G.R. No. L-53955 January 13, 1989 THE MANILA BANKING CORPORATION, plaintiff-appellee, vs. ANASTACIO TEODORO, JR.

and GRACE ANNA TEODORO, defendants-appellants. Formoso & Quimbo Law Office for plaintiff-appellee. Serafin P. Rivera for defendants-appellants.

BIDIN, J.: This is an appeal from the decision* of the Court of First Instance of Manila, Branch XVII in Civil Case No. 78178 for collection of sum of money based on promissory notes executed by the defendants-appellants in favor of plaintiffappellee bank. The dispositive portion of the appealed decision (Record on Appeal, p. 33) reads as follows: WHEREFORE judgment is hereby rendered (a) sentencing defendants, Anastacio Teodoro, Jr. and Grace Anna Teodoro jointly and severally, to pay plaintiff the sum of P15,037.11 plus 12% interest per annum from September 30, 1969 until fully paid, in payment of Promissory Notes No. 11487, plus the sum of P1,000.00 as attorney's fees; and (b) sentencing defendant Anastacio Teodoro, Jr. to pay plaintiff the sum of P8,934.74, plus interest at 12% per annum from September 30, 1969 until fully paid, in payment of Promissory Notes Nos. 11515 and 11699, plus the sum of P500.00 an attorney's fees. With Costs against defendants. The facts of the case as found by the trial court are as follows: On April 25, 1966, defendants, together with Anastacio Teodoro, Sr., jointly and severally, executed in favor of plaintiff a Promissory Note (No. 11487) for the sum of P10,420.00 payable in 120 days, or on August 25, 1966, at 12% interest per annum. Defendants failed to pay the said amount inspire of repeated demands and the obligation as of September 30, 1969 stood at P 15,137.11 including accrued interest and service charge. On May 3, 1966 and June 20, 1966, defendants Anastacio Teodoro, Sr. (Father) and Anastacio Teodoro, Jr. (Son) executed in favor of plaintiff two Promissory Notes (Nos. 11515 and 11699) for P8,000.00 and P1,000.00 respectively, payable in 120 days at 12% interest per annum. Father and Son made a partial payment on the May 3, 1966 promissory Note but none on the June 20, 1966 Promissory Note, leaving still an unpaid balance of P8,934.74 as of September 30, 1969 including accrued interest and service charge. The three Promissory Notes stipulated that any interest due if not paid at the end of every month shall be added to the total amount then due, the whole amount to bear interest at the rate of 12% per annum until fully paid; and in case of collection through an attorney-at-law, the makers shall, jointly and severally, pay 10% of the amount over-due as attorney's fees, which in no case shall be leas than P200.00. It appears that on January 24, 1964, the Son executed in favor of plaintiff a Deed of Assignment of Receivables from the Emergency Employment Administration in the sum of P44,635.00. The

Deed of Assignment provided that it was for and in consideration of certain credits, loans, overdrafts and other credit accommodations extended to defendants as security for the payment of said sum and the interest thereon, and that defendants do hereby remise, release and quitclaim all its rights, title, and interest in and to the accounts receivables. Further. (1) The title and right of possession to said accounts receivable is to remain in the assignee, and it shall have the right to collect the same from the debtor, and whatsoever the Assignor does in connection with the collection of said accounts, it agrees to do as agent and representative of the Assignee and in trust for said Assignee ; xxx xxx xxx (6) The Assignor guarantees the existence and legality of said accounts receivable, and the due and punctual payment thereof unto the assignee, ... on demand, ... and further, that Assignor warrants the solvency and credit worthiness of each and every account. (7) The Assignor does hereby guarantee the payment when due on all sums payable under the contracts giving rise to the accounts receivable ... including reasonable attorney's fees in enforcing any rights against the debtors of the assigned accounts receivable and will pay upon demand, the entire unpaid balance of said contract in the event of non-payment by the said debtors of any monthly sum at its due date or of any other default by said debtors; xxx xxx xxx (9) ... This Assignment shall also stand as a continuing guarantee for any and all whatsoever there is or in the future there will be justly owing from the Assignor to the Assignee ... In their stipulations of Fact, it is admitted by the parties that plaintiff extended loans to defendants on the basis and by reason of certain contracts entered into by the defunct Emergency Employment Administration (EEA) with defendants for the fabrication of fishing boats, and that the Philippine Fisheries Commission succeeded the EEA after its abolition; that non-payment of the notes was due to the failure of the Commission to pay defendants after the latter had complied with their contractual obligations; and that the President of plaintiff Bank took steps to collect from the Commission, but no collection was effected. For failure of defendants to pay the sums due on the Promissory Note, this action was instituted on November 13, 1969, originally against the Father, Son, and the latter's wife. Because the Father died, however, during the pendency of the suit, the case as against him was dismiss under the provisions of Section 21, Rule 3 of the Rules of Court. The action, then is against defendants Son and his wife for the collection of the sum of P 15,037.11 on Promissory Note No. 14487; and against defendant Son for the recovery of P 8,394.7.4 on Promissory Notes Nos. 11515 and 11699, plus interest on both amounts at 12% per annum from September 30, 1969 until fully paid, and 10% of the amounts due as attorney's fees. Neither of the parties presented any testimonial evidence and submitted the case for decision based on their Stipulations of Fact and on then, documentary evidence.

The issues, as defined by the parties are: (1) whether or not plaintiff claim is already considered paid by the Deed of Assign. judgment of Receivables by the Son; and (2) whether or not it is plaintiff who should directly sue the Philippine Fisheries Commission for collection.' (Record on Appeal, p. 29- 32). On April 17, 1972, the trial court rendered its judgment adverse to defendants. On June 8, 1972, defendants filed a motion for reconsideration (Record on Appeal, p. 33) which was denied by the trial court in its order of June 14, 1972 (Record on Appeal, p. 37). On June 23, 1972, defendants filed with the lower court their notice of appeal together with the appeal bond (Record on Appeal, p. 38). The record of appeal was forwarded to the Court of Appeals on August 22, 1972 (Record on Appeal, p. 42). In their appeal (Brief for the Appellants, Rollo, p. 12), appellants raised a single assignment of error, that is THAT THE DECISION IN QUESTION AMOUNTS TO A JUDICIAL REMAKING OF THE CONTRACT BETWEEN THE PARTIES, IN VIOLATION OF LAW; HENCE, TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION. As the appeal involves a pure question of law, the Court of Appeals, in its resolution promulgated on March 6, 1980, certified the case to this Court (Rollo, p. 24). The record on Appeal was forwarded to this Court on March 31, 1980 (Rollo, p. 1). In the resolution of May 30, 1980, the First Division of this Court ordered that the case be docketed and declared submitted for decision (Rollo, p. 33). On March 7, 1988, considering the length of time that the case has been pending with the Court and to determine whether supervening events may have rendered the case moot and academic, the Court resolved (1) to require the parties to MOVE IN THE PREMISES within thirty days from notice, and in case they fail to make the proper manifestation within the required period, (2) to consider the case terminated and closed with the entry of judgment accordingly made thereon (Rollo, p. 40). On April 27, 1988, appellee moved for a resolution of the appeal review interposed by defendants-appellants (Rollo, p. 41). The major issues raised in this case are as follows: (1) whether or not the assignment of receivables has the effect of payment of all the loans contracted by appellants from appellee bank; and (2) whether or not appellee bank must first exhaust all legal remedies against the Philippine Fisheries Commission before it can proceed against appellants for collections of loan under the promissory notes which are plaintiffs bases in the action for collection in Civil Case No. 78178. Assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the need of the consent of the debtor, transfers his credit and its accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could have enforced it against the debtor. ... It may be in the form of a sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person, or it may constitute a donation as when it is by gratuitous title; or it may even be merely by way of guaranty, as when the creditor gives as a collateral, to secure his own debt in favor of the assignee, without transmitting ownership. The character that it may assume determines its requisites and effects. its regulation, and the capacity of the parties to execute it; and in every case, the obligations between assignor and assignee will depend upon the judicial relation which is the basis of the assignment: (Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. 5, pp. 165-166).

There is no question as to the validity of the assignment of receivables executed by appellants in favor of appellee bank. The issue is with regard to its legal effects. I It is evident that the assignment of receivables executed by appellants on January 24, 1964 did not transfer the ownership of the receivables to appellee bank and release appellants from their loans with the bank incurred under promissory notes Nos. 11487,11515 and 11699. The Deed of Assignment provided that it was for and in consideration of certain credits, loans, overdrafts, and their credit accommodations in the sum of P10,000.00 extended to appellants by appellee bank, and as security for the payment of said sum and the interest thereon; that appellants as assignors, remise, release, and quitclaim to assignee bank all their rights, title and interest in and to the accounts receivable assigned (lst paragraph). It was further stipulated that the assignment will also stand as a continuing guaranty for future loans of appellants to appellee bank and correspondingly the assignment shall also extend to all the accounts receivable; appellants shall also obtain in the future, until the consideration on the loans secured by appellants from appellee bank shall have been fully paid by them (No. 9). The position of appellants, however, is that the deed of assignment is a quitclaim in consideration of their indebtedness to appellee bank, not mere guaranty, in view of the following provisions of the deed of assignment: ... the Assignor do hereby remise, release and quit-claim unto said assignee all its rights, title and interest in the accounts receivable described hereunder. (Emphasis supplied by appellants, first par., Deed of Assignment). ... that the title and right of possession to said account receivable is to remain in said assignee and it shall have the right to collect directly from the debtor, and whatever the Assignor does in connection with the collection of said accounts, it agrees to do so as agent and representative of the Assignee and it trust for said Assignee ...(Ibid. par. 2 of Deed of Assignment).' (Record on Appeal, p. 27) The character of the transactions between the parties is not, however, determined by the language used in the document but by their intention. Thus, the Court, quoting from the American Jurisprudence (68 2d, Secured Transaction, Section 50) said: The characters 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. However, even though a transfer, if regarded by itself, appellate to have been absolute, its object and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been Id that a transfer of property by the debtor to a creditor, even if sufficient on its farm to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly, the use of the terms ordinarily exporting 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 ambiguous language or other circumstances excluding an intent to pledge. (Lopez v. Court of Appeals, 114 SCRA 671 [1982]).

Definitely, the assignment of the receivables did not result from a sale transaction. It cannot be said to have been constituted by virtue of a dation in payment for appellants' loans with the bank evidenced by promissory note Nos. 11487, 11515 and 11699 which are the subject of the suit for collection in Civil Case No. 78178. At the time the deed of assignment was executed, said loans were non-existent yet. The deed of assignment was executed on January 24, 1964 (Exh. "G"), while promissory note No. 11487 is dated April 25, 1966 (Exh. 'A), promissory note 11515, dated May 3, 1966 (Exh. 'B'), promissory note 11699, on June 20, 1966 (Exh. "C"). At most, it was a dation in payment for P10,000.00, the amount of credit from appellee bank indicated in the deed of assignment. At the time the assignment was executed, there was no obligation to be extinguished except the amount of P10,000.00. Moreover, in order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other (Article 1292, New Civil Code). Obviously, the deed of assignment was intended as collateral security for the bank loans of appellants, as a continuing guaranty for whatever sums would be owing by defendants to plaintiff, as stated in stipulation No. 9 of the deed. In case of doubt as to whether a transaction is a pledge or a dation in payment, the presumption is in favor of pledge, the latter being the lesser transmission of rights and interests (Lopez v. Court of Appeals, supra). In one case, the assignments of rights, title and interest of the defendant in the contracts of lease of two buildings as well as her rights, title and interest in the land on which the buildings were constructed to secure an overdraft from a bank amounting to P110,000.00 which was increased to P150,000.00, then to P165,000.00 was considered by the Court to be documents of mortgage contracts inasmuch as they were executed to guarantee the principal obligations of the defendant consisting of the overdrafts or the indebtedness resulting therefrom. The Court ruled that an assignment to guarantee an obligation is in effect a mortgage and not an absolute conveyance of title which confers ownership on the assignee (People's Bank & Trust Co. v. Odom, 64 Phil. 126 [1937]). II As to whether or not appellee bank must have to exhaust all legal remedies against the Philippine Fisheries Commission before it can proceed against appellants for collection of loans under their promissory notes, must also be answered in the negative. The obligation of appellants under the promissory notes not having been released by the assignment of receivables, appellants remain as the principal debtors of appellee bank rather than mere guarantors. The deed of assignment merely guarantees said obligations. That the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor, under Article 2058 of the New Civil Code does not therefore apply to them. It is of course of the essence of a contract of pledge or mortgage that when the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor (Article 2087, New Civil Code). In the instant case, appellants are both the principal debtors and the pledgors or mortgagors. Resort to one is, therefore, resort to the other. Appellee bank did try to collect on the pledged receivables. As the Emergency Employment Agency (EEA) which issued the receivables had been abolished, the collection had to be coursed through the Office of the President which disapproved the same (Record on Appeal, p. 16). The receivable became virtually worthless leaving appellants' loans from appellee bank unsecured. It is but proper that after their repeated demands made on appellants for the settlement of their obligations, appellee bank should proceed against appellants. It would be an exercise in futility to proceed against a defunct office for the collection of the receivables pledged.

WHEREFORE, the appeal is Dismissed for lack of merit and the appealed decision of the trial court is affirmed in toto. SO ORDERED. Fernan, C.J., Gutierrez, Jr. and Cortes, JJ., concur.

G.R. No. 84220 March 25, 1992 BENJAMIN vs. COURT OF APPEALS, and HADJI ESMAYATEN LUCMAN, respondents. RODRIGUEZ, petitioner,

GUTIERREZ, JR., J.: This is a petition for review on certiorari of the decision of the Court of Appeals affirming a decision of the trial court which allowed Hadji Esmayaten Lucman as assignee to collect from Benjamin Uy Rodriguez, an indebtedness owed to the assignor, a Hongkong corporation. The antecedent facts of the case are as follows: Petitioner Rodriguez alias Uy Tian Kiu is a businessman from Cebu City whose business, includes the importation of various commodities from Hongkong which he occasionally ordered from Allied Overseas Commercial Co., Ltd., a Hongkong corporation. The Managing Director of Allied Overseas Commercial Co., Ltd. is Lin Ping Huang, a close friend of private respondent Lucman. Petitioner Rodriguez, as a result of business transactions with the Hongkong Corporation, accumulated an indebtedness owed to Allied Overseas in the amount of HK $418,729.60 which had at that time in 1968 an exchange value of P540,553.00. Upon demand for payment by the Hongkong Corporation, the petitioner issued a pay-to-cash check dated September 11, 1970 covering the indebtedness. The check was, however, dishonored for lack of funds, the account having been closed two months earlier. Subsequently, the Allied Overseas Commercial Co., Ltd., through its Managing Director, Lin Ping Huang, assigned its credit to the private respondent. The contract was evidenced by a Deed of Assignment (Exhs. "B-2" and "B-3") duly executed before Philippine Consular officials in Hongkong. It reads: That WE, the ALLIED OVERSEAS COMMERCIAL CO., LTD., a commercial association duly organized and registered in the company's registry of the Crown Colony of Hongkong with offices at No. 5-7 Des Voeux Road, West, 1st Floor, Hongkong, represented in this instance by its Managing Director duly authorized by a Board resolution, for and in consideration of HK$ 1 and other

valuable considerations, have on this date assigned, ceded, transferred and conveyed by way of irrevocable assignment and transferred to Hadji Esmayaten Lucman, Esq., of legal age, Filipino citizen, and a resident of No. 95-I, A. Lake St., San Juan, Province of Rizal, Republic of the Philippines, our outstanding and collectible credit due and owing us by and from Benjamin Uy Rodriguez alias Uy Tian Kiu of Cebu City, Republic of the Philippines, in the total amount of HK$ 418,729.60 or its equivalent in the Philippine Currency, for said Hadji Esmayaten Lucman to collect and secure from the aforesaid debtor, Benjamin Uy Rodriguez alias Uy Tian Kiu the aforesaid amount in any manner, including court proceedings if necessary, in accordance with the provisions of existing laws in the jurisdiction of the Republic of the Philippines. We, as creditors assignors of the aforesaid debt, have on this date notified formally the debtor named herein of this full assignment of the aforesaid credit. (Orig. record, p. 11) The assignee filed an action to collect the indebtedness. On March 4, 1985, the trial court rendered a decision in favor of the private respondent. The dispositive portion of the Decision reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendant, sentencing the latter to pay the former the following sums: (a) P450,553.00 representing defendant's outstanding account to plaintiff's assignor, with interest thereon at twelve per cent (12%) per annum from the time of the filing of the complaint on February 4, 1971 until fully paid: (b) P500,000.00 as actual damages; (c) P100,000.00 as moral damages; (d) The further sum equivalent to ten (10%) per cent of all the foregoing sums as attorney's fees and costs of litigation. Costs against the defendant. SO ORDERED. (pp. 142-143, Orig. Rec.) Benjamin Rodriguez appealed the decision to the Court of Appeals and assigned the following as errors committed by the trial court: 1 Plaintiff is not the real party-in-interest and is therefore, without legal capacity to sue; 2 The obligation does not exist or has not been sufficiently proven to exist; 3 Venue is improperly laid. After carefully evaluating the evidence presented by the parties, the Court of Appeals rendered the questioned decision dismissing the appeal for lack of merit. Benjamin Rodriguez filed a motion for reconsideration which was denied by the appellate court which stated that the arguments submitted in support of the motion were a mere rehash of the arguments in the Appellant's Brief. The petitioner is now before us questioning the decision of the Court of Appeals. He specifically relies on the following as bases for his petition:

I. That the judgment in the criminal case cannot be given in evidence in the civil action. II. That the decision of the Court of Appeals is not in accord with Article 1301 of the New Civil Code which requires consent to subrogation; and III. That the award of damages is excessive. We find the petition devoid of merit. The petitioner alleges that the only evidence presented by private respondent was the decision of the Court of Appeals in the case of People v. Lucman (CA G.R. No. 21365-CR) for falsification of commercial document. The case was filed by the petitioner before the Regional Trial Court of Cebu while the civil case filed by Lucman in the Regional Trial Court of Pasig was in progress. The Regional Trial Court of Cebu convicted Lucman but on appeal, the Court of Appeals acquitted him on the basis of its finding that complainant Rodriguez had indeed an unpaid balance which was sufficiently established by evidence. The decision in the criminal case was only one of the pieces of evidence relied upon by the respondent court. The petitioner is giving undue weight to this particular item. It is clear from the records, both testimonial and documentary that the obligation exists. The documents, all testified to by private respondent Lucman as well as other witnesses had sufficiently proven that Rodriguez had an unpaid balance from previous transaction with Allied Overseas Commercial Co., Ltd. which arose from the importation of the 800 bales of Hessian sacks. The unpaid balance was evidenced by a record of transactions between Allied Overseas Co., Ltd. and Ben Rodriguez. The statement of account was sent to the petitioner on September 30, 1968 and the receipt portion was duly signed by him and returned. (Exh. "E-3" and "E-3A") If the importation was made in the name of Madipo Mercantile this was pursuant to the petitioner's request that his importations be carried out in the names of different companies. This explains the shipment made to Madipo, a business firm owned by Wilfredo Tiu, a brother-in-law of Rodriguez. However, the exchange of cables regarding the importation clearly indicates that Rodriguez was the real importer (Exh. "L", "M", "M-1", "M-2", and "M-3") The authenticity of the above cable communications has not been impugned by the petitioner. Lucman also took the witness stand and identified numerous documents consisting of Purchase Orders, Bills of Lading, Delivery Receipts, and other evidences of the purchase of a barge and other goods by the petitioner from Allied Overseas Commercial Co., Ltd. Hueng Huan Yuen Sabio, Assistant to the General Manager and in-charge of shipping of Allied Overseas Commercial Co., Ltd., further testified to the same transactions. We have no doubt from the records that the obligation actually existed. Anent petitioner's second point, we find no merit in his contention that there was subrogation instead of an assignment of credit. The basis of the complaint is not a deed of subrogation but an assignment of credit whereby the private respondent became the owner, not the subrogee of the credit since the assignment was supported by HK$ 1.00 and other valuable considerations.

The case is one of the assignment of credit and not subrogation. In subrogation, the third party pays the obligation of the debtor to the creditor with the latter's consent. As a consequence, the paying third party steps into the shoes of the original creditor as subrogee of the latter. An assignment of credit, on the other hand, is the process of transferring the right of the assignor to the assignee who would then have the right to proceed against the debtor. The assignment may be done either gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale (p. 235, Civil Code of the Philippines, Annotated, Vol. V, Paras, 1982 ed.; Nyco Sales Corp. vs. BA Finance Corp., G.R. No. 71694, August 16, 1991). The petitioner further contends that the consent of the debtor is essential to the subrogation. Since there was no consent on his part, then he allegedly is not bound. Again, we find for the respondent. The questioned deed of assignment is neither one of the subrogation nor a power of attorney as the petitioner alleges. The deed of assignment clearly states that the private respondent became an assignee and, therefore, he became the only party entitled to collect the indebtedness. As a result of the Deed of Assignment, the plaintiff acquired all rights of the assignor including the right to sue in his own name as the legal assignee. Moreover, in assignment, the debtor's consent is not essential for the validity of the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge thereof affecting only the validity of the payment he might make (Article 1626, Civil Code). Article 1626 also shows that payment of an obligation which is already existing does not depend on the consent of the debtor. It, in effect, mandates that such payment of the existing obligation shall already be made to the new creditor from the time the debtor acquires knowledge of the assignment of the obligation. The law is clear that the debtor had the obligation to pay and should have paid from the date of notice whether or not he consented. We have ruled in Sison & Sison v. Yap Tico and Avancea, 37 Phil. 587 [1918] that definitely, consent is not necessary in order that assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors' refusal to give consent. What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him. A creditor may, therefore, validly assign his credit and its accessories without the debtor's consent (National Investment and Development Co. v. De los Angeles, 40 SCRA 489 [1971]). The purpose of the notice is only to inform the debtor that from the date of the assignment, payment should be made to the assignee and not to the original creditor. The fact that the deed of assignment empowered the assignee to collect the credit originally owing to the foreign corporation does not make the assignee a mere attorney-in-fact. The case of Ngo Tian Tian Tek and Ngo Hay v. Philippine Education Co., 78 Phil. 271 [1947] is in point: When a chose, capable of legal assignment is assigned absolutely to one, but the assignment is made for purpose of collection, the legal title thereto vests, in the assignee, and it is no concern of the debtor that the equitable title is in another and payment to the assignee discharges the debtor. The petitioner further assails the consideration given for the deed of assignment which is stated as "HK$ 1.00 and other valuable considerations."

A valuable considerations, however small or nominal if given or stipulated in good faith is, in the absence of fraud, sufficient. A stipulation in consideration of $1 is just as effectual and valuable a consideration as a larger sum stipulated for or paid (Penaco v. Ruaya, 110 SCRA 46 [1981]; Ascalon vs. Court of Appeals, 158 SCRA 542, [1988]). It is not clear what considerations led to the assignment but they must have been sufficiently valuable to the assignor in view of the amount involved. Hence, by virtue of the deed of assignment whose existence and legality remains unrebutted, the respondent acquired all the rights of the assignor including the right to sue in his own name as the legal assignee. The contract was not executed merely to enable the foreign corporation to sue in the Philippines because even without the assignment, the foreign corporation can also sue in the Philippines for isolated transactions even if not licensed to engage in business in this country. Lastly, the petitioner asserts that the award of damages was excessive there being no finding to justify the amounts. We find the amounts equitable except for the award of P500,000.00 as actual damages in addition to the P450,553.00 indebtedness. The records do not contain the factual basis for such an award. Thus, we agree with the petitioner that it is not justifiable to award that amount. All premises considered, we find for the private respondent. We should also add that the case has dragged on 21 years since its filing with the then Court of First Instance of Pasig, Rizal on February 4, 1971, due to the numerous dilatory tactics of the petitioner. The delay has obviously created an injustice on the part of private respondent not fully compensated by the payment of interests. Furthermore, it is well-settled that the jurisdiction of the Supreme Court is confined to a review of questions of law, except where the findings of facts of the appellate court are not supported by the record or are so glaringly erroneous as to constitute a serious abuse of discretion. (Caete v. Court of Appeals, 171 SCRA 13 [1989]). The findings of the fact of the trial court being adequately supported by documentary as well as testimonial evidence and affirmed by the Court of Appeals, are conclusive on the Supreme Court unless they fall within a few well-defined exceptions. No such exception is shown in this case. ACCORDINGLY, the petition is hereby DISMISSED. The decision of the Court of Appeals dated October 22, 1987 and its resolution dated June 16, 1988 are AFFIRMED with the modification that the award of additional actual damages in the amount of P500,000.00 is deleted. SO ORDERED. Bidin and Romero, JJ., concur. Davide, Jr., J., took no part. Feliciano, J., is on leave.

G.R. No. L-69255 February 27, 1987 PHILIPPINE NATIONAL BANK, petitioner, vs. GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO CHUA, respondents. Leopoldo E. Petilla for respondents.

NARVASA, J.: Savings Account No. 010-5878868-D of Isabela Wood Construction & Development Corporation, opened with the Philippine National Bank on March 9, 1979 in the amount of P2 million is the subject of two (2) conflicting claims, 1 sought to be definitively resolved in the proceedings at bar. One claim is asserted by the ACEROS Gloria G. Vda. de Ong Acero, Arnolfo Ong Acero and Soledad Ong Acero-Chua, judgment creditors of the depositor (hereafter simply referred to as ISABELA) who seek to enforce against said savings account the final and executory judgment rendered in their favor by the Court of First Instance of Rizal QC Br. XVI). The other claim has been put forth by the Philippine National Bank (hereafter, simply PNB) which claims that since ISABELA was at some point in time both its debtor and creditor-ISABELA's deposit being deemed a loan to it (PNB)-there had occurred a mutual set-off between them, which effectively precluded the ACEROS' recourse to that deposit. The controversy was decided by the Intermediate Appellate Court adversely to the PNB. It is this decision that the PNB would have this Court reverse. The ACEROS' claim to the bank deposit is more specifically founded upon the garnishment thereof by the sheriff, effected in execution of the partial judgment rendered by the CFI at Quezon City in their favor on November 18, 2 1979. The partial judgment ordered payment by ISABELA to the ACEROS of the amount of P1,532,000.07. Notice of garnisment was served on the PNB on January 9, 1980, pursuant to the writ of execution dated December 23, 3 1979. This was followed by an Order issued on February 15, 1980 directing PNB to hand over this amount of P1,532,000.07 to the sheriff for delivery, in turn, to the ACEROS. Not quite two months later, or on April 8, 1980, a second (and the final and complete judgment) was promulgated by the CFI in favor of the ACEROS and against ISABELA, the dispositive part of which is as follows: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against the defendant: 1. Reiterating the dispositive portion of the partial judgment issued by this Court, dated November 16, 1979, ordering the defendant to pay to the plaintiff the amount of P1,532,000.07 as principal, with interest at 12% per annum from December 11, 1975 until the whole amount is fully paid; 2. Ordering defendant to pay the plaintiffs the amount of P207,148.00 as compensatory damages, with legal interest thereon from the filing of the complaint until the whole amount is fully paid; 3. Ordering defendant to pay plaintiffs the amount of P383,000.00 as and by way of attorneys 4 fees. On the other hand, PNB's claim to the two-million-peso deposit in question is made to rest on an agreement between it and ISABELA in virtue of which, according to PNB: (1) the deposit was made by ISABELA as "collateral"

in connection with its indebtedness to PNB as to which it (ISABELA) had assumed certain contractual undertakings; and (2) in the event of ISABELA's failure to fulfill those undertakings, PNB was empowered to apply the deposit to the payment of that indebtedness. The facts upon which PNB's theory stands are summarized in the Order of CFI 5 Judge Solano dated October 1, 1982, relevant portions of which are here reproduced: On October 13, 1977, Isabela Wood Construction and Development Corporation ** entered into a Credit Agreement with PNB. Under the agreement PNB, having approved the application of defendant (Isabela & c.) for the establishment for its account of a deferred letter of credit in the amount of DM 4,695,947.00 in favor of the Machinenfabric Augsburg Nunberg (MAN) of Germany from whom defendant purchased thirty-five (35) units of MAN trucks, defendant corporation agreed to put up, as collaterals, among others, the following: 4. The CLIENT shall assign to the BANK the proceeds of its contract with the Department of Public Works for the construction of Nagapit Suspension Bridge (Substructure) in Cagayan. This particular proviso in the aforesaid agreement was to be subsequently confirmed by Faustino Dy, Jr., as president of defendant corporation, in a letter to the PNB, dated February 21, 1970, quoted in full as follows: Gentlemen: This is to confirm our arrangement that the treasury warrant in the amount of P2,704 millon in favor of Isabela Wood Construction and Development Corporation to be delivered either by the Commission on Audit or the Ministry of Public Highways, shall be placed in a savings account with your bank to the extent of P 2 million. The said amount shall remain in the savings account until we are able to comply with the delivery and registration of the mortgage in favor of the Philippine National Bank of our Paranaque property, and the securing from Metropolitan Bank and Home Owners Savings and Loan Association to snow PNB a second mortgage on the properties of Isabela Wood Construction Group, Inc., presently under first mortgage with them. Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit Agreement, quoted above, PNB thru its International Department opened the savings account in question, under Account No. 010-58768-D, with an initial deposit of P2,000,000.00, proceeds of a treasury warrant delivered to PNB (EXHIBIT 3-A). xxx xxx xxx Since defendant corporation failed to deliver to PNB by way of mortgage its Paranaque property, neither was defendant corporation able to secure from Metropolitan Bank and Home Owners Savings and Loan Association its consent to allow PNB a second mortgage, and considering that the obligation of defendant corporation to PNB have been due and unsettled, PNB applied the amount of P 2,102804.11 in defendant's savings account of PNB. It was upon this version of the facts, and its theory thereon based on a mutual set-off, or compensation, between it and ISABELA in accordance with Articles 1278 et al. of the Civil Code that PNB intervened in the action between the ACEROS and ISABELA on or about February 28, 1980 and moved for reconsideration of the Order of

February 15, 1980 (requiring it to turn over to the sheriff the sum of P1,532,000.07, supra: fn. 2). But its motion met with no success. It was denied by the Lower Court (Hon. Judge Apostol, presiding) by Order dated May 14, 6 1980. And a motion for the reconsideration of that Order of May 14, 1980 was also denied, by Order dated August 11, 1980. PNB again moved for reconsideration, this time of the Order of August 11, 1980; it also pleaded for suspension in the meantime of the enforcement of the Orders of February 15, and May 14, 1980. Its persistence seemingly paid off. For the Trial Court (now presided over by Hon. Judge Solano), directed on October 9, 1980 the setting aside of the said Orders of May 14, and August 11, 1980, and set for hearing PNB's first motion for the reconsideration of 7 the Order of February 15, 1980. Several months afterwards, or more precisely on October 1, 1982, the Order of 8 February 15, 1980 was itself also struck down, the Lower Court opining that under the circumstances, there had been a valid assignment by ISABELA to PNB of the amount deposited, which effectively placed that amount beyond the reach of the ACE ROS, viz: When the two million or so treasury warrant, proceeds of defendant's contract with the government was delivered to PNB, said amount, per agreement aforequoted, had already been assigned by defendant corporation to PNB, as collateral. The said amount is not a pledge. The assignment is valid. The defendant need not be the owner thereof at the time of assignment. An assignment of credit and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475. The contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the interest and upon its price. It is not necessary for the perfection of the contract of sale that the thing be delivered and that the price be paid. Neither is it necessary that the thing should belong to the vendor at the time of the perfection of the contract, it being sufficient that the vendor has the right to transfer ownership thereof at the time it is delivered. The shoe was now on the other foot. It was the ACEROS' turn to move for reconsideration, which they did as regards this Order of October 1, 1982; but by Order promulgated on December 14, 1982, the Court declined to modify its resolution. The ACEROS then appealed to the Intermediate Appellate Court which, after due proceedings, sustained them. On September 14, 1984, it rendered judgment the dispositive part whereof reads as follows: WHEREFORE, the Orders of October 1 and December 14, 1982 of the Court a quo are hereby REVERSED and SET ASIDE, and in their stead, it is hereby adjudged: 1. That the Order of February 15, 1980 of the Court a quo is hereby ordered reinstated; 2. That intervenor PNB must deliver the amount stated in the Order of February 15, 1980 with interest thereon at 12% from February 15, 1980 until delivered to appellants, the amount of interest to be paid by PNB and not to be deducted from the deposit of Isabela Wood; 3. That intervenor PNB must pay attorney's fees and expenses of litigation to appellants in the 9 amount of P10,000.00 plus the costs of suit.

This dispositive part was subsequently modified at the ACEROS' instance, by Resolution dated November 8, 1984 which inter alia "additionally ** (ordered) PNB to likewise deliver to appellants the balance of the deposit of Isabela Wood Construction and Development Corporation after first deducting the amount applied to the partial 10 judgment of P1,532,000.00 in satisfaction of appeallants' final judgment." PNB's main thesis is that when it opened a savings account for ISABELA on March 9, 1979 in the amount of P 2M, it 11 (PNB) became indebted to ISABELA in that amount. So that when ISABELA itself subsequently came to be indebted to it on account of ISABELA's breach of the terms of the Credit Agreement of October 13, 1977, and therefore ISABELA and PNB became at the same time creditors and debtors of each other, compensation automatically took place between them, in accordance with Article 1278 of the Civil Code. The amounts due from each other were, in its view, applied by operation of law to satisfy and extinguish their respective credits. More specifically, the P2M owed by PNB to ISABELA was automatically applied in payment and extinguishment of PNB's own credit against ISABELA. This having taken place, that amount of P2M could no longer be levied on by any other creditor of ISABELA, as the ACEROS attempted to do in the case at bar, in order to satisfy their judgment against ISABELA. Article 1278 of the Civil Code does indeed provide that "Compensation shall take when two persons, in their own right, are creditors and debtors of each other. " Also true is that compensation may transpire by operation of law, as when all the requisites therefor, set out in Article 1279, are present. Nonetheless, these legal provisions can not apply to PNB's advantage under the circumstances of the case at bar. The insuperable obstacle to the success of PNB's cause is the factual finding of the IAC, by which upon firmly 12 established rules even this Court is bound, that it has not proven by competent evidence that it is a creditor of ISABELA. The only evidence present by PNB towards this end consists of two (2) documents marked in its behalf as Exhibits 1 and 2, But as the IAC has cogently observed, these documents do not prove any indebtedness of ISABELA to PNB. All they do prove is that a letter of credit might have been opened for ISABELA by PNB, but not that the credit was ever availed of (by ISABELA's foreign correspondent MAN, or that the goods thereby covered were in fact shipped, and received by ISABELA. Quite obviously, as the IAC has further observed, the most persuasive evidence of these facts i.e., ISABELA's availment of the credit, as well as the actual delivery of the goods covered by and shipped pursuant to the letter of credit-assuming these facts to have occurred, would naturally and logically have been in PNB's possession and could have been readily submitted to the Court, to wit: 1. The document of availment by the foreign creditor of the letter of credit. 2. The document of release of the amounts mentioned in the agreement. 3. The documents showing that the trucks (transported to the Philippines by the foreign creditor [MAN] were shipped to ** and received by Isabela. 4. The trust receipts by which possession was given to Isabela of the 35 (Imported) trucks. 5. The chattel mortgages over the trucks required under No. 3 of II Collaterals of the Credit Agreement (Exhibit 1). 6. The receipt by Isabela of the standing accounts sent by PNB. 7. There receipt of the letter of demand by Isabela Wood.
13

It bears stressing that PNB did not at all lack want for opportunity to produce these documents, if it does indeed have them. Judge Solano, it should be recalled, specifically allowed PNB to introduce evidence in relation to its 14 Motion for Reconsideration filed on August 26, 1980, and thus furnished the occasion for PNB to prove, among others, ISABELA's debt to it. PNB unaccountably failed to do so. Moreover, PNB never even attempted to offer or exhibit such evidence, in the course of the appellate proceedings before the IAC, which is a certain indication, in that Court's view, that PNB does not really have these proofs at ala For this singular omission PNB offers no explanation except that it saw no necessity to submit the Documents in evidence, because sometime on March 14, 1980, the ACEROS's attorney had been shown those precise documents setting forth ISABELA's loan obligations, such as the import bills and the sight draft covering drawings on the L/C 15 for ISABELA's account and after all, the ACEROS had not really put this indebtedness in issue. The explanation cannot be taken seriously. In the picturesque but forceful language of the Appellate Court, the explanation "is silly as you do not prove a fact in issue by showing evidence in support thereof to the opposing counsel; you prove it by submitting evidence to the proper court." The fact is that the record does not disclose that the ACEROS have ever admitted the asserted theory of ISABELA's indebtedness to PNB. At any rate, not being privies to whatever transactions might have generated that indebtedness, they were clearly not in a position to make any declaration on the matter. The fact is, too, that the avowed indebtedness of ISABELA was an essential element of PNB's claim to the former's P2 million deposit and hence, it was incumbent on the latter to demonstrate it by competent evidence if it wished its claim to be judicially recognized and enforced. This, it has failed to do. The failure is fatal to its claim. PNB has however deposited an alternative theory, which is that the P2M deposit had been assigned to it by ISABELA as "collateral," although not by way of pledge; that ISABELA had explicitly authorized it to apply the P2M deposit in payment of its indebtedness; and that PNB had in fact applied the deposit to the payment of ISABELA's 16 debt on February 26, 1980, in concept of voluntary compensation. This second, alternative theory, is as untenable as the first. In the first place, there being no indebtedness to PNB on ISABELA's part, there is in consequence no occasion to speak of any mutual set-off, or compensation, whether it be legal, i.e., which automatically occurs by operation of 17 law, or voluntary, i.e., which can only take place by agreement of the parties. In the second place, the documents indicated by PNB as constitutive of the claimed assignment do not in truth make out any such transaction. While the Credit Agreement of October 13, 1977 (Exh. 1) declares it to be ISABELA's intention to "assign to the BANK the proceeds of its contract with the Department of Public Works for 18 the construction of Nagapit Suspension Bridge (Substructure) in Cagayan," it does not appear that that intention was adhered to, much less carried out. The letter of ISABELA's president dated February 21, 1979 (Exh. 2) would on the contrary seem to indicate the abandonment of that intention, in the light of the statements therein that the amount of P2M (representing the bulk of the proceeds of its contract referred to) "shall be placed in a savings account" and that "said amount shall remain in the savings account until ** (ISABELA is) able to comply with" specified commitments these being: the constitution and registration of a mortgage in PNB's favor over its "Paranaque property," and the obtention from the first mortgage thereof of consent for the creation of a second 19 lien on the property. These statements are to be sure inconsistent with the notion of an assignment of the money. In addition, there is yet another circumstance militating against the actuality of such an assignment-the "most telling argument" against it, in fact, in the line of the Appellate Court-and that is, that PNB itself, through its International Department, deposited the whole amount of ?2 million, not in its name, but in the name of 20 ISABELA, without any accompanying statement even remotely intimating that it (PNB) was the owner of the deposit, or that an assignment thereof was intended, or that some condition or lien was meant to burden it. Even if it be assumed that such an assignment had indeed been made, and PNB had been really authorized to apply the P2M deposit to the satisfaction of ISABELA's indebtedness to it, nevertheless, since the record reveals that the application was attempted to be made by PNB only on February 26, 1980, that essayed application was ineffectual and futile because at that time, the deposit was already in custodia legis, notice of garnishment thereof

having been served on PNB on January 9, 1980 (pursuant to the writ of execution issued by the Court of First Instance on December 23, 1979 for the enforcement of the partial judgment in the ACEROS' favor rendered on November 18,1979). One final factor precludes according validity to PNB's arguments. On the assumption that the P 2M deposit was in truth assigned as some sort of "collateral" to PNB although as PNB insists, it was not in the form of a pledge the agreement postulated by PNB that it had been authorized to assume ownership of the fund upon the coming into being of ISABELA s indebtedness is void ab initio, it being in the nature of a pactum commisoruim proscribed 21 as contrary to public policy. WHEREFORE, the judgment of the Intermediate Appellate Court subject of the instant appeal, being fully in accord with the facts and the law, is hereby affirmed in toto. Costs against petitioner. SO ORDERED. Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

G.R. No. L-42449 July 5, 1989 C & C COMMERCIAL CORPORATION and CLARA REYES PASTOR and other STOCKHOLDERS OF C & C COMMERCIAL CORPORATION similarly situated, petitioners, vs. PHILIPPINE NATIONAL BANK, NATIONAL INVESTMENT DEVELOPMENT CORPORATION, PROVINCIAL SHERIFF OF RIZAL, CITY SHERIFF OF MANILA and THE HON. JUDGE AUGUSTO VALENCIA, Presiding Judge, Quezon City Branch XXXI, Court of Instance of Rizal, respondents. Raymundo A. Armovit for petitioners. Arcilla & Atencio for petitioner-movant Reyes-Pastor. Domingo A. Santiago, Jr., Tomas N. Prado and Manuel S. Abedo for respondent PNB. Rolando P. De Cuesta, Cecilio G. Parco and Gaudencio A. Palafox for respondent NIDC. CORTES, J.: The applicability to the case at bar of Presidential Decree No. 385, dated January 31, 1974, prohibiting the issuance of injunctions against foreclosure sales sought by government financial institutions is the principal problem that needs to be resolved in the instant special civil action for certiorari. The controversy now before this Court traces its roots to the period between February 27, 1957 and December 20, 1960 when petitioner C & C Commercial Corporation (now Asbestos Cements Products Phil. Inc., hereinafter referred to as ACPPI) opened seven letters of credit with the respondent Philippine National Bank (hereinafter referred to as PNB) to import machines and equipment for its plant. Since petitioner's obligations under the said

letters of credit totalling five million four hundred fifty-one thousand eight hundred fifty-one pesos and eightythree centavos (P5,451,851.83) as of January 31, 1968 were not paid, PNB instituted on March 13, 1968 a collection suit with a prayer for preliminary attachment against ACPPI, impleading Clara Reyes Pastor as party defendant in her capacity as joint and solidary debtor and controlling stockholder. However, instead of proceeding with the collection suit, PNB agreed, at the behest of Mrs. Pastor, as majority stockholder of ACPPI, to enter into a Voting Trust Agreement on March 5, 1969 to protect PNB's interests in ACPPI. The collection suit was therefore dismissed without prejudice. Private respondents, PNB and its subsidiary or affiliate, the National Investment Development Corporation (hereinafter referred to as NIDC), as the trustees named under the said agreement, immediately proceeded to take over the management of ACPPI pursuant to the agreement which granted them "full authority, subject only to the limitations set by law and the other conditions set forth herein, to manage the affairs and the accounts and properties of C & C Commercial Corporation, Inc.; to choose its directors and key officers; to safeguard its interest and those of its creditors; and in general, to exercise all such powers and discharge such functions as inherently pertain to the ownership and/or management of such corporation" for a period of five (5) years from the date of its execution or up to March 1974 [Rollo, pp. 32-40]. During the time that the Voting Trust Agreement was in force, ACPPI executed a chattel mortgage dated September 6, 1971 over its personal properties in favor of NIDC as security for the loan of seven hundred thousand pesos (P700,000.00) granted by the latter to the former to finance the production of asbestos cement products and their exportation to Brunei and to repair/rehabilitate its plant building which had been damaged by typhoon "Yoling". On August 27,1973, the accounting firm of Sycip, Gorres and Velayo, after examining the management and operations of ACPPI for the first three years under the Voting Trust Agreement submitted a report finding that the PNB/NIDC management of ACPPI was a complete and disastrous failure. In view of this report, petitioners ACPPI (then C & C Commercial Corporation), Clara Reyes Pastor and other stockholders of ACPPI similarly situated filed a complaint on October 16, 1973 in the Quezon City Branch of the Court of First Instance of Rizal for the termination of the Voting Trust Agreement with a prayer for an award of damages in the sum of about twenty-seven million pesos (P 27 M) alleging, inter alia, that by reason of the grossly negligent or incompetent management of ACPPI by private respondents, the corporation suffered huge losses. In the aforesaid case, which was docketed as Civil Case No. Q-18176, ACPPI also sought as an ancillary remedy the appointment of a receiver. On November 27,1973, the respondents PNB and NIDC filed their answer to the complaint denying the charge of mismanagement and alleging that ACPPI's indebtedness to PNB had reached an amount of eleven million five hundred thirty-eight thousand twenty-nine pesos and sixty-three centavos (P11,538,029.63) as of August 31, 1973 excluding daily interest, and to NIDC, one million two hundred nineteen thousand nine hundred eighty-two pesos (Pl,219,982.00) as of April 15, 1973 excluding daily interest. On January 22,1974, the lower court issued an order appointing Bayani Barzaga as receiver. But subsequently, in an order dated November 13, 1974-pursuant to an agreement reached between ACPPI, PNB and NIDC to provide a mutually acceptable mechanism for management of ACPPI pending the settlement negotiations between them-the court a quo converted the one-man receivership of Barzaga into a joint receivership, with PNB-NIDC nominee Atty. Ricardo L. Sadac and ACPPI nominee Atty. Roberto L. Bautista assuming office as joint receivers together with Barzaga. In the meantime, on December 19,1973, Development Bank of the Philippines (hereinafter referred to as DBP) executed a deed of assignment in favor of PNB whereby the former assigned to the latter its rights and interests under the promissory notes and deeds of real estate mortgages executed on May 16, 1960 and May 8, 1961 by ACPPI in favor of DBP for the principal amounts of four hundred ninety thousand pesos (P490,000.00) and seven hundred ninety-six thousand pesos (P796,000.00), respectively.

On March 11, 1974, PNB filed with the Provincial Sheriff of Rizal a "PETITION FOR SALE UNDER ACT 3135 AS AMENDED". The foreclosure sale initiated by PNB was not only to recover on the allegedly defaulted secured loans of four hundred ninety thousand pesos (P 490,000.00) and seven hundred ninety-six thousand pesos (P796,000.00) assigned by DBP to PNB but also for: 1) the unsecured advances granted by PNB to ACPPI relating to the letters of credit opened sometime between 1957 and 1960; 2) the unsecured advances from PNB during the five-year period of the Voting Trust Agreement; and, 3) the interests, penalties and charges computed thereon during the same five-year period when PNB controlled and managed ACPPI. A foreclosure sale was thus sought to satisfy ACCPI's total indebtedness to PNB in the amount of fourteen million five hundred seventy-one thousand seven hundred thirty-six pesos and eighty-seven centavos (Pl4,571,736.87) as of January 31, 1974. ACPPI wrote a letter to the Board of Directors of PNB expressing its opposition to the contemplated extrajudicial foreclosure sale. In reply, PNB sent a letter agreeing to meet with ACPPI in settlement negotiations. However, ACPPI's proposals for the settlement of its accounts with PNB were rejected for not being economically feasible and so, PNB made a final demand for payment with a warning that unless full payment or other satisfactory arrangement was made, PNB would proceed with the scheduled auction sale of the mortgaged properties on September 30, 1975. On September 22,1975, Civil Case No. 22047, a suit for nullification of the extrajudicial foreclosure proceedings with prayer for a writ of injunction, was filed by ACPPI against PNB and the Provincial Sheriff of Rizal in the Pasig Branch of the Court of First Instance of Rizal, contesting PNB's foreclosure of the mortgage and the auction sale scheduled for September 30, 1975. Said court subsequently issued an order dated September 30, 1975 restraining the scheduled foreclosure sale and directing the maintenance of the status quo until further orders of the court. Meanwhile, NIDC foreclosed the chattel mortgage executed by ACPPI on September 6, 1971 and filed with the Sheriff of the City of Manila a petition for the auction sale of "all the finished products in inventory located at the MORTGAGOR's (ACPPI) plant at Barrio Napindan, Taguig, Rizal . . ." [Rollo, p. 165] in order to satisfy an alleged total indebtedness of ACPPI to NIDC amounting to one million eight hundred forty-five thousand one hundred nine pesos and twenty-two centavos (Pl,845,109.22). On October 3, 1975, ACPPI instituted with the same Pasig Branch of the Court of First Instance of Rizal Civil Case No. 22133 for the nullification of the extrajudicial foreclosure proceedings sought by NIDC scheduled for October 16,1975. The lower court also granted a temporary restraining order in the latter case. On December 17, 1975, on separate motions to dismiss filed by the respondents PNB and NIDC in Civil Cases Nos. 22047 and 22133, respectively, the Court of First Instance dismissed said civil cases in separate decisions but on the common ground that these cases violate the procedural rule against splitting a single cause of action and also, that ACPPI, being under receivership, was without legal capacity to contest the foreclosures. On January 5, 1976, ACPPI moved for leave to file a supplemental complaint with a prayer for the issuance of a writ of preliminary injunction in Civil Case No. Q-18176, the action for termination of the Voting Trust Agreement, in order to submit for adjudication in the same proceeding and before said court the renewed threats by PNB and NIDC to effect the sale at public auction of the foreclosed properties. The lower court in an Order dated January 15,1976 admitted the supplemental complaint but denied the application for injunction on account of the provision of Presidential Decree No. 385 prohibiting the issuance of restraining orders and temporary or permanent injunctions against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in said decree. Petitioners filed a motion for reconsideration of the order but the motion was denied. Hence, petitioners' recourse to this Court by way of a special civil action for certiorari with injunction, alleging grave abuse of discretion on the part of respondent Judge Augusto Valencia, Presiding Judge of the Court of First Instance of Rizal, Quezon City Branch XXXI, in issuing the aforementioned orders.

In a resolution dated January 20, 1976, this Court resolved to issue a temporary restraining order to enjoin the sale by PNB and NIDC of the foreclosed properties scheduled on January 21 and 30, 1976. On October 7, 1976, petitioner-movant Clara Reyes Pastor filed in the instant case a Motion for Termination of Receivership with Alternative Motion for Substitution of Receiver. This Court however finds no legal basis for granting said motion as the receivership of ACPPI is not at all an issue in the instant case. Time and again, this Court has acknowledged that it possesses no authority to rule upon nonjurisdictional issues in a certiorari proceeding. Thus, "it is settled to the point of being elementary that the only question involved in certiorari is jurisdiction, either want of jurisdiction or excess thereof. . ." [F.S. Divinagracia Agro-Commercial Inc. v. Court of Appeals, G.R. No. L- 47350, April 21, 1981, 104 SCRA 180, 191]. Besides, the said motion was premature. It must be noted that on September 25, 1975, petitioner ACPPI filed before the lower court an omnibus motion to annul the joint receivership, to which motion respondents filed their joint opposition on October 2, 1975. On October 8, 1975, the lower court issued an order denying petitioner's aforementioned omnibus motion. Petitioner moved to reconsider the said order and this motion is still awaiting resolution by the trial court. In view of the pendency of the aforesaid motion for reconsideration, it would be premature for this Court to act on the motion for termination of receivership filed before it. Petitioners should await resolution by the lower court of their omnibus motion to annul joint receivership before resorting to this Court. The crucial problem to be dealt with in this petition is whether the trial court's refusal to grant an injunction against the threatened foreclosure sales by PNB and NIDC constitutes grave abuse of judicial discretion amounting to lack or excess of jurisdiction. The court a quo's basis for denying the injunction sought by ACPPI is P.D. 385 which makes it "mandatory for government financial institutions to foreclose the collaterals and/or securities for any loan, credit, accommodation and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interests and other charges, as appearing in the books of account and/or related records of the financial institution concerned". [Section 1, P.D. 385]. Pursuant to the aforesaid law: Sec. 2. No restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section I hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the borrower and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages had been paid after the filing of foreclosure proceedings .... [Emphasis supplied]. xxx Since the arrearages on the PNB and NIDC loans cover the entire amount of the indebtedness, thus more than satisfying the 20% arrearages requirement under the law, it would seem that this case falls within the purview of the general rule laid down in P.D. 385. Injunction will not be granted except upon payment of twenty percent (20%) of the outstanding arrearages after filing of the foreclosure proceedings. This has not been done here. Nevertheless, the Court believes that, in view of the peculiar factual circumstances obtaining in the case, P.D. 385 should not have been applied peremptorily by the respondent trial judge.

I. THE PNB FORECLOSURE SALE: The extrajudicial foreclosure sale sought by PNB is based on two deeds of real estate mortgage executed on May 16,1960 and May 8, 1961, respectively, by ACPPI in favor of DBP to secure promissory notes for the principal amounts of four hundred ninety thousand pesos (P490,000.00) and seven hundred ninety-six thousand pesos (P796,000.00), respectively. PNB acquired all the rights and interests under the aforementioned deeds of mortgage by virtue of a deed of assignment executed by DBP in its favor on December 19, 1973. But the PNB foreclosure sale seeks to satisfy not only the amounts stated in the secured promissory notes but also the unsecured advances amounting to some five million four hundred thousand pesos (P5.4 M) granted by PNB on account of the opening of letters of credit by ACPPI sometime between 1957 and 1960 before DBP assigned the mortgages to PNB in 1973. The Court's inquiry is thus centered on whether the foreclosure sale pursuant to the DBP assigned mortgage should proceed as ordered by the respondent trial judge considering that the sale also seeks to satisfy previously incurred unsecured obligations. A. As to the DBP-assigned credits, there is no doubt that foreclosure can proceed as these were secured by appropriate mortgages. Moreover, contrary to petitioner's pretensions, the validity of the assignment of the mortgage credit by DBP to PNB is beyond question. Article 1624 of the Civil Code provides that "an assignment of credits and other incorporeal rights shall be perfected in accordance with the provisions of Article 1475" which in turn states that "the contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price." The meeting of the minds contemplated here is that between the assignor of the credit and his assignee, there being no necessity for the consent of the debtor, contrary to petitioner's claim. It is sufficient that the assignment be brought to his knowledge in order to be binding upon him. This may be inferred from Article 1626 of the Civil Code which declares that "the debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation." This view of Manresa was already quoted with approval by this Tribunal. Thus: xxx The above-mentioned article (Article 1527 of the Old Civil Code) states that a debtor who, before having knowledge of the assignment, should pay the creditor shall be released from the obligation. In the first place, the necessity for the notice to the debtor in order that the assignment may fully produce its legal effects may be inferred from the above. It refers to a notice and not to a petition for the consent which is not necessary. We say that the notice is not necessary in order that the legal effects may be fully produced, because if it should be omitted, such omission will not imply that the assignment will not exist legally, but that its effects will be limited to the parties thereto; at least, they will not reach the debtor [Sison v. Yap Tico, 37 Phil. 584, 587 (1918); Emphasis supplied]. As the petitioner does not claim absence of any notice of the assignment but only lack of its consent thereto, the validity of DBP's assignment of the mortgage credit as well as the right of PNB as assignee, to foreclose the assigned mortgage, cannot be doubted. B. However, petitioners question the inclusion of the unsecured obligations of ACPPI in the foreclosure sale. In this regard, petitioner advances the following proposition: The unsecured advances by PNB to ACPPI relating to the opening of letters of credit in 1957 cannot be tacked on to the mortgage loans acquired by PNB through assignment from DBP which are now being

foreclosed. To do so would be to allow an originally unsecured loan to be covered by a mortgage securing another loan without the consent of the mortgagor. Since the foreclosure sale sought by PNB includes such unsecured obligations, petitioners argue that the same should be enjoined [Rollo, p. 25]. PNB sought to justify its inclusion of the unsecured obligations in the aggregate amount of indebtedness secured by the mortgages to be foreclosed by citing a provision in the assigned DBP Mortgage Contract which states: Now, therefore, for and in consideration of the premises and as security for the payment of the note or notes approved in order and other interest there and/or other obligation arising thereunder or hereunder, the mortgagor does hereby transfer and convey by way of first mortgage, unto the Mortgagee, its successors and assigns, the real and/or personal properties described in the list appearing on the back of this document . . .[Rollo, p. 388]. However, the aforequoted terms of the mortgage contract do not support PNB's conclusions. The mortgage contract clearly secures only the amount of the promissory note executed by ACPPI and the interest thereon and other obligations which may arise under the promissory note (hence, the word "thereunder") and under the mortgage contract (hence, the word "hereunder"). Certainly, the previously incurred debt of ACPPI cannot be embraced within the terms of the DBP mortgage contract which merely extends security to future, ** but not past obligations. PNB also argues in vain that the inclusion of the unsecured obligations in the contemplated foreclosure proceedings finds support in the law which states that "(i)t shall be mandatory ... to foreclose the collaterals and/or securities for any loan, credit accommodation and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent of the total outstanding obligations, including interest and other charges, as appearing in the books of accounts and /or related records of the government financial institution concerned. . . ." [Section 1, P.D. 385]. PNB maintains that the phrase "related records" may be interpreted to mean such records evidencing the mortgage credit assigned and other records of another government financial institution which are related to the assigned obligation. PNB's stand is that the credits appearing in the records of the mortgagor or any other government financial institution, whether secured or unsecured must necessarily be included as long as they are related to the mortgage being foreclosed. This argument must be rejected. The law, in authorizing a mandatory foreclosure by government financial institutions, contemplates secured obligations appearing in the books of accounts and/or related records of the government financial institution concerned. The clear terms of the law indicate that foreclosure shall be made on the "collaterals and/ or securities for any loan, credit accommodation and/or guarantees granted by them" [Section 1, P.D. 385]. Since the original advances by PNB were not secured by any mortgage, these cannot be included in the foreclosure proceedings sought by PNB for the simple reason that foreclosure of mortgage presupposes an unpaid obligation secured by the mortgage. In addition, the rule is well settled that an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage except in mortgage contracts securing future advancements [Lim Julian v. Lutero, 49 Phil. 703 (1926)]. In view of the fact that an unsecured obligation is being included among the obligations of ACPPI sought to be satisfied by the PNB foreclosure sale, the lower court's blanket application of P.D. 385 and the consequent denial of ACPPI's application for injunction against the threatened foreclosure by PNB constitute grave abuse of discretion. P.D. 385, in laying down the prohibition on the issuance of an injunction, did not intend to make the debtor's mortgaged property answer for an unsecured obligation. Since the petition for the PNB foreclosure sale was materially defective in that it included in the amount of the total indebtedness to be satisfied by the sale previously incurred unsecured obligations, the assailed order of the respondent judge denying ACPPI's motion for the issuance of a preliminary injunction must accordingly be set aside and the extrajudicial foreclosure sale sought by PNB should be enjoined. This is without prejudice however to

the right of PNB to petition for an extrajudicial foreclosure sale to satisfy the obligations specifically secured by the DBP-assigned mortgage after due publication of an appropriate notice of sale. II. THE NIDC FORECLOSURE SALE: ACPPI challenges the right of NIDC to foreclose the chattel mortgage in its favor on the grounds that (1) part of the principal loan secured by the NIDC mortgage was not expended for the purposes for which it was intended; and (2) the subsequent advances granted by NIDC during the time that the Voting Trust Agreement was in force are merely "fictitious" amounts and therefore, do not constitute valid and demandable obligations; hence, the mortgage securing the same is likewise void [Petition, p. 21; Rollo, p. 24]. In this case, NIDC sought to include certain advances granted to ACPPI during the lifetime of the Voting Trust Agreement in the total amount of the mortgage indebtedness secured by the chattel mortgage. Such action was based on an all- embracing clause in the mortgage contract allowing said mortgage to "stand as security for said obligations and any and all other obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether such obligations have been contracted before, during or after the constitution of this mortgage" [Rollo, p. 226]. Without passing upon the validity of this clause, the Court rules that in view of the dictum laid down in Filipinas Marble Corporation v. Court of Appeals [G.R. No. 68010, May 30,1986, 142 SCRA 180], the foreclosure sale sought by NIDC should have been enjoined. The rationale for enjoining a foreclosure sale sought by a government financial institution charged with mismanagement and misappropriation of the proceeds of the loan secured by its mortgage, as aptly expressed in the aforementioned decision penned by Mr. Justice Gutierrez finds relevance in the instant case. Thus: xxx Presidential Decree No. 385 was issued primarily to see to it that government financial institutions are not denied substantial cash inflows which are necessary to finance development projects all over the country, by large borrowers, who when they become delinquent, resort to court actions in order to prevent or delay the government's collection of their debts and loans. The government however is bound by basic principles of fairness and decency under the due process clause of the Bill of Rights. P.D. 385 was never meant to protect officials of government lending institutions who take over the management of a borrower corporation, lead that corporation to bankruptcy through mismanagement or misappropriation of its funds, and who, after ruining it, use the mandatory provisions of the decree to avoid the consequences of their misdeeds. The designated officers of the government financing institution cannot simply walk away and then state that since the loans were obtained in the corporation's name, then P.D. 385 must be peremptorily applied and that there is no way the borrower corporation can prevent the automatic foreclosure of the mortgage on its properties once the arrearages reach twenty percent (20%) of the total obligation no matter who was responsible. [At 188-189; Emphasis supplied]. xxx

In the Filipinas Marble case, petitioner Filipinas Marble Corporation (FMC) applied for a loan in the amount of five million dollars ($5 M) with respondent Development Bank of the Philippines (DBP) which was granted subject to the conditions, inter alia, that petitioner shall have to enter into a management contract with respondent Bancom Systems Control, Inc. Bancom and that the key officers/executives to be chosen by Bancom for the corporation shall be appointed only with DBP's prior approval and made directly responsible to DBP. Pursuant to these conditions, FMC entered into a management contract with Bancom whereby the latter agreed to manage the company for a period of three years. Subsequently, FMC filed a complaint seeking annulment of the deeds of mortgage and deed of assignment which it executed in favor of DBP in order to secure the five million dollars ($5 M) loan, averring failure of consideration with regard to the execution of the said deeds and claiming that the respondents and their directors/officers mismanaged and misspent the loan, leaving the petitioner "desolate and devastated". It charged respondents DBP and Bancom of abandoning the petitioner's project for which the approved loan was intended. This Court ruled that it cannot make any conclusions as to whether DBP and Bancom actually misappropriated and misspent the five million dollars ($ 5 M) loan as this matter should rightfully be litigated below in the main action. It thus held that . . . (p)ending the outcome of such litigation, P.D. 385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for the misappropriation of the loan, even if only in part, then the foreclosure of the petitioners' properties under the provisions of P.D. 385 to satisfy the whole amount of the loan would be a gross mistake. It would unduly prejudice the petitioner, its employees and their families. Only after trial on the merits of the case can the true amount of the loan which was applied wisely or not, for the benefit of the petitioner, be determined. Consequently, the extent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under P.D. 385 will have to await the presentation of evidence in a trial on the merits [Id. at 189-190]. In fine, since the issue of misappropriation of the proceeds of the loan is still being litigated, the liability of FMC for the loan which was the basis of the mortgage being foreclosed was not yet settled; hence, the Court's allowance of an injunction against the foreclosure sale. In the instant controversy, the liability of ACPPI for the loans secured by the NIDC chattel mortgage is likewise still in dispute in the proceedings below inasmuch as petitioners are seeking nullification of said loans for failure or lack of consideration in the pending action before the court a quo. Petitioners contend that the portion of the principal NIDC loan supposed to be used to fund the repairs on the ACPPI plant building had not been expended for such intended purpose. Also, they challenge the adequacy of consideration of the additional advances allegedly granted by NIDC to ACPPI for the payment of the various services availed of or utilized by NIDC/PNB which petitioners claim to be fictitious. Thus, although initially, the issue before the lower court was limited to whether petitioners herein are entitled to a termination of the Voting Trust Agreement, additional issues concerning the validity of the NIDC loans were raised in the supplemental complaint filed before said court [See Rollo, p. 179, et seq. ]. In line with the Filipinas Marble ruling, pending determination by the lower court of these issues involving the misappropriation and/or mismanagement of the proceeds of the NIDC loans and the larger issue of failure of consideration, the sale at public auction of the foreclosed chattels should be enjoined, P.D. 385 notwithstanding. IN VIEW OF THE FOREGOING, the instant petition for certiorari is hereby GRANTED and the questioned order of the respondent trial judge dated January 15, 1976 denying petitioners' application for a writ of preliminary

injunction is hereby SET ASIDE. The respondent sheriffs are hereby ordered to DESIST from carrying out the extrajudicial foreclosure sales sought by PNB and NIDC in the petitions dated March 11, 1974 and September 25, 1975, respectively. The temporary restraining order issued by the Court dated January 20, 1976 is accordingly made PERMANENT, subject to the qualifications stated in the following paragraph. This judgment is without prejudice to the right of PNB, after due publication of an appropriate notice of sale specifying the amount of the secured obligations, to cause the foreclosure sale on the DBP assigned real estate mortgages dated May 6, 1960 and May 8, 1961. On the other hand, the NIDC foreclosure sale, upon filing of a bond in such amount as the trial court may deem adequate, from an indubitably solvent bonding company, shall be enjoined until the final resolution by the court a quo of Civil Case No. Q-18176. Finally, as stated at the outset, petitioner Clara Reyes Pastor's "Motion for Termination of Receivership with Alternative Motions" is DENIED. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

[G.R. No. 116363. December 10, 1999]

SERVICEWIDE SPECIALISTS, INCORPORATED, petitioner, vs. THE HON. COURT OF APPEALS, JESUS PONCE, and ELIZABETH PONCE, respondents. DECISION YNARES-SANTIAGO, J.: This controversy is between a mortgagor who alienated the mortgaged property without the consent of the mortgagee, on the one hand, and the assignee of the mortgagee to whom the latter assigned his credit without notice to the mortgagor, on the other hand. Sometime in 1975, respondent spouses Atty. Jesus and Elizabeth Ponce bought on installment a Holden Torana vehicle from C. R. Tecson Enterprises. They executed a promissory note and a chattel mortgage on the vehicle dated December 24, 1975 in favor of the C. R. Tecson Enterprises to secure payment of the note. The mortgage was registered both in the Registry of Deeds and the Land Transportation Office. On the same date, C.R. Tecson Enterprises, in turn, executed a deed of assignment of said promissory note and chattel mortgage in favor of Filinvest Credit Corporation with the conformity of respondent spouses. The latter were aware of the endorsement of the note and the mortgage to Filinvest as they in fact availed of its financing services to pay for the car. In 1976, respondent spouses transferred and delivered the vehicle to Conrado R. Tecson by way of sale with assumption of mortgage. Subsequently, in 1978, Filinvest assigned all its rights and interest over the same promissory note and chattel mortgage to petitioner Servicewide Specialists Inc. without notice to respondent spouses. Due to the failure of respondent spouses to pay the installments under the promissory note from

October 1977 to March 1978, and despite demands to pay the same or to return the vehicle, petitioner was constrained to file before the Regional Trial Court of Manila on May 22, 1978 a complaint for replevin with damages against them, docketed as Civil Case No. 115567. In their answer, respondent spouses denied any liability claiming they had already returned the car to Conrado Tecson pursuant to the Deed of Sale with Assumption of Mortgage. Thus, they filed a third party complaint against Conrado Tecson praying that in case they are adjudged liable to petitioner, Conrado Tecson should reimburse them. After trial, the lower court found respondent spouses jointly and solidarily liable to petitioner, however, the third party defendant Conrado Tecson was ordered to reimburse the respondent spouses for the sum that they [1] would pay to petitioner. On appeal, the Court of Appeals reversed and set aside the judgment of the court a quo on the principal ground that respondent spouses were not notified of the assignment of the promissory note [2] and chattel mortgage to petitioner. Hence, this petition for review. The resolution of the petition hinges on whether the assignment of a credit requires notice to the debtor in order to bind him. More specifically, is the debtor-mortgagor who sold the property to another entitled to notice of the assignment of credit made by the creditor to another party such that if the debtor was not notified of the assignment, he can no longer be held liable since he already alienated the property? Conversely, is the consent of the creditor-mortgagee necessary when the debtor-mortgagor alienates the property to a third person? Only notice to the debtor of the assignment of credit is required. His consent is not required. In contrast, consent of the creditor-mortgagee to the alienation of the mortgaged property is necessary in order to bind said creditor. To evade liability, respondent spouses invoked Article 1626 of the Civil Code which provides that the debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation. They argue that they were not notified of the assignment made to petitioner. This provision, however, is applicable only where the debtor pays the creditor prior to acquiring knowledge of the latters assignment of his credit. It does not apply, nor is it relevant, to cases of non-payment after the debtor came to know of the assignment of credit. This is precisely so since the debtor did not make any payment after the assignment. In the case at bar, what is relevant is not the assignment of credit between petitioner and its assignor, but the knowledge or consent of the creditors assignee to the debtor-mortgagors sale of the property to another. When the credit was assigned to petitioner, only notice to but not the consent of the debtor- mortgagor was [3] necessary to bind the latter. Applying Article 1627 of the Civil Code, the assignment made to petitioner includes the accessory rights such as the mortgage. Article 2141, on the other hand, states that the provisions concerning a contract of pledge shall be applicable to a chattel mortgage, such as the one at bar, insofar as there is no conflict with Act No. 1508, the Chattel Mortgage Law. As provided in Article 2096 in relation to Article 2141 of the Civil [4] Code, a thing pledged may be alienated by the pledgor or owner with the consent of the pledgee. This provision is in accordance with Act No. 1508 which provides that a mortgagor of personal property shall not sell or pledge such property, or any part thereof, mortgaged by him without the consent of the mortgagee in writing on the back of the mortgage and on the margin of the record thereof in the office where such mortgage is [5] recorded. Although this provision in the chattel mortgage has been expressly repealed by Article 367 of the Revised Penal Code, yet under Article 319 (2) of the same Code, the sale of the thing mortgaged may be made [6] provided that the mortgagee gives his consent and that the same is recorded. In any case, applying by analogy [7] Article 2128 of the Civil Code to a chattel mortgage, it appears that a mortgage credit may be alienated or assigned to a third person. Since the assignee of the credit steps into the shoes of the creditor-mortgagee to whom the chattel was mortgaged, it follows that the assignees consent is necessary in order to bind him of the alienation of the mortgaged thing by the debtor-mortgagor. This is tantamount to a novation. As the new assignee, petitioners consent is necessary before respondent spouses al ienation of the vehicle can be considered as binding against third persons. Petitioner is considered a third person with respect to the sale with mortgage between respondent spouses and third party defendant Conrado Tecson. In this case, however, since the alienation by the respondent spouses of the vehicle occurred prior to the assignment of credit to petitioner, it follows that the former were not bound to obtain the consent of the latter as it was not yet an assignee of the credit at the time of the alienation of the mortgaged vehicle.

The next question is whether respondent spouses needed to notify or secure the consent of petitioners predecessor to the alienation of the vehicle. The sale with assumption of mortgage made by respondent spouses is tantamount to a substitution of debtors. In such case, mere notice to the creditor is not enough, his consent is [8] always necessary as provided in Article 1293 of the Civil Code. Without such consent by the creditor, the alienation made by respondent spouses is not binding on the former. On the other hand, Articles [9] [10] 1625, 1626 and 1627 of the Civil Code on assignment of credits do not require the debtors consent for the validity thereof and so as to render him liable to the assignee. The law speaks not of consent but of notice to the debtor, the purpose of which is to inform the latter that from the date of assignment he should make payment to the assignee and not to the original creditor. Notice is thus for the protection of the assignee because before said date, payment to the original creditor is valid. When Tecson Enterprises assigned the promissory note and the chattel mortgage to Filinvest, it was made with respondent spouses tacit approval. When Filinvest in turn, as assignee, assigned it further to petitioner, the latter should have notified the respondent spouses of the assignment in order to bind them. This, they failed to do. The testimony of petitioners witness that notice of assignment was sent to respo ndent spouses was stricken off the record. Having asserted the affirmative on the issue of notice, petitioner should have substantiated its allegations in order to obtain a favorable judgment. In civil cases, the burden is on the party who would be [11] defeated if no evidence is given on either side. Being the plaintiff in the trial below, petitioner must establish its [12] case, relying on the strength of its own evidence and not upon the weakness of that of its opponent. The consent to the assignment given by respondent spouses to Filinvest cannot be construed as the spouses knowledge of the assignment to petitioner precisely because at the time of the assignment to the latter, the spouses had earlier sold the vehicle to another. One thing, however, that militates against the posture of respondent spouses is that although they are not bound to obtain the consent of the petitioner before alienating the property, they should have obtained the consent of Filinvest since they were already aware of the assignment to the latter. So that, insofar as Filinvest is concerned, the debtor is still respondent spouses because of the absence of its consent to the sale. Worse, Filinvest was not even notified of such sale. Having subsequently stepped into the shoes of Filinvest, petitioner acquired the same rights as the former had against respondent spouses. The defenses that could have been invoked by Filinvest against the spouses can be successfully raised by petitioner. Therefore, for failure of respondent spouses to obtain the consent of Filinvest thereto, the sale of the vehicle to Conrado R. Tecson was not binding on the former. When the credit was assigned by Filinvest to petitioner, respondent spouses stood on record as the debtor-mortgagor. WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial Court is AFFIRMED and REINSTATED. Respondents Jesus Ponce and Elizabeth Ponce are ORDERED to pay petitioner, jointly and severally, the following sums: a) P26,633,09, plus interest at 14% per annum from April 26, 1978 until fully paid; b) 25% of the above sum in item (a) as liquidated damages; c) P5,000.00 as attorneys fees; and d) costs of suit. In connection with the Third Party Complaint of the respondents, the third party defendant Conrado Tecson is hereby ordered to reimburse respondents Ponce for all the sums the latter would pay to petitioner, and attorneys fees of P3,000.00. SO ORDERED. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

G.R. No. 89252 May 24, 1993 RAUL SESBREO, petitioner, vs. HON. COURT OF APPEALS, DELTA MOTORS CORPORATION AND PILIPINAS BANK, respondents. Salva, Villanueva & Associates for Delta Motors Corporation. Reyes, Salazar & Associates for Pilipinas Bank.

FELICIANO, J.: On 9 February 1981, petitioner Raul Sesbreo made a money market placement in the amount of P300,000.00 with the Philippine Underwriters Finance Corporation ("Philfinance"), Cebu Branch; the placement, with a term of thirty-two (32) days, would mature on 13 March 1981, Philfinance, also on 9 February 1981, issued the following documents to petitioner: (a) the Certificate of Confirmation of Sale, "without recourse," No. 20496 of one (1) Delta Motors Corporation Promissory Note ("DMC PN") No. 2731 for a term of 32 days at 17.0% per annum; (b) the Certificate of securities Delivery Receipt No. 16587 indicating the sale of DMC PN No. 2731 to petitioner, with the notation that the said security was in custodianship of Pilipinas Bank, as per Denominated Custodian Receipt ("DCR") No. 10805 dated 9 February 1981; and (c) post-dated checks payable on 13 March 1981 (i.e., the maturity date of petitioner's investment), with petitioner as payee, Philfinance as drawer, and Insular Bank of Asia and America as drawee, in the total amount of P304,533.33. On 13 March 1981, petitioner sought to encash the postdated checks issued by Philfinance. However, the checks were dishonored for having been drawn against insufficient funds. On 26 March 1981, Philfinance delivered to petitioner the DCR No. 10805 issued by private respondent Pilipinas Bank ("Pilipinas"). It reads as follows: PILIPINAS Makati Ayala Metro Manila BANK Bldg., Makati,

Stock Avenue,

Exchange

TO Raul Sesbreo

DENOMINATED CUSTODIAN RECEIPT This confirms that as a duly Custodian Bank, and upon instruction of PHILIPPINE UNDERWRITES FINANCE CORPORATION, we have in our custody the following securities to you [ sic] the extent herein indicated. SERIAL MAT. FACE NUMBER DATE VALUE BY HOLDER PAYEE 2731 4-6-81 UNDERWRITERS FINANCE CORP. 2,300,833.34 ISSUED REGISTERED AMOUNT

DMC

PHIL.

307,933.33

We further certify that these securities may be inspected by you or your duly authorized representative at any time during regular banking hours. Upon your written instructions we shall undertake physical delivery of the above securities fully assigned to you should this Denominated Custodianship Receipt remain outstanding in your favor thirty (30) days after its maturity. P I L

I P I N A S B A N K ( B y E l i z a b e t h D e V i l l a I l l e g i b l e S i g n a t u r

e )
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On 2 April 1981, petitioner approached Ms. Elizabeth de Villa of private respondent Pilipinas, Makati Branch, and handed her a demand letter informing the bank that his placement with Philfinance in the amount reflected in the DCR No. 10805 had remained unpaid and outstanding, and that he in effect was asking for the physical delivery of the underlying promissory note. Petitioner then examined the original of the DMC PN No. 2731 and found: that the security had been issued on 10 April 1980; that it would mature on 6 April 1981; that it had a face value of P2,300,833.33, with the Philfinance as "payee" and private respondent Delta Motors Corporation ("Delta") as "maker;" and that on face of the promissory note was stamped "NON NEGOTIABLE." Pilipinas did not deliver the Note, nor any certificate of participation in respect thereof, to petitioner. Petitioner later made similar demand letters, dated 3 July 1981 and 3 August 1981, again asking private respondent Pilipinas for physical delivery of the original of DMC PN No. 2731. Pilipinas allegedly referred all of petitioner's demand letters to Philfinance for written instructions, as has been supposedly agreed upon in "Securities Custodianship Agreement" between Pilipinas and Philfinance. Philfinance did not provide the appropriate instructions; Pilipinas never released DMC PN No. 2731, nor any other instrument in respect thereof, to petitioner. Petitioner also made a written demand on 14 July 1981 upon private respondent Delta for the partial satisfaction of DMC PN No. 2731, explaining that Philfinance, as payee thereof, had assigned to him said Note to the extent of P307,933.33. Delta, however, denied any liability to petitioner on the promissory note, and explained in turn that it had previously agreed with Philfinance to offset its DMC PN No. 2731 (along with DMC PN No. 2730) against Philfinance PN No. 143-A issued in favor of Delta. In the meantime, Philfinance, on 18 June 1981, was placed under the joint management of the Securities and exchange commission ("SEC") and the Central Bank. Pilipinas delivered to the SEC DMC PN No. 2731, which to date 4 apparently remains in the custody of the SEC. As petitioner had failed to collect his investment and interest thereon, he filed on 28 September 1982 an action for damages with the Regional Trial Court ("RTC") of Cebu City, Branch 21, against private respondents Delta and 5 Pilipinas. The trial court, in a decision dated 5 August 1987, dismissed the complaint and counterclaims for lack of merit and for lack of cause of action, with costs against petitioner. Petitioner appealed to respondent Court of Appeals in C.A.-G.R. CV No. 15195. In a Decision dated 21 March 1989, 6 the Court of Appeals denied the appeal and held: Be that as it may, from the evidence on record, if there is anyone that appears liable for the travails of plaintiff-appellant, it is Philfinance. As correctly observed by the trial court: This act of Philfinance in accepting the investment of plaintiff and charging it against DMC PN No. 2731 when its entire face value was already obligated or earmarked for set-off or compensation is difficult to comprehend and may have been motivated with bad faith. Philfinance, therefore, is solely and legally obligated to return the investment of plaintiff, together with its earnings, and to answer all the damages plaintiff has suffered incident thereto. Unfortunately for plaintiff, Philfinance was not impleaded as one of the defendants in this case at bar; hence, this Court is without jurisdiction to pronounce judgement against it. (p. 11, Decision)
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WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby affirmed in toto. Cost against plaintiff-appellant. Petitioner moved for reconsideration of the above Decision, without success. Hence, this Petition for Review on Certiorari. After consideration of the allegations contained and issues raised in the pleadings, the Court resolved to give due 7 course to the petition and required the parties to file their respective memoranda. Petitioner reiterates the assignment of errors he directed at the trial court decision, and contends that respondent court of Appeals gravely erred: (i) in concluding that he cannot recover from private respondent Delta his assigned portion of DMC PN No. 2731; (ii) in failing to hold private respondent Pilipinas solidarily liable on the DMC PN No. 2731 in view of the provisions stipulated in DCR No. 10805 issued in favor r of petitioner, and (iii) in refusing to pierce the veil of corporate entity between Philfinance, and private respondents Delta and Pilipinas, considering that the three (3) entities belong to the "Silverio Group of Companies" under the leadership of Mr. Ricardo Silverio, 8 Sr. There are at least two (2) sets of relationships which we need to address: firstly, the relationship of petitioner visa-visDelta; secondly, the relationship of petitioner in respect of Pilipinas. Actually, of course, there is a third relationship that is of critical importance: the relationship of petitioner and Philfinance. However, since Philfinance has not been impleaded in this case, neither the trial court nor the Court of Appeals acquired jurisdiction over the person of Philfinance. It is, consequently, not necessary for present purposes to deal with this third relationship, except to the extent it necessarily impinges upon or intersects the first and second relationships. I. We consider first the relationship between petitioner and Delta. The Court of appeals in effect held that petitioner acquired no rights vis-a-vis Delta in respect of the Delta promissory note (DMC PN No. 2731) which Philfinance sold "without recourse" to petitioner, to the extent of P304,533.33. The Court of Appeals said on this point: Nor could plaintiff-appellant have acquired any right over DMC PN No. 2731 as the same is "nonnegotiable" as stamped on its face (Exhibit "6"), negotiation being defined as the transfer of an instrument from one person to another so as to constitute the transferee the holder of the instrument (Sec. 30, Negotiable Instruments Law). A person not a holder cannot sue on the 9 instrument in his own name and cannot demand or receive payment (Section 51, id.) Petitioner admits that DMC PN No. 2731 was non-negotiable but contends that the Note had been validly transferred, in part to him by assignment and that as a result of such transfer, Delta as debtor-maker of the Note, was obligated to pay petitioner the portion of that Note assigned to him by the payee Philfinance. Delta, however, disputes petitioner's contention and argues: (1) that DMC PN No. 2731 was not intended to be negotiated or otherwise transferred by 10 Philfinance as manifested by the word "non-negotiable" stamp across the face of the Note and because maker Delta and payee Philfinance intended that this Note would be offset against the outstanding obligation of Philfinance represented by Philfinance PN No. 143-A issued to Delta as payee;

(2) that the assignment of DMC PN No. 2731 by Philfinance was without Delta's consent, if not against its instructions; and (3) assuming (arguendo only) that the partial assignment in favor of petitioner was valid, petitioner took the Note subject to the defenses available to Delta, in particular, the offsetting of 11 DMC PN No. 2731 against Philfinance PN No. 143-A. We consider Delta's arguments seriatim. Firstly, it is important to bear in mind that the negotiation of a negotiable instrument must be distinguished from theassignment or transfer of an instrument whether that be negotiable or non-negotiable. Only an instrument qualifying as a negotiable instrument under the relevant statute may be negotiated either by indorsement thereof coupled with delivery, or by delivery alone where the negotiable instrument is in bearer form. A negotiable instrument may, however, instead of being negotiated, also be assigned or transferred. The legal consequences of negotiation as distinguished from assignment of a negotiable instrument are, of course, different. A nonnegotiable instrument may, obviously, not be negotiated; but it may be assigned or transferred, absent an express prohibition against assignment or transfer written in the face of the instrument: The words "not negotiable," stamped on the face of the bill of lading, did not destroy its assignability, but the sole effect was to exempt the bill from the statutory provisions relative thereto, and a bill, though not negotiable,may be transferred by assignment; the assignee taking 12 subject to the equities between the original parties. (Emphasis added) DMC PN No. 2731, while marked "non-negotiable," was not at the same time stamped "non-transferable" or "nonassignable." It contained no stipulation which prohibited Philfinance from assigning or transferring, in whole or in part, that Note. Delta adduced the "Letter of Agreement" which it had entered into with Philfinance and which should be quoted in full: A p r i l 1 0 , 1 9 8 0 Philippine Benavidez Metro Manila. Underwriters St., Finance Corp. Makati,

Attention: Mr. SVP-Treasurer

Alfredo

O.

Banaria

GENTLEMEN: This refers to our outstanding placement of P4,601,666.67 as evidenced by your Promissory Note No. 143-A, dated April 10, 1980, to mature on April 6, 1981. As agreed upon, we enclose our non-negotiable Promissory Note No. 2730 and 2731 for P2,000,000.00 each, dated April 10, 1980, to be offsetted [sic] against your PN No. 143-A upon co-terminal maturity. Please deliver the proceeds of our PNs to our representative, Mr. Eric Castillo. V e r y T r u l y Y o u r s , ( S g d . ) F l o r e n c i o B . B i a

g a n S e n i o r V i c e P r e s i d e n t
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We find nothing in his "Letter of Agreement" which can be reasonably construed as a prohibition upon Philfinance assigning or transferring all or part of DMC PN No. 2731, before the maturity thereof. It is scarcely necessary to add that, even had this "Letter of Agreement" set forth an explicit prohibition of transfer upon Philfinance, such a prohibition cannot be invoked against an assignee or transferee of the Note who parted with valuable consideration in good faith and without notice of such prohibition. It is not disputed that petitioner was such an assignee or transferee. Our conclusion on this point is reinforced by the fact that what Philfinance and Delta were doing by their exchange of their promissory notes was this: Delta invested, by making a money market placement with Philfinance, approximately P4,600,000.00 on 10 April 1980; but promptly, on the same day, borrowed back the bulk of that placement, i.e., P4,000,000.00, by issuing its two (2) promissory notes: DMC PN No. 2730 and DMC PN No. 2731, both also dated 10 April 1980. Thus, Philfinance was left with not P4,600,000.00 but only P600,000.00 in cash and the two (2) Delta promissory notes. Apropos Delta's complaint that the partial assignment by Philfinance of DMC PN No. 2731 had been effected without the consent of Delta, we note that such consent was not necessary for the validity and enforceability of 14 the assignment in favor of petitioner. Delta's argument that Philfinance's sale or assignment of part of its rights to DMC PN No. 2731 constituted conventional subrogation, which required its (Delta's) consent, is quite mistaken. 15 Conventional subrogation, which in the first place is never lightly inferred, must be clearly established by the unequivocal terms of the substituting obligation or by the evident incompatibility of the new and old obligations 16 on every point. Nothing of the sort is present in the instant case. It is in fact difficult to be impressed with Delta's complaint, since it released its DMC PN No. 2731 to Philfinance, an entity engaged in the business of buying and selling debt instruments and other securities, and more generally, in

money market transactions. In Perez v. Court of Appeals, made the following important statement:

17

the Court, speaking through Mme. Justice Herrera,

There is another aspect to this case. What is involved here is a money market transaction. As defined by Lawrence Smith "the money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle manor a dealer in the open market." It involves "commercial papers" which are instruments "evidencing indebtness of any person or entity. . ., which are issued, endorsed, sold or transferred or in any manner conveyed to another person or entity, with or without recourse". The fundamental function of the money market device in its operation is to match and bring together in a most impersonal manner both the "fund users" and the "fund suppliers." The money market is an "impersonal market", free from personal considerations. "The market mechanism is intended to provide quick mobility of money and securities." The impersonal character of the money market device overlooks the individuals or entities concerned. The issuer of a commercial paper in the money market necessarily knows in advance that it would be expenditiously transacted and transferred to any investor/lender without need of notice to said issuer. In practice, no notification is given to the borrower or issuer of commercial paper of the sale or transfer to the investor. xxx xxx xxx There is need to individuate a money market transaction, a relatively novel institution in the Philippine commercial scene. It has been intended to facilitate the flow and acquisition of capital on an impersonal basis.And as specifically required by Presidential Decree No. 678, the investing public must be given adequate and effective protection in availing of the credit of a borrower in 18 the commercial paper market. (Citations omitted; emphasis supplied) We turn to Delta's arguments concerning alleged compensation or offsetting between DMC PN No. 2731 and Philfinance PN No. 143-A. It is important to note that at the time Philfinance sold part of its rights under DMC PN No. 2731 to petitioner on 9 February 1981, no compensation had as yet taken place and indeed none could have taken place. The essential requirements of compensation are listed in the Civil Code as follows: Art. 1279. In order that compensation may be proper, it is necessary: (1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other; (2) That both debts consists in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated; (3) That the two debts are due; (4) That they be liquidated and demandable; (5) That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor. (Emphasis supplied) On 9 February 1981, neither DMC PN No. 2731 nor Philfinance PN No. 143-A was due. This was explicitly recognized by Delta in its 10 April 1980 "Letter of Agreement" with Philfinance, where Delta acknowledged that

the relevant promissory notes were "to be offsetted ( sic) against [Philfinance] PN No. 143-A upon co-terminal maturity." As noted, the assignment to petitioner was made on 9 February 1981 or from forty-nine (49) days before the "coterminal maturity" date, that is to say, before any compensation had taken place. Further, the assignment to petitioner would have prevented compensation had taken place between Philfinance and Delta, to the extent of P304,533.33, because upon execution of the assignment in favor of petitioner, Philfinance and Delta would have ceased to be creditors and debtors of each other in their own right to the extent of the amount assigned by Philfinance to petitioner. Thus, we conclude that the assignment effected by Philfinance in favor of petitioner was a valid one and that petitioner accordingly became owner of DMC PN No. 2731 to the extent of the portion thereof assigned to him. The record shows, however, that petitioner notified Delta of the fact of the assignment to him only on 14 July 19 1981, that is, after the maturity not only of the money market placement made by petitioner but also of both DMC PN No. 2731 and Philfinance PN No. 143-A. In other words, petitioner notified Delta of his rights as assignee after compensation had taken place by operation of law because the offsetting instruments had both reached maturity. It is a firmly settled doctrine that the rights of an assignee are not any greater that the rights of the 20 assignor, since the assignee is merely substituted in the place of the assignor and that the assignee acquires his rights subject to the equities i.e., the defenses which the debtor could have set up against the original assignor before notice of the assignment was given to the debtor. Article 1285 of the Civil Code provides that: Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he reserved his right to the compensation. If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation of debts previous to the cession, but not of subsequent ones. If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment. (Emphasis supplied) Article 1626 of the same code states that: "the debtor who, before having knowledge of the assignment, pays his 21 creditor shall be released from the obligation." In Sison v. Yap-Tico, the Court explained that: [n]o man is bound to remain a debtor; he may pay to him with whom he contacted to pay; and if he pay before notice that his debt has been assigned, the law holds him exonerated, for the reason that it is the duty of the person who has acquired a title by transfer to demand payment 22 of the debt, to give his debt or notice. At the time that Delta was first put to notice of the assignment in petitioner's favor on 14 July 1981, DMC PN No. 2731 had already been discharged by compensation. Since the assignor Philfinance could not have then compelled payment anew by Delta of DMC PN No. 2731, petitioner, as assignee of Philfinance, is similarly disabled from collecting from Delta the portion of the Note assigned to him. It bears some emphasis that petitioner could have notified Delta of the assignment or sale was effected on 9 February 1981. He could have notified Delta as soon as his money market placement matured on 13 March 1981 without payment thereof being made by Philfinance; at that time, compensation had yet to set in and discharge DMC PN No. 2731. Again petitioner could have notified Delta on 26 March 1981 when petitioner received from Philfinance the Denominated Custodianship Receipt ("DCR") No. 10805 issued by private respondent Pilipinas in

favor of petitioner. Petitioner could, in fine, have notified Delta at any time before the maturity date of DMC PN No. 2731. Because petitioner failed to do so, and because the record is bare of any indication that Philfinance had itself notified Delta of the assignment to petitioner, the Court is compelled to uphold the defense of compensation raised by private respondent Delta. Of course, Philfinance remains liable to petitioner under the terms of the assignment made by Philfinance to petitioner. II. We turn now to the relationship between petitioner and private respondent Pilipinas. Petitioner contends that Pilipinas became solidarily liable with Philfinance and Delta when Pilipinas issued DCR No. 10805 with the following words: Upon your written instruction, we [Pilipinas] shall undertake physical delivery of the above 23 securities fully assigned to you . The Court is not persuaded. We find nothing in the DCR that establishes an obligation on the part of Pilipinas to pay petitioner the amount of P307,933.33 nor any assumption of liability in solidum with Philfinance and Delta under DMC PN No. 2731. We read the DCR as a confirmation on the part of Pilipinas that: (1) it has in its custody, as duly constituted custodian bank, DMC PN No. 2731 of a certain face value, to mature on 6 April 1981 and payable to the order of Philfinance; (2) Pilipinas was, from and after said date of the assignment by Philfinance to petitioner (9 February 1981),holding that Note on behalf and for the benefit of petitioner, at least to the extent 24 it had been assigned to petitioner by payee Philfinance ; (3) petitioner may inspect the Note either "personally or by authorized representative", at any time during regular bank hours; and (4) upon written instructions of petitioner, Pilipinas would physically deliver the DMC PN No. 2731 (or a participation therein to the extent of P307,933.33) "should this Denominated Custodianship receipt remain outstanding in [petitioner's] favor thirty (30) days after its maturity." Thus, we find nothing written in printers ink on the DCR which could reasonably be read as converting Pilipinas into an obligor under the terms of DMC PN No. 2731 assigned to petitioner, either upon maturity thereof or any other time. We note that both in his complaint and in his testimony before the trial court, petitioner referred merely to the obligation of private respondent Pilipinas to effect the physical delivery to him of DMC PN No. 25 2731. Accordingly, petitioner's theory that Pilipinas had assumed a solidary obligation to pay the amount represented by a portion of the Note assigned to him by Philfinance, appears to be a new theory constructed only after the trial court had ruled against him. The solidary liability that petitioner seeks to impute Pilipinas cannot, however, be lightly inferred. Under article 1207 of the Civil Code, "there is a solidary liability only when the law or the nature of the obligation requires solidarity," The record here exhibits no express assumption of solidary liability vis-a-vis petitioner, on the part of Pilipinas. Petitioner has not pointed to us to any law which imposed such liability upon Pilipinas nor has petitioner argued that the very nature of the custodianship assumed by private respondent Pilipinas necessarily implies solidary liability under the securities, custody of which was taken by Pilipinas. Accordingly, we are unable to hold Pilipinas solidarily liable with Philfinance and private respondent Delta under DMC PN No. 2731. We do not, however, mean to suggest that Pilipinas has no responsibility and liability in respect of petitioner under the terms of the DCR. To the contrary, we find, after prolonged analysis and deliberation, that private respondent Pilipinas had breached its undertaking under the DCR to petitioner Sesbreo.

We believe and so hold that a contract of deposit was constituted by the act of Philfinance in designating Pilipinas as custodian or depositary bank. The depositor was initially Philfinance; the obligation of the depository was owed, however, to petitioner Sesbreo as beneficiary of the custodianship or depository agreement. We do not consider that this is a simple case of a stipulation pour autri. The custodianship or depositary agreement was established as an integral part of the money market transaction entered into by petitioner with Philfinance. Petitioner bought a portion of DMC PN No. 2731; Philfinance as assignor-vendor deposited that Note with Pilipinas in order that the thing sold would be placed outside the control of the vendor. Indeed, the constituting of the depositary or custodianship agreement was equivalent to constructive delivery of the Note (to the extent it had been sold or assigned to petitioner) to petitioner. It will be seen that custodianship agreements are designed to facilitate transactions in the money market by providing a basis for confidence on the part of the investors or placers that the instruments bought by them are effectively taken out of the pocket, as it were, of the vendors and placed safely beyond their reach, that those instruments will be there available to the placers of funds should they have need of them. The depositary in a contract of deposit is obliged to return the security or the thing deposited upon demand of the depositor (or, in the presented case, of the beneficiary) of the contract, even though a term for 26 such return may have been established in the said contract. Accordingly, any stipulation in the contract of deposit or custodianship that runs counter to the fundamental purpose of that agreement or which was not brought to the notice of and accepted by the placer-beneficiary, cannot be enforced as against such beneficiaryplacer. We believe that the position taken above is supported by considerations of public policy. If there is any party that needs the equalizing protection of the law in money market transactions, it is the members of the general public 27 whom place their savings in such market for the purpose of generating interest revenues. The custodian bank, if it is not related either in terms of equity ownership or management control to the borrower of the funds, or the commercial paper dealer, is normally a preferred or traditional banker of such borrower or dealer (here, Philfinance). The custodian bank would have every incentive to protect the interest of its client the borrower or dealer as against the placer of funds. The providers of such funds must be safeguarded from the impact of stipulations privately made between the borrowers or dealers and the custodian banks, and disclosed to fundproviders only after trouble has erupted. In the case at bar, the custodian-depositary bank Pilipinas refused to deliver the security deposited with it when petitioner first demanded physical delivery thereof on 2 April 1981. We must again note, in this connection, that on 2 April 1981, DMC PN No. 2731 had not yet matured and therefore, compensation or offsetting against Philfinance PN No. 143-A had not yet taken place. Instead of complying with the demand of the petitioner, Pilipinas purported to require and await the instructions of Philfinance, in obvious contravention of its undertaking under the DCR to effect physical delivery of the Note upon receipt of "written instructions" from petitioner Sesbreo. The ostensible term written into the DCR (i.e., "should this [DCR] remain outstanding in your favor thirty [30] days after its maturity") was not a defense against petitioner's demand for physical surrender of the Note on at least three grounds: firstly, such term was never brought to the attention of petitioner Sesbreo at the time the money market placement with Philfinance was made; secondly, such term runs counter to the very purpose of the custodianship or depositary agreement as an integral part of a money market transaction; and thirdly, it is inconsistent with the provisions of Article 1988 of the Civil Code noted above. Indeed, in principle, petitioner became entitled to demand physical delivery of the Note held by Pilipinas as soon as petitioner's money market placement matured on 13 March 1981 without payment from Philfinance. We conclude, therefore, that private respondent Pilipinas must respond to petitioner for damages sustained by arising out of its breach of duty. By failing to deliver the Note to the petitioner as depositor-beneficiary of the thing deposited, Pilipinas effectively and unlawfully deprived petitioner of the Note deposited with it. Whether or not Pilipinas itself benefitted from such conversion or unlawful deprivation inflicted upon petitioner, is of no moment for present purposes.Prima facie, the damages suffered by petitioner consisted of P304,533.33, the portion of the DMC PN No. 2731 assigned to petitioner but lost by him by reason of discharge of the Note by compensation, plus legal interest of six percent (6%) per annum containing from 14 March 1981.

The conclusion we have reached is, of course, without prejudice to such right of reimbursement as Pilipinas may havevis-a-vis Philfinance. III. The third principal contention of petitioner that Philfinance and private respondents Delta and Pilipinas should be treated as one corporate entity need not detain us for long. In the first place, as already noted, jurisdiction over the person of Philfinance was never acquired either by the trial court nor by the respondent Court of Appeals. Petitioner similarly did not seek to implead Philfinance in the Petition before us. Secondly, it is not disputed that Philfinance and private respondents Delta and Pilipinas have been organized as separate corporate entities. Petitioner asks us to pierce their separate corporate entities, but has been able only to cite the presence of a common Director Mr. Ricardo Silverio, Sr., sitting on the Board of Directors of all three (3) companies. Petitioner has neither alleged nor proved that one or another of the three (3) concededly related companies used the other two (2) as mere alter egos or that the corporate affairs of the other two (2) were administered and managed for the benefit of one. There is simply not enough evidence of record to justify disregarding the separate corporate personalities of delta and Pilipinas and to hold them liable for any assumed or 28 undetermined liability of Philfinance to petitioner. WHEREFORE, for all the foregoing, the Decision and Resolution of the Court of Appeals in C.A.-G.R. CV No. 15195 dated 21 march 1989 and 17 July 1989, respectively, are hereby MODIFIED and SET ASIDE, to the extent that such Decision and Resolution had dismissed petitioner's complaint against Pilipinas Bank. Private respondent Pilipinas bank is hereby ORDERED to indemnify petitioner for damages in the amount of P304,533.33, plus legal interest thereon at the rate of six percent (6%) per annum counted from 2 April 1981. As so modified, the Decision and Resolution of the Court of Appeals are hereby AFFIRMED. No pronouncement as to costs. SO ORDERED. Bidin, Davide, Jr., Romero and Melo, JJ., concur.