Goldstar Rivermount, Inc. vs. Advent Capital and Finance Corp.

A dation in payment executed by a debtor in favor of the original creditor remains valid where the creditor’s assignment of receivables to another bank was conditioned on the creditor’s default, and no default is shown at the time of the dation; a later amendment and demand letter cannot retroactively strip the creditor of authority to enter the dation.

Goldstar was a borrower from Advent, which had funded its lending through a loan from DBP under a Subsidiary Loan Agreement. The dispute turns on whether Advent’s assignment of its receivables to DBP stripped Advent of standing to accept a dation in payment from Goldstar.

On December 9, 1998, Goldstar Rivermount, Inc. borrowed P55,000,000 from Advent Capital and Finance Corp., formerly All Asia Capital and Trust Corp., payable in seven years and secured by a real estate mortgage over Goldstar’s property covered by Transfer Certificate of Title No. T-278069 and a chattel mortgage over its equipment. Goldstar failed to pay its amortizations, which prompted it to offer its mortgaged properties as payment for the loan that had ballooned to P66,012,292.85. On May 26, 2000, Goldstar and Advent signed a Dation in Payment as settlement for the loan, and on the same day they executed a Memorandum of Agreement wherein Goldstar was given the right to redeem the properties within one year and could continue to occupy and lease them for a monthly rental of P600,000.00. Later, Goldstar learned that Advent had previously assigned its receivables from the loan to the Development Bank of the Philippines on November 24, 1998. Goldstar alleged that Advent was no longer its creditor when they agreed to the Dation in Payment on May 26, 2000, making the contract void, and it filed a complaint for declaration of nullity in the RTC of Davao City, Branch 13, docketed as Civil Case No. 28,484-01.

Advent, for its part, declared that on February 18, 1997, it borrowed money from DBP for relending to investment enterprises such as Goldstar, embodied in a Subsidiary Loan Agreement. Advent admitted executing a Deed of Assignment in favor of DBP on November 24, 1998 to secure its loan and to transfer its receivables from the loans granted to investment enterprises, but the Deed of Assignment provided that DBP may exercise its rights as assignee only on the condition that Advent defaults in its payment. Advent disclosed that it lent P55,000,000 to Goldstar on December 9, 1998, and when Goldstar failed to pay its amortizations, they agreed to settle the loan through a Dation in Payment and a Memorandum on May 26, 2000. On July 27, 2000, Advent and DBP signed an Amendment of, and Addendum to, the Deed of Assignment, wherein DBP was given the right to manage Advent’s loans to investment enterprises without the need of declaring Advent in default. Advent argued that because the Dation in Payment and the Memorandum were signed before the Amendment and Addendum, Advent remained in control of the loan and its mortgages, and Advent had to be in default before DBP could take over management.

DBP sent Goldstar a letter dated July 28, 2000, stating that under the Deed of Assignment as amended, Advent assigned, transferred, and conveyed to DBP its titles and interests in the credits under the subloan agreements, including mortgages, pledges, guarantees, and other collaterals, and that by virtue of this provision there was now a substitution of creditor, with DBP effectively becoming Goldstar’s creditor; DBP requested Goldstar to pay directly to DBP all amortizations falling due until maturity on December 24, 2005. Goldstar argued that this letter showed Advent had defaulted in its payment and that DBP had taken away Advent’s right to collect from Goldstar as assignor and/or attorney-in-fact.

The RTC observed that when Goldstar filed its complaint on March 23, 2001, it had barely two months before the expiration of its right of redemption over the properties subject of the Dation in Payment, and it determined that when Goldstar learned about the Deed of Assignment between Advent and DBP, Goldstar found an excuse to file an action to nullify the Dation in Payment. The RTC agreed with Advent that the reason for the execution of the Deed of Assignment was to secure Advent’s loan with DBP, and based on its wordings, Advent remained the creditor of investment enterprises until it defaults in its payment; only upon default could DBP administer and enforce its rights on the loans of investment enterprises.

The RTC and CA both found that the Deed of Assignment was intended to secure Advent’s loan with DBP, that its terms conditioned DBP’s exercise of rights on Advent’s default, and that there was no proof Advent was in default when the Dation in Payment was signed on May 26, 2000. They also found that the Amendment and Addendum was executed only on July 27, 2000, after the Dation in Payment and Memorandum, and that DBP’s July 28, 2000 letter was based on that Amendment and Addendum.

• Validity of Dation in Payment: Goldstar argued that Advent had assigned its receivables from the loan to DBP on November 24, 1998, so Advent was no longer its creditor when the Dation in Payment was agreed on May 26, 2000; the contract was therefore void.
• Deed of Assignment as Security: Goldstar argued that the CA erred in ruling that the Deed of Assignment was merely security for Advent’s loan to DBP and that DBP could only come in if Advent defaulted in its payment.
• DBP Letter dated July 28, 2000: Goldstar argued that the CA erred in disregarding DBP’s July 28, 2000 letter, which in effect showed that Advent had defaulted and that DBP took away Advent’s right to collect from Goldstar as assignor and/or attorney-in-fact.

• Deed of Assignment as Security: Advent argued that the Deed of Assignment was executed to secure its loan with DBP and that DBP could exercise its rights as assignee only upon Advent’s default; since the Dation in Payment and the Memorandum were signed before the Amendment and Addendum, Advent remained in control of the loan and its mortgages, and Advent had to be in default before DBP could take over management.
• Pure Questions of Law: Advent argued in its Comment that the issues/assignment of errors presented by Goldstar are not pure questions of law.
• Estoppel and Forum Shopping: Advent raised in its Memorandum whether Goldstar is estopped from assailing the validity of the Dation in Payment and whether Goldstar is guilty of forum shopping.

• New Issues in Memorandum: Whether Advent’s issues of estoppel and forum shopping, raised for the first time in its Memorandum, may be considered by the SC.
• Deed of Assignment as Security: Whether the CA erred in ruling that the Deed of Assignment was merely security for Advent’s loan to DBP and that DBP could only come in if Advent defaulted in its payment.
• DBP Letter dated July 28, 2000: Whether the CA erred in disregarding DBP’s July 28, 2000 letter, which Goldstar claims showed that Advent had defaulted and that DBP took away Advent’s right to collect from Goldstar as assignor and/or attorney-in-fact.
• Validity of Dation in Payment: Whether the CA committed reversible error in dismissing the appeal and ruling that Advent may validly enter into a Dation in Payment with Goldstar.
• Questions of Law under Rule 45: Whether Goldstar’s petition raises only questions of law or falls under an exception allowing the SC to review the CA’s factual findings.

• New Issues in Memorandum: No. Advent’s estoppel and forum shopping issues, raised for the first time in its Memorandum, were disregarded as waived or abandoned; they were not in its Comment, depriving Goldstar of the opportunity to reply.
• Deed of Assignment as Security: No. Sections 8, 9, 10, and 12 of the Deed of Assignment conditioned DBP’s substitution on Advent’s default; no default was established at the time of the Dation in Payment.
• DBP Letter dated July 28, 2000: No. The letter was based on the Amendment and Addendum executed after the May 26, 2000 Dation in Payment and did not affect the validity of the earlier contract.
• Validity of Dation in Payment: No. Advent remained Goldstar’s creditor and had authority under the Deed of Assignment to enter into the Dation in Payment; the CA did not commit reversible error.
• Questions of Law under Rule 45: No. Goldstar’s arguments required re-evaluation of evidence, and it failed to allege, substantiate, and prove any exception to the rule that only questions of law may be raised; the CA’s factual findings bind the SC.

• New Issues in Memorandum: The SC observed that Advent’s two issues of estoppel and forum shopping were not included in its Comment and were presented for the first time in its Memorandum. The SC’s Notice dated November 10, 2014 stated that no new issues may be raised in a memorandum and that issues raised in the pleadings but not included in the memorandum shall be deemed waived or abandoned. Advent’s Comment contained only one argument, that the issues/assignment of errors presented by Goldstar are not pure questions of law, and Advent did not reiterate this argument in its Memorandum, focusing instead on the two new issues. Advent’s failure to abide with the Notice violated due process and fair play because, by not incorporating the new issues in its Comment, Goldstar was not given the opportunity to submit counter-arguments in its Reply. In De los Santos vs. Lucenio, the SC held that belated allegations changed the theory of the case, which is not allowed under the Rules as it goes against fair play, justice, and due process. Thus, the SC disregarded the new issues and considered Advent’s original argument in the Comment as waived or abandoned.

• Deed of Assignment as Security: The CA held that the transfer of rights or credits from Advent to DBP was conditioned on Advent’s default in payment, based on Sections 8 and 12 of the Deed of Assignment. Section 8 stated that the administration and enforcement of the Project Loans shall be handled solely by Advent; Section 12 stated that should Advent be in default under the Subsidiary Loan Agreement, DBP may, at its option, enforce, sue on, collect, or take over collection of payments due on the notes and notify the investment enterprises to pay DBP. The SC agreed with the CA and found more bases: Section 9 stated that Advent shall, unless an Event of Default is declared, continue to deal with the investment enterprises, and payment to Advent shall effectively discharge their obligations; Section 10 authorized Advent to act as DBP’s attorney-in-fact and to enter into any contract with Goldstar pertaining to its loan, including taking possession, leasing, collecting rentals, and executing contracts concerning the mortgaged properties. Sections 9 and 10 showed that Advent may validly enter into a Dation in Payment with Goldstar, as they settle a due and demandable loan and secure Advent’s loan to DBP. Under Article 1159 of the New Civil Code, obligations arising from contracts have the force of law and should be complied with in good faith; if the terms are clear, the literal meaning controls. The CA simply enforced the terms of the Deed of Assignment. Goldstar’s argument that Advent was no longer its creditor was untenable because the Deed of Assignment specifically provided a condition before DBP may exercise its rights as assignee: Advent must be declared in default before DBP may take over as assignee. The unanimous finding of the trial and appellate courts that the condition was not met was persuasive and binding absent substantial evidence to the contrary.

• DBP Letter dated July 28, 2000: Goldstar averred that DBP’s letter dated July 28, 2000, directing it to pay its loan to DBP, indicated that Advent had defaulted and that DBP was now its new creditor. The letter stated that DBP was exercising its rights under the Deed of Assignment, as amended, and was substituting Advent as the new creditor of Goldstar. The SC held the argument unsustainable. First, whether Advent had defaulted in its payment since July 28, 2000 was a question of fact, which should be left for the trial court to decide. Second, the letter was immaterial and irrelevant in resolving whether Advent may validly enter into a Dation in Payment at the time of its execution on May 26, 2000. The basis of the letter was the Amendment and Addendum, which was inexistent at the time the Dation in Payment was signed. The letter did not change the fact that, at the time of the execution of the Dation in Payment, Advent had the right to enter into any contract with investment enterprises like Goldstar under the original terms of the Deed of Assignment.

• Validity of Dation in Payment: Article 1315 of the New Civil Code provides that contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage, and law. From the moment Goldstar and Advent executed the Dation in Payment, Goldstar agreed to transfer its rights and titles over the mortgaged properties as settlement of its loan obligation. Goldstar cannot resort to delaying tactics in fulfilling its part of the contract by alleging amendments in the Deed of Assignment. The Dation in Payment was signed on May 26, 2000, while the Amendment and Addendum was executed two months later on July 27, 2000; the Amendment and Addendum was non-existent at the time Goldstar and Advent signed the Dation in Payment. Goldstar cannot rely on a non-existing document to nullify a legally binding agreement. The original terms of the Deed of Assignment prevail, and under those terms Advent is the creditor and has the right to collect and manage Goldstar’s loan.

• Questions of Law under Rule 45: Section 1, Rule 45 of the Rules of Court states that only questions of law may be raised. While jurisprudence provided several exceptions, the petitioner must allege, substantiate, and prove the applicable exception/s so that the SC may review the facts of the case. Otherwise, the factual findings of the trial court, when affirmed by the CA, are binding on the SC. Goldstar failed to demonstrate how the CA’s factual findings presented an error of law. Goldstar’s allegations on how the CA erred in ruling that DBP may take over only when Advent is in default and in disregarding DBP’s letter relied on a re-evaluation of the evidence. Goldstar failed to prove that its petition falls under any of the exceptions to the general rule allowing only questions of law to be raised in a petition for review, so that the SC may review the evidence presented.

• Dation in payment — A dation in payment is a mode of settling a loan obligation by transferring property to the creditor as payment. The SC upheld the Dation in Payment because Advent remained Goldstar’s creditor and had authority under the Deed of Assignment to enter into it; the later Amendment and Addendum and DBP letter did not retroactively invalidate the contract.
• Deed of assignment as security — An assignment of receivables may operate as security rather than an immediate transfer where its terms make the assignee’s exercise of rights conditional on the assignor’s default. The SC applied this to the Deed of Assignment: Sections 8, 9, 10, and 12 showed Advent continued to administer and enforce the loans, and DBP could substitute only upon Advent’s default; no default was shown at the time of the Dation in Payment.
• Contract as law and literal interpretation — Obligations arising from contracts have the force of law and must be complied with in good faith; where the terms are clear, the literal meaning controls. The SC applied Article 1159 to enforce the Deed of Assignment and uphold the Dation in Payment.
• Perfection by consent — Contracts are perfected by mere consent, and from that moment the parties are bound to fulfill the express stipulations and all consequences consistent with good faith, usage, and law. The SC applied Article 1315 to hold Goldstar bound from the execution of the Dation in Payment and to reject its reliance on the later Amendment and Addendum.
• Rule 45 limited to questions of law — A petition for review on certiorari under Rule 45 may raise only questions of law; factual findings of the trial court affirmed by the CA bind the SC unless the petitioner alleges, substantiates, and proves an exception. The SC applied this because Goldstar’s arguments required re-evaluation of evidence and no exception was shown.
• New issues in memorandum — A party may not raise new issues in its memorandum; issues not included in the memorandum are deemed waived or abandoned, and considering new issues without giving the other side a chance to reply violates due process and fair play. The SC applied this to disregard Advent’s estoppel and forum shopping issues.

• "The Court agrees with the CA's finding, and found more bases to support the CA's Decision. Section 9 of the Deed of Assignment is crystal clear that Advent shall deal with Investment Enterprises, unless declared in default." — The SC affirms the CA and adds Section 9 as a basis for Advent’s continuing authority over Goldstar’s loan.
• "Goldstar's argument that Advent was no longer its creditor at the time the Dation in Payment and the Memorandum were signed is untenable, because the Deed of Assignment specifically provides a condition before DBP may exercise its rights as assignee." — The SC rejects Goldstar’s nullity theory and holds that Advent remained creditor absent default.
• "To reiterate, the Dation in Payment was signed on May 26, 2000, while the Amendment and Addendum was executed two months later on July 27, 2000. Undoubtedly, the Amendment and Addendum was non-existent at the time Goldstar and Advent signed the Dation in Payment. Therefore, Goldstar cannot rely on a non-existing document to nullify a legally binding agreement." — The SC disposes of the argument based on the later Amendment and Addendum and DBP letter.
• "Section 1, Rule 45 of the Rules of Court states that only questions of law may be raised. While jurisprudence provided several exceptions to this rule, the petitioner must allege, substantiate, and prove the applicable exception/s so that the Court may review the facts of the case." — The SC explains why Goldstar’s factual attacks on the CA’s findings fail.

• De los Santos vs. Lucenio, G.R. No. 215659, March 19, 2018 — Relied on for the rule that belated allegations changing the theory of the case are not allowed and violate fair play, justice, and due process.
• Hilltop Market Fish Vendors' Association, Inc. vs. Hon. Yaranon, G.R. No. 188057, July 12, 2017 — Relied on for the rule that where contract terms are clear, the literal meaning of the stipulations controls.
• Ka Kuen Chua, doing business under the name and style Ka Kuen Chua Architectural vs. Colorite Marketing Corp., G.R. Nos. 193969-70 and 194027-28, July 5, 2017 — Cited in support of the contract-perfection rule under Article 1315.
• Dee Hwa Liang Foundation Medical Center and Anthony Dee vs. Asiamed Supplies and Equipment Corp., G.R. No. 205638, August 23, 2017 — Relied on for the requirement that the petitioner allege, substantiate, and prove an exception to the rule that only questions of law may be raised under Rule 45.

• Article 1159, New Civil Code — Obligations arising from contracts have the force of law and should be complied with in good faith; if the terms are clear, the literal meaning controls. The SC applied this to enforce the Deed of Assignment and uphold the Dation in Payment.
• Article 1315, New Civil Code — Contracts are perfected by mere consent, and from that moment the parties are bound to the fulfillment of what has been expressly stipulated and to all consequences in keeping with good faith, usage, and law. The SC applied this to hold Goldstar bound from the execution of the Dation in Payment.
• Section 1, Rule 45, Rules of Court — Only questions of law may be raised in a petition for review on certiorari. The SC applied this because Goldstar’s arguments required re-evaluation of evidence and no exception was proven.