oblicon original cases

8/11/2019 Oblicon Original Cases

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Oblicon Original Cases

COMPENSATION:

[G.R. No. L-22490. May 21, 1969.]

GAN TION, Petitioner, v. HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, asJudge of the Court of First Instance of Manila, ONG WAN SIENG and THE SHERIFF OFMANILA, Respondents.

SYLLABUS

1. CIVIL LAW; DAMAGES; AWARD OF ATTORNEYS FEES; NATURE OF AWARD. The award forattorneys fees is made in favor of the litigant, not of his counsel, and is justified by way of indemnity fordamages recoverable by the former in the cases enumerated in Art. 2208 of the Civil Code.

2. ID.; ID.; ID.; PROPER SUBJECT OF LEGAL COMPENSATION. Where attorneys fees areawarded, it is the litigant, not his counsel, who is the judgment creditor and who may enforce the

judgment by execution. Such credit, therefore, may properly be the subject of legal compensation.

D E C I S I O N

MAKALINTAL, J.:

The sole issue here is whether or not there has been legal compensation between petitioner Gan Tionand respondent Ong Wan Sieng.

Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the latter filed an

ejectment case against the former, alleging non-payment of rents for August and September of that year,at P180 a month, or P360 altogether. The defendant denied the allegation and said that the agreedmonthly rental was only P160, which he had offered to but was refused by the plaintiff. The plaintiffobtained a favorable judgment in the municipal court (of Manila), but upon appeal the Court of FirstInstance, on July 2, 1962, reversed the judgment and dismissed the complaint, and ordered the plaintiff topay the defendant the sum of P500 as attorneys fees. That judgment became final.

On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180a month, effective November 1st, and at the same time demanded the rents in arrears at the old rate inthe aggregate amount of P4,320.00, corresponding to a period from August 1961 to October 1963.

In the meantime, over Gan Tions oppo sition, Ong Wan Sieng was able to obtain a writ of execution of the judgment for attorneys fees in his favor. Gan Tion went on certiorari to the Court of Appeals, where he

pleaded legal compensation, claiming that Ong Wan Sieng was indebted to him in the sum of P4,320 forunpaid rents. The appellate court accepted the petition but eventually decided for the respondent, holdingthat although "respondent Ong is indebted to the petitioner for unpaid rentals in an amount of more thanP4,000.00," the sum of P500 could not be the subject of legal compensation, it being a "trust fund for thebenefit of the lawyer, which would have to be turned over by the client to his counsel." In the opinion ofsaid Court, the requisites of legal compensation, namely, that the parties must be creditors and debtors ofeach other in their own right (Art. 1278, Civil Code) and that each one of them must be bound principallyand at the same time be a principal creditor of the other (Art. 1279), are not present in the instant case,since the real creditor with respect to the sum of P500 was the defendants counsel.


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This is not an accurate statement of the nature of an award for attorneys fees. The award is made infavor of the litigant, not of his counsel, and is justified by way of indemnity for damages recoverable bythe former in the cases enumerated in Article 2208 of the Civil Code. 1 It is the litigant, not his counsel,who is the judgment creditor and who may enforce the judgment by execution. Such credit, therefore,may properly be the subject of legal compensation. Quite obviously it would be unjust to compel petitionerto pay his debt for P500 when admittedly his creditor is indebted to him for more than P4,000.

WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of execution issued by theCourt of First Instance of Manila in its Civil Case No. 49535 is set aside. Costs against Respondent.

[G.R. No. 74027. December 7, 1989.]

SILAHIS MARKETING CORPORATION, Petitioner, v. INTERMEDIATE APPELLATE COURT andGREGORIO DE LEON, doing business under the name and style of "MARK INDUSTRIAL SALES",Respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; COMPENSATION; REQUISITES. It must beremembered that compensation takes place when two persons, in their own right, are creditors anddebtors to each other. Article 1279 of the Civil Code provides that: "In order that compensation may beproper, it is necessary: [1] that each one of the obligors be bound principally, and that he be at the sametime a principal creditor of the other; [2] that both debts consist in a sum of money, or if the things due areconsumable, they be of the same kind, and also of the same quality if the latter has been stated; [3] thatthe two debts be due; [4] that they be liquidated and demandable; [5] that over neither of them there beany retention or controversy, commenced by third persons and communicated in due time to the debtor."

2. ID.; ID.; ID.; TAKES EFFECT BY OPERATION OF LAW. When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without theconsent or knowledge of the creditors and debtors.

3. ID.; ID.; ID.; CANNOT EXTEND TO UNLIQUIDATED CLAIMS. Article 1279 requires, amongothers, 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, disputedclaim existing from breach of contract.

D E C I S I O N


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FERNAN, C.J.

Petitioner Silahis Marketing Corporation seeks in this petition for review on certiorari a reversal of thedecision of the then Intermediate Appellate Court (IAC) in AC-G.R. CV No. 67162 entitled "De Leon, etc.v. Silahis Marketing Corporation", disallowing petitioners cou nterclaim for commission to partially offsetthe claim against it of private respondent Gregorio de Leon for the purchase price of certain

merchandise.chanrobles lawlibrary : rednad

A review of the record shows that on various dates in October, November and December, 1975, Gregoriode Leon (De Leon for short) doing business under the name and style of Mark Industrial Sales sold anddelivered to Silahis Marketing Corporation (Silahis for short) various items of merchandise covered byseveral invoices in the aggregate amount of P22,213.75 payable within thirty (30) days from date of thecovering invoices.

Allegedly due to Silahis failure to pay its account upon maturity despite repeated demands, de Leon filedbefore the then Court of First Instance of Manila a complaint for the collection of the said accountsincluding accrued interest thereon in the amount of P661.03 and attorneys fees of P5,0 00.00 plus costsof litigation.

The answer admitted the allegations of the complaint insofar as the invoices were concerned butpresented as affirmative defenses; [a] a debit memo for P22,200.00 as unrealized profit for a supposedcommission that Silahis should have received from de Leon for the sale of sprockets in the amount ofP111,000.00 made directly to Dole Philippines, Incorporated by the latter sometime in August 1975without coursing the same through the former allegedly in violation of the usual practice concerning saleof merchandise to Dole Philippines, Inc.; and [b] Silahis claim that it is entitled to retur n the stainless steelscreen covered by Exhibits 6 - Amanda 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 deLeon 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 h set off against the claim of the plaintiff theamount containe d in the debit memo of the defendant, Exh.1, and whether or not the defendant isentitled to return the steel wire mesh which was returned to them by Borden Philippines, as shown byExhs, 6 - A and 6 -B. The Court believes that the defendant is properly chargeable for the amounts of theunpaid invoices set forth in the complaint. However, the Court also believes that the plaintiff is alsoproperly chargeable for the debit memo of P22,200.00, Exh.1. This is because it was proven by thedefendant from the testimonies of Isaias Fernando, Jr. and Jose Joel Tamon that contrary to theagreement between plaintiff and defendant that the latter was to serve the account of Dole Philippines inDavao, the plaintiff made a direct sale of sprockets for P111,000.00 which thereby deprives the defendantof its corresponding commission for P22,200.00 which the defendant would have otherwise made if theplaintiff had followed its previous arrangement with the defendant. However, as to the counterclaim of thedefendant for a cancellation of the amount of P6,000.00 for defective stainless screen wire purchasedand intended for Borden International, Davao City, the Court believes that it is much too late now topresent said claim because the purchase was made and delivered as early as December 22, 1975 andthe proposed return to the defendant by Borden was made on April 1, 1976 only. The Court is not readyto award damages to any of the parties. After deducting the amount of P22,200.00, which is the unpaidcommission of the defendant from the principal total amount of the unpaid invoices of the plaintiff of


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P22,213.75, the unpaid balance in favor of the plaintiff is P13.75. The claim for interest and attorneysfees of the plaintiff may be offset against the interest and attorne ys fees of the defendant.

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant orderingthe defendant to pay to the plaintiff the amount of P13.75, with interest at 12% per annum from the dateof 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 toaward interest on his principal claim as well as attorneys fe es in his favor. In a decision dated March 17,1986, 3 respondent Intermediate Appellate Court 4 set aside the decision of the lower court anddismissed herein petitioners (therein defendant -appellees) counterclaim for lack of factual or legal basis.The appellate court found that there was no agreement, verbal or otherwise, nor was there anycontractual 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 Silahisfor the sale of P111,000.00 worth of sprockets to Dole Philippines although in the past, the former didsupply 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 isliable to the petitioner for the commission or margin for the direct sale which the former concluded andconsummated with Dole Philippines, Incorporated without coursing the same through herein petitioner.

We have carefully gone over the record of this case particularly the debit memo upon which petitionerscounterclaim rests and found nothing contained therein to show that private respondent obligated himselfto set-off or compensate petitioners outstanding accounts with the alleged unrealized commission fromthe assailed sale of sprockets in the amount of P111,000.00 to Dole Philippines, Inc.

It must be remembered that compensation takes place when two persons, in their own right, are creditorsand 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 thesame time a principal creditor of the other; [2] that both debts consist in a sum of money, or if the thingsdue 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 themthere be any retention or controversy, commenced by third persons and communicated in due time to thedebtor."

When all the requisites mentioned in Art. 1279 of the Civil Code are present, compensation takes effectby operation of law, even without the consent or knowledge of the creditors and debtors. 5 Article 1279requires, 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 personasserting the set-off against the other is not clear nor liquidated; compensation cannot extend to

unliquidated, disputed claim existing from breach of contract.

Undoubtedly, petitioner admits the validity of its outstanding accounts with private respondent in theamount of P22,213.75 as contained in its answer. But whether private respondent is liable to pay thepetitioner 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 canbe inferred that there was any agreement between the petitioner and private respondent prohibiting the


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latter from selling directly to Dole Philippines, Incorporated. Definitely, it cannot be asserted that the debitmemo was a contract binding between the parties considering that the same, as correctly found by theappellate court, was not signed by private respondent nor was there any mention therein of anycommitment by the latter to pay any commission to the former involving the sale of sprockets to DolePhilippines, Inc. in the amount of P111,000.00. Indeed, such document can be taken as self-serving withno probative value absent a showing or at the very least an inference, that the party sought to be boundassented to its contents or showed conformity thereto.

In fact the letter written by private respondents lawyer dated March 5, 1975 7 in reply to petitioners letterdated February 19, 1976 transmit ting its Debit Memo No. 1695 further strengthens private respondentsstand that it never agreed to give petitioner any commission on the direct sale to Dole Philippines, Inc. byits company because said letter denied any utilization of petitioners person nel and facilities at itsDavao Branch in the transaction with Dole Philippines, Inc . which would otherwise lend a basis forpetitioners monetary claim.

WHEREFORE, in view of the foregoing, the questioned decision of respondent appellate court is hereby AFFIRMED.

G.R. No. 128448. February 1, 2001

SPOUSES ALEJANDRO MIRASOL and LILIA E. MIRASOL, petitioners, vs. THE COURT OFAPPEALS, PHILIPPINE NATIONAL BANK, and PHILIPPINE EXCHANGE CO., INC., Respondents.

D E C I S I O N

QUISUMBING, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals dated July 22, 1996, inCA-G.R. CV No. 38607, as well as of its resolution of January 23, 1997, denying petitioners motion forreconsideration. The challenged decision reversed the judgment of the Regional Trial Court of BacolodCity, Branch 42 in Civil Case No. 14725.

The factual background of this case, as gleaned from the records, is as follows:

The Mirasols are sugarland owners and planters. In 1973-1974, they produced 70,501.08 piculs 1 ofsugar, 25,662.36 of which were assigned for export. The following crop year, their acreage planted to thesame crop was lower, yielding 65,100 piculs of sugar, with 23,696.40 piculs marked for export.

Private respondent Philippine National Bank (PNB) financed the Mirasols sugar production venture forcrop years, 1973-1974 and 1974-1975 under a crop loan financing scheme. Under said scheme, theMirasols signed Credit Agreements, a Chattel Mortgage on Standing Crops, and a Real Estate Mortgagein favor of PNB. The Chattel Mortgage empowered PNB as the petitioners attorney-in-fact to negotiate


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and to sell the latters sugar in both domestic and export markets and to apply the proceeds to thepayment of their obligations to it.

Exercising his law-making powers under Martial Law, then President Ferdinand Marcos issued

Presidential Decree (P.D.) No. 579 2 in November, 1974. The decree authorized private respondentPhilippine Exchange Co., Inc. (PHILEX) to purchase sugar allocated for export to the United States and toother foreign markets. The price and quantity was determined by the Sugar Quota Administration, PNB,the Department of Trade and Industry, and finally, by the Office of the President. The decree furtherauthorized PNB to finance PHILEXs purchases. Finally, the decree directed that whatever profit PHILEXmight realize from sales of sugar abroad was to be remitted to a special fund of the national government,after commissions, overhead expenses and liabilities had been deducted. The government offices andentities tasked by existing laws and administrative regulations to oversee the sugar export pegged thepurchase price of export sugar in crop years 1973-1974 and 1974-1975 at P 180.00 per picul.

PNB continued to finance the sugar production of the Mirasols for crop years 1975-1976 and 1976-1977.These crop loans and similar obligations were secured by real estate mortgages over several propertiesof the Mirasols and chattel mortgages over standing crops. Believing that the proceeds of their sugarsales to PNB, if properly accounted for, were more than enough to pay their obligations, petitioners askedPNB for an accounting of the proceeds of the sale of their export sugar. PNB ignored the request.Meanwhile, petitioners continued to avail of other loans from PNB and to make unfunded withdrawalsfrom their current accounts with said bank. PNB then asked petitioners to settle their due anddemandable accounts. As a result of these demands for payment, petitioners on August 4, 1977,conveyed to PNB real properties valued at P1,410,466.00 by way of dacion en pago, leaving an unpaidoverdrawn account of P1,513,347.78.

On August 10, 1982, the balance of outstanding sugar crop and other loans owed by petitioners to PNBstood at P15,964,252.93. Despite demands, the Mirasols failed to settle said due and demandableaccounts. PNB then proceeded to extrajudicially foreclose the mortgaged properties. After applying theproceeds of the auction sale of the mortgaged realties, PNB still had a deficiency claim ofP12,551,252.93.

Petitioners continued to ask PNB to account for the proceeds of the sale of their export sugar for cropyears 1973-1974 and 1974-1975, insisting that said proceeds, if properly liquidated, could offset theiroutstanding obligations with the bank. PNB remained adamant in its stance that under P.D. No. 579,

there was nothing to account since under said law, all earnings from the export sales of sugar pertainedto the National Government and were subject to the disposition of the President of the Philippines forpublic purposes.

On August 9, 1979, the Mirasols filed a suit for accounting, specific performance, and damages againstPNB with the Regional Trial Court of Bacolod City, docketed as Civil Case No. 14725.


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On June 16, 1987, the complaint was amended to implead PHILEX as party-defendant.

The parties agreed at pre-trial to limit the issues to the following:

1. The constitutionality and/or legality of Presidential Decrees numbered 338, 579, and 1192;

2. The determination of the total amount allegedly due the plaintiffs from the defendants corresponding tothe allege(d) unliquidated cost price of export sugar during crop years 1973-1974 and 1974-1975.3crlwvirtualibrry

After trial on the merits, the trial court decided as follows:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered in favor of the plaintiffsand against the defendants Philippine National Bank (PNB) and Philippine Exchange Co., Inc. (PHILEX):

(1)Declaring Presidential Decree 579 enacted on November 12, 1974 and all circulars, as well as policies,orders and other issuances issued in furtherance thereof, unconstitutional and therefore, NULL and VOIDbeing in gross violation of the Bill of Rights;

(2) Ordering defendants PNB and PHILEX to pay, jointly and severally, plaintiffs the whole amountcorresponding to the residue of the unliquidated actual cost price of 25,662 piculs in export sugar for cropyear 1973-1974 at an average price of P300.00 per picul, deducting therefrom however, the amount ofP180.00 already paid in advance plus the allowable deductions in service fees and other charges;

(3) And also, for the same defendants to pay, jointly and severally, same plaintiffs the whole amountcorresponding to the unpaid actual price of 14,596 piculs of export sugar for crop year 1974-1975 at anaverage rate of P214.14 per picul minus however, the sum of P180.00 per picul already paid by thedefendants in advance and the allowable deducting (sic) in service fees and other charges.

The unliquidated amount of money due the plaintiffs but withheld by the defendants, shall earn the legalrate of interest at 12% per annum computed from the date this action was instituted until fully paid; and,finally


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(4) Directing the defendants PNB and PHILEX to pay, jointly and severally, plaintiffs the sum ofP50,000.00 in moral damages and the amount of P50,000.00 as attorneys fees, plus the costs of thislitigation.

SO ORDERED.

The same was, however, modified by a Resolution of the trial court dated May 14, 1992, which added thefollowing paragraph:

This decision should however, be interpreted without prejudice to whatever benefits that may haveaccrued in favor of the plaintiffs with the passage and approval of Republic Act 7202 otherwise known asthe Sugar Restitution Law, authorizing the restitution of losses suffered by the plaintiffs from Crop year1974-1975 to Crop year 1984-1985 occasioned by the actuations of government-owned and controlledagencies. (Underscoring in the original).

SO ORDERED.

The Mirasols then filed an appeal with the respondent court, docketed as CA-G.R. CV No. 38607, faultingthe trial court for not nullifying the dacion en pago and the mortgage contracts, as well as the foreclosureof their mortgaged properties. Also faulted was the trial courts failure to award them the full money claimsand damages sought from both PNB and PHILEX.

On July 22, 1996, the Court of Appeals reversed the trial court as follows:

WHEREFORE, this Court renders judgment REVERSING the appealed Decision and entering thefollowing verdict:

1. Declaring the dacion en pago and the foreclosure of the mortgaged properties valid;

2. Ordering the PNB to render an accounting of the sugar account of the Mirasol[s] specifically stating theindebtedness of the latter to the former and the proceeds of Mirasols 1973-1974 and 1974-1975 sugarproduction sold pursuant to and in accordance with P.D. 579 and the issuances therefrom;


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Plainly, the Constitution contemplates that the inferior courts should have jurisdiction in cases involvingconstitutionality of any treaty or law, for it speaks of appellate review of final judgments of inferior courts incases where such constitutionality happens to be in issue.

Furthermore, B.P. Blg. 129 grants Regional Trial Courts the authority to rule on the conformity of laws ortreaties with the Constitution, thus:

SECTION 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive original jurisdiction:

(1) In all civil actions in which the subject of the litigations is incapable of pecuniary estimation;

The pivotal issue, which we must address, is whether it was proper for the trial court to have exercised judicial review.

Petitioners argue that the Court of Appeals erred in finding that it was improper for the trial court to havedeclared P.D. No. 579 12 unconstitutional, since petitioners had not complied with Rule 64, Section 3, ofthe Rules of Court. Petitioners contend that said Rule specifically refers only to actions for declaratoryrelief and not to an ordinary action for accounting, specific performance, and damages.

Petitioners contentions are bereft of merit. Rule 64, Section 3 of the Rules of Court provides:

SEC. 3. Notice to Solicitor General. In any action which involves the validity of a statute, or executiveorder or regulation, the Solicitor General shall be notified by the party attacking the statute, executiveorder, or regulation, and shall be entitled to be heard upon such question.

This should be read in relation to Section 1 [c] of P.D. No. 478, 13 which states in part:

SECTION 1. Functions and Organizations (1) The Office of the Solicitor General shallhave the followingspecific powers and functions:

xxx


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[c] Appear in any court in any action involving the validity of any treaty, law, executive order orproclamation, rule or regulation when in his judgment his intervention is necessary or when requested bythe court.

It is basic legal construction that where words of command such as shall, must, or ought are employed,they are generally and ordinarily regarded as mandatory. 14 Thus, where, as in Rule 64, Section 3 of theRules of Court, the word shall is used, a mandatory duty is imposed, which the courts ought to enforce.

The purpose of the mandatory notice in Rule 64, Section 3 is to enable the Solicitor General to decidewhether or not his intervention in the action assailing the validity of a law or treaty is necessary. To denythe Solicitor General such notice would be tantamount to depriving him of his day in court. We muststress that, contrary to petitioners stand, the mandatory notice requirement is not limited to actionsinvolving declaratory relief and similar remedies. The rule itself provides that such notice is required inany action and not just actions involving declaratory relief. Where there is no ambiguity in the words used

in the rule, there is no room for construction. 15 In all actions assailing the validity of a statute, treaty,presidential decree, order, or proclamation, notice to the Solicitor General is mandatory.

In this case, the Solicitor General was never notified about Civil Case No. 14725. Nor did the trial courtever require him to appear in person or by a representative or to file any pleading or memorandum on theconstitutionality of the assailed decree. Hence, the Court of Appeals did not err in holding that lack of therequired notice made it improper for the trial court to pass upon the constitutional validity of thequestioned presidential decrees.

As regards the second issue, petitioners contend that P.D. No. 579 and its implementing issuances arevoid for violating the due process clause and the prohibition against the taking of private property without

just compensation. Petitioners now ask this Court to exercise its power of judicial review.

Jurisprudence has laid down the following requisites for the exercise of this power: First, there must bebefore the Court an actual case calling for the exercise of judicial review. Second, the question before theCourt must be ripe for adjudication. Third, the person challenging the validity of the act must havestanding to challenge. Fourth, the question of constitutionality must have been raised at the earliestopportunity, and lastly, the issue of constitutionality must be the very lis mota of the case.16crlwvirtualibrry

As a rule, the courts will not resolve the constitutionality of a law, if the controversy can be settled onother grounds. 17 The policy of the courts is to avoid ruling on constitutional questions and to presumethat the acts of the political departments are valid, absent a clear and unmistakable showing to thecontrary. To doubt is to sustain. This presumption is based on the doctrine of separation of powers. Thismeans that the measure had first been carefully studied by the legislative and executive departments andfound to be in accord with the Constitution before it was finally enacted and approved.

The present case was instituted primarily for accounting and specific performance. The Court of Appealscorrectly ruled that PNBs obligation to render an accounting is an issue, which can be determined,


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without having to rule on the constitutionality of P.D. No. 579. In fact there is nothing in P.D. No. 579,which is applicable to PNBs intransigence in refusing to give an accounting. The governing law should bethe law on agency, it being undisputed that PNB acted as petitioners agent. In other words, the requisitethat the constitutionality of the law in question be the very lis mota of the case is absent. Thus we cannotrule on the constitutionality of P.D. No. 579.

Petitioners further contend that the passage of R.A. No. 7202 19 rendered P.D. No. 579 unconstitutional,since R.A. No. 7202 affirms that under P.D. 579, the due process clause of the Constitution and the rightof the sugar planters not to be deprived of their property without just compensation were violated.

A perusal of the text of R.A. No. 7202 shows that the repealing clause of said law merely reads:

SEC. 10. All laws, acts, executive orders and circulars in conflict herewith are hereby repealed ormodified accordingly.

The settled rule of statutory construction is that repeals by implication are not favored. 20 R.A. No. 7202cannot be deemed to have repealed P.D. No. 579. In addition, the power to declare a law unconstitutionaldoes not lie with the legislature, but with the courts. 21 Assuming arguendo that R.A. No. 7202 did indeedrepeal P.D. No. 579, said repeal is not a legislative declaration finding the earlier law unconstitutional.

To resolve the third issue, petitioners ask us to apply the doctrine of piercing the veil of corporate fictionwith respect to PNB and PHILEX. Petitioners submit that PHILEX was a wholly-owned subsidiary of PNBprior to the latters privatization.

We note, however, that the appellate court made the following finding of fact:

1. PNB and PHILEX are separate juridical persons and there is no reason to pierce the veil of corporatepersonality. Both existed by virtue of separate organic acts. They had separate operations and differentpurposes and powers.22crlwvirtualibrry

Findings of fact by the Court of Appeals are conclusive and binding upon this Court unless said findingsare not supported by the evidence. 23 Our jurisdiction in a petition for review under Rule 45 of the Rulesof Court is limited only to reviewing questions of law and factual issues are not within its province. 24 Inview of the aforequoted finding of fact, no manifest error is chargeable to the respondent court forrefusing to pierce the veil of corporate fiction.

On the fourth issue, the appellate court found that there were two sets of accounts between petitionersand PNB, namely:

1. The accounts relative to the loan financing scheme entered into by the Mirasols with PNB (PNBs Brief,p. 16) On the question of how much the PNB lent the Mirasols for crop years 1973-1974 and 1974-1975,the evidence recited by the lower court in its decision was deficient. We are offered (sic) PNB the amountof FIFTEEN MILLION NINE HUNDRED SIXTY FOUR THOUSAND TWO HUNDRED FIFTY TWO


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PESOS and NINETY THREE Centavos (Ps15,964,252.93) but this is the alleged balance the Mirasolsowe PNB covering the years 1975 to 1982.

2. The account relative to the Mirasols current account Numbers 5186 and 5177 involving the amount ofTHREE MILLION FOUR HUNDRED THOUSAND Pesos (P3,400,000.00) PNB claims against theMirasols. (PNBs Brief, p. 17)

In regard to the first set of accounts, besides the proceeds from PNBs sale of sugar (involving thedefendant PHILEX in relation to the export portion of the stock), the PNB foreclosed the Mirasolsmortgaged properties realizing therefrom in 1982 THREE MILLION FOUR HUNDRED THIRTEENTHOUSAND Pesos (P3,413,000.00), the PNB itself having acquired the properties as the highest bidder.

As to the second set of accounts, PNB proposed, and the Mirasols accepted, a dacion en pago schemeby which the Mirasols conveyed to PNB pieces of property valued at ONE MILLION FOUR HUNDREDTEN THOUSAND FOUR HUNDRED SIXTY-SIX Pesos (Ps1,410,466.00) (PNBs Brief, pp. 16-17).25

Petitioners now claim that the dacion en pago and the foreclosure of their mortgaged properties were voidfor want of consideration. Petitioners insist that the loans granted them by PNB from 1975 to 1982 hadbeen fully paid by virtue of legal compensation. Hence, the foreclosure was invalid and of no effect, sincethe mortgages were already fully discharged. It is also averred that they agreed to the dacion only byvirtue of a martial law Arrest, Search, and Seizure Order (ASSO).

We find petitioners arguments unpersuasive. Both the lower court and the appellate court found that theMirasols admitted that they were indebted to PNB in the sum stated in the latters counterclaim. 26Petitioners nonetheless insist that the same can be offset by the unliquidated amounts owed them byPNB for crop years 1973-74 and 1974-75. Petitioners argument has no basis in law. For legalcompensation to take place, the requirements set forth in Articles 1278 and 1279 of the Civil Code mustbe present. Said articles read as follows:

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and debtorsof each other.

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditorof the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the samekind, and also of the same quality if the latter has been stated;

(3) That the two debts are due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons andcommunicated in due time to the debtor.


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In the present case, set-off or compensation cannot take place between the parties because:

First, neither of the parties are mutually creditors and debtors of each other. Under P.D. No. 579, neitherPNB nor PHILEX could retain any difference claimed by the Mirasols in the price of sugar sold by the twofirms. P.D. No. 579 prescribed where the profits from the sales are to be paid, to wit:

SECTION 7. x x x After deducting its commission of two and one-half (2-1/2%) percent of gross sales, thebalance of the proceeds of sugar trading operations for every crop year shall be set aside by thePhilippine Exchange Company, Inc,. as profits which shall be paid to a special fund of the NationalGovernment subject to the disposition of the President for public purposes.

Thus, as correctly found by the Court of Appeals, there was nothing with which PNB was supposed tohave off-set Mirasols admitted indebtedness.

Second, compensation cannot take place where one claim, as in the instant case, is still the subject oflitigation, as the same cannot be deemed liquidated.

With respect to the duress allegedly employed by PNB, which impugned petitioners consent to the dacionen pago, both the trial court and the Court of Appeals found that there was no evidence to support saidclaim. Factual findings of the trial court, affirmed by the appellate court, are conclusive upon this Court.

On the fifth issue, the trial court awarded petitioners P50,000.00 in moral damages and P50,000.00 inattorneys fees. Petitioners now theorize that it was error for the Court of Appeals to have deleted theseawards, considering that the appellate court found PNB breached its duty as an agent to render anaccounting to petitioners.

An agents failure to render an accounting to his principal is contrary to Article 1891 of the Civil Code. 30The erring agent is liable for damages under Article 1170 of the Civil Code, which states:

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

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

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

Moral damages are explicitly authorized in breaches of contract where the defendant acted fraudulently or

in bad faith. 31 Good faith, however, is always presumed and any person who seeks to be awardeddamages due to the acts of another has the burden of proving that the latter acted in bad faith, withmalice, or with ill motive. In the instant case, petitioners have failed to show malice or bad faith 32 on thepart of PNB in failing to render an accounting. Absent such showing, moral damages cannot be awarded.

Nor can we restore the award of attorneys fees and costs of suit in favor of petitioners. Under Article 2208(5) of the Civil Code, attorneys fees are allowed in the absence of stipulation only if the defendant actedin gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just, and demandable claim.

As earlier stated, petitioners have not proven bad faith on the part of PNB and PHILEX.


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WHEREFORE , the instant petition is DENIED and the assailed decision of the respondent court in CA-G.R. CV 38607 AFFIRMED. Costs against petitioners.

JESUS M. MONTEMAYOR v VICENTE D. MILLORA,

G.R. No. 168251

D E C I S I O N

DEL CASTILLO, J.:

When the dispositive portion of a judgment is clear and unequivocal, it must be executed strictlyaccording to its tenor.

Factual Antecedents

On July 24, 1990, respondent Atty. Vicente D. Millora (Vicente) obtained a loan of P400,000.00from petitioner Dr. Jesus M. Montemayor (Jesus) as evidenced by a promissory note[5] executed byVicente. On August 10, 1990, the parties executed a loan contract[6] wherein it was provided that theloan has a stipulated monthly interest of 2% and that Vicente had already paid the amount ofP100,000.00 as well as the P8,000.00 representing the interest for the period July 24 to August 23, 1990.

Subsequently and wit h Vicentes consent, the interest rate was increased to 3.5% or P10,500.00 amonth. From March 24, 1991 to July 23, 1991, or for a period of four months, Vicente was supposed topay P42,000.00 as interest but was able to pay only P24,000.00. This was the last payment Vicentemade. Jesus made several demands[7] for Vicente to settle his obligation but to no avail.

Thus, on August 17, 1993, Jesus filed before the RTC of Quezon City a Complaint[8] for Sum ofMoney against Vicente which was docketed as Civil Case No. Q-93-17255. On October 19, 1993,Vicente filed his Answer[9] interposing a counterclaim for attorneys fees of not less than P500,000.00.Vicente claimed that he handled several cases for Jesus but he was summarily dismissed from handlingthem when the instant complaint for sum of money was filed.

Ruling of the Regional Trial Court:

In its Decision[10] dated October 27, 1999, the RTC ordered Vicente to pay Jesus his monetary obligationamounting to P300,000.00 plus interest of 12% from the time of the filing of the complaint on August 17,1993 until fully paid. At the same time, the trial court found merit in Vicentes counterclaim and thusordered Jesus to pay Vicente his attorne ys fees which is equivalent to the amount of Vicentes monetaryliability, and which shall be set-off with the amount Vicente is adjudged to pay Jesus, viz:


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WHEREFORE, premises above-considered [sic], JUDGMENT is hereby rendered orderingdefendant Vicente D. Millora to pay plaintiff Jesus M. Montemayor the sum of P300,000.00 with interest atthe rate of 12% per annum counted from the filing of the instant complaint on August 17, 1993 until fullypaid and whatever amount recoverable from defendant shall be set off by an equivalent amount awardedby the court on the counterclaim representing attorneys fees of defendant on the basis of quantummeruit for legal services pr eviously rendered to plaintiff.

No pronouncement as to attorneys fe es and costs of suit.

SO ORDERED.[11]

On December 8, 1999, Vicente filed a Motion for Reconsideration[12] to which Jesus filed anOpposition.[13] On March 15, 2000, Vicente filed a Motion for the Issuance of a Writ of Execution[14]with resp ect to the portion of the RTC Decision which awarded him attorneys fees under hiscounterclaim. Jesus filed his Urgent Opposition to Defendants Motion for the Issuance of a Writ ofExecution[15] dated May 31, 2000.

In an Order[16] dated June 23, 2000, the RTC denied Vicentes Motion for Reconsideration butgranted his Motion for Issuance of a Writ of Execution of the portion of the decision concerning the awardof attorneys fees.

Intending to appeal the portion of the RTC Decision which declared him liable to Jesus for thesum of P300,000.00 with interest at the rate of 12% per annum counted from the filing of the complaint on

August 17, 1993 until fully paid, Vicente filed on July 6, 2000 a Notice of Appeal.[17] This was howeverdenied by the RTC in an Order[18] dated July 10, 2000 on the ground that the Decision has alreadybecome final and executory on July 1, 2000.[19]

Meanwhile, Jesus filed on July 12, 2000 a Motion for Reconsideration and Clarification[20] of theJune 23, 2000 Order granting Vicentes Motion for the Issuance of a Writ of Execution. Thereafter, Jesusfiled on September 22, 2000 his Motion for the Issuance of a Writ of Execution.[21] After the hearing onthe said motions, the RTC issued an Order[22] dated September 6, 2002 denying both motions for lack ofmerit. The Motion for Reconsideration and Clarification was denied for violating Section 5,[23] Rule 15 ofthe Rules of Court and likewise the Motion for the Issuance of a Writ of Execution, for violating Section6,[24] Rule 15 of the same Rules.

Jesus filed his Motion for Reconsideration[25] thereto on October 10, 2002 but this was eventuallydenied by the trial court through its Order[26] dated October 2, 2003.

Ruling of the Court of Appeals:

Jesus went to the CA via a Petition for Certiorari[27] under Rule 65 of the Rules of Court.


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On May 19, 2005, the CA issued its Decision the dispositive portion of which provides:

WHEREFORE, the foregoing considered, the petition for certiorari is DENIED and the assailed Orders are AFFIRMED in toto. No costs.

SO ORDERED.[28]

Not satisfied, Jesus is now before this Court via a Petition for Review on Certiorari under Rule 45of the Rules of Court.

Issue:

NOTWITHSTANDING THE FINALITY OF THE TRIAL COURTS DECISION OF OCTOBER 27, 1999, ASWELL AS THE ORDERS OF SEPTEMBER 6, 2002 AND OCTOBER 2, 2003, THE LEGAL ISSUE TO BERESOLVED IN THIS CASE IS WHETHER X X X [DESPITE] THE ABSENCE OF A SPECIFIC AMOUNT

IN THE DECISION REPRESENTING RESPONDENTS COUNTERCLAIM, THE SAME COULD BEVALIDLY [OFFSET] AGAINST THE SPECIFIC AMOUNT OF AWARD MENTIONED IN THE DECISIONIN FAVOR OF THE PETITIONER.[29]

Petitioners Arguments :

Jesus contends that the trial court grievously erred in ordering the implementation of the RTCsOctober 27, 1999 Decision considering that same does fix the amount of attorneys fees. According toJesus, such disposition leaves the matter of computation of the attorneys fees uncertain and, hence, thewrit of execution cannot be implemented. In this regard, Jesus points out that not even the Sheriff who

will implement said Decision can compute the judgment awards. Besides, a sheriff is not clothed with theauthority to render judicial functions such as the computation of specific amounts of judgment awards.

Respondents Arguments:

Vicente counter-argues that the October 27, 1999 RTC Decision can no longer be made subject ofreview, either by way of an appeal or by way of a special civil action for certiorari because it had alreadyattained finality when after its promulgation, Jesus did not even file a motion for reconsideration thereof orinterpose an appeal thereto. In fact, it was Vicente who actually filed a motion for reconsideration and anotice of appeal, which was eventually denied and disapproved by the trial court.

HELD: The petition lacks merit.

The October 27, 1999 Decision of the RTC is already final and executory, hence, immutable.

At the outset, it should be stressed that the October 27, 1999 Decision of the RTC is already final andexecutory. Hence, it can no longer be the subject of an appeal. Consequently, Jesus is bound by thedecision and can no longer impugn the same. Indeed, well-settled is the rule that a decision that has


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attained finality can no longer be modified even if the modification is meant to correct erroneousconclusions of fact or law. The doctrine of finality of judgment is explained in Gallardo-Corro v.Gallardo:[30]

Nothing is more settled in law than that once a judgment attains finality it thereby becomes immutableand unalterable. It may no longer be modified in any respect, even if the modification is meant to correct

what is perceived to be an erroneous conclusion of fact or law, and regardless of whether the modificationis attempted to be made by the court rendering it or by the highest court of the land. Just as the losingparty has the right to file an appeal within the prescribed period, the winning party also has the correlativeright to enjoy the finality of the resolution of his case. The doctrine of finality of judgment is grounded onfundamental considerations of public policy and sound practice, and that, at the risk of occasional errors,the judgments or orders of courts must become final at some definite time fixed by law; otherwise, therewould be no end to litigations, thus setting to naught the main role of courts of justice which is to assist inthe enforcement of the rule of law and the maintenance of peace and order by settling justiciablecontroversies with finality.[31]

To stress, the October 27, 1999 Decision of the RTC has already attained finality. Such definitive judgment is no longer subject to change, revision, amendment or reversal. Upon finality of the judgment,the Court loses its jurisdiction to amend, modify or alter the same. Except for correction of clerical errorsor the making of nunc pro tunc entries which cause no prejudice to any party, or where the judgment isvoid, the judgment can neither be amended nor altered after it has become final and executory. This isthe principle of immut ability of final judgment. [32]

The amount of attorneys fees is ascertainable from the RTC Decision. Thus, compensation is possible.

Jesus contends that offsetting cannot be made because the October 27, 1999 judgment of theRTC failed to specify the amount of attorneys fees. He maintains that for offsetting to apply, the twodebts must be liquidated or ascertainable . However, the trial court merely awarded to Vicente attorneys

fees based on quantum meruit without specifying the exact amount thereof.

We do not agree.

For legal compensation to take place, the requirements set forth in Articles 1278 and 1279 of theCivil Code, quoted below, must be present.

ARTICLE 1278. Compensation shall take place when two persons, in their own right, are creditors anddebtors of each other.

ARTICLE 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditorof the other;


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(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the samekind, 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 andcommunicated in due time to the debtor.

A debt is liquidated when its existence and amount are determined. It is not necessary that it beadmitted by the debtor. Nor is it necessary that the credit appear in a final judgment in order that it canbe considered as liquidated; it is enough that its exact amount is known. And a debt is consideredliquidated, not only when it is expressed already in definite figures which do not require verification, butalso when the determination of the exact amount depends only on a simple arithmetical operation x xx. [33]

In Lao v. Special Plans, Inc.,[34] we ruled that:

When the defendant, who has an unliquidated claim, sets it up by way of counterclaim, and a judgment isrendered liquidating such claim, it can be compensated a gainst the plaintiffs claim from the moment it isliquidated by judgment. We have restated this in Solinap v. Hon. Del Rosario[35] where we held thatcompensation takes place only if both obligations are liquidated.

In the instant case, both obligations are liquidated. Vicente has the obligation to pay his debt due to Jesusin the amount of P300,000.00 with interest at the rate of 12% per annum counted from the filing of theinstant complaint on August 17, 1993 until fully paid. Jesus, on the other hand, has the obligation to payattorneys fees which the RTC had already determined to be equivalent to whatever amount recoverablefrom Vicente. The said attorneys fees were awarded by the RTC on the counterclaim of Vicente on thebasis of quantum meruit for the legal services he previously rendered to Jesus.

In its Decision, the trial court elucidated on how Vicente had established his entitlement forattorneys fees based on h is counterclaim in this manner:

Defendant, on his counterclaim, has established the existence of a lawyer-clientrelationship between him and plaintiff and this was admitted by the latter. Defendant had representedplaintiff in several court cases which include the Laguna property case, the various cases filed by Atty.Romulo Reyes against plaintiff such as the falsification and libel cases and the disbarment case filed byplaintiff against Atty. Romulo Reyes before the Commission on Bar Integration. Aside from these cases,plaintiff had made defendant his consultant on almost everything that involved legal opinions.


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

Notwithstanding the tenor of the said portion of the judgment, still, there is nothing to execute and satisfy

in favor of either of the herein protagonists because the said decision also states clearly that whateveramount recoverable from defendant shall be SET-OFF by an equivalent amount awarded by the Court onthe counterclaim representing attorneys fees of defendant on the basis of quantum meruit for legalservices previously rendered to plaintiff x x x.

Said dispositive portion of the decision is free from any ambiguity. It unequivocably ordered that anyamount due in favor of plaintiff and against defendant is set off by an equivalent amount awarded todefendant in the form of counterclaims representing attorneys fees for past legal services he rendered toplaintiff.

It will be an exercise in futility and a waste of so precious time and unnecessary effort to enforcesatisfaction of the plaintiffs claims against defendant, and vice versa because there is in fact a setting offof each others claims and liabilities under the said judgme nt which has long become final.[38] (Emphasisin the original.)

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

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

NOVATION

G.R. No. L-29981 April 30, 1971


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EUSEBIO S. MILLAR, petitioner, vs. THE HON. COURT OF APPEALS and ANTONIO P. GABRIEL,respondents.

CASTRO, J.:

On February 11, 1956, Eusebio S. Millar (hereinafter referred to as the petitioner) obtained a favorable judgment from the Court of First Instance of Manila, in civil case 27116, condemning Antonio P. Gabriel(hereinafter referred to as the respondent) to pay him the sum of P1,746.98 with interest at 12% perannum from the date of the filing of the complaint, the sum of P400 as attorney's fees, and the costs ofsuit. From the said judgment, the respondent appealed to the Court of Appeals which, however,dismissed the appeal on January 11, 1957.

Subsequently, on February 15, 1957, after remand by the Court of Appeals of the case, the petitionermoved ex parte in the court of origin for the issuance of the corresponding writ of execution to enforce the

judgment. Acting upon the motion, the lower court issued the writ of execution applied for, on the basis ofwhich the sheriff of Manila seized the respondent's Willy's Ford jeep (with motor no. B-192297 and plateno. 7225, Manila, 1956).

The respondent, however, pleaded with the petitioner to release the jeep under an arrangement wherebythe respondent, to secure the payment of the judgement debt, agreed to mortgage the vehicle in favor ofthe petitioner. The petitioner agreed to the arrangement; thus, the parties, on February 22, 1957,executed a chattel mortgage on the jeep, stipulating, inter alia, that

This mortgage is given as security for the payment to the said EUSEBIO S. MILLAR, mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116 of the Court of First Instance of Manilaagainst Antonio P. Gabriel, MORTGAGOR, in the amount of ONE THOUSAND SEVEN HUNDRED(P1,700.00) PESOS, Philippine currency, which MORTGAGOR agrees to pay as follows:

March 31, 1957 EIGHT HUNDRED FIFTY (P850) PESOS;

April 30, 1957 EIGHT HUNDRED FIFTY (P850.00) PESOS.

Upon failure of the respondent to pay the first installment due on March 31, 1957, the petitioner obtainedan alias writ of execution. This writ which the sheriff served on the respondent only on May 30, 1957 after the lapse of the entire period stipulated in the chattel mortgage for the respondent to comply with hisobligation was returned unsatisfied.

So on July 17, 1957 and on various dates thereafter, the lower court, at the instance of the petitioner,issued several alias writs, which writs the sheriff also returned unsatisfied. On September 20, 1961, the


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petitioner obtained a fifth alias writ of execution. Pursuant to this last writ, the sheriff levied on certainpersonal properties belonging to the respondent, and then scheduled them for execution sale.

However, on November 10, 1961, the respondent filed an urgent motion for the suspension of theexecution sale on the ground of payment of the judgment obligation. The lower court, on November 11,1961, ordered the suspension of the execution sole to afford the respondent the opportunity to prove his

allegation of payment of the judgment debt, and set the matter for hearing on November 25, 1961. Afterhearing, the lower court, on January 25, 1962, issued an order the dispositive portion of which reads:

IN VIEW WHEREOF, execution reiterated for P1,700.00 plus costs of execution.

The lower court ruled that novation had taken place, and that the parties had executed the chattelmortgage only "to secure or get better security for the judgment.

The respondent duly appealed the aforesaid order to the Court of Appeals, which set aside the order ofexecution in a decision rendered on October 17, 1968, holding that the subsequent agreement of theparties impliedly novated the judgment obligation in civil case 27116.

The appellate court stated that the following circumstances sufficiently demonstrate the incompatibilitybetween the judgment debt and the obligation embodied in the deed of chattel mortgage, warranting aconclusion of implied novation:

1. Whereas the judgment orders the respondent to pay the petitioner the sum of P1,746.98 withinterest at 12% per annum from the filing of the complaint, plus the amount of P400 and the costs of suit,the deed of chattel mortgage limits the principal obligation of the respondent to P1,700;

2. Whereas the judgment mentions no specific mode of payment of the amount due to the petitioner,

the deed of chattel mortgage stipulates payment of the sum of P1,700 in two equal installments;

3. Whereas the judgment makes no mention of damages, the deed of chattel mortgage obligatesthe respondent to pay liquidated damages in the amount of P300 in case of default on his part; and

4. Whereas the judgment debt was unsecured, the chattel mortgage, which may be foreclosedextrajudicially in case of default, secured the obligation.

On November 26, 1968, the petitioner moved for reconsideration of the appellate court's decision, whichmotion the Court of Appeals denied in its resolution of December 7, 1968. Hence, the present petition forcertiorari to review the decision of the Court of Appeals, seeking reversal of the appellate court's decisionand affirmance of the order of the lower court.

Resolution of the controversy posed by the petition at bar hinges entirely on a determination of whether ornot the subsequent agreement of the parties as embodied in the deed of chattel mortgage impliedlynovated the judgment obligation in civil case 27116. The Court of Appeals, in arriving at the conclusionthat implied novation has taken place, took into account the four circumstances heretofore alreadyadverted to as indicative of the incompatibility between the judgment debt and the principal obligationunder the deed of chattel mortgage.


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1. Anent the first circumstance, the petitioner argues that this does not constitute a circumstance inimplying novation of the judgment debt, stating that in the interim from the time of the rendition of the

judgment in civil case 27116 to the time of the execution of the deed of chattel mortgage therespondent made partial payments, necessarily resulting in the lesser sum stated in the deed of chattel

mortgage. He adds that on record appears the admission by both parties of the partial payments madebefore the execution of the deed of chattel mortgage. The erroneous conclusion arrived at by the Court of

Appeals, the petitioner argues, creates the wrong impression that the execution of the deed of chattelmortgage provided the consideration or the reason for the reduced judgment indebtedness.

Where the new obligation merely reiterates or ratifies the old obligation, although the former effects butminor alterations or slight modifications with respect to the cause or object or conditions of he latter, suchchanges do not effectuate any substantial incompatibility between the two obligations Only thoseessential and principal changes introduced by the new obligation producing an alteration or modificationof the essence of the old obligation result in implied novation. In the case at bar, the mere reduction of theamount due in no sense constitutes a sufficient indictum of incompatibility, especially in the light of (a) theexplanation by the petitioner that the reduced indebtedness was the result of the partial payments madeby the respondent before the execution of the chattel mortgage agreement and (b) the latter's admissionsbearing thereon.

At best, the deed of chattel mortgage simply specified exactly how much the respondent still owed thepetitioner by virtue of the judgment in civil case 27116. The parties apparently in their desire to avoid anyfuture confusion as to the amounts already paid and as to the sum still due, decoded to state withspecificity in the deed of chattel mortgage only the balance of the judgment debt properly collectible fromthe respondent. All told, therefore, the first circumstance fails to satisfy the test of substantial andcomplete incompatibility between the judgment debt an the pecuniary liability of the respondent under thechattel mortgage agreement.

2. The petitioner also alleges that the third circumstance, considered by the Court of Appeals asindicative of incompatibility, is directly contrary to the admissions of the respondent and is without anyfactual basis. The appellate court pointed out that while the judgment made no mention of payment ofdamages, the deed of chattel mortgage stipulated the payment of liquidated damages in the amount ofP300 in case of default on the part of the respondent.

However, the petitioner contends that the respondent himself in his brief filed with the Court of Appealsadmitted his obligation, under the deed of chattel mortgage, to pay the amount of P300 by way ofattorney's fees and not as liquidated damages. Similarly, the judgment makes mention of the payment ofthe sum of P400 as attorney's fees and omits any reference to liquidated damages.

The discrepancy between the amount of P400 and tile sum of P300 fixed as attorney's fees in the judgment and the deed of chattel mortgage, respectively, is explained by the petitioner, thus: the partialpayments made by the respondent before the execution of the chattel mortgage agreement were appliedin satisfaction of part of the judgment debt and of part of the attorney's fee fixed in the judgment, therebyreducing both amounts.

At all events, in the absence of clear and convincing proof showing that the parties, in stipulating thepayment of P300 as attorney's fees in the deed of chattel mortgage, intended the same as an obligationfor the payment of liquidated damages in case of default on the part of the respondent, we find it difficultto agree with the conclusion reached by the Court of Appeals.


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3. As to the second and fourth circumstances relied upon by the Court of Appeals in holding that themontage obligation superseded, through implied novation, the judgment debt, the petitioner points outthat the appellate court considered said circumstances in a way not in accordance with law or accepted

jurisprudence. The appellate court stated that while the judgment specified no mode for the payment of

the judgment debt, the deed of chattel mortgage provided for the payment of the amount fixed therein intwo equal installments.

On this point, we see no substantial incompatibility between the mortgage obligation and the judgmentliability of the respondent sufficient to justify a conclusion of implied novation. The stipulation for thepayment of the obligation under the terms of the deed of chattel mortgage serves only to provide anexpress and specific method for its extinguishment payment in two equal installments. The chattelmortgage simply gave the respondent a method and more time to enable him to fully satisfy the judgmentindebtedness. 1 The chattel mortgage agreement in no manner introduced any substantial modification oralteration of the judgment. Instead of extinguishing the obligation of the respondent arising from the

judgment, the deed of chattel mortgage expressly ratified and confirmed the existence of the same,amplifying only the mode and period for compliance by the respondent.

The Court of Appeals also considered the terms of the deed of chattel mortgage incompatible with the judgment because the chattel mortgage secured the obligation under the deed, whereas the obligationunder the judgment was unsecured. The petitioner argues that the deed of chattel agreement clearlyshows that the parties agreed upon the chattel mortgage solely to secure, not the payment of the reducedamount as fixed in the aforesaid deed, but the payment of the judgment obligation and other incidentalexpenses in civil case 27116.

The unmistakable terms of the deed of chattel mortgage reveal that the parties constituted the chattelmortgage purposely to secure the satisfaction of the then existing liability of the respondent arising fromthe judgment against him in civil case 27116. As a security for the payment of the judgment obligation,the chattel mortgage agreement effectuated no substantial alteration in the liability of the respondent.

The defense of implied novation requires clear and convincing proof of complete incompatibility betweenthe two obligations. 2 The law requires no specific form for an effective novation by implication. The test iswhether the two obligations can stand together. If they cannot, incompatibility arises, and the secondobligation novates the first. If they can stand together, no incompatibility results and novation does nottake place.

We do not see any substantial incompatibility between the two obligations as to warrant a finding of animplied novation. Nor do we find satisfactory proof showing that the parties, by explicit terms, intended thefull discharge of the respondent's liability under the judgment by the obligation assumed under the termsof the deed of chattel mortgage so as to justify a finding of express novation.

ACCORDINGLY, the decision of the Court of Appeals of October 17, 1968 is set aside, and the order ofthe Court of First Instance of Manila of January 25, 1962 is affirmed, at respondent Antonio Gabriel's cost.

G.R. No. L-18411 December 17, 1966

MAGDALENA ESTATES, INC., plaintiff-appellee, vs. ANTONIO A. RODRIGUEZ and HERMINIA C.RODRIGUEZ, defendants-appellants.


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REGALA, J.:

Appeal from the decision of the Court of First Instance of Manila ordering the defendants-appellants topay jointly and severally to the plaintiff-appellee the sum of P655.89, plus legal interest thereon from date

of the judicial demand, the sum of P100.00 as attorney's fees, and to pay the costs.

The appellants bought from the appellee a parcel of land in Quezon City known as Lot 7-K-2-G, Psd-26193. In view of an unpaid balance of P5,000.00 on account of the purchase price of the lot, theappellants executed on January 4, 1957, the following promissory note representing the said account:

PROMISSORY NOTE

P5,000.00

Manila, January 4, 1957

We, the Spouses ANTONIO A. RODRIGUEZ and HERMINIA C. RODRIGUEZ, jointly and severallypromise to pay the Magdalena Estates, Inc., or order, at its offices in the City of Manila, without anydemand the sum of FIVE THOUSAND PESOS (P5,000.00), Philippine currency, with interest at the rateof Nine Per Cent 9% per annum, within sixty (60) days from January 7, 1957. The sum of P5,000.00represents the balance of the purchase price of the parcel of land known as Lot 7-K-2-G, Psd. 26193,containing an area of 2,191 square meters, Quezon City.

(Sgd.) Antonio A. Rodriguez

( T ) ANTONIO A. RODRIGUEZ

(Sgd.) Herminia C. Rodriguez

( T ) HERMINIA C. RODRIGUEZ

Signed in the Presence of:

(Sgd.) ILLEGIBLE

(Sgd.) ILLEGIBLE

On the same date, the appellants and the Luzon Surety Co., Inc. executed a bond in favor of theappellee, the undertaking thereof being embodied therein as follows:


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. . . comply with the obligation to pay the amount of P5,000.00 representing balance of the purchase priceof a parcel of land known as Lot 7-K-2-G, Psd-26193, with an area of 2191 square meters, Quezon City,covered by Transfer Certificate of Title No. 13 (6947), Quezon City, within a period of sixty (60) days fromJanuary 7, 1957; That the Surety shall be notified in writing within Ten (10) days from moment of default

otherwise, this undertaking is automatically null and void.

On June 20, 1958, when the obligation of the appellants became due and demandable, the Luzon SuretyCo., Inc. paid to the appellee the sum of P5,000.00. Subsequently, the appellee demanded from theappellants the payment of P655.89 corresponding to the alleged accumulated interests on the principal ofP5,000.00. Due to the refusal of the appellants to pay the said interest, the appellee started this suit in theMunicipal Court of Manila to enforce the collection thereof. The said court, on February 5, 1959, rendered

judgment in favor of the appellee and against the appellants, ordering the latter to pay jointly andseverally the appellee the sum of P655.89 with interest thereon at the legal rate from November 10, 1958,the date of the filing of the complaint, until the whole amount is fully paid. Not satisfied with that judgment,appellants appealed to the Court of First Instance of Manila, where the case was submitted for decisionon the pleadings. The Court of First Instance of Manila rendered the judgment stated at the outset of thisdecision.

On appeal directly to this Court, the following errors are assigned:

I. The lower court erred in concluding as a fact from the pleadings that the plaintiff-appellee demanded,and the Luzon Surety Co., Inc. refused, the payment of interest in the amount of P655.89, and in notfinding and declaring that said plaintiff-appellee waived or condoned the said interests.

II. The lower court erred in not finding and declaring that the obligation of the defendants-appellants infavor of the plaintiff-appellee was totally extinguished by payment and/or condonation.

III. The lower court erred in not finding and declaring that the promissory note executed by thedefendants-appellants in favor of the plaintiff-appellee was, insofar as the said document provided for thepayment of interests, novated when the plaintiff-appellee unqualifiedly accepted the surety bond whichmerely guaranteed payment of the principal in the sum of P5,000.00.

Appellants claim that the pleadings do not show that there was demand made by the appellee for thepayment of accrued interest and what could be deduced therefrom was merely that the appelleedemanded from the Luzon Surety Co., Inc., in the capacity of the latter as surety, the payment of theobligation of the appellants, and said appellee accepted unqualifiedly the amount of P5,000.00 asperformance by the obligor and/or obligors of the obligation in its favor. It is further claimed that theunqualified acceptance of payment made by the Luzon Surety Co., Inc. of P5,000.00 or only the amount

of the principal obligation and without exercising its (appellee's) right to apply a portion of P655.89 thereofto the payment of the alleged interest due despite its presumed knowledge of its right to do so, theappellee showed that it waived or condoned the interests due, because Articles 1235 and 1253 of theCivil Code provide:

ART. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, andwithout expressing any protest or objection, the obligation is deemed fully complied with.


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ART. 1253. If the debt produces interest, payment of the principal shall not be deemed to have beenmade until the interests have been recovered.

We do not agree with the contention of the appellants. It is very clear in the promissory note that the

principal obligation is the balance of the purchase price of the parcel of land known as Lot 7-K-2-G, Psd-26193, which is the sum of P5,000.00, and in the surety bond, the Luzon Surety Co., Inc. undertook "topay the amount of P5,000.00 representing balance of the purchase price of a parcel of land known as Lot7-K-2-G, Psd-26193, . . . ." The appellee did not protest nor object when it accepted the payment ofP5,000.00 because it knew that that was the complete amount undertaken by the surety as appearing inthe contract. The liability of a surety is not extended, by implication, beyond the terms of his contract.1 Itis for the same reason that the appellee cannot apply a part of the P5,000.00 as payment for the accruedinterest. Appellants are relying on Article 1253 of the Civil Code, but the rules contained in Articles 1252to 1254 of the Civil Code apply to a person owing several debts of the same kind of a single creditor.They cannot be made applicable to a person whose obligation as a mere surety is both contingent andsingular; his liability is confined to such obligation, and he is entitled to have all payments made appliedexclusively to said application and to no other.2 Besides, Article 1253 of the Civil Code is merelydirectory, and not mandatory.3 Inasmuch as the appellee cannot protest for non-payment of the interestwhen it accepted the amount of P5,000.00 from the Luzon Surety Co., Inc., nor apply a part of thatamount as payment for the interest, we cannot now say that there was a waiver or condonation on theinterest due.

It is claimed that there was a novation and/or modification of the obligation of the appellants in favor of theappellee because the appellee accepted without reservation the subsequent agreement set forth in thesurety bond despite its failure to provide that it also guaranteed payment of accruing interest.

The rule is settled that novation by presumption has never been favored. To be sustained, it needs to be

established that the old and new contracts are incompatible in all points, or that the will to novate appearsby express agreement of the parties or in acts of similar import.4

An obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified, bychanging only the terms of payment and adding other obligations not incompatible with the old one,5 orwherein the old contract is merely supplemented by the new one.6 The mere fact that the creditorreceives a guaranty or accepts payments from a third person who has agreed to assume the obligation,when there is no agreement that the first debtor shall be released from responsibility does not constitute anovation, and the creditor can still enforce the obligation against the original debtor. (Straight v. Haskel,49 Phil. 614; Pacific Commercial Co. v. Sotto, 34 Phil. 237; Estate of Mota v. Serra, 47 Phil. 464; Dugov. Lopena, supra ). In the instant case, the surety bond is not a new and separate contract but anaccessory of the promissory note.

WHEREFORE, the judgment appealed from should be, as it is hereby, affirmed, with costs against theappellants.

G.R. No. 79642 July 5, 1993


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BROADWAY CENTRUM CONDOMINIUM CORPORATION, petitioner, vs. TROPICAL HUT FOODMARKET, INC. and THE HONORABLE COURT OF APPEALS, respondents.

FELICIANO, J.:

Petitioner Broadway Centrum Condominium Corporation ("Broadway") and private respondent TropicalHut Food Market. Inc. ("Tropical") executed an 28 November 1980 a contract of lease. Broadway, aslessor, agreed to lease a 3,042.19 square meter portion of the Broadway Centrum Commercial Complexfor a period of ten (10) years, commencing from 1 February 1981 and expiring on 1 February 1991,"renewable for a like period upon the mutual agreement of both parties." The rental provision of thiscontract reads as follows:

3. BASIC RENTAL ON LEASED PREMISES LESSEE agrees to pay LESSOR a basic monthlyrental on the leased promises in the amount of ONE HUNDRED TWENTY THOUSAND PESOS(P120,000.00) Philippine Currency, during the first three (3) years of this lease contract from February 1,1981 to February 1, 1984, allowing two (2) months grace period on rental for renovation/improvements on

the leased promises from December 1, 1980 to January 31. 1961. The basic rental shall be increased toONE HUNDRED FORTY THOUSAND PESOS (P140,000.00) per month during the next three (3) yearsfrom February 1, 1984 to February 1, 1987, and ONE HUNDRED SIXTY FIVE THOUSAND PESOS(P165,000.00) per month during the last four (4) years from February 1, 1967 to February 1, 1991.

The first basic monthly rental shall be paid in advance to the LESSOR on or before December 1, 1980.Succeeding basic monthly rentals starting March, 1981 be paid by LESSEE to LESSOR, without thenecessity of a previous demand or the services of a collector, within the first five (5) days of the month towhich said rental shall correspond, at the Office of the LESSOR at Broadway Centrum.

During the first year of the lessor-lessee relationship between Broadway and Tropical, no problems wereapparently experienced by either of them. On 5 February 1982, however, Tropical wrote to Broadwaystating that Tropical's rental payments to Broadway were equivalent to 7.31% of Tropical's actual sales ofP17,246,103.00 in 1981, while "[Tropical's] gross profit, rate [was] only 10%." Tropical went on to say thatthe rental specified in that contract had been "based merely on [Tropical's) projections that [Tropical]could reach an average sale of P120,000.00 a day;" however, Tropical's total sales projection for 1982was only P23,000,000.00. This would mean again a rental rate of 6.08% of sales "which is too high forTropical Hut-Broadway considering that the present rental rates of other Tropical branches are evenbelow the normal rate of 1.5% on sales." Accordingly. Tropical made the following proposal to Broadway:

[Tropical] would therefore propose to reduce the present monthly rental to P50,000.00 or 2.0% of theirmonthly sales whichever is higher, up to the end of the third year after which it shall again be subject torenegotiations. (Emphasis supplied)

On 4 March 1962, Broadway responded to Tropical's latter by stating that it (Broadway) believed that theproblems of Tropical's supermarket in the Broadway Centrum were within the control of Tropical'smanagement. Broadway offered six (6) suggestions which, if implemented, should result in increasedsales for Tropical of at least 15% in the succeeding months. In the meantime, Broadway made the


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following counter-proposal consisting of conditional reduction of the stipulated rental by P20,000.00 for alimited period of four (4) months:

. . . Meantime, we are agreeable to a conditional reduction of your rental by P20,000.00 per month for

four months starting this month on a trial basis; that is, the P20,000.00 per month reduction in rental willbe paid back to us and spread over the last six months of the years should the target of 15% increase insales be achieved by the fourth month. However, should your sales not increased by 5% in spite of theimprovements you have introduced, the reduction in rental of P20,000.00 per month of P80,000.00 forfour months will not have to be paid anymore. In other words, the monthly reduction in rental isconditioned upon your not achieving the desired 15% increased in sales volume by the fourth monthassuming you implement all of the above changes.

It is understood, however, that any reduction in rental extended is merely a temporary suspension of theoriginal rate of rental stipulated in our contract of lease and not an amendment thereto. 2 (Emphasessupplied)

Officers of Tropical met with the President of Broadway and during this conference, Tropical's officersrecounted the "low sales volume" that the Tropical Supermarket in the Broadway Centrum wasexperiencing, apparently as a result of the temporary closure of Doa Juana Rodriguez Avenue. 3 This

Avenue is a major thoroughfare adjacent to the Broadway Centrum and was then closed to vehiculartraffic because of the road expansion project of the Government. Broadway's President, Mrs. CitaFernandez Orosa, was aware that the temporary closure of the Doa Juana Rodriguez Avenue hadaffected the business of all the Broadway's tenants, including Tropical. She, therefore, agreed on 20 April1982 to a "provisional and temporary agreement" which agreement needs to be quoted in full:

Further to our letter dated April 6, 1982, we hereby make formal our provisional and temporary agreement

to a reduction of your monthly rental on the basis of 2% of gross receipts or P60,000.00 whichever ishigher. Gross receipts should be construed as the total sales and receipts from sublessees of your areaand from whatever source arising from the area leased by you. This Provisional arrangement should notbe interpreted as amendment to the lease contract entered into between us.

We invite your attention to the fact that, as agreed upon, you have committed to return by the end of Aprila certain portion of your leased premises totalling 466.56 square meters and presently occupied by yourdrug store and coffee shop outlets and half of the hallway.

Finally we wish to remind you that the temporary alteration in rental is conditioned on your good faithimplementation an the suggestions we conveyed to you in our letter of March 4, 1982 regarding theoperations of the supermarket and shall not commence until the area mentioned above to be surrendered

is actually surrendered.

Should you find the foregoing in accordance with our previous verbal agreement, please signify youracceptance by signing above the word "conforme."

Thank you for your, continued patronage.


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C o n f o r m e: Very, truly yours,

Tropical Hut Food Broadway CentrumMarket, Inc. Condominium Corp.

By: (Signed) By: (Signed) 4

___________________ _____________________

(Emphasis supplied).

Months later, the road expansion project at the Doa Juana Rodriguez Avenue was completed. By aletter dated 15 December 1982, addressed to Tropical, Broadway referred to the rental which "as of last,

April 20, 1982, was provisionally reduced" to P60,000.00 a month or 2% of gross receipts whichever ishigher "without waving any of [Broadway's] rights under our rental agreement." Broadway then went on tosay that:

After careful deliberation, we regret that this concession can no longer be extended in its present form.We, therefore, advising that we shall increase the monthly rental to P100,000.00.

This increase, however, shall be implemented gradually as follows: P80,000.00 effective January, 1983and P100,000.00 effective April, 1993 until further notice.

Considering the fact that you collect a monthly gross rental of P24,600.00 from your concessionaires(other forms of income not considered), the previous temporary arrangement afforded you mare thansufficient respite from whatever business constraints you may have had then. The consequent effect ofsaid temporary arrangement is your payment of a monthly rental of P35,400.00 or an effective rate ofP14.32 only per square mater. We are sure that you will agree with us that this rate is very low andcannot therefore be sustained indefinitely. 5 (Emphases supplied).

While the rental rate above fixed by Broadway was higher than that set out in the provisional and

temporary agreement of the parties of 20 April 1982, the rates so fixed were nonetheless lower than thatstipulated in their contract of 28 November 1980. Tropical, however, was not satisfied with the adjustedrates fixed by Broadway. In a letter dated 4 January 1983, Mr. Luis Que of Tropical wrote to Broadway'sPresident appealing to Broadway "to fix our monthly rental at P60,000.00 or 2% of our gross receiptswhichever is higher." In this letter, Mr. Que expressly hoped that


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[Broadway would] understand our position, and may we reiterate our appeal to maintain our presentprovisional rates until such time that more sales are achieved. (Emphasis supplied)

Mr. Luis Que's appeal was, however, found unsatisfactory by Broadway. In a letter dated 13 January1983, Broadway said:

We are replying to your letter of January 4, 1983. While it may be admitted that you are incurring losses inyour operations, the same is not a monopoly experienced solely by your corporation. Broadway Centrumitself has had its share of business setbacks but we have nevertheless decided to absorb part of yourlosses last year by agreeing to a temporary reduction of your monthly rental. However, as we have statedin our December 15, 1982 letter, this concession can no longer be extended in its present form whichcontinues to be a considerable reduction on the provisions of our existing long term contract.Consequently, we have to reiterate our advise on you regarding your rental increased. 6 (Emphasissupplied).

Tropical continued its renegotiation efforts. In another letter dated 29 March 1983, Broadway's Presidentwrote to Mr. Luis Que turning down his request for reconsideration. Broadway, however, was evidentlydesirous of keeping Tropical as a tenant if possible and so stated that the P100,000.00 monthly rental

would begin, not on April 1983 as stated in its letter of 15 December 1982 but rather on July 1983. By aletter, dated 9 April 1983, the Credit and Collection Officer of Broadway sent Mr. Luis Que a bill forP81,320.00 representing the accrued differential of P20,000.00 per month between the rental whichBroadway was willing to grant to Tropical (P80,000.00 per month starting 1 January, 1983) and up to 30June 1983)and the P60,000.00 per month or 2% of gross receipts whichever is higher, under thetemporary and provisional letter-agreement of 20 April 1982.

Tropical responded to the statement of account sent by Broadway by pleading, once more, in a letterdated 15 April 1983, that Tropical's present rentals of P60,000.00 monthly or 2% of gross receipts,whichever is higher, "would at least stay until we have somehow recovered," to which Tropical proposed,

however, to add 20% of its income from concessionaires (i.e., concessionaires at Tropical-BroadwaySupermarket). 7

Tropical's last counter-offer was not acceptable to Broadway. In a letter dated 22 April 1983, Broadway'sP

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