OBLICON FABRIGAS VS.

8/2/2019 OBLICON FABRIGAS VS.

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Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

ISAIAS F. FABRIGAS and G.R. No. 152346

MARCELINA R. FABRIGAS,Petitioners,

Present:PUNO,J.,Chairman,

- versus - AUSTRIA-MARTINEZ,CALLEJO, SR.,

TINGA, andCHICO-NAZARIO,JJ.

SAN FRANCISCO DELMONTE, INC.,Respondent. Promulgated:

November 25, 2005

x ---------------------------------------------------------------------x

DECISION

TINGA,J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997

Rules of Civil Procedure, which assails the Decision of the Court of Appeals in CA-

G.R. CV No. 45203 and itsResolution therein denying petitioners' motion for

reconsideration. Said Decision affirmed theDecision dated January 3, 1994 of the

Regional Trial Court (RTC), Branch 63, Makati City in Civil Case No. 90-2711

entitled San Francisco Del Monte, Inc. v. Isaias F. Fabrigas and Marcelina R.

Fabrigas.

The dispositive portion of the trial court's Decision reads:

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In the light of the foregoing, the Court is convinced that plaintiff hasproven by preponderance of evidence, the allegation appearing in its

complaint and is therefore, entitled to the reliefs prayed for.Considering, however, that defendants had already paid P78,152.00,the Court exercising its discretion, hereby renders judgment asfollows:

1. Ordering defendant to make complete payment under the

conditions of Contract to Sell No. 2491-V dated January 21,1985, within twenty days from receipt of this Decision, and

in the event that defendant fail or refuse to observe thelatter, defendants and all persons claiming right ofpossession or occupation from defendants are ordered tovacate and leave the premises, described as Lot No. 9 Block

No. 3 of Subdivision Plan (LRC) Psd-50064 covered byTransfer Certificate of Title No. 4980 (161653) T-1083 of the

Registry of Deeds of Rizal, and to surrender possession

thereof to plaintiff or any of its authorized representatives;

2. That in the event that defendants chose to surrender

possession of the property, they are further ordered to payplaintiff P206,223.80 as unpaid installments on the landinclusive of interests;

3. Ordering defendants to jointly and severally pay plaintiff theamount ofP10,000.00 as and for attorney's fees; and

4. Ordering defendants to pay the costs of suit.

SO ORDERED.[1]The following factual antecedents are matters of record.

On April 23, 1983, herein petitioner spouses Isaias and Marcelina Fabrigas

(Spouses Fabrigas' or 'petitioners') and respondent San Francisco Del Monte, Inc.

(Del Monte') entered into an agreement, denominated as Contract to Sell No. 2482-

V, whereby the latter agreed to sell to Spouses Fabrigas a parcel of residential land

situated in Barrio Almanza, Las Pias, Manila for and in consideration of the amount

of P109,200.00. Said property, which is known as Lot No. 9, Block No. 3 of

Subdivision Plan (LRC) Psd-50064, is covered by Transfer Certificate of Title No.

4980 (161653) T-1083 registered in the name of respondent Del Monte. The

agreement stipulated that Spouses Fabrigas shall pay P30,000.00 as downpayment

and the balance within ten (10) years in monthly successive installments

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of P1,285.69.[2] Among the clauses in the contract is an automatic cancellation

clause in case of default, which states as follows:

7. Should the PURCHASER fail to make any of the payments including

interest as herein provided, within 30 days after the due date, thiscontract will be deemed and considered as forfeited and annulledwithout necessity of notice to the PURCHASER, and said SELLER shall

be at liberty to dispose of the said parcel of land to any other person inthe same manner as if this contract had never been executed. In the

event of such forfeiture, all sums of money paid under this contractwill be considered and treated as rentals for the use of said parcel ofland, and the PURCHASER hereby waives all right to ask or demandthe return thereof and agrees to peaceably vacate the said premises.[3]

After paying P30,000.00, Spouses Fabrigas took possession of the property but

failed to make any installment payments on the balance of the purchase price. Del

Monte sent demand letters on four occasions to remind Spouses Fabrigas to satisfy

their contractual obligation.[4] In particular, Del Monte's third letter dated

November 9, 1983 demanded the payment of arrears in the amount of P8,999.00.

Said notice granted Spouses Fabrigas a fifteen-day grace period within which to

settle their accounts. Petitioners' failure to heed Del Monte's demands prompted the

latter to send a final demand letter dated December 7, 1983, granting Spouses

Fabrigas another grace period of fifteen days within which to pay the overdue

amount and warned them that their failure to satisfy their obligation would cause

the rescission of the contract and the forfeiture of the sums of money already paid.

Petitioners received Del Monte's final demand letter on December 23, 1983. Del

Monte considered Contract to Sell No. 2482-Vcancelled fifteen days thereafter, but

did not furnish petitioners any notice regarding its cancellation.[5]

On November 6, 1984, petitioner Marcelina Fabrigas (petitioner Marcelina') remitted

the amount ofP13,000.00 to Del Monte.[6] On January 12, 1985, petitioner

Marcelina again remitted the amount of P12,000.00.[7] A few days thereafter, or on

January 21, 1985, petitioner Marcelina and Del Monte entered into another

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agreement denominated as Contract to Sell No. 2491-V, covering the same

property but under restructured terms of payment. Under the second contract, the

parties agreed on a new purchase price of P131,642.58, the amount of P26,328.52

as downpayment and the balance to be paid in monthly installments of P2,984.60

each.[8]

Between March 1985 and January 1986, Spouses Fabrigas made irregular payments

underContract to Sell No. 2491-V, to wit:

March 19, 1985 P1, 328.52July 2, 1985 P2, 600.00

September 30, 1985 P2, 600.00

November 27, 1985 P2, 600.00January 20, 1986 P2, 000.00[9]

Del Monte sent a demand letter dated February 3, 1986, informing petitioners of

their overdue account equivalent to nine (9) installments or a total amount

of P26,861.40. Del Monte required petitioners to satisfy said amount immediately in

two subsequent letters dated March 5 and April 2, 1986.[10]This prompted

petitioners to pay the following amounts:

February 3, 1986 P2, 000.00

March 10, 1986 P2, 000.00April 9, 1986 P2, 000.00May 13, 1986 P2, 000.00June 6, 1986 P2, 000.00

July 14, 1986 P2, 000.00[11]

No other payments were made by petitioners except the amount of P10,000.00

which petitioners tendered sometime in October 1987 but which Del Monte refused

to accept, the latter claiming that the payment was intended for the satisfaction

ofContract to Sell No. 2482-Vwhich had already been previously cancelled. On

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March 24, 1988, Del Monte sent a letter demanding the payment of accrued

installments under Contract to Sell No. 2491-Vin the amount of P165,759.60

less P48,128.52, representing the payments made under the restructured contract,

or the net amount of P117,631.08. Del Monte allowed petitioners a grace period of

thirty (30) days within which to pay the amount asked to avoid rescission of the

contract. For failure to pay, Del Monte notified petitioners on March 30, 1989

that Contract to Sell No. 2482-Vhad been cancelled and demanded that petitioners

vacate the property.[12]

On September 28, 1990, Del Monte instituted an action for Recovery of Possession

with Damages against Spouses Fabrigas before the RTC, Branch 63 of Makati City.

The complaint alleged that Spouses Fabrigas owed Del Monte the principal amount

of P206,223.80 plus interest of 24% per annum. In their answer, Spouses Fabrigas

claimed, among others, that Del Monte unilaterally cancelled the first contract and

forced petitioner Marcelina to execute the second contract, which materially and

unjustly altered the terms and conditions of the original contract.[13]

After trial on the merits, the trial court rendered a Decision on January 3, 1994,

upholding the validity ofContract to Sell No. 2491-Vand ordering Spouses Fabrigas

either to complete payments thereunder or to vacate the property.

Aggrieved, Spouses Fabrigas elevated the matter to the Court of Appeals, arguing

that the trial court should have upheld the validity and existence ofContract to Sell

No. 2482-Vinstead and nullified Contract to Sell No. 2491-V. The Court of Appeals

rejected this argument on the ground that Contract to Sell No. 2482-Vhad been

rescinded pursuant to the automatic rescission clause therein. While the Court of

Appeals declared Contract to Sell No. 2491-Vas merely unenforceable for having

been executed without petitioner Marcelina's signature, it upheld its validity upon

finding that the contract was subsequently ratified.

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Hence, the instant petition attributing the following errors to the Court of Appeals:

A. THE COURT OF APPEALS GRAVELY ERRED WHEN IT IGNORED THEPROVISIONS OF R.A. NO. 6552 (THE MACEDA LAW) AND RULED THAT

CONTRACT TO SELL NO. 2482-V WAS VALIDLY CANCELLED BYSENDING A MERE NOTICE TO THE PETITIONERS.B. THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THERE

WAS AN IMPLIED RATIFICATION OF CONTRACT TO SELL NO. 2491-V.

C. THE COURT OF APPEALS ERRED IN ITS APPLICATION OF THERULES OF NOVATION TO THE INSTANT CASE.[14]

As reframed for better understanding, the questions are the following:

Was Contract to Sell No. 2482-Vextinguished through rescission or was it novated

by the subsequent Contract to Sell No. 2491-V? IfContract to Sell No. 2482-Vwas

rescinded, should the manner of rescission comply with the requirements of

Republic Act No. (R.A.) 6552? IfContract to Sell No. 2482-Vwas subsequently

novated by Contract to Sell No. 2491-V, are petitioners liable for breach under the

subsequent agreement?

Petitioners theorize that Contract to Sell No. 2482-Vshould remain valid and

subsisting because the notice of cancellation sent by Del Monte did not observe the

requisites under Section 3 of R.A. 6552.[15] According to petitioners, since

respondent did not send a notarial notice informing them of the cancellation or

rescission ofContract to Sell No. 2482-Vand also did not pay them the cash

surrender value of the payments on the property, the Court of Appeals erred in

concluding that respondent correctly applied the automatic rescission clause

ofContract to Sell No. 2482-V. Petitioners also cite Section 7[16] of said law tobolster their theory that the automatic rescission clause in Contract to Sell No.

2482-Vis invalid for being contrary to law and public policy.

The Court of Appeals erred in ruling that Del Monte was 'well within its right to

cancel the contract by express grant of paragraph 7 without the need of notifying

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[petitioners],[17] instead of applying the pertinent provisions of R.A. 6552.

Petitioners' contention that none of Del Monte's demand letters constituted a valid

rescission ofContract to Sell No. 2482-Vis correct.

Petitioners defaulted in all monthly installments. They may be credited only with

the amount ofP30,000.00 paid upon the execution ofContract to Sell No. 2482-V,

which should be deemed equivalent to less than two (2) years' installments. Given

the nature of the contract between petitioners and Del Monte, the applicable legal

provision on the mode of cancellation ofContract to Sell No. 2482-Vis Section 4

and not Section 3 of R.A. 6552. Section 4 is applicable to instances where less than

two years installments were paid. It reads:

SECTION 4. In case where less than two years of installments werepaid, the seller shall give the buyer a grace period of not less than

sixty days from the date the installment became due.If the buyer fails to pay the installments due at the expiration of thegrace period, the seller may cancel the contract after thirty days from

receipt by the buyer of the notice of cancellation or the demand forrescission of the contract by a notarial act.

Thus, the cancellation of the contract under Section 4 is a two-step process. First,

the seller should extend the buyer a grace period of at least sixty (60) days from

the due date of the installment. Second, at the end of the grace period, the seller

shall furnish the buyer with a notice of cancellation or demand for rescission

through a notarial act, effective thirty (30) days from the buyer's receipt thereof. It

is worth mentioning, of course, that a mere notice or letter, short of a notarial act,

would not suffice.

While the Court concedes that Del Monte had allowed petitioners a grace period

longer than the minimum sixty (60)-day requirement under Section 4, it did not

comply, however, with the requirement of notice of cancellation or a demand for

rescission. Instead, Del Monte applied the automatic rescission clause of the

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contract. Contrary, however, to Del Monte's position which the appellate court

sustained, the automatic cancellation clause is void under Section 7[18] in relation

to Section 4 of R.A. 6552.[19]

Rescission, of course, is not the only mode of extinguishing obligations. Ordinarily,

obligations are also extinguished by payment or performance, by the loss of the

thing due, by the condonation or remission of the debt, by the confusion or merger

of the rights of the creditor and debtor, by compensation, or by novation.[20]

Novation, in its broad concept, may either be extinctive or modificatory. It is

extinctive when an old obligation is terminated by the creation of a new obligation

that takes the place of the former; it is merely modificatory when the old obligation

subsists to the extent it remains compatible with the amendatory agreement. An

extinctive novation results either by changing the object or principal conditions

(objective or real), or by substituting the person of the debtor or subrogating a

third person in the rights of the creditor (subjective or personal). Under this mode,

novation would have dual functionsone to extinguish an existing obligation, the

other to substitute a new one in its placerequiring a conflux of four essential

requisites: (1) a previous valid obligation; (2) an agreement of all parties

concerned to a new contract; (3) the extinguishment of the old obligation; and (4)

the birth of a valid new obligation.[21]

Notwithstanding the improper rescission, the facts of the case show that Contract

to Sell No. 2482-Vwas subsequently novated by Contract to Sell No. 2491-V. The

execution ofContract to Sell No. 2491-Vaccompanied an upward change in the

contract price, which constitutes a change in the object or principal conditions of

the contract. In entering into Contract to Sell No. 2491-V,the parties were impelled

by causes different from those obtaining under Contract to Sell No. 2482-V. On the

part of petitioners, they agreed to the terms and conditions ofContract to Sell No.

2491-Vnot only to acquire ownership over the subject property but also to avoid

the consequences of their default under Contract No. 2482-V. On Del Monte's end,

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the upward change in price was the consideration for entering into Contract to Sell

No. 2491-V.

In order that an obligation may be extinguished by another which substitutes the

same, it is imperative that it be so declared in unequivocal terms, or that the old

and the new obligations be on every point incompatible with each other. [22] The

test of incompatibility is whether or not the two obligations can stand together,

each one having its independent existence. If they cannot, they are incompatible

and the latter obligation novates the first.[23] The execution ofContract to Sell No.

2491-Vcreated new obligations in lieu of those under Contract to Sell No. 2482-V,

which are already considered extinguished upon the execution of the second

contract. The two contracts do not have independent existence for to hold

otherwise would present an absurd situation where the parties would be liable

under each contract having only one subject matter.

To dispel the novation ofContract to Sell No. 2482-Vby Contract to Sell No. 2491-

V, petitioners contend that the subsequent contract is void for two reasons: first,

petitioner Isaias Fabrigas did not give his consent thereto, and second, the

subsequent contract is a contract of adhesion.

Petitioner rely on Article 172 of the Civil Code governing their property relations as

spouses. Said article states that the wife cannot bind the conjugal partnership

without the husband's consent except in cases provided by law. Since only

petitioner Marcelina executed Contract to Sell No. 2491-V, the same is allegedly

void, petitioners conclude.

Under the Civil Code, the husband is the administrator of the conjugal partnership.

[24] Unless the wife has been declared a non compos mentis or a spendthrift, or is

under civil interdiction or is confined in a leprosarium, the husband cannot alienate

or encumber any real property of the conjugal partnership without the wife's

consent.[25] Conversely, the wife cannot bind the conjugal partnership without the

husband's consent except in cases provided by law.[26]

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Thus, if a contract entered into by one spouse involving a conjugal property lacks

the consent of the other spouse, as in the case at bar, is it automatically void for

that reason alone?

Article 173[27] of the Civil Code expressly classifies a contract executed by the

husband without the consent of the wife as merely annullable at the instance of the

wife. However, there is no comparable provision covering an instance where the

wife alone has consented to a contract involving conjugal property. Article 172 of

the Civil Code, though, does not expressly declare as void a contract entered by the

wife without the husband's consent. It is also not one of the contracts considered as

void under Article 1409[28] of the Civil Code.

In Felipe v. Heirs of Maximo Aldon,[29] the Court had the occasion to rule on the

validity of a sale of lands belonging to the conjugal partnership made by the wife

without the consent of the husband. Speaking through Mr. Justice Abad Santos, the

Court declared such a contract as voidable because one of the parties is incapable

of giving consent to the contract. The capacity to give consent belonged not even to

the husband alone but to both

spouses.[30] In that case, the Court anchored its ruling on Article 173 of the Civil

Code which states that contracts entered by the husband without the consent of the

wife when such consent is required, are annullable at her instance during the

marriage and within ten years from the transaction mentioned.[31]

The factual milieu of the instant case, however, differs from that in Felipe. The

defect whichContract to Sell No. 2491-Vsuffers from is lack of consent of the

husband, who was out of the country at the time of the execution of the contract.

There is no express provision in the Civil Code governing a situation where the

husband is absent and his absence incapacitates him from administering the

conjugal partnership property. The following Civil Code provisions, however, are

illuminating:

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ARTICLE 167. In case of abuse of powers of administration of theconjugal partnership property by the husband, the courts, on petition

of the wife, may provide for receivership, or administration by thewife, or separation of property.ARTICLE 168. The wife may, by express authority of the husband

embodied in a public instrument, administer the conjugal partnershipproperty.

ARTICLE 169. The wife may also, by express authority of the husband

appearing in a public instrument, administer the latter's estate.

While the husband is the recognized administrator of the conjugal property under

the Civil Code, there are instances when the wife may assume administrative

powers or ask for the separation of property. In the abovementioned instances, the

wife must be authorized either by the court or by the husband. Where the husband

is absent and incapable of administering the conjugal property, the wife must be

expressly authorized by the husband or seek judicial authority to assume powers of

administration. Thus, any transaction entered by the wife without the court or the

husband's authority is unenforceable in accordance with Article 1317[32] of the Civil

Code. That is the status to be accorded Contract to Sell No. 2491-V, 'it having been

executed by petitioner Marcelina without her husband's conformity.

Being an unenforceable contract, Contract to Sell No. 2491-Vis susceptible to

ratification. As found by the courts below, after being informed of the execution of

the contract, the husband, petitioner Isaias Fabrigas, continued remitting payments

for the satisfaction of the obligation under Contract to Sell No. 2491-V. These acts

constitute ratification of the contract. Such ratification cleanses the contract from all

its defects from the moment it was constituted. The factual findings of the courts

below are beyond review at this stage. '

Anent Del Monte's claim that Contract to Sell No. 2491-Vis a contract of adhesion,

suffice it to say that assuming for the nonce that the contract is such the

characterization does not automatically render it void. A contract of adhesion is so-

called because its terms are prepared by only one party while the other party

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merely affixes his signature signifying his adhesion thereto. Such contracts are not

void in themselves. They are as binding as ordinary contracts. Parties who enter

into such contracts are free to reject the stipulations entirely.[33]

The Court quotes with approval the following factual observations of the trial court,

which cannot be disturbed in this case, to wit:

The Court notes that defendant, Marcelina Fabrigas, although she had

to sign contract No. 2491-V, to avoid forfeiture of her downpayment,and her other monthly amortizations, was entirely free to refuse toaccept the new contract. There was no clear case of intimidation orthreat on the part of plaintiff in offering the new contract to her. At

most, since she was of sufficient intelligence to discern the agreementshe is entering into, her signing of Contract No. 2491-V is taken to be

valid and binding. The fact that she has paid monthly amortizationssubsequent to the execution of Contract to Sell No. 2491-V, is an

indication that she had recognized the validity of such contract. . . .[34]

In sum, Contract to Sell No. 2491-Vis valid and binding. There is nothing to

prevent respondent Del Monte from enforcing its contractual stipulations and

pursuing the proper court action to hold petitioners liable for their breach thereof. '

WHEREFORE, the instant Petition for Review is DENIED and the September 28,

2001 Decision of the Court of Appeals in CA-G.R. CV No. 45203 is AFFIRMED. Costs

against petitioners.

SO ORDERED.

DANTE O. TINGAAssociate Justice

WE CONCUR:

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REYNATO S. PUNOAssociate Justice

Chairman

(No Part)

MA. ALICIA AUSTRIA-MARTINEZLAssociate Justice

ROMEO J. CALLEJO, SR.Associate Justice

(On Leave)MINITA V. CHICO-NAZARIO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation

before the case was assigned to the writer of the opinion of the Court's Division.

REYNATO S. PUNO

'Associate Justice' Chairman, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairman's

Attestation, it is hereby certified that the conclusions in the above Decision had

13


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been reached in consultation before the case was assigned to the writer of the

opinion of the Court's Division.

HILARIO G. DAVIDE, JR.' Chief Justice

Endnotes:

[1]RTC Decision, pp. 10-11; Rollo, pp. 133-134.cralaw

[2]CA Decision, pp. 2-3; Id. at 66-67. cralaw

[3]Id. at 87.cralaw

[4]Exhibits 'C to 'E; Exhibit 'G.cralaw

[5]RTC Decision, p. 2; Rollo, p. 125.cralaw

[6]Id.at 84.cralaw

[7]Id.at 86.cralaw

[8]Id. at 87.cralaw

[9]Exhibits '2-C to '2-G.cralaw

[10]Rollo, pp. 89-91.cralaw

[11]Exhibits '2-H to '2-M.cralaw

[12]CA Decision, p. 4; Rollo, p. 68.cralaw

[13]CA Decision, p. 5; Id. at 69. cralaw

[14]Id.at 42.cralaw

[15]SECTION 3. In all transactions or contracts involving the sale or financing of real estateon installment payments, including residential condominium apartments but excluding

industrial lots, commercial buildings and sales to tenants under Republic Act NumberedThirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three hundred

eighty-nine, where thebuyer has paid at least two years of installments, the buyer is

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entitled to the following rights in case he defaults in the payment of succeedinginstallments:

. . . .

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender valueof the payments on the property equivalent to fifty per cent of the total payments made,

and, after five years of installments, an additional five per cent every year but not to exceedninety per cent of the total payments made: Provided, That the actual cancellation ofthe contract shall take place after thirty days from receipt by the buyer of the

notice of cancellation or the demand for rescission of the contract by a notarial act

and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation ofthe total number of installment payments made.

cralaw

[16]SECTION 7. Any stipulation in any contract hereafter entered into contrary to the

provisions of Sections 3, 4, 5 and 6, shall be null and void.cralaw

[17]CA Decision, p. 7; Rollo, p. 16. cralaw

[18]Supra note 16. cralaw

[19]Rollo, p. 71.cralaw

[20]Article 1231, Civil Code.cralaw

[21]Quinto v. People of the Philippines, 365 Phil. 259 (1999).cralaw


[23]Quinto v. People of the Philippines, supra note 21.cralaw

[24]Article 165, Civil Code.

cralaw

[25]Ibid.

cralaw


[27]ARTICLE 173. The wife may, during the marriage, and within ten years from thetransaction questioned, ask the courts for the annulment of any contract of the husband

entered into without her consent, when such consent is required, or any act or contract ofthe husband which tends to defraud her or impair her interest in the conjugal partnership

property. Should the wife fail to exercise this right, she or her heirs, after the dissolution ofthe marriage, may demand the value of property fraudulently alienated by the husband. (n)

cralaw

[28]Article 1409. The following contracts are inexistent and void from the beginning:(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public

order or public policy;(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;(4) Those whose object is outside the commerce of men;

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(5) Those which contemplate an impossible service;(6) Those where the intention of the parties relative to the principal object of the contract

cannot be ascertained;[7] Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality bewaived. cralaw

[29]205 Phil. 537 (1983); 120 SCRA 628 (1983).cralaw

[30]Id. at 633.cralaw

[31]Id. at 634.cralaw

[32]Article 1317. No one may contract in the name of another without being authorized by

the latter, or unless he has by law a right to represent him.

A contract entered into in the name of another by one who has no authority or legalrepresentation, or who has acted beyond his powers, shall be unenforceable, unless it is

ratified, expressly or impliedly, by the person on whose behalf it has been executed, before

it is revoked by the other contracting party.cralaw

[33]Ermitao, et al. v. Court of Appeals, 365 Phil. 671 (1999).cralaw

[34]RTC Decision, p. 9, Rollo, p. 132.

Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. No. 149040 July 4, 2007

EDGAR LEDONIO, petitioner,vs.CAPITOL DEVELOPMENT CORPORATION, respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of theRevised Rules of Court praying that (1) the Decision,2 dated 20 March 2001,of the Court of Appeals in CA-G.R. CV No. 43604, affirming in toto theDecision,3 dated 6 August 1993, of the Quezon City Regional Trial Court

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(RTC), Branch 91, in Civil Case No. Q-90-5247, be set aside; and (2) theComplaint4 in Civil Case No. Q-90-5247 be dismissed.

Herein respondent Capitol Development Corporation instituted Civil Case No.Q-90-5247 by filing a Complaint for the collection of a sum of money against

herein petitioner Edgar Ledonio.

In its Complaint, respondent alleged that petitioner obtained from a Ms.Patrocinio S. Picache two loans, with the aggregate principal amountof P60,000.00, and covered by promissory notes duly signed by petitioner. Inthe first promissory note,5 dated 9 November 1988, petitioner promised to payto the order of Ms. Picache the principal amount of P30,000.00, in monthlyinstallments of P3,000.00, with the first monthly installment due on 9 January1989. In the second promissory note,6 dated 10 November 1988, petitioneragain promised to pay to the order of Ms. Picache the principal amount

of P30,000.00, with 36% interest per annum, on 1 December 1988. In case ofdefault in payment, both promissory notes provide that (a) petitioner shall beliable for a penalty equivalent to 20% of the total outstanding balance; (b)unpaid interest shall be compounded or added to the balance of the principalamount and shall bear the same rate of interest as the latter; and (c) in casethe creditor, Ms. Picache, shall engage the services of counsel to enforce herrights and powers under the promissory notes, petitioner shall pay asattorney's fees and liquidated damages the sum equivalent to 20% of the totalamount sought to be recovered, but in no case shall the said sum be lessthat P10,000.00, exclusive of costs of suit.

On 1 April 1989, Ms. Picache executed an Assignment of Credit7 in favor ofrespondent, which reads

KNOW ALL MEN BY THESE PRESENTS:

That I, PAT S. PICACHE of legal age and with postal address at 373Quezon Avenue, Quezon City for and in consideration of SIXTYTHOUSAND PESOS (P60,000.00) Philippine Currency, to me paid by[herein respondent] CAPITOL DEVELOPMENT CORPORATION, acorporation organized and existing under the laws of the Republic of thePhilippines with principal office at 373 Quezon Avenue, Quezon Cityreceipt whereof is hereby acknowledged have sold, transferred,assigned and conveyed and (sic) by me these presents do hereby sell,assign, transfer and convey unto the said [respondent] CAPITOLDEVELOPMENT CORPORATION, a certain debt due me from [hereinpetitioner] EDGAR A. LEDONIO in the principal sum of SIXTY

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THOUSAND PESOS (P60,000.00) Philippine Currency, under two (2)Promissory Notes dated November 9, 1988 and November 10, 1988,respectively, photocopies of which are attached to as annexes A & B toform integral parts hereof with full power to sue for, collect anddischarge, or sell and assign the same.

That I hereby declare that the principal sum of SIXTY THOUSANDPESOS (P60,000.00) with interest thereon at THIRTY SIX (36%) PERCENT per annum is justly due and owing to me as aforesaid.

IN WITNESS WHEREOF, I have hereunto set my hand this 1 st day ofApril, 1989 at Quezon City.

(SGD)PAT S. PICACHE

The foregoing document was signed by two witnesses and dulyacknowledged by Ms. Picache before a Notary Public also on 1 April 1989.

Since petitioner did not pay any of the loans covered by the promissory noteswhen they became due, respondent -- through its Vice President Nina P. Kingand its counsel King, Capuchino, Banico & Associates -- sent petitionerseveral demand letters.8 Despite receiving the said demand letters, petitionerstill failed and refused to settle his indebtedness, thus, prompting respondentto file the Complaint with the RTC, docketed as Civil Case No. Q-90-5247.

In his Answer filed with the RTC, petitioner sought the dismissal of theComplaint averring that respondent had no cause of action against him. Hedenied obtaining any loan from Ms. Picache and questioned the genuinenessand due execution of the promissory notes, for they were the result ofintimidation and fraud; hence, void. He asserted that there had been notransaction or privity of contract between him, on one hand, and Ms. Picacheand respondent, on the other. The assignment by Ms. Picache of thepromissory notes to respondent was a mere ploy and simulation to effect theunjust enforcement of the invalid promissory notes and to insulate Ms.

Picache from any direct counterclaims, and he never consented or agreed tothe said assignment.

Petitioner then presented his own narration of events leading to the filing ofCivil Case No. Q-90-5247. According to him, on 24 February 1988, he enteredinto a Contract of Lease9 of real property located in Quezon City with MissionRealty & Management Corporation (MRMC), of which Ms. Picache is an

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incorporator and member of the Board of Directors.10 Petitioner relocated theplant and machines used in his garments business to the leased property.After a month or two, a foreign investor was interested in doing business withhim and sent a representative to conduct an ocular inspection of petitioner'splant at the leased property. During the inspection, a group of Meralcoemployees entered the leased property to cut off the electric powerconnections of the plant. The event gave an unfavorable impression to theforeign investor who desisted from further transacting with petitioner. Uponverification with Meralco, petitioner discovered that there were unpaid electricbills on the leased property amounting to hundreds of thousands of pesos.These electric bills were supposedly due to the surreptitious electricalconnections to the leased property. Petitioner claimed that he was neverinformed or advised by MRMC of the existence of said unpaid electric bills. Ittook Meralco considerable time to restore electric power to the leasedproperty and only after petitioner pleaded that he was not responsible for theillegal electrical connections and/or the unpaid electric bills, for he was only arecent lessee of the leased property. Because of the work stoppage and lossof business opportunities resulting from the foregoing incident, petitionerpurportedly suffered damages amounting to United States $60,000.00, forwhich petitioner verbally attempted to recover compensation from MRMC.

Having failed to obtain compensation from MRMC, petitioner decided tovacate and pull out his machines from the leased property but he can only doso, unhampered and uninterrupted by MRMC security personnel, if he signed,

as he did, blank promissory note forms. Petitioner alleged that when hesigned the promissory note forms, the allotted spaces for the principal amountof the loans, interest rates, and names of the promisee/s were in blank; andthat Ms. Picache took advantage of petitioner's signatures on the blankpromissory note forms by filling up the blanks.

To raise even more suspicions of fraud and spuriousness of the promissorynotes and their subsequent assignment to respondent, petitioner calledattention to the fact that Ms. Picache is an incorporator and member of theBoard of Directors of both MRMC and respondent.11

After the pre-trial conference and the trial proper, the RTC rendered aDecision12 on 6 August 1993, ruling in favor of respondent. The RTC gavemore credence to respondent's version of the facts, finding that

[Herein petitioner]'s disclaimer of the promissory note[s] does not inspirebelief. He is a holder of a degree in Bachelor of Science in ChemicalEngineering and has been a manufacturer of garments since 1979. As a

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matter of fact, [petitioner]'s testimony that he was made to sign blanksheets of paper is contrary to his admission in paragraphs 12 and 13 ofhis Answer that as a condition to his removal of his machines [from] theleased premises, he was made to sign blank promissory note forms withrespect to the amount, interest and promisee. It thus appearsincredulous that a businessman like [petitioner] would simply sign blanksheets of paper or blank promissory notes just [to] be able to vacate theleased premises.

Moreover, the credibility of [petitioner]'s testimony leaves much to bedesired. He contradicted his earlier testimony that he only metPatrocinio Picache once, which took place in the office of Mission Realtyand Management Corporation, by stating that he saw PatrocinioPicache a second time when she went to his house. Likewise, his claimthat the electric power in the leased premises was cut off only twomonths after he occupied the same is belied by his own evidence. Thecontract of lease submitted by [petitioner] is dated February 24, 1988and took effect on March 1, 1988. His letter to Mission Realty andManagement Corporation dated September 21, 1988, complained of theelectric power disconnection that took place on September 6, 1988, thatis, six (6) months after he had occupied the leased premises, and didnot even give a hint of his intention to vacate the premises because ofsaid incident. It appears that [petitioner] was already advised to pay hisrental arrearages in a letter dated August 9, 1988 (Exh. "2") and was

notified of the termination of the lease contract in a letter datedSeptember 19, 1988 (Exh. "4"). However, in a letter dated September26, 1988, [petitioner] requested for time to look for a place to transfer.

The RTC also sustained the validity and enforceability of the Assignment ofCredit executed by Ms. Picache in favor of respondent, even in the absence ofpetitioner's consent to the said assignment, based on the following reasoning

The promissory notes (Exhs. "A" and "B") were assigned by Ms.

Patrocinio Picache to [herein respondent] by virtue of a notarizedAssignment of Credit dated April 1, 1989 for a considerationof P60,000.00 (Exh. "C"). The fact that the assignment of credit doesnot bear the conformity of [herein petitioner] is of no moment. In C & CCommercial Corporation vs. Philippine National Bank, 175 SCRA 1, 11,the Supreme Court held thus:

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"x x x Article 1624 of the Civil Code provides that 'an assignmentof credits and other incorporeal rights shall be perfected inaccordance with the provisions of Article 1475' which in turnstates that 'the contract of sale is perfected at the moment there isa meeting of the minds upon the thing which is the object of thecontract and upon the price.' The meeting of the mindscontemplated here is that between the assignor of the credit andhis assignee, there being no necessity for the consent of thedebtor, contrary to petitioner's claim. It is sufficient that theassignment be brought to his knowledge in order to be bindingupon him. This may be inferred from Article 1626 of the Civil Codewhich declares that 'the debtor who, before having knowledge ofthe assignment, pays his creditor shall be released from theobligation.'"

[Petitioner] does not deny having been notified of the assignment ofcredit by Patrocinio Picache to the [respondent]. Thus, [respondent]sent several demand letters to the [petitioner] in connection with theloan[s] (Exhs. "D", "E", "F" and "G"). [Petitioner] acknowledged receiptof [respondent]'s letter of demand dated June 13, 1989 (Exh. "F") andassured [respondent] that he would settle his account, as per theirtelephone conversation (Exhs. "H" and "9"). Such communicationsbetween [respondent] and [petitioner] show that the latter had been dulynotified of the said assignment of credit. x x x.

Given its aforequoted findings, the RTC proceeded to a determination ofpetitioner's liabilities to respondent, taking into account the provisions of thepromissory notes, thus

x x x Consequently, [herein respondent] is entitled to recover from[herein petitioner] the principal amount ofP30,000.00 for the promissorynote dated November 9, 1988. As said note did not provide for anyinterest, [respondent] may only recover interest at the legal rate of 12%per annum from April 18, 1990, the date of the filing of the complaint.

With respect to the promissory note dated November 10, 1988, thesame provided for interest at 36% per annum and that interest not paidwhen due shall be added to and shall become part of the principal andshall bear the same rate of interest as the principal. Likewise, bothpromissory notes provided for a penalty of 20% of the total outstandingbalance thereon and attorney's fees equivalent to 20% of the sumsought to be recovered in case of litigation.

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In Garcia vs. Court of Appeals, 167 SCRA 815, it was held that penaltyinterests are in the nature of liquidated damages and may be equitablyreduced by the courts if they are iniquitous or unconscionable, pursuantto Articles 1229 and 2227 of the Civil Code. Considering that thepromissory note dated November 10, 1988 already provided for interestat 36% per annum on the principal obligation, as well as for thecapitalization of the unpaid interest, the penalty charge of 20% of thetotal outstanding balance of the obligation thus appears to be excessiveand unconscionable. The interest charges are enough punishment for[petitioner]'s failure to comply with his obligation under the promissorynote dated November 10, 1988.

With respect to the attorney's fees, the court is likewise empowered toreduce the same if they are unreasonable or unconscionable,notwithstanding the express contract therefor. (Insular Bank of Asia andAmerica vs. Spouses Salazar, 159 SCRA 133, 139). Thus, an awardof P10,000.00 as and for attorney's fees appears to be enough.

Consequently, the fallo of the RTC Decision reads

WHEREFORE, in view of the foregoing, judgment is hereby rendered infavor of the [herein respondent] and against [herein petitioner] orderingthe latter as follows:

1. To pay [respondent], on the promissory note dated November

9, 1988, the amount of P30,000.00 with interest thereon at thelegal rate of 12% per annum from April 18, 1990 until fully paidand a penalty of 20% on the total amount;

2. To pay [respondent], on the promissory note dated November10, 1988, the amount of P30,000.00 with interest thereon at 36%per annum compounded at the same rate until fully paid;

3. To pay [respondent] the amount of P10,000.00, as and forattorney's fees; and

4. To pay the costs of the suit.13

Aggrieved by the RTC Decision, dated 6 August 1993, petitioner filed anappeal with the Court of Appeals, which was docketed as CA-G.R. CV No.43604. The appellate court, in a Decision,14 dated 20 March 2001, found nocogent reason to depart from the conclusions arrived at by the RTC in its

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appealed Decision, dated 6 August 1993, and affirmed the latter Decisionin toto. The Court of Appeals likewise denied petitioner's Motion forReconsideration in a Resolution,15 dated 16 July 2001, stating that thegrounds relied upon by petitioner in his Motion were mere reiterations of theissues and matters already considered, weighed and passed upon; and thatno new matter or substantial argument was adduced by petitioner to warrant amodification, much less a reversal, of the Court of Appeals Decision, dated 20March 2001.

Comes now petitioner to this Court, via a Petition for Reviewon Certiorariunder Rule 45 of the Revised Rules of Court, raising the soleissue16 of whether or not the Court of Appeals committed grave abuse ofdiscretion in affirming in toto the RTC Decision, dated 6 August 1993.Petitioner's main argument is that the Court of Appeals erred when it ruledthat there was an assignment of credit and that there was nonovation/subrogation in the case at bar. Petitioner asserts the position thatconsent of the debtor to the assignment of credit is a basic/essential elementin order for the assignee to have a cause of action against the debtor. Withoutthe debtor's consent, the recourse of the assignee in case of non-payment ofthe assigned credit, is to recover from the assignor. Petitioner further arguesthat even if there was indeed an assignment of credit, as alleged by therespondent, then there had been a novation of the original loan contractswhen the respondent was subrogated in the rights of Ms. Picache, the originalcreditor. In support of said argument, petitioner invokes the following

provisions of the Civil Code

ART. 1300. Subrogation of a third person in the rights of the creditor iseither legal or conventional. The former is not presumed, except incases expressly mentioned in this Code; the latter must be clearlyestablished in order that it may take effect.

ART. 1301. Conventional subrogation of a third person requires theconsent of the original parties and the third person.

According to petitioner, the assignment of credit constitutes conventionalsubrogation which requires the consent of the original parties to the loancontract, namely, Ms. Picache (the creditor) and petitioner (the debtor); andthe third person, the respondent (the assignee). Since petitioner never gavehis consent to the assignment of credit, then the subrogation of respondent inthe rights of Ms. Picache as creditor by virtue of said assignment is withoutforce and effect.

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This Court finds no merit in the present Petition.

Before proceeding to a discussion of the points raised by petitioner, this Courtdeems it appropriate to emphasize that the findings of fact of the Court ofAppeals and the RTC in this case shall no longer be disturbed. It is axiomatic

that this Court will not review, much less reverse, the factual findings of theCourt of Appeals, especially where, as in this case, such findings coincidewith those of the trial court, since this Court is not a trier of facts. 17

The jurisdiction of this Court in a Petition for Review on Certiorariunder Rule45 of the Revised Rules of Court is limited to reviewing only errors of law, notof fact, unless it is shown, inter alia, that: (a) the conclusion is groundedentirely on speculations, surmises and conjectures; (b) the inference ismanifestly mistaken, absurd and impossible; (c) there is grave abuse ofdiscretion; (d) the judgment is based on a misapplication of facts; (e) the

findings of fact of the trial court and the appellate court are contradicted by theevidence on record and (f) the Court of Appeals went beyond the issues of thecase and its findings are contrary to the admissions of both parties.18 None ofthese circumstances are present in the case at bar. After a perusal of therecords, this Court can only conclude that the factual findings of the Court ofAppeals, affirming those of the RTC, are amply supported by evidence andare, resultantly, conclusive on this Court.19

Therefore, the following facts are already beyond cavil: (1) petitioner obtainedtwo loans totaling P60,000.00 from Ms. Picache, for which he executedpromissory notes, dated 9 November 1988 and 10 November 1988; (2) hefailed to pay any of the said loans; (3) Ms. Picache executed on 1 April 1989an Assignment of Credit covering petitioner's loans in favor of respondent forthe consideration of P60,000.00; (4) petitioner had knowledge of theassignment of credit; and (5) petitioner still failed to pay his indebtednessdespite repeated demands by respondent and its counsel. Petitioner'spersistent assertions that he never acquired any loan from Ms. Picache, orthat he signed the promissory notes in blank and under duress, deserve scantconsideration. They were already found by both the Court of Appeals and the

RTC to be implausible and inconsistent with petitioner's own evidence.Now this Court turns to the questions of law raised by petitioner, all of whichhinges on the contention that a conventional subrogation occurred when Ms.Picache assigned the debt, due her from the petitioner, to the respondent; andwithout petitioner's consent as debtor, the said conventional subrogationshould be deemed to be without force and effect.

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This Court cannot sustain petitioner's contention and hereby declares that thetransaction between Ms. Picache and respondent was an assignment ofcredit, not conventional subrogation, and does not require petitioner's consentas debtor for its validity and enforceability.

An assignment of credit has been defined as an agreement by virtue of whichthe owner of a credit (known as the assignor), by a legal cause - such assale, dation in payment or exchange or donation - and without need of thedebtor's consent, transfers that credit and its accessory rights to another(known as the assignee), who acquires the power to enforce it, to the sameextent as the assignor could have enforced it against the debtor.20

On the other hand, subrogation, by definition, is the transfer of all the rights ofthe creditor to a third person, who substitutes him in all his rights. It may eitherbe legal or conventional. Legal subrogation is that which takes place without

agreement but by operation of law because of certain acts. Conventionalsubrogation is that which takes place by agreement of parties.21

Although it may be said that the effect of the assignment of credit is tosubrogate the assignee in the rights of the original creditor, this Court stillcannot definitively rule that assignment of credit and conventional subrogationare one and the same.

A noted authority on civil law provided a discourse22 on the difference betweenthese two transactions, to wit

Conventional Subrogation and Assignment of Credits. In theArgentine Civil Code, there is essentially no difference betweenconventional subrogation and assignment of credit. The subrogation ismerely the effect of the assignment. In fact it is expressly provided(article 769) that conventional redemption shall be governed by theprovisions on assignment of credit.

Under our Code, however, conventional subrogation is notidentical to assignment of credit. In the former, the debtor's consent

is necessary; in the latter, it is not required. Subrogation extinguishes anobligation and gives rise to a new one; assignment refers to the sameright which passes from one person to another. The nullity of an oldobligation may be cured by subrogation, such that the new obligationwill be perfectly valid; but the nullity of an obligation is not remedied bythe assignment of the creditor's right to another. (Emphasis supplied.)

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This Court has consistently adhered to the foregoing distinction between anassignment of credit and a conventional subrogation.23 Such distinction iscrucial because it would determine the necessity of the debtor's consent. In anassignment of credit, the consent of the debtor is not necessary in order thatthe assignment may fully produce the legal effects. What the law requires inan assignment of credit is not the consent of the debtor, but merely notice tohim as the assignment takes effect only from the time he has knowledgethereof. A creditor may, therefore, validly assign his credit and its accessorieswithout the debtor's consent. On the other hand, conventional subrogationrequires an agreement among the parties concerned the original creditor,the debtor, and the new creditor. It is a new contractual relation based on themutual agreement among all the necessary parties.24

Article 1300 of the Civil Code provides that conventional subrogation must beclearly established in order that it may take effect. Since it is petitioner whoclaims that there is conventional subrogation in this case, the burden of proofrests upon him to establish the same25 by a preponderance of evidence.26

In Licaros v. Gatmaitan,27 this Court ruled that there was conventionalsubrogation, not just an assignment of credit; thus, consent of the debtor isrequired for the effectivity of the subrogation. This Court arrived at such aconclusion in said case based on its following findings

We agree with the finding of the Court of Appeals that the Memorandumof Agreement dated July 29, 1988 was in the nature of a conventionalsubrogation which requires the consent of the debtor, Anglo-AseanBank, for its validity. We note with approval the followingpronouncement of the Court of Appeals:

"Immediately discernible from above is the common feature ofcontracts involving conventional subrogation, namely, theapproval of the debtor to the subrogation of a third person in placeof the creditor. That Gatmaitan and Licaros had intended to treattheir agreement as one of conventional subrogation is plainlyborne by a stipulation in their Memorandum of Agreement, to wit:

"WHEREAS, the parties herein have come to an agreementon the nature, form and extent of their mutual prestationswhich they now record herein with the express conformity ofthe third parties concerned" (emphasis supplied),

which third party is admittedly Anglo-Asean Bank.

26
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Had the intention been merely to confer on appellant the status of amere "assignee" of appellee's credit, there is simply no sense for themto have stipulated in their agreement that the same is conditioned on the"express conformity" thereto of Anglo-Asean Bank. That they did so onlyaccentuates their intention to treat the agreement as one ofconventional subrogation. And it is basic in the interpretation ofcontracts that the intention of the parties must be the one pursued (Rule130, Section 12, Rules of Court).

x x x x

Aside for the 'whereas clause" cited by the appellate court in itsdecision, we likewise note that on the signature page, right under theplace reserved for the signatures of petitioner and respondent, there is,typewritten, the words "WITH OUR CONFORME." Under this notation,

the words "ANGLO-ASEAN BANK AND TRUST" were written by hand.To our mind, this provision which contemplates the signed conformity ofAnglo-Asean Bank, taken together with the aforementionedpreambulatory clause leads to the conclusion that both parties intendedthat Anglo-Asean Bank should signify its agreement and conformity tothe contractual arrangement between petitioner and respondent. Thefact that Anglo-Asean Bank did not give such consent rendered theagreement inoperative considering that, as previously discussed, theconsent of the debtor is needed in the subrogation of a third person tothe rights of a creditor.

None of the foregoing circumstances are attendant in the present case. TheAssignment of Credit, dated 1 April 1989, executed by Ms. Picache in favor ofrespondent, was a simple deed of assignment. There is nothing in the saidAssignment of Credit which imparts to this Court, whether literally ordeductively, that a conventional subrogation was intended by the partiesthereto. The terms of the Assignment of Credit only convey the straightforwardintention of Ms. Picache to "sell, assign, transfer, and convey" to respondentthe debt due her from petitioner, as evidenced by the two promissory notes of

the latter, dated 9 November 1988 and 10 November 1988, for theconsideration of P60,000.00. By virtue of the same document, Ms. Picachegave respondent full power "to sue for, collect and discharge, or sell andassign" the very same debt. The Assignment of Credit was signed solely byMs. Picache, witnessed by two other persons. No reference was made tosecuring the conformeof petitioner to the transaction, nor any space providedfor his signature on the said document.

27


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Perhaps more in point to the case at bar is Rodriguez v. Court of Appeals, 28 inwhich this Court found that

The basis of the complaint is not a deed of subrogation but anassignment of credit whereby the private respondent became the

owner, not the subrogee of the credit since the assignment wassupported by HK $1.00 and other valuable considerations.

x x x x

The petitioner further contends that the consent of the debtor isessential to the subrogation. Since there was no consent on his part,then he allegedly is not bound.

Again, we find for the respondent. The questioned deed of assignment

is neither one of subrogation nor a power of attorney as the petitioneralleges. The deed of assignment clearly states that the privaterespondent became an assignee and, therefore, he became the onlyparty entitled to collect the indebtedness. As a result of the Deed ofAssignment, the plaintiff acquired all rights of the assignor including theright to sue in his own name as the legal assignee. Moreover, inassignment, the debtor's consent is not essential for the validity of theassignment (Art. 1624 in relation to Art. 1475, Civil Code), hisknowledge thereof affecting only the validity of the payment he mightmake (Article 1626, Civil Code).

Since the Assignment of Credit, dated 1 April 1989, is just as its title suggests,then petitioner's consent as debtor is not necessary in order that theassignment may fully produce legal effects. The duty to pay does not dependon the consent of the debtor; otherwise, all creditors would be prevented fromassigning their credits because of the possibility of the debtors' refusal to giveconsent.29 Moreover, this Court had already noted previously that there doesnot appear to be anything in Philippine statutes or jurisprudence whichprohibits a creditor, without the consent of the debtor, from making anassignment of his credit and the rights accessory thereto; and, certainly, anassignment of credit and its accessory rights does not at all obliterate theobligation of the debtor to pay, but merely puts the assignee in the place ofthe assignor.30 Hence, the obligation of petitioner to pay his debt subsistsdespite the assignment thereof; only, his obligation after he came to know ofthe said assignment would be to pay the debt to the respondent (theassignee), instead of Ms. Picache (the original creditor).

28


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It bears to emphasize that even if the consent of petitioner as debtor isunnecessary for the validity and enforceability of the assignment of credit,nonetheless, the petitioner must have knowledge, acquired either by formalnotice or some other means, of the assignment so that he may pay the debt tothe proper party, which shall now be the assignee. This much can be gatheredfrom a reading of Article 1626 of the Civil Code providing that, "The debtorwho, before having knowledge of the assignment, pays his creditor shall bereleased from the obligation."

This Court, in Sison v. Yap Tico,31 presented and adopted Manresa's analysisof Article 1626 of the Civil Code (then Article 1527 of the old Civil Code)

Manresa, in commenting upon the provisions of article 1527 of the CivilCode, after discussing the articles of the Mortgage Law, says:

"We have said that article 1527 deals with the individual phase oraspect which presupposes the existence of a relationship with thirdparties, that is, with the person of the debtor. Let us see in what way.

"The above-mentioned article states that a debtor who, before havingknowledge of the assignment, should pay the creditor shall be releasedfrom the obligation.

"In the first place, the necessity for the notice to the debtor in order thatthe assignment may fully produce its legal effects may be inferred from

the above. It refers to a notice and not to a petition for the consentwhich is not necessary. We say that the notice is not necessary in orderthat the legal effects may be fully produced, because if it should beomitted, such omission will not imply that the assignment will not existlegally, but that its effects will be limited to the parties thereto; at least,they will not reach the debtor.

"* * * * * * * *

"Let us go to the legal effects produced by the failure to give the notice.

In the beginning, we have said that the contract does not lose itsefficacy with respect to the parties who made it; but article 1527determines specifically one of the consequences arising from the failureto give notice, for it evidently takes for granted that the debtor who,before having knowledge of the assignment, should pay the creditorshall be released from the obligation. So that if the creditor assigned hiscredit, acting in bad faith and taking advantage of the fact that the

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debtor does not know anything about the assignment because the latterhas not been notified, and collects its amount, the debtor shall be freefrom the obligation, inasmuch as it has been legally extinguished by apayment which fully redounds to his benefit. The assignee can takeadvantage of all civil and criminal actions against the assignor, but hecan ask nothing from the debtor, because the latter did not know of theassignment, nor was he bound to know it; the assignor should blamehimself for his failure to have the notice made.

"* * * * * * * *

"Hence, there not having been any notice to the debtor, the existence ofhis knowledge of the assignment should be proved by him who isinterested therein; and the debtor is not bound to prove his ignorance."

In a more recent case,Aquintey v. Spouses Tibong,32 this Court stated: "Thelaw does not require any formal notice to bind the debtor to the assignee, allthat the law requires is knowledge of the assignment. Even if the debtor hadnot been notified, but came to know of the assignment by whatever means,the debtor is bound by it."

Since his consent is immaterial, the only other matter which this Court mustdetermine is whether petitioner had knowledge of the Assignment of Credit,dated 1 April 1989, between Ms. Picache and respondent. Both the Court ofAppeals and the RTC ruled in the affirmative, and so must this Court.

Petitioner does not deny having knowledge of the assignment of credit by Ms.Picache to the respondent. In 1989, when petitioner's loans became overdue,it was respondent and its counsel who sent several demand letters to him. Itcan be reasonably presumed that petitioner received said letters for they weresent by registered mail, and the return cards were signed by petitioner'sagent. Petitioner expressly acknowledged receipt of respondent's demandletter, dated 13 June 1989, to which he replied with another letter, dated 21June 1989, stating that he would settle his account with respondent but alsorequesting consideration of the losses he suffered from the electric powerdisconnection at the property he leased from MRMC. It further appears thatpetitioner had never questioned why it was respondent seeking payment ofthe loans and not the original creditor, Ms. Picache. All these circumstancestend to establish that respondent already knew of the assignment of creditmade by Ms. Picache in favor of respondent and explains his acceptance ofall the demands for payment of the loans made upon him by the respondent.

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Finally, assuming arguendo that this Court considers petitioner a third personto the Assignment of Credit, dated 1 April 1989, the fact that the saiddocument was duly notarized makes it legally enforceable even as to him.According to Article 1625 of the Civil Code

ART. 1625. An assignment of credit, right or action shall produce noeffect as against third persons, unless it appears in a public instrument,or the instrument is recorded in the Registry of Property in case theassignment involves real property.

Notarization converted the Assignment of Credit, dated 1 April 1989, a privatedocument, into a public document,33 thus, complying with the mandate of theafore-quoted provision and making it enforceable even as against thirdpersons.

WHEREFORE, premises considered, the instant Petition for Review ishereby DENIED, and the Decision, dated 20 March 2001, of the Court ofAppeals in CA-G.R. CV No. 43604, affirming in toto the Decision, dated 6August 1993, of the Quezon City Regional Trial Court, Branch 91, in CivilCase No. Q-90-5247, is hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.

Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

Footnotes

1 Rollo, pp. 11-23.

2 Penned by Associate Justice Bienvenido L. Reyes with AssociateJustices Eubulo G. Verzola and Candido V. Rivera, concurring; id. at41-53.

3

Penned by then Judge Marina L. Buzon (now Associate Justice of theCourt of Appeals), id. at 37-40.

4 Id. at 26-30.

5 Records, pp. 161-163.

6 Id. at 164-166.

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7 Id. at 167.

8 The letters were dated 18 May 1989, 5 June 1989, 13 June 1989, and31 July 1989, all sent by registered mail, id. at 168-171.

9 Id. at 189-194.

10 Ms. Picache is likewise an incorporator and member of the Board ofDirectors of respondent Capitol Development Corporation.

11 Id. at 202-215.

12 Rollo, p. 38.

13 Id. at 38-40.

14 Id. at 41-53.

15 Penned by Associate Justice Bienvenido L. Reyes with AssociateJustices Eubulo G. Verzola and Candido V. Rivera, concurring; id. at64-65.

16 Id. at 17.

17Jammang v. Takahashi Trading Co., Ltd., G.R. No. 149429, 9 October

2006, 504 SCRA 31, 42.18China Banking Corporation v. Dyne-Sem ElectronicsCorporation, G.R. No. 149237, 11 July 2006, 494 SCRA 493, 499 .

19Security Bank and Trust Company v. Gan, G.R. No. 150464, 27 June2006, 493 SCRA 239, 242-243.

20Far East Bank & Trust Company v. Diaz Realty, Inc., 416 Phil. 147,161 (2001).

21Chemphil Export & Import Corporation v. Court of Appeals, 321 Phil.619, 642 (1995).

22 Arturo M. Tolentino, Commentaries and Jurisprudence on the CivilCode of the Philippines, Vol. IV, 1996 ed., p. 402.

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23 See South City Homes, Inc. v. BA Finance Corporation, 423 Phil. 84,95 (2001); Far East Bank & Trust Company v. Diaz Realty, Inc., supranote 20; Licaros v. Gatmaitan, 414 Phil. 857, 866-867 (2001);Sesbreov. Court of Appeals, G.R. No. 89252, 24 May 1993, 222 SCRA 466,478-479; Rodriguez v. Court of Appeals, G.R. No. 84220, 25 March1992, 207 SCRA 553, 558.

24Licaros v. Gatmaitan, id.

25 Section 1, Rule 131 of the Revised Rules of Court reads, "Burden ofproof is the duty of a party to present evidence on the facts in issuenecessary to establish his claim or defense by the amount of evidencerequired by law."

26 According to Section 1, Rule 133 of the Revised Rules of Court, "In

civil cases, the party having the burden of proof must establish his caseby a preponderance of evidence. x x x." By "preponderance of evidenceis meant simply evidence which is of greater weight, or more convincingthan that which is offered in opposition to it." (Rivera v. Court of

Appeals, G.R. No. 115625, 23 January 1998, 284 SCRA 673, 681.)

27 Supra note 23 at 868-870.

28 Supra note 22 at 558-559.

29 Id.

30National Investment and Development Corporation v. De los Angeles,148-B Phil. 452, 461 (1971).

31 37 Phil. 584, 587-588 (1918).

32G.R. No. 166704, 20 December 2006.

33Bernardo v. Atty. Ramos, 433 Phil. 8, 15 (2002).

The Lawphil Project - Arellano Law Foundation

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OBLICON FABRIGAS VS.

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