DEVELOPMENT BANK OF RIZAL, plaintiff-petitioner,
vs.
SIMA WEI and/or LEE KIAN HUAT, MARY CHENG UY, SAMSON TUNG, ASIAN
INDUSTRIAL PLASTIC CORPORATION and PRODUCERS BANK OF THE
PHILIPPINES, defendants-respondents.
On July 6, 1986, the Development Bank of Rizal (petitioner Bank for brevity) filed a
complaint for a sum of money against respondents Sima Wei and/or Lee Kian Huat,
Mary Cheng Uy, Samson Tung, Asian Industrial Plastic Corporation (Plastic
Corporation for short) and the Producers Bank of the Philippines, on two causes of
action:
(1) To enforce payment of the balance of P1,032,450.02 on a promissory note
executed by respondent Sima Wei on June 9, 1983; and
(2) To enforce payment of two checks executed by Sima Wei, payable to petitioner,
and drawn against the China Banking Corporation, to pay the balance due on the
promissory note.
Except for Lee Kian Huat, defendants filed their separate Motions to Dismiss alleging
a common ground that the complaint states no cause of action. The trial court granted
the defendants' Motions to Dismiss. The Court of Appeals affirmed this decision, * to
which the petitioner Bank, represented by its Legal Liquidator, filed this Petition for
Review by Certiorari, assigning the following as the alleged errors of the Court of
Appeals:1
(1) THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLAINTIFF-
PETITIONER HAS NO CAUSE OF ACTION AGAINST DEFENDANTS-
RESPONDENTS HEREIN.
(2) THE COURT OF APPEALS ERRED IN HOLDING THAT SECTION 13, RULE 3 OF
THE REVISED RULES OF COURT ON ALTERNATIVE DEFENDANTS IS NOT
APPLICABLE TO HEREIN DEFENDANTS-RESPONDENTS.
The antecedent facts of this case are as follows:
In consideration for a loan extended by petitioner Bank to respondent Sima Wei, the
latter executed and delivered to the former a promissory note, engaging to pay the
petitioner Bank or order the amount of P1,820,000.00 on or before June 24, 1983 with
interest at 32% per annum. Sima Wei made partial payments on the note, leaving a
balance of P1,032,450.02. On November 18, 1983, Sima Wei issued two crossed
checks payable to petitioner Bank drawn against China Banking Corporation, bearing
respectively the serial numbers 384934, for the amount of P550,000.00 and 384935,
for the amount of P500,000.00. The said checks were allegedly issued in full
settlement of the drawer's account evidenced by the promissory note. These two
checks were not delivered to the petitioner-payee or to any of its authorized
representatives. For reasons not shown, these checks came into the possession of
respondent Lee Kian Huat, who deposited the checks without the petitioner-payee's
indorsement (forged or otherwise) to the account of respondent Plastic Corporation, at
the Balintawak branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch
Manager of the Balintawak branch of Producers Bank, relying on the assurance of
respondent Samson Tung, President of Plastic Corporation, that the transaction was
legal and regular, instructed the cashier of Producers Bank to accept the checks for
deposit and to credit them to the account of said Plastic Corporation, inspite of the fact
that the checks were crossed and payable to petitioner Bank and bore no indorsement
of the latter. Hence, petitioner filed the complaint as aforestated.
The main issue before Us is whether petitioner Bank has a cause of action against
any or all of the defendants, in the alternative or otherwise.
A cause of action is defined as an act or omission of one party in violation of the legal
right or rights of another. The essential elements are: (1) legal right of the plaintiff; (2)
correlative obligation of the defendant; and (3) an act or omission of the defendant in
violation of said legal right.2
The normal parties to a check are the drawer, the payee and the drawee bank. Courts
have long recognized the business custom of using printed checks where blanks are
provided for the date of issuance, the name of the payee, the amount payable and the
drawer's signature. All the drawer has to do when he wishes to issue a check is to
properly fill up the blanks and sign it. However, the mere fact that he has done these
does not give rise to any liability on his part, until and unless the check is delivered to
the payee or his representative. A negotiable instrument, of which a check is, is not
only a written evidence of a contract right but is also a species of property. Just as a
deed to a piece of land must be delivered in order to convey title to the grantee, so
must a negotiable instrument be delivered to the payee in order to evidence its
existence as a binding contract. Section 16 of the Negotiable Instruments Law, which
governs checks, provides in part:
Every contract on a negotiable instrument is incomplete and revocable until delivery of
the instrument for the purpose of giving effect thereto. . . .
Thus, the payee of a negotiable instrument acquires no interest with respect thereto
until its delivery to him.3Delivery of an instrument means transfer of possession,
actual or constructive, from one person to another.4 Without the initial delivery of the
instrument from the drawer to the payee, there can be no liability on the instrument.
Moreover, such delivery must be intended to give effect to the instrument.
The allegations of the petitioner in the original complaint show that the two (2) China
Bank checks, numbered 384934 and 384935, were not delivered to the payee, the
petitioner herein. Without the delivery of said checks to petitioner-payee, the former
did not acquire any right or interest therein and cannot therefore assert any cause of
action, founded on said checks, whether against the drawer Sima Wei or against the
Producers Bank or any of the other respondents.
In the original complaint, petitioner Bank, as plaintiff, sued respondent Sima Wei on
the promissory note, and the alternative defendants, including Sima Wei, on the two
checks. On appeal from the orders of dismissal of the Regional Trial Court, petitioner
Bank alleged that its cause of action was not based on collecting the sum of money
evidenced by the negotiable instruments stated but on quasi-delict a claim for
damages on the ground of fraudulent acts and evident bad faith of the alternative
respondents. This was clearly an attempt by the petitioner Bank to change not only the
theory of its case but the basis of his cause of action. It is well-settled that a party
cannot change his theory on appeal, as this would in effect deprive the other party of
his day in court.5
Notwithstanding the above, it does not necessarily follow that the drawer Sima Wei is
freed from liability to petitioner Bank under the loan evidenced by the promissory note
agreed to by her. Her allegation that she has paid the balance of her loan with the two
checks payable to petitioner Bank has no merit for, as We have earlier explained,
these checks were never delivered to petitioner Bank. And even granting, without
admitting, that there was delivery to petitioner Bank, the delivery of checks in payment
of an obligation does not constitute payment unless they are cashed or their value is
impaired through the fault of the creditor.6 None of these exceptions were alleged by
respondent Sima Wei.
Therefore, unless respondent Sima Wei proves that she has been relieved from
liability on the promissory note by some other cause, petitioner Bank has a right of
action against her for the balance due thereon.
However, insofar as the other respondents are concerned, petitioner Bank has no
privity with them. Since petitioner Bank never received the checks on which it based
its action against said respondents, it never owned them (the checks) nor did it
acquire any interest therein. Thus, anything which the respondents may have done
with respect to said checks could not have prejudiced petitioner Bank. It had no right
or interest in the checks which could have been violated by said respondents.
Petitioner Bank has therefore no cause of action against said respondents, in the
alternative or otherwise. If at all, it is Sima Wei, the drawer, who would have a cause of
action against her
co-respondents, if the allegations in the complaint are found to be true.
With respect to the second assignment of error raised by petitioner Bank regarding the
applicability of Section 13, Rule 3 of the Rules of Court, We find it unnecessary to
discuss the same in view of Our finding that the petitioner Bank did not acquire any
right or interest in the checks due to lack of delivery. It therefore has no cause of
action against the respondents, in the alternative or otherwise.
In the light of the foregoing, the judgment of the Court of Appeals dismissing the
petitioner's complaint is AFFIRMED insofar as the second cause of action is
concerned. On the first cause of action, the case is REMANDED to the trial court for a
trial on the merits, consistent with this decision, in order to determine whether
respondent Sima Wei is liable to the Development Bank of Rizal for any amount under
the promissory note allegedly signed by her.
THE PHILIPPINE BANK OF COMMERCE, plaintiff-appellee,
vs.
JOSE M. ARUEGO, defendant-appellant.
The defendant, Jose M. Aruego, appealed to the Court of Appeals from the order of
the Court of First Instance of Manila, Branch XIII, in Civil Case No. 42066 denying his
motion to set aside the order declaring him in default, 1 and from the order of said
court in the same case denying his motion to set aside the judgment rendered after he
was declared in default. 2 These two appeals of the defendant were docketed as CA-
G.R. NO. 27734-R and CA-G.R. NO. 27940-R, respectively.
Upon motion of the defendant on July 25, 1960, 3 he was allowed by the Court of
Appeals to file one consolidated record on appeal of CA-G.R. NO. 27734-R and CA-
G.R. NO. 27940-R. 4
In a resolution promulgated on March 1, 1966, the Court of Appeals, First Division,
certified the consolidated appeal to the Supreme Court on the ground that only
questions of law are involved. 5
On December 1, 1959, the Philippine Bank of Commerce instituted against Jose M.
Aruego Civil Case No. 42066 for the recovery of the total sum of about P35,000.00
with daily interest thereon from November 17, 1959 until fully paid and commission
equivalent to 3/8% for every thirty (30) days or fraction thereof plus attorney's fees
equivalent to 10% of the total amount due and costs. 6 The complaint filed by the
Philippine Bank of Commerce contains twenty-two (22) causes of action referring to
twenty-two (22) transactions entered into by the said Bank and Aruego on different
dates covering the period from August 28, 1950 to March 14, 1951. 7 The sum sought
to be recovered represents the cost of the printing of "World Current Events," a
periodical published by the defendant. To facilitate the payment of the printing the
defendant obtained a credit accommodation from the plaintiff. Thus, for every printing
of the "World Current Events," the printer, Encal Press and Photo Engraving, collected
the cost of printing by drawing a draft against the plaintiff, said draft being sent later to
the defendant for acceptance. As an added security for the payment of the amounts
advanced to Encal Press and Photo-Engraving, the plaintiff bank also required
defendant Aruego to execute a trust receipt in favor of said bank wherein said
defendant undertook to hold in trust for plaintiff the periodicals and to sell the same
with the promise to turn over to the plaintiff the proceeds of the sale of said publication
to answer for the payment of all obligations arising from the draft. 8
Aruego received a copy of the complaint together with the summons on December 2,
1959. 9 On December 14, 1959 defendant filed an urgent motion for extension of time
to plead, and set the hearing on December 16, 1959. 10At the hearing, the court
denied defendant's motion for extension. Whereupon, the defendant filed a motion to
dismiss the complaint on December 17, 1959 on the ground that the complaint states
no cause of action because:
a) When the various bills of exchange were presented to the defendant as drawee for
acceptance, the amounts thereof had already been paid by the plaintiff to the drawer
(Encal Press and Photo Engraving), without knowledge or consent of the defendant
drawee.
b) In the case of a bill of exchange, like those involved in the case at bar, the
defendant drawee is an accommodating party only for the drawer (Encal Press and
Photo-Engraving) and win be liable in the event that the accommodating party
(drawer) fails to pay its obligation to the plaintiff. 11
The complaint was dismissed in an order dated December 22, 1959, copy of which
was received by the defendant on December 24, 1959. 12
On January 13, 1960, the plaintiff filed a motion for reconsideration. 13 On March 7,
1960, acting upon the motion for reconsideration filed by the plaintiff, the trial court set
aside its order dismissing the complaint and set the case for hearing on March 15,
1960 at 8:00 in the morning. 14 A copy of the order setting aside the order of dismissal
was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon
according to the affidavit of the deputy sheriff of Manila, Mamerto de la Cruz. On the
following day, March 12, 1960, the defendant filed a motion to postpone the trial of the
case on the ground that there having been no answer as yet, the issues had not yet
been joined. 15 On the same date, the defendant filed his answer to the complaint
interposing the following defenses: That he signed the document upon which the
plaintiff sues in his capacity as President of the Philippine Education Foundation; that
his liability is only secondary; and that he believed that he was signing only as an
accommodation party. 16
On March 15, 1960, the plaintiff filed an ex parte motion to declare the defendant in
default on the ground that the defendant should have filed his answer on March 11,
1960. He contends that by filing his answer on March 12, 1960, defendant was one
day late. 17 On March 19, 1960 the trial court declared the defendant in
default. 18 The defendant learned of the order declaring him in default on March 21,
1960. On March 22, 1960 the defendant filed a motion to set aside the order of default
alleging that although the order of the court dated March 7, 1960 was received on
March 11, 1960 at 5:00 in the afternoon, it could not have been reasonably expected
of the defendant to file his answer on the last day of the reglementary period, March
11, 1960, within office hours, especially because the order of the court dated March 7,
1960 was brought to the attention of counsel only in the early hours of March 12,
1960. The defendant also alleged that he has a good and substantial defense.
Attached to the motion are the affidavits of deputy sheriff Mamerto de la Cruz that he
served the order of the court dated March 7, 1960 on March 11, 1960, at 5:00 o'clock
in the afternoon and the affidavit of the defendant Aruego that he has a good and
substantial defense. 19 The trial court denied the defendant's motion on March 25,
1960. 20 On May 6, 1960, the trial court rendered judgment sentencing the defendant
to pay to the plaintiff the sum of P35,444.35 representing the total amount of his
obligation to the said plaintiff under the twenty-two (22) causes of action alleged in the
complaint as of November 15, 1957 and the sum of P10,000.00 as attorney's fees. 21
On May 9, 1960 the defendant filed a notice of appeal from the order dated March 25,
1961 denying his motion to set aside the order declaring him in default, an appeal
bond in the amount of P60.00, and his record on appeal. The plaintiff filed his
opposition to the approval of defendant's record on appeal on May 13, 1960. The
following day, May 14, 1960, the lower court dismissed defendant's appeal from the
order dated March 25, 1960 denying his motion to set aside the order of
default. 22 On May 19, 1960, the defendant filed a motion for reconsideration of the
trial court's order dismissing his appeal. 23 The plaintiff, on May 20, 1960, opposed
the defendant's motion for reconsideration of the order dismissing appeal. 24 On May
21, 1960, the trial court reconsidered its previous order dismissing the appeal and
approved the defendant's record on appeal. 25 On May 30, 1960, the defendant
received a copy of a notice from the Clerk of Court dated May 26, 1960, informing the
defendant that the record on appeal filed ed by the defendant was forwarded to the
Clerk of Court of Appeals. 26
On June 1, 1960 Aruego filed a motion to set aside the judgment rendered after he
was declared in default reiterating the same ground previously advanced by him in his
motion for relief from the order of default. 27 Upon opposition of the plaintiff filed on
June 3, 1960, 28 the trial court denied the defendant's motion to set aside the
judgment by default in an order of June 11, 1960. 29 On June 20, 1960, the defendant
filed his notice of appeal from the order of the court denying his motion to set aside the
judgment by default, his appeal bond, and his record on appeal. The defendant's
record on appeal was approved by the trial court on June 25, 1960. 30 Thus, the
defendant had two appeals with the Court of Appeals: (1) Appeal from the order of the
lower court denying his motion to set aside the order of default docketed as CA-G.R.
NO. 27734-R; (2) Appeal from the order denying his motion to set aside the judgment
by default docketed as CA-G.R. NO. 27940-R.
In his brief, the defendant-appellant assigned the following errors:
I The first defense of the defendant is that he signed the supposed bills of exchange as
THE LOWER COURT ERRED IN HOLDING THAT THE DEFENDANT WAS IN
DEFAULT.
II
THE LOWER COURT ERRED IN ENTERTAINING THE MOTION TO DECLARE
DEFENDANT IN DEFAULT ALTHOUGH AT THE TIME THERE WAS ALREADY ON
FILE AN ANSWER BY HIM WITHOUT FIRST DISPOSING OF SAID ANSWER IN AN
APPROPRIATE ACTION.
III
THE LOWER COURT ERRED IN DENYING DEFENDANT'S PETITION FOR RELIEF
OF ORDER OF DEFAULT AND FROM JUDGMENT BY DEFAULT AGAINST
DEFENDANT. 31
It has been held that to entitle a party to relief from a judgment taken against him
through his mistake, inadvertence, surprise or excusable neglect, he must show to the
court that he has a meritorious defense. 32 In other words, in order to set aside the
order of default, the defendant must not only show that his failure to answer was due
to fraud, accident, mistake or excusable negligence but also that he has a meritorious
defense.
The record discloses that Aruego received a copy of the complaint together with the
summons on December 2, 1960; that on December 17, 1960, the last day for filing his
answer, Aruego filed a motion to dismiss; that on December 22, 1960 the lower court
dismissed the complaint; that on January 23, 1960, the plaintiff filed a motion for
reconsideration and on March 7, 1960, acting upon the motion for reconsideration, the
trial court issued an order setting aside the order of dismissal; that a copy of the order
was received by the defendant on March 11, 1960 at 5:00 o'clock in the afternoon as
shown in the affidavit of the deputy sheriff; and that on the following day, March 12,
1960, the defendant filed his answer to the complaint.
The failure then of the defendant to file his answer on the last day for pleading is
excusable. The order setting aside the dismissal of the complaint was received at 5:00
o'clock in the afternoon. It was therefore impossible for him to have filed his answer on
that same day because the courts then held office only up to 5:00 o'clock in the
afternoon. Moreover, the defendant immediately filed his answer on the following day.
However, while the defendant successfully proved that his failure to answer was due
to excusable negligence, he has failed to show that he has a meritorious defense. The
defendant does not have a good and substantial defense.
Defendant Aruego's defenses consist of the following:
a) The defendant signed the bills of exchange referred to in the plaintiff's complaint in
a representative capacity, as the then President of the Philippine Education
Foundation Company, publisher of "World Current Events and Decision Law Journal,"
printed by Encal Press and Photo-Engraving, drawer of the said bills of exchange in
favor of the plaintiff bank;
b) The defendant signed these bills of exchange not as principal obligor, but as
accommodation or additional party obligor, to add to the security of said plaintiff bank.
The reason for this statement is that unlike real bills of exchange, where payment of
the face value is advanced to the drawer only upon acceptance of the same by the
drawee, in the case in question, payment for the supposed bills of exchange were
made before acceptance; so that in effect, although these documents are labelled bills
of exchange, legally they are not bills of exchange but mere instruments evidencing
indebtedness of the drawee who received the face value thereof, with the defendant
as only additional security of the same. 33
an agent of the Philippine Education Foundation Company where he is president.
Section 20 of the Negotiable Instruments Law provides that "Where the instrument
contains or a person adds to his signature words indicating that he signs for or on
behalf of a principal or in a representative capacity, he is not liable on the instrument if
he was duly authorized; but the mere addition of words describing him as an agent or
as filing a representative character, without disclosing his principal, does not exempt
him from personal liability."
An inspection of the drafts accepted by the defendant shows that nowhere has he
disclosed that he was signing as a representative of the Philippine Education
Foundation Company. 34 He merely signed as follows: "JOSE ARUEGO (Acceptor)
(SGD) JOSE ARGUEGO For failure to disclose his principal, Aruego is personally
liable for the drafts he accepted.
The defendant also contends that he signed the drafts only as an accommodation AFRDC.
party and as such, should be made liable only after a showing that the drawer is
incapable of paying. This contention is also without merit. A year later, it was found out that Diaz and Fransisco had drawn checks
An accommodation party is one who has signed the instrument as maker, drawer, payable to Ong. Ong denied accepting said checks and it was further found out that
indorser, without receiving value therefor and for the purpose of lending his name to Diaz entrusted the checks to Fransisco who later forged the signature of Ong,
some other person. Such person is liable on the instrument to a holder for value, showing that he indorsed the checks to her and then she
notwithstanding such holder, at the time of the taking of the instrument knew him to be deposited the checks to her personal savings account. This incident prompted
only an accommodation party.35 In lending his name to the accommodated party, the Ong to file a complaint against Fransisco.
accommodation party is in effect a surety for the latter. He lends his name to enable
the accommodated party to obtain credit or to raise money. He receives no part of the HELD:
consideration for the instrument but assumes liability to the other parties thereto Ongs signature was found to be forged by Fransisco.
because he wants to accommodate another. In the instant case, the defendant signed Fransiscos contention that he was authorized to sign Ongs name in her favor
as a drawee/acceptor. Under the Negotiable Instrument Law, a drawee is primarily giving her authority to collect all the receivables of HCCC from GSIS. This
liable. Thus, if the defendant who is a lawyer, he should not have signed as an contention is bereft of any merit. The Negotiable Instruments Law provides that
acceptor/drawee. In doing so, he became primarily and personally liable for the drafts. when a person is under obligation to indorse in a representative capacity, he may
The defendant also contends that the drafts signed by him were not really bills of indorse in such terms as to negative personal liability. An agent, when so signing,
exchange but mere pieces of evidence of indebtedness because payments were should indicate that he is merely signing as an agent in behalf of the principal and
made before acceptance. This is also without merit. Under the Negotiable Instruments must disclose the name of his principal. Otherwise, he will be held liable
Law, a bill of exchange is an unconditional order in writting addressed by one person personally. And assuming she was indeed authorized, she didn't comply with
to another, signed by the person giving it, requiring the person to whom it is addressed the requirements of the law. Instead of signing Ongs name, she should have
to pay on demand or at a fixed or determinable future time a sum certain in money to signed in her own name as agent of HCCC. Thus, her contentions cannot support or
order or to bearer. 36 As long as a commercial paper conforms with the definition of a validate her acts of forgery
bill of exchange, that paper is considered a bill of exchange. The nature of acceptance
is important only in the determination of the kind of liabilities of the parties involved,
but not in the determination of whether a commercial paper is a bill of exchange or
not.
It is evident then that the defendant's appeal can not prosper. To grant the defendant's
prayer will result in a new trial which will serve no purpose and will just waste the time
of the courts as well as of the parties because the defense is nil or ineffective. 37
WHEREFORE, the order appealed from in Civil Case No. 42066 of the Court of First
Instance of Manila denying the petition for relief from the judgment rendered in said
case is hereby affirmed, without pronouncement as to costs.

FRANSISCO V. COURT OF APPEALS

FACTS:
A. Fransisco Realty and Development and Herby Commercial and
Construction Corporation entered into a Land Development and Construction
Contract. Fransisco was the president of AFRDC while Ong was the president
of HCCC. It was agreed upon that HCCC would undertake the construction of
housing units and the development of a large parcel of land. The payment would be
on a turnkey basis. To facilitate the payment, AFDRC executed a Deed of
Assignment to enable the HCCC to collect payments from the GSIS. Further, they
opened an account with a bank from which checks would be issued by
Fransisco and the GSIS president.

HCCC later on filed a complaint for the unpaid balance in pursuance to its agreement
with AFRDC. However, an amicable settlement ensued, which was embodied in a
Memorandum of Agreement. It was embodied in said agreement that GSIS
recognizes its indebtedness to HCCC and that HCCC would also pay its obligations to
 Unsatisfied with the decision of 4 June 1985 and the resolution of 23 December 1985
of the then Intermediate Appellate Court (IAC) in A.C.-G.R. CV No. 695391 which,
respectively, reversed the decision of the then Court of First Instance of Pangasinan,
Branch II, of 1 December 1981 in Civil Case No. 15573, and denied the motion for the
reconsideration of the 4 June 1985 decision, petitioners filed with this Court the instant
petition to seek reversal thereof. They submit one principal issue: whether or not the
conclusion drawn by the Intermediate Appellate Court from proven facts is correct.2
The following facts are not disputed:
On 12 October 1970 petitioners executed a real estate mortgage in favor of
respondent bank as security for a loan of P2,000.00. Petitioners failed to pay the loan
on due date. The bank applied for the extrajudicial foreclosure of the mortgage. At the
foreclosure sale on 11 December 1974 the respondent bank was the highest and
winning bidder with a bid of P2,945.11. A certificate of sale was executed in its favor
by the sheriff and the same was registered with the Office of the Register of Deeds on
29 January 1975. The certificate of sale, a copy of which was furnished the petitioners
by registered mail, expressly provided that the redemption period shall be two years
from the registration thereof.
Since no redemption was made by petitioners within the two-year period, which
expired on 29 January 1977, the sheriff issued a Final Deed of Sale on 15 February
1977.
Petitioners, however, claimed that they were granted by respondent bank an extension
of the redemption period; but the latter denied it.
On 22 November 1979 respondent bank file a petition for a writ of possession, which
petitioners later opposed on the ground that they had consigned the redemption
money of P4,000.00 on 12 December 1979. The court rejected the opposition and
issued the writ of possession. However, to prevent its execution, petitioners instituted
with the then Court of First Instance of Pangasinan a complaint against respondent
bank and the Ex-Officio Provincial Sheriff for the annulment of the aforementioned
final deed of sale and for the issuance of a writ of preliminary injunction. The case was
docketed as Civil Case No. 15573 which was raffled to Branch II thereof. In their
complaint petitioners alleged that the final deed of sale was prematurely issued since
they were granted an extension of time to redeem the property.
In resolving the issue of extension of the redemption period, the trial court, in its
Decision of 1 December 1981, made the following findings and conclusion:
From the bank's evidence, it is difficult to believe that the plaintiffs who are personally
known to the president and manager herself, and from whom she had to hire trucks,
would not have made any move or offer to redeem the property within the redemption
period. The presumption is that they exercised ordinary care of their concerns (Sc. 5
(d), Rule 131, Rules of Court, Cabigao vs. Lim 50 Phil. 844). If indeed, the plaintiffs
made no such offer during the redemption period, the defendant bank should have
presented evidence rebutting the plaintiffs' evidence. But it did not. While the plaintiff
testified that the tender was made to Mr. Salgado, loan clerk, and Mr. Madrid, Acting
Manager of the Bank and also board members Dr. Jing Zarate and Mr. Rosario, none
of them were presented to rebut plaintiffs' evidence. Hence, the presumption that if
their testimony were produced, it would be adverse to the defendant bank under Sec.
5(e) Rule 131 of the Rules of Court, would apply.
Furthermore, the very evidence of the defendant bank shows that there was indeed an
SPOUSES TRINIDAD AND EPIFANIO NATINO, petitioners,
extension of the period to redeem the property. The statutory period of redemption
vs.
granted the mortgagor in the certificate of sale registered on January 29, 1975 was 2
THE INTERMEDIATE APPELLATE COURT, THE RURAL BANK OF AGUILAR, INC.
years. The period should have terminated on January 29, 1977. However, the Sheriff's
AND THE PROVINCIAL SHERIFF EX-OFFICIO OF PANGASINAN, respondents.
Certificate of Final sale was only executed on February 15, 1977 and registered only
on November 14, 1979 which registration date is the effective date of the confirmation
of the sale which cuts off redemption. Such extension of nearly 3 years strengthens
the plaintiffs' claim that indeed, there was an agreement to extend the redemption
date.
The plaintiffs' evidence has shown that there was an agreement between them and
the defendant bank through its personnel and its president and manager, acting as its
agents to extend the period for redemption for the plaintiffs. However, the plaintiffs
were not given a specific time to pay and redeem but were given by the President and
Manager of the bank such time when their means permit them to do so. This created
an obligation with a period under Art. 1180 of the Civil Code of the Philippines, which
provides:
Art. 1180. When the debtor binds himself to pay when his means permit him to do so,
the obligation shall be deemed to be one with a period, subject to the provisions of
Article 1197.
This does not mean that the condition was exclusively dependent of the will of the
plaintiffs, for they had already promised payment. If therefore became necessary,
under Article 1197 for the Court to fix the term in order that the condition may be
fulfilled. Any action to recover before this is done is considered premature (Patents vs.
Omega, 93 Phil. 218).
That agreement or contract entered into between the President and Manager of the
bank was not in writing is of no moment since under Article 1315 of the Civil Code,
"contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all
the consequences which according to their nature, may be in keeping with good faith,
usage and law." The defendant's claim that the agreement must be in writing citing the
ruling in the case of Pornellosa vs. Land Tenure Administration, 1 SCRA 375, only
applies to executory contracts, not to those either totally or partially performed, (Inigo
vs. Estate of Maloto, 21 SCRA 246). In this case, the bank had already partially
performed its obligation thereunder by extending the period redemption from January
29, 1977 to November 14, 1979.
The agreement does not novate the original contract of mortgage but only changes
one of its conditions, that which concerns the period of redemption. The period of
redemption may be extended by the parties under special circumstances (Lichauco
vs. Olegario, 43 Phil. 540, 542). This the parties may do, since the right of the
mortgagee to demand compliance within the 2 year period of redemption maybe
waived, unless the waiver is contrary to the public order, public policy, morals or good
customs or prejudicial to a third person with a right recognized by law." None of the
inhibitions enumerated are present in this case.
Hence, the action of the defendant bank in securing the Sheriffs Final Sale prior to the
fixing of the period within which the plaintiffs had to pay was not in order by reason of
the extension of the period of redemption without a term. Not being in order, the period
for redemption by the plaintiffs still exists but has to be set.3
and on the basis thereof, decreed to (a) annul the Sheriffs Final Deed of Sale, dated
15 February 1977 and its registration of 17 March 1979, (b) fix the period of
redemption to ninety (90) days from receipt of the decision by petitioners, (c) order
petitioners to pay the respondent bank, within ninety (90) days from receipt of the
decision the amount of P2,945.11, the purchase price, with 1% interest per month
from 11 December 1974 to 14 December 1979, together with any amount representing
assessment or taxes which the bank may have paid after 11 December 1974, with
interest thereon at 1% per month up to 14 December 1979, (d) order the Bank to
receive and credit the petitioners with such amounts, restore petitioners to the
property and to deliver to them a certificate of redemption, and to pay petitioners the
sum of P2,000.00 as attorney's fees and the costs.4
Respondent bank appealed from said Decision to the then Intermediate Appellate
Court which docketed the appeal as C.A.-G.R. CV No. 69539.
In support of its appeal, respondent bank assigned the following errors:
Herein petitioners, as appellees, did not file their Brief.
In its Decision of 4 June 1985, the Intermediate Appellate Court disposed of the
assigned errors as follows:
The bank has assigned eight (8) errors in the decision but the determinants are the
first and the second. But before going into their merits We must take note of the failure
of the appellees to file their brief. Appellees did not file any motion for reconsideration.
It has to be stated there that, generally, appellee's failure to file brief is considered as
equivalent to a confession of error, warranting, although not necessarily requiring a
reversal, but any doubt entertained by the appellate court as to what disposition
should be made of the case will be resolved against the appellee (4 CJS 1832, cited in
Francisco, the Revised Rules of Court Civil Procedure, Vol. III, p. 638)
Re the first error
THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE
APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF
REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE
MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE
SHERIFF.
It will take better proofs than appellees' mere declaration for the Court to believe that
they had tendered the redemption money within the redemption period which was
refused by the bank. There would have been no valid reason for a refusal; it is an
obligation imposed by law on every purchaser at public auction that admits of
redemption, to accept tender of redemption money. And should there be refusal, the
correlative duty of the mortgagor is clear: he must deposit the money with the sheriff.
The evidence does not show that appellees complied with this duty.
All that was shown by way of compliance was the deposit made with the Clerk of
Court of the sum of P4,000.00. This deposit is a belated and last ditch attempt to
exercise a right that had long expired. It was made only on December 12, 1979, or
after the redemption period of two (2) years from January 29, 1977 when the sheriffs
certificate of sale was registered and after sheriff's final sale which was registered on
November 14, 1979. And, it is clear that the late deposit was utilized to defeat the
bank's vested right which it sought to enforce by its petition for a writ of possession.
The lower court correctly ruled against any validity to it.
The right to redeem becomes functus officio on the date of its expiry, and its exercise
after the period is not really one of redemption but a repurchase. Distinction must be
made because redemption is by force of law; the purchaser at public auction is bound
to accept redemption. Repurchase however of foreclosed property, after redemption
period, imposes no such obligation. After expiry, the purchaser may or may not re-sell
the property but no law will compel him to do so, And, he is not bound by the bid price;
it is entirely within his discretion to set a higher price, for after all, the property already
belongs to him as owner.
This brings Us to the second error
THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED
THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF
THE PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE.
Appellees' main premise is the alleged assurances of the bank's officers that they
could redeem the property.1wphi1From the testimony of Epifanio Natino, however, it
is clear that these assurances were given before expiry of redemption (tsn, pp. 15 &
16). Such assurances were not at all necessary since the right to redeem was still in
existence. Those assurances however could not and did not extend beyond the
redemption period.
It seems clear from testimony elicited on cross-examination of the president and
manager of the bank that the latter offered to re-sell the property for P30,000.00
but after the petition for a writ of possession had already been filed, and well after
expiry of the period to redeem. Appellants failed to accept the offer; they deposited
only P4,000.00. There was therefore no meeting of the minds, and accordingly,
appellants may no longer be heard.6
and in the light thereof, REVERSED and SET ASIDE the appealed
decision.1wphi1 Their motion to reconsider the same having been denied in the
resolution of 23 December 1985,7 petitioners have come to Us on appeal
by certiorariraising the sole issue stated in the beginning of this decision.
We find the petition to be devoid of merit. Petitioners have failed to demonstrate that
the conclusion made by the respondent Intermediate Appellate Court from the proven
facts is wrong. We agree with said Court, and, therefore, set aside the contrary
conclusion of the trial court, that the attempts to redeem the property were done after
the expiration of the redemption period and that no extension of that period was
granted to petitioners.
The contrary conclusion made by the trial court is drawn from inferences which are not
supported by adequate or sufficient facts or is based on erroneous assumptions. We
note that its decision is remarkably silent as to the dates when petitioner Epifanio
Natino went to the respondent bank to talk with a bank personnel to offer to pay the
loan. If indeed the offer was made within the redemption period, but the Bank refused
to accept the redemption money, petitioners should have made the tender to the
sheriff who made the sale and who then had the duty to accept the tender and
execute the certificate of redemption. (Enage vs. Vda. de Hijos de Escano, 38 Phil.
657, cited in II MORAN, Comments on the Rules of Court, 1979 Ed., pp. 326-327).
There was no such tender to the Sheriff.
Again, if indeed this occurred during the redemption period, then, as correctly pointed
out by respondent IAC, it was not necessary to ask for extension of the period to
redeem.
In respect to the alleged assurance given by Mrs. Brodeth, the President and Manager
of the Bank, sometime in May of 1978 to the effect that petitioners can redeem the
property as soon as they have the money, it is obvious that this took place after the
expiration of the redemption period. As correctly pointed out by the respondent IAC,
this could only relate to the matter of resale of the property, not redemption.
Furthermore, even assuming for the sake of argument that Mrs. Brodeth gave the
assurance, the same could bind the bank only if its Board of Directors approved or
ratified it. No evidence was offered to prove such action by the Board. Moreover, Mrs.
Brodeth denied that during that meeting in May 1978 she made the assurance;
according to her petitioner Epifanio neither mentioned the loan nor offered to redeem,
although earlier he was told that to 'redeem" the property he should pay P30,000.00.
The latter statement supports the conclusion of respondent IAC that this was the
Bank's offer for the re-sell (not redemption of the property), which, logically took place
after the expiration of the redemption period.
Even if Mrs. Brodeth is to be understood to have promised to allow the petitioners to
buy the property at any time they have the money, the Bank was not bound by the
promise not only because it was not approved or ratified by the Board of Directors but
also because, and more decisively, it was a promise unsupported by a consideration
distinct from the re-purchase price.
The second paragraph of Article 1479 of the Civil Code expressly provides:
An accepted unilateral. promise to buy or to sell a determinate thing for a price certain
is binding upon the promissory if the promise is supported by a consideration distinct
from the price.
Thus in Rural Bank of Paraaque Inc. vs. Remolado, et al.,8 a commitment by the
bank to resell a property, within a specified period, although accepted by the party in
whose favor it was made, was considered an option not supported by a consideration
distinct from the price and, therefore, not binding upon the promissor. Pursuant
to Southwestern Sugar and Molasses Co. vs. Atlantic Gulf and Pacific Company,9 it
was void.
WHEREFORE, the instant petition is DISMISSED, with costs against the Petitioners.
SERRA VS CA
In 1975, a Lease Contract with Option to Buy was executed between Federico Serra
and the Rizal Commercial Banking Corporation (RCBC). It was agreed that Serra shall
lease to RCBC his land from the year 1975 to 2000. It was also agreed that within 10
years from 1975, RCBC shall exercise an option whether or not to buy the said lot at a
price not exceeding P210.00 per square meter. However, no option money was
provided for in the contract hence, RCBC did not pay any option money for the
exercise of such option to buy. What was provided, however, was a clause which
states that in case RCBC fails to exercise such option to buy, it shall forfeit all
improvements it made (or will make) on said land in favor of Serra.
In 1984, RCBC communicated to Serra that it now wants to buy the said land. Serra
however refused. RCBC sued Serra. Serra now contends that the option to buy
was ineffective because it was not supported by any consideration distinct from the
price hence, it is not binding upon him.
ISSUE: Whether or not there was no consideration distinct from the price.
HELD: No, there is a consideration here. The Supreme Court ruled that in this case,
the consideration which is distinct from the price was the agreement in the contract
which stated that if RCBC fails to exercise its option to buy, it shall transfer all
improvements made on the land [by RCBC] in favor of Serra. Such is an agreement
more onerous than the payment of option money. Since there is a consideration
distinct from the price, Serra is bound by the option contract. Therefore, he cannot
refuse to sell the land to RCBC.
PEDRO ROMAN, plaintiff-appellant,
vs.
ANDRES GRIMALT, defendant-appellee.
On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First
Instance of this city against Andres Grimalt, praying that judgment be entered in his
favor and against the defendant (1) for the purchase price of the schooner Santa
Marina, to wit, 1,500 pesos or its equivalent in Philippine currency, payable by
installments in the manner stipulated; (2) for legal interest on the installments due on
the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such other
and further remedy as might be considered just and equitable.
On October 24 of the same year the court made an order sustaining the demurer filed
by defendant to the complaint and allowing plaintiff ten days within which to amend his
complaint. To this order the plaintiff duly excepted.
Counsel for plaintiff on November 5 amended his complaint and alleged that between
the 13th and the 23rd day of June, 1904, both parties, through one Fernando Agustin
Pastor, verbally agreed upon the sale of the said schooner; that the defendant in a
letter dated June 23 had agreed to purchase the said schooner and of offered to pay
therefor in three installment of 500 pesos each, to wit, on July 15, September 15, and
November 15, adding in his letter that if the plaintiff accepted the plan of payment
suggested by him the sale would become effective on the following day; that plaintiff
on or about the 24th of the same month had notified the defendant through Agustin
Pastor that he accepted the plan of payment suggested by him and that from that date
the vessel was at his disposal, and offered to deliver the same at once to defendant if
he so desired; that the contract having been closed and the vessel being ready for
delivery to the purchaser, it was sunk about 3 o'clock p. m., June 25, in the harbor of
Manila and is a total loss, as a result of a severe storm; and that on the 30th of the
same month demand was made upon the defendant for the payment of the purchase
price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally
prayed that judgment be rendered in accordance with the prayer of his previous
complaint.
Defendant in his answer asked that the complaint be dismissed with costs to the
plaintiff, alleging that on or about June 13 both parties met in a public establishment of
this city and the plaintiff personally proposed to the defendant the sale of the said
vessel, the plaintiff stating that the vessel belonged to him and that it was then in a
sea worthy condition; that defendant accepted the offer of sale on condition that the
title papers were found to be satisfactory, also that the vessel was in a seaworthy
condition; that both parties then called on Calixto Reyes, a notary public, who, after
examining the documents, informed them that they were insufficient to show the
ownership of the vessel and to transfer title thereto; that plaintiff then promised to
perfect his title and about June 23 called on defendant to close the sale, and the
defendant believing that plaintiff had perfected his title, wrote to him on the 23d of
June and set the following day for the execution of the contract, but, upon being
informed that plaintiff had done nothing to perfect his title, he insisted that he would
buy the vessel only when the title papers were perfected and the vessel duly
inspected.
Defendant also denied the other allegations of the complaint inconsistent with his own
allegations and further denied the statement contained in paragraph 4 of the complaint
to the effect that the contract was completed as to the vessel; that the purchase price
and method of payment had been agreed upon; that the vessel was ready for delivery
to the purchaser and that an attempt had been made to deliver the same, but
admitted, however, the allegations contained in the last part of the said paragraph.
The court below found that the parties had not arrived at a definite understanding. We
think that this finding is supported by the evidence introduced at the trial.
A sale shall be considered perfected and binding as between vendor and vendee
when they have agreed as to the thing which is the object of the contract and as to the
price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.)
Ownership is not considered transmitted until the property is actually delivered and the
purchaser has taken possession of the value and paid the price agreed upon, in which
case the sale is considered perfected.
When the sale is made by means of a public instrument the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract. (Art. 1462 of
the Civil Code.)
Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several
days negotiating for the purchase of the schooner Santa Marina from the 13th to
the 23d of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500
pesos, payable in three installments, provided the title papers to the vessel were in
proper form. It is so stated in the letter written by the purchaser to the owner on the
23rd of June.
The sale of the schooner was not perfected and the purchaser did not consent to the
execution of the deed of transfer for the reason that the title of the vessel was in the
name of one Paulina Giron and not in the name of Pedro Roman, the alleged owner.
Roman promised, however, to perfect his title to the vessel, but he failed to do so. The
papers presented by him did not show that he was the owner of the vessel.
If no contract of sale was actually executed by the parties the loss of the vessel must
be borne by its owner and not by a party who only intended to purchase it and who
was unable to do so on account of failure on the part of the owner to show proper title
to the vessel and thus enable them to draw up the contract of sale.
The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a
severe storm and before the owner had complied with the condition exacted by the
proposed purchaser, to wit, the production of the proper papers showing that the
plaintiff was in fact the owner of the vessel in question.
The defendant was under no obligation to pay the price of the vessel, the purchase of
which had not been concluded. The conversations had between the parties and the
letter written by defendant to plaintiff did not establish a contract sufficient in itself to
create reciprocal rights between the parties.
It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of
the thing sold after a contract has been perfected and articles 1096 and 1182 of the
same code relative to the obligation to deliver a specified thing and the extinction of
such obligation when the thing is either lost or destroyed, are not applicable to the
case at bar.
The first paragraph of article 1460 of the Civil Code and section 335 of the Code of
Civil Procedure are not applicable. These provisions contemplate the existence of a
perfected contract which can not, however, be enforced on account of the entire loss
of the thing or made the basis of an action in court through failure to conform to the
requisites provided by law.
The judgment of the court below is affirmed and the complaint is dismissed with costs
against the plaintiff. After the expiration of twenty days from the date hereof let
judgment be entered in accordance herewith and ten days thereafter let the case be
remanded to the Court of First Instance for proper action. So ordered.
EQUATORIAL V. MAYFAIR- Sale of Land
While execution of a public instrument of sale is recognized by law as equivalent to
the delivery of the thing sold, such constructive or symbolic delivery is merely
presumptive. It is nullified by the failure of the vendee to take actual possession of the
land sold.
FACTS:
Carmelo & Bauermann, Inc. owned a land, together with two 2-storey buildings at
Claro M. Recto Avenue, Manila, and covered by TCT No. 18529.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc.
fpr 20 years. The lease covered a portion of the second floor and mezzanine of a two-
storey building with about 1,610 square meters of floor area, which respondent used
as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Lease with
Carmelo for another portion of the latters property this time, a part of the second floor
of the two-storey building, and two store spaces on the ground floor. In that space,
Mayfair put up another movie house known as Miramar Theater. The Contract of
Lease was likewise for a period of 20 years.
Both leases contained a clause giving Mayfair a right of first refusal to purchase the
subject properties. Sadly, on July 30, 1978 - within the 20-year-lease term -- the
subject properties were sold by Carmelo to Equatorial Realty Development, Inc. for
eleven million smackers, without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint
before the Regional Trial Court of Manila for the recission of the Deed of Absolute Sale
between Carmelo and Equatorial, specific performance, and damages. RTC decided
for Carmelo and Equatorial. Tsk tsk.
CA reversed and ruled for Mayfair. The SC denied a petition questioning the CA
decision. What happened is that the contract did get rescinded, Equatorial got its
money back and asserted that Mayfair have the right to purchase the lots for 11 million
bucks.
Decision became final and executory, so Mayfair deposited with the clerk the 11M
(less 847grand withholding) payment for the properties (Carmelo somehow
disappeared).
Meanwhile, on Sept 18, 1997, barely five months after Mayfair submitted its Motion for
Execution, Equatorial demanded from Mayfair backrentals and reasonable
compensation for the Mayfairs continued use of the subject premises after its lease
contracts expired. Remember that Mayfair was still occupying the premises during all
this hullabaloo.
ISSUE:
Whether or not Equatorial was the owner of the subject property and could thus enjoy
the fruits and rentals.
HELD:NO.
No right of ownership was transferred from Carmelo to Equatorial since there was
failure to deliver the property to the buyer. Compound this with the fact that the sale
was even rescinded.
The court went on to assert that rent is a civil fruit that belonged to the owner of the
property producing it by right of accession. Hence, the rentals that fell due from the
time of the perfection of the sale to petitioner until its rescission by final judgment
should belong to the owner of the property during that period.
We remember from SALES that in a contract of sale, one of the contracting parties
obligates himself to transfer ownership of and to deliver a determinate thing and the
other to pay therefor a price certain in money or its equivalent.
Ownership of the thing sold is a real right, which the buyer acquires only upon delivery
of the thing to him in any of the ways specified in articles 1497 to 1501, or in any
other manner signifying an agreement that the possession is transferred from the
vendor to the vendee. This right is transferred, not by contract alone, but by tradition
or delivery. There is delivery if and when the thing sold is placed in the control and
possession of the vendee.
While execution of a public instrument of sale is recognized by law as equivalent to
the delivery of the thing sold, such constructive or symbolic delivery is merely
presumptive. It is nullified by the failure of the vendee to take actual possession of the
land sold.
For property to be delivered, we need two things. Delivery of property or title, and
transfer of control or custody to the buyer.
Possession was never acquired by the petitioner. It therefore had no rights to rent.
NORKIS DISTRIBUTORS, INC., petitioner, vs. THE COURT OF APPEALS &
ALBERTO NEPALES, respondents.
Subject of this petition for review is the decision of the Court of Appeals (Seventeenth
Division) in CA-G.R. No. 09149, affirming with modification the judgment of the
Regional Trial Court, Sixth (6th) Judicial Region, Branch LVI. Himamaylan, Negros
Occidental, in Civil Case No. 1272, which was private respondent Alberto Nepales'
action for specific performance of a contract of sale with damages against petitioner
Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha
motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its
Branch Manager. On September 20, 1979, private respondent Alberto Nepales bought
from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model
YL2DX with Engine No. L2-329401K Frame No. NL2-0329401, Color Maroon, then
displayed in the Norkis showroom. The price of P7,500.00 was payable by means of a
Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan
Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was
extended to Nepales for the price of the motorcycle payable by DBP upon release of
his motorcycle loan. As security for the loan, Nepales would execute a chattel
mortgage on the motorcycle in favor of DBP. Branch Manager Labajo issued Norkis
Sales Invoice No. 0120 (Exh.1) showing that the contract of sale of the motorcycle had
been perfected. Nepales signed the sales invoice to signify his conformity with the
terms of the sale. In the meantime, however, the motorcycle remained in Norkis'
possession.