International Exchange Bank v. Labos
REITERATIONFacts
The Antecedents: International Exchange Bank (IEB) filed an action for sum of money with prayer for preliminary attachment against Rudy S. Labos & Associates, Inc. (RSLAI), spouses Rodolfo S. Labos and Consuelo R. Labos (spouses Labos), and Rockwell Land Corporation (Rockwell). RSLAI was granted a credit line by IEB, secured by an assignment of a condominium unit from Rockwell and a Continuing Surety Agreement from the spouses Labos. RSLAI availed of the credit line through several promissory notes. Upon maturity, RSLAI defaulted. IEB demanded payment, and RSLAI requested a loan restructure. IEB agreed to consolidate the outstanding notes into one promissory note, but the restructure failed, and RSLAI again defaulted. IEB sent demand letters to RSLAI and the spouses Labos. IEB discovered that RSLAI had assigned the condominium unit to JHL & Sons Realty, Inc. without IEB's consent, despite an agreement in the Deed of Assignment requiring IEB's written conformity for any transfer. IEB claimed Rockwell violated this requirement by allowing the transfer and sought to hold Rockwell jointly and severally liable for RSLAI's outstanding obligation. Procedural History: The Regional Trial Court (RTC) ruled in favor of IEB, holding RSLAI and the spouses Labos jointly and severally liable but absolving Rockwell, finding it not a party to the Deed of Assignment. IEB appealed to the Court of Appeals (CA), which initially reversed the RTC and held Rockwell jointly and severally liable. However, upon Rockwell's motion for reconsideration, the CA reversed its earlier decision, affirming the RTC's dismissal of the complaint against Rockwell. IEB filed the present petition for review on certiorari. The Petition: IEB seeks to hold Rockwell liable for the outstanding loan of RSLAI, arguing that Rockwell is bound by the Contract to Sell and the Deed of Assignment, that a novation occurred, and that Rockwell's actions constituted a breach of fiduciary duty and contractual breach, entitling IEB to damages.
Issue(s)
Whether Rockwell Land Corporation should be held liable to International Exchange Bank. Whether Rockwell's signature on the 'conforme' portion of the Deed of Assignment made it a party to the agreement and liable for RSLAI's obligations. Whether a novation of the Contract to Sell occurred between Rockwell and IEB. Whether Rockwell breached its contractual obligations or acted in bad faith, thereby entitling IEB to damages. Whether Rockwell should be held jointly and severally liable with RSLAI and the spouses Labos.
Ruling
The petition is denied for lack of merit. The Supreme Court affirmed the Resolution of the Court of Appeals dated December 20, 2012, which absolved Rockwell Land Corporation of any liability to International Exchange Bank. The Decision dated December 22, 2009, of the Regional Trial Court of Makati City, Branch 62, was affirmed in toto.
Ratio Decidendi
On the issue of Rockwell's liability to IEB: The Supreme Court reiterated the basic principle of relativity of contracts, stating that contracts bind only the parties thereto and cannot prejudice or favor a third person. The Court found that the Deed of Assignment was solely between RSLAI (Assignor) and IEB (Bank). Rockwell's signature on the 'conforme' portion was merely to signify its consent to the assignment, as required by the Contract to Sell, and not to make it a party to the Deed of Assignment or to assume any liability. The Court emphasized that courts cannot create new contracts for the parties or alter their agreements. Therefore, Rockwell was not privy to the Deed of Assignment and could not be held liable under it. On the issue of Rockwell's signature on the 'conforme' portion: The Court found that the Deed of Assignment was solely between RSLAI (Assignor) and IEB (Bank). Rockwell's signature on the 'conforme' portion was merely to signify its consent to the assignment, as required by the Contract to Sell, and not to make it a party to the Deed of Assignment or to assume any liability. On the issue of novation: The Court found no novation of the Contract to Sell. Novation requires an express stipulation or an irreconcilable incompatibility between the old and new obligations. The Deed of Assignment, which served as an interim security for RSLAI's loan with IEB, and the Contract to Sell between Rockwell and RSLAI, were separate and distinct contracts that could stand together. The Deed of Assignment was intended to be a prelude to a Deed of Real Mortgage, not a new contract to sell with IEB as the buyer. Thus, the CA correctly retracted its previous finding of novation. On the issue of Rockwell's alleged breach of fiduciary obligation and bad faith: The Court found no basis to hold Rockwell liable for damages under Articles 19 to 21 of the Civil Code. The Deed of Assignment, being an interim security, was akin to a mortgage. Rockwell's consent to the assignment to JHL & Sons Realty, Inc. was merely a recognition of RSLAI's right to assign its interest under the Contract to Sell. There was no double sale, and no evidence of bad faith or dishonest purpose on Rockwell's part was presented. The Court reiterated that bad faith must be proven by clear and convincing evidence. On the issue of Rockwell's joint and several liability: The Court affirmed that solidary liability is not presumed and must be expressly stated or required by law or the nature of the obligation. In this case, Rockwell's solidary liability was neither expressly stated in the Deed of Assignment nor required by law or the nature of the obligation. Therefore, Rockwell could not be held jointly and severally liable with RSLAI and the spouses Labos.
Main Doctrine
A party who merely signs the 'conforme' portion of a deed of assignment, as required by a prior contract to sell, does not thereby become a party to the deed of assignment nor does it assume any obligation or liability arising therefrom, absent any clear intention or express stipulation to that effect. The principle of relativity of contracts dictates that obligations arising from a contract are binding only upon the parties thereto.