LEONIDES C. PENGSON, PETITIONER, VS. THE INTERMEDIATE APPELLATE COURT, REYNOLDS PHILIPPINE CORPORATION, WILLIAM W. DUNCAN, JR., PACIFIC MERCHANDISING CORPORATION AND SHERIFF OF …

In the defunct Court of First Instance of Rizal, Leonides C. Pengson
filed a suit against Reynolds Philippine Corporation and others (Civil
Case No. Q-15060) for DECLARATION OF NULLITY AND INEFFI­CACY OF SALE OR
RESCISSION OF SALE AND MORTGAGE WITH DAMAGES. The trial court decided
for the plaintiff whereupon Reynolds Philippine Corporation appealed to
the Court of Appeals whose successor, the Intermediate Appellate Court
reversed the decision. The instant petition was filed by Pengson with
the following prayers:

1. that the decision of the Intermediate Appellate Court be reversed and another entered affirming that of the trial court;

2. that alternatively a writ of mandamus be issued commanding the Intermediate Appellate Court to make complete findings of facts.

The decision of the appellate court which is sought to be reviewed gives the following factual background:

“The defendant Pacific Merchandising Corporation, hereinafter
known as PMC, is the owner of shares in the Aluminum Products (Alpro) to
the extent of 96% of its capital (share) holdings. PMC was indebted to
defendant Reynolds Philippines Corporation, hereinafter referred to as
Reynolds, in the sum of more than P800,000.00, because of which
indebtedness its shares in the Alpro were pledged with Reynolds as a
collateral of its loan. Because PMC needed some money, it decided to
sell its shares with the Alpro to the herein plaintiff Leonides C.
Pengson, the deed of sale being evidenced by Exhibit A. Among other
things, the plaintiff assumed the obligation of PMC to Reynolds, which
amount however was reduced from more than P800,000.00 to only
P500,000.00. Since the certificates covering the shares were then held
by Reynolds in pledge as security for PMC’s obligation, the former’s
consent to the sale with assumption had to be obtained. As a security
for the payment to Reynolds of the aforesaid P500,000.00 in five (5)
annual installments, the first installment being P125,000.00, Pengson
mortgaged to Reynolds a parcel of land. While Pengson paid the first
installment in the sum of P125,000.00 in three (3) installments and a
bit late, the next installments which fell due were not paid for in
spite of demands. Consequently, Reynolds foreclosed by con­sidering all
unpaid installments due and demandable.” (Rollo, pp. 25-26.)

The trial court in its decision said:

“In other words, it is the considered opinion of this Court that
the sale having been rendered in effective by Reynolds’ refusal and
failure to deliver the certificates, subject of the sale, the mortgage,
Exhibit B, and the promissory note embodied therein were likewise
rendered ineffective. As stated earlier, Reynolds’ refusal and failure
to deliver the certificates were tantamount to its withdrawing the
conformity it had previously given to the sale. Without its conformity
the sale, Exhibit A, was nothing but a mere scrap of paper.” (R. A. p.
235.)

The dispositive portion of the trial court’s decision states:

“WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant Reynolds Philippines:

1. Declaring the sale, Exhibit A, ineffective or ineffectual for
failure or refusal of Reynolds to deliver the certificates of stocks
subject of the sale after having previously given its consent to the
sale, tantamount to its withdrawing the formity or consent it had
previously given;

2. Declaring the accessory contract of mortgage (Exh. B)
similarly ineffective or ineffectual as a consequence of the
ineffectivity or ineffectuality of the sale in consideration of which it
was executed;

3. Declaring illegal, and null and void, the foreclosure of the
mortgage and the sale at public auction of the property covered by
T.C.T. No. 77093 of the Registry of Deeds of Quezon City;

4. Declaring null and void the certificate of sale, Exhibit G,
and the transfer certificate of title which the Register of Deeds of
Quezon City may have issued as a result of said certificate of sale;

5. Ordering the Register of Deeds of Quezon City to reinstate in
the records of the Registry of Deeds, T.C.T. No. 77093, and to cancel
the mortgage encumbrance thereon as a result of the execution of the
mortgage, Exhibit B;

6. Ordering and sentencing defendant Reynolds Philippines to return and pay back to plaintiff the sum of P125,300.00;

7. Ordering and sentencing defendant Reynolds Philippines to pay
plaintiff the amount of P5,000.00 for attorney’s fees; and

8. Ordering defendant Reynolds Philippines to pay the costs.” (R.A. pp. 239-241.)

In reversing the appealed decision, the Intermediate Appellate Court in part said:

“3. Because of the said decision, defendant Reynolds and the
Sheriff of Quezon City appealed upon errors which boil down to a
resolution of the question: Was Reynolds under any obligation (on
account of the deed of sale of PMC’s holdings in Alpro in favor of the
plaintiff) to surrender the said certificates of stocks to the
plaintiff, failing in which plaintiff was entitled to the relief of
nullification of the deed of sale, Exhibit A; a declaration of
ineffectivity of the mortgage contract, Exhibit B; and the other
collateral incidents adverted to in the appealed decision.

Our answer is negative.

To start with, Reynolds was not a party to the contract of sale between
PMC and the herein plaintiff. This being so, it had no obligation
whatsoever on the strength of the contract in favor of the plaintiff. By
the terms of the contract, however, since plaintiff undertook to pay
PMC’s obligation to Reynolds, plain­tiff was under obligation with the
PMC on account of the said undertaking. Otherwise, there is absolutely
no reciprocal obligation between the herein plaintiff and the appellant
Reynolds.

The stock certificates which PMC owned were in the possession of
Reynolds because of PMC’s indebtedness to Reynolds in the sum of more
than P800,000.00. PMC’s stock certificates in Alpro which were about 96%
of Alpro’s shareholding was in fact pledged by PMC to Reynolds as a
collateral for the plaintiff’s indebtedness to the latter. The
indebtedness of PMC to Reynolds was reduced to the sum of P500,000.00 on
account of an arrangement it had with the herein plaintiff. Otherwise
said, the new debtor of Reynolds was the plaintiff and no longer PMC. To
argue now, as the plaintiff contends, that Reynolds was under an
obliga­tion to return the certificates of stocks pledged to it by PMC is
to put the plaintiff in a better footing than PMC was with Reynolds.
There is absolutely no agreement by Reynolds to that effect in the
consent it gave to the sale by PMC of the said shares in favor of the
plaintiff.

By resolving the said principal issue, further discussion of the other errors assigned is hereby rendered moot and academic.” (Rollo, p. 28.)

Accordingly, the appellate court rendered a judgment ordering Pengson’s estate to pay Reynolds:

“a) The amount of P255,494.16, plus 8% interest thereon per annum
from December 10, 1970 when Reynolds’ counterclaim was filed, until its
full payment;

b) P951.98 representing stipulated interest on P255,494.16 from
November 23, 1970 when the foreclosure sale took place up to December
10, 1970, with legal rate of interest thereon until full payment;

c) P239.00 as expenses for the foreclosure proceeding, plus legal
rate of interest thereon from November 23, 1970, until full payment;

d) 10% of the amount due as stipulated attorney’s fees.” (Rollo, pp. 28-29.)

The petitioner urges reversal of the decision under review on four
counts but in the alternative prays that the appellate court be ordered
to make complete findings of facts such as those made by the trial
court.

The alternative prayer is impressed with merit. The decision of the
appellate court in respect of the facts is indeed sketchy compared to
the facts stated in the decision of the trial court which is found in
the Record on Appeal. The deficiency of the appellate court’s decision
is made more manifest by the extensive factual statements made by
private respondent Reynolds in its Opposition to Petition to Review on Certiorari.

WHEREFORE, this case is returned to the Intermediate Appellate Court
which is hereby ordered to make complete findings of fact and on the
basis thereof to render another decision. The Intermediate Appellate
Court is also ordered to scrutinize more closely the legal aspects of
Exhibit A and its conclusion that Reynolds was not a party to the
contract of sale between Pengson and the Pacific Merchandising
Corporation (PMC) in the light of Reynold’s foreclosure of the mortgage
executed by Pengson to secure the payment of PMC’s debt to Reynolds. No
costs.

SO ORDERED.

Makasiar, (Chairman), Concepcion, Jr., Guerrero, and Cuevas, JJ., concur.

Aquino and Escolin, JJ., no part.