petition, Rollo, p. 160).
On being required to comment thereon, (Rollo, p. 192)
private respondent countered (Rollo, pp. 193-198) that
bond forms are ready-prepared forms and the bonding
company used the form for "Levying of Attachment"
because the company has no ready-prepared form for
the kind of bond called for or required in Civil Case
884. Whatever deletions or additions appear on the
bond were made by the Afisco Insurance Corporation
itself for the purpose of accomplishing what was
required or intended.
Nonetheless, on May 7, 1985, private respondent filed
"Plaintiffs Bond" in the respondent trial court in the
amount of P1,062,063.83 a xerox copy of which was
furnished this Court (Rollo, p. 219), and noted in the
Court's Resolution dated May 29,1985 (Rollo, p. 225).
On March 11, 1985, petitioner was required to file a
Consolidated Reply (Rollo, p. 199) which was filed on
April 10, 1985 (Rollo, p. 201).
Thereafter, a Rejoinder (Rollo, p. 238) was filed by
private respondent on September 18, 1985 after Atty.
Advincula, counsel for private respondents was
required by this Court to show cause why he should not
be disciplinarily dealt with or held in contempt for his
failure to comply on time (Rollo, p. 226) and on August
19, 1985 said lawyer was finally admonished (Rollo, p.
229) for his failure to promptly apprise the Court of his
alleged non-receipt of copy of petitioner's reply, which
alleged non-receipt was vehemently denied by
petitioner in its Counter Manifestation (Rollo, p. 230)
filed on August 5, 1985.
Finally, on October 7, 1985, this petition was given due
course and both parties were required to submit
simultaneous memoranda (Rollo, p. 249) but before the
same were filed, petitioner moved for leave to file sur-
rejoinder (Rollo, p. 250), the sur-rejoinder was filed on
October 14,1985 (Rollo, pp. 252-254).
Petitioner's memorandum was filed on December 28,
1985 (Rollo, pp. 264-292) while that of private
respondent was submitted on January 10, 1986 (Rollo,
pp. 295-304).
Petitioner again moved for leave to file a Reply
Memorandum (Rollo, p. 307) which, despite permission
from this Court, was not filed and on August 22, 1986,
private respondent prayed for early resolution of the
petition (Rollo, p. 311).
In a resolution dated October 13, 1986 (Rollo, p. 314)
this case was transferred to the Second Division of this
Court, the same being assigned to a member of that
Division.
The crucial issue to be resolved in this case is whether
or not there can be legal compensation in the case at
bar.
Petitioner contends that after foreclosing the
mortgage, there is still due from private respondent as
deficiency the amount of P6.81 million against which it
has the right to apply or set off private respondent's
money market claim of P1,062,063.83.
The argument is without merit.
As correctly pointed out by the respondent Court of
Appeals —
Compensation shall take place when
two persons, in their own right, are
creditors and debtors of each other.
(Art. 1278, Civil Code). "When all the
requisites mentioned in Art. 1279 of
the Civil Code are present,
compensation takes effect by operation
Page 4 of 14
of law, even without the consent or
knowledge of the debtors." (Art. 1290,
Civil Code). Article 1279 of the Civil
Code requires among others, that in
order that legal compensation shall
take place, "the two debts be due" and
"they be liquidated and demandable."
Compensation is not proper where the
claim of the person asserting the set-
off against the other is not clear nor
liquidated; compensation cannot
extend to unliquidated, disputed claim
arising from breach of contract.
(Compañia General de Tabacos vs.
French and Unson, 39 Phil. 34; Lorenzo
& Martinez vs. Herrero, 17 Phil. 29).
There can be no doubt that petitioner
is indebted to private respondent in the
amount of P1,062,063.83 representing
the proceeds of her money market
investment. This is admitted. But
whether private respondent is indebted
to petitioner in the amount of P6.81
million representing the deficiency
balance after the foreclosure of the
mortgage executed to secure the loan
extended to her, is vigorously disputed.
This circumstance prevents legal
compensation from taking place. (CA
Decision, Rollo, pp. 112-113).
It must be noted that Civil Case No. 83-19717 is still
pending consideration at the RTC Manila, for
annulment of Sheriffs sale on extra-judicial foreclosure
of private respondent's property from which the
alleged deficiency arose. (Annex "AA", Rollo, pp. 181-
189). Therefore, the validity of the extrajudicial
foreclosure sale and petitioner's claim for deficiency
are still in question, so much so that it is evident, that
the requirement of Article 1279 that the debts must be
liquidated and demandable has not yet been met. For
this reason, legal compensation cannot take place
under Article 1290 of the Civil Code.
Petitioner now assails the motion of the plaintiff (now
private respondent) filed in the trial court for the
release of the proceeds of the money market
investment, arguing that it is deficient in form, the
same being unverified (petitioner's Memorandum,
Rollo, p. 266). On this score, it has been held that "as
enjoined by the Rules of Court and the controlling
jurisprudence, a liberal construction of the rules and
the pleadings is the controlling principle to effect
substantial justice." (Maturan v. Araula, 111 SCRA 615
[1982]).
Finally, the filing of insufficient or defective bond does
not dissolve absolutely and unconditionally the
injunction issued. Whatever defect the bond possessed
was cured when private respondent filed another bond
in the trial court.
PREMISES CONSIDERED, the questioned Decision and
Resolution of the respondent Court of Appeals are
hereby AFFIRMED.
SO ORDERED.
Yap, C.J., Melencio-Herrera and Padilla, JJ., concur.
The facts as found by public respondent Court
of Appeals are as follows:
G.R. No. 118585 September 14, 1995
AJAX MARKETING & DEVELOPMENT
CORPORATION, ANTONIO TAN, ELISA TAN, TAN
YEE, and SPS. MARCIAL SEE and LILIAN
TAN, petitioners,
vs.
HON. COURT OF APPEALS, METROPOLITAN BANK
AND TRUST COMPANY, and THE SHERIFF OF
MANILA,respondents.
FRANCISCO, J.:
In its March 30, 1994 decision, public respondent Court
of Appeals affirmed the trial court's judgment
upholding the validity of the extra-judicial foreclosure
of the real estate property of petitioners — spouses
Marcial See and Lilian Tan, located at Paco District,
Manila covered by TCT 105233, by private respondent
Metropolitan Bank and Trust Company
(Metrobank). 1 Petitioners' motion for reconsideration
was denied; hence, this petition for review
on certiorari raising the following assignments of
errors:
FIRST: The Honorable Court of Appeals
erred in holding that the consolidation
of the three (3) loans granted
separately to three entities into a
single loan of P1.0 Million was a mere
restructuring and did not effect a
novation of the loan as to extinguish
the accessory mortgage contracts.
SECOND: The Honorable Court of
Appeals erred in not holding that the
consolidated loan of P1.0 Million was
not accompanied by the execution of a
new REM, as was done by the Bank in
the earlier three (3) loans, and hence,
was, to all legal intents/purposes,
unsecured.
THIRD: The Honorable Court of Appeals
erred in holding that the inclusion in
the extra-judicial foreclosure of the
admittedly unsecured loan of
P970,000.00 is a mere error that does
not invalidated said foreclosure,
contrary to the pronouncement in C &
C Commercial Corp. vs. PNB, 175 SCRA
1.
Page 5 of 14
FOURTH: The Honorable Court of
Appeals erred in not declaring as null
and void the extra-judicial foreclosure
undertaken by Metrobank on the
property of Sps. Marcial See and Lilian
Tan. 2
It is not disputed that Ylang-Ylang
Merchandising Company, a partnership
between Angelita Rodriguez and
Antonio Tan, obtained a loan in the
amount of P250,000.00 from the
Metropolitan Bank and Trust Company,
and to secure payment of the same,
spouses Marcial See and Lilian Tan
constituted a real estate mortgage in
favor of said bank over their property
in the District of Paco, Manila, covered
by TCT No. 105233 of the Registry of
Deeds of Manila. The mortgage was
annotated at the back of the title.
Subsequently, after the partnership
had changed its name to Ajax
Marketing Company albeit without
changing its composition, it obtained a
loan in the sum of P150,000.00 from
Metropolitan Bank and Trust Company.
Again to secure the loan, spouses
Marcial See and Lilian Tan executed in
favor of said bank a second real estate
mortgage over the same property. As
in the first instance, the mortgage was
duly annotated at the back of TCT No.
105233.
On February 19, 1979, the partnership
(Ajax Marketing Company) was
converted into a corporation
denominated as Ajax Marketing and
Development Corporation, with the
original partners (Angelita Rodriguez
and Antonio Tan) as incorporators and
three (3) additional incorporators,
namely, Elisa Tan, the wife of Antonio
Tan, and Jose San Diego and Tessie
San Diego. Ajax Marketing and
Development Corporation obtained
from Metropolitan Bank and Trust
Company a loan of P600,000.00, the
payment of which was secured by
another real estate mortgage executed
by spouses Marcial See and Lilian Tan
in favor of said bank over the same
realty located in the District of Paco,
Manila. Again, the third real estate
mortgage was annotated at the back of
TCT No. 105233.
In December 1980, the three (3) loans
with an aggregate amount of
 P1,000,000.00 were re-structured and incompatibility with, the three loan agreements
consolidated into one (1) loan and Ajax secured by the real estate mortgages over TCT No.
Marketing and Development 105233. On its face, PN No. BDS-3065 has these words
Corporation, represented by Antonio typewritten: "secured by REM" and "9. COLLATERAL.
Tan as Board Chairman/President and This is wholly/partly secured by: (x) "real
in his personal capacity as solidary co- estate", 11 which strongly negate petitioners'
obligor, and Elisa Tan as Vice- asseveration that the consolidation of the three loans
President/Treasurer and in her personal effected the discharge of the mortgaged real estate
capacity as solidary co-obligor, property. Otherwise, there would be no sense placing
executed a Promissory Note (PN) No. these material provisions. Moreover; the real estate
BDS-3605. 3 mortgages contained this common provision, to wit:

In their interrelated first and second assignment of That for and in consideration of credit
errors, petitioners argue that a novation occurred when accommodations obtained from the
their three (3) loans, which are all secured by the same MORTGAGEE (Metropolitan Bank and
real estate property covered by TCT No. 105233 were Trust Company), by the MORTGAGOR
consolidated into a single loan of P1 million under and/or AJAX MKTG. DEV. CORP./AJAX
Promissory Note No. BDS-3605, thereby extinguishing MARKETING COMPANY/YLANG-YLANG
their monetary obligations and releasing the MERCHANDISING COMPANY detailed as
mortgaged property from liability. follows:

Basic principles on novation need to be stressed at the Nature Date Granted

outset. Novation is the extinguishment of an obligation Due Date Amount or
by the substitution or change of the obligation by a Line
subsequent one which extinguishes or modifies the
first, either by changing the object or principal Loans and/or P
conditions, or by substituting another in place of the 600,000.00
debtor, or by subrogating a third person in the rights of
the creditor. 4 Novation, unlike other modes of
extinction of obligations, is a juridical act with a dual Advances in
function, namely, it extinguishes an obligation and 150,000.00
creates a new one in lieu of the old. It can be objective,
subjective, or mixed. Objective novation occurs when current account
there is a change of the object or principal conditions 250,000.00
of an existing obligation while subjective novation
occurs when there is a change of either the person of and to secure the payment of the same
the debtor, or of the creditor in an existing and those that may hereafter be
obligation. 5 When the change of the object or principal obtained including the renewals or
conditions of an obligation occurs at the same time extension thereof.
with the change of either in the person of the debtor or
creditor a mixed novation occurs. 6
xxx xxx xxx
The well settled rule is that novation is never
presumed. 7 Novation will not be allowed unless it is the principal of all of which is hereby
clearly shown by express agreement, or by acts of fixed at (P600,000.00/ P150,000.00/
equal import. Thus, to effect an objective novation it is P250,000.00) . . .as well as those that
imperative that the new obligation expressly declare the MORTGAGEE may have previously
that the old obligation is thereby extinguished, or that extended or may later extend to the
the new obligation be on every point incompatible with MORTGAGOR, including interest and
the new one. 8 In the same vein, to effect a subjective expenses or any other obligation owing
novation by a change in the person of the debtor it is to the MORTGAGEE, whether direct or
necessary that the old debtor be released expressly indirect, principal or secondary, as
from the obligation, and the third person or new debtor appears in the accounts, books and
assumes his place in the relation. 9 There is no novation records of the MORTGAGEE, the
without such release as the third person who has MORTGAGOR hereby transfer and
assumed the debtor's obligation becomes merely a co- convey by way of mortgage unto the
debtor or surety. 10 MORTGAGEE, its successors or assigns,
the parcels of land which are described
in the list inserted on page three of this
The attendant facts herein do not make a case of document and/or appended hereto,
novation. There is nothing in the records to show the together with all the buildings and
unequivocal intent of the parties to novate the three improvements now existing or which
loan agreements through the execution of PN No. BDS- may hereafter be erected or
3065. The provisions of PN No. BDS-3065 yield no constructed thereon, of which the
indication of the extinguishment of, or an MORTGAGOR declares that he/it is the
Page 6 of 14
 absolute owner free from all liens and
encumbrances. However, if the
MORTGAGOR shall pay to the
MORTGAGEE, its successors or assigns,
the obligation secured by this
mortgage when due, together with
interest, and shall keep and perform all
and singular the covenants and
agreements herein contained for the
MORTGAGOR to keep and perform,
then the mortgage shall be void;
otherwise, it shall remain in full force
and effect. 12
The foregoing shows that petitioners agreed to
apply the real estate property to secure
obligations that they may thereafter obtain
including their renewals or extensions with the
principals fixed at P600,000.00, P150,000.00,
and P250,000.00 which when added have an
aggregate sum of P1.0 million. PN No. BDS-
3605 merely restructured and renewed the
three previous loans to expediently make the
loans current. There was no change in the
object of the prior obligations. The
consolidation of the three loans, contrary to
petitioners' contention, did not release the
mortgaged real estate property from any
liability because the mortgage annotations at
the back of TCT No. 105233, in fact, all
remained uncancelled, thus indicating the
continuing subsistence of the real estate
mortgages.
Neither can it be validly contended that there was a
change, or substitution in the persons of either the
creditor (Metrobank) or more specifically the debtors
(petitioners) upon the consolidation of the loans in PN
No. BDS 3605. The bare fact of petitioners' conversion
from a partnership to a corporation, without sufficient
evidence, either testimonial or documentary, that they
were expressly released from their obligations, did not
make petitioner AJAX, with its new corporate
personality, a third person or new debtor within the
context of a subjective novation. If at all, petitioner
AJAX only became a co-debtor or surety. Without
express release of the debtor from the obligation, any
third party who may thereafter assume the obligation
shall be considered merely as co-debtor or surety.
Novation arising from a purported change in the person
of the debtor must be clear and express because, to
repeat, it is never presumed. Clearly then, from the
aforediscussed points, neither objective nor subjective
novation occurred here.
Anent the third assigned error, petitioners posit that
the extra-judicial foreclosure is invalid as it included
two unsecured loans: one, the consolidated loan of
P1.0 million under PN BDS No. 3605, and two, the
P970,000.00 loan under PN BDS No. 3583 subsequently
extended by Metrobank.
An action to foreclose a mortgage is usually limited to
the amount mentioned in the mortgage, but where on
Page 7 of 14
the four corners of the mortgage contracts, as in this
case, the intent of the contracting parties is manifest
that the mortgaged property shall also answer for
future loans or advancements then the same is not
improper as it is valid and binding between the
parties. 13 For merely consolidating and expediently
making current the three previous loans, the loan of
P1.0 million under PN BDS No. 3605, secured by the
real estate property, was correctly included in the
foreclosure's bid price. The inclusion of the unsecured
loan of P970,000.00 under PN BDS NO. 3583, however,
was found to be improper by public respondent which
ruling we shall not disturb for Metrobank's failure to
appeal therefrom. Nonetheless, the inclusion of PN BDS
No. 3583 in the bid price did not invalidate the
foreclosure proceedings. As correctly pointed out by
the Court of Appeals, the proceeds of the auction sale
should be applied to the obligation pertaining to PN
BDS No. 3605 only, plus interests, expenses and other
charges accruing thereto. It is Metrobank's duty as
mortgagee to return the surplus in the selling price to
the mortgagors.14
Lastly, petitioners cite as supporting authority C & C
Commercial Corp. v. Philippine National Bank 15 where
this Court enjoined the foreclosure proceedings for
including unsecured obligations. Petitioners' reliance
on the C & C Commercial Corp. v. Philippine National
Bank case is misplaced. In that case, the foreclosure
sale included previously incurred unsecured obligations
in favor of PNB which were not in the contemplation of
the mortgage contract, whereas in the instant case,
the mortgages were one in providing that the
mortgaged real estate property shall also secure future
advancements or loans, as well as renewals or
extensions of the same.
Prescinding from the above discussions, the fourth
assignment of error obviously needs no further
discussion.
WHEREFORE, the decision appealed from is hereby
AFFIRMED in toto.
Narvasa, C.J., Regalado, Puno and Mendoza, JJ., concur.
G.R. No. 116805 June 22, 2000
MARIO S. ESPINA, petitioner,
vs.
THE COURT OF APPEALS and RENE G.
DIAZ, respondents.
PARDO, J.:
The case before the Court is an appeal from a decision
of the Court of Appeals 1 reversing that of the Regional
Trial Court, Antipolo, Rizal, 2 affirming in all respects
the decision of the Municipal Trial Court, Antipolo, Check No.
Rizal, 3ordering respondent Rene G. Diaz to vacate the 301249
condominium unit owned by petitioner and to pay back
current rentals, attorney's fees and costs.1âwphi1.nêt April 4, 1992

The facts, as found by the Court of Appeals, are as 6. P200,000.00

follows:
Check No.
Mario S. Espina is the registered owner 301250
of a Condominium Unit No. 403,
Victoria Valley Condominium, Valley
Golf Subdivision, Antipolo, Rizal. Such April 25, 1992
ownership is evidenced by
Condominium Certificate of Title No. N- (pp. 59-
10 (p. 31, Rollo). 61, Rollo).

On November 29, 1991, Mario S. Subsequently, in a letter dated January

Espina, the private respondent as
seller, and Rene G. Diaz, the petitioner
as buyer, executed a Provisional Deed
of Sale, whereby the former sold to the
latter the aforesaid condominium unit
for the amount of P100,000.00 to be
paid upon the execution of the contract
and the balance to be paid through PCI
Bank postdated checks as follows:
22, 1992, petitioner informed private
respondent that his checking account
with PCI Bank has been closed and a
new checking account with the same
drawee bank is opened for practical
purposes. The letter further stated that
the postdated checks issued will be
replaced with new ones in the same
drawee bank (p. 63, Rollo).

1. P400,000.00 On January 25, 1992, petitioner

through Ms. Socorro Diaz, wife of
Check No. petitioner, paid private respondent
301245 Mario Espina P200,000.00,
acknowledged by him as partial
payment for the condominium unit
January 15, subject of this controversy (p.
1992 64, Rollo).

2. P200,000.00 On July 26, 1992, private respondent

sent petitioner a "Notice of
Check No. Cancellation" of the Provisional Deed of
301246 Sale (p. 48, Rollo).

February 1, However, despite the Notice of

1992 Cancellation from private respondent,
the latter accepted payment from
3. P200,000.00 petitioner per Metrobank Check No.
395694 dated and encashed on
October 28, 1992 in the amount of
Check No. P100,000.00 (p. 64, Rollo).
301247
On February 24, 1993, private
February 22, respondent filed a complaint docketed
1992 as Civil Case No. 2104 for Unlawful
Detainer against petitioner before the
4. P200,000.00 Municipal Trial Court of Antipolo,
Branch 1.
Check No.
301248 On November 12, 1993, the trial court
rendered its decision, the dispositive
March 14, 1992 portion of which reads:

5. P200,000.00 WHEREFORE, in view of

the foregoing
consideration,
Page 8 of 14
 judgment is hereby
rendered ordering the
defendant and all
persons claiming rights
under him to vacate
unit 403 of the Victoria
Golf Valley
Condominium, Valley
Golf Subdivision,
Antipolo, Rizal; to pay
the total arrears of
P126,000.00, covering
the period July 1991 up
to the filing (sic)
complaint, and to pay
P7,000.00 every month
thereafter as rentals
unit (sic) he vacates
the premises; to pay
the amount of
P5,000.00 as and
attorney's fees; the
amount of P300.00 per
appearance, and costs
of suit.
However, the plaintiff
may refund to the
defendant the balance
from (sic) P400,000.00
after deducting all the
total obligations of the
defendant as specified
in the decision from
receipt of said decision.
SO ORDERED.
(Decision, Annex "B"; p.
27, Rollo).
From the said decision, petitioner
appealed to the Regional Trial Court
Branch 71, Antipolo, Rizal. On April 29,
1994, said appellate court affirmed in
all respects the decision of the trial
court. 4
On June 14, 1994, petitioner filed with the Court of
Appeals a petition for review.
On July 20, 1994, the Court of Appeals promulgated its
decision reversing the appealed decision and
dismissing the complaint for unlawful detainer with
costs against petitioner Espina.
On August 8, 1994, petitioner filed a motion for
reconsideration of the decision of the Court of
Appeals. 5
On August 19, 1994, the Court of Appeals denied the
motion. 6
Page 9 of 14
Hence, this appeal via petition for review
on certiorari. 7
The basic issue raised is whether the Court of Appeals
erred in ruling that the provisional deed of sale
novated the existing contract of lease and that
petitioner had no cause of action for ejectment against
respondent Diaz.
We resolve the issue in favor of petitioner.
According to respondent Diaz, the provisional deed of
sale that was subsequently executed by the parties
novated the original existing contract of lease. The
contention cannot be sustained. Respondent originally
occupied the condominium unit in question in 1987 as
a lessee. 8 While he occupied the premises as lessee,
petitioner agreed to sell the condominium unit to
respondent by installments. 9 The agreement to sell
was provisional as the consideration was payable in
installments.
The question is, did the provisional deed of sale novate
the existing lease contract? The answer is no. The
novation must be clearly proved since its existence is
not presumed. 10 "In this light, novation is never
presumed; it must be proven as a fact either by
express stipulation of the parties or by implication
derived from an irreconcilable incompatibility between
old and new obligations or contracts." 11 Novation takes
place only if the parties expressly so provide,
otherwise, the original contract remains in force. In
other words, the parties to a contract must expressly
agree that they are abrogating their old contract in
favor of a new one. 12 Where there is no clear
agreement to create a new contract in place of the
existing one, novation cannot be presumed to take
place, unless the terms of the new contract are fully
incompatible with the former agreement on every
point. 13 Thus, a deed of cession of the right to
repurchase a piece of land does not supersede a
contract of lease over the same property. 14 In the
provisional deed of sale in this case, after the initial
down payment, respondent's checks in payment of six
installments all bounced and were dishonored upon
presentment for the reason that the bank account was
closed. 15 Consequently, on July 26, 1992, petitioner
terminated the provisional deed of sale by a notarial
notice of cancellation. 16 Nonetheless, respondent Diaz
continued to occupy the premises, as lessee, but failed
to pay the rentals due. On October 28, 1992,
respondent made a payment of P100,000.00 that may
be applied either to the back rentals or for the
purchase of the condominium unit. On February 13,
1993, petitioner gave respondent a notice to vacate
the premises and to pay his back rentals. 17 Failing to
do so, respondent's possession became unlawful and
his eviction was proper. Hence, on February 24, 1993,
petitioner filed with the Municipal Trial Court, Antipolo,
Rizal, Branch 01 an action for unlawful detainer against
respondent Diaz. 18
Now respondent contends that the petitioner's
subsequent acceptance of such payment effectively
withdrew the cancellation of the provisional sale. We
do not agree. Unless the application of payment is
expressly indicated, the payment shall be applied to
the obligation most onerous to the debtor. 19 In this
case, the unpaid rentals constituted the more onerous
obligation of the respondent to petitioner. As the
payment did not fully settle the unpaid rentals,
petitioner's cause of action for ejectment survives.
Thus, the Court of Appeals erred in ruling that the
payment was "additional payment" for the purchase of
the property.
WHEREFORE, the Court GRANTS the petition for review
on certiorari, and REVERSES the decision of the Court
of Appeals. 20 Consequently, the Court REVIVES the
decision of the Regional Trial Court, Antipolo, Rizal,
Branch 71, 21 affirming in toto the decision of the
Municipal Trial Court, Antipolo, Rizal, Branch 01. 22
No costs.
SO ORDERED.1âwphi1.nêt
Davide, Jr., C.J., Puno, Kapunan and Ynares-Santiago,
JJ., concur.
G. R. No. L-74027 December 7, 1989
SILAHIS MARKETING CORPORATION, petitioner
vs.
INTERMEDIATE APPELLATE COURT and GREGORIO
DE LEON, doing business under the name and
style of "MARK INDUSTRIAL SALES", respondents.
Jaime V. Villanueva for petitioner.
Tinga, Fuentes, Tagle & Malate for private respondent.
FERNAN, C.J.
Petitioner Silahis Marketing Corporation seeks in this
petition for review on certiorari a reversal of the
decision of the then Intermediate Appellate Court (IAC)
in AC-G.R. CV No. 67162 entitled "De Leon, etc. v.
Silahis Marketing Corporation", disallowing petitioner's
counterclaim for commission to partially offset the
claim against it of private respondent Gregorio de Leon
for the purchase price of certain merchandise.
A review of the record shows that on various dates in
October, November and December, 1975, Gregorio de
Leon (De Leon for short) doing business under the
name and style of Mark Industrial Sales sold and
delivered to Silahis Marketing Corporation (Silahis for
short) various items of merchandise covered by several
invoices in the aggregate amount of P 22,213.75
payable within thirty (30) days from date of the
Page 10 of 14
covering invoices. Allegedly due to Silahis' failure to
pay its account upon maturity despite repeated
demands, de Leon filed before the then Court of First
Instance of Manila a complaint for the collection of the
said accounts including accrued interest thereon in the
amount of P 661.03 and attorney's fees of P 5,000.00
plus costs of litigation.
The answer admitted the allegations of the complaint
insofar as the invoices were concerned but presented
as affirmative defenses; [al a debit memo for P
22,200.00 as unrealized profit for a supposed
commission that Silahis should have received from de
Leon for the sale of sprockets in the amount of P
111,000.00 made directly to Dole Philippines,
Incorporated by the latter sometime in August 1975
without coursing the same through the former
allegedly in violation of the usual practice concerning
sale of merchandise to Dole Philippines, Inc.; and [b]
Silahis' claim that it is entitled to return the stainless
steel screen covered by Exhibits '6-A' and '6-B' which
was found defective by its client, Borden International,
Davao City, and to have the corresponding amount
cancelled from its account with de Leon.
In a decision dated August 25, 1978, 1 the lower court
confirmed the liability of Silahis for the claim of de
Leon but at the same time ordered that it be partially
offset by Silahis' counterclaim as contained in the debit
memo for unrealized profit and commission. Judge
Bienvenido C. Ejercito of said court held:
There is no question that the defendant
received from the plaintiff the items
contained in Exhs. 'A' to 'F'. The only
question is whether or not the
defendant is entitled to set off against
the claim of the plaintiff the amount
contained in the debit memo of the
defendant, Exh. '1', and whether or not
the defendant is entitled to return the
steel wire mesh which was returned to
them by Borden Philippines, as shown
by Exhs. '6-A' and '6-B'. The Court
believes that the defendant is properly
chargeable for the amounts of the
unpaid invoices set forth in the
complaint. However, the Court also
believes that the plaintiff is also
properly chargeable for the debit
memo of P 22,200.00, Exh. '1'. This is
because it was proven by the
defendant from the testimonies of
Isaias Fernando, Jr. and Jose Joel Tamon
that contrary to the agreement
between plaintiff and defendant that
the latter was to serve the account of
Dole Philippines in Davao, the plaintiff
made a direct sale of sprockets for P
111,000.00 which therreby deprives
the defendant of its corresponding
commission for P 22,200.00 which the
defendant would have otherwise made
if the plaintiff had followed its previous
arrangement with the defendant.
 However, as to the counterclaim of the
defendant for a cancellation of the
amount of P 6,000.00 for defective
stainless screen wire purchased and
intended for Borden International,
Davao City, the Court believes that it is
much too late now to present said
claim because the purchase was made
and delivered as early as December
22,1975 and the proposed return to the
defendant by Borden was made on
April 1, 1976 only. The Court is not
ready to award damages to any of the
parties. After deducting the amount of
P 22,200.00, which is the unpaid
commission of the defendant from the
principal total amount of the unpaid
invoices of the plaintiff of P 22,213.75,
the unpaid balance in favor of the
plaintiff is P 13.75. The claim for
interest and attorney's fees of the
plaintiff may be offset against the
interest and attorney's fees of the
defendant.
WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and
against the defendant ordering the
defendant to pay to the plaintiff the
amount of P 13.75, with interest at
12% per annum from the date of the
filing of the action on July 1, 1976 until
fully paid, without pronouncement as
to costs.
SO ORDERED. 2
De Leon appealed from the said decision insofar as it
directed partial compensation and its failure to award
interest on his principal claim as well as attomey's fees
in his favor. In a decision dated March 1 7, 1986, 3
respondent Intermediate Appellate Court 4 set aside
the decision of the lower court and dismissed herein
petitioner's (therein defendant- appellee's)
counterclaim for lack of factual or legal basis. The
appellate court found that there was no agreement,
verbal or otherwise, nor was there any contractual
obligation between De Leon and Silahis prohibiting any
direct sales to Dole Philippines, Inc. by de Leon; nor
was there anything in the debit memo obligating de
Leon to pay a commission to Silahis for the sale of P
111,000.00 worth of sprockets to Dole Philippines
although in the past, the former did supply certain
items to the latter for delivery to Dole Philippines,
Incorporated.
Hence, in this petition for review on certiorari, the
central issue is whether or not private respondent is
liable to the petitioner for the commission or margin for
the direct sale which the former concluded and
consummated with Dole Philippines, Incorporated
without coursing the same through herein petitioner.
Page 11 of 14
We have carefully gone over the record of this case
particularly the debit memo upon which petitioner's
counterclaim rests and found nothing contained
therein to show that private respondent obligated
himself to set-off or compensate petitioner's
outstanding accounts with the alleged unrealized
commission from the assailed sale of sprockets in the
amount of P 111,000.00 to Dole Philippines, Inc.
It must be remembered that compensation takes place
when two persons, in their own right, are creditors and
debtors to each other. Article 1279 of the Civil Code
provides that: "In order that compensation may be
proper, it is necessary: [1] that each one of the obligors
be bound principally, and that he be at the same time
a principal creditor of the other; [2] that both debts
consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the
same quality if the latter has been stated; [3] that the
two debts be due; [4] that they be liquidated and
demandable; [5] that over neither of them there be
any retention or controversy, commenced by third
persons and communicated in due time to the debtor.
When all the requisites mentioned in Art. 1279 of the
Civil Code are present, compensation takes effect by
operation of law, even without the consent or
knowledge of the creditors and debtors. 5 Article 1279
requires, among others, that in order that legal
compensation shall take place, "the two debts be due"
and "they be liquidated and demandable."
Compensation is not proper where the claim of the
person asserting the set-off against the other is not
clear nor liquidated; compensation cannot extend to
unliquidated, disputed claim existing from breach of
contract. 6
Undoubtedly, petitioner admits the validity of its
outstanding accounts with private respondent in the
amount of P 22,213.75 as contained in its answer. But
whether private respondent is liable to pay the
petitioner a 20% margin or commission on the subject
sale to Dole Philippines, Inc. is vigorously disputed.
This circumstance prevents legal compensation from
taking place.
The Court agrees with respondent appellate court that
there is no evidence on record from which it can be
inferred that there was any agreement between the
petitioner and private respondent prohibiting the latter
from selling directly to Dole Philippines, Incorporated.
Definitely, it cannot be asserted that the debit memo
was a contract binding between the parties considering
that the same, as correctly found by the appellate
court, was not signed by private respondent nor was
there any mention therein of any commitment by the
latter to pay any commission to the former involving
the sale of sprockets to Dole Philippines, Inc. in the
amount of P 111,000.00. Indeed, such document can
be taken as self-serving with no probative value absent
a showing or at the very least an inference, that the
party sought to be bound assented to its contents or
showed conformity thereto.
In fact the letter written by private respondent's lawyer
dated March 5,1975 7 in reply to petitioner's letter
dated February 19, 1976 transmitting its Debit Memo
No. 1695 8 further strengthens private respondent's
stand that it never agreed to give petitioner any
commission on the direct sale to Dole Philippines, Inc.
by its company because said letter denied any
utilization of petitioners personnel and facilities at its
Davao Branch in the transaction with Dole Philippines,
Inc. which would otherwise lend a basis for petitioner's
monetary claim.
WHEREFORE, in view of the foregoing, the questioned
decision of respondent appellate court is hereby
AFFIRMED.
SO ORDERED.
Gutierrez, Jr., Feliciano and Cortes, JJ., concur.
Bidin, J., took no part.
G.R. No. 117032 July 27, 2000
MA. PATRICIA GARCIA, BELEN G. GUTIERREZ,
NICANOR GUTIERREZ, GRACE M.B. GUTIERREZ,
CAROLYN M.B. GUTIERREZ, GERWIN GARCIA,
GERSON GARCIA, and GILMER GARCIA, petitioners,
vs.
COURT OF APPEALS, HON. PEDRO M. ICAMINA,
Judge of the Regional Trial Court, 6th Judicial
Region, Branch 9, Kalibo, Aklan; RURAL BANK OF
SARA, INC., RAFAEL C. DINGLASAN, JR., MARIA
ELENA I. DINGLASAN, ANTHONY CABUGSO and
LEDA SUELLO, respondents.
PURISIMA, J.:
Before the Court is a Petition for Review on Certiorari
under Rule 45 of the Rules of Court seeking to annul
and set aside the Decision of the Court of Appeals1
dated August 31, 1994, in CA-G.R. SP. No. 31231,
which sustained the March 30, 1993 Order of Branch 9,
Regional Trial Court of Kalibo, Aklan, denying herein
petitioners' motion for summary judgment.
The antecedent facts that matter are as follows:
On October 5, 1987, Florencio Junior Garcia,
representing himself as attorney in fact of the herein
petitioners, brought in the name of the latter, an action
for collection of sum of money, against the private
respondents, docketed as Civil Case No. 3777 before
Branch 9, Regional Trial Court of Kalibo, Aklan. The
said complaint alleged inter alia:
"3. That sometime on February 10, 1984, on
representations, of defendant Spouses Rafael
and Elena DINGLASAN, plaintiffs, through their
then Attorney in fact, Florencio Junior Garcia,
were prevailed upon to time deposit the
Page 12 of 14
following amounts of money issuing to them
the following time deposit certificates:
Name Time Deposit Amount
Cert. No.
Ma. Patricia Garcia 1275 P35,000
Nicanor Gutierrez 1276 40,000
Belen B. Gutierrez 1277 35,000
Grace M.B. 1278 40,000
Gutierrez
Caroline M. B. 1279 35,000
Gutierrez
Gerwin Garcia 1280 33,000
Gerson Garcia 1281 35,788
Gilmer Garcia 1282 30,000
Total P283,788
(Xerox copies attached hereto as Annex
A,B,C,D,E,F,G and H) with interest at 17% per
annum starting from Feb. 10, 1984, all
defendants assuring plaintiffs that on the
maturity dates (Feb. 11, 1986) of the aforesaid
Time Deposit Certificates, the same, upon
surrender, will be paid in cash;
4. That on Feb. 11, 1986, plaintiffs through
their Attorney in fact, (Florencio Junior Garcia)
went to defendant Rural Bank, for the purpose
of surrendering said Time Deposit Certificates,
and to receive the payment from defendants of
the amounts therein stated totaling P 283,788,
plus interest thereon at 17% per annum for
731 days or two years, the interest then
amounting to P 96,487.92 as of Feb. 11, 1986,
for a total of P 380,275.92 as of Feb. 11, 1986;
5. That defendants acting through Anthony
Casugbo and Leda Suelo (sic), Manager and
Cashier respectively of defendant Rural Bank,
refused to pay, and told plaintiffs' attorney in
fact, to return after one month, which said
attorney in fact did, not only one month
thereafter, but on several other occasions
thereafter either by himself (attorney in fact),
or through other authorized representatives;
on all of these occasions the promises to pay
the time deposits and interest thereon were
not fulfilled;
6. That impatient at waiting, plaintiffs, on
August 27, 1987, through counsel, sent a letter
of demand to defendants, giving to defendants
30 days from receipt within which to pay the
Time Deposit plus the interest increments
 thereof, which letter (Annex I) was received by
them on Sept. 4, 1987 (Annex I-1);
However, until the date of the filing of this
complaint, which is more than 30 days from
Sept. 4, 1987 defendants have not even
bothered to reply or to make any
arrangements acceptable to plaintiffs;
xxx xxx xxx2
Respondent Rural Bank of Sara, Inc., Anthony Cabugso,
and Leda Suello, (manager and cashier, respectively, of
respondent bank), filed their answer contending by
way of special and affirmative defenses that:
"'4. The Complaint states no cause of action
against the defendants in as much as the
deposits (sic) named in paragraph 3 of the
Complaint have not at all authorized and
empowered alleged attorney-in-fact, Florencio
Junior Garcia, to transact with the defendant
bank, Rural bank of Sara (Iloilo), Inc.. Neither
have they authorized him to withdraw their
deposits with defendant bank;
'5. The said depositors named in paragraph 3
of the complaint never in the past nor up to the
present time approached the bank for
withdrawal of their deposits, and (sic) reason of
and in compliance with the law on secrecy of
deposits, the defendant bank cannot divulge to
anybody who has not been properly
authorized, anything about their deposits.
Besides the bank has to be strict with the
requirements of specimen signatures of its
depositors so that it usually requires proper
authorizations duly notarized by a Notary
Public. If anybody approaches defendant bank
for and in behalf of a depositors (sic) the bank
would require such authorization, otherwise no
transaction will be made with him;
'6. Since no applications for withdrawal were
received by defendant bank from its depositors
named in paragraph 3 of the complaint, there
was no reason at all to allow alleged attorney-
in-fact, Florencio Junior Garcia, who never was
properly authorized, to transact for and in
behalf of said depositors;
'7. The herein attorney-in-fact, Florencio Junior
Garcia, has no capacity to sue and be sued,
being not the real party interest (sic) nor has
the (sic) authority from the alleged plaintiffs
sue (sic) and be sued;
8. There was no valid or legal withdrawal made
by the alleged plaintiffs of their alleged
deposits, hence it was not legally possible for
defendant bank to act with respect to such
deposits in view of the prohibition mandated by
the law on secrecy of deposits.'"3
Page 13 of 14
The respondent spouses, Rafael Dinglasan and Maria
Elena Dinglasan, likewise filed their answer contending
by way of special and affirmative defenses, that:
"4. The complaint states no cause of action
against defendants;
5. There is no privity of contract between
plaintiffs and defendants;
6. Attorney-in-Fact Florencio Junior Garcia has
no apparent authority from plaintiffs to file the
instant complaint."4
What the petitioners did was to present a Motion for
Summary Judgment, asseverating that they are
entitled to a judgment as a matter of law, since the
pleadings and supporting affidavits submitted are
barren of any genuine issue which may be
controverted.
On March 30, 1993, the trial court issued its Order
under attack denying the motion for summary
judgment.
Dissatisfied therewith, petitioners went to the Court of
Appeals, theorizing that the trial court gravely abused
its discretion in denying their subject motion. On
August 31, 1994, however, the Court of Appeals came
out with its assailed Decision upholding the March 30,
1993 Order of the lower court.
Undaunted, petitioners found their way to this Court
via the present Petition anchored on the grounds, that:
I. THE COURT OF APPEALS HAS DECIDED A
QUESTION OF SUBSTANCE NOT IN ACCORD
WITH LAW AND APPLICABLE DECISIONS OF THE
SUPREME COURT IN HOLDING THAT THERE ARE
GENUINE ISSUES AS TO MATERIAL FACTS THAT
BAR RENDITION OF SUMMARY JUDGMENT.
II. THE COURT OF APPEALS HAS DECIDED A
QUESTION OF SUBSTANCE NOT IN ACCORD
WITH LAW AND APPLICABLE DECISIONS OF THE
SUPREME COURT IN NOT ORDERING
RESPONDENT COURT TO GRANT THE MOTION
FOR SUMMARY JUDGMENT.5
The Petition is devoid of merit.
Sections 1 and 3, Rule 34, of the Rules of Court
provide:
"SECTION 1. Summary judgment for claimant. -
A party seeking to recover upon a claim,
counterclaim, or cross-claim or to obtain a
declaratory relief may, at any time after the
pleading in answer thereto has been served,
move with supporting affidavits for a summary
judgment in his favor upon all or any part
thereof."
 "SEC. 3. Motion and proceedings thereon. - The
motion shall be served at least ten (10) days
before the time specified for the hearing. The
adverse party prior to the day of hearing may
serve opposing affidavits. After the hearing,
the judgment sought shall be rendered
forthwith if the pleading, depositions, and
admissions on file together with the affidavits,
show that, except as to the amount of
damages, there is no genuine issue as to any
material fact and that the moving party is
entitled to a judgment as a matter of law." *
A summary judgment is one granted upon motion by a
party for an expeditious settlement of the case, there
appearing from the pleadings, depositions, admissions,
and affidavits that there are no important questions or
issues of fact posed (except as to the amount of
damages) and therefore, the moving party is entitled
to a judgment as a matter of law.6
The aforecited rule does not vest in the trial court
jurisdiction to summarily try the issues on depositions
and affidavits but gives it limited authority to render
summary judgment only when there is no genuine
issue of material fact at bar. Upon a motion for
summary judgment, the sole function of the court is to
determine whether or not there is an issue of fact to be
tried, and any doubt as to the existence of an issue of
fact must be resolved against the movant. Courts are
quite critical of the papers presented by the moving
party but not of the papers in opposition thereto. Thus,
in ruling on a motion for summary judgment, the court
should take that view of the evidence most favorable
to the party against whom it is directed, giving such
party the benefit of all favorable inferences. That one
may surmise from plaintiff's showing that defendant is
unlikely to prevail upon a trial is not a sufficient basis
to assume that the allegations of defendant are sham,
frivolous or unsubstantial. If the defense relied upon by
the defendant is legally sufficient and does not appear
patently sham, the motion for summary judgment
should be denied.7
In the case under consideration, the pleadings and
exhibits on record reveal that there exist genuine
issues on material or pertinent facts sufficient to
preclude a rendition of summary judgment. As
correctly found by the Court of Appeals, the pleadings
submitted below by the parties raise the following
issues:
"1. Whether or not Florencio Junior Garcia is
properly authorized to file the complaint for the
plaintiffs named in the title of the complaint.
xxx xxx xxx
2. Whether or not defendants (private
respondents) spouses Dinglasan may be held
jointly and severally liable with their co-
defendant (co-private respondent) rural bank."8
Page 14 of 14
Verily, there is a need to find out whether Florencio
Junior Garcia was duly authorized by the plaintiffs
named in Civil Case No. 3777 to file the complaint
against the private respondents. It is worthy to note
that while the complaint states that the plaintiffs
therein mentioned empowered Florencio Junior Garcia
to collect the sums due them from the respondent
bank, the records on hand show that only four9 of the
eight plaintiffs executed a special power of attorney
authorizing Florencio Junior Garcia to deal with
respondent bank. Contrarily, it is argued that the
absence of a special power of attorney to withdraw the
time deposit is of no moment, considering that the
present case for collection in the name of the plaintiffs
sufficiently shows the latter's intention to collect their
money through Florencio Junior Garcia. Apparently, the
foregoing theory is meritorious. But the undeniable
fact, however, is that not one of the plaintiffs verified
the contents of the complaint; and neither was there in
the records a special power of attorney authorizing
Florencio Junior Garcia to institute the present case
against private respondents. Thus the issue of whether
or not the plaintiffs named in Civil Case No. 3777,
constituted Florencio Junior Garcia as their attorney in
fact with authority to bring subject suit for collection of
sum of money against the private respondents.
Then too, the issue of whether or not petitioners have
a cause of action against the spouses, Rafael Dinglasan
and Maria Elena Dinglasan, calls for a trial on the
merits. While the said respondent spouses insist that
there is no privity of contract between them and the
petitioners, the latter claim that the former "prevailed
upon them" to time deposit their money with the
respondent bank. Indeed, it is only upon presentation
of evidence during the trial can it be determined
whether the respondent spouses may be held jointly
and severally liable with respondent bank.
Premises studiedly considered and viewed in proper
perspective, the Court is of the ineluctable conclusion,
and so holds, that the Court of Appeals erred not in
affirming the Order, dated March 30, 1993, of Branch
9, Regional Trial Court of Kalibo, Aklan, in Civil Case
No. 3777.
WHEREFORE, the Petition is DENIED; and the Decision
of the Court of Appeals, dated August 31, 1994, in CA-
G.R. SP. No. 31231 AFFIRMED. No Pronouncement as to
costs.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Gonzaga-
Reyes, JJ., concur.