Republic of the Philippines Sea Fishing Corporation, the sum of P53,643.

00
SUPREME COURT in the first cause of action, P68,777.77 in the
Manila second cause of action and P54,508.00 in the
third cause of action;
SECOND DIVISION
3. Defendant Universal Deep-Sea Fishing
A.M. No. 21901-96 June 27, 1978 Corporation and Pablo Sarmiento are hereby
sentenced to pay, jointly and severally, the
REPARATIONS COMMISSION, plaintiff- Manila Surety & Fidelity Co., Inc., the sum of
appellants, P53,643.00 and P68,777.77 with interest thereon
vs. at the rate of 12% per annum from August 10,
UNIVERSAL DEEP-SEA FISHING 1962 until fully paid plus P2,000.00 as attorney's
CORPORATION and MANILA SURETY fees;
AND FIDELITY CO., INC., defendant-
appellants. 4. Defendant Universal Deep-Sea Fishing
Corporation is hereby sentenced to pay the
MANILA SURETY & FIDELITY CO., Manila Surety & Fidelity Co., Inc., the sum of
INC., third-party plaintiff-appellee, P54,508.00 with interest thereon at the rate of
vs. 12% per annum from August 10, 1962, until
PABLO S. SARMIENTO, third-party fully paid;
defendant-appellant.
5. Defendant Universal Deep-Sea Fishing
Corporation shall pay the costs. 1

CONCEPCION JR., J.: It is not disputed that the Universal Deep-Sea

Fishing Corporation, hereinafter referred to as
Appeal of the defendant Universal Deep-Sea UNIVERSAL for short. was awarded six (6)
Fishing Corporation, defendant and third-party trawl boats by the. Reparations Commission as
plaintiff Manila Surety and Fidelity Co., Inc., end-user of reparations goods. These fishing
and third-party defendant Pablo Sarmiento from boats, christened the M/S UNIFISH 1, M/S
the decision of the Court of First Instance of UNIFISH 2. M/S UNIFISH 3. M/S UNIFISH 4,
Manila, the dispositive portion of which reads as M/S UNIFISH 5, and M/S UNIFISH 6. were
follows: delivered to UNIVERSAL two at a time, f.o.b.
Japanese port.
WHEREFORE, judgment is rendered as
follows: The M/S UNIFISH 1 and M/S UNIFISH 2, with
an aggregate purchase price of P536,428.44,
1. The defendant Universal Deep-Sea Fishing were delivered to UNIVERSAL on November
Corporation is hereby sentenced to pay the 20,1958, and the contract of Conditional
plaintiff the sum of P100,242.04 in the first Purchase and Sale of Reparations Goods,
cause of action, P141,343.45 in the second cause executed by and between the parties on February
of action and P54,500.00 in the third cause of 12, 1960, provided among others, that "the first
action, all with interest at the rate of 6% per installment representing 10% of the amount or
annum from August 10, 1962, the date of the FIFTY THREE THOUSAND SIX HUNDRED
filing of the complaint, until fully paid; FORTY TWO PESOS AND EIGHTY FOUR
CENTAVOS (P53,642.84) shall be paid within
24 months from the date of complete delivery
2. Defendant Manila Surety & Fidelity Co., Inc.,
thereof, the balance shall be paid in the manner
is hereby sentenced to pay the plaintiff, jointly
and severally with defendant Universal Deep-
herein stated as shown in the Schedule of
Payments, 2 ... to wit:
8 May 8, 1969
TOTAL F.O.B. COST P536,428.44

AMOUNT OF 1st INSTALLMENT (10% OF 9 May 8, 1970

F.O.B. COST) P53,642.84

DUE DATE OF 1st INSTALLMENT May 8,

1961 10 May 8, 1971

TERM: Ten (10) EQUAL YEARLY

INSTALLMENTS
To guarantee the faithful compliance with the
RATE OF INTEREST: THREE PERCENT (3%) obligations under said contract, a performance
PER ANNUM bond in the amount of P53,643.00, with
UNIVERSAL as principal and the Manila Surety
& Fidelity Co., Inc., as surety, was executed in
favor of the Reparations Commission. 3 A
No. of Installments Date Due Corresponding indemnity agreement was
executed to indemnify the surety company for
any damage, loss charges, etc., which it may
sustain or incur as a consequence of having
1 May 8, 1962 become a surety upon the performance bond. 4

The M/S UNIFISH 3 and M/S UNIFISH 4, with

a total purchase price of P687,777.76 were
2 May 8, 1963 delivered to UNIVERSAL on April 20, 1959 and
the Contract of Conditional Purchase and Sale
Reparations Goods, dated November 25,
1959, 5 provided that "the first installment
3 May 8, 1964 representing 10% of the amount or SIXTY-
EIGHT THOUSAND SEVEN HUNDRED
SEVENTY-SEVEN PESOS AND SEVENTY-
SEVEN CENTAVOS shall be paid within 24
4 May 8, 1965 months from the date of complete delivery
thereof, the balance shall be paid in the manner
herein stated as shown in the Schedule of
Payments, . . . , to wit:
5 May 8, 1966
TOTAL F.O.B. COSTS P687,777.76

AMOUNT OF 1st INSTALLMENT (10% of

6 May 8, 1967 F.O.B. COST) P68,777.77

DUE DATE OF 1st INSTALLMENT July,

1961
7 May 8, 1968
TERM: Ten (10) EQUAL YEARLY
INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%) Fidelity Co., Inc., was also submitted to
PER ANNUM guarantee the faithful compliance with the
obligations set forth in the contract, 6 and
indemnity agreement was executed in favor of
the surety company in consideration of the said
No. of Installments Due Date bond. 7

The delivery of the M/S UNIFISH 5 and M/S

UNIFISH 6 is covered by a contract for the
1 July, 1962 Utilization of Reparations Goods (M/S
"UNIFISH 5" and M/S "UNIFISH 6") executed
by the parties on February 12, 1960, 8 and the
Schedule of Payments attached thereto,
2 July, 1963 provided, as follows:

AMOUNT OF 1st INSTALLMENT (10% of

F.O.B. COST) P54,500.00
3 July, 1964
DUE DATE OF 1st INSTALLMENT Oct.
17, 1961
4 July, 1965
TERM: TEN (10) EQUAL YEARLY
INSTALLMENTS

5 July, 1966 RATE OF INTEREST: THREE PERCENT (3%)

PER ANNUM

6 July, 1967 No. of Installments Date Due

7 July, 1968 1 Oct. 17, 1962

8 July, 1969 2 Oct. 17, 1963

9 July, 1970 3 Oct. 17, 1964

10 July, 1971 4 Oct. 17, 1965

A performance bond in the amount of

P68,777.77, issued by the Manila Surety & 5 Oct. 17, 1966
 Sarmiento, one of the indemnitors in judgment,
indemnity agreements. The third-party defendant
Pablo S. Sarmiento denied personal liability
claiming that he signed judgment, indemnity
agreements in question in his capacity as acting
general manager of UNIVERSAL. After
6 Oct. 17, 1967 appropriate proceedings and upon judgment,
preceding facts, judgment, trial court rendered
judgment, judgment hereinbefore stated. hence,
this appeal.
7 Oct. 17, 1968
(1) The principal issue for resolution is whether
or not judgment, first installments under
judgment, three (3) contracts of conditional
8 Oct. 17, 1969
purchase and sale of reparations goods were
already due and demandable when judgment,
complaint was filed. UNIVERSAL contends that
there is an obscurity in judgment, terms of
9 Oct. 17, 1970 judgment, contracts in question which were
caused by the plaintiff as to judgment, amounts
and due dates of judgment, first installments
which should have been first fixed before a
10 Oct. 17, 1971 creditor can demand its payment from judgment,
debtor. To be explicit. counsel points to
judgment, Schedule of Payment attached to, and
A performance bond in judgment, amount of forming a part of, the contract for judgment,
P54,500.00 issued by judgment, Manila Surety purchase and sale of judgment, M/S UNIFISH 1
& Fidelity Co., Inc., 10was submitted, and an and M/S UNIFISH 2 which states that judgment,
indemnity agreement was executed by amount of first installment is P53,642.84 and
UNIVERSAL in favor of judgment, surety judgment, due date of its payment is May 8,
company. 11 1961. However, judgment, amount of the first of
succeeding itemized installments is P56,597.20
On August 10, 1962, judgment, Reparations and judgment, due date is May 8, 1962. In the
Commission instituted judgment, present action case of the M/S UNIFISH 3 and M/S UNIFISH
against UNIVERSAL and judgment, surety 4, the first installments are P68,777.77 and due
company to recover various amounts of money in July, 1961 and P72,565.68 and due in July
due under these contracts. In answer, 1962, respectively. In the contract for the
UNIVERSAL claimed that judgment, amounts purchase and sale of the M/S UNIFISH 5 and
of money sought to be collected are not yet due M/S UNIFISH 6, the amounts indicated as first
and demandable. The surety company also installments are P54,500.00 and P57,501.57, and
contended that judgment, action is premature, the due dates of payment are October 17, 1961
but set up a cross-claim against UNIVERSAL and October 17, 1962, respectively.
for reimbursement of whatever amount of
money it may have to pay judgment, plaintiff by The terms of the contracts for the purchase and
reason of judgment, complaint, including sale of the reparations vessels, however, are very
interest, and for judgment, collection of clear and leave no doubt as to the intent of the
accumulated and unpaid premiums on judgment, contracting parties. Thus, in the contract
bonds with interest thereon. With leave of courts concerning the M/S UNIFISH 1 and M/S
first obtained, judgment, surety company filed a UNIFISH 2, the parties expressly agreed that the
third-party complaint against Pablo S. first installment representing 10% of the
purchase price or P53,642.84 shall be paid
within 24 months from the date of complete (10) EQUAL YEARLY INSTALLMENTS,'
delivery of the vessel or on May 8, 1961, and the there is a list of ten (10) equal yearly
balance to be paid in ten (10) equal yearly installments, it is clear that the latter
installments. The amount of P56,597.20 due on do not include the one designated as 'first'
May 8, 1962, which is also claimed to be a "first installment.
installment," is but the first of the ten (10) equal
yearly installments of balance of judgment, xxx xxx xxx
purchase price. In judgment, case
of Reparations Commission vs. Northern Lines, (b) The pertinent part of Section 12 of Rep. Act
Inc. et al., 12where judgment, Schedule of No. 1789, pursuant to which the vessels in
Payments, likewise on RC-LEGAL DEPT question were sold to the Buyer reads:
FORM NO. 1, also allegedly indicated two (2)
due dates for judgment, payment of judgment, . . . Capital goods . . . disposed of to private
first installment, judgment, Court said: parties as provided for in subsection (a) of
Section two hereof shall be sold on a cash or
(a) The major premise in appellants' process of credit basis, under rules and regulations as may
reasoning is that the first installments due on be determined by the Commission. Sales on a
April 25, 1963, and May 26, 1963, are 'first credit basis shall be payable in
installments. although they are not so designated installments: Provided, That judgment, first
in judgment, schedule appended to each of installment shall be paid within twenty-four
judgment, contracts between judgment, parties. months after complete delivery of judgment,
Appellant's, moreover, assume that judgment, capital goods and judgment, balance within a
'first' installment is included in judgment, ten period not exceeding ten years, . . . plus
(10) equal yearly installments' judgment, service provided for in section ten
mentioned subsequently to said 'first' thereof; Provided further, That judgment, unpaid
installment. In feet, however, balance of judgment, price thereof shall bear
only one installment is labeled as 'first' in each interest at judgment, rate of not more than three
one of said schedules, and that is judgment, percent per annum. . . . .
installment due on 'April 25, 1962' - as regards
M/S Don Salvador or Magsaysay - and that due It should be noted that, pursuant to judgment,
on 'May 26, 1962'- as regards M/S Don Amando schedules attached to judgment, contracts with
or Estancia. The schedules do not describe judgment, Buyer, judgment, 'complete delivery'
judgment, 'ten (10) equal yearly installments' of judgment, vessels took place on April 25, and
following the one characterized therein as May 26, 1960, respectively, so that
'first' meaning 'number,' not order or judgment, the 24 months taxed by law for
sequence, of installments and the numerals 1, judgment, payment of judgment, 'First
2, 3, 4, 5, 6, 7, 8, 9, 10 written before each of installment expired on April 25, 1962 and May
said 'ten (10) equal yearly 26,1962, which are judgment, very dates stated
installments following the 'first' to accrue after in judgment, aforementioned schedules for
the due date of said 'first' installment. Just the judgment, payment of judgment, respective '1st'
same, the parties have not so described (as 'first') installments. What is more, in view of said legal
in the schedules forming part of their provision, judgment, Commission had no
contracts the installments numbered '1' in the authority to agree that the 1st installment shall
list contained in each. Moreover, considering be paid on any later date, and judgment, Buyer
that the words 'TERMS: Ten (10) EQUAL must have been aware of this fact. Hence,
YEARLY INSTALLMENTS,' appear after the judgment, parties could not have intended
lines reading: 'AMOUNT OF 1st judgment, first installments to become due on
INSTALLMENT (10% OF F.O.B. COSTS) April 25, and May 26, 1963 It is, likewise,
P174,761.42' and DUE DATE OF 1st obvious - particularly when considered in
INSTALLMENT April 25, 1962 (or May 26, relation to judgment, provision above quoted -
1962) and that, subsequently to said 'TERM: Ten
that judgment, 'ten (10) equal yearly subsists for as long as judgment, liability of
installments.' mentioned in the schedules, refer judgment, surety shall exist. 13 Hence,
to the 'balance' of the price to be paid by the UNIVERSAL should pay judgment, amount of
buyer, after deducting judgment, 'first' P7,251.42 to judgment, surety company.
installment, so hat, altogether, there would be
'eleven' installments, namely, the first , which (3) The surety company also claims that
would be the 10% of the F.O.B. cost of the judgment, trial court erred in not applying
vessel as agreed upon between 'The judgment, amount of P10,000.00, paid as down
Governments of the Philippines and Japan payment by UNIVERSAL to judgment,
and 'ten (10) yearly installments,' representing Reparations Commission, to judgment,
the balance of "he amount due to he guaranteed indebtedness. According to
Commission from judgment, Buyer, including judgment, surety company, under Article 1254
tile interest thereon. of judgment, Civil rode, where there is no
imputation of payment made by either judgment,
Viewing judgment, contracts between judgment, debtor or creditor, The debt which is the most
parties in judgment, light of the foregoing onerous to the debtor shall be deemed to have
exposition, judgment, first installment on been satisfied, so that the amount of P10,000.00
judgment, M/S UNIFISH 1 and M/S UNIFISH 2 paid by UNIVERSAL as down payment on the
of judgment, amount of P53,642.84 was due on purchase of the, M/S UNIFISH 1 and M/S
May 8, 1961, while judgment, first installments UNIFISH 2 should be applied to the guaranteed
on judgment, M/S UNIFISH 3 and M/S portion of the debt, this releasing part of the
UNIFISH 4, and judgment, M/S UNIFISH 5 and liability hence the obligation of 'The surety
M/S UNIFISH 6 in judgment, amounts of company shall be only P43,643.00, instead of
P68,777.77 and P54,500.00 were due on July 31, P53,643.00.
1961 and October 17, 1961, respectively.
Accordingly judgment, obligation of The rules contained in Articles 1252 to 1254 of
UNIVERSAL to pay judgment, first installments judgment, Civil Code apply to a person owing
on the purchase price of judgment, six (6) several debts of judgment, same kind to a single
reparations vessels was already due and creditor. They cannot be made applicable to a
demandable when the present action was person whose obligation as a mere surety is both
commenced on August 10, 1962. Also due and contingent and singular, 14 which in this case is
demanded from UNIVERSAL were the first of the full and faithful compliance with the terms
the ten (10) equal yearly installments on the of the contract of conditional purchase and sale
balance of the purchase price of the M/S of reparations goods, The obligation included
UNIFISH I and M/S UNIFISH 2 in the amount the payment, not only of the first installment in
of P56,597.20 and P72,565.68 on judgment, the amount of P53,643.00, but also of the ten
M/S UNIFISH 3 and M/S UNIFISH 4. The first (10) equal yearly installments of P56,597.20 per
accrued on May 8, 1962, while judgment, annum. The amount of P10,000.00 was, indeed,
second fell due on July 31, 1962. deducted from judgment, amount of P53,643.00,
but then judgment, first of judgment, ten (10)
(2) The claim of judgment, surety company to equal yearly installments had also accrued,
the effect that the trial court erred in not hence, no error was committed in holding
awarding it the amount of P7,251.42, as judgment, surety company to judgment, full
premium is the performance bonds, is well extent of its undertaking.
taken. The payment of premiums on the bonds to
the surety company had been expressly (4) Finally, We find no merit in judgment, claim
undertaken by UNIVERSAL in the indemnity of judgment, third-party defendant Pablo S.
agreements executed by it in favor of judgment, Sarmiento that he is not personally liable having
surety company. The premium is judgment, merely executed judgment, indemnity
consideration for furnishing judgment, bonds agreements 15 in his capacity as acting general
and judgment, obligation to pay judgment, same
manager of UNIVERSAL. Pablo S. Sarmiento [G.R. No. 123855. November 20, 2000]
appears to have signed the indemnity agreement
twice the first, in this capacity as acting NEREO J. PACULDO, petitioner, vs. BONIFACIO C.
general manager of UNIVERSAL, and the REGALADO, respondent.
second, in his individual capacity. The
indemnity agreements in question state the
following. among others: DECISION

In consideration of judgment, responsibility PARDO, J.:

undertaken by judgment, Company, for
judgment, original bond, and for any renewal, The case before the Court is an
extension or substitution thereof, judgment, appeal via certiorari seeking to set aside the
undersigned, jointly and severally, bind decision of the Court of Appeals[1] which
themselves in favor of judgment, said
affirmed that of the Regional Trial Court,
COMPANY in judgment, following terms:
Quezon City, and the Metropolitan Trial Court,
xxx xxx xxx Quezon City ordering the ejectment of petitioner
from the property subject of the controversy.
Dated at City of Manila this - - - - day of July
l969. The facts are as follows:

600 Cottage 3, UNIVERSAL DEEP-SEA On December 27, 1990, petitioner Nereo J.

FISHING CORP. Paculdo (hereafter Nereo) and respondent
Bonifacio C. Regalado (hereafter Bonifacio)
Aguinaldo Com- BY:
entered into a contract of lease over a 16,478
square meter parcel of land with a wet market
pound, Echague, s/PABLO S. SARMIENTO
Manila t/PABLO S. SARMIENTO Signature building, located along Don Mariano Marcos
Avenue, Fairview Park, Quezon City. The
s/PABLO S. SARMIENTO Address t/PABLO S. contract was for twenty five (25) years,
SARMIENTO Signature commencing on January 1, 1991 and ending on
December 31, 2015. For the first five (5) years
Besides, the "acknowledgment" stated that of the contract beginning December 27, 1990,
"Pablo S. Sarmiento for himself and on behalf of Nereo would pay a monthly rental of
Universal Deep-Sea Fishing Corporation"
P450,000.00, payable within the first five (5)
personally appeared before the notary and
acknowledged that judgment, document is his days of each month at Bonifacios office, with a
own free and voluntary act and deed. 2% penalty for every month of late payment.

WHEREFORE, judgment, judgment appealed Aside from the above lease, petitioner
from is hereby affirmed with judgment, leased eleven (11) other property from
modification that judgment, UNIVERSAL respondent, ten (10) of which were located
Deep-Sea Fishing Corporation is further ordered within the Fairview compound, while the
to pay judgment, Manila Surety & Fidelity Co.,
eleventh was located along Quirino Highway,
Inc., judgment, amount of P7,251.42 for
judgment, premiums and documentary stamps Quezon City. Petitioner also purchased from
on judgment, performance bonds. Appellants respondent eight (8) units of heavy equipment
shall pay proportionate costs. and vehicles in the aggregate amount of
P1,020,000.00.
SO ORDERED.
 On account of petitioners failure to pay On April 22, 1993, respondent re-filed the
P361,895.55[2] in rental for the month of May, ejectment complaint with the Metropolitan Trial
1992, and the monthly rental of P450,000.00 for Court, Quezon City. Computed from August
the months of June and July 1992, on July 6, 1992 until March 31, 1993, the monthly
1992, respondent sent a demand letter to reasonable compensation that petitioner was
petitioner demanding payment of the liable for was in the total sum of P3,924,000.00.
[9]
back rentals, and if no payment was made within
fifteen (15) days from receipt of the letter, it
would cause the cancellation of the lease On January 31, 1994, the Metropolitan Trial
contract.[3] Another demand letter followed this Court, Quezon City rendered a decision in favor
on July 17, 1992, reiterating the demand for of respondent, the dispositive portion of which
payment and for petitioner to vacate the subject reads:
premises. [4]
WHEREFORE, judgment is hereby rendered in
Without the knowledge of petitioner, on favor of the plaintiff and against the defendant,
August 3, 1992, respondent mortgaged the land as follows:
subject of the lease contract, including the
improvements which petitioner introduced into 1. Ordering the defendant and all persons
the land amounting to P35,000,000.00, to Monte claiming right under him to vacate the leased
de Piedad Savings Bank, as security for a loan in premises located at Don Mariano Marcos
the amount of P20,000,000.00.[5] Avenue, Fairview Park, Quezon City, Metro-
Manila covered by Transfer Certificate of Title
On August 12, 1992, and on subsequent RT-6883 of the Registry of Deeds of Quezon
dates thereafter, respondent refused to accept City;
petitioners daily rental payments.[6]
2. Ordering the defendant to pay the sum of
On August 20, 1992, petitioner filed with P527,119.27 representing the unpaid monthly
the Regional Trial Court, Quezon City an action rentals as of June 30, 1992 plus 2% interest
for injunction and damages seeking to enjoin thereon;
respondent from disturbing his possession of the
property subject of the lease contract. [7] On the 3. Ordering the defendant to pay the sum of
same day, respondent filed with the Metropolitan P450,000.00 a month plus 2% interest thereon
Trial Court, Quezon City a complaint for starting July 1992 and every month thereafter
ejectment against petitioner. Attached to the until the defendant and all persons claiming
complaint were the two (2) demand letters dated right under him shall have actually vacated the
July 6 and July 17, 1992.[8] premises and surrender possession thereof to the
plaintiff;
On August 25, 1992, five (5) days after the
filing of the ejectment complaint, respondent 4. Ordering the defendant to pay the sum of
moved to withdraw the complaint on the ground P5,000,000.00 as and for attorneys fees; and
that certain details had been omitted in the
complaint and must be re-computed. 5. Ordering the defendant to pay the costs of
suit.

SO ORDERED.[10]
 In time, petitioner appealed to the Regional of payment to his other obligations and, thus,
Trial Court, Quezon City, Branch 220.[11] dismissed the petition for lack of merit.[16]

On February 19, 1994, respondent, with the On March 3, 1995, petitioner filed a motion
support of fifty (50) armed security guards for reconsideration;[17] however, on February 9,
forcibly entered the property and took 1996 the Court of Appeals denied the motion.[18]
possession of the wet market building.[12]
Hence, this appeal.[19]
On July 6, 1994, the Regional Trial Court,
Quezon City, Branch 220 rendered a decision At issue is whether petitioner was truly in
affirming in toto the decision of the arrears in the payment of rentals on the subject
Metropolitan Trial Court, to wit: property at the time of the filing of the
complaint for ejectment.
WHEREFORE, the appealed decision dated
January 31, 1994, for being in accordance with As found by the Metropolitan Trial Court
the evidence presented and the law on the and Regional Trial Court, petitioner made a total
matter, is hereby affirmed in toto. payment of P10,949,447.18, to respondent as of
July 2, 1992.
Let a writ of execution issue against defendant
and his surety, to answer for the decision of the If the payment made by respondent applied
lower court.[13] to petitioners other obligations is set aside, and
the amount petitioner paid be applied purely to
On the same day, the Regional Trial Court the rentals on the Fairview wet market building,
issued a writ of execution[14] whereupon, there would be an excess payment of
petitioner vacated the subject premises P1,049,447.18 as of July 2, 1992. The
voluntarily. By July 12, 1994, petitioner had computation in such case would be as follows:
completely turned over possession of subject
property to respondent. Amount paid as of July 2, 1992 P10,949,447.18

Meanwhile, on July 21, 1994, petitioner Less:

filed a petition for review with the Court of
Appeals.[15] He alleged that he had paid the Monthly rent from January 1991-July 1992
amount of P11,478,121.85 for security deposit
and rentals on the wet market building, but P450,000.00 x 19 months P 8,550,000.00
respondent, without his consent, applied
portions of the payment to his other Less:
obligations. The vouchers and receipts indicated
that the payments made were for rentals. Thus, Security deposit P 1,350,000.00
at the time of payment petitioner had declared as
to which obligation the payment must be ============
applied.
Excess amount paid P 1,049,447.18
On February 10, 1995, the Court of Appeals
promulgated its decision finding that petitioner In the letter dated November 19, 1991,
impliedly consented to respondents application respondent proposed that petitioners security
deposit for the Quirino lot, in the amount of Article 1252. He who has various debts of the
P643,276.48, be applied as partial payment for same kind in favor of one and the same creditor,
his account under the subject lot as well as to may declare at the time of making the payment,
real estate taxes on the Quirino lot. [20] Petitioner to which of them the same must be
interposed no objection, as evidenced by his applied.Unless the parties so stipulate, or when
signature signifying his conformity thereto. the application of payment is made by the party
for whose benefit the term has been constituted,
In an earlier letter, dated July 15, 1991, application shall not be made as to debts which
[21]
respondent informed petitioner that the are not yet due.
payment was to be applied not only to
petitioners accounts under both the subject land If the debtor accepts from the creditor a receipt
and the Quirino lot but also to heavy equipment in which an application of the payment is made,
bought by the latter from respondent. Petitioner the former cannot complain of the same, unless
claimed that the amount applied as payment for there is a cause for invalidating the contract. [23]
the heavy equipment was critical because it was
equivalent to more than two (2) months rental of At the time petitioner made the payments,
the subject property, which was the basis for the he made it clear to respondent that they were to
ejectment case in the Metropolitan Trial Court. be applied to his rental obligations on the
Fairview wet market property. Though he
The controversy stemmed from the fact that entered into various contracts and obligations
unlike the November 19, 1991 letter, which bore with respondent, including a lease contract over
a conformity portion with petitioners signature, eleven (11) property in Quezon City and sale of
the July 15, 1991 letter did not contain the eight (8) heavy equipment, all the payments
signature of petitioner. made, about P11, 000,000.00, were to be applied
to rental and security deposit on the Fairview
In nevertheless concluding that petitioner wet market property.
gave his consent thereto, the Court of Appeals
upheld both the lower courts and trial courts Respondent Regalado argues that assuming
findings that petitioner received the second letter that petitioner expressed at the time of payment
and its attachment and he raised no objection which among his obligations were to be satisfied
thereto. first, petitioner is estopped by his assent to the
application made by the respondent. This assent
In other words, would petitioners failure to is inferred from the silence of petitioner on the
object to the letter of July 15, 1991 and its July 15, 1991 letter[24] containing a statement of
proposed application of payments amount to the application of payments, which was different
consent to such application? from the application made by petitioner. A big
chunk of the amount paid by petitioner went into
Petitioner submits that his silence is not the satisfaction of an obligation which was not
consent but is in fact a rejection. yet due and demandable--the payment of the
eight (8) heavy equipment amounting to about
The right to specify which among his P1,020,000.00.
various obligations to the same creditor is to be
satisfied first rests with the debtor,[22] as The statement of account prepared by
provided by law, to wit: respondent was not the receipt contemplated
under the law. The receipt is the evidence of The lease over the Fairview wet market
payment executed at the time of payment, and property is the most onerous among all the
not the statement of account executed several obligations of petitioner to respondent. It was
days thereafter. established that the wet market is a going-
concern and that petitioner has invested about
There was no clear assent by petitioner to P35,000,000.00, in the form of improvements,
the change in the manner of application of on the property. Hence, petitioner would stand to
payment. The petitioners silence as regards the lose more if the lease would be rescinded, than if
application of payment by respondent cannot the contract of sale of heavy equipment would
mean that he consented thereto. There was no not proceed.
meeting of the minds. Though an offer may be
made, the acceptance of such offer must be The decision of the Court of Appeals was
unconditional and unbounded in order that based on a misapprehension of the facts and the
concurrence can give rise to a perfected contract. law on the application of payment. Hence, the
[25]
Hence, petitioner could not be in estoppel. ejectment case subject of the instant petition
must be dismissed, without prejudice to the
Assuming arguendo that, as alleged by determination and settlement of the money
respondent, petitioner did not, at the time the claims of the parties inter se.
payments were made, choose the obligation to
be satisfied first, respondent may exercise the WHEREFORE, the Court GRANTS the
right to apply the payments to the other petition. The Court REVERSES and
obligations of petitioner. But this is subject to SETS ASIDE the decision of the Court of
the condition that the petitioner must give his Appeals in CA-G. R. SP No. 34634.
consent. Petitioners silence is not tantamount to
consent. The consent must be clear and definite. ACCORDINGLY, the Court REVERSES
the decision of the Regional Trial Court, Quezon
Under the law, if the debtor did not declare City, Branch 220 in Civil Case No. 94-20813,
at the time he made the payment to which of his and dismisses the complaint filed with the
debts with the creditor the payment is to be Metropolitan Trial Court, Quezon City, Branch
applied, the law provided the guideline--no 36 in Civil Case No. MTC XXXVI-7089.
payment is to be made to a debt that is not yet
due[26] and the payment has to be applied first to No costs.
the debt most onerous to the debtor.[27]
SO ORDERED.
In the instant case, the purchase price of the
eight (8) heavy equipment was not yet due at the [G.R. No. 118367. January 5, 1998]
time the payment was made, for there was no
date set for such payment. Neither was there a LYDIA P. CUBA, petitioner, vs. COURT OF
demand by the creditor to make the obligation to APPEALS, DEVELOPMENT BANK OF
pay the purchase price due and demandable. THE PHILIPPINES and AGRIPINA P.
[28]
Hence, the application made by respondent is CAPERAL, respondents.
contrary to the provisions of the law.
DECISION

DAVIDE, JR., J.:

 These two consolidated cases stemmed 5. Without foreclosure proceedings, whether judicial
from a complaint[1] filed against the or extra-judicial, defendant DBP appropriated
Development Bank of the Philippines (hereafter the Leasehold Rights of plaintiff Lydia Cuba
DBP) and Agripina Caperal filed by Lydia Cuba over the fishpond in question;
(hereafter CUBA) on 21 May 1985 with the
Regional Trial Court of Pangasinan, Branch 6. After defendant DBP has appropriated the
54. The said complaint sought (1) the Leasehold Rights of plaintiff Lydia Cuba over
declaration of nullity of DBPs appropriation of the fishpond in question, defendant DBP, in turn,
CUBAs rights, title, and interests over a 44- executed a Deed of Conditional Sale of the
hectare fishpond located in Bolinao, Pangasinan, Leasehold Rights in favor of plaintiff Lydia
for being violative of Article 2088 of the Civil Cuba over the same fishpond in question;
Code; (2) the annulment of the Deed of
Conditional Sale executed in her favor by DBP; 7. In the negotiation for repurchase, plaintiff Lydia
(3) the annulment of DBPs sale of the subject Cuba addressed two letters to the Manager DBP,
fishpond to Caperal; (4) the restoration of her Dagupan City dated November 6, 1979 and
rights, title, and interests over the fishpond; and December 20, 1979. DBP thereafter accepted the
(5) the recovery of damages, attorneys fees, and offer to repurchase in a letter addressed to
expenses of litigation. plaintiff dated February 1, 1982;

After the joinder of issues following the 8. After the Deed of Conditional Sale was executed in
filing by the parties of their respective pleadings, favor of plaintiff Lydia Cuba, a new Fishpond
the trial court conducted a pre-trial where CUBA Lease Agreement No. 2083-A dated March 24,
and DBP agreed on the following facts, which 1980 was issued by the Ministry of Agriculture
were embodied in the pre-trial order:[2] and Food in favor of plaintiff Lydia Cuba only,
excluding her husband;
1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond
Lease Agreement No. 2083 (new) dated May 13, 9. Plaintiff Lydia Cuba failed to pay the amortizations
1974 from the Government; stipulated in the Deed of Conditional Sale;

2. Plaintiff Lydia P. Cuba obtained loans from the 10. After plaintiff Lydia Cuba failed to pay the
Development Bank of the Philippines in the amortization as stated in Deed of Conditional
amounts of P109,000.00; P109,000.00; Sale, she entered with the DBP a temporary
and P98,700.00 under the terms stated in the arrangement whereby in consideration for the
Promissory Notes dated September 6, 1974; deferment of the Notarial Rescission of Deed of
August 11, 1975; and April 4, 1977; Conditional Sale, plaintiff Lydia Cuba promised
to make certain payments as stated in temporary
3. As security for said loans, plaintiff Lydia P. Cuba Arrangement dated February 23, 1982;
executed two Deeds of Assignment of her
Leasehold Rights; 11. Defendant DBP thereafter sent a Notice of
Rescission thru Notarial Act dated March 13,
4. Plaintiff failed to pay her loan on the scheduled 1984, and which was received by plaintiff Lydia
dates thereof in accordance with the terms of the Cuba;
Promissory Notes;
12. After the Notice of Rescission, defendant DBP dispose of them. Any stipulation to the contrary
took possession of the Leasehold Rights of the is null and void.
fishpond in question;
It disagreed with DBPs stand that the
13. That after defendant DBP took possession of the Assignments of Leasehold Rights were
Leasehold Rights over the fishpond in question, not contracts of mortgage because (1) they were
DBP advertised in the SUNDAY PUNCH the given as security for loans, (2) although the
public bidding dated June 24, 1984, to dispose fishpond land in question is still a public land,
of the property; CUBAs leasehold rights and interest thereon are
alienable rights which can be the proper subject
14. That the DBP thereafter executed a Deed of of a mortgage; and (3) the intention of the
Conditional Sale in favor of defendant Agripina contracting parties to treat the Assignment of
Caperal on August 16, 1984; Leasehold Rights as a mortgage was obvious
and unmistakable; hence, upon CUBAs default,
15. Thereafter, defendant Caperal was awarded DBPs only right was to foreclose the
Fishpond Lease Agreement No. 2083-A on Assignment in accordance with law.
December 28, 1984 by the Ministry of
Agriculture and Food. The trial court also declared invalid
condition no. 12 of the Assignment of Leasehold
Defendant Caperal admitted only the facts Rights for being a clear case of pactum
stated in paragraphs 14 and 15 of the pre-trial commissorium expressly prohibited and declared
order. [3] null and void by Article 2088 of the Civil
Code. It then concluded that since DBP never
Trial was thereafter had on other matters. acquired lawful ownership of CUBAs leasehold
rights, all acts of ownership and possession by
The principal issue presented was whether the said bank were void. Accordingly, the Deed
the act of DBP in appropriating to itself CUBAs of Conditional Sale in favor of CUBA, the
leasehold rights over the fishpond in question notarial rescission of such sale, and the Deed of
without foreclosure proceedings was contrary to Conditional Sale in favor of defendant Caperal,
Article 2088 of the Civil Code and, therefore, as well as the Assignment of Leasehold Rights
invalid. CUBA insisted on an affirmative executed by Caperal in favor of DBP, were also
resolution. DBP stressed that it merely exercised void and ineffective.
its contractual right under the Assignments of
Leasehold Rights, which was not a contract of As to damages, the trial court found ample
mortgage. Defendant Caperal sided with DBP. evidence on record that in 1984 the
representatives of DBP ejected CUBA and her
The trial court resolved the issue in favor of caretakers not only from the fishpond area but
CUBA by declaring that DBPs taking possession also from the adjoining big house; and that when
and ownership of the property without CUBAs son and caretaker went there on 15
foreclosure was plainly violative of Article 2088 September 1985, they found the said house
of the Civil Code which provides as follows: unoccupied and destroyed and CUBAs personal
belongings, machineries, equipment, tools, and
ART. 2088. The creditor cannot appropriate the other articles used in fishpond operation which
things given by way of pledge or mortgage, or were kept in the house were missing. The
 missing items were valued at about P550,000. It foreclosure, plaintiffs leasehold rights and
further found that when CUBA and her men interest over the fishpond land in question under
were ejected by DBP for the first time in 1979, her Fishpond Lease Agreement No. 2083 (new);
CUBA had stocked the fishpond with 250,000
pieces of bangus fish (milkfish), all of which 2. DECLARING the Deed of Conditional Sale dated
died because the DBP representatives prevented February 21, 1980 by and between the defendant
CUBAs men from feeding the fish. At the Development Bank of the Philippines and
conservative price of P3.00 per fish, the gross plaintiff (Exh. E and Exh. 1) and the acts of
value would have been P690,000, and after notarial rescission of the Development Bank of
deducting 25% of said value as reasonable the Philippines relative to said sale (Exhs. 16
allowance for the cost of feeds, CUBA suffered and 26) as void and ineffective;
a loss of P517,500. It then set the aggregate of
the actual damages sustained by CUBA 3. DECLARING the Deed of Conditional Sale dated
at P1,067,500. August 16, 1984 by and between
the Development Bank of the Philippines and
The trial court further found that DBP was defendant Agripina Caperal (Exh. F and Exh.
guilty of gross bad faith in falsely representing 21), the Fishpond Lease Agreement No. 2083-A
to the Bureau of Fisheries that it had foreclosed dated December 28, 1984 of defendant Agripina
its mortgage on CUBAs leasehold rights. Such Caperal (Exh. 23) and the Assignment of
representation induced the said Bureau to Leasehold Rights dated February 12, 1985
terminate CUBAs leasehold rights and to executed by defendant Agripina Caperal in favor
approve the Deed of Conditional Sale in favor of of the defendant Development Bank of the
CUBA. And considering that by reason of her Philippines (Exh. 24) as void ab initio;
unlawful ejectment by DBP, CUBA suffered
moral shock, degradation, social humiliation, 4. ORDERING defendant Development Bank of the
and serious anxieties for which she became sick Philippines and defendant Agripina Caperal,
and had to be hospitalized the trial court found jointly and severally, to restore to plaintiff the
her entitled to moral and exemplary latters leasehold rights and interests and right of
damages. The trial court also held that CUBA possession over the fishpond land in question,
was entitled to P100,000 attorneys fees in view without prejudice to the right of defendant
of the considerable expenses she incurred for Development Bank of the Philippines to
lawyers fees and in view of the finding that she foreclose the securities given by plaintiff;
was entitled to exemplary damages.
5. ORDERING defendant Development Bank of the
In its decision of 31 January 1990, [4]
the Philippines to pay to plaintiff the following
trial court disposed as follows: amounts:

WHEREFORE, judgment is hereby rendered in a) The sum of ONE MILLION SIXTY-SEVEN

favor of plaintiff: THOUSAND FIVE HUNDRED PESOS
(P1,067,500.00), as and for actual damages;
1. DECLARING null and void and without any legal
effect the act of defendant Development Bank of b) The sum of ONE HUNDRED THOUSAND
the Philippines in appropriating for its own (P100,000.00) PESOS as moral damages;
interest, without any judicial or extra-judicial
 c) The sum of FIFTY THOUSAND (P50,000.00) over the fishpond. It also ruled that CUBA was
PESOS, as and for exemplary damages; not entitled to loss of profits for lack
of evidence, but agreed with the trial court as to
d) And the sum of ONE HUNDRED THOUSAND the actual damages of P1,067,500. It, however,
(P100,000.00) PESOS, as and for attorneys fees; deleted the amount of exemplary damages and
reduced the award of moral damages
6. And ORDERING defendant Development Bank of from P100,000 to P50,000 and attorneys fees,
the Philippines to reimburse and pay to from P100,000 to P50,000.
defendant Agripina Caperal the sum of ONE
MILLION FIVE HUNDRED THIRTY-TWO The Court of Appeals thus declared as valid
THOUSAND SIX HUNDRED TEN PESOS the following: (1) the act of DBP in
AND SEVENTY-FIVE CENTAVOS appropriating Cubas leasehold rights and interest
(P1,532,610.75) representing the amounts paid under Fishpond Lease Agreement No. 2083; (2)
by defendant Agripina Caperal to defendant the deeds of assignment executed by Cuba in
Development Bank of the Philippines under favor of DBP; (3) the deed of conditional sale
their Deed of Conditional Sale. between CUBA and DBP; and (4) the deed of
conditional sale between DBP and Caperal, the
CUBA and DBP interposed separate Fishpond Lease Agreement in favor of Caperal,
appeals from the decision to the Court of and the assignment of leasehold rights executed
Appeals. The former sought an increase in the by Caperal in favor of DBP. It then ordered DBP
amount of damages, while the latter questioned to turn over possession of the property to
the findings of fact and law of the lower court. Caperal as lawful holder of the leasehold rights
and to pay CUBA the following amounts:
In its decision [5] of 25 May 1994, the Court (a) P1,067,500 as actual damages; P50,000 as
of Appeals ruled that (1) the trial court erred in moral damages; and P50,000 as attorneys fees.
declaring that the deed of assignment was null
and void and that defendant Caperal could not Since their motions for reconsideration
validly acquire the leasehold rights from DBP; were denied,[6] DBP and CUBA filed separate
(2) contrary to the claim of DBP, the assignment petitions for review.
was not a cession under Article 1255 of the Civil
Code because DBP appeared to be the sole In its petition (G.R. No. 118342), DBP
creditor to CUBA - cession presupposes assails the award of actual and moral damages
plurality of debts and creditors; (3) the deeds of and attorneys fees in favor of CUBA.
assignment represented the voluntary act of
CUBA in assigning her property rights in Upon the other hand, in her petition (G.R.
payment of her debts, which amounted to a No. 118367), CUBA contends that the Court of
novation of the promissory notes executed by Appeals erred (1) in not holding that the
CUBA in favor of DBP; (4) CUBA was questioned deed of assignment was a pactum
estopped from questioning the assignment of the commissorium contrary to Article 2088 of the
leasehold rights, since she agreed to repurchase Civil Code; (b) in holding that the deed of
the said rights under a deed of conditional sale; assignment effected a novation of the
and (5) condition no. 12 of the deed of promissory notes; (c) in holding that CUBA was
assignment was an express authority from estopped from questioning the validity of the
CUBA for DBP to sell whatever right she had deed of assignment when she agreed to
repurchase her leasehold rights under a deed of 3. As security for said loans, plaintiff Lydia P. Cuba
conditional sale; and (d) in reducing the amounts executed two Deeds of Assignment of her
of moral damages and attorneys fees, in deleting Leasehold Rights.
the award of exemplary damages, and in not
increasing the amount of damages. In Peoples Bank & Trust Co. vs. Odom,
[9]
this Court had the occasion to rule that an
We agree with CUBA that the assignment assignment to guarantee an obligation is in effect
of leasehold rights was a mortgage contract. a mortgage.

It is undisputed that CUBA obtained from We find no merit in DBPs contention that
DBP three separate loans totalling P335,000, the assignment novated the promissory notes in
each of which was covered by a promissory that the obligation to pay a sum of money the
note. In all of these notes, there was a provision loans (under the promissory notes) was
that: In the event of foreclosure of the mortgage substituted by the assignment of the rights over
securing this notes, I/We further bind the fishpond (under the deed of assignment). As
myself/ourselves, jointly and severally, to pay correctly pointed out by CUBA, the said
the deficiency, if any. [7] assignment merely complemented or
supplemented the notes; both could stand
Simultaneous with the execution of the together. The former was only an accessory to
notes was the execution of Assignments of the latter. Contrary to DBPs submission, the
Leasehold Rights [8] where CUBA assigned her obligation to pay a sum of money remained, and
leasehold rights and interest on a 44-hectare the assignment merely served as security for the
fishpond, together with the improvements loans covered by the promissory
thereon. As pointed out by CUBA, the deeds of notes. Significantly, both the deeds of
assignment constantly referred to the assignor assignment and the promissory notes were
(CUBA) as borrower; the assigned rights, as executed on the same dates the loans were
mortgaged properties; and the instrument itself, granted. Also, the last paragraph of the
as mortgage contract. Moreover, under condition assignment stated: The assignor further reiterates
no. 22 of the deed, it was provided that failure to and states all terms, covenants, and conditions
comply with the terms and condition of any of stipulated in the promissory note or notes
the loans shall cause all other loans to become covering the proceeds of this loan, making said
due and demandable and all mortgages shall be promissory note or notes, to all intent and
foreclosed. And, condition no. 33 provided that purposes, an integral part hereof.
if foreclosure is actually accomplished, the usual
10% attorneys fees and 10% liquidated damages Neither did the assignment amount to
of the total obligation shall be imposed. There is, payment by cession under Article 1255 of the
therefore, no shred of doubt that a mortgage was Civil Code for the plain and simple reason that
intended. there was only one creditor, the DBP. Article
1255 contemplates the existence of two or more
Besides, in their stipulation of facts the creditors and involves the assignment of all the
parties admitted that the assignment was by way debtors property.
of security for the payment of the loans; thus:
Nor did the assignment constitute dation in
payment under Article 1245 of the civil Code,
which reads: Dation in payment, whereby thereon until fully paid. The power herein
property is alienated to the creditor in granted shall not be revoked as long as the
satisfaction of a debt in money, shall be Assignor is indebted to the Assignee and all acts
governed by the law on sales. It bears stressing that may be executed by the Assignee by virtue
that the assignment, being in its essence a of said power are hereby ratified.
mortgage, was but a security and not a
satisfaction of indebtedness.[10] The elements of pactum commissorium are
as follows: (1) there should be a property
We do not, however, buy CUBAs argument mortgaged by way of security for the payment of
that condition no. 12 of the deed of assignment the principal obligation, and (2) there should be
constituted pactum commissorium. Said a stipulation for automatic appropriation by the
condition reads: creditor of the thing mortgaged in case of non-
payment of the principal obligation within the
12. That effective upon the breach of any stipulated period.[11]
condition of this assignment, the Assignor
hereby appoints the Assignee his Attorney-in- Condition no. 12 did not provide that the
fact with full power and authority to take actual ownership over the leasehold rights would
possession of the property above-described, automatically pass to DBP upon CUBAs failure
together with all improvements thereon, subject to pay the loan on time. It merely provided for
to the approval of the Secretary of Agriculture the appointment of DBP as attorney-in-fact with
and Natural Resources, to lease the same or any authority, among other things, to sell or
portion thereof and collect rentals, to make otherwise dispose of the said real rights, in case
repairs or improvements thereon and pay the of default by CUBA, and to apply the proceeds
same, to sell or otherwise dispose of whatever to the payment of the loan. This provision is a
rights the Assignor has or might have over said standard condition in mortgage contracts and is
property and/or its improvements and perform in conformity with Article 2087 of the Civil
any other act which the Assignee may deem Code, which authorizes the mortgagee to
convenient to protect its interest. All expenses foreclose the mortgage and alienate the
advanced by the Assignee in connection with mortgaged property for the payment of the
purpose above indicated which shall bear the principal obligation.
same rate of interest aforementioned are also
guaranteed by this Assignment. Any amount DBP, however, exceeded the authority
received from rents, administration, sale or vested by condition no. 12 of the deed of
disposal of said property may be supplied by the assignment. As admitted by it during the pre-
Assignee to the payment of repairs, trial, it had [w]ithout foreclosure proceedings,
improvements, taxes, assessments and other whether judicial or extrajudicial, appropriated
incidental expenses and obligations and the the [l]easehold [r]ights of plaintiff Lydia Cuba
balance, if any, to the payment of interest and over the fishpond in question. Its contention that
then on the capital of the indebtedness secured it limited itself to mere administration by
hereby. If after disposal or sale of said property posting caretakers is further belied by the deed
and upon application of total amounts received of conditional sale it executed in favor of
there shall remain a deficiency, said Assignor CUBA. The deed stated:
hereby binds himself to pay the same to the
Assignee upon demand, together with all interest
WHEREAS, the Vendor [DBP] by virtue of a The fact that CUBA offered and agreed to
deed of assignment executed in its favor by the repurchase her leasehold rights from DBP did
herein vendees [Cuba spouses] the not estop her from questioning DBPs act of
former acquired all the rights and interest of the appropriation. Estoppel is unavailing in this
latter over the above-described property; case.As held by this Court in some cases,
[13]
estoppel cannot give validity to an act that is
The title to the real estate property [sic] and all prohibited by law or against public
improvements thereon shall remain in the name policy. Hence, the appropriation of the leasehold
of the Vendor until after the purchase price, rights, being contrary to Article 2088 of the
advances and interest shall have been fully paid. Civil Code and to public policy, cannot be
(Emphasis supplied). deemed validated by estoppel.

It is obvious from the above-quoted Instead of taking ownership of the

paragraphs that DBP had appropriated and taken questioned real rights upon default by CUBA,
ownership of CUBAs leasehold rights merely on DBP should have foreclosed the mortgage, as
the strength of the deed of assignment. has been stipulated in condition no. 22 of the
deed of assignment. But, as admitted by DBP,
DBP cannot take refuge in condition no. 12 there was no such foreclosure. Yet, in its letter
of the deed of assignment to justify its act of dated 26 October 1979, addressed to the
appropriating the leasehold rights. As stated Minister of Agriculture and Natural Resources
earlier, condition no. 12 did not provide that and coursed through the Director of the Bureau
CUBAs default would operate to vest in DBP of Fisheries and Aquatic Resources, DBP
ownership of the said rights. Besides, an declared that it had foreclosed the mortgage and
assignment to guarantee an obligation, as in the enforced the assignment of leasehold rights on
present case, is virtually a mortgage and not an March 21, 1979 for failure of said spouses
absolute conveyance of title which confers [Cuba spouces] to pay their loan amortizations.
ownership on the assignee.[12] [14]
This only goes to show that DBP was aware
of the necessity of foreclosure proceedings.
At any rate, DBPs act of appropriating
CUBAs leasehold rights was violative of Article In view of the false representation of DBP
2088 of the Civil Code, which forbids a creditor that it had already foreclosed the mortgage, the
from appropriating, or disposing of, the thing Bureau of Fisheries cancelled CUBAs original
given as security for the payment of a debt. lease permit, approved the deed of conditional
sale, and issued a new permit in favor of
CUBA. Said acts which were predicated on such
false representation, as well as the subsequent
acts emanating from DBPs appropriation of the
leasehold rights, should therefore be set
aside. To validate these acts would open the
floodgates to circumvention of Article 2088 of
the Civil Code.

Even in cases where foreclosure

proceedings were had, this Court had not
hesitated to nullify the consequent auction sale value of the alleged lost articles of CUBA
for failure to comply with the requirements laid and P517,500 which represented the value of the
down by law, such as Act No. 3135, as amended. 230,000 pieces of bangus allegedly stocked in
[15]
With more reason that the sale of property 1979 when DBP first ejected CUBA from the
given as security for the payment of a debt be set fishpond and the adjoining house. This award
aside if there was no prior foreclosure was affirmed by the Court of Appeals.
proceeding.
We find that the alleged loss of personal
Hence, DBP should render an accounting of belongings and equipment was not proved by
the income derived from the operation of the clear evidence. Other than the testimony of
fishpond in question and apply the said income CUBA and her caretaker, there was no proof as
in accordance with condition no. 12 of the deed to the existence of those items before DBP took
of assignment which provided: Any amount over the fishpond in question. As pointed out by
received from rents, administration, may be DBP, there was not inventory of the alleged lost
applied to the payment of repairs, items before the loss which is normal in a
improvements, taxes, assessment, and other project which sometimes, if not most often, is
incidental expenses and obligations and the left to the care of other persons. Neither was a
balance, if any, to the payment of interest and single receipt or record of acquisition presented.
then on the capital of the indebtedness.
Curiously, in her complaint dated 17 May
We shall now take up the issue of damages. 1985, CUBA included losses of property as
among the damages resulting from DBPs take-
Article 2199 provides: over of the fishpond. Yet, it was only in
September 1985 when her son and a caretaker
Except as provided by law or by stipulation, one went to the fishpond and the adjoining house
is entitled to an adequate compensation only for that she came to know of the alleged loss of
such pecuniary loss suffered by him as he has several articles. Such claim for losses of
duly proved. Such compensation is referred to as property, having been made before knowledge of
actual or compensatory damages. the alleged actual loss, was therefore
speculative. The alleged loss could have been a
Actual or compensatory damages cannot be mere afterthought or subterfuge to justify her
presumed, but must be proved with reasonable claim for actual damages.
degree of certainty.[16] A court cannot rely on
speculations, conjectures, or guesswork as to the With regard to the award of P517,000
fact and amount of damages, but must depend representing the value of the alleged 230,000
upon competent proof that they have been pieces of bangus which died when DBP took
suffered by the injured party and on the best possession of the fishpond in March 1979, the
obtainable evidence of the actual amount same was not called for. Such loss was not duly
thereof.[17] It must point out specific facts which proved; besides, the claim therefor was delayed
could afford a basis for measuring whatever unreasonably. From 1979 until after the filing of
compensatory or actual damages are borne. [18] her complaint in court in May 1985, CUBA did
not bring to the attention of DBP the alleged
In the present case, the trial court awarded loss. In fact, in her letter dated 24 October 1979,
in favor of CUBA P1,067,500 as actual damages [19]
she declared:
consisting of P550,000 which represented the
1. That from February to May 1978, I was then 1574 is MODIFIED setting aside the finding
seriously ill in Manila and within the same that condition no. 12 of the deed of assignment
period I neglected the management and constituted pactum commissorium and the award
supervision of the cultivation and harvest of the of actual damages; and by reducing the amounts
produce of the aforesaid fishpond thereby of moral damages from P100,000 to P50,000;
resulting to the irreparable loss in the produce of the exemplary damages, from P50,000
the same in the amount of about P500,000.00 to to P25,000; and the attorneys fees,
my great damage and prejudice due to fraudulent from P100,000 to P20,000. The Development
acts of some of my fishpond workers. Bank of the Philippines is hereby ordered to
render an accounting of the income derived from
Nowhere in the said letter, which was the operation of the fishpond in question.
written seven months after DBP took possession
of the fishpond, did CUBA intimate that upon Let this case be REMANDED to the trial
DBPs take-over there was a total of 230,000 court for the reception of the income statement
pieces of bangus, but all of which died because of DBP, as well as the statement of the account
of DBPs representatives prevented her men from of Lydia P. Cuba, and for the determination of
feeding the fish. each partys financial obligation to one another.

The award of actual damages should, SO ORDERED. Republic of the Philippines

therefore, be struck down for lack of sufficient SUPREME COURT
basis. Manila

In view, however, of DBPs act of SECOND DIVISION

appropriating CUBAs leasehold rights which
was contrary to law and public policy, as well as G.R. No. L-50449 January 30, 1982
its false representation to the then Ministry of
Agriculture and Natural Resources that it had FILINVEST CREDIT
foreclosed the mortgage, an award of moral CORPORATION, plaintiff-appellee,
damages in the amount of P50,000 is in order vs.
conformably with Article 2219(10), in relation PHILIPPINE ACETYLENE, CO.,
to Article 21, of the Civil Code. Exemplary or INC., defendant-appellant.
corrective damages in the amount of P25,000
should likewise be awarded by way of example
or correction for the public good. [20] There being
an award of exemplary damages, attorneys fees DE CASTRO, J.:
are also recoverable.[21]
This case is certified to Us by the Court of
WHEREFORE, the 25 May 1994 Appeals in its Resolution 1 dated March 22,
Decision of the Court of Appeals in CA-G.R. 1979 on the ground that it involves purely
CV No. 26535 is hereby REVERSED, except as questions of law, as raised in the appeal of the
to the award of P50,000 as moral damages, decision of the Court of First Instance of Manila,
which is hereby sustained. The 31 January 1990 Branch XII in Civil Case No. 91932, the
Decision of the Regional Trial Court of dispositive portion of which reads as follows:
Pangasinan, Branch 54, in Civil Case No. A-
In view of the foregoing consideration, the court (Exh. C) over the same motor vehicle in favor of
hereby renders judgment - said Alexander Lim. Subsequently, on
November 2, 1971. Alexander Lim assigned to
l) directing defendant to pay plaintiff: the Filinvest Finance Corporation all his rights,
title, and interests in the promissory note and
a) the sum of P22,227.81 which is the chattel mortgage by virtue of a Deed of
outstanding unpaid obligation of the defendant Assignment (Exh. D).
under the assigned credit, with 12 %interest
from the date of the firing of the complaint in Thereafter, the Filinvest Finance Corporation, as
this suit until the same is fully paid; a consequence of its merger with the Credit and
Development Corporation assigned to the new
b) the sum equivalent to l5% of P22,227.81 as corporation, the herein plaintiff-appellee
and for attorney's fees; and Filinvest Credit Corporation, all its rights, title,
and interests on the aforesaid promissory note
2) directing plaintiff to deliver to, and defendant and chattel mortgage (Exh. A) which, in effect,
to accept, the motor vehicle, subject of the the payment of the unpaid balance owed by
chattel may have been changed by the result of defendant-appellant to Alexander Lim was
ordinary wear and tear of the vehicle. financed by plaintiff-appellee such that Lim
became fully paid.
Defendant to pay the cost of suit.
Appellant failed to comply with the terms and
SO ORDERED. conditions set forth in the promissory note and
chattel mortgage since it had defaulted in the
The facts, as found in the decision 2 subject of payment of nine successive installments.
the instant appeal, are undisputed. Appellee then sent a demand letter (Exh. 1)
whereby its counsel demanded "that you
On October 30, 1971, the Philippine Acetylene (appellant) remit the aforesaid amount in full in
Co., Inc., defendant-appellant herein, purchased addition to stipulated interest and charges or
from one Alexander Lim, as evidenced by a return the mortgaged property to my client at its
Deed of Sale marked as Exhibit G, a motor office at 2133 Taft Avenue, Malate, Manila
vehicle described as Chevorlet, 1969 model with within five (5) days from date of this letter
Serial No. 136699Z303652 for P55,247.80 with during office hours. " Replying thereto,
a down payment of P20,000.00 and the balance appellant, thru its assistant general- manager,
of P35,247.80 payable, under the terms and wrote back (Exh. 2) advising appellee of its
conditions of the promissory note (Exh. B), at a decision to "return the mortgaged property,
monthly installment of P1,036.70 for thirty-four which return shall be in full satisfaction of its
(34) months, due and payable on the first day of indebtedness pursuant to Article 1484 of the
each month starting December 1971 through and New Civil Code." Accordingly, the mortgaged
inclusive September 1, 1974 with 12 % interest vehicle was returned to the appellee together
per annum on each unpaid installment, and with the document "Voluntary Surrender with
attorney's fees in the amount equivalent to 25% Special Power of Attorney To Sell" 3 executed
of the total of the outstanding unpaid amount. by appellant on March 12, 1973 and confirmed
to by appellee's vice-president.
As security for the payment of said promissory
note, the appellant executed a chattel mortgage
On April 4, 1973, appellee wrote a letter (Exh. warranty for the unpaid taxes on the mortgaged
H) to appellant informing the latter that appellee motor vehicle may be properly raised and
cannot sell the motor vehicle as there were imputed to or passed over to the appellee.
unpaid taxes on the said vehicle in the sum of
P70,122.00. On the last portion of the said letter, Consistent with its stand in the court a quo,
appellee requested the appellant to update its appellant now reiterates its main contention that
account by paying the installments in arrears and appellee, after giving appellant an option either
accruing interest in the amount of P4,232.21 on to remit payment in full plus stipulated interests
or before April 9, 1973. and charges or return the mortgaged motor
vehicle, had elected the alternative remedy of
On May 8, 1973, appellee, in a letter (Exh. 1), exacting fulfillment of the obligation, thus,
offered to deliver back the motor vehicle to the precluding the exercise of any other remedy
appellant but the latter refused to accept it, so provided for under Article 1484 of the Civil
appellee instituted an action for collection of a Code of the Philippines which reads:
sum of money with damages in the Court of
First Instance of Manila on September 14, 1973. Article 1484. Civil Code. - In a contract of sale
of personal property the price of which is
In its answer, appellant, while admitting the payable in installments, the vendor may exercise
material allegations of the appellee's complaint, any of the following remedies:
avers that appellee has no cause of action against
it since its obligation towards the appellee was 1) Exact fulfillment of the obligation, should the
extinguished when in compliance with the vendee fail to pay;
appellee's demand letter, it returned the
mortgaged property to the appellee, and that 2) Cancel the sale, should the vendee's failure to
assuming arguendo that the return of the pay cover two or more installments;
property did not extinguish its obligation, it was
nonetheless justified in refusing payment since 3) Foreclose the chattel mortgage on the thing
the appellee is not entitled to recover the same sold, if one has been constituted, should the
due to the breach of warranty committed by the vendee's failure to pay cover two or more
original vendor-assignor Alexander Lim. installments. In this case, he shall have no
further action against the purchaser to recover
After the case was submitted for decision, the any unpaid balance of the price. Any agreement
Court of First Instance of Manila, Branch XII to the contrary shall be void.
rendered its decision dated February 25, 1974
which is the subject of the instant appeal in this In support of the above contention, appellant
Court. maintains that when it opted to return, as in fact
it did return, the mortgaged motor vehicle to the
Appellant's five assignment of errors may be appellee, said return necessarily had the effect of
reduced to, or said to revolve around two issues: extinguishing appellant's obligation for the
first, whether or not the return of the mortgaged unpaid price to the appellee, construing the
motor vehicle to the appellee by virtue of its return to and acceptance by the appellee of the
voluntary surrender by the appellant totally mortgaged motor vehicle as a mode of payment,
extinguished and/or cancelled its obligation to specifically, dation in payment or dacion en
the appellee; second, whether or not the pago which according to appellant, virtually
made appellee the owner of the mortgaged
motor vehicle by the mere delivery thereof, takes place in dacion en pago is an objective
citing Articles 1232, 1245, and 1497 of the Civil novation of the obligation where the thing
Code, to wit: offered as an accepted equivalent of the
performance of an obligation is considered as
Article 1232. Payment means not only the the object of the contract of sale, while the debt
delivery of money but also the performance, in is considered as the purchase price. 5 In any
any manner, of an obligation. case, common consent is an essential
prerequisite, be it sale or innovation to have the
xxx xxx xxx effect of totally extinguishing the debt or
obligation.
Article 1245. Dation in payment, whereby
property is alienated to the creditor in The evidence on the record fails to show that the
satisfaction of a debt in money, shall be mortgagee, the herein appellee, consented, or at
governed by the law of sales. least intended, that the mere delivery to, and
acceptance by him, of the mortgaged motor
xxx xxx xxx vehicle be construed as actual payment, more
specifically dation in payment or dacion en
Article 1497. The thing sold shall be understood pago. The fact that the mortgaged motor vehicle
as delivered, when it is placed in the control and was delivered to him does not necessarily mean
possession of the vendee. that ownership thereof, as juridically
contemplated by dacion en pago, was transferred
Passing at once on the relevant issue raised in from appellant to appellee. In the absence of
this appeal, We find appellant's contention clear consent of appellee to the proferred special
devoid of persuasive force. The mere return of mode of payment, there can be no transfer of
the mortgaged motor vehicle by the mortgagor, ownership of the mortgaged motor vehicle from
the herein appellant, to the mortgagee, the herein appellant to appellee. If at all, only transfer of
appellee, does not constitute dation in payment possession of the mortgaged motor vehicle took
or dacion en pago in the absence, express or place, for it is quite possible that appellee, as
implied of the true intention of the mortgagee, merely wanted to secure possession
parties. Dacion en pago, according to Manresa, to forestall the loss, destruction, fraudulent
is the transmission of the ownership of a thing transfer of the vehicle to third persons, or its
by the debtor to the creditor as an accepted being rendered valueless if left in the hands of
equivalent of the performance of the appellant.
obligation. 4 In dacion en pago, as a special
mode of payment, the debtor offers another A more solid basis of the true intention of the
thing to the creditor who accepts it as equivalent parties is furnished by the document executed by
of payment of an outstanding debt. The appellant captioned "Voluntary Surrender with
undertaking really partakes in one sense of the Special Power of Attorney To Sell" dated March
nature of sale, that is, the creditor is really 12, 1973, attached as Annex "C" of the
buying the thing or property of the debtor, appellant's answer to the complaint. An
payment for which is to be charged against the examination of the language of the document
debtor's debt. As such, the essential elements of reveals that the possession of the mortgaged
a contract of sale, namely, consent, object motor vehicle was voluntarily surrendered by
certain, and cause or consideration must be the appellant to the appellee authorizing the
present. In its modern concept, what actually
latter to look for a buyer and sell the vehicle in such desistance was a timely disavowal of the
behalf of the appellant who retains ownership remedy of foreclosure, and the vendor can still
thereof, and to apply the proceeds of the sale to sue for specific performance. 8 This is exactly
the mortgage indebtedness, with the undertaking what happened in the instant case.
of the appellant to pay the difference, if any,
between the selling price and the mortgage On the second issue, there is no dispute that
obligation. With the stipulated conditions as there is an unpaid taxes of P70,122.00 due on
stated, the appellee, in essence was constituted the mortgaged motor vehicle which, according
as a mere agent to sell the motor vehicle which to appellant, liability for the breach of warranty
was delivered to the appellee, not as its property, under the Deed of Sale is shifted to the appellee
for if it were, he would have full power of who merely stepped into the shoes of the
disposition of the property, not only to sell it as assignor Alexander Lim by virtue of the Deed of
is the limited authority given him in the special Assignment in favor of appellee. The Deed of
power of attorney. Had appellee intended to Sale between Alexander Lim and appellant and
completely release appellant of its mortgage the Deed of Assignment between Alexander Lim
obligation, there would be no necessity of and appellee are very clear on this point. There
executing the document captioned "Voluntary is a specific provision in the Deed of Sale that
Surrender with Special Power of Attorney To the seller Alexander Lim warrants the sale of the
Sell." Nowhere in the said document can We motor vehicle to the buyer, the herein appellant,
find that the mere surrender of the mortgaged to be free from liens and encumbrances. When
motor vehicle to the appellee extinguished appellee accepted the assignment of credit from
appellant's obligation for the unpaid price. the seller Alexander Lim, there is a specific
agreement that Lim continued to be bound by
Appellant would also argue that by accepting the the warranties he had given to the buyer, the
delivery of the mortgaged motor vehicle, herein appellant, and that if it appears
appellee is estopped from demanding payment subsequently that "there are such counterclaims,
of the unpaid obligation. Estoppel would not he offsets or defenses that may be interposed by the
since, as clearly set forth above, appellee never debtor at the time of the assignment, such
accepted the mortgaged motor vehicle in full counterclaims, offsets or defenses shall not
satisfaction of the mortgaged debt. prejudice the FILINVEST FINANCE
CORPORATION and I (Alexander Lim) further
Under the law, the delivery of possession of the warrant and hold the said corporation free and
mortgaged property to the mortgagee, the herein harmless from any such claims, offsets, or
appellee, can only operate to extinguish defenses that may be availed of." 9
appellant's liability if the appellee had actually
caused the foreclosure sale of the mortgaged It must be noted that the unpaid taxes on the
property when it recovered possession motor vehicle is a burden on the property. Since
thereof. 6 It is worth noting that it is the fact of as earlier shown, the ownership of the
foreclosure and actual sale of the mortgaged mortgaged property never left the mortgagor, the
chattel that bar the recovery by the vendor of herein appellant, the burden of the unpaid taxes
any balance of the purchaser's outstanding should be home by him, who, in any case, may
obligation not satisfied by the sale. 7 As held by not be said to be without remedy under the law,
this Court, if the vendor desisted, on his own but definitely not against appellee to whom were
initiative, from consummating the auction sale,
transferred only rights, title and interest, as such SO ORDERED.
is the essence of assignment of credit. 10

WHEREFORE, the judgment appealed from is

hereby affirmed in toto with costs against
defendant-appellant.