LO V. KJS ECO-FRAMEWORK SYSTEM PHIL INC G.R. NO 149420 (2003)

FACTS: Respondent KJS Eco-Framework System is a corporation engaged in the sale of steel scaffoldings, while petitioner Sonny Lo, doing business under the name of San’s Enterprises, is a building contractor.

1.    In February 1990, petitioner ordered scaffolding equipments from the respondent amounting to P540, 425.80. He paid a down payment of P150,000 and the balance was to be paid in 10 monthly installments

2.    However, Lo was only able to pay the first 2 monthly installments due to financial difficulties despite demands from the respondent

3.    In October 1990, petitioner and respondent executed a deed of assignment whereby petitioner assigned to respondent his receivables of P335,462.14 from Jomero Realty Corp

4.    But when respondent tried to collect the said credit from Jomero Realty Corp, the latter refused to honor the deed of assignment because it claimed that the petitioner was also indebted to it. As such, KJS sent Lo a demand letter but the latter refused to pay, claiming that his obligation had been extinguished when they executed the deed of assignment

5.    Subsequently, respondent filed an action for recovery of sum of money against petitioner.

6.    Petitioner argued that his obligation was extinguished with the execution of the deed of assignment of credit. Respondent alleged that Jomero Realty Corp refused to honor the deed of assignment because it claimed that the petitioner had outstanding indebtedness to it

7.    The trial court dismissed the complaint on the ground that the assignment of credit extinguished the bligation

8.    Upon appeal, CA reversed the trial court decision and held in favor of KJS.  CA held that

a.    Petitioner failed to comply with his warranty under the deed

b.    The object of the deed did not exist at the time of the transaction, rendering it void under Art 1409 NCC

c.    Petitioner violated the terms of the deed of assignment when he failed to execute and do all acts necessary to effectually enable the respondent to recover the collectibles

ISSUE: WON the deed of assignment extinguished the petitioner’s obligation  

HELD: No, the petitioner’s obligation was not extinguished with the execution of the deed of assignment.

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, dacion en pago, 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.

In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt.  In order that there be a valid dation in payment, the following are the requisites: (1) There must be the 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); (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. 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 debt.  As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances.

Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property, produced the effects of a dation in payment which may extinguish the obligation. However, as in any other contract of sale, the vendor or assignor is bound by certain warranties.  More specifically, the first paragraph of Article 1628 of the Civil Code provides:

The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge.

From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment.  When Jomero claimed that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by compensation. In other words, respondent alleged the non-existence of the credit and asserted its claim to petitioner’s warranty under the assignment.  Therefore, it necessary for the petitioner to make good its warranty and pay the obligation.

Furthermore, the petitioner  breached his obligation under the Deed of Assignment, to execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents.

Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the performance thereof in case the same is later found to be inexistent.  He should be held liable to pay to respondent the amount of his indebtedness.

SORIANO V. BAUTISTA 6 SCRA 946 (1962)

FACTS: Spouses Bautista are the absolute and registered owners of a parcel of land. In May 30, 1956, the said spouses entered into an agreement entitled Kasulatan ng Sanglaan (mortgage)  in favor of spouses Soriano for the amount of P1,800. Simultaneously with the signing of the deed, the spouses Bautista transferred the possession of the subject property to spouses Soriano. The spouses Soriano have, since that date, been in possession of the property and are still enjoying the produce thereof to the exclusion of all other persons

1.    Sometime after May 1956, the spouses Bautista received from spouses Soriano the sum of P450 pursuant to the conditions agreed upon in the document. However, no receipt was issued. The said amount was returned by the spouses Bautista

2.    In May 13, 1958, a certain Atty. Ver informed the spouses Bautista that the spouses Soriano have decided to purchase the subject property pursuant to par. 5 of the document which states that “…the mortgagees may purchase the said land absolutely within the 2-year term of the mortgage for P3,900.”

3.    Despite the receipt of the letter, the spouses Bautista refused to comply with Soriano’s demand

4.    As such, spouses Soriano filed a case, praying that they be allowed to consign or deposit with the Clerk of Court the sum of P1,650 as the balance of the purchase price of the land in question

5.    The trial court held in favor of Soriano and ordered Bautista to execute a deed of absolute sale over the said property in favor of Soriano.

6.    Subsequently spouses Bautista filed a case against Soriano, asking the court to order Soriano to accept the payment of the principal obligation and release the mortgage and to make an accounting the harvest for the 2 harvest seasons (1956-1957).

7.    CFI held in Soriano’s favor and ordered the execution of the deed of sale in their favor

8.    Bautista argued that as mortgagors, they cannot be deprived of the right to redeem the mortgaged property, as such right is inherent in and inseparable from a mortgage.

ISSUE: WON spouses Bautista are entitled to redemption of subject property

HELD: No. While the transaction is undoubtedly a mortgage and contains the customary stipulation concerning redemption, it carries the added special provision which renders the mortgagor’s right to redeem defeasible at the election of the mortgagees. There is nothing illegal or immoral in this as this is allowed under Art 1479 NCC which states: “A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise supported by a consideration apart from the price.”

In the case at bar, the mortgagor’s promise is supported by the same consideration as that of the mortgage itself, which is distinct from the consideration in sale should the option be exercised. The mortgagor’s promise was in the nature of a continuing offer, non-withdrawable during a period of 2 years, which upon acceptance by the mortgagees gave rise to a perfected contract of sale.

TENDER INEFFECTIVE AS PREEMPTIVE RIGHT TO PURCHASE BY OTHER PARTY HAS BEEN EXERCISED

The tender of P1,800 to redeem the mortgage by spouses Bautista was ineffective for the purpose intended. Such tender must have been made after the option to purchase had been exercised by spouses Soriano. Bautista’s offer to redeem could be defeated by Soriano’s preemptive right to purchase within the period of 2 years from May 30, 1956. Such right was availed of and spouses Bautista were accordingly notified by Soriano. Offer and acceptance converged and gave rise to a perfected and binding contract of purchase and sale.

REYES V. SPOUSES HAMADA 14 SCRA 215 (1965)

 FACTS: Spouses Hamada owned several properties in Baguio which were mortgaged to PNB. As a result of nonpayment, an extrajudicial foreclosure proceeding was instituted by PNB over the said properties.

1.    The subject properties were sold at a public auction in February 11, 1960 with Arsenio Reyes as the highest bidder.

2.    On the evening of February 10, 1961 (the last day of redemption), the spouses Hamada delivered to the city sheriff checks to cover for the redemption amount which was accepted by the said official

3.    However, the purchaser Reyes refused to recognize the validity of such redemption and thereafter demanded the delivery of possession of the properties which remained with the spouses Hamada

4.    Upon refusal of the spouses Hamada to do the same, Reyes filed a civil case before CFI (Civil Case no. 1025) for the declaration of ownership and right to possession of the subject properties by reason of his purchase thereof at the auction sale in February 1960

5.    During the pendency of the case, Reyes filed another complaint (Civil Case no. 1041) for the recovery of the rentals paid by the tenants of the subject properties on the ground that under Sec 30 of Rule 30 ROC (Old Rules of Court), Reyes as purchaser of the properties, was entitled to the rentals receivable from the tenants which were paid to the mortgagors during and after the period of redemption

6.    CFI dismissed the complaint by reason of the pendency of another action involving the same parties over the same properties.

ISSUE: WON petitioner Reyes is entitled to the rentals received from the subject properties pending the case involving the redemption of the same

HELD: No.  

Petitioner Reyes anchors his argument on Sec 30 Rule 39 where if the properties are being occupied by paying tenants, the right to the rentals thereof is granted to the purchaser of the properties.

In Chan v. Espe, the SC held that the said provision is clear that if the period of redemption the judgment-debtor is in possession of the property sold, he is entitled to retain it and receive its fruits, the purchaser not being entitled to its possession; but if the property is in the possession of a tenant, it is only then that the purchaser is entitled to receive its rents or the reasonable value of its use and occupation. In such case, the purchaser is accountable for the amount received to the judgment-debtor when he effects the redemption.

In short, before the expiration of the 1-year period within which the judgment-debtor or mortgagor may redeem the property, the purchaser thereof is not entitled, as a matter of right, the possession of the same. While it is true that the Rules of Court allow the purchaser to receive the rentals from the tenants, the rentals received do not belong to the purchaser but still pertain to the debtor or mortgagor. The rationale for the rule is to secure for the benefit of the debtor or mortgagor the payment of the redemption amount and the consequent return to him of his properties sold at public auction.

In the present case, the question to be resolved in Civil Case no. 1025 is the proper and timely redemption of the properties sold at public auction. It is clear that the right to the rentals during the period of redemption is necessarily included in the issued of timeliness and adequacy of the redemption made or exercised by the mortgagors Hamada.

THE HEIRS OF PEDRO ESCANLAR ET AL V. CA 281 SCRA 176 (1997)

FACTS: Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924 and 1938, respectively. Nombre’s heirs include his nephews and grandnephews. Victoriana was succeeded by her late brother’s son, Gregorio Cari-an.

1.    After Gregorio’s death in 1971, his wife, Generosa Martinez and children (Rodolfo, Carmen, Leonardo and Fredisminda) were adjudged as heirs by representation to Victoriana’s estate. Leonardo passed away, leaving his widow, Nelly Chua vda. de Cari-an and minor Leonell as his heirs

2.    2 parcels of land, denominated by Lot 1616 and 1617, formed part of the estate of Guillermo Nombre and Victoriana Cari-an.

3.    In 1978, Gregorio’s heirs executed a deed of sale of rights, interests and participation in favor of Pedro Escanlar and Francisco Holgado over the ½ undivided share of Victoriana for P275,000  to be paid to the heirs, except the share of the minor Leonell Cari-an which shall be deposited to the Municipal Treasurer. Said contract of sale will be effective only upon approval of CFI

4.    Escanlar and Holgado, the vendees, were concurrently the lessees of the subject property. In a deed of agreement executed by both parties confirming and affirming the contract of sale, they stipulated the following:

a.    That the balance of the purchase price (P225,000) shall be paid on or before May 1979

b.    Pending complete payment thereof, the vendees shall not assign, sell, lease or mortgage the rights, interests and participation thereof

c.    In the event of nonpayment of the balance of said purchase price, the sum of P50,000 (down payment) shall be deemed as damages

5.    Escanlar and Holgado were unable to pay the individual shares of the Cari-an heirs, amounting to P55,000 each, on the due date. However, said heirs received at least 12 installment payments from Escanlar and Holgado after May 1979. Rodolfo was fully paid by June 1979, Generosa Martinez, Carmen and Fredisminda were likewise fully compensated for their individual shares. The minor’s share was deposited with the RTC in September 1982.

6.    Being former lessees, Escanlar and Holgado continued in possession of Lots 1616 and Lots 1617. Interestingly, they continued to pay rent based on their lease contract.

7.    Subsequently, Escanlar and Holgado sought to intervene in the probate proceedings of Guillermo and Victoriana as buyers of Victoriana’s share. In 1982, the probate court approved the motion filed by the heirs of Guillermo and Victoriana to sell their respective shares in the estate. Thereafter, the Cari-ans, sold their shares in 8 parcels of land including lots 1616 and 1617 to spouses Chua for P1.85 million.

8.    The Cari-ans instituted a case for cancellation of sale against Escanlar and Holgado alleging the latter’s failure to pay the balance of the purchase price on the stipulated date and that they only received a total of P132,551 in cash and goods.

9.    Escanlar and Holgado averred that the Cari-ans, having been paid, had no right to resell the subject lots and that the spouses Chua were purchasers in bad faith.

10. The trial court held in favor of the heirs of Cari-an citing that the sale between the Cari-ans and Escanlar is void as it was not approved by the probate court which was required in the deed of sale.

11. CA affirmed the same and cited that the questioned deed of sale of rights is a contract to sell because it shall become effective only upon approval by the probate court and upon full payment of the purchase price.

ISSUE: WON the non-happening of a condition affects the validity of the contract itself

HELD: No, the non-happening of a condition only affects the effectivity and not the validity of the contract.

Under Art 1318 Civil Code, the essential requisites of a contract are:  consent of the contracting parties; object certain which is the subject matter of the contract and cause of the obligation which is established.  Absent one of the above, no contract can arise.  Conversely, where all are present, the result is a valid contract. However, some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of the contract.

In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a valid one.  However, it did not bear the stamp of approval of the court.  The contract’s validity was not affected for in the words of the stipulation, “ …this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court…”  In other words, only the effectivity and not the validity of the contract is affected.

CONTRACT TO SELL VS. CONTRACT TO SALE

In contracts to sell, ownership is retained by the seller and is not to pass until the full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. To illustrate, although a deed of conditional sale is denominated as such, absent a proviso that title to the property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period, by its nature, it shall be declared a deed of absolute sale.

In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission.

In the case at bar, the sale of rights, interests and participation as to ½ portion pro indiviso of the 2 subject lots is a contract of sale for the reasons that (1) the sellers did not reserve unto  themselves the ownership of the property until full payment of the unpaid balance of P225,000.00; (2) there is no stipulation giving the sellers the right to unilaterally rescind the contract the moment the buyer fails to pay within the fixed period.

Need of probate court’s approval exists where specific properties of the estate are sold and not when ideal and indivisible shares of an heir are disposed of

The need for approval by the probate court exists only where specific properties of the estate are sold and not when only ideal and indivisible shares of an heir are disposed of. In Dillena v. Court of Appeals, the Court declared that it is within the jurisdiction of the probate court to approve the sale of properties of a deceased person by his prospective heirs before final adjudication. The probate court’s approval is necessary for the validity of any disposition of the decedent’s estate. However, reference to judicial approval cannot adversely affect the substantive rights of the heirs to dispose of their ideal share in the co-heirship and/or co-ownership among the heirs. It must be recalled that during the period of indivision of a decedent’s estate, each heir, being a co-owner, has full ownership of his part and may therefore alienate it. But the effect of the alienation with respect to the co-owners shall be limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.

Contractual stipulations considered law between parties; Exception: contemporaneous acts of parties

As a general rule, the pertinent contractual stipulation (requiring court approval) should be considered as the law between the parties. However, the presence of two factors militates against this conclusion: (1) the evident intention of the parties appears to be contrary to the mandatory character of said stipulation. Whoever crafted the document of conveyance, must have been of the belief that the controversial stipulation was a legal requirement for the validity of the sale. But the contemporaneous and subsequent acts of the parties reveal that the original objective of the parties was to give effect to the deed of sale even without court approval.

Receipt and acceptance of the numerous installments on the balance of the purchase price by the Cari-ans, although the period to pay the balance of the purchase price expired in May 1979, and leaving Escanlar and Holgado in possession of Lots 1616 and 1617 reveal their intention to effect the mutual transmission of rights and obligations. The Cari-ans did not seek judicial relief until late 1982 or three years later; (2) the requisite approval was virtually rendered impossible by the Cari-ans because they opposed the motion for approval of the sale filed by Escanlar and Holgado, and sued the latter for the cancellation of that sale. Having provided the obstacle and the justification for the stipulated approval not to be granted, the Cari-ans should not be allowed to cancel their first transaction with Escanlar and Holgado because of lack of approval by the probate court, the lack of which is of their own making.