Citytrust Banking Corp. vs. Court of Appeals

A judgment creditor cannot enforce execution against one solidary judgment debtor based on the original trial court judgment when a co-defendant's successful appeal has modified the judgment to reduce the amounts recoverable, where both judgments arise from the same basic claim and the co-defendant is ultimately liable for reimbursement. The Court will not allow an absurd situation where a co-defendant adjudged primarily liable would be charged a lesser amount than what its co-defendant is bound to pay to the common creditor, as this runs counter to the principle of solidarity in obligations.

Private respondent William Samara, an American doing business in the Philippines, purchased a bank draft from petitioner Citytrust Banking Corporation, with Thai International Airways as payee and Marine Midland Bank, N.A. as drawee. The relationship among the parties involved a bank draft transaction: Citytrust was the drawer, Marine Midland was the drawee bank, and Samara was the purchaser. The dispute centered on a stop-payment order and the subsequent debiting and re-crediting of Samara's dollar account, which led to a complaint for recovery of a sum of money against both banks.

Private respondent William Samara, an American doing business in the Philippines, purchased on December 10, 1980 from petitioner Citytrust Banking Corporation Bank Draft Number 23681 for US $40,000.00, with Thai International Airways as payee and Marine Midland Bank, N.A. as the drawee bank in the United States. On December 23, 1980, Samara executed a stop-payment order on the bank draft, instructing Citytrust to inform Marine Midland through telex. Citytrust transmitted the message to Marine Midland the next day and followed it up with a cable, which the latter bank acknowledged receiving on January 14, 1981, stating that it had noted the stop-payment order and had not paid the bank draft. Citytrust credited back Samara's account for US $40,000.00 due to the non-payment.

After seven months, on July 3, 1981, Citytrust re-debited Samara's account for US $40,000.00 upon discovering that Marine Midland had already debited Citytrust's own account for the same amount allegedly on December 22, 1980. Despite this alleged discovery, evidence showed that Marine Midland informed Citytrust through a letter of the non-payment or non-encashment of the bank draft as of August 4, 1981, and even confirmed in a telex letter dated August 31, 1981 that the bank draft had not been paid as of that date.

The trial court brushed aside Marine Midland's contention that it had already paid the bank draft on December 22, 1980, before receiving the stop-payment order, holding Marine Midland bound by its letters admitting knowledge of the stop-payment order and compliance with it. The trial court also overruled Citytrust's ground for re-debiting Samara's account — the discovery that Marine Midland debited Citytrust's account before the stop-payment order was given — as unjustifiable. The trial court found that Marine Midland's certifications and repeated reaffirmation of non-payment of the bank draft led Citytrust to re-credit Samara's account, that Marine Midland negligently failed to implement the stop-payment order upon receipt and tarried in actually executing it until January 13, 1981, and that it was Marine Midland's debiting of Citytrust's account that led Citytrust to again debit Samara's dollar account. The trial court concluded that Marine Midland's actuations triggered the whole mess and ordered it to reimburse Citytrust of whatever amount the latter would be made to pay.

Only Marine Midland appealed the trial court decision, while Citytrust's appeal was dismissed for being filed out of time. The Court of Appeals affirmed the trial court decision with modification, reducing the interest rate to 6% per annum, reducing attorney's fees to P10,000.00, and excluding exemplary damages, but retaining the joint and several liability of both defendants and the right of Citytrust to be reimbursed. When Samara moved for execution, the trial court granted the motion, and the Court of Appeals upheld it, resulting in the situation where execution against Citytrust would be based on the original trial court judgment while execution against Marine Midland would be based on the modified judgment.

• Modification of Judgment: Petitioner argued that the appellate court decision dated February 23, 1989 superseded and rendered functus officio the March 4, 1986 trial court decision, and that the modified judgment should apply not only to Marine Midland but also to petitioner.
• Benefit of Co-Defendant's Appeal: Petitioner insisted that it could benefit from the reversal or modification of a judgment even if it had lost its own appeal, since the rights and liabilities of the two defendants were interwoven.

• Res Judicata: Private respondent contended that the petition was barred by res judicata, alleging that the issue in the case at bar had already been raised, passed upon, and judicially determined by this Court in G.R. No. 82009.
• Similarity of Arguments: Private respondent was bothered by the similarity of the arguments used by petitioner in all the pleadings filed with this Court in G.R. No. 82009 and in the present petition.

• Distinctness of Issue: Whether the issue in the present petition is distinct from the issues raised in G.R. No. 82009, such that the petition is not barred by res judicata.
• Propriety of Execution: Whether the respondent appellate court committed reversible error in ruling that the liability of the petitioner should be based on the original decision of the trial court and not the modified one.

• Distinctness of Issue: Yes. The issue in the present petition is distinct from the ones raised earlier in G.R. No. 82009. The earlier case concerned the validity of the dismissal of petitioner's appeal and the right to immediate execution, while the present case concerns the propriety of the execution of judgments where two conflicting final judgments exist against solidary judgment debtors.
• Propriety of Execution: No. The Court of Appeals committed reversible error in affirming the order of execution based on the original trial court judgment. Execution must be based on the modified judgment of February 23, 1989, because enforcing the original judgment against petitioner while enforcing the modified judgment against Marine Midland would circumvent the appellate court's reduction of Marine Midland's liability and run counter to the principle of solidarity in obligations.

• Distinctness of Issue: The Court was less concerned with the issues of whether a co-defendant's appeal inures to the benefit of another who failed to appeal on time and the right of a judgment creditor to immediate execution of a final and executory judgment, as such issues had become moot and academic. The present petition was given due course in line with the settled rule that while a decision has already become final and executory and can no longer be challenged, the manner of its execution can be reviewed by proper appeal, citing Abbot vs. National Labor Relations Commission. The Court noted that it was not apprised of the February 23, 1989 decision of the Court of Appeals until after it had promulgated its decision in G.R. No. 82009, and that a different Court of Appeals decision (in CA-G.R. SP No. 19176) was the subject of review.

• Propriety of Execution: The Court did not agree with petitioner's allegation that it could benefit from a reversal or modification of a judgment even if it had lost its own appeal. The Court reiterated its earlier analysis in G.R. No. 82009 that the rights and liabilities of petitioner and Marine Midland are not so interwoven in such a manner that their defenses are similar as to readily warrant an operative effect upon a party who failed to appeal. The Court found that it was the trial court judgment that created a joint and several obligation to pay the private respondent certain sums, and that no solidary liability as between the defendants existed from the drawer-drawee relationship in the draft transaction. The joint and several obligation imposed by the lower court had a three-fold purpose: (1) to declare the prevailing party entitled to recover damages; (2) to give the prevailing party the right to proceed against either defendant; and (3) to impress upon Marine Midland its ultimate liability to fully reimburse Citytrust.

The Court examined the execution of judgment from a perspective showing a glaring disparity between the amounts which each of the two judgment debtors are bound to pay despite their being held jointly and severally liable and the right of one to be reimbursed. The Court found that if execution against petitioner were based on the March 4, 1986 decision, private respondent would be given a choice of executing his claim for US $40,000.00 plus bigger interest (compounded), exemplary damages, and attorney's fees from Citytrust, or US $40,000.00 plus a smaller sum from Marine Midland. Even if Citytrust would be reimbursed for the whole amount, such reimbursement would be a circumvention of the appellate court's judgment that Marine Midland is liable only for the modified sum. The Court held that there are two final judgments arising from one and the same basic claim, and the obligations arising from the same stop-payment order on the same US $40,000.00 bank draft are sought to be enforced by two conflicting final and executory judgments. The Court stated it cannot enforce one judgment while allowing a violation of the other, and applied basic principles of justice and equity.

The Court refused to allow the absurd situation where a co-defendant adjudged primarily liable for sums of money and for tort would be charged for an amount lesser than what its co-defendant is bound to pay to the common creditor and allowed to collect from the first co-defendant. Such a situation runs counter to the principle of solidarity in obligations as between co-defendants established by a judgment for recovery of sum of money and damages. Substantial justice would not allow Marine Midland, which was the source of the injury afflicted, to be unjustly enriched either by direct execution against it of the judgment for the reduced amount or by indirect execution by way of reimbursement at a later time. The Court also noted that the modification made by the appellate court ordered not only Marine Midland but both "defendants jointly and severally" to pay the new amount, and though as a matter of procedure the modification shall be applied only to the appellant, substantial justice and equity demand that the decision be re-interpreted to refer to petitioner as well. There exists a strong and compelling reason to warrant an exception to the rule that a judgment creditor is entitled to execution of a final and executory judgment against a party especially if that party failed to appeal.

• Review of Execution of Final Judgment — While a decision that has become final and executory can no longer be challenged, the manner of its execution can be reviewed by proper appeal. Any deviation from the terms and conditions of a final judgment can be the subject of a proper appeal. The Court applied this doctrine to review the execution order in CA-G.R. SP No. 19176 even though the underlying judgment had become final and executory as to petitioner.

• Effect of Co-Defendant's Appeal on Non-Appealing Party — A reversal or modification of a judgment on appeal by one co-defendant does not operate to benefit another co-defendant who failed to appeal, where the rights and liabilities of the parties are not so interwoven that their defenses are similar. The Court applied this doctrine to hold that petitioner could not benefit from Marine Midland's appeal, but nevertheless ordered execution based on the modified judgment to prevent an absurd and inequitable result.

• Solidarity in Obligations — Where judgment debtors are held jointly and severally liable, the principle of solidarity requires that the amounts each is bound to pay to the common creditor be consistent. The Court applied this principle to prevent the absurd situation where a co-defendant adjudged primarily liable would be charged a lesser amount than what its co-defendant is bound to pay.

• Exception to Execution of Final Judgment — A strong and compelling reason may warrant an exception to the rule that a judgment creditor is entitled to execution of a final and executory judgment against a party who failed to appeal. The Court applied this exception where two conflicting final judgments arose from one and the same basic claim, and enforcing one would violate the other.

• "The Court can not close its eyes to the inexplicable situation where private respondent Samara would be given a choice of executing his claim for US $40,000.00 plus bigger interest (compounded), exemplary damages, and attorney's fees from petitioner Citytrust, or US $40,000.00 plus a smaller sum inclusive of simple interest and reduced attorney's fees from Marine Midland." — This passage articulates the core inequity the Court sought to remedy: the disparity in amounts recoverable from two solidary judgment debtors arising from the same claim.

• "There are two final judgments arising from one and the same basic claim of Mr. Samara. The obligations arising from the same stop payment order on the same U.S. $40,000.00 bank draft are sought to be enforced by the two conflicting final and executory judgments. We cannot enforce one judgment while allowing a violation of the other. We apply basic principles of justice and equity." — This passage states the Court's rationale for intervening despite the finality of the judgments, emphasizing the conflict between two final judgments and the application of justice and equity.

• "Substantial justice shall not allow Marine Midland, which is the source of the injury afflicted, to be unjustly enriched either by the direct execution against him of the judgment for the reduced amount or by the indirect execution by way of reimbursement at a later time." — This passage articulates the unjust enrichment principle that prevented Marine Midland from benefiting from the disparity in the two judgments.

• Abbot vs. National Labor Relations Commission, 145 SCRA 206 (1986) — Controlling precedent for the rule that while a decision that has become final and executory can no longer be challenged, the manner of its execution can be reviewed by proper appeal; the Court quoted this case extensively to justify reviewing the execution order.

• Citytrust Banking Corp. vs. Court of Appeals, 171 SCRA 758 (1989) — Prior decision in G.R. No. 82009 between the same parties; the Court relied on its earlier finding that the rights and liabilities of the two defendants are not so interwoven that a reversal of the judgment as to one should operate as a reversal to the other.

• Olacao vs. National Labor Relations Commission, 177 SCRA 38 (1989) — Cited as authority for the rule that a judgment creditor is entitled to execution of a final and executory judgment against a party, from which the Court found a strong and compelling reason to make an exception.

• Quigui vs. Boncaros, 151 SCRA 416 (1987) — Cited in support of the general rule on execution of final judgments, from which the Court made an exception based on substantial justice and equity.

• Orata vs. Intermediate Appellate Court, 185 SCRA 148 (1990) — Cited in support of the general rule on execution of final judgments, from which the Court made an exception based on strong and compelling reasons.

• Rule on Execution of Judgments, Rules of Court — The Court applied the procedural rules on execution of judgments, holding that a final judgment must be executed against a defeated party, but that the manner of execution can be reviewed by proper appeal where it deviates from the terms and conditions of the judgment.

Fernan, C.J., Feliciano, Bidin, and Davide, Jr., JJ., concurred.