Republic of the Philippines

Supreme Court
Manila
SECOND DIVISION
G.R. No. 190375

TAN SHUY,
Petitioner,

Present:
CARPIO, J., Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.

- versus -

SPOUSES
GUILLERMO
MAULAWIN and PARING
CARIO-MAULAWIN,
Respondents.

Promulgated:
February 8, 2012

x--------------------------------------------------x
DECISION
SERENO, J.:
Before the Court is a Petition for Review on Certiorari filed under Rule 45
of the Rules of Court, assailing the 31 July 2009 Decision and 13 November 2009
Resolution of the Court of Appeals (CA).[1]
Facts
Petitioner Tan Shuy is engaged in the business of buying copra and corn in the
Fourth District of Quezon Province. According to Vicente Tan (Vicente), son of
petitioner, whenever they would buy copra or corn from crop sellers, they would
prepare and issue a pesada in their favor. A pesada is a document containing
details of the transaction, including the date of sale, the weight of the crop

delivered, the trucking cost, and the net price of the crop. He then explained that
when a pesadacontained the annotation pd on the total amount of the purchase
price, it meant that the crop delivered had already been paid for by petitioner.[2]
Guillermo Maulawin (Guillermo), respondent in this case, is a farmerbusinessman engaged in the buying and selling of copra and corn. On 10 July
1997, Tan Shuy extended a loan to Guillermo in the amount of 420,000. In
consideration thereof, Guillermo obligated himself to pay the loan and to
sell lucad or copra to petitioner. Below is a reproduction of the contract:[3]
No 2567

Lopez, Quezon July 10, 1997

Tinanggap ko kay G. TAN SHUY ang halagang . (P420,000.00) salaping

Filipino. Inaako ko na isusulit sa kanya ang aking LUCAD at babayaran
ko ang nasabing halaga. Kung hindi ako makasulit ng LUCAD o
makabayad bago sumapit ang ., 19 maaari niya akong ibigay sa may
kapangyarihan. Kung ang pagsisingilan ay makakarating sa Juzgado ay
sinasagutan ko ang lahat ng kaniyang gugol.
P................

[Sgd. by respondent]
.
Lagda

Most of the transactions involving Tan Shuy and Guillermo were coursed
through Elena Tan, daughter of petitioner. She served as cashier in the business of
Tan Shuy, who primarily prepared and issued the pesada. In case of her absence,
Vicente would issue the pesada. He also helped his father in buying copra and
granting loans to customers (copra sellers). According to Vicente, part of their
agreement with Guillermo was that they would put the annotation sulong on
the pesada when partial payment for the loan was made.
Petitioner alleged that despite repeated demands, Guillermo remitted only
23,000 in August 1998 and 5,500 in October 1998, or a total of 28,500. [4] He
claimed that respondent had an outstanding balance of 391,500. Thus, convinced
that Guillermo no longer had the intention to pay the loan, petitioner brought the
controversy to the Lupon Tagapamayapa. When no settlement was reached,
petitioner filed a Complaint before the Regional Trial Court (RTC).
Respondent Guillermo countered that he had already paid the subject loan in
full. According to him, he continuously delivered and sold copra to petitioner from

April 1998 to April 1999. Respondent said they had an oral arrangement that the
net proceeds thereof shall be applied as installment payments for the loan. He
alleged that his deliveries amounted to 420,537.68 worth of copra. To bolster his
claim, he presented copies of pesadas issued by Elena and Vicente. He pointed out
that the pesadas did not contain the notation pd, which meant that actual payment
of the net proceeds from copra deliveries was not given to him, but was instead
applied as loan payment. He averred that Tan Shuy filed a case against him,
because petitioner got mad at him for selling copra to other copra buyers.
On 27 July 2007, the trial court issued a Decision, ruling that the net
proceeds from Guillermos copra deliveries represented in the pesadas, which did
not bear the notation pd should be applied as installment payments for the loan. It
gave weight and credence to the pesadas, as their due execution and authenticity
was established by Elena and Vicente, children of petitioner.[5] However, the court
did not credit the net proceeds from 12 pesadas, as they were deliveries for corn
and not copra. According to the RTC, Guillermo himself testified that it was the net
proceeds from the copra deliveries that were to be applied as installment payments
for the loan. Thus, it ruled that the total amount of 41,585.25, which corresponded
to the net proceeds from corn deliveries, should be deducted from the amount of
420,537.68 claimed by Guillermo to be the total value of his copra deliveries.
Accordingly, the trial court found that respondent had not made a full payment for
the loan, as the total creditable copra deliveries merely amounted to 378,952.43,
leaving a balance of 41,047.57 in his loan.[6]
On 31 July 2009, the CA issued its assailed Decision, which affirmed the
finding of the trial court. According to the appellate court, petitioner could have
easily belied the existence of the pesadas and the purpose for which they were
offered in evidence by presenting his daughter Elena as witness; however, he failed
to do so. Thus, it gave credence to the testimony of respondent Guillermo in that
the net proceeds from the copra deliveries were applied as installment payments
for the loan.[7] On 13 November 2009, the CA issued its assailed Resolution, which
denied the Motion for Reconsideration of petitioner.
Petitioner now assails before this Court the aforementioned Decision and
Resolution of the CA and presents the following issues:
Issues
1.

Whether the pesadas require authentication before they can be admitted in

evidence, and

2.

Whether the delivery of copra amounted to installment payments for the

loan obtained by respondents from petitioner.
Discussion

As regards the first issue, petitioner asserts that the pesadas should not have
been admitted in evidence, since they were private documents that were not duly
authenticated.[8] He further contends that the pesadas were fabricated in order to
show that the goods delivered were copra and not corn. Finally, he argues that five
of the pesadas mentioned in the Formal Offer of Evidence of respondent were not
actually offered.[9]
With regard to the second issue, petitioner argues that respondent undertook
two separate obligations (1) to pay for the loan in cash and (2) to sell the
latters lucad or copra. Since their written agreement did not specifically provide for
the application of the net proceeds from the deliveries of copra for the loan,
petitioner contends that he cannot be compelled to accept copra as payment for the
loan. He emphasizes that the pesadas did not specifically indicate that the net
proceeds from the copra deliveries were to be used as installment payments for the
loan. He also claims that respondents copra deliveries were duly paid for in cash,
and that the pesadas were in fact documentary receipts for those payments.
We reiterate our ruling in a line of cases that the jurisdiction of this Court, in
cases brought before it from the CA, is limited to reviewing or revising errors of
law.[10] Factual findings of courts, when adopted and confirmed by the CA, are final
and conclusive on this Court except if unsupported by the evidence on record.
[11]
There is a question of fact when doubt arises as to the truth or falsehood of
facts; or when there is a need to calibrate the whole evidence, considering mainly
the credibility of the witnesses and the probative weight thereof, the existence and
relevancy of specific surrounding circumstances, as well as their relation to one
another and to the whole, and the probability of the situation.[12]
Here, a finding of fact is required in the ascertainment of the due execution
and authenticity of the pesadas, as well as the determination of the true intention
behind the parties oral agreement on the application of the net proceeds from the
copra deliveries as installment payments for the loan. [13] This function was already
exercised by the trial court and affirmed by the CA. Below is a reproduction of the
relevant portion of the trial courts Decision:
x x x The defendant further averred that if in the receipts or pesadas issued
by the plaintiff to those who delivered copras to them there is a notation pd on the

total amount of purchase price of the copras, it means that said amount was
actually paid or given by the plaintiff or his daughter Elena Tan Shuy to the seller
of the copras. To prove his averments the defendant presented as evidence two (2)
receipts or pesadas issued by the plaintiff to a certain Cario (Exhibits 1 and 2
defendant) showing the notation pd on the total amount of the purchase price for
the copras. Such claim of the defendant was further bolstered by the testimony of
Apolinario Cario which affirmed that he also sell copras to the plaintiff Tan Shuy.
He also added that he incurred indebtedness to the plaintiff and whenever he
delivered copras the amount of the copras sold were applied as payments to his
loan. The witness also pointed out that the plaintiff did not give any official
receipts to those who transact business with him (plaintiff). This Court gave
weight and credence to the documents receipts (pesadas) (Exhibits 3 to 64)
offered as evidence by the defendant which does not bear the notation pd or
paid on the total amount of the purchase price of copras appearing therein.
Although said pesadas were private instrument their execution and
authenticity were established by the plaintiffs daughter Elena Tan and
sometimes by plaintiffs son Vicente Tan. x x x.[14] (Emphasis supplied)

In affirming the finding of the RTC, the CA reasoned thus:

In his last assigned error, plaintiff-appellant herein impugns the conclusion
arrived at by the trial court, particularly with respect to the giving of
evidentiary value to Exhs. 3 to 64 by the latter in order to prove the claim of
defendant-appellee Guillermo that he had fully paid the subject loan already.
The foregoing deserves scant consideration.
Here, plaintiff-appellant could have easily belied the existence of Exhs.
3 to 64, the pesadas or receipts, and the purposes for which they were offered
in evidence by simply presenting his daughter, Elena Tan Shuy, but no effort
to do so was actually done by the former given that scenario. [15] (Emphasis
supplied)

We found no clear showing that the trial court and the CA committed
reversible errors of law in giving credence and according weight to
the pesadas presented by respondents. According to Rule 132, Section 20 of the
Rules of Court, there are two ways of proving the due execution and authenticity of
a private document, to wit:
SEC. 20. Proof of private document. Before any private document offered as
authentic is received in evidence, its due execution and authenticity must be
proved either:
(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of

the maker.
Any other private document need only be identified as that which it is claimed
to be. (21a)

As reproduced above, the trial court found that the due execution and
authenticity of the pesadas were established by the plaintiffs daughter Elena Tan
and sometimes by plaintiffs son Vicente Tan.[16] The RTC said:
On cross-examination, [Vicente] reiterated that he and her [sic] sister
Elena Tan who acted as their cashier are helping their father in their business of
buying copras and mais. That witness agreed that in the business of buying copra
and mais of their father, if a seller is selling copra, a pesada is being issued by his
sister. The pesada that she is preparing consists of the date when the copra is
being sold to the seller. Being familiar with the penmanship of Elena Tan, the
witness was shown a sample of the pesada issued by his sister Elena Tan. x x x
xxxxxxxxx
x x x. He clarified that in the pesada (Exh. 1) prepared by Elena and also
in Exh 2, there appears on the lower right hand portion of the said pesadas the
letter pd, the meaning of which is to the effect that the seller of the copra has
already been paid during that day. He also confirmed the penmanship and
handwriting of his sister Ate Elena who acted as a cashier in the pesada being
shown to him. He was even made to compare the xerox copies of the pesadas
with the original copies presented to him and affirmed that they are faithful
reproduction of the originals.[17] (Emphasis supplied)

In any event, petitioner is already estopped from questioning the due

execution and authenticity of the pesadas. As found by the CA, Tan Shuy could
have easily belied the existence of x x x the pesadas or receipts, and the purposes
for which they were offered in evidence by simply presenting his daughter, Elena
Tan Shuy, but no effort to do so was actually done by the former given that
scenario. The pesadas having been admitted in evidence, with petitioner failing to
timely object thereto, these documents are already deemed sufficient proof of the
facts contained therein.[18] We hereby uphold the factual findings of the RTC, as
affirmed by the CA, in that the pesadas served as proof that the net proceeds from
the copra deliveries were used as installment payments for the debts of
respondents.[19]
Indeed, pursuant to Article 1232 of the Civil Code, an obligation is
extinguished by payment or performance. There is payment when there is delivery

of money or performance of an obligation.[20] Article 1245 of the Civil Code

provides for a special mode of payment called dation in payment (dacin en pago).
There is dation in payment when property is alienated to the creditor in satisfaction
of a debt in money.[21] Here, the debtor delivers and transmits to the creditor the
formers ownership over a thing as an accepted equivalent of the payment or
performance of an outstanding debt.[22] In such cases, Article 1245 provides that the
law on sales shall apply, since the undertaking really partakes in one sense of the
nature of sale; that is, the creditor is really buying the thing or property of the
debtor, the payment for which is to be charged against the debtors obligation.
[23]
Dation in payment extinguishes the obligation to the extent of the value of the
thing delivered, either as agreed upon by the parties or as may be proved, unless
the parties by agreement express or implied, or by their silence consider the thing
as equivalent to the obligation, in which case the obligation is totally extinguished.
[24]

The trial court found thus:

x x x [T]he preponderance of evidence is on the side of the defendant.
x x x The defendant explained that for the receipts (pesadas) from April 1998 to
April 1999 he only gets the payments for trucking while the total amount
which represent the total purchase price for the copras that he delivered to
the plaintiff were all given to Elena Tan Shuy as installments for the loan he
owed to plaintiff. The defendant further averred that if in the receipts or pesadas
issued by the plaintiff to those who delivered copras to them there is a notation pd
on the total amount of purchase price of the copras, it means that said amount was
actually paid or given by the plaintiff or his daughter Elena Tan Shuy to the seller
of the copras. To prove his averments the defendant presented as evidence two (2)
receipts or pesadas issued by the plaintiff to a certain Cario (Exhibits 1 and 2
defendant) showing the notation pd on the total amount of the purchase price for
the copras. Such claim of the defendant was further bolstered by the
testimony of Apolinario Cario which affirmed that he also sell [sic] copras to
the plaintiff Tan Shuy. He also added that he incurred indebtedness to the
plaintiff and whenever he delivered copras the amount of the copras sold
were applied as payments to his loan. The witness also pointed out that the
plaintiff did not give any official receipts to those who transact business with him
(plaintiff). x x x
Be that it may, this Court cannot however subscribe to the averments of
the defendant that he has fully paid the amount of his loan to the plaintiff from the
proceeds of the copras he delivered to the plaintiff as shown in the pesadas
(Exhibits 3 to 64). Defendant claimed that based on the said pesadas he has paid
the total amount of P420,537.68 to the plaintiff. However, this Court keenly noted

that some of the pesadas offered in evidence by the defendant were not for
copras that he delivered to the plaintiff but for mais (corn). The said pesadas
for mais or corn were the following, to wit:
xxxxxxxxx
To the mind of this Court the aforestated amount (P41,585.25) which the above
listed pesadas show as payment for mais or corn delivered by the defendant
to the plaintiff cannot be claimed by the defendant to have been applied also
as payment to his loan with the plaintiff because he does not testify on such fact.
He even stressed during his testimony that it was the proceeds from the copras
that he delivered to the plaintiff which will be applied as payments to his loan. x x
x Thus, equity dictates that the total amount of P41,585.25 which corresponds
to the payment for mais (corn) delivered by the plaintiff shall be deducted
from the total amount of P420,537.68 which according to the defendant
based on the pesadas (Exhibits 3 to 64) that he presented as evidence, is the
total amount of the payment that he made for his loan to the plaintiff. x x x
xxxxxxxxx
Clearly from the foregoing, since the total amount of defendants loan to the
plaintiff is P420,000.00 and the evidence on record shows that the actual
amount of payment made by the defendant from the proceeds of the copras
he delivered to the plaintiff is P378,952.43, the defendant is still indebted to
the plaintiff in the amount of P41,047.53 (sic) (P420,000.00-P378,952.43).
[25]
(Emphasis supplied)

In affirming this finding of fact by the trial court, the CA cited the abovequoted portion of the RTCs Decision and stated the following:
In fact, as borne by the records on hand, herein defendant-appellee Guillermo was
able to describe and spell out the contents of Exhs. 3 to 64 which were then
prepared by Elena Tan Shuy or sometimes by witness Vicente Tan. Herein
defendant-appellee Guillermo professed that since the release of the subject loan
was subject to the condition that he shall sell his copras to the plaintiff-appellant,
the former did not already receive any money for the copras he delivered to the
latter starting April 1998 to April 1999. Hence, this Court can only express its
approval to the apt observation of the trial court on this matter[.]
xxxxxxxxx
Notwithstanding the above, however, this Court fully agrees with the
pronouncement of the trial court that not all amounts indicated in Exhs. 3 to
64 should be applied as payments to the subject loan since several of which
clearly indicated mais deliveries on the part of defendantappellee Guillermo instead of copras[.][26](Emphasis supplied)

The subsequent arrangement between Tan Shuy and Guillermo can thus be
considered as one in the nature of dation in payment. There was partial payment
every time Guillermo delivered copra to petitioner, chose not to collect the net
proceeds of his copra deliveries, and instead applied the collectible as installment
payments for his loan from Tan Shuy. We therefore uphold the findings of the trial
court, as affirmed by the CA, that the net proceeds from Guillermos copra
deliveries amounted to 378,952.43. With this partial payment, respondent remains
liable for the balance totaling 41,047.57.[27]
WHEREFORE the Petition is DENIED. The 31 July 2009 Decision and 13
November 2009 Resolution of the Court of Appeals in CA-G.R. CV No. 90070 are
hereby AFFIRMED.

SO ORDERED.

MARIA LOURDES P. A. SERENO

Associate Justice
WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

BIENVENIDO L. REYES
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the Opinion of the Courts
Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

[1]

Both the Decision and Resolution in CA-G.R. CV No. 90070 were penned by Justice Andres B. Reyes, Jr. and
concurred in by Justices Fernanda Lampas Peralta and Apolinario D. Bruselas, Jr.
[2]
RTC Decision, p. 4; rollo, p. 48.
[3]
Petitioners Complaint, Annex E; rollo, p.71.
[4]
Petitioners Complaint, pp. 1-2; rollo, pp. 67-68.
[5]
RTC Decision, pp. 16-17; rollo, pp. 60-61.
[6]
The RTC found that respondents remained indebted to petitioner for the total balance of 41,047.53. However,
after a re-computation, this Court finds that a simple mathematical error was committed. Respondents balance
should be reflected as 41,047.57.
[7]
CA Decision, pp. 11-12; rollo, pp. 27-28.
[8]
Petitioner refers to Exhibits 5, 7, 25, 30, 32, 32-A, 33, 34, 38, 43, 45, and 47. See Tan Shuys Petition for Review
on Certiorari, p. 6; rollo, p. 9.
[9]
Petitioner refers to Exhibits 65 to 69. See Tan Shuys Petition for Review on Certiorari, p. 6; rollo, p. 9.
[10]
Republic v. Regional Trial Court, G.R. No. 172931, 18 June 2009, 589 SCRA 552.
[11]
Id.
[12]
Guy v. Court of Appeals, G.R. No. 165849, 10 December 2007, 539 SCRA 584; Obando v. People, G.R. No.
138696, 7 July 2010, 624 SCRA 299.
[13]
See Bernaldez v. Francia, 446 Phil. 643 (2003)
[14]
RTC Decision, pp. 16-17; rollo, pp. 60-61.
[15]
CA Decision, pp. 10-11; rollo, pp. 26-27.
[16]
RTC Decision, p. 17; rollo, p. 61.
[17]
RTC Decision, p. 4; rollo, p. 48.
[18]
See Obando v. People, supra note 12; Sy v. Court of Appeals, 386 Phil. 760 (2000), citing Son v. Son, 321 Phil.
951 (1995), Tison v. CA, 342 Phil. 550 (1997), and Quebral v. CA, 322 Phil. 387 (1996).
[19]
RTC Decision, pp. 16-18; rollo, pp. 60-62; CA Decision, pp. 10-13; rollo, pp. 26-29.
[20]
CIVIL CODE, Art. 1232.
[21]
CIVIL CODE, Art. 1245.
[22]
Lopez v. Court of Appeals, 200 Phil. 150 (1982), (citing TOLENTINO, COMMENTARIES &
JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, VOL. IV, 276-277 (1962); D. JOS CASTN
TOBEAS, DERECHO CIVIL ESPAOL, COMN Y FORAL, VOL. II 525 (6th ed. 1943); D. JOS MARA MANRESA
Y NAVARRO, COMENTARIOS AL CDIGO CIVIL ESPAOL, VOL. VIII 324 (1932)); Aquintey v. Tibong, G.R.
No. 166704, 20 December 2006, 511 SCRA 414, citing Jayme v. Court of Appeals, 439 Phil. 192 (2002).
[23]
Aquintey v. Tibong, G.R. No. 166704, 20 December 2006, 511 SCRA 414, citing Jayme v. Court of Appeals, 439
Phil. 192 (2002); CIVIL CODE, Art. 1245.
[24]
Lopez v. Court of Appeals, L-33157, 29 June 1982, 114 SCRA 671, citing TOLENTINO, COMMENTARIES &
JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, VOL. IV 276-277 (1962); D. JOS MARA
MANRESA Y NAVARRO, COMENTARIOS AL CDIGO CIVIL ESPAOL, VOL. VIII 324 (1932); CALIXTO
VALVERDE Y VALVERDE, TRATADO DE DERECHO CIVIL ESPAOL, VOL. II 174(1935)).
[25]
RTC Decision, pp. 16-18; rollo, pp. 60-62.
[26]
CA Decision, pp. 11-13; rollo, pp. 27-29.
[27]
RTC Decision, p. 18; rollo, p. 62; CA Decision, p. 14, rollo, p. 30.

FIRST DIVISION
AGRIFINA AQUINTEY, G.R. No. 166704
Petitioner,
Present:
PANGANIBAN, C.J., Chairperson,*
YNARES-SANTIAGO,**
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.
SPOUSES FELICIDAD AND
RICO TIBONG, Promulgated:
Respondents.
_________________
x--------------------------------------------------x
DECISION
CALLEJO, SR., J.:
Before us is a petition for review under Rule 45 of the Revised Rules on
Civil Procedure of the Decision[1] of the Court of Appeals in CA-G.R. CV No.
78075, which affirmed with modification the Decision[2] of the Regional Trial
Court (RTC), Branch 61, Baguio City, and the Resolution[3] of the appellate court
denying reconsideration thereof.

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

WHEREFORE, premises considered, it is most respectfully prayed of this

Honorable Court, after due notice and hearing, to render judgment ordering
defendants to pay plaintiff the following:
a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS
(P773,000.00) representing the principal obligation of the
defendants with the stipulated interests of six (6%) percent per
month from May 11, 1999 to date and or those that are
stipulated on the contracts as mentioned from paragraph two (2) of
the complaint.
b). FIFTEEN PERCENT (15%) of the total accumulated obligations as
attorneys fees.
c). Actual expenses representing the filing fee and other charges and
expenses to be incurred during the prosecution of this case.
Further prays for such other relief and remedies just and equitable under the premises.[4]

Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in

I.S. No. 93-334, as well as copies of the promissory notes and acknowledgment
receipts executed by Felicidad covering the loaned amounts.[5]
In their Answer with Counterclaim, [6] spouses Tibong admitted that they had
secured loans from Agrifina. The proceeds of the loan were then re-lent to other
borrowers
at
higher
interest
rates.
They,
likewise,
alleged
that they had executed deeds of assignment in favor of Agrifina, and that their
debtors had executed promissory notes in Agrifinas favor. According to the spouses
Tibong, this resulted in a novation of the original obligation to Agrifina. They
insisted that by virtue of these documents, Agrifina became the new collector of
their debtors; and the obligation to pay the balance of their loans had been
extinguished.
The spouses Tibong specifically denied the material averments in paragraphs
2 and 2.1 of the complaint. While they did not state the total amount of their loans,
they declared that they did not receive anything from Agrifina without any written
receipt.[7] They prayed for that the complaint be dismissed.

In their Pre-Trial Brief, the spouses Tibong maintained that they have never
obtained any loan from Agrifina without the benefit of a written document.[8]
On August 17, 2000, the trial court issued a Pre-Trial Order where the
following issues of the case were defined:
Whether or not plaintiff is entitled to her claim of P773,000.00;
Whether or not plaintiff is entitled to stipulated interests in the promissory
notes; and
Whether or not the parties are entitled to their claim for damages.[9]

The Case for Petitioner

Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidads
husband, Rico, also happened to be a distant relative of Agrifina. Upon Felicidads
prodding, Agrifina agreed to lend money to Felicidad. According to Felicidad,
Agrifina
would
be
earning
interests higher than those given by the bank for her money. Felicidad told Agrifina
that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping
Arcade, she would use the money to buy bonnels and thread .[10] Thus, Agrifina lent
a total sum of P773,000.00 to Felicidad, and each loan transaction was covered by
either a promissory note or an acknowledgment receipt. [11] Agrifina stated that she
had lost the receipts signed by Felicidad for the following
amounts: P100,000.00,P34,000.00 and P2,000.00.[12] The particulars of the
transactions are as follows:
Amount

Date Obtained

P 100,000.00
4,000.00
50,000.00
60,000.00
205,000.00
128,000.00
2,000.00
10,000.00
80,000.00

May 11, 1989

June 8, 1989
June 13, 1989
Aug. 16, 1989
Oct. 13, 1989
Oct. 19, 1989
Nov. 12, 1989
June 13, 1990
Jan. 4, 1990

Interest
Per Mo.
6%
6%
7%
7%
7%
6%
-

Due Date
August 11, 1989
On demand
January 1990
January 1990
January 1990
April 28, 1990
-

34,000.00
100,000.00

July 14, 1989

6%
5%

October 19, 1989

October 1989[13]

According to Agrifina, Felicidad was able to pay only her loans amounting
to P122,600.00.[14]
In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804
dated August 25, 1990 in the amount of P50,000.00 as partial payment.[15]However,
the check was dishonored for having been drawn against insufficient funds.
[16]
Agrifina then filed a criminal case against Felicidad in the Office of the City
Prosecutor. An Information for violation of Batas Pambansa Bilang 22 was filed
against Felicidad, docketed as Criminal Case No. 11181-R. After trial, the court
ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of
the check.[17]
In the meantime, Agrifina learned that Felicidad had re-loaned the amounts
to other borrowers.[18] Agrifina sought the assistance of Atty. Torres G. A-ayo who
advised her to require Felicidad to execute deeds of assignment over Felicidads
debtors. The lawyer also suggested that Felicidads debtors execute promissory
notes in Agrifinas favor, to turn over their loans from Felicidad. This arrangement
would facilitate collection of Felicidads account. Agrifina agreed to the proposal.
[19]
Agrifina, Felicidad, and the latters debtors had a conference [20] where Atty. A-ayo
explained that Agrifina could apply her collections as payments of Felicidads
account.[21]
From August 7, 1990 to October, 1990, Felicidad executed deeds of
assignment of credits (obligations)[22] duly notarized by Atty. A-ayo, in which
Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due
from her debtors.[23] In the said deeds, Felicidad confirmed that her debtors were no
longer indebted to her for their respective loans. For her part, Agrifina conformed
to the deeds of assignment relative to the loans of Virginia Morada and Corazon
Dalisay.[24] She was furnished copies of the deeds as well as the promissory notes.[25]
The following debtors of Felicidad executed promissory notes where they
obliged themselves to pay directly to Agrifina:

Debtors
Account
Juliet & Tommy P50,000.00
Tibong

August 7, 1990

Date Payable
November
4,
1990 and February 4,
1991

Corazon Dalisay

8,000.00

August 7, 1990

No date

Rita Chomacog

4,480.00

August 8, 1990

September 23, 1990

October 19, 1990

March 30, 1991

August 8, 1990

February 3, 1991

September 13, 1990

No date

Antoinette
Manuel
Rosemarie Bandas
Fely Cirilo

12,000.00
8,000.00
63,600.00

Date of Instrument

Virginia Morada

62,379.00

August 9, 1990

February 9, 1991

Carmelita Casuga

59,000.00

August 28, 1990

February 28, 1991

August 29, 1990

November
1990[26]

Merlinda Gelacio

17,200.00

29,

T o t a l P284,659.00

Agrifina narrated that Felicidad showed to her the way to the debtors houses
to enable her to collect from them. One of the debtors, Helen Cabang, did not
execute any promissory note but conformed to the Deed of Assignment of Credit
which Felicidad executed in favor of Agrifina. [27] Eliza Abance conformed to the
deed of assignment for and in behalf of her sister, Fely Cirilo. [28] Edna Papat-iw was
not able to affix her signature on the deed of assignment nor sign the promissory
note because she was in Taipei, Taiwan.[29]
Following the execution of the deeds of assignment and promissory notes,
Agrifina was able to collect the total amount of P301,000.00 from Felicidads
debtors.[30] In April 1990, she tried to collect the balance of Felicidads account, but
the latter told her to wait until her debtors had money.[31] When Felicidad reneged
on her promise, Agrifina filed a complaint in the Office of the Barangay Captain
for the collection of P773,000.00. However, no settlement was arrived at.[32]
The Case for Respondents

Felicidad testified that she and her friend Agrifina had been engaged in the moneylending business.[33] Agrifina would lend her money with monthly interest, [34] and
she, in turn, would re-lend the money to borrowers at a higher interest rate. Their
business relationship turned sour when Agrifina started complaining that she
(Felicidad) was actually earning more than Agrifina.[35] Before the respective
maturity dates of her debtors loans, Agrifina asked her to pay her account since
Agrifina needed money to buy a house and lot in Manila. However, she told
Agrifina that she could not pay yet, as her debtors loan payments were not yet due.
[36]
Agrifina then came to her store every afternoon to collect from her, and
persuaded her to go to Atty. Torres G. A-ayo for legal advice. [37] The lawyer
suggested that she indorse the accounts of her debtors to Agrifina so that the latter
would be the one to collect from her debtors and she would no longer have any
obligation to Agrifina.[38] She then executed deeds of assignment in favor of
Agrifina covering the sums of money due from her debtors. She signed the deeds
prepared by Atty. A-ayo in the presence of Agrifina.[39] Some of the debtors signed
the promissory notes which were likewise prepared by the lawyer. Thereafter,
Agrifina personally collected from Felicidads debtors. [40] Felicidad further narrated
that she received P250,000.00 from one of her debtors, Rey Rivera, and remitted
the payment to Agrifina.[41]
Agrifina testified, on rebuttal, that she did not enter into a re-lending business with
Felicidad. When she asked Felicidad to consolidate her loans in one document, the
latter told her to seek the assistance of Atty. A-ayo. [42] The lawyer suggested that
Felicidad assign her credits in order to help her collect her loans.[43] She agreed to
the deeds of assignment to help Felicidad collect from the debtors.[44]
On January 20, 2003, the trial court rendered its Decision [45] in favor of
Agrifina. The fallo of the decision reads:
WHEREFORE, judgment is rendered in favor of the plaintiff and against
the defendants ordering the latter to pay the plaintiffs (sic) the following amounts:
1. P472,000 as actual obligation with the stipulated interest of 6% per month
from May 11, 1999 until the said obligation is fully paid. However, the amount
of P50,000 shall be deducted from the total accumulated interest for the same was
already paid by the defendant as admitted by the plaintiff in her complaint,

2. P25,000 as attorney's fees,

3. [T]o pay the costs.
SO ORDERED.[46]

The trial court ruled that Felicidads obligation had not been novated by the
deeds of assignment and the promissory notes executed by Felicidads borrowers. It
explained that the documents did not contain any express agreement to novate and
extinguish Felicidads obligation. It declared that the deeds and notes were separate
contracts which could stand alone from the original indebtedness of Felicidad.
Considering, however, Agrifinas admission that she was able to collect from
Felicidads debtors the total amount of P301,000.00, this should be deducted from
the latters accountability.[47] Hence, the balance, exclusive of interests, amounted
to P472,000.00.
On appeal, the CA affirmed with modification the decision of the RTC and
stated that, based on the promissory notes and acknowledgment
receipts signed by Felicidad, the appellants secured loans from the appellee in the
total principal amount of only P637,000.00, not P773,000.00 as declared by the
trial court. The CA found that, other than Agrifinas bare testimony that she had lost
the promissory notes and acknowledgment receipts, she failed to present competent
documentary evidence to substantiate her claim that Felicidad had, likewise,
borrowed the amounts of P100,000.00, P34,000.00, and P2,000.00. Of
the P637,000.00 total account, P585,659.00 was covered by the deeds of
assignment and promissory notes; hence, the balance of Felicidads account
amounted to only P51,341.00. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the decision dated January 20,
2003 of the RTC, Baguio City, Branch 61 in Civil Case No. 4370-R is
hereby MODIFIED. Defendants-appellants are hereby ordered to pay the balance
of the total indebtedness in the amount of P51,341.00 plus the stipulated interest
of 6% per month from May 11, 1999until the finality of this decision.
SO ORDERED.[48]

The appellate court sustained the trial courts ruling that Felicidads obligation
to Agrifina had not been novated by the deeds of assignment and promissory notes
executed in the latters favor. Although Agrifina was subrogated as a new creditor in
lieu of Felicidad, Felicidads obligation to Agrifina under the loan transaction
remained; there was no intention on their part to novate the original obligation.

Nonetheless, the appellate court held that the legal effects of the deeds of
assignment could not be totally disregarded. The assignments of credits were
onerous, hence, had the effect of payment, pro tanto, of the outstanding obligation.
The fact that Agrifina never repudiated or rescinded such assignments only shows
that she had accepted and conformed to it. Consequently, she cannot collect both
from Felicidad and her individual debtors without running afoul to the principle of
unjust enrichment. Agrifinas primary recourse then is against Felicidads
individual debtors on the basis of the deeds of assignment and promissory notes.
The CA further declared that the deeds of assignment executed by Felicidad
had the effect of payment of her outstanding obligation to Agrifina in the amount
of P585,659.00. It ruled that, since an assignment of credit is in the nature of a sale,
the assignors remained liable for the warranties as they are responsible for the
existence and legality of the credit at the time of the assignment.
Both parties moved to have the decision reconsidered, [49] but the appellate
court denied both motions on December 21, 2004.[50]
Agrifina, now petitioner, filed the instant petition, contending that
1. The Honorable Court of Appeals erred in ruling that the deeds of
assignment in favor of petitioner has the effect of payment of the original
obligation even as it ruled out that the original obligation and the assigned credit
are distinct and separate and can stand independently from each other;
2. The Honorable Court of Appeals erred in passing upon issues raised for
the first time on appeal; and
3. The Honorable Court of Appeals erred in resolving fact not in issue.[51]

Petitioner avers that the appellate court erred in ruling that respondents
original obligation amounted to only P637,000.00 (instead of P773,000.00) simply
because she lost the promissory notes/receipts which evidenced the loans executed
by respondent Felicidad Tibong. She insists that the issue of whether Felicidad
owed her less than P773,000.00 was not raised by respondents during pre-trial and
in their appellate brief; the appellate court was thus proscribed from taking
cognizance of the issue.
Petitioner avers that respondents failed to deny, in their verified answer, that
they had secured the P773,000.00 loan; hence, respondents are deemed to have

admitted the allegation in the complaint that the loans secured by respondent from
her amounted to P773,000.00. As gleaned from the trial courts pre-trial order, the
main issue is whether or not she should be made to pay this amount.
Petitioner further maintains that the CA erred in deducting the total amount
of P585,659.00 covered by the deeds of assignment executed by Felicidad and the
promissory notes executed by the latters debtors, and that the balance of
respondents account was only P51,341.00. Moreover, the appellate courts ruling
that there was no novation runs counter to its holding that the primary recourse was
against Felicidads debtors. Petitioner avers that of the 11 deeds of assignment and
promissory notes, only two bore her signature.[52] She insists that she is not bound
by the deeds which she did not sign. By assigning the obligation to pay petitioner
their loan accounts, Felicidads debtors merely assumed the latters obligation and
became co-debtors to petitioner. Respondents were not released from their
obligation under their loan transactions, and she had the option to demand payment
from them or their debtors. Citing the ruling of this Court in Magdalena Estates,
Inc. v. Rodriguez,[53] petitioner insists that the first debtor is not released from
responsibility upon reaching an agreement with the creditor. The payment by a
third person of the first debtors obligation does not constitute novation, and the
creditor can still enforce the obligation against the original debtor. Petitioner also
cites the ruling of this Court in Guerrero v. Court of Appeals.[54]
In their Comment on the petition, respondents aver that by virtue of
respondent Felicidads execution of the deeds of assignment, and the original
debtors execution of the promissory notes (along with their conformity to the deeds
of assignment with petitioners consent), their loan accounts with petitioner
amounting to P585,659.00 had been effectively extinguished. Respondents point
out that this is in accordance with Article 1291, paragraph 2, of the Civil Code.
Thus, the original debtors of respondents had been substituted as petitioners new
debtors.
Respondents counter that petitioner had been subrogated to their right to
collect the loan accounts of their debtors. In fact, petitioner, as the new creditor of
respondents former debtors had been able to collect the latters loan accounts which
amounted to P301,000.00. The sums received by respondents debtors were the
same loans which they obliged to pay to petitioner under the promissory notes
executed in petitioners favor.
Respondents aver that their obligation to petitioner cannot stand or exist
separately from the original debtors obligation to petitioner as the new creditor. If

allowed to collect from them as well as from their original debtors, petitioner
would be enriching herself at the expense of respondents. Thus, despite the fact
that petitioner had collected P172,600.00 from respondents and P301,000.00 from
the original debtors, petitioner still sought to collect P773,000.00 from them in the
RTC. Under the deeds of assignment executed by Felicidad and the original
debtors promissory notes, the original debtors accounts were assigned to petitioner
who would be the new creditor. In fine, respondents are no longer liable to
petitioner for the balance of their loan account inclusive of interests. Respondents
also insist that petitioner failed to prove that she (petitioner) was merely authorized
to collect the accounts of the original debtors so as to to facilitate the payment of
respondents loan obligation.
The Issues
The threshold issues are: (1) whether respondent Felicidad Tibong
borrowed P773,000.00 from petitioner; and (2) whether the obligation
of respondents to pay the balance of their loans, including interest, was partially
extinguished by the execution of the deeds of assignment in favor of petitioner,
relative to the loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and Fely
Cirilo in the total amount of P371,000.00.
The Ruling of the Court
We have carefully reviewed the brief of respondents as appellants in the CA,
and find that, indeed, they had raised the issue of whether they
received P773,000.00 by way of loans from petitioner. They averred that, as
gleaned from the documentary evidence of petitioner in the RTC, the total amount
they borrowed was only P673,000.00. They asserted that petitioner failed to
adduce concrete evidence that they received P773,000.00 from her.[55]
We agree, however, with petitioner that the appellate court erred in reversing
the finding of the RTC simply because petitioner failed to present any document or
receipt signed by Felicidad.
Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to
specify each material allegation of fact the truth of which he does not admit and,
whenever practicable, x x x set forth the substance of the matters upon which he
relies to support his denial.[56]

Section 11, Rule 8 of the same Rules provides that allegations of the
complaint not specifically denied are deemed admitted.[57]
The purpose of requiring the defendant to make a specific denial is to make
him disclose the matters alleged in the complaint which he succinctly intends to
disprove at the trial, together with the matter which he relied upon to support the
denial. The parties are compelled to lay their cards on the table.[58]
A denial is not made specific simply because it is so qualified by the
defendant. A general denial does not become specific by the use of the word
specifically. When matters of whether the defendant alleges having no knowledge
or information sufficient to form a belief are plainly and necessarily within the
defendants knowledge, an alleged ignorance or lack of information will not be
considered as a specific denial. Section 11, Rule 8 of the Rules also provides that
material averments in the complaint other than those as to the amount of
unliquidated damages shall be deemed admitted when not specifically denied.
[59]
Thus, the answer should be so definite and certain in its allegations that the
pleaders adversary should not be left in doubt as to what is admitted, what is
denied, and what is covered by denials of knowledge as sufficient to form a belief.
[60]

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

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

xxxx
H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with
interest at six (6%) per cent per month and payable on October 19, 1989,
however[,] the receipt for the meantime cannot be recovered as it was misplaced
by the plaintiff but the letter of defendant FELICIDAD TIBONG is hereby
attached as Annex H for the appreciation of the Honorable court;
I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with
interest at five (5%) percent per month, obtained on July 14, 1989 and payable
on October 14, 1989. Such receipt was lost but admitted by the defendants in their
counter-affidavit as attached [to] this complaint and marked as Annex A
mentioned in paragraph one (1); x xx[62]

In their Answer, respondents admitted that they had secured loans from
petitioner. While the allegations in paragraph 2 of the complaint were specifically
denied, respondents merely averred that petitioner and respondent Felicidad
entered into an agreement for the lending of money to interested borrowers at a
higher interest rate. Respondents failed to declare the exact amount of the loans
they had secured from petitioner. They also failed to deny the allegation in
paragraph 2 of the complaint that respondent Felicidad signed and submitted a
counter-affidavit in I.S. No. 93-334 where she admitted having secured loans from
petitioner in the amount of P773,000.00. Respondents, likewise, failed to deny the
allegation in paragraph 2(h) of the complaint that respondents had secured
a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt which
petitioner had misplaced. Although respondents specifically denied in paragraph
2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely
alleged that they have not received sums of money from the plaintiff without any
receipt therefor.
Respondents, likewise, failed to specifically deny another allegation in the
complaint that they had secured a P100,000.00 loan from petitioner on July 14,
1989; that the loan was payable on October 14, 1989; and evidenced by a receipt
which petitioner claimed to have lost. Neither did respondents deny the allegation
that respondents admitted their loan of P100,000.00 in the counter-affidavit of
respondent Felicidad, which was appended to the complaint as Annex A. In fine,
respondents had admitted the existence of their P773,000.00 loan from petitioner.
We agree with the finding of the CA that petitioner had no right to collect
from respondents the total amount of P301,000.00, which includes more
than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay,
Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot
again collect the same amount from respondents; otherwise, she would be
enriching herself at their expense. Neither can petitioner collect from respondents
more than P103,500.00 which she had already collected from Nimo, Cantas,
Rivera, Donguis, Fernandez and Ramirez.
There is no longer a need for the Court to still resolve the issue of whether
respondents obligation to pay the balance of their loan account to petitioner was
partially extinguished by the promissory notes executed by Juliet Tibong, Corazon
Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette
Manuel because, as admitted by petitioner, she was able to collect the amounts
under the notes from said debtors and applied them to respondents accounts.

Under Article 1231(b) of the New Civil Code, novation is enumerated as one
of the ways by which obligations are extinguished. Obligations may be modified
by changing their object or principal creditor or by substituting the person of the
debtor.[63] The burden to prove the defense that an obligation has been extinguished
by novation falls on the debtor.[64] The nature of novation was extensively explained
in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr.,[65] as follows:
Novation may either be extinctive or modificatory, much being dependent
on the nature of the change and the intention of the parties. Extinctive novation is
never presumed; there must be an express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate their intent to dissolve the
old obligation as the moving consideration for the emergence of the new one.
Implied novation necessitates that the incompatibility between the old and new
obligation be total on every point such that the old obligation is completely
superseded by the new one. The test of incompatibility is whether they can stand
together, each one having an independent existence; if they cannot and are
irreconciliable, the subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects of, first,
extinguishing an existing obligation and, second, creating a new one in its stead.
This kind of novation presupposes a confluence of four essential requisites: (1) a
previous valid obligation; (2) an agreement of all parties concerned to a new
contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid
new obligation. Novation is merely modificatory where the change brought about
by any subsequent agreement is merely incidental to the main obligation (e.g., a
change in interest rates or an extension of time to pay); in this instance, the new
agreement will not have the effect of extinguishing the first but would merely
supplement it or supplant some but not all of its provisions.[66] (Citations Omitted)

Novation which consists in substituting a new debtor (delegado) in the place

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

In Di Franco v. Steinbaum,[70] the appellate court ruled that as to the

consideration necessary to support a contract of novation, the rule is the same as in
other contracts. The consideration need not be pecuniary or even beneficial to the
person promising. It is sufficient if it be a loss of an inconvenience, such as the
relinquishment of a right or the discharge of a debt, the postponement of a remedy,
the discontinuance of a suit, or forbearance to sue.
In City National Bank of Huron, S.D. v. Fuller,[71] the Circuit Court of
Appeals ruled that the theory of novation is that the new debtor contracts with
the old debtor that he will pay the debt, and also to the same effect with the
creditor, while the latter agrees to accept the new debtor for the old. A
novation is not made by showing that the substituted debtor agreed to pay the debt;
it must appear that he agreed with the creditor to do so. Moreover, the agreement
must be based on the consideration of the creditors agreement to look to the
new debtor instead of the old. It is not essential that acceptance of the terms of
the novation and release of the debtor be shown by express agreement. Facts and
circumstances surrounding the transaction and the subsequent conduct of the
parties may show acceptance as clearly as an express agreement, albeit implied.[72]
We find in this case that the CA correctly found that respondents obligation
to pay the balance of their account with petitioner was extinguished, pro tanto, by
the deeds of assignment of credit executed by respondent Felicidad in favor of
petitioner.
An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dation in payment, exchange
or donation, and without the consent of the debtor, transfers his credit and
accessory rights to another, known as the assignee, who acquires the power to
enforce it to the same extent as the assignor could enforce it against the debtor.[73] It
may be in the form of sale, but at times it may constitute a dation in payment, such
as when a debtor, in order to obtain a release from his debt, assigns to his creditor a
credit he has against a third person.[74]
In Vda. de Jayme v. Court of Appeals,[75] the Court held that dacion en
pago is the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation. It is a

special mode of payment where the debtor offers another thing to the creditor who
accepts it as equivalent of payment of an outstanding debt. The undertaking really
partakes in one sense of the nature of sale, that is, the creditor is really buying the
thing or property of the debtor, payment for which is to be charged against the
debtors obligation. As such, the essential elements of a contract of sale, namely,
consent, object certain, and cause or consideration must be present. In its modern
concept, what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the performance of
an obligation is considered as the object of the contract of sale, while the debt is
considered as the purchase price. In any case, common consent is an essential
prerequisite, be it sale or novation, to have the effect of totally extinguishing the
debt or obligation.[76]
The requisites for dacion en pago are: (1) there must be a performance of the
prestation in lieu of payment (animo solvendi) which may consist in the delivery of
a corporeal thing or a real right or a credit against the third person; (2) there must
be some difference between the prestation due and that which is given in
substitution (aliud pro alio); and (3) there must be an agreement between the
creditor and debtor that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due.[77]
All the requisites for a valid dation in payment are present in this case. As gleaned
from the deeds, respondent Felicidad assigned to petitioner her credits to make
good the balance of her obligation. Felicidad testified that she executed the deeds
to enable her to make partial payments of her account, since she could not comply
with petitioners frenetic demands to pay the account in cash. Petitioner and
respondent Felicidad agreed to relieve the latter of her obligation to pay the
balance of her account, and for petitioner to collect the same from respondents
debtors.
Admittedly, some of respondents debtors, like Edna Papat-iw, were not able to
affix their conformity to the deeds. In an assignment of credit, however, the
consent of the debtor is not essential for its perfection; the knowledge thereof or
lack of it affecting only the efficaciousness or inefficaciousness of any payment
that might have been made. The assignment binds the debtor upon acquiring
knowledge of the assignment but he is entitled, even then, to raise against the

assignee the same defenses he could set up against the assignor[78] necessary in
order that assignment may fully produce legal effects. Thus, the duty to pay does
not depend on the consent of the debtor. The purpose of the notice is only to inform
that debtor from the date of the assignment. Payment should be made to the
assignee and not to the original creditor.
The transfer of rights takes place upon perfection of the contract, and
ownership of the right, including all appurtenant accessory rights, is acquired by
the assignee[79] who steps into the shoes of the original creditor as subrogee of the
latter[80] from that amount, the ownership of the right is acquired by the
assignee. The law does not require any formal notice to bind the debtor to the
assignee, all that the law requires is knowledge of the assignment. Even if the
debtor had not been notified, but came to know of the assignment by whatever
means, the debtor is bound by it. If the document of assignment is public, it is
evidence even against a third person of the facts which gave rise to its execution
and of the date of the latter. The transfer of the credit must therefore be held valid
and effective from the moment it is made to appear in such instrument, and third
persons must recognize it as such, in view of the authenticity of the document,
which precludes all suspicion of fraud with respect to the date of the transfer or
assignment of the credit.[81]
As gleaned from the deeds executed by respondent Felicidad relative to the
accounts of her other debtors, petitioner was authorized to collect the amounts
of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves
to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that
Cabang and Cirilo no longer had any obligation to her.
Equally significant is the fact that, since 1990, when respondent Felicidad
executed the deeds, petitioner no longer attempted to collect from respondents the
balance of their accounts. It was only in 1999, or after nine (9) years had elapsed
that petitioner attempted to collect from respondents. In the meantime, petitioner
had collected from respondents debtors the amount of P301,000.00.
While it is true that respondent Felicidad likewise authorized petitioner in
the deeds to collect the debtors accounts, and for the latter to pay the same directly,
it cannot thereby be considered that respondent merely authorized petitioner to
collect the accounts of respondents debtors and for her to apply her collections in

partial payments of their accounts. It bears stressing that petitioner, as assignee,

acquired all the rights and remedies passed by Felicidad, as assignee, at the time of
the assignment.[82] Such rights and remedies include the right to collect her debtors
obligations to her.
Petitioner cannot find solace in the Courts ruling in Magdalena Estates. In
that case, the Court ruled that the mere fact that novation does not follow as a
matter of course when the creditor receives a guaranty or accepts payments from a
third person who has agreed to assume the obligation when there is no agreement
that the first debtor would be released from responsibility. Thus, the creditor can
still enforce the obligation against the original debtor.
In the present case, petitioner and respondent Felicidad agreed that the
amounts due from respondents debtors were intended to make good in part the
account of respondents. Case law is that, an assignment will, ordinarily, be
interpreted or construed in accordance with the rules of construction governing
contracts generally, the primary object being always to ascertain and carry out the
intention of the parties. This intention is to be derived from a consideration of the
whole instrument, all parts of which should be given effect, and is to be sought in
the words and language employed.[83]
Indeed, the Court must not go beyond the rational scope of the words used in
construing an assignment, words should be construed according to their ordinary
meaning, unless something in the assignment indicates that they are being used in a
special sense. So, if the words are free from ambiguity and expressed plainly the
purpose of the instrument, there is no occasion for interpretation; but where
necessary, words must be interpreted in the light of the particular subject matter.
[84]
And surrounding circumstances may be considered in order to understand more
perfectly the intention of the parties. Thus, the object to be accomplished through
the assignment, and the relations and conduct of the parties may be considered in
construing the document.
Although it has been said that an ambiguous or uncertain assignment should be
construed most strictly against the assignor, the general rule is that any ambiguity
or uncertainty in the meaning of an assignment will be resolved against the party
who prepared it; hence, if the assignment was prepared by the assignee, it will be
construed
most
strictly
against
him
or

her.[85] One who chooses the words by which a right is given ought to be held to the
strict interpretation of them, rather than the other who only accepts them.[86]
Considering all the foregoing, we find that respondents still have a balance on their
account to petitioner in the principal amount of P33,841.00, the difference between
their loan of P773,000.00 less P585,659.00, the payment of respondents other
debtors amounting to P103,500.00, and the P50,000.00 payment made by
respondents.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision
and Resolution of the Court of Appeals are AFFIRMED with
MODIFICATIONin that the balance of the principal account of the respondents
to the petitioner is P33,841.00. No costs.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Working Chairperson

C E R T I F I C AT I O N

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified

that the conclusions in the above decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

* Retired as of December 7, 2006.

**Working Chairperson.
[1]
Penned by Associate Justice Remedios A. Salazar-Fernando, with Presiding Justice (now Supreme Court
Associate Justice) Cancio C. Garcia and Associate Justice Hakim S. Abdulwahid concurring; rollo, pp. 131-143.
[2]
Penned by Judge Antonio C. Reyes; rollo, pp. 96-97.
[3]
Rollo, pp. 148-154.
[4]
Records, pp. 5-6.
[5]
Annexes A to H; id. at 8-14.
[6]
Records, pp. 24-27.
[7]
Id. at 26.
[8]
Id. at 51.
[9]
Id. at 72.
[10]
TSN, January 31, 2001, p. 6.
[11]
TSN, January 10, 2001, p. 6.
[12]
Id. at 5.
[13]
Exhibits B, C, D, E, F, G, & H; records, pp. 151-157.

[14]

TSN, January 31, 2001, p. 11.

Exhibit 13; records, p. 250.
[16]
TSN, January 10, 2001, p. 14.
[17]
Records, p. 4.
[18]
TSN, February 1, 2001, p. 3.
[19]
TSN, February 22, 2001, p. 9.
[20]
TSN, February 1, 2001, pp. 4-5.
[21]
TSN, February 22, 2001, p. 10.
[22]
Exhibits 1 to 11; records, pp. 237-247.
[23]
Spouses Juliet and Tommy Tibong, Corazon Dalisay, Rita Chomacog, Rosemarie Bandas, Virginia Morada,
Helen Cabang, Edna Papat-iw, Carmelita Casuga, Merlinda Gelacio, Antoinette Manuel, Fely Cirilo and Lourdes
Nimo.
[24]
Records, pp. 238 & 241.
[25]
TSN, February 1, 2001, p. 6.
[26]
Records, pp. 237-247.
[27]
Id. at 242.
[28]
Id. at 247.
[29]
Exhibit 7, id. at 243.
[30]
TSN, February 22, 2001, pp. 10-11.
[31]
Id. at 11.
[32]
Exhibit I, records, p. 159.
[33]
TSN, September 13, 2001, p. 3.
[34]
Id. at. 4.
[35]
Id. at 5.
[36]
Id. at 6.
[37]
Id. at 6-7.
[38]
Id. at 8.
[39]
Id. at 9.
[40]
Id. at 11-12.
[41]
TSN, September 27, 2001, pp. 34-35.
[42]
TSN, June 24, 2002, p. 8.
[43]
Id. at 9.
[44]
Id. at 10-11.
[45]
Rollo, pp. 96-97; id. at 10-11.
[46]
Id. at 97; Id. at 319.
[47]
Id. at 318-319.
[48]
Rollo, p. 142.
[49]
CA rollo, pp. 81-95.
[50]
Id. at 148-154.
[51]
Rollo, p. 19.
[52]
Records, pp. 238 & 242.
[53]
No. L-18411, December 17, 1966, 18 SCRA 967.
[54]
No. L-22366, October 30, 1969, 29 SCRA 791.
[55]
Appellants Brief, p. 15.
[56]
The provision reads in full:
SEC. 10. Specific denial. A defendant must specify each material allegation of fact the truth of which he
does not admit and, whenever practicable, shall set forth the substance of the matters upon which he relies to support
his denial. Where a defendant desires to deny only a part of an averment, he shall specify so much of it as is true and
material and shall deny only the remainder. Where a defendant is without knowledge or information sufficient to
form a belief as to the truth of a material averment made in the complaint, he shall so state, and this shall have the
effect of a denial.
[57]
SEC. 11. Allegations not specifically denied deemed admitted. Material averment in the complaint, other than
those as to the amount of unliquidated damages, shall be deemed admitted when not specifically denied.Allegations
of usury in a complaint to recover usurious interest are deemed admitted if not denied under oath.
[58]
Philippine National Bank v. Court of Appeals, G.R. No. 126153, January 14, 2004, 419 SCRA 281, 287.
[59]
Id. at 286-287.
[15]

[60]

Kirchmam v. Eschman, 127 N.E. 328.

Records, p. 1.
[62]
Id. at 4.
[63]
CIVIL CODE, Article 1291.
[64]
RULES OF COURT, Rule 131, Section 5.
[65]
452 Phil. 82 (2003).
[66]
Id. at 89-90.
[67]
Garcia v. Llamas, G.R. No. 154127, December 8, 2003, 417 SCRA 292, 300.
[68]
Lopez v. Court of Appeals, L-33157, June 29, 1982, 114 SCRA 671, 688.
[69]
COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, Vol. IV, p. 360.
[70]
177 S.W. 2d 697.
[71]
52 F.2d 870.
[72]
Babst v. Court of Appeals, 403 Phil. 244, 259-260 (2001).
[73]
Lo v. KJS Eco-Formwork System Phil., Inc., 459 Phil. 538-539 (2003); South City Homes, Inc. v. BA Finance
Corporation, 432 Phil. 84, 95 (2001); Far East Bank & Trust Co. v. Diaz Realty, Inc., 416 Phil. 147, 161
(2001); Casabuena v. Court of Appeals, 350 Phil. 237, 243-244 (1998); and Manila Banking Corporation v.
Teodoro, Jr., G.R. No. 53955, January 13, 1989, 169 SCRA 95, 102.
[74]
Manila Banking Corporation v. Teodoro, Jr., G.R. No. 53955, January 13, 1989, 169 SCRA 95, 102. See also Lo
v. KJS Eco-Formwork System Phil., Inc., 459 Phil. 532, 539 (2003); Project Builders, Inc. v. Court of Appeals, 411
Phil. 264, 273 (2001); Rodriguez v. Court of Appeals, G.R. No. 84220, March 25, 1992, 207 SCRA 553, 558;
and Nyco Sales Corp. v. BA Finance Corp., G.R. No. 71694, August 16, 1991, 200 SCRA 637, 641.
[75]
439 Phil. 192 (2002).
[76]
Id. at 210.
[77]
Lo v. KJS Eco-Formwork System Phil., Inc., 459 Phil. 532, 539, (2003).
[78]
National Investment and Development Co. v. De Los Angeles, No. L-30150, August 31, 1971, 40 SCRA 487, 496
(1971).
[79]
Project Builders, Inc. v. Court of Appeals, 411 Phil. 264, 274 (2001).
[80]
South City Homes, Inc. v. BA Finance Corporation, 423 Phil. 84, 95 (2001).
[81]
Tolentino, CIVIL CODE OF THE PHILIPPINES, VOL. V, 1959 ed., pp. 168-1969.
[82]
Federal Insurance Co. v. Summers, 403 F.2d. 971.
[83]
GA C.J.S. Assignments, p. 709.
[84]
Genard v. Hosmer, 189 N.E. 46.
[85]
In Re: Davis Estate, 263 N.Y.S. 482; 147 Misc. 96.
[86]
Shiro v. Drew, 174 F. Supp. 495.
[61]