CD: Lutero v. Siuliong

September 30, 2010 at 2:04 pm (1930, Case Digests) (, , )

LUTERO v. SIULIONG
G.R. No. L-31125 January 21, 1930
Villa-real, J.

Doctrine:
Contracts of sale of agricultural products to be delivered in future, fixing a selling price, are not usurious or illegal, even when the market price of the products sold should turn out to be higher at the time of delivery.

Facts:
Plaintiff entered into a contract with defendant to sell the former’s future sugar crop harvest to the latter at a price depending on the class of the sugar. The defendant bound itself to pay an advance amount of Php. 3,000 and the remainder shall be paid from time to time. The contract also stated that should the plaintiff fail to deliver, he shall pay the amount of the undelivered portion to the defendant. The plaintiff also entered into a mortgage agreement to secure his performance in the contract.

Issue:
Whether or not future products are invalid subjects in a contract of sale

Held:
No. The contracts of sale of agricultural products to be delivered in future, fixing a selling price, are not usurious or illegal, even when the market price of the products sold should turn out to be higher at the time of delivery.

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CD: Dela Cruz v. Legaspi and Samperoy

September 29, 2010 at 11:10 am (1955, Case Digests) (, , )

DELA CRUZ v. LEGASPI AND SAMPEROY
G.R. No. L-8024 November 29, 1955
Bengzon, J.

Doctrine:
Subsequent non-payment of the price at the time agreed upon did not convert the contract into one without cause or consideration: a nudum pactum.

Facts:
Plaintiff sued defendant Legaspi to compel delivery of the parcel of land sold to plaintiff. The complaint alleged the defendant’s refusal to accept payment of the purchase price of P450 undue retention of the realty.

The defendants alleged that before the document of sale was made, the plaintiff agreed to pay the defendants the price right after the document is executed that very day but after the document was signed and ratified by the Notary Public and after the plaintiff has taken the original of the said document, the sad plaintiff refused to pay. They asserted that for lack of consideration and for deceit, the document of said should be annulled.

Issue:
Whether or not the contract of sale is void on the ground that it lacks consideration

Held:
No. It cannot be denied that when the document was signed the cause or consideration existed: P450. The document specifically said so. Subsequent non-payment of the price at the time agreed upon did not convert the contract into one without cause or consideration: a nudum pactum. (Levy vs. Johnson, 4 Phil. 650; Puato vs. Mendoza, 64 Phil, 457). The situation was rather one in which there is failure to pay the consideration, with its resultant consequences. In other words, when after the notarization of the contract, plaintiff failed to hand the money to defendants as he previously promised, there was default on his part at most, and defendants’ right was to demand interest — legal interest —.

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CD: Commissioner of Internal Revenue v. Constantino

September 29, 2010 at 10:44 am (1970, Case Digests) (, , )

CIR v. CONSTANTINO
G.R. No. L-25926 February 27, 1970
Reyes, J.B.L., J.

Doctrine:
The transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent’s commission upon sales made.

That the dealer issues his own sales invoice to the customer is neither a means of acquiring ownership nor is it proof of ownership.

Facts:
Petitioner Commissioner of Internal Revenue (CIR) assessed against and demanded from respondent Constantino the commercial broker’s percentage tax of 6% on his gross compensation for 1956, as dealer or distributor of the products of International Harvester, Macleod, Inc. (IHM).

Respondent is designated as the exclusive dealer of the products IHM within a prescribed territory. In classifying himself as an independent merchant instead of a commercial broker, respondent Constantino cites that he may buy IHM products for Resale to his customers; that he is granted trade discounts and a cash discount under certain conditions; that he may purchase service parts on open credit account or on a 30-day term; and that he sold service parts to his customers on cash basis. Constantino also cited the fact that his purchases are covered by IHM’s sales invoices, and when he re-sells he issues his own sales invoice.

Constantino protested the assessment on the ground that he is not a commercial broker. On his protest being overruled, he filed a petition for review with the Court of Tax Appeals, which, after trial, found for him. Upon his reversal by the tax court, the CIR interposed the present appeal.

Issue:
Whether or not the relationship between the respondent and IHM is that of a vendor and a vendee

Held:
No. A casual examination of respondent’s evidence may give the impression that this relationship with the company is that of vendor and vendee, but a closer look into the actual legal effect of the terms and conditions embodied, rather than the names of the contracts used or the terminologies employed, in the chain of documents shows that the relation between the company and the respondent is one of principal and agent.

Respondent failed to state or notice, however, the condition in his agreement with IHM, which is in small print, that the title of the goods delivered under this order shall remain in IHM until the full purchase price shall have been paid in cash or acceptable security. That the dealer should issue his own sales invoice to the customer is neither a means of acquiring ownership nor is it proof of ownership.

Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company’s control, the relationship between the company and the dealer is one of agency, tested under the following criterion:

The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent’s commission upon sales made (Salisbury v. Brooks, 94 SE 117, 118-119).

The control by the company of the resale made, or agreed upon to be made, by the dealer is so pervasive as to exclude the idea of the latter being an independent merchant. As respondent is not an independent merchant, but an agent, the discount of 16% that he receives is not a “trade discount” but a compensation or profit for selling or bringing about sales or purchases of merchandise for the company.

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CD: Philippine Airlines v. Court of Appeals

September 23, 2010 at 2:03 pm (1990, Case Digests) (, , , , , , )

PHILIPPINE AIRLINES, INC. v. COURT OF APPEALS
G.R. No. L-49188 January 30, 1990
Gutierrez, Jr., J.

Doctrine:
• The payment to the absconding sheriff by check in his name does not operate as a satisfaction of the judgment debt.

• Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment.

• A check, whether a manager’s check or ordinary cheek, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized.

• As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss.

• Execution is for the sheriff to accomplish while satisfaction of the judgment is for the creditor to achieve the implementing officer’s duty should not stop at his receipt of payments but must continue until payment is delivered to the obligor or creditor.

• Laws are to be interpreted by the spirit which vivifies and not by the letter which killeth. Logic has its limits in decision making. We should not follow rulings to their logical extremes if in doing so we arrive at unjust or absurd results.

Facts:
Amelia Tan filed a complaint for damages against petitioner. The Lower Court ruled in her favor. Upon appeal, the CA upheld the decision of the Lower Court with only minor modifications as to the damages to be awarded to Amelia Tan. The corresponding writ of execution was duly referred to Deputy Sheriff Emilio Z. Reyes for enforcement. Checks were in the name of Sheriff Reyes.

Four months later, Amelia Tan moved for the issuance of an alias writ of execution stating that the judgment rendered by the lower court, and affirmed with modification by the Court of Appeals, remained unsatisfied.

Petitioner answered that it has already satisfied its obligation, as evidenced by check vouchers signed and received by Sheriff Reyes. The Court has summoned the sheriff to explain the delay but apparently he absconded or disappeared.

Issue:
1. Whether or not the payment made to the absconding sheriff by check in his name operate to satisfy the judgment debt
2. Whether or not the judgment debtor shall bear the loss for the amount encashed by the absconding sheriff
3. Whether or not execution is the same as satisfaction of judgment

Held:
1. No. In general, a payment, in order to be effective to discharge an obligation, must be made to the proper person. Article 1240 of the Civil Code provides:

Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. (Emphasis supplied)

Under ordinary circumstances, payment by the judgment debtor to the sheriff should be valid payment to extinguish the judgment debt. There are circumstances, however, which compel a different conclusion such as when the payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in checks.

Article 1249 of the Civil Code provides:

The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in abeyance.

Consequently, unless authorized to do so by law or by consent of the obligee a public officer has no authority to accept anything other than money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the petitioner’s checks, in the case at bar, does not, per se, operate as a discharge of the judgment debt.

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a manager’s check or ordinary cheek, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3).

2. Yes. PAL created a situation which permitted the said Sheriff to personally encash said checks and misappropriate the proceeds thereof to his exclusive personal benefit. For the prejudice that resulted, the petitioner himself must bear the fault. As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss. (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625).

3. No. Section 15, Rule 39, provides:

Section 15. Execution of money judgments. — The officer must enforce an execution of a money judgment by levying on all the property, real and personal of every name and nature whatsoever, and which may be disposed of for value, of the judgment debtor not exempt from execution, or on a sufficient amount of such property, if they be sufficient, and selling the same, and paying to the judgment creditor, or his attorney, so much of the proceeds as will satisfy the judgment. …

Strictly speaking execution cannot be equated with satisfaction of a judgment.

Execution is for the sheriff to accomplish while satisfaction of the judgment is for the creditor to achieve. Section 15, Rule 39 merely provides the sheriff with his duties as executing officer including delivery of the proceeds of his levy on the debtor’s property to satisfy the judgment debt. It is but to stress that the implementing officer’s duty should not stop at his receipt of payments but must continue until payment is delivered to the obligor or creditor.

Dissenting Opinions:
Narvasa, J.
• If payment had been in cash, no question about its validity or of the authority and duty of the sheriff to accept it in settlement of PAL’s judgment obligation would even have arisen. Simply because it was made by checks issued in the sheriff s name does not warrant reaching any different conclusion.

• As payment to the court discharges the judgment debtor from his responsibility on the judgment, so too must payment to the person designated by such court and authorized to act in its behalf, operate to produce the same effect.

Feliciano, J.
• The failure of a sheriff to effect turnover and his conversion of the funds (or goods) held by him to his own uses, do not have the effect of frustrating payment by and consequent discharge of the judgment debtor.

• A judgment debtor who turns over funds or property to the sheriff can not reasonably be made an insurer of the honesty and integrity of the sheriff.

• It requires no particularly acute mind to note that a dishonest sheriff could easily convert the money and abscond. The fact that the sheriff in the instant case required, not cash to be delivered to him, but rather a check made out in his name, does not change the legal situation. PAL did not thereby become negligent; it did not make the loss anymore possible or probable than if it had instead delivered plain cash to the sheriffs.

• Risk is most appropriately borne not by the judgment debtor, nor indeed by the judgment creditor, but by the State itself.

Padilla, J.
• PAL had every right to assume that, as an officer of the law, Sheriff Reyes would perform his duties as enjoined by law. If a judgment debtor cannot rely on and trust an officer of the law, as the Sheriff, whom else can he trust?

• The duty of the sheriff to pay the cash to the judgment creditor would be a matter separate the distinct from the fact that PAL would have satisfied its judgment obligation to Amelia Tan, the judgment creditor, by delivering the cash amount due under the judgment to Sheriff Reyes.

• When Sheriff Reyes encashed the checks, the encashment was in fact a payment by PAL to Amelia Tan through Sheriff Reyes, an officer of the law authorized to receive payment, and such payment discharged PAL’S obligation under the executed judgment.

• If the PAL cheeks in question had not been encashed by Sheriff Reyes, there would be no payment by PAL.

• The payment of money to the sheriff having an execution satisfies it, and, if the plaintiff fails to receive it, his only remedy is against the officer (Henderson v. Planters’ and Merchants Bank, 59 SO 493, 178 Ala. 420).

• Payment of an execution satisfies it without regard to whether the officer pays it over to the creditor or misapplies it (340, 33 C.J.S. 644, citing Elliot v. Higgins, 83 N.C. 459). If defendant consents to the Sheriff s misapplication of the money, however, defendant is estopped to claim that the debt is satisfied (340, 33 C.J.S. 644, citing Heptinstall v. Medlin 83 N.C. 16).

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CD: Asian Banking Corp. v. Javier

September 22, 2010 at 3:49 pm (1923, Case Digests) (, , )

ASIAN BANKING CORPORATION v. JUAN JAVIER
G.R. No. L-19051 April 4, 1923
Avanceña, J.

Doctrine:
When a negotiable instrument is dishonored for non-acceptance or non-payment, notice thereof must be given to the drawer and each of the indorsers, and those who are not notified shall be discharged from liability, except as provided otherwise.

It is incumbent upon a person, who seeks to enforce the indorser’s liability, to establish said liability by proving that notice was within the time, and in the manner, required by the law.

Facts:
Salvador B. Chaves drew a check on the Philippine National Bank for P11,000 in favor of La Insular. This check was indorsed by the limited partners of La Insular, and then deposited by Salvador B. Chaves in his current account with the plaintiff, Asia Banking Corporation. Another check was drawn and deposited in similar fashion.

The amount represented by both checks was used by Salvador B. Chaves after they were deposited in the plaintiff bank, by drawing checks on the plaintiff. Subsequently these checks were presented by the plaintiff to the Philippine National Bank for payment, but the latter refused to pay on the ground that the drawer, Salvador B. Chaves, had no funds therein.

The lower court sentenced the defendant, as indorser, to pay the plaintiff P11,000. From this judgment the defendant appealed.

Issue:
Whether or not the defendant’s liability as an indorser is extinguished for lack of notice

Held:
Yes. Section 89 of the Negotiable Instruments Law (Act No. 2031) provides that, when a negotiable instrument is dishonored for non-acceptance or non-payment, notice thereof must be given to the drawer and each of the indorsers, and those who are not notified shall be discharged from liability, except where this act provides otherwise.

According to this, the indorsers are not liable unless they are notified that the document was dishonored. Then, under the general principle of the law of procedure, it will be incumbent upon the plaintiff, who seeks to enforce the defendant’s liability upon these checks as indorser, to establish said liability by proving that notice was given to the defendant within the time, and in the manner, required by the law that the checks in question had been dishonored. If these facts are not proven, the plaintiff has not sufficiently established the defendant’s liability. There is no proof in the record tending to show that plaintiff gave any notice whatsoever to the defendant that the checks in question had been dishonored, and there it has not established its cause of action.

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CD: Far East Realty Investment Inc. v. CA

September 22, 2010 at 3:45 pm (1988, Case Digests, Legal Definitions) (, , , )

FAR EAST REALTY INVESTMENT INC. v. CA
G.R. No. L-36549 October 5, 1988
Paras, J.

Doctrine:
Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof.

• Reasonable Time has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights, and possibility of loss, if any, to the other party.

• No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable time, because “reasonable time” depends upon the peculiar facts and circumstances in each case.

Facts:
Private respondents asked the petitioner to extend an accommodation loan in the sum of P4,500.00. Respondents delivered to the petitioner a check for P4,500.00, drawn by Dy Hian Tat, and signed by them at the back of said check, with the assurance that after one month from September 13, 1960, the said check would be redeemed by them by paying cash in the sum of P4,500.00, or the said check can be presented for payment on or immediately after one month. Petitioner agreed and extended an accommodation loan

The aforesaid check was presented for payment to the China Banking Corporation, but said check bounced and was not cashed by said bank, for the reason that the current account of the drawer thereof had already been closed. Petitioner demanded payment from the private but the latter failed and refused to pay notwithstanding repeated demands.

Both private respondents raised the defense that both have been wholly discharged by delay in presentment of the check for payment.
The Lower Court ruled in favor of the petitioner. However, this was reversed by the CA upon appeal by the respondents, ruling that the check was not given as collateral to guarantee a loan secured since the check passed through other hands before reaching the petitioner and the said check was not presented within a reasonable time. Hence this petition.

Petitioner argues that presentment for payment and notice of dishonor are not necessary as when funds are insufficient to meet a check, thus the drawer is liable, whether such presentment and notice be totally omitted or merely delayed.

Issues:
1. Whether or not presentment for payment can be dispensed with
2. Whether or not presentment for payment and notice of dishonor of the questioned check were made within reasonable time

Held:
1. No. Where the instrument is not payable on demand, presentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after issue, except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof (Section 71, Negotiable Instruments Law).

2. No. It is obvious in this case that presentment and notice of dishonor were not made within a reasonable time.

Reasonable time” has been defined as so much time as is necessary under the circumstances for a reasonable prudent and diligent man to do, conveniently, what the contract or duty requires should be done, having a regard for the rights, and possibility of loss, if any, to the other party (Citizens’ Bank Bldg. v. L & E. Wertheirmer 189 S.W. 361, 362, 126 Ark, 38, Ann. Cas. 1917 E, 520).

Notice may be given as soon as the instrument is dishonored; and unless delay is excused must be given within the time fixed by the law (Section 102, Negotiable Instruments Law).

In the instant case, the check in question was issued on September 13, 1960, but was presented to the drawee bank only on March 5, 1964, and dishonored on the same date. After dishonor by the drawee bank, a formal notice of dishonor was made by the petitioner through a letter dated April 27, 1968. Under these circumstances, the petitioner undoubtedly failed to exercise prudence and diligence on what he ought to do al. required by law. The petitioner likewise failed to show any justification for the unreasonable delay.

No hard and fast demarcation line can be drawn between what may be considered as a reasonable or an unreasonable time, because “reasonable time” depends upon the peculiar facts and circumstances in each case (Tolentino, Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. I, Eighth Edition, p. 327).

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CD: Astro Electronics v. PEFLGC

September 22, 2010 at 3:37 pm (2003, Case Digests) (, , )

ASTRO ELECTRONICS CORP. & PETER ROXAS v. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION
G.R. No. 136729 September 23, 2003
Austria-Martinez, J.

Doctrine:
Persons who write their names on the face of promissory notes are makers. Thus, even without the phrase “personal capacity,” a person who signs on the instrument twice will still be primarily liable as a joint and several debtor.

Facts:
Astro was granted several loans by the Philippine Trust Company (Philtrust) amounting to P3,000,000.00 with interest and secured by three promissory notes. In each of these promissory notes, it appears that petitioner Roxas signed twice, as President of Astro and in his personal capacity. Roxas also signed a Continuing Surety ship Agreement in favor of Philtrust Bank, as President of Astro and as surety.

Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the payment of 70% of Astro’s loan, subject to the condition that upon payment by Philguanrantee of said amount, it shall be proportionally subrogated to the rights of Philtrust against Astro. As a result of Astro’s failure to pay its loan obligations, despite demands, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently, Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of Makati.

Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed the same in blank and the phrases “in his personal capacity” and “in his official capacity” were fraudulently inserted without his knowledge.

The trial court ruled in favor of Philguarantee, stating that if Roxas really intended to sign the instruments merely in his capacity as President of Astro, then he should have signed only once in the promissory note. On appeal, the Court of Appeals affirmed the RTC decision.

Issue:
Whether or not Roxas should be solidarily liable with Astro for the sum awarded by the RTC

Held:
Yes. In signing his name aside from being the President of Astro, Roxas became a co-maker of the promissory notes and cannot escape any liability arising from it. Under the Negotiable Instruments Law, persons who write their names on the face of promissory notes are makers. Thus, even without the phrase “personal capacity,” Roxas will still be primarily liable as a joint and several debtor under the notes considering that his intention to be liable as such is manifested by the fact that he affixed his signature on each of the promissory notes twice which necessarily would imply that he is undertaking the obligation in two different capacities, official and personal.

Moreover, an instrument which begins with “I”, “We”, or “Either of us” promise to pay, when signed by two or more persons, makes them solidary liable (Republic Planters Bank vs. Court of Appeals, G.R. No. 93073, December 21, 1992). Having signed under such terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to enforce the notes against him alone or jointly with Astro.

It devolves upon one to overcome the presumptions that private transactions are presumed to be fair and regular and that a person takes ordinary care of his concerns (Mendoza vs. Court of Appeals, G.R. No. 116710). Bare allegations, when unsubstantiated by evidence, documentary or otherwise, are not equivalent to proof under our Rules of Court (Coronel vs. Constantino, G.R. No. 121069, February 7, 2003). Since Roxas failed to prove the truth of his allegations that the phrases “in his personal capacity” and “in his official capacity” were inserted on the notes without his knowledge, said presumptions shall prevail over his claims.

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CD: Garcia v. Llamas

September 22, 2010 at 3:31 pm (2003, Case Digests) (, , , , )

ROMEO C. GARCIA v. DIONISIO V. LLAMAS
G.R. No. 154127 December 8, 2003
Panganiban, J.

Doctrine:
Novation cannot be presumed. It must be clearly and unequivocally shown that it indeed took place, either by the express assent of the parties or by the complete incompatibility between the old and the new agreements.

An accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissor and debtor from the beginning.

Facts:
Petitioner and Eduardo De Jesus borrowed P400,000.00 from respondent. Both executed a promissory note wherein they bound themselves jointly and severally to pay the loan on or before 23 January 1997 with a 5% interest per month. The loan has long been overdue and, despite repeated demands, both have failed and refused to pay it. Hence, a complaint was filed against both.

Resisting the complaint, Garcia averred that he assumed no liability because he signed merely as an accommodation party for De Jesus; and that he is relieved from any liability arising from the note inasmuch as the loan had been paid by De Jesus by means of a check dated 17 April 1997; and that, in any event, the issuance of the check and respondent’s acceptance thereof novated or superseded the note.

Respondent answered that there was no novation to speak of because the check bounced.

Issues:
1. Whether or not there was novation in the obligation
2. Whether or not the defense that petitioner was only an accommodation party had any basis

Held:
1. No. In order to change the person of the debtor, the old one must be expressly released from the obligation, and the third person or new debtor must assume the former’s place in the relation (Reyes v. CA). Well-settled is the rule that novation is never presumed (Security Bank v. Cuenca). Consequently, that which arises from a purported change in the person of the debtor must be clear and express. It is thus incumbent on petitioner to show clearly and unequivocally that novation has indeed taken place. Petitioner failed to do this. In the present case, petitioner has not shown that he was expressly released from the obligation, that a third person was substituted in his place, or that the joint and solidary obligation was cancelled and substituted by the solitary undertaking of De Jesus.

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor (Idolor v. CA, February 7, 2001). Article 1293 of the Civil Code defines novation as follows:

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237.”

In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In expromision, the initiative for the change does not come from — and may even be made without the knowledge of — the debtor, since it consists of a third person’s assumption of the obligation. As such, it logically requires the consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person who consents to the substitution and assumes the obligation; thus, the consent of these three persons are necessary. Both modes of substitution by the debtor require the consent of the creditor.

Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the extent that it remains compatible with the amendatory agreement (Babst v. CA). Whether extinctive or modificatory, novation is made either by changing the object or the principal conditions, referred to as objective or real novation; or by substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as subjective or personal novation (Spouses Bautista v. Pilar Development Corporation, 371 Phil. 533, August 17, 1999). For novation to take place, the following requisites must concur:

1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract (Security Bank v Cuenca, October 3, 2000)

Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every point (Article 1292, NCC). The test of incompatibility is whether the two obligations can stand together, each one with its own independent existence (Molino v. Security Diners International Corporation, August 16, 2001).

2. No. The note was made payable to a specific person rather than to bearer or to order — a requisite for negotiability under the Negotiable Instruments Law (NIL). Hence, petitioner cannot avail himself of the NIL’s provisions on the liabilities and defenses of an accommodation party.

Even granting arguendo that the NIL was applicable, still, petitioner would be liable for the promissory note. Under Article 29 of the NIL, an accommodation party is liable for the instrument to a holder for value even if, at the time of its taking, the latter knew the former to be only an accommodation party. The relation between an accommodation party and the party accommodated is, in effect, one of principal and surety — the accommodation party being the surety. It is a settled rule that a surety is bound equally and absolutely with the principal and is deemed an original promissor and debtor from the beginning.

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CD: Philippine National Bank v. Picornell

September 21, 2010 at 6:42 pm (1922, Case Digests) (, , )

PHILIPPINE NATIONAL BANK v. PICORNELL
G.R. No. L-18751 September 26, 1922
Romualdez, J.

Doctrine:
The payee holds a different relation: he is a stranger to the transaction between the drawer and the acceptor, and is, therefore, in a legal sense a remote party. Hence, the drawee, by accepting the instrument, cannot escape liability.

Facts:
A bill of exchange was drawn by defendant Picornell in favor of the plaintiff, against the firm of Hyndman, Tavera & Ventura.

Pardo de Tavera, successor to Hyndman, Tavera & Ventura, accepted the drawn instrument initially but denied payment upon maturity thereof, alleging that the tobacco sold by Picornell was of inferior quality.

Issue:
Whether or not de Tavera can decline payment

Held:
No. The bank was a holder in due course, and was such for value full and complete. The Hyndman, Tavera & Ventura company cannot escape liability in view of section 28 of the Negotiable Instruments Law:

. . . The drawee by acceptance becomes liable to the payee or his indorsee, and also to the drawer himself. But the drawer and acceptor are the immediate parties to the consideration, and if the acceptance be without consideration, the drawer cannot recover of the acceptor. The payee holds a different relation; he is a stranger to the transaction between the drawer and the acceptor, and is, therefore, in a legal sense a remote party. In a suit by him against the acceptor, the question as to the consideration between the drawer and the acceptor cannot be inquired into. The payee or holder gives value to the drawer, and if he is ignorant of the equities between the drawer and the acceptor, he is in the position on a bona fide indorsee. Hence, it is no defense to a suit against the acceptor of a draft which has been discounted, and upon which money has been advance by the plaintiff, that the draft was accepted or the accommodation of the drawer. . . . (3 R. C. L., pp. 1143, 1144, par, 358.)

The drawee, the Hyndman, Tavera & Ventura company, or its successors, J. Pardo de Tavera, accepted the bill and is primarily liable for the value of the negotiable instrument, while the drawer, Bartolome Picornell, is secondarily liable.

Upon the non-payment of the bill by the drawee-acceptor, the bank had the right of recourse, which it exercised by selling the tobacco products, against the drawer (Sec. 84, Negotiable Instruments Law).

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CD: Basilan Estates, Inc. v. CIR

September 17, 2010 at 6:30 pm (1967, Case Digests) (, )

BASILAN ESTATES, INC. v. CIR
G.R. No. L-22492 September 5, 1967
Bengzon, J.P., J.

Doctrine:
The income tax law does not authorize the depreciation of an asset beyond its acquisition cost. Hence, a deduction over and above such cost cannot be claimed and allowed. The reason is that deductions from gross income are privileges, not matters of right. They are not created by implication but upon clear expression in the law.

Facts:
Basilan Estates, Inc. claimed deductions for the depreciation of its assets on the basis of their acquisition cost. As of January 1, 1950 it changed the depreciable value of said assets by increasing it to conform with the increase in cost for their replacement. Accordingly, from 1950 to 1953 it deducted from gross income the value of depreciation computed on the reappraised value.

CIR disallowed the deductions claimed by petitioner, consequently assessing the latter of deficiency income taxes.

Issue:
Whether or not the depreciation shall be determined on the acquisition cost rather than the reappraised value of the assets

Held:
Yes. The following tax law provision allows a deduction from gross income for depreciation but limits the recovery to the capital invested in the asset being depreciated:

(1)In general. — A reasonable allowance for deterioration of property arising out of its use or employment in the business or trade, or out of its not being used: Provided, That when the allowance authorized under this subsection shall equal the capital invested by the taxpayer . . . no further allowance shall be made. . . .

The income tax law does not authorize the depreciation of an asset beyond its acquisition cost. Hence, a deduction over and above such cost cannot be claimed and allowed. The reason is that deductions from gross income are privileges, not matters of right. They are not created by implication but upon clear expression in the law [Gutierrez v. Collector of Internal Revenue, L-19537, May 20, 1965].

Depreciation is the gradual diminution in the useful value of tangible property resulting from wear and tear and normal obsolescense. It commences with the acquisition of the property and its owner is not bound to see his property gradually waste, without making provision out of earnings for its replacement.

The recovery, free of income tax, of an amount more than the invested capital in an asset will transgress the underlying purpose of a depreciation allowance. For then what the taxpayer would recover will be, not only the acquisition cost, but also some profit. Recovery in due time thru depreciation of investment made is the philosophy behind depreciation allowance; the idea of profit on the investment made has never been the underlying reason for the allowance of a deduction for depreciation.

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