P.C. JAVIER & SONS, INC., SPS. PABLO C. JAVIER, SR. AND ROSALINA F. JAVIER, PETITIONERS, VS. HON. COURT OF APPEALS, PAIC SAVINGS & MORTGAGE BANK, INC., SHERIFFS GRACE BELVIS, SO…

P.C. Javier and Sons versus PAIC Savings and Mortgage Bank

The Case

This is a petition for review on certiorari brought by P.C. Javier and Sons, Incorporated and the spouses Pablo C. Javier, Senior and Rosalina F. Javier against PAIC Savings and Mortgage Bank, Incorporated and the sheriffs tasked with the extrajudicial foreclosure of their mortgaged properties. The petitioners sued to annul the real estate mortgages and to stop the foreclosure sales, claiming that the bank that lent them money under the Industrial Guarantee Loan Fund was a different entity from the bank now demanding payment. The case matters because it settles two enduring rules: that a change in corporate name does not create a new corporation, and that a debtor cannot withhold payment on the pretext of ignorance of that change when the records show he knew of it.

Procedural History

The petitioners filed their complaint for annulment of mortgage and foreclosure, with preliminary injunction, prohibition and damages, before Branch 62 of the Regional Trial Court of Makati City in May 1984, followed by a supplemental complaint impleading additional sheriffs. The trial court dismissed the complaint and ordered the petitioners to pay the principal amounts under two promissory notes, with interest, liquidated damages and fees, plus actual damages, exemplary damages, attorney's fees and costs. The petitioners moved for reconsideration, which was denied. They appealed to the Court of Appeals, which affirmed the trial court's decision in full and likewise denied their motion for reconsideration. The case then reached the Supreme Court through this appeal by certiorari.

Facts

In February 1981, P.C. Javier and Sons, Incorporated applied with First Summa Savings and Mortgage Bank for a loan of 1.5 million pesos under the Industrial Guarantee Loan Fund. The application was approved in March 1981 and forwarded to the Central Bank for processing. The loan was released in two tranches of 750,000 pesos each, the first in May 1981 and the second in November 1981. From the second tranche, 250,000 pesos was deducted and placed in a time deposit in the corporation's name, because the collateral the corporation had put up was insufficient to cover the loan.

The corporation later defaulted. The bank sent demand letters in November 1983 and May 1984, and when payment was not made, it initiated extrajudicial foreclosure of the real estate mortgage over the property covered by Transfer Certificate of Title Number 473216, with auction scheduled in May 1984. The petitioners then filed suit to forestall the sale, and several scheduled foreclosures were temporarily restrained by the trial court.

Meanwhile, First Summa Savings and Mortgage Bank had changed its corporate name to PAIC Savings and Mortgage Bank, Incorporated. The petitioners claimed they were never formally notified of the change and used this as their reason for withholding payment. The records, however, showed several documents signed by the petitioners' own officers acknowledging PAIC as the bank, including a letter, a board resolution, a secretary's certificate and an authorization, all executed in 1983.

Issues

• Whether or not the petitioners may validly withhold payment of their loan obligations until formally notified of the change in the bank's corporate name.
• Whether or not the bank may collect the entire proceeds of the 1.5 million peso loan despite the withholding of 250,000 pesos placed in time deposit as additional collateral.
• Whether or not the award of damages and attorney's fees to the bank was proper despite the alleged absence of malice or bad faith on the part of the petitioners.

Applicable Provisions

The decision turns on the nature of a corporation upon a change of its corporate name, which the Court states as a rule of corporate law:

A change in the corporate name does not make a new corporation, whether effected by a special act or under a general law. It has no effect on the identity of the corporation, or on its property, rights, or liabilities.

This rule defeats the petitioners' claim that they owed a different, original bank and not the respondent.

The Court also applies the doctrine of unjust enrichment, which it defines as follows:

The fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration. The elements of this doctrine are: enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and lack of cause.

This bears on the petitioners' argument that collecting the 250,000 pesos would unjustly enrich the bank.

Ruling

On the first issue, the Court held that there is no law, regulation or circular requiring a bank that changes its corporate name to formally notify all its debtors. To impose such a duty would be judicial legislation. Formal notification is discretionary, a mere internal policy. In any event, the evidence showed the petitioners had actual knowledge of the change, as their own officers had signed documents addressed to PAIC. A change in corporate name does not make a new corporation; it is the same corporation with a different name, and its identity, property, rights and liabilities are unchanged. The petitioners therefore had no valid reason to withhold payment.

On the second issue, the Court held that the collection of the entire loan proceeds was proper. The 250,000 peso time deposit was required precisely because the collateral was insufficient, a fact the petitioners themselves admitted by executing an additional chattel mortgage. The trial court found the loanable value of the collateral to be only 934,000 pesos. The Court also held there was no unjust enrichment, since the amount was applied to the petitioners' own loan with the approval of Pablo C. Javier, Senior, and the balance of the time deposit was withdrawn by the petitioners. The challenge to the time deposit was raised belatedly, long after demand for full payment had been made.

On the third issue, the Court held that malice and bad faith were evident. The petitioners knew the two banks were one and the same, yet pretended otherwise to escape their obligation. Good faith would have required a valid consignation in court, which they did not make. The awards of actual damages, exemplary damages and attorney's fees were therefore justified.

Doctrine

A change in a corporation's name does not create a new corporation, nor make it the successor of the original. It remains the same corporation, with the same identity, property, rights and liabilities. A debtor cannot withhold payment on the ground of lack of formal notice of the name change, because no law requires such notice, and because actual knowledge of the change binds the debtor. Unjust enrichment requires enrichment of the defendant, impoverishment of the plaintiff, and lack of cause; where the amount collected was applied to the debtor's own obligation with his approval, there is no unjust enrichment. A debtor who claims good faith in refusing payment must make a valid consignation; failing that, an award of damages and attorney's fees may be sustained.

Disposition

The Supreme Court affirmed in full the decision of the Court of Appeals and its resolution denying reconsideration, with costs against the petitioners.

Remember This

Memorize this line: a change in corporate name does not make a new corporation, and its identity, rights and liabilities remain unchanged. Examiners use this case to test the effect of a corporate name change on existing obligations, and to test when unjust enrichment does or does not arise from a debtor's withheld payment.