G.R. No. L-40824 February 23, 1989GOVERNMENT SERVICE INSURANCE
SYSTEM,petitioner,vs.COURT OF APPEALS and MR. & MRS. ISABELO R.
RACHO,respondents.The Government Corporate Counsel for
petitioner.Lorenzo A. Sales for private respondents.REGALADO
,J.:Private respondents, Mr. and Mrs. Isabelo R. Racho, together
with the spouses Mr. and Mrs Flaviano Lagasca, executed a deed of
mortgage, dated November 13, 1957, in favor of petitioner
Government Service Insurance System (hereinafter referred to as
GSIS) and subsequently, another deed of mortgage, dated April 14,
1958, in connection with two loans granted by the latter in the
sums of P 11,500.00 and P 3,000.00, respectively.1A parcel of land
covered by Transfer Certificate of Title No. 38989 of the Register
of Deed of Quezon City, co-owned by said mortgagor spouses, was
given as security under the aforesaid two deeds.2They also executed
a 'promissory note" which states in part:... for value received, we
the undersigned ... JOINTLY, SEVERALLY and SOLIDARILY, promise to
pay the GOVERNMENT SERVICE INSURANCE SYSTEM the sum of . . . (P
11,500.00) Philippine Currency, with interest at the rate of six
(6%) per centum compounded monthly payable in . . . (120)equal
monthly installments of . . . (P 127.65) each.3On July 11, 1961,
the Lagasca spouses executed an instrument denominated "Assumption
of Mortgage" under which they obligated themselves to assume the
aforesaid obligation to the GSIS and to secure the release of the
mortgage covering that portion of the land belonging to herein
private respondents and which was mortgaged to the GSIS.4This
undertaking was not fulfilled.5Upon failure of the mortgagors to
comply with the conditions of the mortgage, particularly the
payment of the amortizations due, GSIS extrajudicially foreclosed
the mortgage and caused the mortgaged property to be sold at public
auction on December 3, 1962.6More than two years thereafter, or on
August 23, 1965, herein private respondents filed a complaint
against the petitioner and the Lagasca spouses in the former Court
ofFirst Instance of Quezon City,7praying that the extrajudicial
foreclosure "made on, their property and all other documents
executed in relation thereto in favor of the Government Service
Insurance System" be declared null and void. It was further prayed
that they be allowed to recover said property, and/or the GSIS be
ordered to pay them the value thereof, and/or they be allowed to
repurchase the land. Additionally, they asked for actual and moral
damages and attorney's fees.In their aforesaid complaint, private
respondents alleged that they signed the mortgage contracts not as
sureties or guarantors for the Lagasca spouses but they merely gave
their common property to the said co-owners who were solely
benefited by the loans from the GSIS.The trial court rendered
judgment on February 25, 1968 dismissing the complaint for failure
to establish a cause of action.8Said decision was reversed by the
respondent Court of Appeals9which held that:... although formally
they are co-mortgagors, they are so only for accomodation (sic) in
that the GSIS required their consent to the mortgage of the entire
parcel of land which was covered with only one certificate of
title, with full knowledge that the loans secured thereby were
solely for the benefit of the appellant (sic) spouses who alone
applied for the loan.x x x x'It is, therefore, clear that as
against the GSIS, appellants have a valid cause for having
foreclosed the mortgage without having given sufficient notice to
them as required either as to their delinquency in the payment of
amortization or as to the subsequent foreclosure of the mortgage by
reason of any default in such payment. The notice published in the
newspaper, 'Daily Record (Exh. 12) and posted pursuant to Sec 3 of
Act 3135 is not the notice to which the mortgagor is entitled upon
the application being made for an extrajudicial foreclosure.
...10On the foregoing findings, the respondent court consequently
decreed that-In view of all the foregoing, the judgment appealed
from is hereby reversed, and another one entered (1) declaring the
foreclosure of the mortgage void insofar as it affects the share of
the appellants; (2) directing the GSIS to reconvey to appellants
their share of the mortgaged property, or the value thereof if
already sold to third party, in the sum of P 35,000.00, and (3)
ordering the appellees Flaviano Lagasca and Esther Lagasca to pay
the appellants the sum of P 10,00.00 as moral damages, P 5,000.00
as attorney's fees, and costs.11The case is now before us in this
petition for review.In submitting their case to this Court, both
parties relied on the provisions of Section 29 of Act No. 2031,
otherwise known as the Negotiable Instruments Law, which provide
that an accommodation party is one who has signed an instrument as
maker, drawer, acceptor of indorser without receiving value
therefor, but is held liable on the instrument to a holder for
value although the latter knew him to be only an accommodation
party.This approach of both parties appears to be misdirected and
their reliance misplaced. The promissory note hereinbefore quoted,
as well as the mortgage deeds subject of this case, are clearly not
negotiable instruments. These documents do not comply with the
fourth requisite to be considered as such under Section 1 of Act
No. 2031 because they are neither payable to order nor to bearer.
The note is payable to a specified party, the GSIS. Absent the
aforesaid requisite, the provisions of Act No. 2031 would not
apply; governance shall be afforded, instead, by the provisions of
the Civil Code and special laws on mortgages.As earlier indicated,
the factual findings of respondent court are that private
respondents signed the documents "only to give their consent to the
mortgage as required by GSIS", with the latter having full
knowledge that the loans secured thereby were solely for the
benefit of the Lagasca spouses.12This appears to be duly supported
by sufficient evidence on record. Indeed, it would be unusual for
the GSIS to arrange for and deduct the monthly amortizations on the
loans from the salary as an army officer of Flaviano Lagasca
without likewise affecting deductions from the salary of Isabelo
Racho who was also an army sergeant. Then there is also the
undisputed fact, as already stated, that the Lagasca spouses
executed a so-called "Assumption of Mortgage" promising to exclude
private respondents and their share of the mortgaged property from
liability to the mortgagee. There is no intimation that the former
executed such instrument for a consideration, thus confirming that
they did so pursuant to their original agreement.The parol evidence
rule13cannot be used by petitioner as a shield in this case for it
is clear that there was no objection in the court below regarding
the admissibility of the testimony and documents that were
presented to prove that the private respondents signed the mortgage
papers just to accommodate their co-owners, the Lagasca spouses.
Besides, the introduction of such evidence falls under the
exception to said rule, there being allegations in the complaint of
private respondents in the court below regarding the failure of the
mortgage contracts to express the true agreement of the
parties.14However, contrary to the holding of the respondent court,
it cannot be said that private respondents are without liability
under the aforesaid mortgage contracts. The factual context of this
case is precisely what is contemplated in the last paragraph of
Article 2085 of the Civil Code to the effect that third persons who
are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own propertySo long as valid
consent was given, the fact that the loans were solely for the
benefit of the Lagasca spouses would not invalidate the mortgage
with respect to private respondents' share in the property. In
consenting thereto, even assuming that private respondents may not
be assuming personal liability for the debt, their share in the
property shall nevertheless secure and respond for the performance
of the principal obligation. The parties to the mortgage could not
have intended that the same would apply only to the aliquot portion
of the Lagasca spouses in the property, otherwise the consent of
the private respondents would not have been required.The supposed
requirement of prior demand on the private respondents would not be
in point here since the mortgage contracts created obligations with
specific terms for the compliance thereof. The facts further show
that the private respondents expressly bound themselves as solidary
debtors in the promissory note hereinbefore quoted.Coming now to
the extrajudicial foreclosure effected by GSIS, We cannot agree
with the ruling of respondent court that lack of notice to the
private respondents of the extrajudicial foreclosure sale impairs
the validity thereof. InBonnevie, et al. vs. Court of appeals, et
al.,15the Court ruled that Act No. 3135, as amended, does not
require personal notice on the mortgagor, quoting the requirement
on notice in such cases as follows:Section 3. Notice shall be given
by posting notices of sale for not less than twenty days in at
least three public places of the municipality where the property is
situated, and if such property is worth more than four hundred
pesos, such notice shall also be published once a week for at least
three consecutive weeks in a newspaper of general circulation in
the municipality or city.There is no showing that the foregoing
requirement on notice was not complied with in the foreclosure sale
complained of .The respondent court, therefore, erred in annulling
the mortgage insofar as it affected the share of private
respondents or in directing reconveyance of their property or the
payment of the value thereof Indubitably, whether or not private
respondents herein benefited from the loan, the mortgage and the
extrajudicial foreclosure proceedings were valid.WHEREFORE,
judgment is hereby rendered REVERSING the decision of the
respondent Court of Appeals and REINSTATING the decision of the
courta quoin Civil Case No. Q-9418 thereof.SO ORDERED.G.R. No.
75908 October 22, 1999FEDERICO O. BORROMEO, LOURDES O. BORROMEO and
FEDERICO O. BORROMEO, INC.,petitioners,vs.AMANCIO SUN and the COURT
OF APPEALS,respondents.PURISIMA,J.:At bar is a Petition for review
onCertiorariunder Rule 45 of the Revised Rules of Court seeking to
set aside the Resolution of the then Intermediate Appellate Court1,
dated March 13, 1986, in AC-G.R. CV NO. 67988, which reversed its
earlier Decision dated February 12, 1985, setting aside the
Decision of the former Court of the First Instance of Rizal, Branch
X, in Civil Case No. 19466.The antecedent facts are as
follows:Private respondent Amancio Sun brought before the then
Court of the First Instance of Rizal, Branch X, an action against
Lourdes O. Borromeo (in her capacity as corporate secretary),
Federico O. Borromeo and Federico O. Borromeo (F.O.B.), Inc., to
compel the transfer to his name in the books of F.O.B., Inc.,
23,223 shares of stock registered in the name of Federico O.
Borromeo, as evidenced by a Deed of Assignment dated January 16,
1974.Private respondent averred2that all the shares of stock of
F.O.B. Inc. registered in the name of Federico O. Borromeo belong
to him, as the said shares were placed in the name of Federico O.
Borromeo "only to give the latter personality and importance in the
business world."3According to the private respondent, on January
16, 1974 Federico O. Borromeo executed in his favor a Deed of
Assignment with respect to the said 23,223 shares of stock.On the
other hand, petitioner Federico O. Borromeo disclaimed any
participation in the execution of the Deed of Assignment,
theorizing that his supposed signature thereon was
forged.1wphi1.ntAfter trial, the lower court of origin came out
with a decision declaring the questioned signature on subject Deed
of Assignment, dated January 16, 1974, as the genuine signature of
Federico O. Borromeo; ratiocinating thus:After considering the
testimonies of the two expert witnesses for the parties and after a
careful and judicious study and analysis of the questioned
signature as compared to the standard signatures, the Court is not
in a position to declare that the questioned signature in Exh. A is
a forgery. On the other hand, the Court is of the opinion that the
questioned signature is the real signature of Federico O. Borromeo
between the years 1954 to 1957 but definitely is not his signature
in 1974 for by then he has changed his signature. Consequently, to
the mind of the Court Exhibit A was signed by defendant Federico O.
Borromeo between the years 1954 to 1957 although the words in the
blank were filled at a much later date.4On appeal by petitioners,
the Court of Appeals adjudged as forgery the controverted signature
of Federico O. Borromeo; disposing as follows:WHEREFORE, the
judgment of the Courta quoas to the second cause of action dated
March 12, 1980 is hereby reversed and set aside and a new judgment
is hereby rendered:1. Ordering the dismissal of the complaint as to
defendant-appellants;2. Ordering plaintiff-appellee on appellants'
counterclaim to pay the latter:a) P20,000.00 as moral damages;b)
P10,000.00 as exemplary damages;c) P 10,000.00 as attorney's
fees.3. Ordering plaintiff-appellee to pay the costs.5On March 29,
1985, Amancio Sun interposed a motion for reconsideration of the
said decision, contending that Segundo Tabayoyong, petitioners'
expert witness, is not a credible witness as found and concluded in
the following disposition by this Court inCesar vs.Sandigan
Bayan6:The testimony of Mr. Segundo Tabayoyong on March 5, 1980,
part of which is cited on pages 19-23 of the petition, shows
admissions which are summarized by the petitioner as follows:He
never finished any degree in Criminology. Neither did he obtain any
degree in physics or chemistry. He was a mere trainee in the NBI
laboratory. He said he had gone abroad only once-to Argentina
which, according to him is the only one country in the world that
gives this degree (?) . . . "People go there where they obtain this
sort of degree (?) where they are authorized to practice
(sic)examination of questioned documents."His civil service
eligibility was second grade (general clerical). His present
position had to be "re-classified" "confidential" in order to
qualify him to it. He never passed any Board Examination.He has
never authored any book on the subject on which he claimed to be an
"expert." Well, he did "write" a so-called pamphlet pretentiously
called "Fundamentals of Questioned Documents Examination and
Forgery Detection." In that pamphlet, he mentioned some references'
(some) are Americans and one I think is a British, sir, like in the
case of Dr. Wilson Harrison, a British' (he repeated with
emphasis). Many of the "theories" contained in his pamphlet were
lifted body and soul from those references, one of them being
Albert Osborn. His pamphlet has neither quotations nor footnotes,
although he was too aware of the crime committed by many an author
called "plagiarism." But that did not deter him, nor bother him in
the least.He has never been a member of any professional
organization of experts in his supposed field of expertise, because
he said there is none locally. Neither is he on an international
level.7Acting an the aforesaid motion for reconsideration, the
Court of Appeals reconsidered its decision of February 12, 1985
aforementioned. Thereafter, the parties agreed to have subject Deed
of Assignment examined by the Philippine Constabulary (PC) Crime
Laboratory, which submitted a Report on January 9, 1986, the
pertinent portion of which, stated:1. Comparative examination and
analysis of the questioned and the standard signature reveal
significant similarities in the freedom of movement, good quality
of lines, skills and individual handwriting characteristics.2. By
process of interpolation the questioned signature fits in and can
be bracketed in time with the standard signatures written in the
years between 1956 to 1959. Microscopic examination of the ink used
in the questioned signature and the standard signature in document
dated 30 July 1959 marked Exh. "E" indicate gallotanic ink.xxx xxx
xxx1. The questioned signature FEDERICO O. BORROMEO marked "Q"
appearing in the original Deed of Assignment dated 16 January 1974
and the submitted standard signatures of Federico O. Borromeo
marked "S-1" to "S-49" inclusive were written BY ONE AND THE SAME
PERSON.2. The questioned signature FEDERICO O. BORROMEO marked "Q"
COULD HAVE BEEN SIGNED IN THE YEARS BETWEEN 1950-1957.8After
hearing the arguments the lawyers of record advanced on the said
"Report" of the PC Crime Laboratory, the Court of Appeals
resolved:xxx xxx xxx1) to ADMIT the Report dated Jan. 9, 1986 of
the PC Crime Laboratory on the Deed of Assignment in evidence,
without prejudice to the parties' assailing the credibility of said
Report;2) to GIVE both parties a non-extendible period of FIVE (5)
DAYS from February 27, 1986, within which to file simultaneous
memoranda.9On March 13, 1986, the Court of Appeals reversed its
decision of February 12, 1985, which affirmedin totothe decision of
the trial court of origin; resolving thus:WHEREFORE, finding the
Motion for Reconsideration meritorious. We hereby set aside our
Decision, dated February 12, 1985 and in its stead a new judgment
is hereby rendered affirmingin totothe decision of the trial Court,
dated March 12, 1980, without pronouncement as to costs.SO
ORDERED.10Therefrom, petitioners found their way to this court via
the present Petition; theorizing that:ITHE RESPONDENT COURT ERRED
IN HOLDING THAT WHEN PETITIONER AGREED TO THE SUGGESTION OF
RESPONDENT COURT TO HAVE THE QUESTIONED DOCUMENT EXAMINED BY THE PC
CRIME LABORATORY THEY COULD NO LONGER QUESTION THE COMPETENCY OF
THE DOCUMENT.IITHE COURT OF APPEALS ERRED IN HOLDING THAT THE
QUESTIONED DOCUMENT WAS SIGNED IN 1954 BUT WAS DATED IN 1974.IIITHE
COURT OF APPEALS ERRED IN HOLDING THAT THE SIGNATURE OF FEDERICO O.
BORROMEO IN THE DEED OF ASSIGNMENT (EXHIBIT "A") IS A GENUINE
SIGNATURE CIRCA 1954-1957.The Petition is barren of
merit.Well-settled is the rule that "factual findings of the Court
of Appeals are conclusive on the parties and not reviewable by the
Supreme Court and they carry even more weight when the Court of
Appeals affirms the factual findings of the trial court."11In the
present case, the trial court found that the signature in question
is the genuine signature of Federico O. Borromeo between the years
1954 to 1957 although the words in the blank space of the document
in question were written on a much later date. The same conclusion
was arrived at by the Court of Appeals on the basis of the Report
of the PC crime Laboratory corroborating the findings of Col. Jose
Fernandez that the signature under controversy is genuine.It is
significant to note that Mr. Tabayoyong, petitioners' expert
witness, limited his comparison of the questioned signature with
the 1974 standard signature of Federico O. Borromeo. No comparison
of the subject signature with the 1950 1957 standard signature was
ever made by Mr. Tabayoyong despite his awareness that the expert
witness of private respondent, Col. Jose Fernandez, made a
comparison of said signatures and notwithstanding his
(Tabayoyong's) access to such signatures as they were all submitted
to the lower Court. As correctly ratiocinated12by the Court of
origin, the only conceivable reason why Mr. Tabayoyong avoided
making such a comparison must have been, that even to the naked eye
the questioned signature affixed to the Deed of Assignment, dated
January 16, 1974, is strikingly similar to the 1950 to 1954
standard signature of Federico O. Borromeo, such that if a
comparison thereof was made by Mr. Tabayoyong, he would have found
the questioned signature genuine.That the Deed of Assignment is
dated January 16, 1974 while the questioned signature was found to
be circa 1954-1957, and not that of 1974, is of no moment. It does
not necessarily mean, that the deed is a forgery. Pertinent records
reveal that the subject Deed of Assignment is embodied in a blank
form for the assignment of shares with authority to transfer such
shares in the books of the corporation. It was clearly intended to
be signed in blank to facilitate the assignment of shares from one
person to another at any future time. This is similar to Section 14
of the Negotiable Instruments Law where the blanks may be filled up
by the holder, the signing in blank being with the assumed
authority to do so. Indeed, as the shares were registered in the
name of Federico O. Borromeo just to give him personality and
standing in the business community, private respondent had to have
a counter evidence of ownership of the shares involved. Thus, the
execution of the deed of assignment in blank, to be filled up
whenever needed. The same explains the discrepancy between the date
of the deed of assignment and the date when the signature was
affixed thereto.While it is true that the 1974 standard signature
of Federico O. Borromeo is to the naked eye dissimilar to his
questioned signature circa 1954-1957, which could have been caused
by sheer lapse of time, Col. Jose Fernander, respondent's expert
witness, found the said signatures similar to each other after
subjecting the same to stereomicroscopic examination and analysis
because the intrinsic and natural characteristics of Federico O.
Borromeo's handwriting were present in all the exemplar signatures
used by both Segundo Tabayoyong and Col. Jose Fernandez.It is
therefore beyond cavil that the findings of the Court of origin
affirmed by the Court of Appeals on the basis of the corroborative
findings of the Philippine Constabulary Crime Laboratory confirmed
the genuineness of the signature of Federico O. Borromeo in the
Deed of Assignment dated January 16, 1974.Petitioners, however,
question the "Report" of the document examiner on the ground that
they were not given an opportunity to cross-examine the Philippine
Constabulary document examiner; arguing that they never waived
their right to question the compentecy of the examiner concerned.
While the Court finds merit in the contention of petitioners, that
they did not actually waive their right to cross-examine on any
aspect of subject Report of the Philippine Constabulary Crime
Laboratory, the Court discerns no proper basis for deviating from
the findings of the Court of Appeals on the matter. It is worthy to
stress that courts may place whatever weight due on the testimony
of an expert witness.13Conformably, in giving credence and
probative value to the said "Report" of the Philippine Constabulary
Crime Laboratory, corroborating the findings of the trial Court,
the Court of Appeals merely exercised its discretion. There being
no grave abuse in the exercise of such judicial discretion, the
findings by the Court of Appeals should not be disturbed on
appeal.1wphi1.ntPremises studiedly considered, the Court is of the
irresistible conclusion, and so holds, that the respondent Court
erred not in affirming the decision of the Regional Trial Courta
quoin Civil Case No. 19466.WHEREFORE, the Petition is DISMISSED for
lack of merit and the assailed Resolution, dated March 13, 1986,
AFFIRMED. No pronouncement as to costs.SO ORDERED.G.R. No. 16454
September 29, 1921GEORGE A. KAUFFMAN,plaintiff-appellee,vs.THE
PHILIPPINE NATIONAL BANK,defendant-appellant.Roman J. Lacson for
appellant.Ross and Lawrence for appellee.STREET,J.:At the time of
the transaction which gave rise to this litigation the plaintiff,
George A. Kauffman, was the president of a domestic corporation
engaged chiefly in the exportation of hemp from the Philippine
Islands and known as the Philippine Fiber and Produce Company, of
which company the plaintiff apparently held in his own right nearly
the entire issue of capital stock. On February 5, 1918, the board
of directors of said company, declared a dividend of P100,000 from
its surplus earnings for the year 1917, of which the plaintiff was
entitled to the sum of P98,000. This amount was accordingly placed
to his credit on the books of the company, and so remained until in
October of the same year when an unsuccessful effort was made to
transmit the whole, or a greater part thereof, to the plaintiff in
New York City.In this connection it appears that on October 9,
1918, George B. Wicks, treasurer of the Philippine Fiber and
Produce Company, presented himself in the exchange department of
the Philippine National Bank in Manila and requested that a
telegraphic transfer of $45,000 should be made to the plaintiff in
New York City, upon account of the Philippine Fiber and Produce
Company. He was informed that the total cost of said transfer,
including exchange and cost of message, would be P90,355.50.
Accordingly, Wicks, as treasurer of the Philippine Fiber and
Produce Company, thereupon drew and delivered a check for that
amount on the Philippine National Bank; and the same was accepted
by the officer selling the exchange in payment of the transfer in
question. As evidence of this transaction a document was made out
and delivered to Wicks, which is referred to by the bank's
assistant cashier as its official receipt. This memorandum receipt
is in the following language:October 9th, 1918.
CABLE TRANSFER BOUGHT FROM PHILIPPINE NATIONAL BANK, Manila,
P.I. Stamp P18Foreign Amount Rate$45,000. 3/8 % P90,337.50Payable
through Philippine National Bank, New York. To G. A. Kauffman, New
York. Total P90,355.50. Account of Philippine Fiber and Produce
Company. Sold to Messrs. Philippine Fiber and Produce Company,
Manila. (Sgd.) Y LERMA,Manager, Foreign Department.
On the same day the Philippine National Bank dispatched to its
New York agency a cablegram to the following effect:Pay George A.
Kauffman, New York, account Philippine Fiber Produce Co., $45,000.
(Sgd.) PHILIPPINE NATIONAL BANK,Manila.Upon receiving this
telegraphic message, the bank's representative in New York sent a
cable message in reply suggesting the advisability of withholding
this money from Kauffman, in view of his reluctance to accept
certain bills of the Philippine Fiber and Produce Company. The
Philippine National Bank acquiesced in this and on October 11
dispatched to its New York agency another message to withhold the
Kauffman payment as suggested.Meanwhile Wicks, the treasurer of the
Philippine Fiber and Produce Company, cabled to Kauffman in New
York, advising him that $45,000 had been placed to his credit in
the New York agency of the Philippine National Bank; and in
response to this advice Kauffman presented himself at the office of
the Philippine National Bank in New York City on October 15, 1918,
and demanded the money. By this time, however, the message from the
Philippine National Bank of October 11, directing the withholding
of payment had been received in New York, and payment was therefore
refused.In view of these facts, the plaintiff Kauffman instituted
the present action in the Court of First Instance of the city of
Manila to recover said sum, with interest and costs; and judgment
having been there entered favorably to the plaintiff, the defendant
appealed.Among additional facts pertinent to the case we note the
circumstance that at the time of the transaction above-mentioned,
the Philippines Fiber and Produce Company did not have on deposit
in the Philippine National Bank money adequate to pay the check for
P90,355.50, which was delivered in payment of the telegraphic
order; but the company did have credit to that extent, or more, for
overdraft in current account, and the check in question was charged
as an overdraft against the Philippine Fiber and Produce Company
and has remained on the books of the bank as an interest-bearing
item in the account of said company.It is furthermore noteworthy
that no evidence has been introduced tending to show failure of
consideration with respect to the amount paid for said telegraphic
order. It is true that in the defendant's answer it is suggested
that the failure of the bank to pay over the amount of this
remittance to the plaintiff in New York City, pursuant to its
agreement, was due to a desire to protect the bank in its relations
with the Philippine Fiber and Produce Company, whose credit was
secured at the bank by warehouse receipts on Philippine products;
and it is alleged that after the exchange in question was sold the
bank found that it did not have sufficient to warrant payment of
the remittance. In view, however, of the failure of the bank to
substantiate these allegations, or to offer any other proof showing
failure of consideration, it must be assumed that the obligation of
the bank was supported by adequate consideration.In this court the
defense is mainly, if not exclusively, based upon the proposition
that, inasmuch as the plaintiff Kauffman was not a party to the
contract with the bank for the transmission of this credit, no
right of action can be vested in him for the breach thereof. "In
this situation," we here quote the words of the appellant's brief,
"if there exists a cause of action against the defendant, it would
not be in favor of the plaintiff who had taken no part at all in
the transaction nor had entered into any contract with the
plaintiff, but in favor of the Philippine Fiber and Produce
Company, the party which contracted in its own name with the
defendant."The question thus placed before us is one purely of law;
and at the very threshold of the discussion it can be stated that
the provisions of the Negotiable Instruments Law can come into
operation there must be a document in existence of the character
described in section 1 of the Law; and no rights properly speaking
arise in respect to said instrument until it is delivered. In the
case before us there was an order, it is true, transmitted by the
defendant bank to its New York branch, for the payment of a
specified sum of money to George A. Kauffman. But this order was
not made payable "to order or "to bearer," as required in
subsection (d) of that Act; and inasmuch as it never left the
possession of the bank, or its representative in New York City,
there was no delivery in the sense intended in section 16 of the
same Law. In this connection it is unnecessary to point out that
the official receipt delivered by the bank to the purchaser of the
telegraphic order, and already set out above, cannot itself be
viewed in the light of a negotiable instrument, although it affords
complete proof of the obligation actually assumed by the
bank.Stated in bare simplicity the admitted facts show that the
defendant bank for a valuable consideration paid by the Philippine
Fiber and Produce Company agreed on October 9, 1918, to cause a sum
of money to be paid to the plaintiff in New York City; and the
question is whether the plaintiff can maintain an action against
the bank for the nonperformance of said undertaking. In other
words, is the lack of privity with the contract on the part of the
plaintiff fatal to the maintenance of an action by him?The only
express provision of law that has been cited as bearing directly on
this question is the second paragraph of article 1257 of the Civil
Code; and unless the present action can be maintained under the
provision, the plaintiff admittedly has no case. This provision
states an exception to the more general rule expressed in the first
paragraph of the same article to the effect that contracts are
productive of effects only between the parties who execute them;
and in harmony with this general rule are numerous decisions of
this court (Wolfsonvs.Estate of Martinez, 20 Phil., 340; Ibaez de
Aldecoavs.Hongkong and Shanghai Banking Corporation, 22 Phil., 572,
584; Manila Railroad Co.vs.Compaia Trasatlantica and Atlantic, Gulf
and Pacific Co., 38 Phil., 873, 894.)The paragraph introducing the
exception which we are now to consider is in these words:Should the
contract contain any stipulation in favor of a third person, he may
demand its fulfillment, provided he has given notice of his
acceptance to the person bound before the stipulation has been
revoked. (Art. 1257, par. 2, Civ. Code.)In the case of Uy Tam and
Uy Yetvs.Leonard (30 Phil., 471), is found an elaborate
dissertation upon the history and interpretation of the paragraph
above quoted and so complete is the discussion contained in that
opinion that it would be idle for us here to go over the same
matter. Suffice it to say that Justice Trent, speaking for the
court in that case, sums up its conclusions upon the conditions
governing the right of the person for whose benefit a contract is
made to maintain an action for the breach thereof in the following
words:So, we believe the fairest test, in this jurisdiction at
least, whereby to determine whether the interest of a third person
in a contract is a stipulationpour autrui, or merely an incidental
interest, is to rely upon the intention of the parties as disclosed
by their contract.If a third person claims an enforcible interest
in the contract, the question must be settled by determining
whether the contracting parties desired to tender him such an
interest. Did they deliberately insert terms in their agreement
with the avowed purpose of conferring a favor upon such third
person? In resolving this question, of course, the ordinary rules
of construction and interpretation of writings must be observed.
(Uy Tam and Uy Yetvs.Leonard,supra.)Further on in the same opinion
he adds: "In applying this test to a stipulationpour autrui, it
matters not whether the stipulation is in the nature of a gift or
whether there is an obligation owing from the promise to the third
person. That no such obligation exists may in some degree assist in
determining whether the parties intended to benefit a third person,
whether they stipulated for him." (Uy Tam and Uy
Yetvs.Leonard,supra.)In the light of the conclusion thus stated,
the right of the plaintiff to maintain the present action is clear
enough; for it is undeniable that the bank's promise to cause a
definite sum of money to be paid to the plaintiff in New York City
is a stipulation in his favor within the meaning of the paragraph
above quoted; and the circumstances under which that promise was
given disclose an evident intention on the part of the contracting
parties that the plaintiff should have the money upon demand in New
York City. The recognition of this unqualified right in the
plaintiff to receive the money implies in our opinion the right in
him to maintain an action to recover it; and indeed if the
provision in question were not applicable to the facts now before
us, it would be difficult to conceive of a case arising under it.It
will be noted that under the paragraph cited a third person seeking
to enforce compliance with a stipulation in his favor must signify
his acceptance before it has been revoked. In this case the
plaintiff clearly signified his acceptance to the bank by demanding
payment; and although the Philippine National Bank had already
directed its New York agency to withhold payment when this demand
was made, the rights of the plaintiff cannot be considered to as
there used, must be understood to imply revocation by the mutual
consent of the contracting parties, or at least by direction of the
party purchasing he exchange.In the course of the argument
attention was directed to the case of Legnitivs.Mechanics, etc.
Bank (130 N.E. Rep., 597), decided by the Court of Appeals of the
State of New York on March 1, 1921, wherein it is held that, by
selling a cable transfer of funds on a foreign country in ordinary
course, a bank incurs a simple contractual obligation, and cannot
be considered as holding the money which was paid for the transfer
in the character of a specific trust. Thus, it was said, "Cable
transfers, therefore, mean a method of transmitting money by cable
wherein the seller engages that he has the balance at the point on
which the payment is ordered and that on receipt of the cable
directing the transfer his correspondent at such point will make
payment to the beneficiary described in the cable. All these
transaction are matters of purchase and sale create no trust
relationship."As we view it there is nothing in the decision
referred to decisive of the question now before us, wish is merely
that of the right of the beneficiary to maintain an action against
the bank selling the transfer.Upon the considerations already
stated, we are of the opinion that the right of action exists, and
the judgment must be affirmed. It is so ordered, with costs against
the appellant. Interest will be computed as prescribed in section
510 of the Code of Civil Procedure.G.R. No. 97753 August 10,
1992CALTEX (PHILIPPINES), INC.,petitioner,vs.COURT OF APPEALS and
SECURITY BANK AND TRUST COMPANY,respondents.Bito, Lozada, Ortega
& Castillo for petitioners.Nepomuceno, Hofilea & Guingona
for private.REGALADO,J.:This petition for review
oncertiorariimpugns and seeks the reversal of the decision
promulgated by respondent court on March 8, 1991 in CA-G.R. CV No.
236151affirming with modifications, the earlier decision of the
Regional Trial Court of Manila, Branch XLII,2which dismissed the
complaint filed therein by herein petitioner against respondent
bank.The undisputed background of this case, as found by the courta
quoand adopted by respondent court, appears of record:1. On various
dates, defendant, a commercial banking institution, through its
Sucat Branch issued 280 certificates of time deposit (CTDs) in
favor of one Angel dela Cruz who deposited with herein defendant
the aggregate amount of P1,120,000.00, as follows: (Joint Partial
Stipulation of Facts and Statement of Issues, Original Records, p.
207; Defendant's Exhibits 1 to 280);CTD CTDDates Serial Nos.
Quantity Amount22 Feb. 82 90101 to 90120 20 P80,00026 Feb. 82 74602
to 74691 90 360,0002 Mar. 82 74701 to 74740 40 160,0004 Mar. 82
90127 to 90146 20 80,0005 Mar. 82 74797 to 94800 4 16,0005 Mar. 82
89965 to 89986 22 88,0005 Mar. 82 70147 to 90150 4 16,0008 Mar. 82
90001 to 90020 20 80,0009 Mar. 82 90023 to 90050 28 112,0009 Mar.
82 89991 to 90000 10 40,0009 Mar. 82 90251 to 90272 22 88,000 Total
280 P1,120,000===== ========2. Angel dela Cruz delivered the said
certificates of time (CTDs) to herein plaintiff in connection with
his purchased of fuel products from the latter (Original Record, p.
208).3. Sometime in March 1982, Angel dela Cruz informed Mr.
Timoteo Tiangco, the Sucat Branch Manger, that he lost all the
certificates of time deposit in dispute. Mr. Tiangco advised said
depositor to execute and submit a notarized Affidavit of Loss, as
required by defendant bank's procedure, if he desired replacement
of said lost CTDs (TSN, February 9, 1987, pp. 48-50).4. On March
18, 1982, Angel dela Cruz executed and delivered to defendant bank
the required Affidavit of Loss (Defendant's Exhibit 281). On the
basis of said affidavit of loss, 280 replacement CTDs were issued
in favor of said depositor (Defendant's Exhibits 282-561).5. On
March 25, 1982, Angel dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred Seventy Five Thousand
Pesos (P875,000.00). On the same date, said depositor executed a
notarized Deed of Assignment of Time Deposit (Exhibit 562) which
stated, among others, that he (de la Cruz) surrenders to defendant
bank "full control of the indicated time deposits from and after
date" of the assignment and further authorizes said bank to
pre-terminate, set-off and "apply the said time deposits to the
payment of whatever amount or amounts may be due" on the loan upon
its maturity (TSN, February 9, 1987, pp. 60-62).6. Sometime in
November, 1982, Mr. Aranas, Credit Manager of plaintiff Caltex
(Phils.) Inc., went to the defendant bank's Sucat branch and
presented for verification the CTDs declared lost by Angel dela
Cruz alleging that the same were delivered to herein plaintiff "as
security for purchases made with Caltex Philippines, Inc." by said
depositor (TSN, February 9, 1987, pp. 54-68).7. On November 26,
1982, defendant received a letter (Defendant's Exhibit 563) from
herein plaintiff formally informing it of its possession of the
CTDs in question and of its decision to pre-terminate the same.8.
On December 8, 1982, plaintiff was requested by herein defendant to
furnish the former "a copy of the document evidencing the guarantee
agreement with Mr. Angel dela Cruz" as well as "the details of Mr.
Angel dela Cruz" obligation against which plaintiff proposed to
apply the time deposits (Defendant's Exhibit 564).9. No copy of the
requested documents was furnished herein defendant.10. Accordingly,
defendant bank rejected the plaintiff's demand and claim for
payment of the value of the CTDs in a letter dated February 7, 1983
(Defendant's Exhibit 566).11. In April 1983, the loan of Angel dela
Cruz with the defendant bank matured and fell due and on August 5,
1983, the latter set-off and applied the time deposits in question
to the payment of the matured loan (TSN, February 9, 1987, pp.
130-131).12. In view of the foregoing, plaintiff filed the instant
complaint, praying that defendant bank be ordered to pay it the
aggregate value of the certificates of time deposit of
P1,120,000.00 plus accrued interest and compounded interest therein
at 16%per annum, moral and exemplary damages as well as attorney's
fees.After trial, the courta quorendered its decision dismissing
the instant complaint.3On appeal, as earlier stated, respondent
court affirmed the lower court's dismissal of the complaint, hence
this petition wherein petitioner faults respondent court in ruling
(1) that the subject certificates of deposit are non-negotiable
despite being clearly negotiable instruments; (2) that petitioner
did not become a holder in due course of the said certificates of
deposit; and (3) in disregarding the pertinent provisions of the
Code of Commerce relating to lost instruments payable to
bearer.4The instant petition is bereft of merit.A sample text of
the certificates of time deposit is reproduced below to provide a
better understanding of the issues involved in this
recourse.SECURITY BANKAND TRUST COMPANY6778 Ayala Ave., Makati No.
90101Metro Manila, PhilippinesSUCAT OFFICEP 4,000.00CERTIFICATE OF
DEPOSITRate16%Date of Maturity FEB. 23, 1984 FEB 22, 1982,
19____This is to Certify thatB E A R E Rhas deposited in this Bank
the sum ofPESOS: FOUR THOUSAND ONLY, SECURITY BANK SUCAT OFFICE
P4,000 & 00 CTSPesos, Philippine Currency, repayable to said
depositor731 days.after date, upon presentation and surrender of
this certificate, with interest at the rate of16%per centper
annum.(Sgd. Illegible) (Sgd. Illegible) AUTHORIZED
SIGNATURES5Respondent court ruled that the CTDs in question are
non-negotiable instruments, nationalizing as follows:. . . While it
may be true that the word "bearer" appears rather boldly in the
CTDs issued, it is important to note that after the word "BEARER"
stamped on the space provided supposedly for the name of the
depositor, the words "has deposited" a certain amount follows. The
document further provides that the amount deposited shall be
"repayable to said depositor" on the period indicated. Therefore,
the text of the instrument(s) themselves manifest with clarity that
they are payable, not to whoever purports to be the "bearer" but
only to the specified person indicated therein, the depositor. In
effect, the appellee bank acknowledges its depositor Angel dela
Cruz as the person who made the deposit and further engages itself
to pay said depositor the amount indicated thereon at the
stipulated date.6We disagree with these findings and conclusions,
and hereby hold that the CTDs in question are negotiable
instruments. Section 1 Act No. 2031, otherwise known as the
Negotiable Instruments Law, enumerates the requisites for an
instrument to become negotiable,viz:(a) It must be in writing and
signed by the maker or drawer;(b) Must contain an unconditional
promise or order to pay a sum certain in money;(c) Must be payable
on demand, or at a fixed or determinable future time;(d) Must be
payable to order or to bearer; and(e) Where the instrument is
addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.The CTDs in question undoubtedly
meet the requirements of the law for negotiability. The parties'
bone of contention is with regard to requisite (d) set forth above.
It is noted that Mr. Timoteo P. Tiangco, Security Bank's Branch
Manager way back in 1982, testified in open court that the
depositor reffered to in the CTDs is no other than Mr. Angel de la
Cruz.xxx xxx xxxAtty. Calida:q In other words Mr. Witness, you are
saying that per books of the bank, the depositor referred (sic) in
these certificates states that it was Angel dela Cruz?witness:a
Yes, your Honor, and we have the record to show that Angel dela
Cruz was the one who cause (sic) the amount.Atty. Calida:q And no
other person or entity or company, Mr. Witness?witness:a None, your
Honor.7xxx xxx xxxAtty. Calida:q Mr. Witness, who is the depositor
identified in all of these certificates of time deposit insofar as
the bank is concerned?witness:a Angel dela Cruz is the
depositor.8xxx xxx xxxOn this score, the accepted rule is that the
negotiability or non-negotiability of an instrument is determined
from the writing, that is, from the face of the instrument
itself.9In the construction of a bill or note, the intention of the
parties is to control, if it can be legally ascertained.10While the
writing may be read in the light of surrounding circumstances in
order to more perfectly understand the intent and meaning of the
parties, yet as they have constituted the writing to be the only
outward and visible expression of their meaning, no other words are
to be added to it or substituted in its stead. The duty of the
court in such case is to ascertain, not what the parties may have
secretly intended as contradistinguished from what their words
express, but what is the meaning of the words they have used. What
the parties meant must be determined by what they said.11Contrary
to what respondent court held, the CTDs are negotiable instruments.
The documents provide that the amounts deposited shall be repayable
to the depositor. And who, according to the document, is the
depositor? It is the "bearer." The documents do not say that the
depositor is Angel de la Cruz and that the amounts deposited are
repayable specifically to him. Rather, the amounts are to be
repayable to the bearer of the documents or, for that matter,
whosoever may be the bearer at the time of presentment.If it was
really the intention of respondent bank to pay the amount to Angel
de la Cruz only, it could have with facility so expressed that fact
in clear and categorical terms in the documents, instead of having
the word "BEARER" stamped on the space provided for the name of the
depositor in each CTD. On the wordings of the documents, therefore,
the amounts deposited are repayable to whoever may be the bearer
thereof. Thus, petitioner's aforesaid witness merely declared that
Angel de la Cruz is the depositor "insofar as the bank is
concerned," but obviously other parties not privy to the
transaction between them would not be in a position to know that
the depositor is not the bearer stated in the CTDs. Hence, the
situation would require any party dealing with the CTDs to go
behind the plain import of what is written thereon to unravel the
agreement of the parties thereto through factsaliunde.This need for
resort to extrinsic evidence is what is sought to be avoided by the
Negotiable Instruments Law and calls for the application of the
elementary rule that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the
obscurity.12The next query is whether petitioner can rightfully
recover on the CTDs. This time, the answer is in the negative. The
records reveal that Angel de la Cruz, whom petitioner chose not to
implead in this suit for reasons of its own, delivered the CTDs
amounting to P1,120,000.00 to petitioner without informing
respondent bank thereof at any time. Unfortunately for petitioner,
although the CTDs are bearer instruments, a valid negotiation
thereof for the true purpose and agreement between it and De la
Cruz, as ultimately ascertained, requires both delivery and
indorsement. For, although petitioner seeks to deflect this fact,
the CTDs were in reality delivered to it as a security for De la
Cruz' purchases of its fuel products. Any doubt as to whether the
CTDs were delivered as payment for the fuel products or as a
security has been dissipated and resolved in favor of the latter by
petitioner's own authorized and responsible representative
himself.In a letter dated November 26, 1982 addressed to respondent
Security Bank, J.Q. Aranas, Jr., Caltex Credit Manager, wrote: ". .
. These certificates of deposit were negotiated to us by Mr. Angel
dela Cruzto guarantee his purchases of fuel products" (Emphasis
ours.)13This admission is conclusive upon petitioner, its
protestations notwithstanding. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person
relying thereon.14A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon
them.15In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such
declaration, act, or omission, be permitted to falsify it.16If it
were true that the CTDs were delivered as payment and not as
security, petitioner's credit manager could have easily said so,
instead of using the words "to guarantee" in the letter
aforequoted. Besides, when respondent bank, as defendant in the
court below, moved for a bill of particularity therein17praying,
among others, that petitioner, as plaintiff, be required to aver
with sufficient definiteness or particularity (a) the due date or
dates ofpaymentof the alleged indebtedness of Angel de la Cruz to
plaintiff and (b) whether or not it issued a receipt showing that
the CTDs were delivered to it by De la Cruz aspaymentof the
latter's alleged indebtedness to it, plaintiff corporation opposed
the motion.18Had it produced the receipt prayed for, it could have
proved, if such truly was the fact, that the CTDs were delivered as
payment and not as security. Having opposed the motion, petitioner
now labors under the presumption that evidence willfully suppressed
would be adverse if produced.19Under the foregoing circumstances,
this disquisition inIntergrated Realty Corporation, et al. vs.
Philippine National Bank, et al.20is apropos:. . . Adverting again
to the Court's pronouncements inLopez, supra, we quote
therefrom:The character of the transaction between the parties is
to be determined by their intention, regardless of what language
was used or what the form of the transfer was. If it was intended
to secure the payment of money, it must be construed as a pledge;
but if there was some other intention, it is not a pledge. However,
even though a transfer, if regarded by itself, appears to have been
absolute, its object and character might still be qualified and
explained by contemporaneous writing declaring it to have been a
deposit of the property as collateral security. It has been said
that a transfer of property by the debtor to a creditor, even if
sufficient on its face to make an absolute conveyance, should be
treated as a pledge if the debt continues in inexistence and is not
discharged by the transfer, and that accordingly the use of the
terms ordinarily importing conveyance of absolute ownership will
not be given that effect in such a transaction if they are also
commonly used in pledges and mortgages and therefore do not
unqualifiedly indicate a transfer of absolute ownership, in the
absence of clear and unambiguous language or other circumstances
excluding an intent to pledge.Petitioner's insistence that the CTDs
were negotiated to it begs the question. Under the Negotiable
Instruments Law, an instrument is negotiated when it is transferred
from one person to another in such a manner as to constitute the
transferee the holder thereof,21and a holder may be the payee or
indorsee of a bill or note, who is in possession of it, or the
bearer thereof.22In the present case, however, there was no
negotiation in the sense of a transfer of the legal title to the
CTDs in favor of petitioner in which situation, for obvious
reasons, mere delivery of the bearer CTDs would have sufficed.
Here, the delivery thereof only as security for the purchases of
Angel de la Cruz (and we even disregard the fact that the amount
involved was not disclosed) could at the most constitute petitioner
only as a holder for value by reason of his lien. Accordingly, a
negotiation for such purpose cannot be effected by mere delivery of
the instrument since, necessarily, the terms thereof and the
subsequent disposition of such security, in the event of
non-payment of the principal obligation, must be contractually
provided for.The pertinent law on this point is that where the
holder has a lien on the instrument arising from contract, he is
deemed a holder for value to the extent of his lien.23As such
holder of collateral security, he would be a pledgee but the
requirements therefor and the effects thereof, not being provided
for by the Negotiable Instruments Law, shall be governed by the
Civil Code provisions on pledge of incorporeal rights,24which
inceptively provide:Art. 2095. Incorporeal rights, evidenced by
negotiable instruments, . . . may also be pledged. The instrument
proving the right pledged shall be delivered to the creditor, and
if negotiable, must be indorsed.Art. 2096. A pledge shall not take
effect against third persons if a description of the thing pledged
and the date of the pledge do not appear in a public
instrument.Aside from the fact that the CTDs were only delivered
but not indorsed, the factual findings of respondent court quoted
at the start of this opinion show that petitioner failed to produce
any document evidencing any contract of pledge or guarantee
agreement between it and Angel de la Cruz.25Consequently, the mere
delivery of the CTDs did not legally vest in petitioner any right
effective against and binding upon respondent bank. The requirement
under Article 2096 aforementioned is not a mere rule of adjective
law prescribing the mode whereby proof may be made of the date of a
pledge contract, but a rule of substantive law prescribing a
condition without which the execution of a pledge contract cannot
affect third persons adversely.26On the other hand, the assignment
of the CTDs made by Angel de la Cruz in favor of respondent bank
was embodied in a public instrument.27With regard to this other
mode of transfer, the Civil Code specifically declares:Art. 1625.
An assignment of credit, right or action shall produce no effect as
against third persons, unless it appears in a public instrument, or
the instrument is recorded in the Registry of Property in case the
assignment involves real property.Respondent bank duly complied
with this statutory requirement. Contrarily, petitioner, whether as
purchaser, assignee or lien holder of the CTDs, neither proved the
amount of its credit or the extent of its lien nor the execution of
any public instrument which could affect or bind private
respondent. Necessarily, therefore, as between petitioner and
respondent bank, the latter has definitely the better right over
the CTDs in question.Finally, petitioner faults respondent court
for refusing to delve into the question of whether or not private
respondent observed the requirements of the law in the case of lost
negotiable instruments and the issuance of replacement certificates
therefor, on the ground that petitioner failed to raised that issue
in the lower court.28On this matter, we uphold respondent court's
finding that the aspect of alleged negligence of private respondent
was not included in the stipulation of the parties and in the
statement of issues submitted by them to the trial court.29The
issues agreed upon by them for resolution in this case are:1.
Whether or not the CTDs as worded are negotiable instruments.2.
Whether or not defendant could legally apply the amount covered by
the CTDs against the depositor's loan by virtue of the assignment
(Annex "C").3. Whether or not there was legal compensation or set
off involving the amount covered by the CTDs and the depositor's
outstanding account with defendant, if any.4. Whether or not
plaintiff could compel defendant to preterminate the CTDs before
the maturity date provided therein.5. Whether or not plaintiff is
entitled to the proceeds of the CTDs.6. Whether or not the parties
can recover damages, attorney's fees and litigation expenses from
each other.As respondent court correctly observed, with appropriate
citation of some doctrinal authorities, the foregoing enumeration
does not include the issue of negligence on the part of respondent
bank. An issue raised for the first time on appeal and not raised
timely in the proceedings in the lower court is barred by
estoppel.30Questions raised on appeal must be within the issues
framed by the parties and, consequently, issues not raised in the
trial court cannot be raised for the first time on
appeal.31Pre-trial is primarily intended to make certain that all
issues necessary to the disposition of a case are properly raised.
Thus, to obviate the element of surprise, parties are expected to
disclose at a pre-trial conference all issues of law and fact which
they intend to raise at the trial, except such as may involve
privileged or impeaching matters. The determination of issues at a
pre-trial conference bars the consideration of other questions on
appeal.32To accept petitioner's suggestion that respondent bank's
supposed negligence may be considered encompassed by the issues on
its right to preterminate and receive the proceeds of the CTDs
would be tantamount to saying that petitioner could raise on appeal
any issue. We agree with private respondent that the broad ultimate
issue of petitioner's entitlement to the proceeds of the questioned
certificates can be premised on a multitude of other legal reasons
and causes of action, of which respondent bank's supposed
negligence is only one. Hence, petitioner's submission, if
accepted, would render a pre-trial delimitation of issues a useless
exercise.33Still, even assumingarguendothat said issue of
negligence was raised in the court below, petitioner still cannot
have the odds in its favor. A close scrutiny of the provisions of
the Code of Commerce laying down the rules to be followed in case
of lost instruments payable to bearer, which it invokes, will
reveal that said provisions, even assuming their applicability to
the CTDs in the case at bar, are merely permissive and not
mandatory. The very first article cited by petitioner speaks for
itself.Art 548. Thedispossessed owner, no matter for what cause it
may be,mayapply to the judge or court of competent jurisdiction,
asking that the principal, interest or dividends due or about to
become due, be not paid a third person, as well as in order to
prevent the ownership of the instrument that a duplicate be issued
him. (Emphasis ours.)xxx xxx xxxThe use of the word "may" in said
provision shows that it is not mandatory but discretionary on the
part of the "dispossessed owner" to apply to the judge or court of
competent jurisdiction for the issuance of a duplicate of the lost
instrument. Where the provision reads "may," this word shows that
it is not mandatory but discretional.34The word "may" is usually
permissive, not mandatory.35It is an auxiliary verb indicating
liberty, opportunity, permission and possibility.36Moreover, as
correctly analyzed by private respondent,37Articles 548 to 558 of
the Code of Commerce, on which petitioner seeks to anchor
respondent bank's supposed negligence, merely established, on the
one hand, a right of recourse in favor of a dispossessed owner or
holder of a bearer instrument so that he may obtain a duplicate of
the same, and, on the other, an option in favor of the party liable
thereon who, for some valid ground, may elect to refuse to issue a
replacement of the instrument. Significantly, none of the
provisions cited by petitioner categorically restricts or prohibits
the issuance a duplicate or replacement instrumentsanscompliance
with the procedure outlined therein, and none establishes a
mandatory precedent requirement therefor.WHEREFORE, on the modified
premises above set forth, the petition is DENIEDand the appealed
decision is hereby AFFIRMED.SO ORDERED.G.R. No. 76788 January 22,
1990JUANITA SALAS,petitioner,vs.HON. COURT OF APPEALS and FIRST
FINANCE & LEASING CORPORATION,respondents.Arsenio C. Villalon,
Jr. for petitioner.Labaguis, Loyola, Angara & Associates for
private respondent.FERNAN,C.J.:Assailed in this petition for review
oncertiorariis the decision of the Court of Appeals in C.A.-G.R. CV
No. 00757 entitled "Filinvest Finance & Leasing Corporation v.
Salas", which modified the decision of the Regional Trial Court of
San Fernando, Pampanga in Civil Case No. 5915, a collection suit
between the same parties.Records disclose that on February 6, 1980,
Juanita Salas (hereinafter referred to as petitioner) bought a
motor vehicle from the Violago Motor Sales Corporation (VMS for
brevity) for P58,138.20 as evidenced by a promissory note. This
note was subsequently endorsed to Filinvest Finance & Leasing
Corporation (hereinafter referred to as private respondent) which
financed the purchase.Petitioner defaulted in her installments
beginning May 21, 1980 allegedly due to a discrepancy in the engine
and chassis numbers of the vehicle delivered to her and those
indicated in the sales invoice, certificate of registration and
deed of chattel mortgage, which fact she discovered when the
vehicle figured in an accident on 9 May 1980.This failure to pay
prompted private respondent to initiate Civil Case No. 5915 for a
sum of money against petitioner before the Regional Trial Court of
San Fernando, Pampanga.In its decision dated September 10, 1982,
the trial court held, thus:WHEREFORE, and in view of all the
foregoing, judgment is hereby rendered ordering the defendant to
pay the plaintiff the sum of P28,414.40 with interest thereon at
the rate of 14% from October 2, 1980 until the said sum is fully
paid; and the further amount of P1,000.00 as attorney's fees.The
counterclaim of defendant is dismissed.With costs against
defendant.1Both petitioner and private respondent appealed the
aforesaid decision to the Court of Appeals.Imputing fraud, bad
faith and misrepresentation against VMS for having delivered a
different vehicle to petitioner, the latter prayed for a reversal
of the trial court's decision so that she may be absolved from the
obligation under the contract.On October 27, 1986, the Court of
Appeals rendered its assailed decision, the pertinent portion of
which is quoted hereunder:The allegations, statements, or
admissions contained in a pleading are conclusive as against the
pleader. A party cannot subsequently take a position contradictory
of, or inconsistent with his pleadings (Cunanan vs. Amparo, 80
Phil. 227). Admissions made by the parties in the pleadings, or in
the course of the trial or other proceedings, do not require proof
and cannot be contradicted unless previously shown to have been
made through palpable mistake (Sec. 2, Rule 129, Revised Rules of
Court; Sta. Ana vs. Maliwat, L-23023, Aug. 31, 1968, 24 SCRA
1018).When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due
execution of the instrument shall be deemed admitted unless the
adverse party, under oath, specifically denied them, and sets forth
what he claims to be the facts (Sec. 8, Rule 8, Revised Rules of
Court; Hibbered vs. Rohde and McMillian, 32 Phil. 476).A perusal of
the evidence shows that the amount of P58,138.20 stated in the
promissory note is the amount assumed by the plaintiff in financing
the purchase of defendant's motor vehicle from the Violago Motor
Sales Corp., the monthly amortization of winch is Pl,614.95 for 36
months. Considering that the defendant was able to pay twice (as
admitted by the plaintiff, defendant's account became delinquent
only beginning May, 1980) or in the total sum of P3,229.90, she is
therefore liable to pay the remaining balance of P54,908.30 at
l4%per annumfrom October 2, 1980 until full payment.WHEREFORE,
considering the foregoing, the appealed decision is hereby modified
ordering the defendant to pay the plaintiff the sum of P54,908.30
at 14%per annumfrom October 2, 1980 until full payment. The
decision is AFFIRMED in all other respects. With costs to
defendant.2Petitioner's motion for reconsideration was denied;
hence, the present recourse.In the petition before us, petitioner
assigns twelve (12) errors which focus on the alleged fraud, bad
faith and misrepresentation of Violago Motor Sales Corporation in
the conduct of its business and which fraud, bad faith and
misrepresentation supposedly released petitioner from any liability
to private respondent who should instead proceed against
VMS.3Petitioner argues that in the light of the provision of the
law on sales by description4which she alleges is applicable here,
no contract ever existed between her and VMS and therefore none had
been assigned in favor of private respondent.She contends that it
is not necessary, as opined by the appellate court, to implead VMS
as a party to the case before it can be made to answer for damages
because VMS was earlier sued by her for "breach of contract with
damages" before the Regional Trial Court of Olongapo City, Branch
LXXII, docketed as Civil Case No. 2916-0. She cites as authority
the decision therein where the court originally ordered petitioner
to pay the remaining balance of the motor vehicle installments in
the amount of P31,644.30 representing the difference between the
agreed consideration of P49,000.00 as shown in the sales invoice
and petitioner's initial downpayment of P17,855.70 allegedly
evidenced by a receipt. Said decision was however reversed later
on, with the same court ordering defendant VMS instead to return to
petitioner the sum of P17,855.70. Parenthetically, said decision is
still pending consideration by the First Civil Case Division of the
Court of Appeals, upon an appeal by VMS, docketed as AC-G.R. No.
02922.5Private respondent in its comment, prays for the dismissal
of the petition and counters that the issues raised and the
allegations adduced therein are a mere rehash of those presented
and already passed upon in the court below, and that the judgment
in the "breach of contract" suit cannot be invoked as an authority
as the same is still pending determination in the appellate
court.We see no cogent reason to disturb the challenged
decision.The pivotal issue in this case is whether the promissory
note in question is a negotiable instrument which will bar
completely all the available defenses of the petitioner against
private respondent.Petitioner's liability on the promissory note,
the due execution and genuineness of which she never denied under
oath is, under the foregoing factualmilieu, as inevitable as it is
clearly established.The records reveal that involved herein is not
a simple case of assignment of credit as petitioner would have it
appear, where the assignee merely steps into the shoes of, is open
to all defenses available against and can enforce payment only to
the same extent as, the assignor-vendor.Recently, in the case
ofConsolidated Plywood Industries Inc.v.IFC Leasing and Acceptance
Corp.,6this Court had the occasion to clearly distinguish between a
negotiable and a non-negotiable instrument.Among others, the
instrument in order to be considered negotiable must contain the
so-called "words of negotiability i.e., must be payable to "order"
or "bearer"". Under Section 8 of the Negotiable Instruments Law,
there are only two ways by which an instrument may be made payable
to order. There must always be a specified person named in the
instrument and the bill or note is to be paid to the person
designated in the instrument or to any person to whom he has
indorsed and delivered the same. Without the words "or order or "to
the order of", the instrument is payable only to the person
designated therein and is therefore non-negotiable. Any subsequent
purchaser thereof will not enjoy the advantages of being a holder
of a negotiable instrument, but will merely "step into the shoes"
of the person designated in the instrument and will thus be open to
all defenses available against the latter. Such being the situation
in the above-cited case, it was held that therein private
respondent is not a holder in due course but a mere assignee
against whom all defenses available to the assignor may be
raised.7In the case at bar, however, the situation is different.
Indubitably, the basis of private respondent's claim against
petitioner is a promissory note which bears all the earmarks of
negotiability.The pertinent portion of the note reads:PROMISSORY
NOTE(MONTHLY)P58,138.20San Fernando, Pampanga, PhilippinesFeb. 11,
1980For value received, I/We jointly and severally, promise to
payViolago Motor Sales Corporation or order,at its office inSan
Fernando,Pampanga,the sum ofFIFTY EIGHT THOUSAND ONE HUNDRED THIRTY
EIGHT & 201/100 ONLY (P58,138.20)Philippine currency, which
amount includes interest at 14%per annumbased on the diminishing
balance, the said principal sum, to be payable, without need of
notice or demand, in installments of the amounts following and at
the dates hereinafter set forth, to wit:P1,614.95monthly for "36"
months due and payable on the 21st day of each month starting March
21, 1980 thru and inclusive of February 21, 1983. P_________
monthly for ______ months due and payable on the ______ day of each
month starting _____198__ thru and inclusive of _____, 198________
provided that interest at 14%per annumshall be added on each unpaid
installment from maturity hereof until fully paid.xxx xxx xxxMaker;
Co-Maker:(SIGNED) JUANITA SALAS
_________________Address:____________________
____________________WITNESSESSIGNED: ILLEGIBLE SIGNED: ILLEGIBLETAN
# TAN #PAY TO THE ORDER OFFILINVEST FINANCE AND LEASING
CORPORATIONVIOLAGO MOTOR SALES CORPORATIONBY: (SIGNED) GENEVEVA V.
BALTAZARCash Manager8A careful study of the questioned promissory
note shows that it is a negotiable instrument, having complied with
the requisites under the law as follows: [a] it is in writing and
signed by the maker Juanita Salas; [b] it contains an unconditional
promise to pay the amount of P58,138.20; [c] it is payable at a
fixed or determinable future time which is "P1,614.95 monthly for
36 months due and payable on the 21 st day of each month starting
March 21, 1980 thru and inclusive of Feb. 21, 1983;" [d] it is
payable to Violago Motor Sales Corporation,or orderand as such, [e]
the drawee is named or indicated with certainty.9It was negotiated
by indorsement in writing on the instrument itself payable to the
Order of Filinvest Finance and Leasing Corporation10and it is an
indorsement of the entire instrument.11Under the circumstances,
there appears to be no question that Filinvest is a holder in due
course, having taken the instrument under the following conditions:
[a] it is complete and regular upon its face; [b] it became the
holder thereof before it was overdue, and without notice that it
had previously been dishonored; [c] it took the same in good faith
and for value; and [d] when it was negotiated to Filinvest, the
latter had no notice of any infirmity in the instrument or defect
in the title of VMS Corporation.12Accordingly, respondent
corporation holds the instrument free from any defect of title of
prior parties, and free from defenses available to prior parties
among themselves, and may enforce payment of the instrument for the
full amount thereof.13This being so, petitioner cannot set up
against respondent the defense of nullity of the contract of sale
between her and VMS.Even assuming for the sake of argument that
there is an iota of truth in petitioner's allegation that there was
in fact deception made upon her in that the vehicle she purchased
was different from that actually delivered to her, this matter
cannot be passed upon in the case before us, where the VMS was
never impleaded as a party.Whatever issue is raised or claim
presented against VMS must be resolved in the "breach of contract"
case.Hence, we reach a similar opinion as did respondent court when
it held:We can only extend our sympathies to the defendant (herein
petitioner) in this unfortunate incident. Indeed, there is nothing
We can do as far as the Violago Motor Sales Corporation is
concerned since it is not a party in this case. To even discuss the
issue as to whether or not the Violago Motor Sales Corporation is
liable in the transaction in question would amount, to denial of
due process, hence, improper and unconstitutional. She should have
impleaded Violago Motor Sales.14IN VIEW OF THE FOREGOING, the
assailed decision is hereby AFFIRMED. With costs against
petitioner.SO ORDERED.[G.R. No. 154127.December 8, 2003]ROMEO C.
GARCIA,petitioner, vs.DIONISIO V. LLAMAS,respondent.D E C I S I O
NPANGANIBAN,J.:Novation cannot be presumed.It must be clearly shown
either by the express assent of the parties or by the complete
incompatibility between the old and the new agreements. Petitioner
herein fails to show either requirement convincingly; hence, the
summary judgment holding him liable as a joint andsolidarydebtor
stands.The CaseBefore us is a Petition for Review[1]under Rule 45
of the Rules of Court, seeking to nullify theNovember 26,
2001Decision[2]and theJune 26, 2002Resolution[3]of the Court of
Appeals (CA) in CA-GR CV No. 60521.The appellate court disposed as
follows:UPON THE VIEW WE TAKE OF THIS CASE, THUS,the judgment
appealed from, insofar as it pertains to [Petitioner] Romeo Garcia,
must be, as it hereby is,AFFIRMED, subject to the modification that
the award for attorneys fees and cost of suit isDELETED.The portion
of the judgment that pertains to xxxEduardo de Jesus isSET
ASIDEandVACATED.Accordingly, the case against xxxEduardo de Jesus
isREMANDEDto the court of origin for purposes of
receivingexparte[Respondent]DionisioLlamas evidence against
xxxEduardo de Jesus.[4]The challenged Resolution, on the other
hand, denied petitioners Motion for Reconsideration.The
AntecedentsThe antecedents of the case are narrated by the CA as
follows:This case started out as a complaint for sum of money and
damages byxxx[Respondent]DionisioLlamas against xxx[Petitioner]
Romeo Garcia and Eduardo de Jesus.Docketed as Civil Case No.
Q97-32-873, the complaint alleged that on 23 December 1996[,]
[petitioner and de Jesus] borrowedP400,000.00 from [respondent];
that, on the same day, [they] executed a promissory note
whereinthey bound themselves jointly and severally to pay the loan
on or before 23 January 1997 with a 5% interest per month; that the
loan has long been overdue and, despite repeated demands,
[petitioner and de Jesus] have failed and refused to pay it; and
that, by reason of the[ir] unjustified refusal, [respondent] was
compelled to engage the services of counsel to whom he agreed to
pay 25% of the sum to be recovered from [petitioner and de Jesus],
plusP2,000.00 for every appearance in court.Annexed to the
complaint were the promissory note above-mentioned and a demand
letter, dated02 May 1997, by [respondent] addressed to [petitioner
and de Jesus].Resisting the complaint, [Petitioner Garcia,] in his
[Answer,] averred that he assumed no liability under the promissory
note because he signed it merely as an accommodation party for
xxxde Jesus; and, alternatively, that he is relieved from any
liability arising from the note inasmuch as the loan had been paid
by xxxde Jesus by means of a check dated 17 April 1997; and that,
in any event, the issuance of the check and [respondents]
acceptance thereofnovatedor superseded the note.[Respondent]
tendered a reply to [Petitioner] Garcias answer, thereunder
asserting that the loan remained unpaid for the reason that the
check issued by xxxde Jesus bounced, and that [Petitioner] Garcias
answer was not even accompanied by a certificate of non-forum
shopping.Annexed to the reply were the face of the check and the
reverse side thereof.For his part, xxxde Jesus asserted in his
[A]nswerwith [C]ounterclaimthat out of the supposedP400,000.00
loan, he received onlyP360,000.00, theP40,000.00 having been
advance interest thereon for two months, that is, for January and
February 1997; that[,] in fact[,] he paid the sum ofP120,000.00 by
way of interests; that this was made when [respondents] daughter,
one Nits Llamas-Quijencio, received from the Central Police
District Command atBicutan,Taguig, Metro Manila (where xxxde Jesus
worked), the sum ofP40,000.00, representing the peso equivalent of
his accumulated leave credits, anotherP40,000.00 as advance
interest, and still anotherP40,000.00 as interest for the months of
March and April 1997; that he had difficulty in paying the loan and
had asked [respondent] for an extension of time; that [respondent]
acted in bad faith in instituting the case, [respondent] having
agreed to accept the benefits he (de Jesus) would receive for his
retirement, but [respondent] nonetheless filed the instant case
while his retirement was being processed; and that, in defense of
his rights, he agreed to pay his counselP20,000.00 [as] attorneys
fees, plusP1,000.00 for every court appearance.During the pre-trial
conference, xxxde Jesus and his lawyer did not appear, nor did they
file any pre-trial brief.Neither did [Petitioner] Garcia file a
pre-trial brief, and his counsel even manifested that he would no
[longer] present evidence. Given this development, the trial court
gave [respondent] permission to present his evidenceexparteagainst
xxxde Jesus; and, as regards [Petitioner] Garcia, the trial court
directed [respondent] to file a motion for judgment on the
pleadings, and for [Petitioner] Garcia to file his comment or
opposition thereto.Instead, [respondent] filed a [M]otionto declare
[Petitioner] Garcia in default and to allow him to present his
evidenceexparte.Meanwhile, [Petitioner] Garcia filed a
[M]anifestationsubmitting his defense to a judgment on the
pleadings. Subsequently, [respondent] filed a
[M]anifestation/[M]otionto submit the case for judgement on the
pleadings, withdrawing in the process his previous
motion.Thereunder, he asserted that [petitioners and de
Jesus]solidaryliability under the promissory note cannot be any
clearer, and that the check issued by de Jesus did not discharge
the loan since the check bounced.[5]OnJuly 7, 1998, the Regional
Trial Court (RTC) ofQuezonCity(Branch 222) disposed of the case as
follows:WHEREFORE, premises considered, judgment on the pleadings
is hereby rendered in favor of [respondent] and against [petitioner
and De Jesus], who are hereby ordered to pay, jointly and
severally, the [respondent] the following sums, to
wit:1)P400,000.00 representing the principal amount plus 5%
interest thereon per month from January 23, 1997 until the same
shall have been fully paid, less the amount ofP120,000.00
representing interests already paid by xxxde Jesus;2)P100,000.00 as
attorneys fees plus appearance fee ofP2,000.00 for each day of
[c]ourtappearance, and;3)Cost of this suit.[6]Ruling of the Court
of AppealsThe CA ruled that the trial court had erred when it
rendered a judgment on the pleadings against De Jesus. According to
the appellate court, his Answer raised genuinely contentious
issues. Moreover, he was still required to present his
evidenceexparte.Thus, respondent was notipso factoentitled to the
RTC judgment, even though De Jesus had been declared in default.The
case againstthe latter was therefore remanded by the CA to the
trial court for theexpartereception oftheformersevidence.As to
petitioner, the CA treated his case as a summary judgment, because
his Answer had failed to raise even a single genuine issue
regarding any material fact.The appellate court ruled that
nonovation-- express or implied -- had taken place when respondent
accepted the check from De Jesus.According to the CA, the check was
issued precisely to pay for the loan that was covered by the
promissory note jointly and severally undertaken by petitioner and
De Jesus. Respondents acceptance of the check did not serve to make
De Jesus the sole debtor because,first, the obligation incurred by
him and petitioner was joint and several; and,second, the check --
which had been intended to extinguish the obligation -- bounced
upon its presentment.Hence, this Petition.[7]IssuesPetitioner
submits the following issues for our consideration:IWhether or not
the Honorable Court of Appeals gravely erred in not holding
thatnovationapplies in the instant case as xxxEduardo de Jesus had
expressly assumed sole and exclusive liability for the loan
obligation he obtained from xxxRespondentDionisioLlamas, as clearly
evidenced by:a)Issuance by xxxde Jesus of a check in payment of the
full amount of the loan ofP400,000.00 in favor of Respondent
Llamas, although the check subsequently bounced[;]b)Acceptance of
the check by the xxxrespondent xxxwhich resulted in [the]
substitution byxxxde Jesus or [the superseding of] the promissory
note;c)xxxde Jesus having paid interests on the loan in the total
amount ofP120,000.00;d)The fact that Respondent Llamas agreed to
the proposal ofxxxde Jesus that due to financial difficulties, he
be given an extension of time to pay his loan obligation and that
his retirement benefits from the Philippine National Police will
answer for said obligation.IIWhether or not the Honorable Court of
Appeals seriously erred in not holding that the defense of
petitioner that he was merely an accommodation party, despite the
fact that the promissory note provided for a joint
andsolidaryliability, should have been given weight and credence
considering that subsequent events showed that the principal
obligor was in truth and in fact xxxde Jesus, as evidenced by the
foregoing circumstances showing his assumption of sole liability
over the loan obligation.IIIWhether or not judgment on the
pleadings or summary judgment was properly availed of by Respondent
Llamas, despite the fact that there are genuine issues of fact,
which the Honorable Court of Appeals itself admitted in its
Decision, which call for the presentation of evidence in a
full-blown trial.[8]Simply put, the issues are the following: 1)
whether there wasnovationof the obligation; 2) whether the defense
that petitioner was only an accommodation party had any basis; and
3) whether the judgment against him -- be it a judgment on the
pleadings or a summary judgment -- was proper.The Courts RulingThe
Petition has no merit.First Issue:NovationPetitioner seeks to
extricate himself from his obligation as joint andsolidarydebtor by
insisting thatnovationtook place, either through the substitution
of De Jesus as sole debtor or the replacement of the promissory
note by the check. Alternatively, the former argues that the
original obligation was extinguished when the latter, who was his
co-obligor, paid the loan with the check.The fallacy of the second
(alternative) argument is all too apparent. The check could not
have extinguished the obligation, because it bounced upon
presentment. By law,[9]the delivery of a check produces the effect
of payment only when it isencashed.We now come to the main issue of
whethernovationtook place.Novation is a mode of extinguishing an
obligation by changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by
subrogating a third person to the rights of the
creditor.[10]Article 1293 of the Civil Code definesnovationas
follows:Art. 1293. Novation which consists in substituting a new
debtor in the place of the original one, may be made even without
the knowledge or against the will of the latter, but not without
the consent of the creditor.Payment by the new debtor gives him
rights mentioned in articles 1236 and 1237.In general, there are
two modes of substituting the person of the debtor:
(1)expromisionand (2)delegacion.Inexpromision, the initiative for
the change does not come from -- and may even be made without the
knowledge of -- the debtor, since it consists of a third persons
assumption of the obligation.As such, it logically requires the
consent of the third person and the creditor.Indelegacion, the
debtor offers, and the creditor accepts, a third person who
consents to the substitution and assumes the obligation; thus, the
consent of these three persons are necessary.[11]Both modes of
substitution by the debtor require the consent of the
creditor.[12]Novation may also be extinctive ormodificatory. It is
extinctive when an old obligation is terminated by the creation of
a new one that takes the place of the former.It is
merelymodificatorywhen the old obligation subsists to the extent
that it remains compatible with the amendatory
agreement.[13]Whether extinctive ormodificatory,novationis made
either by changing the object or the principal conditions, referred
to as objective or realnovation; or by substituting the person of
the debtor or subrogating a third person to the rights of the
creditor, an act known as subjective or
personalnovation.[14]Fornovationto take place, the following
requisites must concur:1)There must be a previous valid
obligation.2)The parties concerned must agree to a new
contract.3)The old contract must be extinguished.4)There must be a
valid new contract.[15]Novation may also be express or implied. It
is express when the new obligation declares in unequivocal terms
that the old obligation is extinguished.It is implied when the new
obligation is incompatible with the old one on every point.[16]The
test of incompatibility is whether the two obligations can stand
together, each one with its own independent existence.[17]Applying
the foregoing to the instant case, we hold that nonovationtook
place.The parties did not unequivocally declare that the old
obligation had been extinguished by the issuance and the acceptance
of the check, or that the check would take the place of the
note.There is no incompatibility between the promissory note and
the check. As the CA correctly observed, the check had been issued
precisely to answer for the obligation.On the one hand, the note
evidences the loan obligation; and on the other, the check answers
for it.Verily, the two can stand together.Neither could the payment
of interests -- which, in petitioners view, also
constitutesnovation[18]-- change the terms and conditions of the
obligation.Such payment was already provided for in the promissory
note and, like the check, was totally in accord with the terms
thereof.Also unmeritorious is petitioners argument that the
obligation wasnovatedby the substitution of debtors.In order to
change the person of the debtor, the old one must be expressly
released from the obligation, and the third person or new debtor
must assume theformersplace in the relation.[19]Well-settled is the
rule thatnovationis never presumed.[20]Consequently, that which
arises from a purported change in the person of the debtor must be
clear and express.[21]It is thus incumbent on petitioner to show
clearly and unequivocally thatnovationhas indeed taken place.In the
present case, petitioner has not shown that he was expressly
released from the obligation, that a third person was substituted
in his place, or that the joint andsolidaryobligation was cancelled
and substituted by the solitary undertaking of De Jesus.The CA
aptly held:xxx. Plaintiffs acceptance of the bum check did not
result in substitution by de Jesus either, the nature of the
obligation beingsolidarydue to the fact that the promissory note
expressly declared that the liability of appellants thereunder is
joint and [solidary.]Reason: under the law, a creditor may demand
payment or performance from one of thesolidarydebtors or some or
all of them simultaneously, and payment made by one of them
extinguishes the obligation.It therefore follows that in case the
creditor fails to collect from one of thesolidarydebtors, he may
still proceed against the other or others.xxx[22]Moreover, it must
be noted that fornovationto be valid and legal, the law requires
that the creditor expressly consent to the substitution of a new
debtor.[23]Sincenovationimplies a waiver of the right the creditor
had before thenovation, such waiver must be express.[24]It cannot
be supposed, without clear proof, that the present respondent has
done away with his right to exact fulfillment from either of
thesolidarydebtors.[25]More important, De Jesus was not a third
person to the obligation.From the beginning, he was a joint
andsolidaryobligor of theP400,000 loan; thus, he can be released
from it only upon its extinguishment.Respondents acceptance of his
check did not change the person of the debtor, because a joint
andsolidaryobligor is required to pay the entirety of the
obligation.It must be noted that in asolidaryobligation, the
creditor is entitled to demand the satisfaction of the wh