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TitleLedonio v Capitol Development Corp
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Republic of the Philippines



G.R. No. 149040 July 4, 2007

EDGAR LEDONIO, petitioner,




Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Revised
Rules of Court praying that (1) the Decision,2 dated 20 March 2001, of the Court of
Appeals in CA-G.R. CV No. 43604, affirming in toto the Decision,3 dated 6 August 1993,
of the Quezon City Regional Trial Court (RTC), Branch 91, in Civil Case No. Q-90-5247,
be set aside; and (2) the Complaint4 in Civil Case No. Q-90-5247 be dismissed.

Herein respondent Capitol Development Corporation instituted Civil Case No. Q-90-
5247 by filing a Complaint for the collection of a sum of money against herein petitioner
Edgar Ledonio.

In its Complaint, respondent alleged that petitioner obtained from a Ms. Patrocinio S.
Picache two loans, with the aggregate principal amount of P60,000.00, and covered by
promissory notes duly signed by petitioner. In the first promissory note,5 dated 9
November 1988, petitioner promised to pay to the order of Ms. Picache the principal
amount of P30,000.00, in monthly installments of P3,000.00, with the first monthly
installment due on 9 January 1989. In the second promissory note,6 dated 10 November
1988, petitioner again promised to pay to the order of Ms. Picache the principal amount
of P30,000.00, with 36% interest per annum, on 1 December 1988. In case of default in
payment, both promissory notes provide that (a) petitioner shall be liable for a penalty
equivalent to 20% of the total outstanding balance; (b) unpaid interest shall be
compounded or added to the balance of the principal amount and shall bear the same
rate of interest as the latter; and (c) in case the creditor, Ms. Picache, shall engage the
services of counsel to enforce her rights and powers under the promissory notes,
petitioner shall pay as attorney's fees and liquidated damages the sum equivalent to
20% of the total amount sought to be recovered, but in no case shall the said sum be
less that P10,000.00, exclusive of costs of suit.

On 1 April 1989, Ms. Picache executed an Assignment of Credit7 in favor of respondent,
which reads –

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That I, PAT S. PICACHE of legal age and with postal address at 373 Quezon
Avenue, Quezon City for and in consideration of SIXTY THOUSAND PESOS
(P60,000.00) Philippine Currency, to me paid by [herein respondent] CAPITOL
DEVELOPMENT CORPORATION, a corporation organized and existing under
the laws of the Republic of the Philippines with principal office at 373 Quezon
Avenue, Quezon City receipt whereof is hereby acknowledged have sold,
transferred, assigned and conveyed and (sic) by me these presents do hereby
sell, assign, transfer and convey unto the said [respondent] CAPITOL
DEVELOPMENT CORPORATION, a certain debt due me from [herein petitioner]
(P60,000.00) Philippine Currency, under two (2) Promissory Notes dated
November 9, 1988 and November 10, 1988, respectively, photocopies of which
are attached to as annexes A & B to form integral parts hereof with full power to
sue for, collect and discharge, or sell and assign the same.

That I hereby declare that the principal sum of SIXTY THOUSAND PESOS
(P60,000.00) with interest thereon at THIRTY SIX (36%) PER CENT per annum
is justly due and owing to me as aforesaid.

IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of April, 1989
at Quezon City.


The foregoing document was signed by two witnesses and duly acknowledged by Ms.
Picache before a Notary Public also on 1 April 1989.

Since petitioner did not pay any of the loans covered by the promissory notes when they
became due, respondent -- through its Vice President Nina P. King and its counsel
King, Capuchino, Banico & Associates -- sent petitioner several demand
letters.8 Despite receiving the said demand letters, petitioner still failed and refused to
settle his indebtedness, thus, prompting respondent to file the Complaint with the RTC,
docketed as Civil Case No. Q-90-5247.

In his Answer filed with the RTC, petitioner sought the dismissal of the Complaint
averring that respondent had no cause of action against him. He denied obtaining any
loan from Ms. Picache and questioned the genuineness and due execution of the
promissory notes, for they were the result of intimidation and fraud; hence, void. He
asserted that there had been no transaction or privity of contract between him, on one
hand, and Ms. Picache and respondent, on the other. The assignment by Ms. Picache
of the promissory notes to respondent was a mere ploy and simulation to effect the
unjust enforcement of the invalid promissory notes and to insulate Ms. Picache from any
direct counterclaims, and he never consented or agreed to the said assignment.

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mentioned in this Code; the latter must be clearly established in order that it may
take effect.

ART. 1301. Conventional subrogation of a third person requires the consent of
the original parties and the third person.

According to petitioner, the assignment of credit constitutes conventional subrogation
which requires the consent of the original parties to the loan contract, namely, Ms.
Picache (the creditor) and petitioner (the debtor); and the third person, the respondent
(the assignee). Since petitioner never gave his consent to the assignment of credit, then
the subrogation of respondent in the rights of Ms. Picache as creditor by virtue of said
assignment is without force and effect.

This Court finds no merit in the present Petition.

Before proceeding to a discussion of the points raised by petitioner, this Court deems it
appropriate to emphasize that the findings of fact of the Court of Appeals and the RTC
in this case shall no longer be disturbed. It is axiomatic that this Court will not review,
much less reverse, the factual findings of the Court of Appeals, especially where, as in
this case, such findings coincide with those of the trial court, since this Court is not a
trier of facts.17

The jurisdiction of this Court in a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless it is
shown, inter alia, that: (a) the conclusion is grounded entirely on speculations, surmises
and conjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c)
there is grave abuse of discretion; (d) the judgment is based on a misapplication of
facts; (e) the findings of fact of the trial court and the appellate court are contradicted by
the evidence on record and (f) the Court of Appeals went beyond the issues of the case
and its findings are contrary to the admissions of both parties.18 None of these
circumstances are present in the case at bar. After a perusal of the records, this Court
can only conclude that the factual findings of the Court of Appeals, affirming those of the
RTC, are amply supported by evidence and are, resultantly, conclusive on this Court.19

Therefore, the following facts are already beyond cavil: (1) petitioner obtained two loans
totaling P60,000.00 from Ms. Picache, for which he executed promissory notes, dated 9
November 1988 and 10 November 1988; (2) he failed to pay any of the said loans; (3)
Ms. Picache executed on 1 April 1989 an Assignment of Credit covering petitioner's
loans in favor of respondent for the consideration of P60,000.00; (4) petitioner had
knowledge of the assignment of credit; and (5) petitioner still failed to pay his
indebtedness despite repeated demands by respondent and its counsel. Petitioner's
persistent assertions that he never acquired any loan from Ms. Picache, or that he
signed the promissory notes in blank and under duress, deserve scant consideration.
They were already found by both the Court of Appeals and the RTC to be implausible
and inconsistent with petitioner's own evidence.

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Now this Court turns to the questions of law raised by petitioner, all of which hinges on
the contention that a conventional subrogation occurred when Ms. Picache assigned the
debt, due her from the petitioner, to the respondent; and without petitioner's consent as
debtor, the said conventional subrogation should be deemed to be without force and

This Court cannot sustain petitioner's contention and hereby declares that the
transaction between Ms. Picache and respondent was an assignment of credit, not
conventional subrogation, and does not require petitioner's consent as debtor for its
validity and enforceability.

An assignment of credit has been defined as an agreement by virtue of which the owner
of a credit (known as the assignor), by a legal cause - such as sale, dation in payment
or exchange or donation - and without need of the debtor's consent, transfers that credit
and its accessory rights to another (known as the assignee), who acquires the power to
enforce it, to the same extent as the assignor could have enforced it against the

On the other hand, subrogation, by definition, is the transfer of all the rights of the
creditor to a third person, who substitutes him in all his rights. It may either be legal or
conventional. Legal subrogation is that which takes place without agreement but by
operation of law because of certain acts. Conventional subrogation is that which takes
place by agreement of parties.21

Although it may be said that the effect of the assignment of credit is to subrogate the
assignee in the rights of the original creditor, this Court still cannot definitively rule that
assignment of credit and conventional subrogation are one and the same.

A noted authority on civil law provided a discourse22 on the difference between these
two transactions, to wit –

Conventional Subrogation and Assignment of Credits. – In the Argentine

Civil Code, there is essentially no difference between conventional subrogation
and assignment of credit. The subrogation is merely the effect of the assignment.
In fact it is expressly provided (article 769) that conventional redemption shall be
governed by the provisions on assignment of credit.

Under our Code, however, conventional subrogation is not identical to
assignment of credit. In the former, the debtor's consent is necessary; in the
latter, it is not required. Subrogation extinguishes an obligation and gives rise to
a new one; assignment refers to the same right which passes from one person to
another. The nullity of an old obligation may be cured by subrogation, such that
the new obligation will be perfectly valid; but the nullity of an obligation is not
remedied by the assignment of the creditor's right to another. (Emphasis

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