G.R. No. 105188 - Papa vs. A.U. Valencia and Co., Inc.

Case Summary (G.R. No. 105188)

Complaint for Specific Performance and Third‑Party/Intervenor Claims

Valencia and PeAarroyo sued for specific performance, seeking delivery of TCT No. 28993 to PeAarroyo, accrued and continuing rentals (P72,000 plus P800 monthly), attorney’s fees of P20,000, and costs. Delfin Jao intervened, asserting that PeAarroyo had sold the same property to him on 20 August 1973 for P71,500 (with a P5,000 earnest payment) and prayed for enforcement of his claimed rights or damages if transfer could not be made. Petitioner filed a third‑party complaint against the Reyes spouses who had acquired the property at a tax sale on 21 January 1980 (for P14,000), seeking cancellation of the tax sale or the right to redeem and reimbursement.

Petitioner's Defenses at Trial

Petitioner admitted the mortgage to the bank but contended the complaint failed to state a cause of action, arguing the Testate Estate of Angela M. Butte should have been joined and that the matter belonged in probate/special proceedings. He asserted he signed the deed as attorney‑in‑fact and could not be held personally liable, claimed he could not recall transaction details, and alleged he did not have the owner’s duplicate title in his possession. He also contended that if respondents had not paid the full purchase price, their claim was defective.

Trial Court Findings and Decree

After trial, with only PeAarroyo testifying and other parties submitting documentary evidence, the RTC (29 June 1987) ordered: (1) petitioner could redeem from third‑party defendants by paying P14,000 plus legal interest and the Reyes spouses must allow redemption; (2) defendant (petitioner) to execute a Deed of Absolute Sale to PeAarroyo and deliver peaceful possession free of liens and encumbrances, or if impossible through no fault of plaintiff, pay P45,000 plus legal interest from 15 June 1973; (3) PeAarroyo to execute a deed to intervenor Jao upon payment of the balance (or pay P5,000 plus interest); and (4) defendant to pay P5,000 as attorney’s fees and litigation expenses.

Court of Appeals’ Modification and Rationale

On appeal, the Court of Appeals (27 January 1992) affirmed the RTC decision but modified the remedy: it ordered petitioner to deliver the owner’s duplicate of TCT No. 28993 to PeAarroyo or to authorize the Register of Deeds to cancel the existing certificate and issue a certificate in PeAarroyo’s name. The CA reasoned that the sale had been consummated because respondents had delivered payment (P5,000 cash and a P40,000 check), petitioner admitted receipt and issued receipts, and PeAarroyo testified that petitioner received P45,000. The CA treated the absence of a denial that the check was cashed and petitioner’s failure to recall events after a decade as supporting a presumption that the check was encashed. The CA also held that the estate of Angela M. Butte and the estate of Ramon Papa, Jr. were not indispensable parties to the specific performance action.

Issues Presented to the Supreme Court

Petitioner raised three principal issues: (I) that the CA’s finding of a consummated sale was speculative and legally erroneous because payment by check is effective only upon encashment under Article 1249; (II) that the CA improperly nullified or disregarded an assignment of mortgage rights in favor of the estate of Ramon Papa, Jr., which was not a party; and (III) that the CA erred in not holding the estates of Angela M. Butte and Ramon Papa, Jr. to be indispensable parties.

Supreme Court Analysis on Payment by Check and Presumption of Payment

The Supreme Court confirmed that respondents paid P5,000 in cash and delivered a P40,000 PCIB check and that petitioner admitted receipt and issued receipts. The Court applied Article 1249 of the Civil Code, which provides that delivery of negotiable instruments produces the effect of payment only when cashed, except when, through the creditor’s fault, the instrument is impaired. The Court held petitioner’s unsubstantiated assertion that he never encashed the check was inconsistent with his pleading that he could not recall the transaction. Given the long lapse of more than ten years and petitioner’s failure to present oral evidence or documentation proving non‑encashment, the Court found the presumption favors encashment. The Court reiterated the established principle that acceptance of a check carries with it an obligation of due diligence in presenting it for payment; unreasonable delay by the payee that results in impairment of the instrument operates as payment, discharging the conditional obligation. Conversely, if no presentment is made at all, the drawer may not be held liable unless presentment is excused; but that is not the situation presented here because the record supported payment through the check and receipts.

Supreme Court Reasoning on Assignment, Mortgage Rights, and Indispensable Parties

On the claimed assignment of the bank’s mortgage rights to the estate of Ramon Papa, Jr., the Court noted the record was silent as to conditions or the effect of that assignment and that the title remained registered in the name of the late Angela M. Butte. The Court emphasized that contractual rights bind only parties to the contract; hence any obligation or lien the estate of Ramon Papa, Jr. might have is enforceable by that estate by separate action and does not defeat the specific performance claim of respondents who are parties to the sale. Regarding indispensability, the Supreme Court applied Rule 3, Section 3 of the Rules of Court (as it then read) to hold that an executor or administrator may sue or be sued without joining the party for whose benefit the action is presented or defended; thus, the estate of Angela M. Butte was not an indispensable party. The Court likewise concluded

Case Syllabus (G.R. No. 105188)

Procedural History

Petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner Myron C. Papa to reverse and set aside:
- Decision of the Court of Appeals dated 27 January 1992 which affirmed with modification the trial court decision; and
- Resolution of the Court of Appeals dated 22 April 1992 denying petitioner's motion for reconsideration.
Original complaint for specific performance filed in June 1982 with the Regional Trial Court (RTC), Pasig, Branch 151, by A.U. Valencia & Co., Inc. and Felix PeAarroyo against petitioner in his capacity as administrator of the testate estate of Angela M. Butte.
Trial court rendered decision on 29 June 1987.
Petitioner appealed to the Court of Appeals; Court of Appeals rendered decision on 27 January 1992 (affirmed with modification); motion for reconsideration denied on 22 April 1992.
Petition for review brought to the Supreme Court (G.R. No. 105188) and decided by the Supreme Court on 23 January 1998 (reported 348 Phil. 700).

Antecedent and Material Facts

On 15 June 1973, petitioner, acting as attorney-in-fact for Angela M. Butte, allegedly sold a parcel of land (286.60 sq. m.) at the corner of Retiro and Cadiz Streets, La Loma, Quezon City, covered by TCT No. 28993, to Felix PeAarroyo through A.U. Valencia & Co., Inc.
Prior to the alleged sale, the subject property and other parcels owned by Angela M. Butte had been mortgaged to Associated Banking Corporation (now Associated Citizens Bank).
Payments made by respondents to petitioner: P5,000.00 in cash on 24 May 1973 (earnest money) and a check for P40,000.00 on 15 June 1973; petitioner admitted receipt and issued receipts for these amounts.
After the alleged sale but before release of title, Angela M. Butte died.
Respondent PeAarroyo had an adverse claim annotated on the title as Entry No. P.E.-6118/T-28993 on 18 January 1977.
Release of title to the property occurred circa April 1977; respondents then discovered that the bank’s mortgage rights had been assigned on 12 April 1977 to Tomas L. Parpana (now deceased), as special administrator of the Estate of Ramon Papa, Jr.
The title remained in the name of the late Angela M. Butte.
Subject property was sold at public auction by the City Treasurer of Quezon City to spouses Arsenio B. Reyes and Amanda Santos on 21 January 1980 for P14,000.00 for non-payment of real estate taxes; one-year period of redemption expired.
Intervenor Delfin Jao alleged that PeAarroyo sold the same lot to him on 20 August 1973 for P71,500.00 upon his payment of P5,000.00 earnest money.

Parties, Claims and Pleadings

Plaintiffs/Respondents: A.U. Valencia & Co., Inc. and Felix PeAarroyo — sought specific performance: delivery of TCT No. 28993, accrued rentals (P72,000.00 as of April 1982) and P800.00 monthly rental thereafter, attorney’s fees (P20,000.00), and costs.
Petitioner: Myron C. Papa — sued in his capacity as administrator of the Testate Estate of Angela M. Butte; denied cause of action, contended real property (estate) should have been joined and that claim was effectively against the estate and should have been filed in probate; asserted he signed only as attorney-in-fact and did not recall transaction details; could not produce TCT No. 28993; sought attorney’s fees of P20,000.00 from respondents for having to hire counsel.
Intervenor: Delfin Jao — claimed subsequent purchase from PeAarroyo, prayed for judgment in favor of Valencia and PeAarroyo and for PeAarroyo to convey to him or pay him damages (P5,000.00 plus interest) if conveyance impossible; alleged mental anguish and sought moral damages, attorney’s fees, and costs.
Third-party defendants: Spouses Arsenio B. Reyes and Amanda Santos — impleaded by petitioner alleging they purchased property at tax sale; petitioner sought cancellation of tax sale, restoration of property upon payment to Reyes spouses of P14,000.00 plus legal interest, and an order requiring Valencia and PeAarroyo to pay petitioner at least P55,000.00 plus amounts paid to Reyes spouses to recover property.
Reyes spouses pleaded prescription of petitioner’s right to redeem the property.

Evidence Presented

Oral testimony: Only respondent Felix PeAarroyo testified at trial.
Documentary evidence: Submitted by other parties, including receipts evidencing the P5,000 cash payment and PCIB Check No. 761025 for P40,000.00, and annotations on title (Entry No. P.E.-6118/T-28993).
Petitioner waived presentation of oral evidence.

Trial Court Decision (29 June 1987) — Dispositive Portion

Ordered defendant (petitioner) allowed to redeem from third-party defendants and ordered to permit redemption by paying P14,000.00 plus legal interest of 12% from 21 January 1980.
Ordered defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix PeAarroyo and to deliver peaceful possession and enjoyment, free from liens and encumbrances; if delivery impossible for reasons not attributable to defendant, defendant ordered to pay plaintiff P45,000.00 plus legal interest of 12% from 15 June 1973.
Ordered plaintiff Felix PeAarroyo to execute and deliver to intervenor a Deed of Absolute Sale upon payment by intervenor of the balance of the purchase price of P71,500.00; if not possible, PeAarroyo ordered to pay intervenor P5,000.00 plus legal interest of 12% from 23 August 1973.
Ordered defendant to pay plaintiffs P5,000.00 for attorney’s fees and litigation expenses.

Appeal to Court of Appeals — Issues Raised by Petitioner

Argued sale was never consummated because the P40,000.00 che