G.R. No. 204262 - Madridejos vs. NYK-Fil Ship Management, Inc.

On December 15, 1924, the Bank of the Philippine Islands obtained a judgment in Civil Case No. 26942 of the Court of First Instance of Manila against Perfecto Jacinto and Felipe Jacinto as principal debtors and Rafael Palma as guarantor.
The judgment was rendered on a promissory note dated May 27, 1922, for a principal amount of P24,000, with interest at 9% per annum from May 27, 1923, plus an additional 1% on the principal as attorney’s fees and costs.
The judgment ordered that no execution would issue against Rafael Palma, the guarantor, until the debtor principals’ salable properties had been exhausted.

On August 16, 1928, the Bank, “in consideration of the sum of P1 and other valuable considerations,” assigned the judgment to Gregorio Syquia.
On July 12, 1932, Concepcion J. Viuda de Syquia, acting as administratrix of the late Gregorio Syquia’s estate, filed suit to revive the judgment, alleging that none of the defendants had made any payment on the judgment since its entry and that the full obligation of P24,000 plus accrued interest remained due.

The defendants admitted the existence of the judgment and its revival but denied the validity of the assignment to Syquia.
They further contended that the judgment had been fully paid through prior proceedings and property executions.
As a special defense, the defendants alleged:

That a sheriff’s sale taken in April 1925 had disposed of properties pursuant to the judgment, with the Bank acquiring two properties for P15,045 and a third sold to Rufino Reyes for P1,000.
That the sale and the rental revenues (amounting to P10,560 during the redemption period) effectively satisfied a portion of the judgment.

The defendants counterclaimed by demanding that, credited against the judgment, the sum of P10,560 (the annual rental revenue) be deducted from the total debt.

The execution sale was held on April 18, 1925, during which the Bank acquired properties attached from the debtors.
The trial court calculated the judgment debt as of that date, adding interest and costs to determine a total obligation of P28,741.24, from which the proceeds from the sale (P15,045) were deducted, leaving a balance of P13,696.24.
After a partial payment by Rafael Palma of P100, the net balance was computed as P13,596.24.
The trial court rendered a judgment condemning Perfecto and Felipe Jacinto as principal obligors and Rafael Palma as guarantor to pay P13,596.24 plus the costs of the suit.

Appellate Proceedings and Assignments of Error by Defendant-Appellant Rafael Palma

Arguing that the sale of the properties at a sheriff’s sale for an undervalued price had discharged the debtor principals’ obligations, thereby salving the judgment.
Contending that the Bank, at the time of assignment, had no valid right, interest, or participation in the judgment because it had been satisfied by the execution sale.
Asserting that a novation of the guarantor’s obligation occurred without his consent, which should release him of further liability.
Claiming that by accepting the payment of the properties as debt satisfaction, the Bank should have exonerated him as guarantor.

It is noted that Palma did not file any separate answer or special defenses as guarantor but merely joined his codefendants’ plea that the judgment was fully paid.
The issues on appeal also involved whether the credit for rental revenues collected by Gregorio Syquia during the redemption period should be allowed against the guarantee.

Testimonies (e.g., from Perfecto Jacinto) established that during the redemption period the properties yielded rental revenues amounting to P10,560, which were collected and retained by Syquia.
The trial court’s findings on the account details (as evidenced in Exhibits 2-A and 2-B) indicated that the bank had marked the account of the principals and guarantor as balanced upon the sale to Syquia.
Subsequent actions and discussions in court pivoted on the proper legal interpretation of procedural safeguards for the guarantor under articles 1830, 1832, and 1852 of the Civil Code, and the proper time to assert such defenses.

Whether the sheriff’s sale of properties, though conducted at a seemingly undervalued price, discharged the debtor principals’ accounts and thereby indirectly released the guarantor from liability.
Whether the assignment of the judgment to Gregorio Syquia by the Bank conferred upon Syquia all rights and interests of the judgment creditor, given the alleged full payment through the execution sale.
Whether a novation of the guarantor’s obligation took place without his knowledge or consent, effectively releasing him from liability under the original judgment.
Whether and when the guarantor, Rafael Palma, may validly plead the defenses available under articles 1830, 1832, 1834, and 1852 of the Civil Code, particularly relating to the crediting of the rental revenues collected during the year of redemption.
Whether the credit for rental revenues (P10,560) collected during the redemption period should be allowed against the judgment, and if so, to what extent it should affect the guarantor’s final quantified liability.