Case Digest: PNB v. CA 82 SCAD 472, G.R. No. 118357 May 6, 1997

 Property | Immovable Property, Rights and Interests

Facts:  

• In 1949, Jesus S. Cabarrus founded Marinduque Mining and Industrial Corporation (MMIC).
• In 1953, Cabarrus established J. Cabarrus, Inc., later renamed Industrial Enterprises, Inc. (IEI).
• Cabarrus and his family owned about 12% to 14% of MMIC shares, and he was also the President of IEI.
• In 1979, IEI entered a coal operating contract with the Bureau of Energy Development (BED) in for coal blocks in Eastern Samar.
• In 1981, IEI applied for additional coal blocks adjacent to the initial contract area.
• In 1982, Minister of Energy Geronimo Velasco informed Cabarrus that MMIC would be awarded the blocks instead of IEI.
• IEI and MMIC entered a Memorandum of Agreement (MOA) in which IEI assigned all its rights and interests on the coal operating contract to MMIC.
• MMIC took over possession of the coal blocks but ceased exploration and development.
• IEI demanded reimbursement from MMIC for expenses incurred on the project.
• In 1984, IEI filed a complaint against MMIC and Minister Velasco for rescission of the MOA and damages.
• MMIC defaulted on loans with Philippine National Bank (PNB) and Development Bank of the Philippines (DBP).
• PNB and DBP initiated foreclosure proceedings on MMIC assets, including those assigned by IEI.
• IEI filed a complaint against MMIC and PNB for damages and to nullify the foreclosure sale.
• RTC-Makati: Ruled in favor of IEI, holding MMIC and PNB jointly liable for damages and nullifying the foreclosure sale.
• Court of Appeals: Affirmed the lower court's decision.

Issue: 

• Whether the assignment of private respondent's "rights and interests." is valid. YES

Held:

The MOA was an assignment of private respondent's "rights and interests on the Coal Operating Contract described in the first whereas clause" thereof. In its most general and comprehensive sense, an assignment is "a transfer or making over to another of the whole of any property, real or personal, in possession or in action, or of any estate or right therein. It includes transfers of all kinds of property, and is peculiarly applicable to intangible personal property and, accordingly, it is ordinarily employed to describe the transfer of non-negotiable choses in action and of rights in or connected with property as distinguished from the particular item or property." 

An assignment is a contract between the assignor and the assignee. It generally operates by way of such contract or agreement. It is subject to the same requisites as to validity of contracts. Whether or not a transfer of a particular right or interest is an assignment or some other transactions depends, not on the name by which it calls itself, but on the legal effect of its provisions. This rule applies in determining whether a particular transaction is an assignment or a sale. 

As the aforequoted portions of the MOA state, its subject is described in the "whereas clauses" thereof as follows:

WHEREAS, IEI is the duly authorized operator over two coal blocks over an area outlined and more particularly described in Annex "A" of the Coal Operating Contract entered into on the 27th day of July 1979 and between the Ministry of Energy, through the Bureau of Energy Development ("BED"), and IEI; the Coal Operating Contract and Annex A thereof being hereto attached and made an integral part of this contract;

Annex "A" of the coal operating contract is the technical description of the 2,000-hectare coal-bearing land in Carbon, Magsaysay, Eastern Samar. Therefore, as expressed in the MOA, the subject of the assignment was only private respondent's rights and interests over the coal operating contract covering said coal-rich land in Eastern Samar.

However, a close scrutiny of the contract reveals that the MOA includes all tangible things found in the coal-bearing land. Unquestionably, rights may be assigned as they are intangible personal properties.

The term "interests," on the other hand, is broader and more comprehensive than the word "title" and its definition in a narrow sense by lexicographers as any right in the nature of property less than title, indicates that the terms are not considered synonymous. It is practically synonymous, however, with the word "estate" which is the totality of interest which a person has from absolute ownership down to naked possession. An "interest" in land is the legal concern of a person in the thing or property, or in the right to some of the benefits or uses from which the property is inseparable. 

That the MOA conveyed to MMIC more than the title to or rights over the coal operating contract but also the "things" covered thereby, is manifest in the manner by which the parties, particularly private respondent IEI, implemented the MOA. It disclosed the intention to include in the MOA the equipment and machineries used in coal exploration. This intention is evident in the following letters of private respondent:

1. letter of April 16, 1984 to Alfredo Velayo, President of MMIC, where private respondent, through Cabarrus, included in the conditions for the negotiated rescission of the MOA, the payment to private respondent of the amount of ten million pesos (P10,000,000.00) for expenses such as those for the "recondition (of) the equipment which have been left to the elements;"
2. letter of May 2, 1984 to Velayo, where private respondent mentioned a "list of probable equipment(s) that IEI would be interested to apply as part payment in the event of rescission of contract;"
3. letter of June 4, 1984 to Zalamea as Chairman of the Board of the MMIC, 51 where private respondent attached an updated statement of account and the expenses for rehabilitation of equipment, and
4. letter of August 15, 1984 to petitioner and the DBP where private respondent enclosed a copy of "the movable properties included in said Memorandum of Agreement" of August 1983.

 Notably, all these listed equipment were sold at the foreclosure sale initiated by petitioner. 

Also worth noting is the absence of proof that, like a good father of the family, private respondent exerted some effort to take the chattels out of the premises upon the execution of the MOA. All that private respondent proved, through the testimony of Cabarrus, was that the equipment and machineries were taken over by MMIC, piled up and left to rot that trees even grew on them. Coupled with this is private respondents' failure to prove the presence of insurmountable force that would have prevented it from retrieving its equipment and machineries from the Giporlos Project area. All these show that private respondent considered these chattels as subjects of the MOA.

Private respondent had all the right to exclude these chattels from the MOA because they were not expressly stipulated therein. However, its sheer inaction upon the execution of the MOA and its subsequent admissions through the aforesaid letters, conclusively show that these equipment and machineries were subjects of the assignment of rights to MMIC. It was only when the foreclosure sale was about to take place that private respondent lifted a finger to object thereto on the ground that the consideration stipulated in the MOA had not yet been paid by MMIC.

Moreover, while the MOA was expressly a contract for the assignment of rights and interests, it is in fact a contract of sale. Under Art. 1458 of the Civil Code, by the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. By the MOA, private respondent obligated itself to transfer ownership of the coal operating contract and the properties found therein. The coal operating contract is a determinate thing as it has been particularly designated in the MOA. The subject of the coal operating contract was physically segregated from all other pieces of coal-rich Eastern Samar property by the technical description attached to said contract. A list of the equipment and machineries found on the property might not have been attached to the MOA but these were itemized with specificity in private respondent's letter of August 15, 1984.

Private respondent delivered the properties subject of the contract to MMIC, which immediately gained control and possession of the Giporlos Project. This is explicit in private respondent's numerous demand letters which are exemplified by its letter of February 7, 1984 to Zalamea which states:

Considering that all details necessary to determine the final purchase price are in place; considering that the property has already been transferred in your name; and considering finally that cash payment is stipulated in the contract, demand is hereby respectfully made for the payment of the purchase price soonest.

Another very telling letter of private respondent is that of April 16, 1984 to Mr. Alfredo Velayo, President of MMIC, which partly reads:

After the Memorandum of Agreement was signed, BED promptly approved the transfer from IEI to MMIC. After the price was fixed with the assistance of SGV and BED, MMIC took over the entire project last July 1983. . . . 

For its part, MMIC never denied that it had taken possession and control over the Giporlos Project. In its replies to private respondent's demand letters, MMIC in fact acknowledged its obligations under the MOA while professing incapacity to fulfill the same.

If the MOA merely embodied an assignment of rights over the coal-operating contract and the properties found in the Giporlos Project and not a sale thereof, then private respondent would not have insisted on the payment of MMIC's obligations under the MOA by attaching a statement of account to most of its demand letters. In assignments, a consideration is not always a requisite, unlike in sales. Thus, an assignee may maintain an action based on his title and it is immaterial whether or not he paid any consideration therefor. Furthermore, in an assignment, title is transferred but possession need not be delivered. In this case, private respondent transferred possession over the subjects of the "assignment" to MMIC.

Since the MOA was actually a contract of sale, MMIC acquired ownership over the Giporlos Project when private respondent delivered it to MMIC. Under the Civil Code, unless the contract contains a stipulation that ownership of the thing sold shall not pass to the purchaser until he has fully paid the price, ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. In other words, payment of the purchase price is not essential to the transfer of ownership as long as the property sold has been delivered. Such delivery (traditio) operated to divest the vendor of title to the property which may not be regained or recovered until and unless the contract is resolved or rescinded in accordance with law. 

Consequently, the properties in the Giporlos Project were, therefore, owned by MMIC notwithstanding its failure to pay the consideration stipulated in the MOA. Private respondent, after such delivery and MMIC's continuous refusal to pay the consideration for the contract, correctly opted to rescind the contract. That private respondent did not succeed in collecting payment prior to the filing of the complaint for rescission with damages is a fault entirely attributable to MMIC which at the time, acted upon the orders of government authorities.

It is erroneous for private respondent and the courts below to impute bad faith on the part of petitioner for foreclosing the properties in the Giporlos Project. Petitioner was simply acting in accordance with its rights as mortgagee. The MTA, as amended, clearly provides that the mortgage covers even "after-acquired" properties. Because petitioner was simply implementing this contractual provision of the MTA, its knowledge that MMIC had not yet paid the consideration stipulated in the MOA could not have resulted in foreclosure in bad faith. After all, petitioner was a total stranger as regards the MOA.

Similarly, neither may petitioner be deemed to have conspired with MMIC and government authorities in divesting private respondent of its rights over the Giporlos Project. Petitioner's involvement consisted in its exercising its right to foreclose the mortgage only after the MOA, which effectively wrenched the Giporlos Project from private respondent's control, had become a fait accompli. A lawful act, done in a lawful way, no matter how damaging the result, never lays the basis for a claim of fraudulent conspiracy. 68 That a scheme to favor the financially strapped MMIC over private respondent had been hatched and was in existence when the MOA was executed is now beyond this Court's adjudicatory power. Suffice it to state that an action may be maintained against persons who falsely and fraudulently recommend an insolvent person as worthy of credit, by reason of which plaintiff is induced to trust him. 

In view of the noninvolvement of petitioner in the alleged conspiracy to strip private respondent of the its rights over the Giporlos Project, petitioner cannot be made solidarily liable with the MMIC for damages. However, although petitioner's rights to foreclose the mortgage and to subject the equipment of private respondent to the foreclosure sale are unassailable, we find that the foreclosure proceedings fell short of the requirements of the law.

The provision of the MTA vesting petitioner as trustee with the authority to choose the place where the sale of the properties involved therein should be made is clearly in contravention of the following provisions of Act No. 3135 as amended:

Sec. 2. Said sale cannot be made legally outside the province in which the property sold is situated; and in case the place within said province in which the sale is to be made is the subject of stipulation, such sale shall be made in said place or in the municipal building of the municipality in which the property or part thereof is situated.

The Giporlos Project is situated in Eastern Samar, a province separate and distinct from Samar where the foreclosure sale took place. Hence, the foreclosure sale is null and void. Even the Chattel Mortgage Law (Act No. 1508) relied upon by private respondent in assailing the propriety of the public auction sale in Samar, provides that the said sale should be made "in the municipality where the mortgagor resides" or "where the property is situated." It has not been established that petitioner considered Catbalogan, Samar where the foreclosure sale was conducted, as its "residence."

Moreover, the designation of a special sheriff to conduct the foreclosure sale is questionable. According to Sheriff Malindog, he was designated as a special sheriff by the judge of the Regional Trial Court of Samar, through the clerk of court, upon the request of petitioner's counsel, one Atty. Aliena, even though there was a sheriff in Eastern Samar.

Appointment of special sheriffs for the service of writs of execution or for the purpose of conducting a foreclosure sale under Act No. 3135 is allowed only when there is no sheriff in the area where the property involved is located or when the sheriff himself is involved in the action. This restriction is founded on the requirement of law that sheriffs who take delivery of money or property in trust must be duly bonded. The said situations calling for the appointment of a special sheriff being absent in this case, the appointment of Malindog as a special sheriff by the judge of the Regional Trial Court of Samar is unauthorized. Such lack of authority resulted in the nullification of the foreclosure sale conducted by Malindog.

Ordinarily, by the nullification of the foreclosure sale, the properties involved would revert to their original status of being mortgaged. However, the situation in this case is an exception to that rule. The MOA, the source of MMIC's right of ownership over the properties sold at the foreclosure sale, has been rescinded. Consequently, petitioner should exclude said properties from the MMIC's properties which were mortgaged pari passu to the petitioner and DBP through the MTA. However, since the foreclosed properties had been turned over to the Asset Privatization Trust, petitioner must reimburse private respondent the value thereof at the time of the foreclosure sale.

WHEREFORE, the Decision of the Court of Appeals is hereby REVERSED and SET ASIDE insofar as it renders petitioner solidarily liable with Marinduque Mining and Industrial Corporation for damages and AFFIRMED insofar as it nullifies the foreclosure sale of August 31, 1984. Petitioner Philippine National Bank shall exclude the properties sold at the foreclosure sale from the mortgaged properties of Marinduque Mining and Industrial Corporation and return the same to private respondent Industrial Enterprises Inc. or, should such return be not feasible, reimburse said private respondent the value thereof at the time of the foreclosure sale.