Case Summary (G.R. No. 206327)
Procedural History
IEB filed a complaint for sum of money with preliminary attachment against RSLAI, the spouses Labos, and Rockwell in RTC Makati (Civil Case No. 05-313).
– RTC Decision (Dec. 22, 2009): Held RSLAI and the spouses jointly and severally liable for ₱5,729,726.94 plus interest and attorney’s fees; dismissed Rockwell for lack of liability.
– CA Decision (Nov. 23, 2011): Modified RTC to hold Rockwell jointly and severally liable with the other respondents, finding privity by Rockwell’s signature and implied novation.
– CA Resolution (Dec. 20, 2012): Granted Rockwell’s motion for reconsideration, reversed the Nov. 23, 2011 Decision, and reinstated full dismissal of Rockwell; IEB’s subsequent motion for reconsideration was denied (Mar. 15, 2013).
IEB then petitioned the Supreme Court for certiorari.
Issue
Whether Rockwell Land Corporation may be held liable to IEB for RSLAI’s unpaid loan obligations by virtue of its signing the Deed of Assignment.
Ruling
The petition is denied for lack of merit. The Supreme Court affirms the CA’s December 20, 2012 Resolution and the RTC’s December 22, 2009 Decision insofar as Rockwell is concerned.
Rationale
Privity of Contract
Art. 1311 of the Civil Code provides that contracts bind only the parties, their successors, and assignees. Rockwell never assumed obligations under the Deed of Assignment; its signature merely evidenced consent under its separate Contract to Sell with RSLAI, as required by Sec. 9(e) of that Contract.
Scope of the Deed of Assignment
The Deed of Assignment expressly involves only RSLAI and IEB. Section 2.04 imposes restrictive covenants on RSLAI alone, not on Rockwell. There is no provision extending those obligations to Rockwell.
No Amendment or Novation of the Contract to Sell
The Deed of Assignment did not modify or supplement Rockwell’s Contract to Sell with RSLAI. The two contracts are independent: the Contract to Sell contemplates sale upon full payment; the Deed of Assignment serves as interim collateral for RSLAI’s loan. No express stipulation or irreconcilable incompatibility indicates novation.
Nature of Assignment as Mortgage
Under established jurisprudence, an assignment to secure an obligation operates as a mortgage, not as an absolute conveyance. Rockwell’s consent to RSLAI’s subsequent assignment to JHL & Sons Realty did not effect a “double sale” or prejudice
Case Syllabus (G.R. No. 206327)
Parties and Procedural History
- Petitioner: International Exchange Bank (now Union Bank of the Philippines).
- Respondents:
• Rudy S. Labos & Associates, Inc. (RSLAI) represented by its President, Rodolfo S. Labos.
• Spouses Rodolfo S. Labos and Consuelo R. Labos as sureties.
• Rockwell Land Corporation (Rockwell) as developer. - Nature of the case: Action for sum of money with prayer for preliminary attachment.
- Trial court: Regional Trial Court (RTC) of Makati City, Branch 62, Civil Case No. 05-313.
- First appeal: Court of Appeals (CA) in CA G.R. CV No. 95810.
- Petition for review on certiorari: Supreme Court, G.R. No. 206327.
Factual Background
- IEB granted RSLAI a ₱10 million credit line under Letter Agreement (June 6, 2003) and Credit Agreement (July 2, 2003).
- As security, RSLAI executed a Deed of Assignment (July 2, 2003) over Condominium Unit 23-A Luna Gardens, Rockwell Center, Makati City, purchased under a Contract to Sell (December 20, 1999).
- Spouses Labos executed a Continuing Surety Agreement (July 2, 2003).
- RSLAI issued four promissory notes (totaling ₱9,438,755) due July 30, 2004 but defaulted on maturity.
- IEB demanded payment (September 8, 2004); RSLAI requested restructuring.
- IEB consolidated the notes into Promissory Note No. SCL04469 (October 29, 2004; ₱5,434,709.95) due January 31, 2005; negotiations failed.
- Upon default, IEB sent demand letters (April 5, 2005); outstanding balance reached ₱5,729,726.94.
- IEB learned Rockwell had permitted RSLAI’s transfer of the unit to JHL & Sons Realty, Inc. (Deed of Assignment, August 25, 2004) without IEB’s written consent, thus losing its collateral.
Defendants’ Allegations and Counterclaims
- RSLAI and Spouses Labos:
• Assert novation occurred through loan restructuring and execution of new promissory note.
• Contend improper service of summons on unauthorized persons.
• Claim IEB failed to disclose other adequate collaterals.
• Counterclaim for moral damages (₱500,000), exemplary damages (₱500,000), and attorney’s fees (₱100,000 plus ₱3,500 per appea