Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-43579             June 14, 1938

JOSUE SONCUYA, plaintiff-appellant, vs.JUAN AZARRAGA, ET AL., defendants-appellants.

Gervasio Diaz, Joaquin Azarraga, Sumulong Lavidez and Sumulong, and Laurel,Del Rosario and Sabido for defendants and appellants.Joseu Soncuya in his own behalf.

DIAZ, J.:

This case is now before us on appeal from the Court of First Instance of Capiz. After trial, the plaintiff filed a second amended complaint, which the lower court at first refused to consider, but later on admitted after it was convinced that the allowance thereof was proper in order to make the allegations conform to the established facts. This was done without the defendants interposing any exception, notwithstanding that they had previously opposed the admission of the amendment. They not afterwards and not now, in their brief on appeal, question the aforesaid amendment.

It appears from the allegations of the complaint thus amended that the plaintiff has four causes of action. Under the first cause he seeks to recover from the defendants the sum of P118,635.68 as damages, which he alleges to have been caused by the defendants in fraudulently depriving him of the possession of four parcels of land with a total area of 296 hectares, 58 ares and 92 centares, which they, with knowledge that said real properties belonged to him exclusively, registered in their names in the registry of property and mortgaged in favor of "Hijos de I. de la Rama" to pay a certain obligation which they had contracted with the Panay Municipal Cadastre. Under the second cause, plaintiff seeks to recover P6,080 as the supposed value of the heads of cattle belonging to him, which the tenants of the defendants had slaughtered. Under the third cause, he seeks payment of the sum of P5,575 as the supposed value of 1,115 coconut trees which he had planted on the four parcels of land in question. Under the fourth and last cause of action, plaintiff prays that the defendants surnamed Azarraga, with the exception of Joaquin Azarraga, be ordered to make up to 123 hectares, 13 ares and 99 centares the land which the latter had sold to him, because plaintiff did not take possession of the land, except a portion thereof, having an area of 72 hectares, 83 ares and 5 centares. In other words, the defendants should deliver to the plaintiff an additional 50 hectares , 30 ares and 94 centares inasmuch as the participation of said Joaquin Azarraga in the estate left to him and his brothers, his co-defendants herein, by their common grandfather, Juan Azarraga y Galvez, which Joaquin Azarraga sold to plaintiff, had that area according to the deed of partition, executed by all of them, and the plan of said estate which was subsequently drawn up.

In their answer of February 26, 1931, the defendants Azarraga interposed a general denial of each and all the allegations of the plaintiff's complaint, excepting those relating the following special defenses; First, that the complaint does not allege facts constituting causes of action; second, that the plaintiff and his predecessor in interest were negligent in failing to inscribe in the office of the register of deeds the supposed encumbrances in their favor over the lands in question, granting that said encumbrances had ever existed; third, that the plaintiff knew and was personally informed that the lands aforesaid would be surveyed at their instance and inscribed in their names as their own property, but that he did nothing to defend or protect his rights either during the pendency of the proceedings for the registration of the lands in question or during the period prescribed by law after the issuance of a decree and title, within which the validity of the same may be assailed; fourth, that at the time of filing their application for registration as well as of the issuance of the decree ordering the inscription in their names in the registry of property of the lands in question, they were the sole owners of the same, and that admitting for the sake of argument the theory of the plaintiff that he had a right to said lands, it was nothing more than an expectation that he would be someday their owner; fifth, that the plaintiff had no right to apply for or obtain from the court a writ of preliminary injunction, wherefore, that obtained was illegal; and sixth, that the right of action of the plaintiff, if any, had prescribed.

The defendants Azarraga further alleged the following counterclaims:

(a) That plaintiff is liable to them in damages in the sum of P100,000 because while the contract which the defendants had entered into with Leodegario Azarraga was still in force, the plaintiff took possession of their lands not covered by the said contract; that he set loose therein his cattle, utilizing the same as grazing ground in a negligent manner and without taking the necessary steps to avoid damages to their plantations; that notwithstanding repeated requests, the plaintiff refused to fence the lands in which he had set loose his animals, thereby causing damages and destruction to their plantations; that the animals belonging to the plaintiff not only destroyed and damaged the coconut, palay and corn plantation existing already on the lands before said animals were brought thereto, but also destroyed their farms and plantations on their enclosed lands; that all this was due to the neglect and carelessness of the plaintiff; that by reason of his refusal to enclosed the lands converted into grazing grounds, the defendants were unable to derive any benefits from their lands or to sell or rent them to those who desire to do so.

(b) That the plaintiff is further liable and should be sentenced to pay them in damages the sum of P 15,000 for having caused the annotation in the corresponding registry of the book of the office of the register of deeds of the Province of Capiz of a notice of lis pendens not only with regard to the 150 hectares, 48 ares and 50 centares which he claims in his complaint, but also with regard to the whole area of 246 hectares, 27 ares and 98 centares, described in the original certificate of title No. 9785 issued in the name of the defendants; that as a result of this act of the plaintiff, they could not enter into any transactions over that unquestioned portion of the land to which said title relates.

(c) That the plaintiff is likewise liable and the defendants pray that he should be sentenced to pay them the sum of P30,000 also in damages, for having sought and secured the issuance of an order of preliminary attachment of their properties described in certificates of title No. 9804 and 10361.

(d) That the plaintiff is liable and should be sentenced to pay them in damages the sum of P10,000 for having asked and secured from the court on February 7, 1931 a writ of preliminary injunction in the same case, thereby preventing the defendants from exercising acts of ownership not only on the four parcels in questions, but also on all the other lands belonging to them.

(e) That in case it is adjudged that the lands in controversy had been improperly inscribed by the defendants in their names in the registry of property, they pray that the plaintiff be ordered to reimburse them in the sum of P5,000 which represent the taxes paid by them on said lands, plus interest from the dates said taxes were paid;

(f) The defendants lastly pray that upon the dissolution of the writ of preliminary injunction issued against them on the date above-stated and the cancellation of the annotation of said writ in the corresponding book of the office of the register of deeds of Capiz, the plaintiff be sentenced to pay the costs of the suit.

"Hijos de I. de la Rama" and Panay Municipal Cadastre were included in the complaint only for the purpose of enjoining the former from increasing to P25,000 the credit it had extend to the defendants Azarraga, who had already obtained P16,000 on a mortgage of the lands in questions executed by them in its favor; and of restraining the latter from collecting from said loan of P25,000, extended by "Hijos de I. de la Rama" to the defendants, the credit which it claims to have against them under a contract whereby they bound themselves to provide it with funds to carry on the enterprise for which it has been organized.

"Hijos de I. de la Rama" showed very little interest in the case, for, according to the lower court, it merely filed an answer with a general denial.

Panay Municipal Cadastre, in its answer, denied all the allegations of the complaint in so far as it might be affected thereby, and alleged as special defense that the plaintiff had no right to ask for, and much less obtain, a writ of preliminary injunction against it. It further alleged as a counterclaim that the said plaintiff has become liable to it in damages in the sum of P15,000, plus P5,000, plus P5,000 every month, beginning February 7, 1931, because the plaintiff prevented if from receiving from the defendants Azarraga or from "Hijos de I. de la Rama" the sums which they had bound themselves to deliver under a contract which they had executed on September 20, 1929. After trial, the court rendered judgment as follows:

Wherefore, the defendants Juan, Jose, Salvador, Joaquin, Emilio, Luis, Rosario, Julio, all surnamed Azarraga, are hereby sentenced to pay the plaintiff, jointly and severally, the sum of P24,627.98, with legal interest from November 10, 1926, as damages because they fraudulently deprived the plaintiff of his lands in Bay-ang, and likewise to pay the plaintiff, jointly and severally, the sum of P5,575 with legal interest from November 10, 1926, representing the value of 1,115 coconut trees as improvements on said lands, and, with the exception of Joaquin Azarraga, to pay the plaintiff, jointly and severally, the sum of P5,030.94 with interest at the legal rate from November 10, 1926 for eviction and warranty.

In case the defendants Azarraga have no unencumbered properties or can not redeem the mortgage over their properties, with which to satisfy the indemnity for damages, the payment of said indemnity shall be charged against the bond of the sureties, who secured the lifting of the attachment on the properties of the defendants.

The writ of preliminary injunction issued in this case on February 7, 1931 against the defendants Azarraga, Hijos de I. de la Rama and Panay Municipal Cadastre is hereby made final, with the exception of that portion which enjoins Hijos de I. de la Rama from delivering to the defendants surnamed Azarraga and Panay Municipal Cadastre more than the sum of P16,000, which had already been delivered, and which likewise enjoins the latter from demanding from said entity more than the above-mentioned sum of P16,000, which portion is hereby declared dissolved.

The plaintiff is absolved from the counterclaims interposed by the defendants Azarraga and by the Panay Municipal Cadastre. The defendants Azarraga and by the Panay Municipal Cadastre. The defendants Azarraga shall pay the costs.

From the foregoing judgment the defendants as well as the plaintiff appealed, and in their respective briefs they assign the following errors;

ASSIGNMENTS OF ERROR OF THE DEFENDANTS

I. The trial court erred in holding that the true nature of the stipulation between Attorney Leodegario Azarraga and the heirs of Don Juan and the heirs of Don Juan Azarraga y Galvez as contained in the plan of partition Exhibit "A" is one of cession of property in payment of a debt known in Spanish law as "dacion en pago."

II. the trial court erred in not holding that the stipulation between Attorney Leodegario Azarraga and the heirs of the deceased Juan Azarraga y Galvez to the effect that the lands were to become the property of Attorney Leodegario Azarraga in case the defendants failed to pay his fees within five years and that during this period the said attorney had the usufruct and possession of the lands, as contained in Exhibit "A", is one of pacto comisorio, which is prohibited by article 1884 of the Civil Code.

III. The trial court erred in finding that the three parcels of land in question, lots Nos. 81, 82, and 83, were sold by Attorney Leodegario Azarraga to the plaintiff herein.

IV. The trial court erred in not holding that the right established by Attorney Leodegario Azarraga by virtue of Exhibit "A" and transferred to the plaintiff is at most an attorney's lien over the properties in question and that the action of the plaintiff as transferee of this lien should be to compel the defendants to recognize it as a lien.

V. The trial court erred in holding that the defendants procured the registration of the lands in question by fraudulent means.

VI. The trial court erred in not holding that the plaintiff, having no real right over the lands in question, the omission of his name from the application is not fraudulent and not fatal to the registration of the lands.

VII. The trial court erred in not holding that the plaintiff, being a mere usufructuary of the lands in question for a limited period of time by grace of the owners, was not entitled to be mentioned in the application for registration and to be notified personally of its proceedings.

VIII. The trial court erred in not holding that the plaintiff had been negligent in not asking for the review of the decree within one year, and in not holding that the plaintiff purposely allowed the one-year period, within which he could petition for review of the decree, to elapse in order that he might have a cause of action for damages against the defendants.

IX. The trial court erred in permitting the plaintiff to prove the market value of the lands in question although there was absolutely no allegation to that effect in the complaint notwithstanding the objection thereto and the exception taken by the defendants.

X. The trial court erred in not holding that Joaquin Azarraga has not intervened in the registration of the lands in question, he being only a coowner pro indiviso and as such has not been guilty of fraud in connection with the registration of the lands.

XI. The trial court erred in not holding that the plaintiff had no real right over the land referred to in Exhibit 'E' in view of the fact that the said document had not been registered.

XII. The trial court erred in holding that the land referred to in Exhibit "E" contains an area of 164 hectares instead of 63 hectares only.

XIII. the trial court erred in finding that the total area of lots 81, 82, and 83, which are the subject matter of the "pactum commissorium" between Attorney Leodegario Azarraga and the defendants, is 243 hectares instead of 87 hectares only.

XIV. The trial court erred in sentencing the defendants to pay to the plaintiff the sum of P35,233.92 and in not absolving them from the complaint.

XV. The trial court erred in disallowing all the five counterclaims of the defendants amounting to P58,000.

ASSIGNMENTS OF ERROR OF THE PLAINTIFF

(a) The lower court erred in not finding that the market value of the lands in litigation in 1926 was P118,635.68;

(b) The lower court erred in not sentencing the defendants to pay the plaintiff the sum of P6,080 as indemnity for the wrongful slaughter of his animals; and

(c) The lower court erred in not sentencing the defendants to pay the plaintiff, jointly and severally, the sum of P13,290.68 as indemnity, plus legal interest from November 10, 1926.

The salient facts established at the trial which may serve as a basis for an intelligent discussion of the questions raised by the parties and for a proper decision of the same, may be briefly stated as follows:

By reason of the proceedings had in case No. 11489 of the Court of First Instance of Manila, entitled "Testate Estate of the Deceased Juan Azarraga y Galvez", the defendants surnamed Azarraga became indebted to Attorney Leodegario Azarraga, who represented them in said case, for attorney's fees, which on October 21, 1919 the court, which took cognizance of the case, fixed at P3,000 (Exhibit B).

The defendants Azarraga had previously agreed among themselves to pay Attorney Leodegario Azarraga attorney's fees in the manner set out in Exhibit A, which they executed on January 20, 1919 and approved by the court on August 29, of the same year. (Exhibit C.) The pertinent part of the aforesaid Exhibit A reads as follows:

The parties also agree that the parcels of land located in Bay-ang, New Washington, Capiz, P. I., which are enumerated in the inventory of this partition as Nos. 81, 82 and 83, are specially mortgaged and subject to the payment of the fees of said attorney of the testate estate, which fees shall be fixed by the court, and said attorney may hold said lands under no obligation to pay any rent until his fees shall have been fully paid: Provided, however, that if, at the end of the period of five years from the date of the approval of this project of partition, said parties shall not have been able to pay in full the fees of said attorney, then said parcels of land, Nos. 81, 82 and 83, located in Bay-ang, shall be definitely adjudicated to said attorney, Mr. Leodegario Azarraga, as his property, in payment of his fees, and all sums which he may have received from time to time from the interested parties in these testate proceedings, within the said period, shall be returned to said parties: Provided, further, that in case said interested parties in the testate proceedings shall be able to pay in full the fees of the attorney for the estate before the expiration of said period of five years, then said parcels of land situated in Bay-ang shall continue in the possession of said attorney for an additional period of three years from the date of the last payment in the event that said attorney may have kept livestock in said lands.

About nine months after the court approved Exhibit A, or to be exact, on June 9, 1920, which was long before the expiration of the period of five years within which the defendants Azarraga were bound to pay Attorney Leodegario Azarraga his fees, which had been fixed at P3,000, said attorney decided to sell and did sell to the plaintiff his credit against the defendants for the sum of P2,500 with all the rights inherent therein in accordance with the agreements and stipulations appearing in said document (Exhibit C). One of said agreement was that Attorney Leodegario Azarraga would take possession of the said parcels of land and, occupy the same, if he so desired, without paying any rent or annuity, until fees shall have been fully paid. Said parcels were identical with lots Nos. 81, 82 and 83 described in paragraph II of the plaintiff's second amended complaint.

When the plaintiff became the creditor of the defendants Azarraga by virtue of the sale and cession which Attorney Azarraga had made in his favor of the rights which said attorney had under Exhibit A, he allowed the defendants an extension of a few years over the five years with in which they would have to pay him his credit, or up to February 16, 1926, but with the express condition that they would pay him interest at the rate of 12 per cent per annum, from August 30, 1924 (Exhibit 5). This term was later extended to April 26, 1926 on the request of the defendants, but also with the condition that they would pay the plaintiff the same interest of 12 per cent. (Exhibits l and M.) The plaintiff granted another extension to expire on October 31, 1928, but subject to the condition that instead of seven thousand and odd pesos, which undoubtedly referred to the interest of 12 per cent per annum charged the defendants, they should pay him P12,000 (Exhibit 2). In said two amounts of P7,000 and P12,000 the sum of P4,000 which the plaintiff had given to the defendant Joaquin Azarraga and which will be dealt with further in detail, was included.

Aside from the above transactions between the plaintiff and the defendants Azarraga, one of the latter, Joaquin Azarraga, executed in favor of the former, the deed known as Exhibit E of the record and dated October 14, 1922, by which he sold to the plaintiff, for the sum of P4,000, his portion of the inheritance in the testate estate of the late Juan Azarraga y Galvez, consisting of an undivided tract of land containing an estimated area of 63 hectares and located in Bay-ang Chico, New Washington, Capiz. It is further stated therein that the period of redemption would be five years to be counted from February 16, 1921, which was later extended to April 26, 1926. In granting him this extension, the plaintiff imposed on Joaquin Azarraga the condition that he should pay him interest at the rate of 12 per cent from the expiration of the first term (Exhibit M; par. III of the second amended complaint of plaintiff; and page 5 of the brief of the plaintiff as appellant). A second extension was further granted, but under the condition that he should, together with his brothers, pay the plaintiff instead of seven thousand and odd pesos, representing the interest referred to in the preceding paragraph, in which the P3,000 mentioned in Exhibit A were included, P12,000 (Exhibit 20. The deed referred to was never annotated or inscribed in any register in the office of the register of deeds of said province.

By virtue of the transfer made to him by Joaquin Azarraga and also of the terms conditions enumerated in said Exhibit A, the plaintiff took possession of practically the whole land of the defendants Azarraga, located in Bay-ang, placing therein livestock from the month of August, 1920 and in the same year built sheepfolds therein, besides erecting some wire fences. When the plaintiff took possession of part of the land in question in August, 1920 and another part thereof in February, 1922, after the execution in his favor of the deed of transfer, which is a clarification of Exhibit E, he found fruit-bearing and young coconut trees, the latter being more numerous. In 1925, 1926 and 1927, Joaquin Azarraga, either by himself or his laborers, planted therein hundreds of coconut trees of which but a few hundreds, as we the case with the old ones, remained on account of the long droughts or other causes. There is nothing definite in the record to show the exact number of animals which the plaintiff had brought to Bay-ang or the cause of the death of some of them. It seems that some had been wounded, by whom it is not known, much less it is known whether they were wounded by men of the defendants Azarraga. The plaintiff himself has not spoken with certainly; his statements on this point are mere conjectures uncorroborated by anybody or anything (transcript of stenographic notes, pages 145-147). There have been also no exact accounts as to whether the animals of the plaintiff where those which destroyed the coconut trees planted on the land by Joaquin Azarraga during the years 1925, 1926 and 1927 above-mentioned, or were the animals of other persons.

Sometimes in May, 1928, the plaintiff went to the house of the defendants Joaquin Azarraga to collect not only his credit against all the defendants Azarraga, but also the special credit which, according to him, he had against Joaquin Azarraga. And on October 9, 1928, he

addressed a letter to each and every one of the defendants including Joaquin Azarraga whom he expressly mentioned therein, and, among other things, told them that:

Last May, Messrs. Salvador and Joaquin came to an agreement with me whereby they were to redeem the land in Bay-ang for seven thousand and odd pesos las September, and in default thereof to transfer in my name the Torrens title of the portion belonging to me; but until now neither of these has been done.

For this reason and in view of the fact that you have not stated in the Torrens title of the land in Bay-ang when you applied for the same, the two encumbrances thereon in my favor, I am compelled by this omission, which is a clear disregard of my rights, to seek redress therefor in the courts, if you refuse the same to me. Therefore, if you desire to redeem the land, you may do so for the sum of twelve thousand pesos (P12,000) until the 31st of this month of October; but should you not wish to redeem it, then in order to avoid the inconvenience of a law suit, I would request that on the same day or prior thereto that you shall have at least submitted to the court your motion praying for an order approving the segregation and transfer of the portion of said land which belongs to me, together with the corresponding plan, namely, that corresponding to the land which shall be in my name in the Torrens title. In the understanding that if said date, October 31st, arrives, and you have not done anything either one way or the other, then through your own fault, I would be compelled to resort to the courts to ask protection of my rights before I lose them, urging the court to order you to pay me by reason of such fraudulent omission a sum more than double the amount above-mentioned. (Exhibit 2.)

The land in Bay-ang to which the above-transcribed letters refers is the same land made up by the four parcels mentioned in paragraph II of the second amended complaint of the plaintiff, as parcels 81, 82, 83 and that having an area of 63 hectares.

Between the date of the execution of the document Exhibit A (January 20, 1919) and the date of said letter Exhibit 2 (October 9, 1928), the defendants secured the inscription in the registry of property and the issuance in their favor of the corresponding certificate of title of the lands described in original certificate of title No. 9785, by virtue of the decree of registration of October 27, 1925 (Exhibit Q). Of this fact the plaintiff had full knowledge by reason of the letter dated July 9, 1924, which was sent to him by the defendant Juan Azarraga, wherein the latter, besides asking for an extension of three years, informed him (plaintiff) of the registration proceedings which were then going on. (Exhibit 1.) The plaintiff did not then nor thereafter take any step to oppose the same, or to ask at least for the revision of the decree of registration, which was issued later, within the period of one year prescribed by law. To this letter, the plaintiff replied on the 30th of the same month and year, stating, among other things:

Now that I am somewhat relieved from the pressure of work, I am writing to inform you that, although I need cash to meet my pressing financial obligations, your requests have compelled me to grant you, as administrator the undivided properties of the Azarraga brothers, an extension of the term for the payment of the credit which encumbers the land in Bay-ang, and, consequently, of the redemption of the same, up to February 16, 1926. Said land and its encumbrances are described in the deed of sale of the said credit with all the rights inherent therein, executed by Mr. Leodegario Azarraga in favor of the undersigned on July 9, 1920.

As the granting of this extension is causing me a real sacrifice and a great financial strain, in justice and equity, I also ask from you, as administrator of the undivided properties of the Azarraga brothers, thelucrum cessans so that from August 30, 1924 the aforesaid credit of P3,000 shall earn 12 per cent annual interest.

This letter will serve you as evidence of the granting of the extension of the term for redemption of the said land in Bay-ang and, therefore, there is no necessity for executing another document to that effect. (Exhibit 5.)

At the time of the filing of the original complaint, plaintiff simultaneously asked for and obtained on February 7, 1931, upon posting a bond in the amount of P2,000, a writ of preliminary injunction against the defendants (Exh. 15), and in due time caused the annotation in the office of the register of deeds of the Province of Capiz of a notice of lis pendens not only with regard to the portion having an area of 150 hectares, 48 ares and 50 centares of the lands of the defendants Azarraga, but also with regard to the whole area of 246 hectares, 27 ares and 98 centares described in original certificate of title No. 9785.

The plaintiff also secured from the Court of First Instance a preliminary attachment of the properties of the defendants, described in certificates of title No. 9804 and 10351, on February 5, 1929 (Exhibit R); and the same was annotated in the registry of property in the same month. Seven months after, or on September 9, of said year, the aforementioned attachment was lifted by order of September 7, 1929 (Exhibit X) upon the filing of a bond required by the court in the sum of P12,500 by the interested parties. Said bond having been filed by the defendants, the court, on the same day, ordered the cancellation of the notice of lis pendens annotated in the office of the register of deeds and the inscription of all the necessary annotations. (Exhibit Y.)

As clearly proven as the foregoing are the facts that the defendant "Hijos de I. de la Rama" entered into a contract with its co-defendants Azarraga for the purpose of granting them a credit of P25,000, having delivered to them on different occasions after the execution by said defendants of a deed of mortgage Exhibit 16 in its favor on September 20, 1929, as part of the aforementioned sum, the total amount of P16,000. The Azarragas needed said amount for carrying on the business for which the defendant Panay Municipal Cadastre, Inc., had been organized, as set forth in said Exhibit 16 and clarified in Exhibit 17.

By virtue of the writ of injunction issued by the lower court on February 7, 1931, enjoining the defendants Azarraga and the Panay Municipal Cadastre from obtaining from their co-defendant "Hijos de I. de la Rama" another loan, arise from the P16,000 which they had previously obtained (Exhibit 14), said defendant "Hijos de I. de la Rama" did not extend the credit, which it had opened to its co-defendants, to P25,000 as required by the contracts Exhibits 16 and 17 above-referred to. In connection with the issuance of the writ of preliminary injunction, the following facts must be mentioned: After the plaintiff commenced the present case against the defendants Azarraga on January 28, 1929 by means of his original complaint, he instituted another action against them, which was civil case No. 2643, for the purpose of obtaining a writ of injunction to prevent them from securing the aforementioned loan of P25,000 from "Hijos de I. de la Rama". This latter case reached this court on certiorari filed on March 22, 1930. As its sole object was the issuance of a writ of preliminary injunction, this court, reiterating once more the ruling that said remedy is purely subsidiary available only in aid of the right sought to be enforced in the action wherein the same is issued, and that a separate action to secure the same does not lie as it would permit of multiplicity of suits with the consequent needless expenses (Panay Municipal Cadastre vs. Garduño and Soncuya, 55 Phil., 574, 578), granted the certiorari prayed for on January 22, 1931, thus setting aside the writ of preliminary injunction issued by the court of Capiz on October 21, 1929, hence, it was in being for not more than one year, three months and one day.

The writ of preliminary injunction subsequently issued on February 7, 1931, has remained in force up to the present, as the lower court declared in its judgment that it shall be final with respect to the P9,000 still owing from "Hijos de I, de la Rama" on account of the loan which it had agreed to extend to the other defendants.

The works for which the Panay Municipal Cadastre had been organized were begun in October, 1929. According to the testimony of Gaspar Ferraren, for all the work which they intended of Gaspar Ferraren, for all the work which they intended to undertake, they needed a capital of not more than P40,000 to make a gross profit of P100,000. Of this estimated capital they invested the P16,000, obtained from "Hijos de I. de la Rama", which immediately yielded a return of P6,000. He also stated that the Panay Municipal Cadastre completed half of its works with only the capital obtained from "Hijos de I. de la Rama" (P16,000), plus its first profit of P6,000 and that it made a profit of P24,277.15 meaning thereby that with the aforemention P16,000 it obtained P30,277. 15, or a net profit of P14,277.15.

Another fact which has been clearly established by the testimony of the plaintiff himself is that he decided to sell all the animals which he had placed on the land in question because he became discouraged by the destruction of said animals by the tenants of the defendants Azarraga. This fact, however, has been established not by competent evidence, but by hearsay testimony, which was of course timely objected to; and, although he testified in the same breath that he had still some cattle there, he could not state their exact number, but limited himself to saying "I cannot tell whether there were fifty of them." (Transcript, page 14.)

In his subsequent dealings with the defendants Azarraga, including Joaquin Azarraga, as in his pleadings and testimony, the plaintiff, in referring to the amount of P2,700 or P3,000, the value of the credit which he had purchased from Attorney Leodegario Azarraga, and to that of P4,000 which he gave to Joaquin Azarraga on the date and under the circumstances stated in Exhibit E, he alluded to, and considered them as his "credit". Thus, on page 176 of the transcript of the stenographic notes, he said: ". . . land mortgaged to me . . .;" and on pages 192 and 194 of said transcript, he also said: "Now I am not collecting the credit; I am collecting the damages. Although they may have sold that property to me for P1, if its commercial value has increased after they have deprive me of the same, I should collect from them such value;" and ". . . I want so say again that what I am collecting now is not the credit which I have against them, but the damages they have caused me by depriving me of the property."

The facts of the case being as above set out, the questions raised by the parties in their respective assignments of error, should now be considered. In fact, the most important or those discussed in the first fourteen errors attributed by the defendants to the lower court, and in the first and last errors, which plaintiff, in turn, assigned, may be reduced to the following:

I. Was the contract entered into by-the Azarraga brothers, the defendants herein, with Attorney Leodegario Azarraga from whom the plaintiff derived his right, a sale with pacto de retro, or an assignment in payment of a debt, or was it an antichresis partaking of the nature of what was anciently known as pacto comisorio, or a mortgage, or was it merely a loan with real estate security?

II. Was the contract executed by the defendant Joaquin Azarraga, on the one hand, and the plaintiff, on the other, embodied in Exhibit E, a sale with pacto de retro or simply a loan with real estate security?

The first question offers no difficulty if account is taken of the established facts and the conduct of the interested parties after the expiration of the term of five years fixed in Exhibit A. When the plaintiff extended the period to February 16, 1926 within which the defendants Azarraga could pay him his credit, but imposed on them the condition that they pay him 12 per cent annual interest from August 30, 1924 on the principal of P3,000 (Exh. 5) and gave them another extension up to April 26, 1926, under the same conditions as regard interest (Exh. M), what perhaps could have been considered as a antichresis or pacto comisorio — not an assignment in payment of a debt, or a sale with pacto de retro because there is nothing in Exhibit A to indicate that such was the intention of the defendants Azarraga or, at least, that they bound themselves to deliver the land in question to the plaintiff and that the latter should pay them the value thereof; and because there was what may be considered the resolutory condition of five years — was converted into a simple loan by the decisive circumstance that plaintiff chose to collect thereafter, and the obligors agreed to pay him, 12 per cent annual interest. It is only in contracts of loan, with or without guaranty, that interest may be demanded (articles 1108, 1740, 1755, 1868, 1876, and 1881 of the Civil Code. As a matter of fact, the contract embodied in Exhibit A was novated by Exhibits 5 and M, and the plaintiff wanted to have it novated for the third time by means of Exhibit 2. It does not appear of record, however, that the defendants Azarraga ever assented to the latter novation. Perhaps, their refusal to agree to the same was due to the fact that the plaintiff wanted to raise their old obligation (P3,000 or P2,700 of all the Azarraga brothers, plus P4,000 which Joaquin Azarraga alone owed, which two accounts both the plaintiff and the defendants considered as amounting to P7,000, exclusive of the annual interest of 12 per cent) to

the round sum of P12,000. From all this it may easily be inferred that the obligation which the defendants had imposed upon themselves by Exhibit A had ceased to exist and became a simple loan with security, if so desired, of the lands in question, but without prejudice to third parties as neither Exhibit A nor the deed of assignment Exhibit C, executed by Leodegario Azarraga in favor of the plaintiff, was inscribed in the registry of deeds.

There is also no difficulty in disposing of the second question, considering the various novations which, as has been said, had taken place and had been extended not only to the Azarraga brothers with respect to their obligation of P3,000 or P2,700, but also to the defendant Joaquin Azarraga as regard his personal debt of P4,000. We must not lose sight of the fact that the plaintiff never considered the contract entered into by him with Joaquin Azarraga as, strictly speaking, a sale with pacto de retro. And if he had ever considered it as such, it is, nevertheless, true that he novated it on February 16, 1926, considering it from the time on as a simple loan, inasmuch as on that date he began to charge the said defendant 12 per cent annual interest with the latter's assent and confirmity. This clearly appears in Exhibit M which must be considered together with paragraphs 7 and 8 of Exhibit E, as the plaintiff himself does in his brief (brief for the plaintiff as appellant, pages 4 and 5), because the term of five years to which said Exhibit E refers and which should have expired on February 16, 1926 was extended by the said plaintiff, by Exhibit M, up to April 26, 1926 under the aforementioned condition that he should be paid 12 per cent annual interest.

Consequently, the contention of the defendants that the plaintiff did not and could never receive the lands in question as an assignment in payment of a debt, and much less did he acquire them by purchase with pacto de retro, is well taken. It must also be noted that at no time did the plaintiff claim any rights of dominion over the lands since he did not even intimate to the defendants, either directly or indirectly, that for their failure to pay him his credit within the time provided therefor, he become the absolute owner thereof. Notwithstanding the fact that all the extensions he had given defendants had expired, he did not, even only for tax declaration purposes, declare the lands as his property. Having reached this conclusion, it is needless to state that the plaintiff has no right to the various sums which he seeks in his complaint and to which he refers in the first and last errors assigned by him. If, as has been shown, he never became the owner of the lands in question, he can neither claim payment of the value of the same nor ask to be indemnified for the deprivation of their possession. The plaintiff, moreover, has no reason to complain that his lien, if his right over said lands could be termed as such, was not annotated in the certificate of title which the defendants Azarraga had obtained, or that the latter did not ask that it be stated therein that the lands to which it refers are charged with his credit against them; inasmuch as he was himself negligent in that he did not ask the court, while the registration case relating to said lands was being heard, for the annotation of what he considered necessary to protect his rights, and in not seeking the revision of modification of the decree of registration within the period of one year provided for the purpose.

As to the fifteenth error attributed to the lower court by the defendants Azarraga, we hold that, in view of the established facts above-related, they have failed to show satisfactorily that they have any right under all or any of their several counterclaims. If the coconut trees planted by Joaquin Azarraga on a portion of the land in question were indeed lost or destroyed, it was due more to his own negligence than to the of the plaintiff; for he well knew on planting them in 1925, 1926 and 1927 that the plaintiff maintained therein, with his (Joaquin Azarraga's) approval, livestock which might destroy them, and he did not take the necessary precautions against such occurrence. This is, of course, upon the supposition that his coconut plantations died by reason of the devastation caused by the animals of the plaintiff. The preponderance of the evidence, however, has shown that they died on account of the drought alone.

We likewise hold that the issuance of the writs of preliminary injunction and attachment at the instance of the plaintiff did not prejudice the defendants, inasmuch as there is no competent evidence of record to the contrary. On the other hand, there is evidence to show that from the loan which the defendants Azarraga had obtained from "Hijos de I. de la Rama" they derived a net profit of P14,277.15 within the short period of one year and a few months.

There is no support for the contention of the defendants that they suffered damages by reason of the preliminary attachment ordered by the lower court because they were unable to sell one of their houses to the Calibo Institute for the price agreed upon by them and said entity. The record shows that they lost nothing because the Calibo Institute is at present occupying a portion of said house and they may, if they so desire, sell it even now to the occupant. It does not appear, on the other hand, that the latter desisted from buying it on finding a better building.

As to the second error assigned by the plaintiff, it suffices to recall that the established facts do not show that the tenants of the defendants were responsible for the killing and wounding of the animals belonging to him or that said tenants acted upon the instigation of the defendants. Consequently, the plaintiff's claim to this effect is entirely without merit.

In view of all the foregoing and in resume, we hold that the plaintiff alone has the right (1) to recover from the defendants Azarraga, by virtue of the assignment and sale made to him by Attorney Leodegario Azarraga of the latters' credit of P2,700 against the said defendants, the aforesaid sum plus interest at the rate of 12 per cent per annum from August 30, 1924; (2) to recover from the defendant Joaquin Azarraga, in particular, the sum of P4,000 plus interest at the rate of 12 per cent per annum from April 26, 1926. We also hold that the defendants are not entitled to anything under their counterclaims.

Wherefore, reversing the appealed judgment,

(a) All the defendants are hereby sentenced to pay jointly the sum of P2,700 to the plaintiff, with 12 per cent annual interest from August 30, 1924 until said sum is fully paid; ;and

(b) The defendant Joaquin Azarraga is sentenced to pay the plaintiff the sum of P4,000 plus interest at the rate of 12 per cent per annum from April 26, 1926, until fully paid.

The plaintiff is absolved from defendants' counterclaims and the writ of preliminary injunction issued by the lower court on February 7, 1931, is hereby dissolved. There is no special pronouncement as to costs. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Imperial and Concepcion, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-7721            March 25, 1914

INCHAUSTI & CO., plaintiff-appellant, vs.GREGORIO YULO, defendant-appellee.

Hausserman, Cohn and Fisher for appellant.Rohde and Wright for appellee.Bruce, Lawrence, Ross and Block, Amici Curiae, for Manuel, Francisco and Carmen Yulo.

ARELLANO, C.J.:

This suit is brought for the recovery of a certain sum of money, the balance of a current account opened by the firm of Inchausti & Company with Teodoro Yulo and after his death continued with his widow and children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a property owner of Iloilo, for the exploitation and cultivation of his numerous haciendas in the province of Occidental Negros, had been borrowing money from the firm of Inchausti & Company under specific conditions. On April 9, 1903; Teodoro Yulo died testate and for the execution of the provisions of his will he had appointed as administrators his widow and five of his sons, Gregorio Yulo being one of the latter. He thus left a widow, Gregoria Regalado, who died on October 22d of the following year, 1904, there remaining of the marriage the following legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen, Concepcion, and Jose Yulo y Regalado. Of these children Concepcion and Jose were minors, while Teodoro was mentally incompetent. At the death of their predecessor in interest, Teodoro Yulo, his widow and children held the conjugal property in common and at the death of this said widow, Gregoria Regalado, these children preserved the same relations under the name of Hijos de T. Yulo continuing their current account with Inchausti & Company in the best and most harmonious reciprocity until said balance amounted to two hundred thousand pesos. In for the payment of the disbursements of money which until that time it had been making in favor of its debtors, the Yulos.

First. Gregorio Yulo, for himself and in representation of his brothers Pedro Francisco, Manuel, Mariano, and Carmen, executed on June 26, 1908, a notarial document (Exhibit S) whereby all admitted their indebtedness to Inchausti & Company in the sum of P203,221.27 and, in order to secure the same with interest thereon at 10 per cent per annum, they especially mortgaged an undivided six-ninth of their thirty-eight rural properties, their remaining urban properties, lorchas, and family credits which were listed, obligating themselves to make a forma inventory and to describe in due form all the said properties, as well as to cure all the defects which might prevent the inscription of the said instrument in the registry of property and finally to extend by the necessary formalities the aforesaid mortgage over the remaining three-ninths part of all the property and rights belonging to their other brothers, the incompetent Teodoro, and the minors Concepcion and Jose.

Second. On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered a letter of the firm of Inchausti & Company in these terms: "With your favor of the 2d inst. we have received an abstract of our current account with your important firm, closed on the 31st of last December, with which we desire to express our entire conformity as also with the balance in your favor of P271,863.12." On July 17, 1909, Inchausti & Company informed Hijos de T. Yulo of the reduction of the said balance to P253,445.42, with which balance Hijos de T. Yulo expressed its conformity by means of a letter of the 19th of the same month and year. Regarding this conformity a new document evidencing the mortgage credit was formalized.

Third. On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother Manuel Yulo, and in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and Concepcion Yulo, the latter being of age at the time, executed the notarial instrument (Exhibit X). Through this, the said persons, including Concepcion Yulo ratified all the contents of the prior document of June 26, 1908, severally and jointly acknowledged and admitted their indebtedness to Inchausti & Company for the net amount of two hundred fifty-three thousand four hundred forty-five pesos and forty-two centavos (P253,445.42) which they obligated themselves to pay, with interest at ten per cent per annum, in five installments at the rate of fifty thousand pesos (P50,000), except the last, this being fifty-three thousand four hundred forty-five pesos and forty-two centavos (P53,445.42), beginning June 30, 1910, continuing successively on the 30th of each June until the last payment on June 30, 1914. Among other clauses, they expressly stipulated the following:

Fifth. The default in payment of any of the installments established in clause 3, or the noncompliance of any of the other obligations which by the present document and that of June 26, 1908, we, the Yulos, brothers and sisters, have assumed, will result in the maturity of all the said installments, and as a consequence thereof, if they so deem expedient Messrs. Inchausti & Company may exercise at once all the rights and actions which to them appertain in order to obtain the immediate and total payment of our debt, in the same manner that they would have so done at the maturity of the said installments.

Fifteenth. All the obligations which by this, as well as by the document of June 26, 1908, concern us, will be understood as having been contradicted in solidum by all of us, the Yulos, brothers and sisters.

Sixteenth. It is also agreed that this instrument shall be confirmed and ratified in all its parts, within the present week, by our brother Don Mariano Yulo y Regalado who resides in Bacolod, otherwise it will not be binding on Messrs. Inchausti & Company who can make use of their rights to demand and obtain immediate payment of their credit without any further extension or delay, in accordance with what we have agreed.

Fourth. This instrument was neither ratified nor confirmed by Mariano Yulo.

Fifth. The Yulos, brothers and sisters, who executed the preceding instrument, did not pay the first installment of the obligation.

Sixth. Therefore, on March 27, 1911, Inchausti & Company brought an ordinary action in the Court of First Instance of Iloilo, against Gregorio Yulo for the payment of the said balance due of two hundred fifty-three thousand, four hundred forty-five pesos and forty-two centavos P253,445.42) with interest at ten per cent per annum, on that date aggregating forty-two thousand, nine hundred forty-four pesos and seventy-six centavos (P42,944.76)

Seventh. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in favor Inchausti & Company another notarial instrument in recognition of the debt and obligation of payment in the following terms: "First, the debt is reduce for them to two hundred twenty-five thousand pesos (P225,000); second, the interest is likewise reduced for them to 6 percent per annum, from March 15, 1911; third, the installments are increase to eight, the first of P20,000, beginning on June 30, 1911, and the rest of P30,000 each on the same date of each successive year until the total obligation shall be finally and satisfactorily paid on June 30, 1919," it being expressly agreed "that if any of the partial payments specified in the foregoing clause be not paid at its maturity, the amount of the said partial payment together with its interest shall bear interest at the rate of 15 per cent per annum from the date of said maturity, without the necessity of demand until its complete payment;" that "if during two consecutive years the partial payments agreed upon be not made, they shall lose the right to make use of the period granted to them for the payment of the debt or the part thereof which remains unpaid, and that Messrs. Inchausti & Company may consider the total obligation due and demandable, and proceed to collect the same together with the interest for the delay above stipulated through all legal means." (4th clause.)

Thus was it stipulated between Inchausti & Company and the said three Yulos, brothers and sisters — by way of compromise so that Inchausti & Company might, as it did, withdraw the claims pending in the special proceedings for the probate of the will of Don Teodoro Yulo and of the intestacy of Doña Gregoria Regalado — stipulating expressly however in the sixth clause that "Inchausti & Company should include in their suit brought in the Court of First Instance of Iloilo against Don Gregorio Yulo, his brother and joint co-obligee, Don Pedro Yulo, and they will procure by all legal means and in the least time possible a judgment in their favor against the said Don Gregorio and Don Pedro, sentencing the later to pay the total amount of the obligation acknowledged by them in the aforementioned instrument of August 12, 1909; with the understanding that if they should deem it convenient for their interests, Don Francisco, Don Manuel, and Doña Carmen Yulo may appoint an attorney to cooperate with the lawyers of Inchausti & Company in the proceedings of the said case."

Eighth. Matters being thus on July 10, 1911, Gregorio Yulo answered the complaint and alleged as defenses; first, that an accumulation of interest had taken place and that compound interest was asked for the Philippine currency at par with Mexican; second, that in the instrument of August 21, 1909, two conditions were agreed one of which ought to be approved by the Court of First Instance, and the other ratified and confirmed by the other brother Mariano Yulo, neither of which was complied with; third , that with regard to the same debt claims were presented before the commissioners in the special proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though later they were dismissed, pending the present suit; fourth and finally, that the instrument of August 12, 1909, was novated by that of May 12, 1911, executed by Manuel, Francisco and Carmen Yulo.

Ninth. The Court of First Instance of Iloilo decided the case "in favor of the defendant without prejudice to the plaintiff's bringing within the proper time another suit for his proportional part of the joint debt, and that the plaintiff pay the costs." (B. of E., 21.)

The plaintiff appealed from this judgment by bill of exceptions and before this court made the following assignment of errors:

I. That the court erred in considering the contract of May 12, 1911, as constituting a novation of that of August 12, 1909.

II. That the court erred in rendering judgment in favor of the defendant.

III. And that the court erred n denying the motion for a new trial.

"No one denies in this case," says the trial judge, "that the estate of Teodoro Yulo or his heirs owe Inchausti & Company an amount of money, the object of this action, namely, P253,445.42" (B. of E. 18). "The fact is admitted," says the defendant, "that the plaintiff has not collected the debt, and that the same is owing" (Brief, 33). "In the arguments of the attorneys," the judge goes on, "it was really admitted that the plaintiff had a right to bring an action against Gregorio Yulo, as one of the conjoint and solidary obligors in the contract of August 12, 1909; but the defendant says that the plaintiff has no right to sue him alone, since after the present suit was brought, the plaintiff entered into a compromise with the other conjoint and solidary debtors, the result being the new contract of May 12, 1911, by virtue of which the payments were extended, the same constituting a novation of the contract which gave him the same privileges that were given his conjoint and solidary codebtors. This (the judge concludes) is the only question brought up by the parties." (B. of E., 19.)

And this is the only one which the Supreme Court has to solve by virtue of the assignments of errors alleged. Consequently, there is no need of saying anything regarding the first three defenses of the answer, nor regarding the lack of the signature of Mariano Yulo ratifying and confirming the instrument of August 12, 1909, upon which the appellee still insists in his brief for this appeal; although it will not be superfluous to state the doctrine that a condition, such as is contained in the sixteenth clause of the said contract (third point in the statement of facts), is by no means of suspensive but a resolutory condition; the effect of the failure of compliance with the said clause, that is to say, the lack of the ratification and confirmance by Mariano Yulo being not to suspend but to resolve the contract, leaving Inchausti & Company at liberty, as stipulated, "to make use of its rights to demand and obtain the immediate payment of its credit."

The only question indicated in the decision of the inferior court involves, however, these others: First, whether the plaintiff can sue Gregorio Yulo alone, there being other obligors; second, if so, whether it lost this right by the fact of its having agreed with the other obligors in the reduction of the debt, the proroguing of the obligation and the extension of the time for payment, in accordance with the instrument of May 12, 1911; third, whether this contract with the said three obligors constitutes a novation of that of August 12, 1909, entered into with the six debtors who assumed the payment of two hundred fifty-three thousand and some odd pesos, the subject matter of the suit; and fourth, if not so, whether it does have any effect at all in the action brought, and in this present suit.

With respect to the first it cannot be doubted that, the debtors having obligated themselves in solidum, the creditor can bring its action in toto against any one of them, inasmuch as this was surely its purpose in demanding that the obligation contracted in its favor should be solidary having in mind the principle of law that, "when the obligation is constituted as a conjoint and solidary obligation each one of the debtors is bound to perform in full the undertaking which is the subject matter of such obligation." (Civil Code, articles 1137 and 1144.)

And even though the creditor may have stipulated with some of the solidary debtors diverse installments and conditions, as in this case, Inchausti & Company did with its debtors Manuel, Francisco, and Carmen Yulo through the instrument of May 12, 1911, this does not lead to the conclusion that the solidarity stipulated in the instrument of August 12, 1909 is broken, as we already know the law provides that "solidarity may exist even though the debtors are not bound in the same manner and for the same periods and under the same conditions." (Ibid, article 1140.) Whereby the second point is resolved.

With respect to the third, there can also be no doubt that the contract of May 12, 1911, does not constitute a novation of the former one of August 12, 1909, with respect to the other debtors who executed this contract, or more concretely, with respect to the defendant Gregorio Yulo: First, because "in order that an obligation may be extinguished by another which substitutes it, it is necessary that it should be so expressly declared or that the old and the new be incompatible in all points" (Civil Code, article 1204); and the instrument of May 12, 1911, far from expressly declaring that the obligation of the three who executed it substitutes the former signed by Gregorio Yulo and the other debtors, expressly and clearly stated that the said obligation of Gregorio Yulo to pay the two hundred and fifty-three thousand and odd pesos sued for exists, stipulating that the suit must continue its course and, if necessary, these three parties who executed the contract of May 12, 1911, would cooperate in order that the action against Gregorio Yulo might prosper (7th point in the statement of facts), with other undertakings concerning the execution of the judgment which might be rendered against Gregorio Yulo in this same suit. "It is always necessary to state that it is the intention of the contracting parties to extinguish the former obligation by the new one" (Judgment in cassation, July 8, 1909). There exist no incompatibility between the old and the new obligation as will be demonstrated in the resolution of the last point, and for the present we will merely reiterate the legal doctrine that an obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and adding other obligations not incompatible with the old one. (Judgments in cassation of June 28, 1904 and of July 8, 1909.)

With respect to the last point, the following must be borne in mind:

Facts. — First. Of the nine children of T. Yulo, six executed the mortgage of August 12, 1909, namely, Gregorio, Pedro, Francisco, Manuel, Carmen, and Concepcion, admitting a debt of P253,445.42 at 10 per cent per annum and mortgaging six-ninths of their hereditary properties. Second. Of those six children, Francisco, Manuel and Carmen executed the instrument of May 12, 1911, wherein was obtained a reduction of the capital to 225,000 pesos and of the interest to 6 per cent from the 15th of March of the same year of 1911. Third. The other children of T. Yulo named Mariano, Teodoro, and Jose have not taken part in these instruments and have not mortgaged their hereditary portions. Fourth. By the first instrument the maturity of the first installment was June 30, 1910, whereas by the second instrument, Francisco, Manuel, and Carmen had in their favor as the maturity of the first installment of their debt, June 30, 1912, and Fifth, on March 27, 1911, the action against Gregorio Yulo was already filed and judgment was pronounced on December 22, 1911, when the whole debt was not yet due nor even the first installment of the same respective the three aforesaid debtors, Francisco, Manuel, and Carmen.

In jure it would follow that by sentencing Gregorio Yulo to pay 253,445 pesos and 42 centavos of August 12, 1909, this debtor, if he should pay all this sum, could not recover from his joint debtors Francisco, Manuel, and Carmen their proportional parts of the P253,445.42 which he had paid, inasmuch as the three were not obligated by virtue of the instrument of May 12, 1911, to pay only 225,000 pesos, thus constituting a violation of Gregorio Yulo's right under such hypothesis, of being reimbursed for the sum paid by him, with the interest of the amounts advanced at the rate of one-sixth part from each of his five codebtors. (Civ. Code, article 1145, par. 2). This result would have been a ponderous obstacle against the prospering of the suit as it had been brought. It would have been very just then to have absolved the solidary debtor who having to pay the debt in its entirety would not be able to demand contribution from his codebtors in order that they might reimburse him pro rata for the amount advanced for them by him. But such hypothesis must be put out of consideration by reason of the fact that occurred during the pendency of the action, which fact the judge states in his decision. "In this contract of May last," he says, "the amount of the debt was reduced to P225,000 and the attorney of the plaintiff admits in his plea that Gregorio Yulo has a right to the benefit of this reduction." (B. of E., 19.) This is a fact which this Supreme Court

must hold as firmly established, considering that the plaintiff in its brief, on page 27, corroborates the same in these words: "What effect," it says, "could this contract have over the rights and obligations of the defendant Gregorio Yulo with respect to the plaintiff company? In the first place, we are the first to realize that it benefits him with respect to the reduction of the amount of the debt. The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or more of the solidary debtors necessarily benefits the others, and therefore there can be no doubt that, in accordance with the provision of article 1143 of the Civil Code, the defendant has the right to enjoy the benefits of the partial remission of the debt granted by the creditor."

Wherefore we hold that although the contract of May 12, 1911, has not novated that of August 12, 1909, it has affected that contract and the outcome of the suit brought against Gregorio Yulo alone for the sum of P253,445.42; and in consequence thereof, the amount stated in the contract of August 12, 1909, cannot be recovered but only that stated in the contract of May 12, 1911, by virtue of the remission granted to the three of the solidary debtors in this instrument, in conformity with what is provided in article 1143 of the Civil Code, cited by the creditor itself.

If the efficacy of the later instrument over the former touching the amount of the debt had been recognized, should such efficacy not likewise be recognized concerning the maturity of the same? If Francisco, Manuel, and Carmen had been included in the suit, they could have alleged the defense of the nonmaturity of the installments since the first installment did not mature until June 30, 1912, and without the least doubt the defense would have prospered, and the three would have been absolved from the suit. Cannot this defense of the prematurity of the action, which is implied in the last special defense set up in the answer of the defendant Gregorio Yulo be made available to him in this proceeding?

The following commentary on article 1140 of the Civil Code sufficiently answers this question: ". . . . Before the performance of the condition, or before the execution of a term which affects one debtor alone proceedings may be had against him or against any of the others for the remainder which may be already demandable but the conditional obligation or that which has not yet matured cannot be demanded from any one of them. Article 1148 confirms the rule which we now enunciate inasmuch as in case the total claim is made by one creditor, which we believe improper if directed against the debtor affected by the condition or the term, the latter can make use of such exceptions as are peculiarly personal to his own obligation; and if against the other debtors, they mightmake use of those exceptions, even though they are personal to the other, inasmuch as they alleged they are personal to the other, inasmuch as they alleged them in connection with that part of the responsibility attaching in a special manner to the other." (8 Manresa, Sp. Civil Code, 196.)

Article 1148 of the Civil Code. — "The solidary debtor may utilize against the claims of the creditor of the defenses arising from the nature of the obligation and those which are personal to him. Those personally pertaining to the others may be employed by him only with regard to the share of the debt for which the latter may be liable."

Gregorio Yulo cannot allege as a defense to the action that it is premature. When the suit was brought on March 27, 1911, the first installment of the obligation had already matured of June 30, 1910, and with the maturity of this installment, the first not having been paid, the whole debt had become mature, according to the express agreement of the parties, independently of the resolutory condition which gave the creditor the right to demand the immediate payment of the whole debt upon the expiration of the stipulated term of one week allowed to secure from Mariano Yulo the ratification and confirmation of the contract of August 12, 1909.

Neither could he invoke a like exception for the shares of his solidary codebtors Pedro and Concepcion Yulo, they being in identical condition as he.

But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable under their obligation, contracted later, had as yet matured. The first payment, as already stated, was to mature on June 30, 1912. This exception or personal defense of Francisco, Manuel, and Carmen Yulo "as to the part of the debt for which they were responsible" can be sent up by Gregorio Yulo as a partial defense to the action. The part of the debt for which these three are responsible is three-sixths of P225,000 or P112,500, so that Gregorio Yulo may claim that, even acknowledging that the debt for which he is liable is P225,000, nevertheless not all of it can now be demanded of him, for that part of it which pertained to his codebtors is not yet due, a state of affairs which not only prevents any action against the persons who were granted the term which has not yet matured, but also against the other solidary debtors who being ordered to pay could not now sue for a contribution, and for this reason the action will be only as to the P112,500.

Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the three-sixths part of the debt which forms the subject matter of the suit, we do not think that there was any reason or argument offered which sustains an opinion that for the present it is not proper to order him to pay all or part of the debt, the object of the action.

It has been said in the brief of the appellee that the prematurity of the action is one of the defenses derived from the nature of the obligation, according to the opinion of the commentator of the Civil Code, Mucius Scaevola, and consequently the defendant Gregorio Yulo may make use of it in accordance with article 1148 of the said Code. It may be so and yet, taken in that light, the effect would not be different from that already stated in this decision; Gregorio Yulo could not be freed from making any payment whatever but only from the payment of that part of the debt which corresponds to his codebtors Francisco, Manuel, and Carmen. The same author, considering the case of the opposing contention of two solidary debtors as to one of whom the obligation is pure and unconditional and as to the other it is conditional and is not yet demandable, and comparing the disadvantages which must flow from holding that the obligation is demandable with these which must follow if the contrary view is adopted, favors this solution of the problem:

There is a middle ground, (he says), from which we can safely set out, to wit, that the creditor may ofcourse, demand the payment of his credit against the debtor not favored by any condition or extension of time." And further on, he decides the question as to whether the whole debt may be recovered or only that part unconditionally owing or which has already matured, saying, "Without failing to proceed with juridical rigor, but without falling into extravagances or monstrosities, we believe that the solution of the difficulty is perfectly possible. How? By limiting the right of the creditor to the recovery of the amount owed by the debtors bound unconditionally or as to whom the obligation has matured, and leaving in suspense the right to demand the payment of the remainder until the expiration of the term of the fulfillment of the condition. But what then is the effect of solidarity? How can this restriction of right be reconciled with the duty imposed upon each one of the debtors to answer for the whole obligation? Simply this, by recognizing in the creditor the power, upon the performance of the condition or the expiration of the term of claiming from any one or all of the debtors that part of the obligation affected by those conditions. (Scaevola, Civil Code, 19, 800 and 801.)

It has been said also by the trial judge in his decision that if a judgment be entered against Gregorio Yulo for the whole debt of P253,445.42, he cannot recover from Francisco, Manuel, and Carmen Yulo that part of the amount which is owed by them because they are obliged to pay only 225,000 pesos and this is eight installments none of which was due. For this reason he was of the opinion that he (Gregorio Yulo) cannot be obliged to pay his part of the debt before the contract of May 12, 1911, may be enforced, and "consequently he decided the case in favor of the defendant, without prejudice to the plaintiff proceeding in due time against him for his proportional part of the joint debt." (B. of E., 21 and 22.)

But in the first place, taking into consideration the conformity of the plaintiff and the provision of article 1143 of the Civil Code, it is no longer possible to sentence the defendant to pay the P253,445.42 of the instrument of August 12, 1909, but, if anything, the 225,000 of the instrument of May 12, 1911.

In the second place, neither is it possible to curtail the defendant's right of recovery from the signers of the instrument of May 12, 1911, for he was justly exonerated from the payment of that part of the debt corresponding to them by reason of there having been upheld in his favor the exception of an unmatured installment which pertains to them.

In the third place, it does not seem just, Mucius Scaevola considers it "absurd," that, there being a debtor who is unconditionally obligated as to when the debt has matured, the creditor should be forced to await the realization of the condition (or the expiration of the term.) Not only is there no reason for this, as stated by the author, but the court would even fail to consider the special law of the contract, neither repealed nor novated, which cannot be omitted without violating article 1091 of the Civil Code according to which "the obligations arising from contracts have the force of law between the contracting parties and must be complied with in accordance with the tenor of the same." Certain it is that the trial court, in holding that this action was premature but might be brought in the time, regarded the contract of August 12, 1909, as having been expressly novated; but it is absolutely impossible in law to sustain such supposed novation, in accordance with the legal principles already stated, and nevertheless the obligation of the contract of May 12, 1911, must likewise be complied with in accordance with its tenor, which is contrary in all respects to the supposed novation, by obliging the parties who signed the contract to carry on the suit brought against Gregorio Yulo. The contract of May 12, 1911, has affected the action and the suit, to the extent that Gregorio Yulo has been able to make in his favor the defense of remission of part of the debt, thanks to the provision of article 1148, because it is a defense derived from the nature of the obligation, so that although the said defendant was not party to the contract in question, yet because of the principle of solidarity he was benefited by it.

The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42 claimed from him in the suit here, because he has been benefited by the remission made by the plaintiff to three of his codebtors, many times named above.

Consequently, the debt is reduced to 225,000 pesos.

But, as it cannot be enforced against the defendant except as to the three-sixths part which is what he can recover from his joint codebtors Francisco, Manuel, and Carmen, at present, judgment can be rendered only as to the P112,500.

We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti & Company P112,500, with the interest stipulated in the instrument of May 12, 1911, from March 15, 1911, and the legal interest on this interest due, from the time that it was claimed judicially in accordance with article 1109 of the Civil Code, without any special finding as to costs. The judgment appealed from is reversed. So ordered.

Carson, Trent, and Araullo, JJ., concur.

Separate Opinions

MORELAND, J., dissenting:

In my judgment the action must be dismissed, as it was brought prematurely. The defendant was entitled to all of the benefits of the contract of May 12, 1911, between the plaintiff and Francisco, Manuel, and Carmen. One of these provisions was that the first payment need not be made until June 30, 1912. The action was commenced on the 27t of March, 1911, and although this date was prior to the date of the second contract, that is, the contract with Francisco, Manuel, and Carmen, said contract was executed before the trial of the action, and some of the beneficial provisions therein contained were to produce their effects from March 15, 1911, a date prior to the commencement of the action. At the time of the trial the defendant could, in my judgment, have interposed, under the allegations of the amended answer, any of the defenses which could have been made use of by Francisco, Manuel, or Carmen if they had been the defendant. That being the case, nothing was due the plaintiff at the time it sued and accordingly its action must be dismissed with costs.

For these reasons I vote to affirm.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 166704             December 20, 2006

AGRIFINA AQUINTEY, petitioner, vs.SPOUSES FELICIDAD AND RICO TIBONG, respondents.

D E C I S I O N

CALLEJO, SR., J.:

Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision1 of the Court of Appeals in CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial Court (RTC), Branch 61, Baguio City, and the Resolution3 of the appellate court denying reconsideration thereof.

The Antecedents

On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. The complaint contained the following prayer:

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice and hearing, to render judgment ordering defendants to pay plaintiff the following:

a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the principal obligation of the defendants with the stipulated interests of six (6%) percent per month from May 11, 1999 to date and or those that are stipulated on the contracts as mentioned from paragraph two (2) of the complaint.

b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's fees.

c). Actual expenses representing the filing fee and other charges and expenses to be incurred during the prosecution of this case.

Further prays for such other relief and remedies just and equitable under the premises.4

Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as well as copies of the promissory notes and acknowledgment receipts executed by Felicidad covering the loaned amounts.5

In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of their loans had been extinguished.

The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they did not state the total amount of their loans, they declared that they did not receive anything from Agrifina without any written receipt.7 They prayed for that the complaint be dismissed.

In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without the benefit of a written document.8

On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined:

Whether or not plaintiff is entitled to her claim of P773,000.00;

Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and

Whether or not the parties are entitled to their claim for damages.9

The Case for Petitioner

Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened to be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According to Felicidad, Agrifina would be earning interests higher than those given by the bank for her money. Felicidad told Agrifina that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use the money to buy bonnels and thread.10 Thus, Agrifina lent a total sum of P773,000.00 to Felicidad, and each loan transaction was covered by either a promissory note or an acknowledgment receipt.11Agrifina stated that she had lost the receipts signed by Felicidad for the following amounts: P100,000.00,P34,000.00 and P2,000.00.12 The particulars of the transactions are as follows:

Amount Date Obtained Interest Per Mo. Due Date

P 100,000.00 May 11, 1989 6% August 11, 1989

4,000.00 June 8, 1989 - -

50,000.00 June 13, 1989 6% On demand

60,000.00 Aug. 16, 1989 7% January 1990

205,000.00 Oct. 13, 1989 7% January 1990

128,000.00 Oct. 19, 1989 7% January 1990

2,000.00 Nov. 12, 1989 6% April 28, 1990

10,000.00 June 13, 1990 - -

80,000.00 Jan. 4, 1990 - -

34,000.00 - 6% October 19, 1989

100,000.00 July 14, 1989 5% October 198913

According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.14

In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25, 1990 in the amount of P50,000.00 as partial payment.15 However, the check was dishonored for having been drawn against insufficient funds.16 Agrifina then filed a criminal case against Felicidad in the Office of the City Prosecutor. An Information for violation of Batas Pambansa Bilang 22 was filed against Felicidad, docketed as Criminal Case No. 11181-R. After trial, the court ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of the check.17

In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers.18 Agrifina sought the assistance of Atty. Torres G. A-ayo who advised her to require Felicidad to execute deeds of assignment over Felicidad's debtors. The lawyer also suggested that Felicidad's debtors execute promissory notes in Agrifina's favor, to "turn over" their loans from Felicidad. This arrangement would facilitate collection of Felicidad's account. Agrifina agreed to the proposal.19 Agrifina, Felicidad, and the latter's debtors had a conference20 where Atty. A-ayo explained that Agrifina could apply her collections as payments of Felicidad's account.21

From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits (obligations)22 duly notarized by Atty. A-ayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due from her debtors.23 In the said deeds, Felicidad confirmed that her debtors were no longer indebted to her for their respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada and Corazon Dalisay.24 She was furnished copies of the deeds as well as the promissory notes.25

The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to Agrifina:

Debtors Account Date of Instrument Date PayableJuliet & Tommy Tibong P50,000.00 August 7, 1990 November 4, 1990 and February 4,

1991Corazon Dalisay 8,000.00 August 7, 1990 No date

Rita Chomacog 4,480.00 August 8, 1990 September 23, 1990Antoinette Manuel 12,000.00 October 19, 1990 March 30, 1991Rosemarie Bandas 8,000.00 August 8, 1990 February 3, 1991Fely Cirilo 63,600.00 September 13, 1990 No dateVirginia Morada 62,379.00 August 9, 1990 February 9, 1991Carmelita Casuga 59,000.00 August 28, 1990 February 28, 1991Merlinda Gelacio 17,200.00 August 29, 1990 November 29, 199026

T o t a l P284,659.00

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them. One of the debtors, Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment of Credit which Felicidad executed in favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and in behalf of her sister, Fely Cirilo.28 Edna Papat-iw was not able to affix her signature on the deed of assignment nor sign the promissory note because she was in Taipei, Taiwan.29

Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total amount of P301,000.00 from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's account, but the latter told her to wait until her debtors had money.31 When Felicidad reneged on her promise, Agrifina filed a complaint in the Office of the Barangay Captain for the collection of P773,000.00. However, no settlement was arrived at.32

The Case for Respondents

Felicidad testified that she and her friend Agrifina had been engaged in the money-lending business.33 Agrifina would lend her money with monthly interest,34 and she, in turn, would re-lend the money to borrowers at a higher interest rate. Their business relationship turned sour when Agrifina started complaining that she (Felicidad) was actually earning more than Agrifina.35 Before the respective maturity dates of her debtors' loans, Agrifina asked her to pay her account since Agrifina needed money to buy a house and lot in Manila. However, she told Agrifina that she could not pay yet, as her debtors' loan payments were not yet due.36 Agrifina then came to her store every afternoon to collect from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested that she indorse the accounts of her debtors to Agrifina so that the latter would be the one to collect from her debtors and she would no longer have any obligation to Agrifina.38 She then executed deeds of assignment in favor of Agrifina covering the sums of money due from her debtors. She signed the deeds prepared by Atty. A-ayo in the presence of Agrifina.39 Some of the debtors signed the promissory notes which were likewise prepared by the lawyer. Thereafter, Agrifina personally collected from Felicidad's debtors.40Felicidad further narrated that she received P250,000.00 from one of her debtors, Rey Rivera, and remitted the payment to Agrifina.41

Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad. When she asked Felicidad to consolidate her loans in one document, the latter told her to seek the assistance of Atty. A-ayo.42 The lawyer suggested that Felicidad assign her credits in order to help her collect her loans.43 She agreed to the deeds of assignment to help Felicidad collect from the debtors.44

On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to pay the plaintiffs (sic) the following amounts:

1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the said obligation is fully paid. However, the amount of P50,000 shall be deducted from the total accumulated interest for the same was already paid by the defendant as admitted by the plaintiff in her complaint,

2. P25,000 as attorney's fees,

3. [T]o pay the costs.

SO ORDERED.46

The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory notes executed by Felicidad's borrowers. It explained that the documents did not contain any express agreement to novate and extinguish Felicidad's obligation. It declared that the deeds and notes were separate contracts which could stand alone from the original indebtedness of Felicidad. Considering, however, Agrifina's admission that she was able to collect from Felicidad's debtors the total amount of P301,000.00, this should be deducted from the latter's accountability.47 Hence, the balance, exclusive of interests, amounted to P472,000.00.

On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory notes and acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total principal amount of only P637,000.00, not P773,000.00 as declared by the trial court. The CA found that, other than Agrifina's bare testimony that she had

lost the promissory notes and acknowledgment receipts, she failed to present competent documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the amounts of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account,P585,659.00 was covered by the deeds of assignment and promissory notes; hence, the balance of Felicidad's account amounted to only P51,341.00. The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil Case No. 4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay the balance of the total indebtedness in the amount of P51,341.00 plus the stipulated interest of 6% per month from May 11, 1999 until the finality of this decision.

SO ORDERED.48

The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by the deeds of assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a new creditor in lieu of Felicidad, Felicidad's obligation to Agrifina under the loan transaction remained; there was no intention on their part to novate the original obligation. Nonetheless, the appellate court held that the legal effects of the deeds of assignment could not be totally disregarded. The assignments of credits were onerous, hence, had the effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never repudiated or rescinded such assignments only shows that she had accepted and conformed to it. Consequently, she cannot collect both from Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory notes.

The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the nature of a sale, the assignors remained liable for the warranties as they are responsible for the existence and legality of the credit at the time of the assignment.

Both parties moved to have the decision reconsidered,49 but the appellate court denied both motions on December 21, 2004.50

Agrifina, now petitioner, filed the instant petition, contending that

1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the effect of payment of the original obligation even as it ruled out that the original obligation and the assigned credit are distinct and separate and can stand independently from each other;

2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and

3. The Honorable Court of Appeals erred in resolving fact not in issue.51

Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to onlyP637,000.00 (instead of P773,000.00) simply because she lost the promissory notes/receipts which evidenced the loans executed by respondent Felicidad Tibong. She insists that the issue of whether Felicidad owed her less than P773,000.00 was not raised by respondents during pre-trial and in their appellate brief; the appellate court was thus proscribed from taking cognizance of the issue.

Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00 loan; hence, respondents are deemed to have admitted the allegation in the complaint that the loans secured by respondent from her amounted to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is whether or not she should be made to pay this amount.

Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00 covered by the deeds of assignment executed by Felicidad and the promissory notes executed by the latter's debtors, and that the balance of respondents' account was only P51,341.00. Moreover, the appellate court's ruling that there was no novation runs counter to its holding that the primary recourse was against Felicidad's debtors. Petitioner avers that of the 11 deeds of assignment and promissory notes, only two bore her signature.52 She insists that she is not bound by the deeds which she did not sign. By assigning the obligation to pay petitioner their loan accounts, Felicidad's debtors merely assumed the latter's obligation and became co-debtors to petitioner. Respondents were not released from their obligation under their loan transactions, and she had the option to demand payment from them or their debtors. Citing the ruling of this Court in Magdalena Estates, Inc. v. Rodriguez,53 petitioner insists that the first debtor is not released from responsibility upon reaching an agreement with the creditor. The payment by a third person of the first debtor's obligation does not constitute novation, and the creditor can still enforce the obligation against the original debtor. Petitioner also cites the ruling of this Court in Guerrero v. Court of Appeals.54

In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's execution of the deeds of assignment, and the original debtors' execution of the promissory notes (along with their conformity to the deeds of assignment with petitioner's consent), their loan accounts with petitioner amounting to P585,659.00 had been effectively extinguished. Respondents point out that this is in accordance with Article 1291, paragraph 2, of the Civil Code. Thus, the original debtors of respondents had been substituted as petitioner's new debtors.

Respondents counter that petitioner had been subrogated to their right to collect the loan accounts of their debtors. In fact, petitioner, as the new creditor of respondents' former debtors had been able to collect the latter's loan accounts which amounted to P301,000.00. The sums received by respondents' debtors were the same loans which they obliged to pay to petitioner under the promissory notes executed in petitioner's favor.

Respondents aver that their obligation to petitioner cannot stand or exist separately from the original debtors' obligation to petitioner as the new creditor. If allowed to collect from them as well as from their original debtors, petitioner would be enriching herself at the expense of respondents. Thus, despite the fact that petitioner had collected P172,600.00 from respondents and P301,000.00 from the original debtors, petitioner still sought to collect P773,000.00 from them in the RTC. Under the deeds of assignment executed by Felicidad and the original debtors' promissory notes, the original debtors' accounts were assigned to petitioner who would be the new creditor. In fine, respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests. Respondents also insist that petitioner failed to prove that she (petitioner) was merely authorized to collect the accounts of the original debtors so as to to facilitate the payment of respondents' loan obligation.

The Issues

The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from petitioner; and (2) whether the obligation of respondents to pay the balance of their loans, including interest, was partially extinguished by the execution of the deeds of assignment in favor of petitioner, relative to the loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in the total amount of P371,000.00.

The Ruling of the Court

We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised the issue of whether they received P773,000.00 by way of loans from petitioner. They averred that, as gleaned from the documentary evidence of petitioner in the RTC, the total amount they borrowed was onlyP673,000.00. They asserted that petitioner failed to adduce concrete evidence that they received P773,000.00 from her.55

We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because petitioner failed to present any document or receipt signed by Felicidad.

Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact the truth of which he does not admit and, whenever practicable, x x x set forth the substance of the matters upon which he relies to support his denial.56

Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed admitted.57

The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to support the denial. The parties are compelled to lay their cards on the table.58

A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become specific by the use of the word "specifically." When matters of whether the defendant alleges having no knowledge or information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged "ignorance or lack of information" will not be considered as a specific denial. Section 11, Rule 8 of the Rules also provides that material averments in the complaint other than those as to the amount of unliquidated damages shall be deemed admitted when not specifically denied.59 Thus, the answer should be so definite and certain in its allegations that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what is covered by denials of knowledge as sufficient to form a belief.60

In the present case, petitioner alleged the following in her complaint:

2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) Philippine Currency with a stipulated interest which are broken down as follows. The said principal amounts was admitted by the defendants in their counter-affidavit submitted before the court. Such affidavit is hereby attached as Annex "A;"61

x x x x

H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per month and payable on October 19, 1989, however[,] the receipt for the meantime cannot be recovered as it was misplaced by the plaintiff but the letter of defendant FELICIDAD TIBONG is hereby attached as Annex "H" for the appreciation of the Honorable court;

I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per month, obtained on July 14, 1989 and payable on October 14, 1989. Such receipt was lost but admitted by the defendants in their counter-affidavit as attached [to] this complaint and marked as Annex "A" mentioned in paragraph one (1); x x x62

In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in paragraph 2 of the complaint were specifically denied, respondents merely averred that petitioner and respondent Felicidad entered into an agreement for the lending of money to interested borrowers at a higher interest rate. Respondents failed to declare the exact amount of the loans they had secured from petitioner. They also failed to deny the allegation in paragraph 2 of the complaint that respondent Felicidad signed and submitted a counter-affidavit in I.S. No. 93-334 where she admitted having secured loans from petitioner in the amount ofP773,000.00. Respondents, likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had secured a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced. Although respondents specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely alleged that "they have not received sums of money from the plaintiff without any receipt therefor."

Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured aP100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced by a receipt which petitioner claimed to have lost. Neither did respondents deny the allegation that respondents admitted their loan of P100,000.00 in the counter-affidavit of respondent Felicidad, which was appended to the complaint as Annex "A." In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner.

We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount ofP301,000.00, which includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot again collect the same amount from respondents; otherwise, she would be enriching herself at their expense. Neither can petitioner collect from respondents more than P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis, Fernandez and Ramirez.

There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the balance of their loan account to petitioner was partially extinguished by the promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner, she was able to collect the amounts under the notes from said debtors and applied them to respondents' accounts.

Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are extinguished. Obligations may be modified by changing their object or principal creditor or by substituting the person of the debtor.63 The burden to prove the defense that an obligation has been extinguished by novation falls on the debtor.64 The nature of novation was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr.,65 as follows:

Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconciliable, the subsequent obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence 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. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.66 (Citations Omitted)

Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent of those three persons is necessary.67 In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation.68 Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly.69

In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of novation, the rule is the same as in other contracts. The consideration need not be pecuniary or even beneficial to the person promising. It is sufficient if it be a loss of an inconvenience, such as the relinquishment of a right or the discharge of a debt, the postponement of a remedy, the discontinuance of a suit, or forbearance to sue.

In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is that the new debtor contracts with the old debtor that he will pay the debt, and also to the same effect with the creditor, while the latter agrees to accept the new debtor for the old. A novation is not made by showing that the substituted debtor agreed to pay the debt; it must appear that he agreed with the creditor to do so. Moreover, the agreement must be based on the consideration of the creditor's

agreement to look to the new debtor instead of the old. It is not essential that acceptance of the terms of the novation and release of the debtor be shown by express agreement. Facts and circumstances surrounding the transaction and the subsequent conduct of the parties may show acceptance as clearly as an express agreement, albeit implied.72

We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.73 It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person.74

In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's obligation. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.76

The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) there must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.77

All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent Felicidad assigned to petitioner her credits "to make good" the balance of her obligation. Felicidad testified that she executed the deeds to enable her to make partial payments of her account, since she could not comply with petitioner's frenetic demands to pay the account in cash. Petitioner and respondent Felicidad agreed to relieve the latter of her obligation to pay the balance of her account, and for petitioner to collect the same from respondent's debtors.

Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In an assignment of credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment that might have been made. The assignment binds the debtor upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor78 necessary in order that assignment may fully produce legal effects. Thus, the duty to pay does not depend on the consent of the debtor. The purpose of the notice is only to inform that debtor from the date of the assignment. Payment should be made to the assignee and not to the original creditor.

The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is acquired by the assignee79 who steps into the shoes of the original creditor as subrogee of the latter80 from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it. If the document of assignment is public, it is evidence even against a third person of the facts which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or assignment of the credit.81

As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that Cabang and Cirilo no longer had any obligation to her.

Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer attempted to collect from respondents the balance of their accounts. It was only in 1999, or after nine (9) years had elapsed that petitioner attempted to collect from respondents. In the meantime, petitioner had collected from respondents' debtors the amount of P301,000.00.

While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts, and for the latter to pay the same directly, it cannot thereby be considered that respondent merely authorized petitioner to collect the accounts of respondents' debtors and for her to apply her collections in partial payments of their accounts. It bears stressing that petitioner, as assignee, acquired all the rights and remedies passed by Felicidad, as assignee, at the time of the assignment.82 Such rights and remedies include the right to collect her debtors' obligations to her.

Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere fact that novation does not follow as a matter of course when the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation when there is no agreement that the first debtor would be released from responsibility. Thus, the creditor can still enforce the obligation against the original debtor.

In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors were intended to "make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be interpreted or construed in accordance with the rules of construction governing contracts generally, the primary object being always to ascertain and carry out the intention of the parties. This intention is to be derived from a consideration of the whole instrument, all parts of which should be given effect, and is to be sought in the words and language employed.83

Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words should be construed according to their ordinary meaning, unless something in the assignment indicates that they are being used in a special sense. So, if the words are free from ambiguity and expressed plainly the purpose of the instrument, there is no occasion for interpretation; but where necessary, words must be interpreted in the light of the particular subject matter.84 And surrounding circumstances may be considered in order to understand more perfectly the intention of the parties. Thus, the object to be accomplished through the assignment, and the relations and conduct of the parties may be considered in construing the document.

Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the assignor, the general rule is that any ambiguity or uncertainty in the meaning of an assignment will be resolved against the party who prepared it; hence, if the assignment was prepared by the assignee, it will be construed most strictly against him or her.85 One who chooses the words by which a right is given ought to be held to the strict interpretation of them, rather than the other who only accepts them.86

Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the principal amount of P33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of respondents' other debtors amounting to P103,500.00, and the P50,000.00 payment made by respondents.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that the balance of the principal account of the respondents to the petitioner is P33,841.00. No costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-46405 June 30, 1986

LA CAMPANA FOOD PRODUCTS, INC., petitioner-appellant, vs.PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK, and L.F. VILLASEÑOR, in his capacity as City Sheriff of Quezon City, respondents-appellees.

 

FERIA, J.:

This is an appeal to the then Court of Appeals (now Intermediate Appellate Court) from the judgment of the Court of First Instance of Rizal dismissing the petition for certiorari, mandamus and prohibition with preliminary injunction, which was certified to this Court, involving as it does pure questions of law.

The factual antecedents of the case as summarized by the then Court of Appeals are as follows:

Petitioner had a credit line with respondent Philippine Commerial and Industrial Bank (hereinafter referred to as PCIB) secured by two real estate mortgages executed on March 23, 1960 and August 25, 1961. As of December 24, 1968, the credit accommodation extended by PCIB to petitioner amounted to P526,632.67.

Petitioner negotiated a loan of $1,400,000.00. with Intercontinental Monetary Corporation of New York, U.S.A., to be guaranteed by the Development Bank of the Philippines (hereinafter referred to as DBP). On April 18, 1968, DBP agreed to guarantee petitioner's foreign loan subject to the condition that petitioner should deposit with it the proceeds of the loan which should be made available for payment of petitioner's obligation to local financial institutions and to serve as working capital.

In a letter dated September 23, 1968, DBP informed PCIB that it had guaranteed petitioner's foreign loan and asked that it be lent Transfer Certificates of Title Nos. 24402 and 24403 covering the parcels of land mortgaged to PCIB by petitioner for it to be able to register its mortgage thereon.

Replying thereto, PCIB interposed no objection to the registration of DBP's mortgage on petitioner's TCT Nos. 24402 and 24403 on the condition that it (PCIB) would be favored immediately with a remittance in full of petitioner's outstanding obligations, after which it would issue the necessary Deed of Release of Real Estate Mortgage.

On November 11, 1968, DBP registered its mortgage on petitioner's TCT Nos. 24402 and 24403.

On May 16, 1969, DBP remitted P140,000.00 to PCIB representing partial payment of petitioner's outstanding obligation of P526,632.67.

No further payment on petitioner's outstanding obligations with PCIB was made either by DBP or by petitioner itself.

On June 28, 1971, PCIB instituted foreclosure proceedings on the real estate mortgages executed by petitioner in its favor. Respondent Sheriff of Quezon City then set the auction sale of petitioner's properties on July 30, 1971.

On July 26, 1971, petitioner filed the Petition for Certiorari, Mandamus, Prohibition with Preliminary Injunction with the lower Court seeking to set aside the Notice of Sheriff's Sale, to order PCIB to release it from the mortgage, and for the payment of damages. Petitioner contended that PCIB had lost its right of action against it because it (PCIB) had allowed DBP to assume petitioner's obligations by giving the titles to the property mortgaged to DBP and by accepting from DBP partial payment of its obligations. It likewise claimed that PCIB is estopped from foreclosing the

mortgage as the Statement of Account issued to it shows that it has a zero balance with PCIB. It further averred that under Section 19 of Republic Act No. 85 (DBP Charter), as long as the mortgage with the DBP is existing, no foreclosure may prosper until the encumbrance shall have been released.

In an Order dated July 27, 1971, issued by the lower Court, the Petition was given due course and a Restraining Order was issued enjoining respondent Sheriff from proceeding with the auction sale, pending resolution of the petition for Injunction.

PCIB, on the other hand, maintains that petitioner's obligations with it still subsist as the same was not assumed by DBP. Opposing the issuance of a Writ of Preliminary Injunction, PCIB alleged that since there has been no full payment of petitioner's obligations no release of the mortgage executed by petitioner in its favor has been made. With respect to the Statement of Accounts, PCIB claimed that it was merely intended to show that petitioner's account had been transferred from its Dasmariñas Branch to its Legal Department for proper action and not as evidence of extinguishment of obligation.

In an Order dated October 26, 1971,the Lower Court directed the issuance of a Writ of Preliminary Injunction restraining respondents from proceeding with the foreclosure sale of petitioner's properties upon the filing of a bond by petitioner in the sum of P70,000.00.

Acting on PCIB's Motion to Dissolve Writ of Preliminary Injunction, the lower Court, on April 24, 1972, set aside the Order of October 26, 1971. However, on Motion by petitioner, the lower Court, on July 26, 1972, set aside the Order of April 24, 1972 and revived the Order of October 26, 1971 directing the issuance of a Writ of Preliminary Injunction.

On July 25, 1975, the lower Court rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is rendered dismissing the petition, with costs against the petitioner. The writ of preliminary injunction issued against respondent PCIB and he Sheriff of Quezon City is hereby lifted and dissolved.

The counterclaim of the respondents is dismissed for being without merit.

SO ORDERED.

Petitioner's Motion for New Trial and/or for Reconsideration was denied by the lower Court in an Order dated October 10, 1975. It held that there was undoubtedly a novation of debtor as the consent of the PCIB to the new debtor (DBP) is of record; however, since the consent was conditioned on full payment by DBP and that condition was not fulfilled, PCIB may still demand the enforcement of the unreleased mortgages.

On October 22, 1975, the lower Court issued an Order reinstating the Order of September 17, 1975 enjoining the Sheriff of Quezon City from conducting foreclosure sale of petitioner's properties, 'in order not to render moot and academic the appeal interposed by petitioner from the decision rendered in this case. '

The main assignment of error raised by petitioner-appellant in its brief is that while the lower court correctly found and concluded that the appellant's obligations with PCIB had been novated by its being substituted as debtor of PCIB by the DBP, nevertheless it erred in concluding that the mortgage over appellant's property subsisted and may be foreclosed.

On the other hand, respondent-appellee assigned as error the holding of the lower court that appellant's obligations with it had been novated inasmuch as DBP was substituted as debtor to it in lieu of appellant by assuming the obligation of the latter to the former.

At this juncture, it is advisable to reiterate the rule that an appellee who is not an appellant may assign errors in his brief where his purpose is to maintain the judgment on other grounds, but he cannot seek modification or reversal of the judgment or affirmative relief unless he has also appealed. (Cf. Saenz vs. Mitchell, 60 Phil. 69; Relative vs. Castro, 76 Phil. 563; Aparri vs. Court of Appeals, 13 SCRA 611)

We agree with respondent-appellee's contention that there was no novation. DBP did not substitute petitioner-appellant as debtor to respondent-appellee. It merely agreed to guarantee petitioner's foreign loan subject to the condition that petitioner should deposit with it the proceeds of the loan which should be made available for payment of petitioner's obligation to local financial institutions and to serve as working capital. The DBP guarantee was to be secured by a first mortgage on the assets then mortgaged to DBP and the assets offered as additional securities, which included the parcels of land mortgaged to petitioner. (Exh. "B") Consequently, DBP requested respondent bank to lend Transfer Certificates of Title Nos. 24402 and 24403 covering the parcels of land mortgaged to respondent bank by petitioner for DBP to be able to register its mortgage thereon. (Exhs. "D", "2", and "2-A")

Respondent bank interposed no objection to the registration of DBP's mortgage on petitioner's TCT Nos. 24402 and 24403 on the condition that it (PCIB) would be favored immediately with a remittance in full of petitioner's outstanding obligations, after which it would issue the necessary Deed of Release of Real Estate Mortgage. (Exhs. "E", "3" and "3-A")

The exact wording of respondent bank's written consent reads as follows:

Our above consent however is premised on your undertaking that upon registration of your mortgage on the above titles, we will be favored immediately with a remittance in full of the outstanding obligation of the said firm with us, after which we will simultaneously issue the necessary Deed of Release of Real Estate Mortgage. (Exh. "3-A")

In other words, respondent bank agreed to the registration of DBP's second mortgage and to cancel or release its first mortgage upon receipt in full of the payment of petitioner's mortgage debt.

Inasmuch as only the sum of P140,000.00 was remitted by DBP to respondent bank representing partial payment of petitioner's outstanding obligation of P526,632.67, the first mortgage of respondent bank was not cancelled or released and the mortgage of DBP remained a second mortgage. Clearly, then, respondent bank had the right to institute foreclosure proceedings on its first mortgage in view of the non-payment of the balance of the mortgage debt.

In the case of Duñgo vs. Lopena this Court ruled as follows:

Herein petitioner claims that when a third party Emma R. Santos, came in and assumed the mortgaged obligation, novation resulted thereby inasmuch as a new debtor was substituted in place of the original one. In this kind of novation, however, it is not enough that the juridical relation of the parties to the original contract is extended to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the new relation Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor of surety. If there is no agreement as to solidarity, the first and the new debtors are considered obligated jointly. (IV Tolentino, Civil Code, p. 360, citing Manresa). There was no such release of the original debtor in the Tri-Party Agreement.

It is a very common thing in the business affairs for a stranger to a contract to assume its obligations; and while this may have the effect of adding to the number of persons liable, it does not necessarily imply the extinguishment of the liability of the first debtor Rios vs. Jacinto, etc., 49 Phil. 7; Garcia vs. Khu Yek Ching, 65 Phil. 466). The mere fact that the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from responsibility, does not constitute a novation, and the creditor can still enforce the obligation against the original debtor (Straight vs. Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota vs. Serra, 47 Phil. 446). (6 SCRA 1007, 1015-1016) (See also Magdalena Estate Inc. vs. Rodriguez, 18 SCRA 967, 972.)

This ruling applies, a fortiori to the case at bar, inasmuch as DBP did not assume the obligation of petitioner to respondent bank.

Petitioner belatedly filed a motion for reconsideration of the Resolution of the then Court of Appeals certifying the case to this Court, on the ground that there is a necessity of a finding on the question whether or not PCIB's Statement of Account (Exh. "J") was the result of an alleged transfer of account, which finding is indispensable to the resolution of the Second Assignment of Error. We have examined the record of this case and find that this was an internal transfer of account from the Dasmariñas Branch to the Legal Department of respondent Bank. There is no merit to this Assignment of Error.

Finally, there is a noteworthy statement in the Order of the trial court denying petitioner's Motion for New Trial and/or Reconsideration to the effect that petitioner had disclosed a fact hitherto unknown to said Court; that there was another suit pending which petitioner had filed against DBP before another branch to compel that bank to release the proceeds of the foreign loan allocated for the payment of petitioner's obligation to PCIB.

WHEREFORE, the decision appealed from should be, as it is hereby, affirmed with costs against petitioner-appellant.

SO ORDERED.