G.R. Nos. 123650 & 123822 – WESTMONT BANK, ET AL., petitioners, versus INLAND CONSTRUCTION AND
DEVELOPMENT CORP., respondent.
Promulgated
on:
March
23, 2009
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DISSENTING OPINION
BRION, J.:
I dissent based on three points. First, the ponencia misappreciated the rule on burden of proof and burden of evidence by blaming the bank for the failure to prove that Calo had the authority to bind it. Second, as the lower courts did, the ponencia glossed over evidence on record that would lead to a contrary conclusion. Third, on very thin evidentiary support, the ponencia rushed to the conclusion that there was a novation that resulted in the substitution of debtor in the petitioner’s loan agreement with respondent.
The
present case is rooted in the complaint for injunction filed by Inland against
the bank when the latter foreclosed on the real estate mortgage that the former
had constituted on its properties to secure the payment of its loan from the
bank. Among others, Inland based its
complaint on a Deed of Assignment (dated
… defendant bank ratified the act of Calo when its
Executive Committee failed to repudiate the assignment within a reasonable time
and even approved the request for a restructuring of Liberty Construction /
Hanil-Gonzales Construction & Development Corp.’s obligation which included
the P880,000.00 loan.
The Court of Appeals (CA) decision practically parroted this line when it noted that “[f]or several years Associated Bank had, either intentionally or negligently, been habitually clothing Calo with apparent powers to perform acts in behalf of the bank,” and that “Associated Bank never made any attempt to repudiate the act of Calo, until seven (7) years later,” citing an internal bank memorandum that it ironically observed “was not even offered in evidence by Associated Bank.” The ponencia, on the other hand, maintained the position that the Deed of Assignment is valid and binding on the bank based on its finding that (a) Calo, as the bank’s representative, had the required authority to enter into the transaction; and (b) the bank’s subsequent acts showed its knowledge and conformity with the subject assignment when it agreed to restructure Hanil-Gonzales’ loan obligations with the bank.
On my first point, Inland’s case for injunction was anchored on the Deed of Assignment, the actionable document it cited and attached to its amended complaint for injunction. The ultimate issue for Inland was whether there was basis to prevent the bank for foreclosing on the mortgage. It claimed that no basis exists because it had been freed from the obligation to pay because Hanil-Gonzales assumed the obligation under a Deed of Assignment and that the bank consented to the substitution of debtor. In its answer, the bank immediately and properly denied that it was a party to the Deed; it expressly stated that its alleged consent was given by Calo, an officer who did not have the authority to sign for and bind the bank.
Under this situation, it was for Inland to convince the trier of facts that indeed the Deed of Assignment exists and that the bank gave its consent to this deed; thus it had been freed from the obligation to pay the loan it secured from the bank. Under this claim, Calo’s authority to act in behalf of the bank was an affirmative allegation on the part of Inland; it therefore had the burden to present clear and convincing evidence to prove that the bank gave its consent because Calo had the necessary authority to bind the bank.[1] If Inland fails to discharge this burden, the bank need not even present refuting evidence.
I note that the Deed of Assignment was essentially a bi-partite agreement between the assignor (Aranda and Inland) and the assignee (Abrantes and Hanil-Gonzales) who agreed “to obtain the conformity of the ASSOCIATED CITIZENS BANK to the foregoing arrangement.”[2] The Deed was duly notarized with the parties, other than Calo, signing the notarial acknowledgment. Notably, Calo merely signed to give conformity; he was not a direct party to the deed, and he did not likewise indicate or attache proof of his authority to sign for the bank. Thus, on the face of this Deed, Inland had the burden to prove that there was valid consent by the bank so that it (Inland) could be freed of liability, i.e., by proving that Calo had the authority to sign and bind the bank. This is highlighted by the fact that the bank placed its binding participation in the Deed in issue. In the absence of any direct evidence of such authority, Inland could have proven this authority only by proof that the bank had given Calo apparent authority. Under the doctrine of apparent authority, the principal is liable only as to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none has been given.
Significantly, there was no reference in the ponencia to past acts of the bank sufficient to create the impression that Calo was clothed with apparent authority, i.e., specific instances in the past showing that the bank allowed Calo, as a bank officer, to act with authority to bind the corporation, and that he did so without the bank’s objection. Such apparent authority may be established by proof of the course of business, the usages and practices of the bank and by the knowledge which the board of directors had, or must be presumed to have, of acts of Calo in and about the bank’s affairs.[3]
Interestingly, the ponencia could only name Calo as the officer in charge of the accounts of Inland and Hanil-Gonzales with the bank, and point out that he signed the deed of assignment. Thus, the inevitable question was: what was the extent of Calo’s duties as an account officer? If these involve merely the ordinary, routine administrative aspects of handling the accounts of the bank’s clients (as opposed to managerial and discretionary transactions), then there is no basis to recognize in Calo the authority to consent a substitution of debtors that would novate Inland’s and the bank’s loan and accessory security agreements. What this authority really was, the local courts and the ponencia did not say.
To reiterate, in the absence of proof of the bank’s consent given through an officer expressly or impliedly and adduced at the first instance by Inland to support its plea to restrain the bank from foreclosing on the mortgage given, then no burden of evidence shifts to the bank to prove anything, particularly the fact that Calo was not authorized to sign for the bank and bind the bank. Apparently, the lower courts duly recognized that no evidentiary basis existed to recognize Calo’s binding authority; hence, the lower courts simply relied on evidence that the bank ratified the assignment Inland made, thus freeing Inland from the obligation to pay the bank.
The issue of ratification brings me to
my second point that there exists no evidence that there had been ratification
of any agreement substituting Hanil-Gonzales as the new debtor bound to pay for
Inland’s obligation to the bank. In the first
place, it is not correct to say that the bank did not immediately repudiate the
Deed of Assignment and Calo’s consent.
To arrive at the point of repudiating the assignment, it must be first
shown that the deed officially came to the knowledge of the bank. Other than Calo’s alleged participation, I
see no proof in the record or one cited in the ponencia to show that there had been official notice to the
bank. On the contrary, the evidence on record shows that after the Deed of
Assignment on
The act of ratification that the lower courts pointed to and which the ponencia itself recognized was the alleged approval by the bank’s Executive Committee of the re-structuring of the loans of Hanil-Gonzales that included Inland’s loan of P880,000.00. I find the recognition of ratification questionable for several reasons. The cited Executive Board action came only in 1982,[4] or way after the foreclosure transpired (in December 1979). Thus, it was not a defense that could have been available at the time the foreclosure was made. The alleged ratification, too, was only a part of the re-structuring of the loans of Liberty Construction and Development Corporation and its sister-company, Hanil-Gonzales Construction and Development Corporation. It mentioned only that “[t]his includes the account of Inland Construction & Development Corporation which had been assumed by HGCDC.” In other words, it was not a transaction between the bank, on the one hand, and HGCDC and Inland, on the other, relating specifically to Inland’s loan and security obligations.
The only legitimate conclusion that may be derived from these facts is that HGCDC undertook to pay the indebtedness of Inland. There was no reference in any way to the Deed of Assignment that was allegedly being ratified. No statement indicated the terms, as between HGCDC and Inland, of the assumption of liability. Specifically, there was no indication that the Executive Committee was accepting that HGCDC was henceforth the debtor in substitution of Inland, and that the latter’s accessory mortgage obligation had been waived by the bank. The plain reality that spoke for itself, even at that time, was that there was no such substitution and no waiver of the mortgage that Inland constituted over its properties; otherwise, the present case which was then pending would have already been settled. Thus, I could not avoid concluding that the lower courts’ and the ponencia’s conclusion that there had been ratification was propped up by very meager evidentiary support and that, if at all, the ponencia drew the wrong conclusions from the given facts.
My
last cause for dissent is a legal point relating to novation or the
substitution of debtors in a loan transaction.
There are two ways to effect novation: expressly, when it is explicitly
stated and declared in unequivocal terms, or impliedly, when the two
obligations are incompatible on every point.[5]
The Court declared in
[T]o effect
a subjective novation by a change in the person of the debtor, it is necessary
that the old debtor be released expressly from the
obligation, and the third person or new debtor assumes his place in the
relation. There is no novation without such release as the third person who
has assumed the debtor’s obligation becomes merely a co-debtor
or surety. xxx Novation arising from a purported change in
the person of the debtor must be clear and express xxx.
Taking the above principles and Article 1293
of the Civil Code[7]
together, two things must thus exist for there to be a valid novation by
substitution of the debtor: clear and express release of the original debtor
from the obligation upon the assumption by the new debtor of the obligation,
and the consent of the creditor thereto.
In this case, the deed of assignment cannot be considered as expressly novating Inland’s promissory note. Although the terms of the deed declare that Hanil-Gonzales assumes full and complete liability to pay the loan obligation of Inland under its promissory note, there was no effective consent by the creditor to the substitution of the debtor. Calo’s authority to bind the Bank – the issue presented before the Court for adjudication – has been discredited by the failure to show Calo’s authority, or at the very least, to attribute prior conduct by the bank holding out Calo’s authority to sign and bind the bank.
Neither can it be convincingly declared that implied novation took place when the bank agreed to restructure Hanil-Gonzales’ loan that included Inland’s. There is no irreconcilable incompatibility between the obligation of Inland under its promissory note and that of Hanil-Gonzales’ under the loan restructuring agreement. That a creditor agrees to accept payment by a third person of the debt does not constitute an implied acceptance of the substitution of the debtor, absent any agreement expressly releasing the original debtor; the creditor may still enforce the obligation against the original debtor.[8] Nothing in the agreement to restructure the loan declared that Inland was released from its obligation under its promissory notes; in fact, as earlier mentioned, the prior foreclosure proceedings instituted by the bank precluded this inference. Although the bank clearly consented to the restructuring of the loan, this cannot be presumed to include the consent to release the original debtor from the obligation. Without such release, there is no novation; the third person who assumed the obligation of the debtor merely becomes either a co-debtor or a surety – depending on the circumstances: if there is no agreement as to solidarity, the first and the new debtors are considered obligated jointly.[9]
I rest my dissent on these considerations of facts and law.
ARTURO
D. BRION
Associate Justice
[1] See:
[2] Ponencia, p. 3.
[3] Rural Bank of Milaor (Camarines Sur) v. Ocfemia, G.R. No. 137686,
[4] See: ponencia, pp. 8-9.
[5] National Power Corporation v. Dayrit, G.R. Nos. L-62845 to 46, November 26, 1983, 125 SCRA 849; California Bus Lines, Inc. v. State Investment House, Inc., G.R. No. 147950, December 11, 2003, 418 SCRA 297.
[6]
G.R. No. 118585,
[7] 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 xxx. [Emphasis supplied].
[8] Magdalena Estates Inc. v. Rodriguez,
125 Phil. 151 (1966), citing Pacific Commercial Company v. Sotto, 34
Phil. 237 (1916); Quinto v. People, G.R. No. 126712,
[9] Servicewide Specialists v. Intermediate
Appellate Court, G.R. No. 74553,