Development Bank v. Clarges Corporation
REITERATIONFacts
The Antecedents: Marinduque Mining and Industrial Corporation (MMIC) mortgaged a 12,355-square-meter parcel of land to Caltex Philippines, Inc. (first mortgage) and subsequently to Development Bank of the Philippines (DBP) and Philippine National Bank (PNB) (second mortgage). Upon MMIC's failure to pay its loan obligations, DBP and PNB foreclosed the mortgage, emerging as highest bidders but unable to redeem due to Caltex's first mortgage. Caltex foreclosed its mortgage, and DBP redeemed the property from Caltex, making it part of DBP's assets. DBP offered the property for public sale, and Clarges Realty Corporation (Clarges) emerged as the highest bidder at P24,070,000.00. DBP and Clarges executed a Deed of Absolute Sale on November 23, 1987, with DBP agreeing to bear all expenses for title transfer and to deliver a title free from liens and encumbrances by December 15, 1987. DBP succeeded in registering the property under its name, cancelling MMIC's title and issuing a new one (TCT No. 151178). However, the new title still contained annotations of PNB's mortgage lien and a tax lien for unpaid taxes incurred by MMIC. DBP failed to deliver a clean title by December 15, 1987, despite Clarges' demand. Procedural History: Clarges filed a Complaint for Specific Performance and Damages against DBP, praying for the delivery of a clean title. DBP contended that Clarges had no cause of action, alleging that the payment of tax liability devolved to the Asset Privatization Trust (APT) after APT acquired MMIC's assets under Proclamation No. 50. During trial, Clarges had the mortgage lien cancelled, incurring expenses of P163,929.00. DBP and APT partially cancelled the tax lien, reducing the liability. DBP moved for leave to file a third-party complaint against APT, asserting APT's obligation to pay MMIC's tax liability. Clarges opposed, citing unreasonable delay and unnecessary costs. The Regional Trial Court (RTC) denied the Motion for Leave, stating it should have been filed earlier and would cause undue delay. The RTC ruled in favor of Clarges, ordering DBP to remove the tax lien, reimburse Clarges for expenses, and pay attorney's fees and costs. DBP appealed to the Court of Appeals (CA), which affirmed the RTC decision with modification, deleting the award for miscellaneous and transportation expenses. DBP's motion for reconsideration was denied. DBP filed a Petition for Review on Certiorari with the Supreme Court. The Petition: DBP insisted that APT should have been impleaded, arguing that APT assumed MMIC's liabilities, making it impossible for DBP to deliver a clean title. DBP also questioned the award of actual damages and attorney's fees.
Issue(s)
Whether the trial court erred in denying the Motion for Leave to File Third-Party Complaint. Whether the award to respondent of P163,929.00 in actual damages was proper. Whether respondent is entitled to attorney's fees and costs of suit.
Ruling
The Petition for Review on Certiorari is DENIED. The Decision dated June 22, 2005 of the Court of Appeals in CA-G.R. CV No. 56570 is AFFIRMED.
Ratio Decidendi
On the denial of the Motion for Leave to File Third-Party Complaint: The admission of a third-party complaint is a matter within the sound discretion of the trial court. The Court held that the trial court did not commit grave abuse of discretion in denying DBP's motion. The motion was filed after Clarges had already rested its case, and admitting it would have caused undue delay and unnecessary proliferation of litigation. The Court reiterated the principle that if leave is denied, the proper remedy is to file a separate case. DBP's argument that it was legally or physically impossible to deliver a clean title due to the tax lien was also rejected. The Court clarified that Articles 1266 and 1267 of the Civil Code, concerning impossibility of performance, apply only to obligations 'to do,' not to obligations 'to give' like the delivery of a clean title. Furthermore, DBP, as a mortgagee, could have paid the tax liability and caused the cancellation of the lien without violating the Anti-Graft and Corrupt Practices Act, as it would be paying a liability attached to its own property. On the award of actual damages: The Court affirmed the award of P163,929.00 in actual damages to Clarges for the expenses incurred in having the mortgage lien cancelled. The Court found that these expenses would not have been necessary had DBP fulfilled its contractual obligation under Clause 6 of the Deed of Absolute Sale to deliver a clean title. The official receipt presented as evidence was considered sufficient proof of these expenses. However, the Court of Appeals correctly deleted the award of P632.90 for miscellaneous and transportation expenses, as the supporting receipts were not presented as best evidence. On the entitlement to attorney's fees and costs of suit: The Court upheld the award of attorney's fees and costs of suit to Clarges. This was based on Article 2208(2) of the Civil Code, which allows for such recovery when a party is compelled to incur expenses to protect its interest due to the act or omission of the other party. Clarges was forced to file the action for specific performance and incur litigation expenses because DBP failed to deliver a clean title as agreed upon.
Main Doctrine
The admission of a third-party complaint lies within the sound discretion of the trial court. If leave to file a third-party complaint is denied, the proper remedy is to file a separate case, not to insist on its admission up to the Supreme Court. Furthermore, a party to a contract cannot evade its obligation to deliver a clean title by invoking the non-performance of a third party, as contracts are binding only between the parties thereto.