ANTONIO R. AGRA: Laches is a recourse in equity

G.R. No. 133317 June 29, 1999

ANTONIO R. AGRA, CAYETANO FERRERIA, NAPOLEON M. GAMO and VICENTE O. NOVALES, petitioners,
vs.
PHILIPPINE NATIONAL BANK, respondent.

PANGANIBAN, J.:

Laches is a recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches cannot, as a rule, abate a collection suit filed within the prescriptive period mandated by the Civil Code.

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the November 26, 1997 Decision of the Court of Appeals, ¹ which disposed as follows:

IN VIEW OF THE FOREGOING, the decision of the lower court is hereby AFFIRMED, with the modification that the award of attorney's fees is hereby DELETED and the twelve percent (12%) interest on the P2,500,000.00 the defendant-appellants are to pay PNB should start from August 30, 1976, the date when the complaint was filed. ²

The decreral portion of the aforementioned trial court ruling reads:

WHEREFORE, in view of the foregoing, in the interest of justice, judgment is rendered in favor of the plaintiff ordering all the sureties jointly and severally, to pay PNB as follows:

a) the amount of P2,500,000.00 plus twelve per centum (12%) accrued interest from August 1, 1976;

b) ten percent (10%) of the total amount due as attorney's fees and cost of the suit.

SO ORDERED.

Also assailed by petitioners is the April 2, 1998 Resolution of the Court of Appeals, which denied their Motion for Reconsideration. ³

The Facts

The facts are summarized by the Court of Appeals (CA) in this wise: ⁴

On August 30, 1976, an action for collection of a sum of money was filed by the Philippine National Bank (PNB, for brevity) against Fil-Eastern Wood Industries, Inc. (Fil-Eastern, for short) in its capacity as principal debtor and against Cayetano Ferreria, Pedro Atienza, Vicente O. Novales, Antonio R. Agra, and Napoleon M. Gamo in their capacity as sureties.

In its complaint, plaintiff PNB alleged that on July 17, 1967 Fil-Eastern was granted a loan in the amount of [t]wo [m]illion [f]ive [h]undred [t]housand [p]esos (P2,500,000.00) with interest at twelve percent (12%) per annum. Drawings from said demand loan were made on different dates as evidenced by several promissory notes and were credited to the account of Fil-Eastern. To secure the payment of the said loan Fil-Eastern as principal and sureties Ferreria, Atienza, Novales, Agra, and Gamo executed a Surety Agreement whereby the sureties, jointly and severally with the principal, guaranteed and warranted to PNB, its successors or assigns, prompt payment of subject obligation including notes, drafts, bills of exchange, overdrafts and other obligations of every kind, on which Fil-Eastern was indebted or may thereafter become indebted to PNB. It was further alleged that as of May 31, 1976 the total indebtedness of Fil-Eastern and its sureties on subject loan amounted to [f]ive [m]illion [t]wo [h]undred [n]inety-[s]even [t]housand, [n]ine [h]undred [s]eventy-[s]ix [p]esos and [s]eventeen [c]entavos (P5,297,976.17), excluding attorney's fees. Notwithstanding repeated demands, the defendants refused and failed to pay their loans.

The defendants (herein sureties) filed separate answers (pp. 49, 68, 205, 208 and 231). Collating these, We drew the following: All of them claimed that they only signed the Surety Agreement with the understanding that the same was a mere formality required of the officers of the corporation. They did not in any way or manner receive a single cent from the proceeds of said loan and/or derive any profit therefrom. Neither did they receive any consideration valuable or otherwise, from defendant Fil-Eastern. They further claim that the loan in question was negotiated and approved under highly irregular, anomalous and suspicious circumstances to the point that the Surety Agreement executed thereafter is invalid, null and void and from the beginning due to a defect in the consent of the defendants and that their liabilities under the Surety Agreement, if any, has been extinguished by novation. The cause of action of the complainant is barred by laches and estoppel in that the plaintiff with full knowledge of the deteriorating financial condition of Fil-Eastern did not take steps to collect from said defendant corporation while still solvent. They also maintained that if anyone is liable for the payment of said loan, it is Felipe Ysmael, Jr. and not them or it is only Fil-Eastern and the controlling officers who profited and made use of the proceeds of the loan. Defendant Agra likewise said that he was made to sign the Surety Agreement and he did it because of the moral influence and pressure exerted upon him by Felipe Ysmael, Jr. (their employer at the time of signing), thereby arousing strong fears of losing a much needed employment to support his family should he refuse to sign as Surety.

In the order of the trial court dated October 30, 1978, defendant Fil-Eastern was declared in default for its failure to answer the complaint within the reglementary period and the case was scheduled for pre-trial conference. The individual defendants with the court's approval thereafter filed an amended third-party complaint against Felipe Ysmael, Jr.

The amended third-party complaint alleged that at the time of execution of the alleged Surety Agreement subject matter of the principal complaint, third-party plaintiffs were but employees of Ysmael Steel Manufacturing Co., owned by third-party-defendant. Third party plaintiffs were in no financial position to act as sureties to a P2.5 million loan. They became incorporators of original defendant Fil-Eastern because of fear of losing their employment brought about by the tremendous pressure and moral influence exerted upon them by their employer-third-party-defendant. They signed the Surety Agreement upon the order of the third-party-defendant. In signing the said document, the third-party-plaintiffs were assured by the third-party-defendant that they had nothing to fear and worry about because the latter will assume all liabilities as well as profits therefrom and that the loan subject of the Surety Agreement was with the prior approval and blessing of a high government official. They were likewise assured that the surety agreement was but a formality and that because of such pressure, influence as well as assurances, third-party-plaintiffs signed the Surety Agreement.

Third-party-defendant Felipe Ysmael, Jr. in his answer alleged that the Surety Agreement was freely and voluntarily signed and executed by third-party-plaintiffs without any intimidation, undue, improper or fraudulent representations. Further, granting arguendo that the consent of third-party plaintiffs in signing said Surety Agreement was vitiated with intimidation, undue influence or fraudulent representation on the part of third-party-defendant, said Surety Agreement is only voidable and therefore binding unless annulled by a proper action in court. The third-party-plaintiffs did not file the proper court action for the annulment of said agreement. They are now barred from filing an action for annulment of said agreement, the prescriptive period therefor being only four (4) years from the time the defect of the consent had ceased, and from the discovery of the all[e]ged fraud. In addition, third-party plaintiffs had ratified said agreement which they signed in July 1967 by signing their names on and execution of several promissory thereafter.

At the pre-trial conference held on March 21, 1980, the parties failed to agree on a possible amicable settlement hence the case was set for trial on the merits. On July 5, 1984, during the pendency of the trial, third-party defendant Felipe Ysmael, Jr. died. He was substituted by his legal heirs Patrick Ysmael and Jeanne Ysmael as third-party defendants. Defendant Pedro Atienza died on January 4, 1987. It appearing that he has no legal heirs, the case against him dismissed.

After trial, the regional trial court (RTC) ruled against herein petitioners. On appeal, the CA modified the RTC ruling by deleting the award of attorney's fees. Hence, this recourse to this Court.

Ruling of the Court of Appeals

In ruling that petitioners were liable under the surety agreement, the Court of Appeals rejected their defense of laches. It held that "the lapse of seven years and eight months from December 31, 1968 until the judicial demand on August 30, 1976 cannot be considered as unreasonable delay which would necessitate the application of laches. The action filed by the plaintiff has not yet prescribed. It is well within the ten-year prescriptive period provided for by law wherein actions based on written contracts can be instituted." ⁵

The Court of Appeals also noted that the "prescriptive period did not begin to run from December 31, 1968 as [herein petitioners] presupposed. It was only from the time of the judicial demand on August 30, 1976 that the cause of action accrued. Thus, [private respondent] was well within the prescriptive period of ten years when it instituted the case in court." The Court of Appeals further ruled that "placing the blame on [PNB] for its failure to immediately pounce upon its debtors the moment the loan matured is grossly unfair for . . . demand upon the sureties to pay is not necessary."

The appellate court also held that petitioners proved only the first of the following four essential elements of laches: "(1) conduct on the part of the defendant, or one under whom he claims, giving rise to the situation of which complaint in made and for which the complainant seeks a remedy; (2) delay in asserting the complainant's rights, the complainant having had knowledge or notice of the defendant's conduct and having been afforded an opportunity to institute a suit, (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bares his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred."

Issues

In their Memorandum, petitioners raise the following issues: ⁶

1. WHETHER OR NOT THE CLAIM OF THE PNB AGAINST THE PETITIONERS IS ALREADY BARRED BY THE EQUITABLE DEFENSE OF LACHES?

2. WHETHER OR NOT THE RESPECTIVE CONJUGAL PARTNERSHIPS OF THE PETITIONERS COULD BE HELD LIABLE FOR ANY LIABILITY OF THE PETITIONERS UNDER THE SURETY AGREEMENT IN FAVOR OF THE PNB?

Under the first issue, petitioners submit four other questions:

1-a WHETHER OR NOT THE EQUITABLE DEFENSE OF LACHES APPLIES INDEPENDENTLY OF PRESCRIPTION?

1-b WHETHER OR NOT THE CAUSE OF ACTION OF THE PNB AGAINST THE PETITIONERS ACCRUED ONLY FROM THE TIME OF THE JUDICIAL DEMAND ON AUGUST 30, 1976?

1-c WHETHER OR NOT THE FOUR (4) WELL-SETTLED ELEMENTS OF LACHES ARE PRESENT IN THIS CASE?

1-d WHETHER OR NOT THE RULING IN THE CASE OF PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS, 217 SCRA 347, IS APPLICABLE IN THIS INSTANT CASE?

In the main, the issue is whether petitioners may raise the defense of laches in order to avoid their liability under the surety agreement. Preliminarily, we shall also take up the question of petitioners' liability as sureties.

The Court's Ruling

The appeal is not meritorious.

Preliminary Matter:

Liability of Petitioners as Sureties

The present controversy began when the Philippine National Bank (PNB) sought to enforce the Surety Agreement. The pertinent provisions of said Agreement are as follows:

WHEREAS, FIL-EASTERN WOOD INDUSTRIES, INC. herein referred to as the Principal, has obtained and/or desires to obtain certain credits, loans, overdrafts, discounts, etc., from the Creditor, for all of which the Creditor requires security; and the Surety, on account of valuable consideration received from the Principal, has agreed and undertake to assist the principal by becoming such Surety.

NOW THEREFORE, for the purpose above mentioned, the Surety, jointly and severally with the Principal, hereby guarantees and warrants to the Creditor, its successors or assigns, the prompt payment at maturity of all the notes, drafts, bills of exchange, overdrafts and other obligations of every kind, on which the Principal may now be indebted or may hereafter become indebted to the Creditor, but the liability of the Surety shall not at any time exceed the sum of TWO MILLION FIVE HUNDRED THOUSAND ONLY (P2,500.00.00), Philippine Currency, plus the interest thereon at the rate of (—%) per cent annum, and the cost and expenses of the Creditor incurred in connection with the granting of the credits, loans, overdrafts, etc., covered by this surety agreement, including those for the custody, maintenance and preservation of the securities given therefor and also for the collection thereof.

Both the Principal and the Surety shall be considered in default when they fail to pay the obligation upon maturity with or without demand and in such case the Surety agrees to pay to the creditor, its [successor] or assigns, all outstanding obligations of the Principal, whether due or not due and whether held by the Creditor as principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted as correct by the Surety without question.

The Surety expressly waives all rights to demand for payment and notice of non-payment and protest, and agrees that the securities of every kind, that are now and may hereafter be left with the Creditor, its successors, indorsees or assigns, as collateral to any evidence of debt or obligations or upon which a lien may exist thereon may be withdrawn or surrendered at any time, and the time of payment thereof extended, without notice to, or consent by the Surety; and that the liability on this guaranty shall be solidary, direct and immediate and not contingent upon the pursuit by the Creditor, its successors, indorsees or assigns, of whatever remedies it or they have against the Principal or the securities or liens it or they may possess and the Surety will at any time, whether due or not due, pay to the Creditor with or without demand upon the Principal, any obligation or indebtedness of the Principal not in excess of the amount abovementioned.

This instrument is intended to be a complete and perfect indemnity to the Creditor to the extent above stated, for any indebtedness or liability of any kind owing by the Principal to the Creditor from time to time, and to be valid and continuous without further notice to the Surety, and may be revoked by the Surety at any time, but only after forty-eight hours notice in writing to the Creditor, and such revocation shall not operate to relieve the Surety from responsibility for obligations incurred by the Principal prior to the termination of such period. (Emphasis supplied.)

It must be stressed that petitioners, as sureties, bound themselves solidarily for the obligation of Fil-Eastern to PNB. Petitioners admit that they signed the Surety Agreement, but they challenge their liability thereon on the ground that they were allegedly coerced by their employer into signing the deed. The argument is too late at best.

As pointed out by the Court of Appeals, petitioners failed to challenge their consent to the Agreement within the prescriptive period. Article 1391 of the Civil Code provides that the action to annul a contract vitiated by intimidation, violence or undue influence shall be filed within four years from the cessation of such defects. In this case, Petitioners Agra, Gamo and Novales resigned from Fil-Eastern in 1967, 1968 and 1969, respectively. It was only in 1976, when PNB sought to enforce the contract, that they alleged a defect in their consent. By their inaction, their alleged cause of action based on vitiated consent had precribed. There was no question that petitioners, in their capacity as sureties, were answerable for the obligations of Fil-Eastern to PNB.

We shall now go to the main issue of this case: Whether petitioners may invoke the defense of laches, considering that PNB's claim had not yet prescribed.

Main Issue: Laches

Petitioners admit that PNB's claim, though filed more than seven years from the maturity of the obligation, fell within the ten-year prescriptive period. They argue, however, that the cause was already barred by laches, which is defined as "the failure or neglect for an unreasonable or unexplained length of time to do that which by exercising due diligence, could or should have been done earlier warranting a presumption that he has abandoned his right or declined to assert it." ⁷ In arguing that the appellate court erred in rejecting the defense of laches, petitioners cite four reasons: (1) the defense of laches applies independently of prescription; (2) the cause of action against petitioners accrued from the maturity of the obligation, not from the time of judicial demand; (3) the four well-settled elements of laches were duly proven; and (4) PNB v. CA applies in the instant case. As will be shown below, all these arguments are devoid of merit.

Application of Laches

Assailing the CA ruling that laches was inapplicable because the claim was brought within the ten-year prescriptive period, petitioners stress that the defense of laches differs from and is applied independently of prescription. In support, they cite, among others, Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., ⁸ in which the Supreme Court ruled:

[T]he defense of laches applies independently of prescription. Laches is different from the statute of limitations. Prescription is concerned with the fact of delay, whereas laches is concerned with the effect of delay. Prescription is a matter of time; laches is principally a question of inequity of permitting a claim to be enforced, this inequity being founded on some change in the condition of the property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in equity; whereas prescription applies at law. Prescription is based on fixed time, laches is not.

True, prescription is different from laches, but petitioners' reliance on Nielson is misplaced. As held in the aforecited case, laches is principally a question of equity. Necessarily, "there is no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances. The question of laches is addressed to the sound discretion of the court and since laches is an equitable doctrine, its application is controlled by equitable considerations." ⁹ Petitioners, however, failed to show that the collection suit against herein sureties was inequitable. Remedies in equity address only situations tainted with inequity, not those expressly governed by statutes. Indeed, the petitioners failed to prove the presence of all the four established requisites of laches, viz:

(1) conduct on the part of the defendant or one under whom he claims, giving rise to the situation of which complaint is made and for which the complainant seeks a remedy;

(2) delay in asserting the complainant's right, the complainant having had knowledge or notice of defendant's conduct and having been afforded an opportunity to institute a suit;

(3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his claim; and

(4) injury or prejudice to the defendant in the event relief accorded to the complainant, or the suit is not held barred. ¹⁰

That the first element exists is undisputed. Neither Fil-Eastern nor the sureties, herein petitioners, paid the obligation under the Surety Agreement.

The second element cannot be deemed to exist. Although the collection suit was filed more than seven years after the obligation of the sureties became due, the lapse was within the prescriptive period for filing an action. In this light, we find immaterial petitioners' insistence that the cause of action accrued on December 31, 1968, when the obligation became due, and not on August 30, 1976, when the judicial demand was made. In either case, both submissions fell within the ten-year prescriptive period. In any event, "the fact of delay, standing alone, is insufficient to constitute laches." ¹¹

Petitioners insist that the delay of seven years was unreasonable and unexplained, because demand was not necessary. Again we point that, unless reasons of inequitable proportions are adduced, a delay within the prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief. In Chavez v. Bonto-Perez, ¹² the Court reiterated an earlier holding, viz:

Laches is a doctrine in equity while prescription is based on law. Our courts are basically courts of law and not courts of equity. Thus, laches cannot be invoked to resist the enforcement of an existing legal right. We have ruled in Arsenal v. Intermediate Appellate Court . . . that it is a long standing principle that equity follows the law. Courts exercising equity jurisdiction are bound by rules of law and have no arbitrary discretion to disregard them. In Zabat, Jr. v. Court of Appeals . . ., this Court was more emphatic in upholding the rules of procedure. We said therein:

As for equity, which has been aptly described as "justice outside legality," this is applied only in the absence of, and never against, statutory law or, as in this case, judicial rules of procedure. Aequetas nunquam contravenit legis. This pertinent positive rules being present here, they should preempt and prevail over all abstract arguments based only on equity.

Thus, where the claim was filed within the three-year statutory period, recovery therefore cannot be barred by laches.

Petitioners also failed to prove the third element of laches. It is absurd to maintain that petitioners did not know that PNB would assert its right under the Surety Agreement. It is unnatural, if not unheard of, for banks to condone debts without adequate recompense in some other form. Petitioners have not given us reason why they assumed that PNB would not enforce the Agreement against them.

Finally, petitioners maintain that the fourth element is present because they would suffer damage or injury as a result of PNB's claim. This is the crux of the controversy. In addition to the payment of the amount stipulated in the Agreement, other equitable grounds were enumerated by petitioners, viz:

1. Petitioners acted as sureties under pressure from Felipe "Baby" Ysmael, Jr., the headman of the Ysmael Group of Companies where the petitioners were all employed in various executive positions.

2. Petitioners did not receive a single centavo in consideration of their acting as sureties.

3. The surety agreement was not really a requisite for the grant of the loan to FIL-EASTERN because the first release on the loan was made on July 17, 1967, or even before the Surety Agreement was executed by petitioners on July 21, 1967.

4. Petitioners were assured that the Surety Agreement was merely a formality, and they had reason to believe that assurance because the loan was principally secured by an assignment of 15% of the proceeds of the sale of logs of FIL-EASTERN to Iwai & Co., Ltd., and such assignment was clearly stated in PNB Board Resolution No. 407. In fact, while it was expressly stated in all of the eight (8) promissory notes covering the releases of the loan that the said loan was secured by 15% of the contract of sale with Iwai & Co., Ltd., only three (3) promissory notes stated that the loan was also secured by the "joint and several signatures of the officers of the corporation". It is to be noted that no mention was even made of the joint and several signatures of petitioners as sureties. In other words, the principal security was the assignment of 15% of the contract for the sale of logs to Iwai & Co., Ltd.

5. For reasons not explained by PNB, PNB did not collect the 15% of the proceeds of the sale of the logs to Iwai & Co., Ltd., and such failure resulted in the non-collection of the P2,500,000.00 demand loan, or at least a portion of it.

6. For reasons likewise unexplained by PNB, PNB did not make any demand upon petitioners to pay the unpaid loan of FIL-EASTERN until after FIL-EASTERN had become bankrupt, and PNB was aware of this fact because it foreclosed the chattel mortgages on the other loans of FIL-EASTERN which were secured by said chattel mortgages. ¹³ (Emphasis found in the original.)

These circumstances do not justify the application of laches. Rather, they disclose petitioners' failure to understand the language and the nature of the Surety Arrangement. They cannot now argue that the Surety Agreement was merely a formality, secondary to the assignment of 15 percent of the proceeds of the sale of Fil-Eastern's logs to Iwai and Co., Ltd. Neither can they rely on PNB's failure to collect the assigned share in the sale of the logs or to make a demand on petitioners until after Fil-Eastern had become bankrupt. The Court stresses that the obligation of a surety is direct, primary and absolute. Thus, the Court has held:

[A]lthough the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary, and absolute; in other words, he is directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. ¹⁴

When petitioners signed as sureties, they expressly and unequivocally agreed to the stipulation that "the liability on this guaranty shall be solidary, direct and immediate and not contingent upon the pursuit by the creditor, its successors, indorsees or assigns, of whatever remedies it or they have against the principal or the securities or liens it or they may possess."

If they had mistaken the import of the Surety Agreement, they could have easily asked for its revocation. The Agreement stipulates that it "may be revoked by the Surety at any time, but only after forty-eight hours notice in writing to the Creditor, and such revocation shall not operate to relieve the Surety from responsibility for obligations incurred by the Principal prior to the terrmnation of such period." This they did not do.

Equally unavailing is petitioners' allegation that the Surety Agreement was not a requisite for the grant of the loan. Even if their assertion is true, the fact remains that they signed the contract and voluntarily bound themselves to be solidarily liable for the loan amounting to P2,500,000.

The other "equitable" circumstances above enumerated fail to support petitioners' cause. As earlier stated, petitioners are already barred from questioning the voluntariness of their consent. Furthermore, this Court has categorically ruled that a surety is liable for the debt of another, although he or she received no benefit therefrom. ¹⁵

Clearly, aside from the fact that the collection suit was filed only after the lapse of seven years from the date the obligation became due and demandable, petitioners failed to adduce any showing of inequity. Hence, the rules on equity cannot protect them.

Applicability of PNB v. CA

Petitioners allege that the CA committed grave error in failing to apply PNB v. Court of Appeals, ¹⁶ which they insist to be analogous to the present case. The facts in said case are as follows:

Private Respondent B.P. Mata & Co. Inc. (Mata), is a private corporation engaged in providing goods and services to shipping companies. Since 1966, it has acted as a manning or crewing agent for several foreign firms, one of which is Star Kist foods, Inc., USA (Star Kist). As part of their agreement, Mata makes advances for the crew's basic personal needs. Subsequently, Mata sends monthly billings to its foreign principal Star Kist, which in turn reimburses Mata by sending a telegraphic transfer through banks for credit to the latter's account.

Against this background, on February 21, 1975, Security Pacific National Bank (SEPAC) of Los Angeles which had an agency arrangement with Philippine National Bank (PNB), transmitted a cable message to the International Department of PNB to pay the amount of US$14,000 to Mata by crediting the latter's account with the Insular Bank of Asia and America (IBAA), per order of Star Kist. Upon receipt of this cabled message on February 24, 1975, PNB's International Department noticed an error and sent a service message to SEPAC Bank. The latter replied with the instructions that the amount of US$14,000 should only be for US$1,400.

On the basis of the cable message dated February 24, 1975, Cashier's Check No. 269522 in the amount of US$1,400 (P9,772.96) representing reimbursement from Star Kist, was issued by the Star Kist for the account of Mata on February 25, 1975 through the Insular Bank of Asia and America (IBAA).

However, fourteen days after or on March 11, 1975, PNB effected another payment through Cashier's Check No. 270271 in the amount of US$14,000 (P97,878.60) purporting to be another transmittal of reimbursement from Star Kist, private respondent's foreign principal.

Six years later, or more specifically, on May 13, 1981, PNB requested Mata for refund of US$14,000 (P97,878.60) after it discovered its error in effecting the second payment.

On February 4, 1982, PNB filed a civil case for collection and refund of US$14,000 against Mata arguing that based on a constructive trust under Article 1456 of the Civil Code, it has a right to recover the said amount it erroneously credited to respondent Mata. ¹⁷

On the ground of laches, the Court decided against the claim of PNB, stating that:

[i]t is amazing that it took petitioner almost seven years before it discovered that it had erroneously paid private respondent. Petitioner would attribute its mistake to the heavy volume of international transactions handled by the Cable and Remittance Division of the International Department of PNB. Such specious reasoning is not persuasive. It is unbelievable for a bank, and a government bank at that, which regularly publishes its balanced financial statements annually or more frequently, by the quarter, to notice its error only seven years later. As a universal bank with worldwide operations, PNB cannot afford to commit such costly mistakes. Moreover, as between parties where negligence is imputable to one and not to the other, the former must perforce bear the consequences of its neglect. Hence, petitioner should bear the cost of its own negligence.

Petitioners maintain that the delay in PNB v. CA was even shorter than that in the present case. If the bank in the aforesaid case was negligent in not discovering the overpayment, herein petitioners assert that the negligence was even more culpable in the present case. They add that, given the standard practice of banks to flag delinquent accounts, the inaction for almost seven years of herein respondent bank was gross and inexcusable.

We are not persuaded. There are no absolute rules in the application of equity, and each case must be examined in the light of its peculiar facts. In PNB v. CA, there was a mistake, an inexcusable one, on the part of petitioner bank in making an overpayment and repeating the same error fourteen days later. If the bank could not immediately discover the mistake despite all its agents and employees, the beneficiary of the amount could not be expected to do so. It is, thus, inequitable to allow PNB to collect the amount, after such a long delay, from the beneficiary who had assumed, after all those years, that the amount really belonged to it.

In the present case, there is no showing of any mistake or any inequity. The fact alone that seven years had lapsed before PNB filed the collection suit does not mean that it discovered the obligation of the sureties only then. There was a Surety Arrangement, and the law says that the said contract can be enforced by action within ten years. The bank and the sureties all knew that the action to enforce the contract did not have to be filed immediately. In other words, the bank committed no mistake or inequitable conduct that needed correction, and the sureties had no misconception about their liabilities under the contract.

Clearly, petitioners have no recourse in equity, because they failed to show any inequity on the part of PNB.

Additional Issue:

Liability of Conjugal Assets

In their Memorandum, petitioners belatedly ask the Court to rule that, in case of a court ruling adverse to them, the conjugal properties would not be liable for the husbands' debts that did not redound to the benefit of the conjugal partnership. ⁸

This issue cannot be allowed, for it is being raised for the first time only in petitioners' Memorandum. Issues, arguments, theories and causes of action not raised below may no longer be posed on appeal. ¹⁹ Furthermore, petitioners are asking the Court to issue a ruling on a hypothetical situation. In effect, they are asking the Court to render an advisory opinion, a task which is beyond its constitutional mandate.

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is AFFIRMED. Costs against petitioners.1âwphi1.nêt

SO ORDERED.

Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

Romero, J., abroad on official business.

Footnotes

1 Penned by J. Arturo B. Buena (now Associate Justice of the Supreme Court), division chairman; with the concurrence of JJ. Buenaventura J. Guerrero and Portia Alino-Hormachuelos, members.

2 CA Decision, p. 14; rollo, p. 43.

3 Rollo, p. 45.

4 CA Decision, pp. 1-4; rollo, pp. 30-33. The case was deemed submitted for resolution on January 28, 1999, when the Court received petitioners' Reply Memorandum.

5 CA Decision, p. 10; rollo, p. 39.

6 Petitioners' Memorandum, p. 5; rollo, p. 148.

7 Vitug, Compendium of Civil Law and Jurisprudence, pp. 570-571; citing Madeja v. Patcho 132 SCRA 540.

8 18 SCRA 1040, December 17, 1966, per Zaldivar, J. See also Heirs of Batiog Lacamen v. Heirs of Laruan, 65 SCRA 605, 609, July 31, 1975; Radio Communication of the Philippines, Inc. v. NLRC, 233 SCRA 656, June 25, 1993; Jimenez v. Fernandez, 184 SCRA 190, 196 April 6, 1990; Santiago v. Court of Appeals, 278 SCRA 98, August 21, 1997, per Hermosisima, Jr. J.

9 Jimenez v. Fernandez, 184 SCRA 196, April 6, 1990, per Paras, J.

10 Catholic Bishop of Balanga v. CA, 264 SCRA 181, November 14, 1996, per Hermosisima Jr., J.; Go Chi Gun, et al, v. Co Cho, et al., 96 Phil. 622, February 28, 1995; Mejia de Lucas v. Gamponia, 100 Phil. 277, October 31, 1956; Z.E. Lotho, Incv. Ice & Cold Storage Industries, Inc., 3 SCRA 744, December 28, 1961; Abraham v. Recto-Kasten, 4 SCRA 298, June 31, 1962; Custodio v. Casiano, 9 SCRA 841, December 27, 1963; Nielzen & Co., Inc. v. Lepanto Consolidated Mining Co., 18 SCRA 1040, December 17, 1966; Miguel v. Catalino, 26 SCRA 234, November 29, 1968; Yusingco v. Ong Hing Lian, 42 SCRA 589, December 24, 1971; Perez v. Ong Chua, 16732, September 23, 1982; Rafols v. Barba, 119 SCRA 146, December 13, 1982; Chung Ka Bio v. Intermediate Appellate Court, supra; Claverias v. Quingco, 207 SCRA 66, 83 March 6, 1992; Buenaventura v. Court of Appeals, 216 SCRA 818, 824, December 28, 1992.

11 Chavez v. Bonto-Perez, 242 SCRA 73, March 1, 1995, per Puno, J.

12 242 SCRA 81, supra; quoting Imperial Valley Shipping Agency v. NLRC, 200 SCRA 178, August 5, 1991.

13 Petitioners' Memorandum, pp. 17-18; rollo, pp. 160-161.

14 Garcia v. Court of Appeals, 191 SCRA 493, November 20, 1990, per Cruz, J.

15 Ibid.

16 217 SCRA 347, January 21, 1993, per Romero, J.

17 PNB v. CA , supra, pp. 350-351.

18 Petitioners' Memorandum, p. 27; rollo, p. 170.

19 San juan Structural v. CA, GR No. 129459, September 29, 1998; Keng Hua Pape Product Co., Inc v. CA, GR No. 116863, February 12, 1998.

PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS AND B.P. MATA AND CO., I

G.R. No. 97995 January 21, 1993
PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS AND B.P. MATA AND CO., INC., respondents.
Roland A. Niedo for petitioner.
Benjamin C. Santos Law Office for respondent.

ROMERO, J.:

Rarely is this Court confronted with a case calling for the delineation in broad strokes of the distinctions between such closely allied concepts as the quasi-contract called "solutio indebiti" under the venerable Spanish Civil Code and the species of implied trust denominated "constructive trusts," commonly regarded as of Anglo-American origin. Such a case is the one presented to us now which has highlighted more of the affinity and less of the dissimilarity between the two concepts as to lead the legal scholar into the error of interchanging the two. Presented below are the factual circumstances that brought into juxtaposition the twin institutions of the Civil Law quasi-contract and the Anglo-American trust.

Private Respondent B.P. Mata & Co. Inc. (Mata), is a private corporation engaged in providing goods and services to shipping companies. Since 1966, it has acted as a manning or crewing agent for several foreign firms, one of which is Star Kist Foods, Inc., USA (Star Kist). As part of their agreement, Mata makes advances for the crew's medical expenses, National Seaman's Board fees, Seaman's Welfare fund, and standby fees and for the crew's basic personal needs. Subsequently, Mata sends monthly billings to its foreign principal Star Kist, which in turn reimburses Mata by sending a telegraphic transfer through banks for credit to the latter's account.

Against this background, on February 21, 1975, Security Pacific National Bank (SEPAC) of Los Angeles which had an agency arrangement with Philippine National Bank (PNB), transmitted a cable message to the International Department of PNB to pay the amount of US$14,000 to Mata by crediting the latter's account with the Insular Bank of Asia and America (IBAA), per order of Star Kist. Upon receipt of this cabled message on February 24, 1975, PNB's International Department noticed an error and sent a service message to SEPAC Bank. The latter replied with instructions that the amount of US$14,000 should only be for US$1,400.

On the basis of the cable message dated February 24, 1975 Cashier's Check No. 269522 in the amount of US$1,400 (P9,772.95) representing reimbursement from Star Kist, was issued by the Star Kist for the account of Mata on February 25, 1975 through the Insular Bank of Asia and America (IBAA).

However, fourteen days after or on March 11, 1975, PNB effected another payment through Cashier's Check No. 270271 in the amount of US$14,000 (P97,878.60) purporting to be another transmittal of reimbursement from Star Kist, private respondent's foreign principal.

Six years later, or more specifically, on May 13, 1981, PNB requested Mata for refund of US$14,000 (P97,878.60) after it discovered its error in effecting the second payment.

On February 4, 1982, PNB filed a civil case for collection and refund of US$14,000 against Mata arguing that based on a constructive trust under Article 1456 of the Civil Code, it has a right to recover the said amount it erroneously credited to respondent Mata. ¹

After trial, the Regional Trial Court of Manila rendered judgment dismissing the complaint ruling that the instant case falls squarely under Article 2154 on solutio indebiti and not under Article 1456 on constructive trust. The lower court ruled out constructive trust, applying strictly the technical definition of a trust as "a right of property, real or personal, held by one party for the benefit of another; that there is a fiduciary relation between a trustee and a cestui que trust as regards certain property, real, personal, money or choses in action." ²

In affirming the lower court, the appellate court added in its opinion that under Article 2154 on solutio indebiti, the person who makes the payment is the one who commits the mistake vis-a-vis the recipient who is unaware of such a mistake. ³ Consequently, recipient is duty bound to return the amount paid by mistake. But the appellate court concluded that petitioner's demand for the return of US$14,000 cannot prosper because its cause of action had already prescribed under Article 1145, paragraph 2 of the Civil Code which states:

The following actions must be commenced within six years:

xxx xxx xxx

(2) Upon a quasi-contract.

This is because petitioner's complaint was filed only on February 4, 1982, almost seven years after March 11, 1975 when petitioner mistakenly made payment to private respondent.

Hence, the instant petition for certiorari proceeding seeking to annul the decision of the appellate court on the basis that Mata's obligation to return US$14,000 is governed, in the alternative, by either Article 1456 on constructive trust or Article 2154 of the Civil Code on quasi-contract. ⁴

Article 1456 of the Civil Code provides:

If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

On the other hand, Article 2154 states:

If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

Petitioner naturally opts for an interpretation under constructive trust as its action filed on February 4, 1982 can still prosper, as it is well within the prescriptive period of ten (10) years as provided by Article 1144, paragraph 2 of the Civil Code. ⁵

If it is to be construed as a case of payment by mistake or solutio indebiti, then the prescriptive period for quasi-contracts of six years applies, as provided by Article 1145. As pointed out by the appellate court, petitioner's cause of action thereunder shall have prescribed, having been brought almost seven years after the cause of action accrued. However, even assuming that the instant case constitutes a constructive trust and prescription has not set in, the present action has already been barred by laches.

To recall, trusts are either express or implied. While express trusts are created by the intention of the trustor or of the parties, implied trusts come into being by operation of law. ⁶ Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. ⁷

In turn, implied trusts are subdivided into resulting and constructive trusts. ⁸ 

 A

 resulting trust is a trust raised by implication of law and presumed always to have been contemplated by the parties, the intention of which is found in the nature of the transaction, but not expressed in the deed or instrument of conveyance. ⁹ Examples of resulting trusts are found in Articles 1448 to 1455 of the Civil Code. ¹⁰ 

 On the other hand, a

constructive trust is one not created by words either expressly or impliedly, but by construction of equity in order to satisfy the demands of justice. An example of a constructive trust is Article 1456 quoted above. ¹¹

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense ¹² for in a typical trust, confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. ¹³ A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary. ¹⁴

In the case at bar, Mata, in receiving the US$14,000 in its account through IBAA, had no intent of holding the same for a supposed beneficiary or cestui que trust, namely PNB. But under Article 1456, the law construes a trust, namely a constructive trust, for the benefit of the person from whom the property comes, in this case PNB, for reasons of justice and equity.

At this juncture, a historical note on the codal provisions on trust and quasi-contracts is in order.

Originally, under the Spanish Civil Code, there were only two kinds of quasi contracts: negotiorum gestio and solutio indebiti. But the Code Commission, mindful of the position of the eminent Spanish jurist, Manresa, that "the number of quasi contracts may be indefinite," added Section 3 entitled "Other Quasi-Contracts." ¹⁵

Moreover, even as Article 2142 of the Civil Code defines a quasi-contract, the succeeding article provides that: "The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which may come within the purview of the preceding article." ¹⁶

Indubitably, the Civil Code does not confine itself exclusively to the quasi-contracts enumerated from Articles 2144 to 2175 but is open to the possibility that, absent a pre-existing relationship, there being neither crime nor quasi-delict, a quasi-contractual relation may be forced upon the parties to avoid a case of unjust enrichment. ¹⁷ There being no express consent, in the sense of a meeting of minds between the parties, there is no contract to speak of. However, in view of the peculiar circumstances or factual environment, consent is presumed to the end that a recipient of benefits or favors resulting from lawful, voluntary and unilateral acts of another may not be unjustly enriched at the expense of another.

Undoubtedly, the instant case fulfills the indispensable requisites of solutio indebiti as defined in Article 2154 that something (in this case money) has been received when there was no right to demand it and (2) the same was unduly delivered through mistake. There is a presumption that there was a mistake in the payment "if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause." ¹⁸

In the case at bar, a payment in the corrected amount of US$1,400 through Cashier's Check No. 269522 had already been made by PNB for the account of Mata on February 25, 1975. Strangely, however, fourteen days later, PNB effected another payment through Cashier's Check No. 270271 in the amount of US$14,000, this time purporting to be another transmittal of reimbursement from Star Kist, private respondent's foreign principal.

While the principle of undue enrichment or solutio indebiti, is not new, having been incorporated in the subject on quasi-contracts in Title XVI of Book IV of the Spanish Civil Code entitled "Obligations incurred without contract," ¹⁹ the chapter on Trusts is fairly recent, having been introduced by the Code Commission in 1949. Although the concept of trusts is nowhere to be found in the Spanish Civil Code, the framers of our present Civil Code incorporated implied trusts, which includes constructive trusts, on top of quasi-contracts, both of which embody the principle of equity above strict legalism. ²⁰

In analyzing the law on trusts, it would be instructive to refer to Anglo-American jurisprudence on the subject. Under American Law, a court of equity does not consider a constructive trustee for all purposes as though he were in reality a trustee; although it will force him to return the property, it will not impose upon him the numerous fiduciary obligations ordinarily demanded from a trustee of an express trust. ²¹ It must be borne in mind that in an express trust, the trustee has active duties of management while in a constructive trust, the duty is merely to surrender the property.

Still applying American case law, quasi-contractual obligations give rise to a personal liability ordinarily enforceable by an action at law, while constructive trusts are enforceable by a proceeding in equity to compel the defendant to surrender specific property. To be sure, the distinction is more procedural than substantive. ²²

Further reflection on these concepts reveals that a constructive "trust" is as much a misnomer as a "quasi-contract," so far removed are they from trusts and contracts proper, respectively. In the case of a constructive trust, as in the case of quasi-contract, a relationship is "forced" by operation of law upon the parties, not because of any intention on their part but in order to prevent unjust enrichment, thus giving rise to certain obligations not within the contemplation of the parties. ²³

Although we are not quite in accord with the opinion that "the trusts known to American and English equity jurisprudence are derived from the fidei commissa of the Roman Law," ²⁴ it is safe to state that their roots are firmly grounded on such Civil Law principles are expressed in the Latin maxim, "Nemo cum alterius detrimento locupletari potest," ²⁵ particularly the concept of constructive trust.

Returning to the instant case, while petitioner may indeed opt to avail of an action to enforce a constructive trust or the quasi-contract of solutio indebiti, it has been deprived of a choice, for prescription has effectively blocked quasi-contract as an alternative, leaving only constructive trust as the feasible option.

Petitioner argues that the lower and appellate courts cannot indulge in semantics by holding that in Article 1456 the recipient commits the mistake while in Article 2154, the recipient commits no mistake. ²⁶ On the other hand, private respondent, invoking the appellate court's reasoning, would impress upon us that under Article 1456, there can be no mutual mistake. Consequently, private respondent contends that the case at bar is one of solutio indebiti and not a constructive trust.

We agree with petitioner's stand that under Article 1456, the law does not make any distinction since mutual mistake is a possibility on either side — on the side of either the grantor or the grantee. ²⁷ Thus, it was error to conclude that in a constructive trust, only the person obtaining the property commits a mistake. This is because it is also possible that a grantor, like PNB in the case at hand, may commit the mistake.

Proceeding now to the issue of whether or not petitioner may still claim the US$14,000 it erroneously paid private respondent under a constructive trust, we rule in the negative. Although we are aware that only seven (7) years lapsed after petitioner erroneously credited private respondent with the said amount and that under Article 1144, petitioner is well within the prescriptive period for the enforcement of a constructive or implied trust, we rule that petitioner's claim cannot prosper since it is already barred by laches. It is a well-settled rule now that an action to enforce an implied trust, whether resulting or constructive, may be barred not only by prescription but also by laches. ²⁸

While prescription is concerned with the fact of delay, laches deals with the effect of unreasonable delay. ²⁹ It is amazing that it took petitioner almost seven years before it discovered that it had erroneously paid private respondent. Petitioner would attribute its mistake to the heavy volume of international transactions handled by the Cable and Remittance Division of the International Department of PNB. Such specious reasoning is not persuasive. It is unbelievable for a bank, and a government bank at that, which regularly publishes its balanced financial statements annually or more frequently, by the quarter, to notice its error only seven years later. As a universal bank with worldwide operations, PNB cannot afford to commit such costly mistakes. Moreover, as between parties where negligence is imputable to one and not to the other, the former must perforce bear the consequences of its neglect. Hence, petitioner should bear the cost of its own negligence.

WHEREFORE, the decision of the Court of Appeals dismissing petitioner's claim against private respondent is AFFIRMED.

Costs against petitioner.

SO ORDERED.

Bidin, Davide, Jr. and Melo, JJ., concur.

Gutierrez, Jr., J., concurs in the result.

# Footnotes

1 Records, p. 122.
2 Salao v. Salao, G.R. No. L-26699, March 16, 1976, 70 SCRA 65.
3 Rollo, p. 41.
4 Rollo, p. 27.
5 Article 1144. The following actions must be brought within ten years from the time the right of action accrues:

xxx xxx xxx

(2) Upon an obligation created by law;

xxx xxx xxx

6 Article 1441, Civil Code.
7 89 CJS 724.
8 89 CJS 722.
9 89 CJS 725.
10 Aquino, Civil Code, Vol. II. pp. 556-557; Ramos v. Ramos, G.R. No. L-19872, December 3, 1974, 61 SCRA 284.
11 Salao v. Salao, G.R. No. L-26699, March 16, 1976, 70 SCRA 65.
12 Ramos v. Ramos, G.R. No. L-19872 December 3, 1974, 61 SCRA 284, citing Gayondato v. Treasurer of the Philippine Islands, 49 Phil. 244.
13 State ex Wirt v. Superior Court for Spokane Country, 10 Wash. 2d, 362, 116 P. 2d 752, 755, Article 1440 Civil Code.
14 Diaz v. Goricho, 103 Phil. 261.
15 Report of the Code Commission, p. 60.
16 Article 2143, Civil Code.
17 Report of the Code Commission, pp. 159-160.
18 Article 2163, Civil Code.
19 Lao Chit v. Security and Trust Co. and Consolidated Investment, Inc., 105 Phil. 490.
20 Report of the Code Commission, p. 26.
21 Scott on Trusts, Volume 3, p. 2315.
22 Ibid, p. 2312.
23 Scott on Trusts, Volume 3, p. 2316.
24 Government v. Abadilla, 46 Phil. 642 and Miguel et al v. Court of Appeals,
L-20274, October 30, 1969, 29 SCRA 760.
25 Translated as, "No one should be allowed to enrich himself unjustly at the expense of another." (Jenk Cent. Cas. 4; 10 Barb. [N.Y.] 626, 633, "Cyclopedic Law Dictionary," 2nd Edition, p. 688).
26 Rollo, p. 32.
27 Tolentino, Civil Code of the Philippines, Vol. IV, p. 685.
28 Villagonzalo v. IAC, G.R. No. 711110, November 22, 1988, 167 SCRA 535; Perez v. Ong Chua, No. L-36850, September 23, 1982, 116 SCRA 732, 90 CJS 887-889 and 54 Am Jur., pp. 449-450.
29 Mapa III v. Guanzon, G.R. No. L-25605, June 20, 1977, 77 SCRA 387.

PHILIPPINE NATIONAL BANK, petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT

G.R. No. 66715 September 18, 1990
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT (First Civil Cases Division) and ROMEO ALCEDO, respondents.
Juan D. Diaz, Benjamin C. Del Rosario and Pedro R. Lazo for petitioner.
Carlos S. Ayeng, Augustus C. Rallos and Orlando S. Ayeng for private respondent.

GRIÑO-AQUINO, J.:

This is a petition for certiorari which seeks to set aside: (a) the decision dated November 29, 1983 of the Intermediate Appellate Court (now Court of Appeals) in
CA-G.R. CV No. 68021 which affirmed the decision of the Court of First Instance of Negros Occidental (now Regional Trial Court), Branch IV, Bacolod City, in Civil Case No. 11393; and (b) respondent court's resolution dated February 29, 1984 denying petitioner Philippine National Bank's (PNB for short) motion for reconsideration.

The facts of the case are the following:

On March 20, 1968, Leticia de la Vina-Sepe executed a real estate mortgage in favor of PNB, San Carlos Branch, over a lot registered in her name under TCT No.
T-31913 to secure the payment of a sugar crop loan of P3,400. Later, Leticia Sepe, acting as attorney-in-fact for her brother-in-law, private respondent Romeo Alcedo, executed an amended real estate mortgage to include his (Alcedo's) Lot No. 1626 (being a portion of Lot No. 1402, covered by TCT 52705 of the Isabela Cadastre) as additional collateral for Sepe's increased loan of P16,500 (pp. 5-6, PNB's Brief, p. 74, Rollo). Leticia Sepe and private respondent Alcedo verbally agreed to split fifty-fifty (50-50) the proceeds of the loan (p. 94, Rollo) but failing to receive his one-half share from her, Alcedo wrote a letter on May 12, 1970 to the PNB, San Carlos Branch, revoking the Special Power of Attorney which he had given to Leticia Sepe to mortgage his Lot No. 1626 (p. 95, Rollo).

Replying on May 22, 1970, the PNB Branch Manager, Jose T. Gellegani advised Alcedo that his land had already been included as collateral for Sepe's 1970-71 sugar crop loan, which the latter had already availed of, nevertheless, he assured Alcedo that the bank would exclude his lot as collateral for Sepe's forthcoming (1971-72) sugar crop loan (p. 95, Rollo). The letter reads:

May 22, 1970

Mr. Romeo Alcedo

Mamballo, M. Padilla

Negros Occidental

Dear Mr. Alcedo:

This is to acknowledge receipt of your letter dated May 12, 1970, requesting us to revoke the 'Special Power of Attorney' you have executed in favor of Mrs. Leticia de la Vina-Sepe, on February 18, 1969, on Lot No. 1402, Isabela Cadastre, covered by Transfer Certificate of Title No. 52705, with an area of 20.9200 hectares.

In this connection, we wish to advise you that the aforementioned parcel of land had been included as collateral to secure the 1970-71 sugar crop loan of Mrs. Leticia de la Vina-Sepe, which she had already availed of. In view of your late request, please be advised and assured that we shall exclude the aforementioned lot as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan.

For your information, we enclose a copy of our letter to Mrs. Sepe, which is self-explanatory,

Thank you.

Very truly yours,

(Sgd.) JOSE T. GELLEGANI Manager

(pp. 6-7, Record on Appeal, p. 75, Rollo.)

On the same day, May 22, 1970, PNB advised Sepe in writing to replace Lot No. 1402 with another collateral of equal or higher value.

May 22, 1970

Mrs. Leticia de la Vina-Sepe

Canla-on City

Dear Mrs. Sepe:

We wish to advice you that Mr. Romeo Alcedo, in a letter written to us, has plans to revoke the 'Special Power of Attorney' he executed in 1969 in your favor, affecting Lot No. 1402, Isabela Cadastre, covered by Transfer Certificate of Title No. 52705 with an area of 20.9200 Hectares. Our record shows that this parcel of land is mortgaged to us to secure the agricultural sugar crop loans we have granted you.

Mr. Alcedo made us understand that this said property shall serve as security for your 1969/70 sugar crop loan only. As it already secures your 1970-71 crop loan, which you have already availed, the same may be excluded as security for future crop loans. In the meantime, it is requested that you replace Lot No. 1402, above-mentioned, with the same or more appraised value.

Kindly call on us regarding this matter at your earliest convenience.

Thank you.

Very truly yours,

(Sgd.) JOSE T. GELLEGANI

Manager

(pp. 7-8, Record on Appeal, p. 75, Rollo.)

Despite the above advice from PNB, Sepe was still able to obtain an additional loan from PNB increasing her debt of P 16,500 to P56,638.69 on the security of Alcedo's property as collateral. On January 15, 1974, Alcedo received two (2) letters from PNB: (1) informing him of Sepe's failure to pay her loan in the total amount of P 56,638.69; and (2) giving him six (6) days to settle Sepe's outstanding obligation, as otherwise, foreclosure proceedings would be commenced against his property (p. 33, Rollo). Alcedo requested Sepe to pay her accounts to forestall foreclosure proceedings against his property, but to no avail (p. 15, Rollo).

On April 17, 1974, Alcedo sued Sepe and PNB in the Court of First Instance of Negros Occidental for collection and injunction with damages (p. 33, Rollo).

During the pendency of the case, PNB filed in the Office of the Sheriff at Pasig, Metro Manila, a petition for extrajudicial foreclosure of its real estate mortgage on Alcedo's land. On November 19, 1974, the property was sold to PNB as the highest bidder in the sale. The corresponding Sheriffs Certificate of Sale was issued to the Bank (p. 33, Rollo).

On October 18, 1975, Alcedo filed an amended complaint against Leticia and her husband Elias Sepe, and the Provincial Sheriff of Negros Occidental praying additionally for annulment of the extrajudicial foreclosure sale and reconveyance of the land to him free from liens and encumbrances, with damages.

With leave of court, Alcedo filed a second amended complaint withdrawing his action to collect his one-half share (amounting to P28,319.34) out of the proceeds of the sugar crop loans obtained by Sepe (p. 34, Rollo).

In its answer, PNB alleged that it had no knowledge of the agreement between Mrs. Sepe and Alcedo to split the crop loan proceeds between them. It required Sepe to put up other collaterals when it granted her an additional loan because Alcedo informed the Bank that he was revoking the Special Power of Attorney he gave Sepe; that the revocation was not formalized in accordance with law; and that in any event, the revocation of the Special Power of Attorney on May 12, 1970 by Alcedo did not impair the real estate mortgage earlier executed on April 28, 1969 by Sepe in favor of the Bank (p. 36, Rollo).

On March 14, 1980, the trial court rendered judgment in favor of Alcedo-

1. Declaring the public auction sale and the certificate of sale executed by the Provincial Sheriff of Negros Occidental relative to Lot No. 1626, Isabela Cadastre (TCT No. T-52705), as null and void;

2. Ordering the defendant Philippine National Bank to reconvey to plaintiff the title to aforesaid Lot No. 1626 free from all liens and encumbrances relative to the loans obtained by defendant Leticia de la Vina-Sepe;

3. Ordering defendant spouses Leticia de la Vina-Sepe and Elias Sepe and the Philippine National Bank, in solidum, to pay to the plaintiff moral damages in the sum of Pl 0,000.00, and another sum of P5,000.00 as attorney's fees and expenses of litigation;

4. On the cross-claim of defendant PNB against Leticia de la Vina-Sepe, considering that no evidence has been adduced regarding the updated actual accountability of the latter with the former, it is hereby directed that PNB proceed to collect against the cross-defendant whatever outstanding obligation the latter owes the former arising from transactions in connection with the instant case.

No pronouncement as to costs. (pp. 10-11, Rollo.)

The bank appealed but to no avail for on November 29,1983, the Intermediate Appellate Court affirmed in toto the judgment of the trial court (p. 54, Rollo.) The appellate court reasoned out that the Bank was estopped from foreclosing the mortgage on Alcedo's lot to pay Sepe's 1971-72 sugar crop loan, after having assured Alcedo on May 22, 1970 "that we shall exclude the aforementioned lot as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan" (p. 37, Rollo). The Court of Appeals held:

... Plaintiff-appellee's letter was unequivocal and clear to the effect that defendant Leticia de la Vina Sepe was no longer empowered to bind, encumber or mortgage his property. Although We may not hold this revocation to retroact to April 28, 1969 which was the date of the original mortgage, We can neither interpret it in any other way than that from the moment of notice to the PNB, it was the absolute intention of the owner to withdraw all authority from said defendant to further bind or encumber his property. This was clearly understood by the defendant-appellant PNB. There was no question on its part that Leticia de la Vina Sepe was no longer authorized to offer plaintiff-appellee's property as collateral for her contract of mortgage with the PNB. Defendant-appellant, therefore, acknowledged this revocation of the agency and in no uncertain terms assured the plaintiff-appellee that indeed, the latter's property will no longer be accepted by it as collateral for the sugar crop loan of the aforementioned defendant for the year 1971 to 1972. This meeting of the minds between the plaintiff-appellee and defendant-appellant took place not through verbal communications only, but in writing, as shown by their letters dated May 12, 1970 and May 22, 1970, respectively. ...

xxx xxx xxx

... To Our minds, the aforementioned act and declaration of defendant-appellant PNB as embodied in said letter binds said bank under the principle of estoppel by deed and defined as follows:

A doctrine in American jurisprudence whereby a party creating an appearance of fact which is not true is held bound by that appearance as against another person who has acted on the faith of it. (Strong v. Gutierrez Repide, 6 Phil. 685).

which is provided for in Articles 1431 and 1433 of the New Civil Code in conjunction with Section 3, paragraph (a), Rule 131 of the Rules of Court, all of which provide:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.' '

Art. 1433. Estoppel may be in pais or by deed.

Sec. 3. Conclusive presumptions. The following are instances of conclusive presumptions:

(a) Whenever a party has,by his own declaration, act, or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.

and which was enunciated in the following decisions of the Supreme Court:

Whenever a party has, by his own declaration, act or omission intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it.

Estoppel arises when one, by his acts, representations, or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts (Huyatid v. Huyatid 47265-R, Jan. 4, 1978).

The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. Said doctrine springs from equitable principles and the equities of the case. It is designed to aid the law in the administration of justice where without its aid injustice might result.' (Philippine National Bank v. Court of Appeals, L-30831, November 21, 1979, 94 SCRA 368)

By its letter dated May 22, 1970, defendant-appellant PNB led plaintiff-appellee to believe that his property covered by TCT T-52705 would no longer be included as collateral in the sugar crop loan of defendant Leticia de la Vina Sepe for the year 1971-72. It led said plaintiff-appellee to believe that his property as of said year will no longer be encumbered and will be free from any lien or mortgage. Plaintiff-appellee had the light to rely on said belief, because of the aforementioned act and declaration of defendant-appellant bank. Under the laws and jurisprudence aforequoted, defendant-appellant bank can no longer be allowed to deny or falsify its act or declaration, or to renege from it. This is one of the conclusive presumptions provided for by the Rules of Court. (pp. 37, 38-39, Rollo.)

PNB seeks a review of that decision on the grounds that:

1. the doctrine of promissory estoppel does not apply to this case;

2. PNB was a mortgagee in good faith and for value; and

3. PNB adduced substantial evidence in support of its cross-claim against defendant Leticia Sepe (p. 15, Rollo).

These issues boil down to whether or not PNB validly foreclosed the real estate mortgage on Alcedo's property despite notice of Alcedo's revocation of the Special Power of Attorney authorizing Leticia Sepe to mortgage his property as security for her sugar crop loans and despite the Bank's written assurance to Alcedo that it would exclude his property as collateral for Sepe's future loan obligations.

After careful deliberation, the Court is not persuaded to disturb the decisions of the trial court and the Court of Appeals in this case.

We agree with the opinion of the appellate court that under the doctrine of promissory estoppel enunciated in the case of Republic Flour Mills Inc. vs. Central Bank, L-23542, August 11, 1979, the act and assurance given by the PNB to Alcedo "that we shall exclude the aforementioned lot [Lot No. 1402] as a collateral of Leticia de la Vina-Sepe in our recommendation for her 1971-72 sugar crop loan" (p. 37, Rollo) is binding on the bank. Having given that assurance, the bank may not turn around and do the exact opposite of what it said it would not do. One may not take inconsistent positions (Republic vs. Court of Appeals, 133 SCRA 505). A party may not go back on his own acts and representations to the prejudice of the other party who relied upon them (Lazo vs. Republic Surety & Insurance Co., Inc., 31 SCRA 329.)

In the case of Philippine National Bank vs. Court of Appeals (94 SCRA 357), where the bank manager assured the heirs of the debtor-mortgagor that they would be allowed to pay the remaining obligation of their deceased parents, the Supreme Court held that the bank must abide by its representations.

On equitable principles, particularly on the ground of estoppel, we must rule against petitioner Bank. The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against its own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice might result. It has been applied by this Court wherever and whenever the special circumstances of a case so demands.

In the case at bar, since PNB had promised to exclude Alcedo's property as collateral for Sepe's 1971-72 sugar crop loan, it should have released the property to Alcedo. The mortgage which Sepe gave to the bank on Alcedo's lot as collateral for her 1971-72 sugar crop loan was null and void for having been already disauthorized by Alcedo. Since Alcedo's property secured only P13,100.00 of Sepe's 1970-71 sugar crop loan of P16,500.00 (because P3,400 was secured by Sepe's own property), Alcedo's property may be held to answer for only the unpaid balance, if any, of Sepe's 1970-71 loan, but not the 1971-72 crop loan.

While Article 1358 of the New Civil Code requires that the revocation of Alcedo's Special Power of Attorney to mortgage his property should appear in a public instrument:

Art. 1358. The following must appear in a public document:

(1) Acts or contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein are governed by Articles 1403, No. 2 and 1405.

nevertheless, a revocation embodied in a private writing is valid and binding between the parties (Doliendo v. Depino, 12 Phil. 758; Hawaiian-Philippines Co. vs. Hernaez, 45 Phil. 746) for —

The legalization by a public writing and the recording of the same in the registry are not essential requisites of a contract entered into, as between the parties, but mere conditions of form or solemnities which the law imposes in order that such contract may be valid as against third persons, and to insure that a publicly executed and recorded agreement shall be respected by the latter. (Alano, et al. vs. Babasa, 10 Phil. 511.)

The PNB acted with bad faith in proceeding against Alcedo's property to satisfy Sepe's unpaid 1971-72 sugar crop loan. The extrajudicial foreclosure being null and void ab initio, the certificate of sale which the Sheriff delivered to PNB as the highest bidder at the sale is also null and void.

WHEREFORE, finding no reversible error in the decision of the Court of Appeals, the petition for review is denied for lack of merit.

SO ORDERED.