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TRANS-PACIFIC INDUSTRIAL SUPPLIES v. CA

FACTS:

Petitioner Trans-Pacific Industrial Supplies, Inc. applied for and was granted several financial accommodations by respondent Associated Bank. The loans were secured by promissory notes and mortgages. Unable to settle its full obligation, Trans-Pacific requested and was granted a restructuring of the remaining debt. New promissory notes were executed and the mortgaged properties were substituted. The released properties were sold and the proceeds were applied to Trans-Pacific's restructured loan. The bank returned the duplicate original copies of the promissory notes with the word "PAID" stamped on them. However, the bank later demanded payment of accrued interest on one of the promissory notes. Trans-Pacific initiated an action for specific performance and damages, which was initially decided in its favor by the trial court. However, the appellate court reversed the decision. Trans-Pacific filed a petition for review before the Supreme Court.

ISSUES:

  1. Whether the presumption of renunciation under Article 1271 of the Civil Code applies in this case.

  2. Whether the trial court committed reversible error in its judgment based on presumptions.

  3. Whether the offer of settlement or compromise made by the petitioner is admissible to prove the existence of an indebtedness.

  4. Whether the award of attorney's fees in favor of the respondent bank is justified given the circumstances of the case.

RULING:

  1. The presumption of renunciation under Article 1271 of the Civil Code does not apply in this case. The presumption created by Article 1271 is not conclusive and may be overturned by evidence to the contrary. In this case, there is sufficient justification to overthrow the presumption of payment generated by the delivery of the documents evidencing the petitioner's indebtedness. It should be noted that Article 1271 raises a presumption of renunciation, not of payment, and more convincing evidence is required to prove payment.

  2. The trial court did not commit reversible error in its judgment based on presumptions. While findings of fact are generally not reviewable by the appellate courts, this rule does not apply when the trial and appellate courts differ in their findings. In this case, there is a disagreement between the trial and appellate courts regarding the issue of payment. The trial court's reliance on presumptions without sufficient evidence to support its claim is not sufficient to uphold its judgment.

  3. The Supreme Court held that the offer of settlement or compromise made by the petitioner is admissible to prove the existence of an indebtedness. The admissibility of an offer to compromise depends on the circumstances of the case and the intent of the party making the offer. If a party denies the existence of a debt but offers to pay the same for the purpose of buying peace and avoiding litigation, the offer of settlement is inadmissible. However, if the party making the offer admits the existence of an indebtedness combined with a proposal to settle the claim amicably, then the admission is admissible to prove such indebtedness. In this case, the petitioner's offer of settlement or compromise contained an admission of the unpaid balance and a proposal to settle the remaining obligations through a dacion en pago arrangement. Therefore, the offer of settlement is admissible as evidence of the petitioner's indebtedness.

  4. The Supreme Court held that the award of attorney's fees in favor of the respondent bank is justified under Article 2208 of the Civil Code. Attorney's fees may be awarded in a case of clearly unfounded civil action. In this case, the petitioner filed a suit for damages in the honest belief that it had fully discharged its obligations to the respondent bank. However, the undisputed fact is that the petitioner admitted the existence of the unpaid balance. The petitioner's decision to file the suit and insist that its liabilities had already been paid, despite the admission in its own letters, was considered an ill-advised attempt to capitalize on the delivery of the promissory notes. Therefore, the award of attorney's fees in the amount of P15,000 is fair and equitable.

PRINCIPLES:

  • The presumption of renunciation under Article 1271 of the Civil Code is not conclusive and may be overturned by evidence to the contrary.

  • Findings of fact are generally not reviewable by the appellate courts, but this rule does not apply when the trial and appellate courts differ in their findings.

  • The burden of proof rests on the party alleging a fact in a civil case.

  • An offer of settlement or compromise that contains an admission of an indebtedness is admissible as evidence of such indebtedness.

  • Attorney's fees may be awarded in a case of clearly unfounded civil action.