G.R. No. L-65622 - Pengson vs. Intermediate Appellate Court

Case Summary (G.R. No. L-65622)

Factual Background

The operative facts, as recited by the Intermediate Appellate Court and as developed in the record, show that Pacific Merchandising Corporation (PMC) owned approximately 96% of the capital stock of Aluminum Products (Alpro). PMC was indebted to Reynolds Philippine Corporation in an amount exceeding P800,000 and had pledged the Alpro stock certificates to Reynolds as collateral. PMC executed a deed of sale, Exhibit A, conveying its Alpro shares to Leonides C. Pengson, and under that deed Pengson assumed PMC’s obligation to Reynolds. By arrangement the debt was reduced to P500,000 and Pengson mortgaged a parcel of land to Reynolds, Exhibit B, as security for payment in five annual installments with the first installment P125,000. Pengson paid the first installment in three late subpayments but defaulted on subsequent installments despite demand. Reynolds thereupon declared the unpaid installments due and demandable and proceeded to foreclose, resulting in a public auction on November 23, 1970.

Trial Court Proceedings

The Court of First Instance rendered judgment for the plaintiff and found that Reynolds had previously given consent to the sale but thereafter refused and failed to deliver the stock certificates. The trial court held that Reynolds’ refusal was tantamount to withdrawal of its consent and that, without Reynolds’ conformity, Exhibit A was ineffective. The court further held that the accessory mortgage, Exhibit B, became ineffective as a consequence. The trial court ordered relief as follows: (1) declare the sale ineffective; (2) declare the mortgage ineffective; (3) declare illegal and void the mortgage foreclosure and the public auction sale; (4) declare null and void the certificate of sale and any transfer certificate of title issued thereon; (5) order the Register of Deeds of Quezon City to reinstate T.C.T. No. 77093 and cancel the mortgage encumbrance; (6) order Reynolds to return P125,300.00 to plaintiff; (7) award plaintiff P5,000.00 attorney’s fees; and (8) award costs.

Appellate Court Ruling

The Intermediate Appellate Court reversed the trial court. It framed the controlling question as whether Reynolds was under any obligation to surrender the pledged stock certificates to Pengson and whether Reynolds’ failure to surrender entitled Pengson to nullify the sale and obtain the other reliefs granted below. The appellate court answered in the negative. It reasoned that Reynolds was not a party to the contract of sale between PMC and Pengson and had no contractual obligation in favor of Pengson. The court emphasized that, by arrangement, the indebtedness was reduced and the new debtor was Pengson; thus there was no agreement by Reynolds to return the certificates and the plaintiff could not be placed in a better position than PMC. The Intermediate Appellate Court therefore declared further discussion of other errors moot and rendered judgment ordering payment by Pengson’s estate to Reynolds in the following particulars: (a) P255,494.16 plus eight percent interest per annum from December 10, 1970 until full payment; (b) P951.98 representing stipulated interest on P255,494.16 from November 23, 1970 to December 10, 1970 with legal interest thereafter until full payment; (c) P239.00 as foreclosure expenses plus legal interest from November 23, 1970 until full payment; and (d) ten percent of the amount due as stipulated attorney’s fees.

Petitioner's Contentions

Petitioner sought review of the Intermediate Appellate Court’s decision on four enumerated grounds urged in the petition. In the alternative petitioner prayed for issuance of a writ of mandamus commanding the Intermediate Appellate Court to make complete findings of fact. The petition emphasized the extensive factual findings contained in the trial court record and argued that the appellate decision was deficient in factual development.

Supreme Court Ruling

The Supreme Court granted the alternative relief and found merit in the prayer for fuller findings of fact. The Court held that the appellate court’s statement of facts was sketchy compared to the trial court’s detailed findings contained in the record on appeal. The Court noted further factual material presented by respondent Reynolds in its Opposition to Petition to Review on Certiorari. Accordingly, the Court returned the case to the Intermediate Appellate Court and ordered that court to make complete findings of fact and, on that basis, render another decision. The Court also directed the Intermediate Appellate Court to scrutinize more closely the legal aspects of Exhibit A and the conclusion that Reynolds was not a party to the contract of sale in light of Reynolds’ foreclosure of the mortgage executed by Pengson to secure payment of PMC’s debt to Reynolds. The Supreme Court imposed no costs.

Legal Basis and Reasoning

The Supreme Court’s disposition rested on the appellate court’s inadequate factual findings as compared with the trial court record and the submissions of t

Case Syllabus (G.R. No. L-65622)

Parties and Procedural Posture

Leonides C. Pengson was the plaintiff below and the petitioner in this petition for review on certiorari.
Reynolds Philippine Corporation, William W. Duncan, Jr., Pacific Merchandising Corporation, and Sheriff of Quezon City were respondents in the appellate proceedings.
The action originated as Civil Case No. Q-15060 in the defunct Court of First Instance of Rizal where the trial court ruled for the plaintiff.
The Court of Appeals successor, the Intermediate Appellate Court, reversed the trial court decision and rendered a judgment in favor of Reynolds.
The petitioner filed the instant petition seeking reversal of the Intermediate Appellate Court decision and, alternatively, a writ of mandamus commanding the Intermediate Appellate Court to make complete findings of fact.

Key Factual Allegations

Pacific Merchandising Corporation (PMC) owned ninety-six percent of the capital stock of Aluminum Products (Alpro).
PMC was indebted to Reynolds in the sum of more than P800,000, and PMC pledged its Alpro shares to Reynolds as collateral for that indebtedness.
PMC executed a deed of sale, Exhibit A, selling its Alpro shares to Pengson, with Pengson assuming the obligation to Reynolds which was reduced to P500,000.
The stock certificates were in the possession of Reynolds by reason of the pledge, and Reynolds’ consent to the sale was therefore required.
As security for the P500,000 obligation payable in five annual installments, Pengson mortgaged a parcel of land to Reynolds, evidenced by Exhibit B.
Pengson paid the first installment of P125,000 in three late partial payments and thereafter defaulted on subsequent installments despite demand.
Reynolds foreclosed the mortgage by treating all unpaid installments as due and demandable and proceeded to a foreclosure sale.

Issues Presented

Whether Reynolds was under any obligation to surrender the pledged stock certificates to Pengson in connection with Exhibit A, and whether Pengson was entitled to nullification of the sale, ineffectivity of the mortgage Exhibit B, and related relief for Reynolds’ alleged refusal to deliver the certificates.
Whether the Intermediate Appellate Court rendered sufficiently complete findings of fact and whether a writ of mandamus should issue to compel completion of those findings.

Contentions of the Parties

Pengson contended that the failure or refusal of Reynolds to deliver the stock certificates after previously consenting to the sale rendered Exhibit A ineffective and likewise rendered Exhibit B ineffective, and he sought reversal of the appellate decision or, alternatively, an order requiring complete findings.
Reynolds contended that it was not a party to the sale contract between PMC and Pengson, that it had no obligation to surrender the certificates, and that Pengson had become the new debtor to Reynolds under the arrangement reducing the indebtedness to P500,000.
Reynolds further presented extensive factual statements in opposition to the petition to review on certiorari, asserting the absence of any agreement obliging it to return the certificates.

Trial Court Ruling

The trial court declared Exhibit A ineffective due to Reynolds’ ref