Citizens Surety v Insurance Company V. Court of Appeals and Pascual M.

Perez
June 28, 1988| Gutierrez, JR.
Payment and Performance
CMCV

DOCTRINE: There is no nation in payment when there is no obligation to be extinguished. A deed of assignment cannot be regarded as
absolute conveyance whereby the obligation under the surety bonds was automatically extinguished.CASE SUMMARY: Citizens Surety
issued 2 surety bonds as guarantee for Pascual Perez Enterprises in their contract of sale with Singer Sewing Machine. Pascual
Perez failed to comply with this obligation and Citizens Surety filed a money claim to be reimbursed for the losses they
sustained through the surety bonds. The Court ruled that Pascual Perez Enterprises’ actions of partial payment and filing for a
second mortgage show that the execution of the deed of assignment was not meant to extinguish the obligation to reimburse
Citizens Surety and was not an absolute conveyance

FACTS:
Pascual Perez / Wife Citizen’s Surety

 On December 4 1959 - Citizen’s Surety issued 2 surety bonds as guarantee for Principal Pascual Perez Enterprises in its obligation for
a Contract of Sale entered into with Singer Sewing Machine Co. Pascual Perez and his attorney in fact (wife) executed the indemnity
agreements obligating himself and the Enterprises to indemnify the petitioner jointly and severally.
o Pascual Perez also placed a collateral security a stock of lumber with a total value of P400k through a deed of assignment on
same day.
o Then, Pascual Perez also executed a second real estate mortgage in favour of Citizens Surety.
 Pascual Perez Enterprises failed to comply with the obligation with Singer Sewing Machine Co.

 Citizens Surety paid for the total amount of the surety bonds at 144k.
 Except for partial payments in the total sum of P55,600.00 and notwithstanding several demands, Pascual M. Perez Enterprises failed
to reimburse Citizen’s Surety for the losses it sustained under the said surety bonds.

 Citizens Surety filed a claim for sum of money against the estate of the Attorney in Fact and Wife of Pascual M. Perez.
 Perez averred: that the bonds and indemnity agreements had been extinguished by the deed of assignment due to the CA’s judgment
which extinguised the obligation by virtue of execution of deed of assignment and release of second mortgage.

ISSUE: WON the obligation under the surety bonds and indemnity agreements had been extinguished by reason of the execution of the
deed of assignment via dation of payment. ---NO, there was no dation in payment

RULING:
Perez averred: Obligation under the surety bonds and indemnity agreements had been extinguished by reason of the execution of the
deed of assignment via dation of payment.
Court ruled (with Citizen’s Surety):
It is a rule that there is no room for construction thereof when words of a contract are plain and readily understandable, however this case
is under the exceptions.
On its face, the document (Deed of Assignment) speaks of an assignment where there seems to be a complete conveyance of the stocks of
lumber to Citizen’s surety, as assignee. However, in the light of the circumstances obtaining at the time of the execution of said deed of
assignment, Court cannot regard the transaction as an absolute conveyance

Respondent court CA stated that "by virtue of the execution of deed of assignment, ownership of lumber materials had been transferred
from Perez to Citizen's Surety, and this amounted to dation in payment whereby Perez is considered to have alienated his property in favor
of the Citizen's Surety in satisfaction of a monetary debt (Artide 1245). Perez's obligation therefore, under the surety bonds is extinguished
upon the execution of the deed of assignment." Court ruled that his is not sustained by the records.

1. The transaction cannot be dation in payment because the obligation on the part of Citizens Surety to pay Singer Sewing Machine had not
yet arisen. There was nothing extinguished on that date, hence there is no dation in payment.

2. The deed of assignment cannot be regarded as an absolute conveyance whereby the obligation under the surety bonds was automatically
extinguished. The subsequent acts of Perez bolster the fact that the deed of assignment was intended merely as a security for the issuance
of the two bonds.
o Partial payments amounting to P55,600 were made after the execution of the deed of assignment to satisfy the obligation under the
two surety bonds.
o Since later payments were made to pay the indebtedness, it follows that no debt was extinguished upon the execution of the deed of
assignment.
o Moreover, a second real estate mortgage was executed on April 12, 1960 and eventually cancelled only on May 15, 1962. If indeed the
deed of assignment extinguished the obligation, there was no reason for a second mortgage to still have to be executed.
o We agree with the two dissenting opinions in the Court of Appeals that the only conceivable reason for the execution of still another
mortgage on April 12, 1960 was because the obligation under the indemnity bonds still existed. It was not yet extinguished when the
deed of assignment was executed on December 4, 1959.
o The deed of assignment was therefore intended merely as another collateral security for the issuance of the two surety bonds.

NOTES:
Court added ---
Citizen's Surety was more than adequately protected. Lumber worth P400k was assigned to it as collateral. A second REM was also given
by Perez, although it was later cancelled obviously because the P400k worth of lumber was more than enough guaranty for the obligations
assumed by the petitioner. The proper procedure was for Citizens' Insurance and Surety Co., to collect the remaining P88,400 from the
sales of lumber and to return whatever remained to Perez. Court cannot order the return in this decisions because the Estate of Mrs. Perez
has not asked for any return of excess lumber or its value. There appears to have been other transactions, surety bonds, and performance
bonds between the petitioner and Perez Enterprises but theseare extraneous matters which, the records show, have absolutely no bearing
on the resolution of the issues in this petition.

DISPOSITION:
Wherefore the petition is dismissed. For the reasons above-stated, the claim of Citizens' Surety and Insurance Co., Inc., against the estate
of Nicasia Sarmiento is DISMISSED. SO ORDERED.