Good Earth Emporium Inc., and Lim Ka Ping vs. Honorable Court of Appeals and Roces-Reyes Realty Inc.

Payment extinguishes an obligation only when made to the creditor, its successor in interest, or a person authorized to receive it; payment to corporate stockholders or officers in their individual capacities does not satisfy a corporate judgment debt absent proof of authority, and the debtor bears the burden of proving payment.

Roces-Reyes Realty, Inc. was the lessor of a five-storey building at the corner of Rizal Avenue and Bustos Street, Sta. Cruz, Manila, while Good Earth Emporium, Inc. was the lessee under a lease contract. Lim Ka Ping was joined as a defendant and later petitioner in the ejectment and execution proceedings. The case implicated payments later made to Jesus Marcos Roces and Marcos V. Roces in their individual capacities, and the legal backdrop included Article 1240 of the Civil Code on payment to the proper creditor and the separate juridical personality of corporations.

On October 16, 1981, Roces-Reyes Realty, Inc., as lessor, and Good Earth Emporium, Inc., as lessee, entered into a Lease Contract for a term of three years beginning November 1, 1981 and ending October 31, 1984, at a monthly rental of P65,000. The leased premises was a five-storey building located at the corner of Rizal Avenue and Bustos Street in Sta. Cruz, Manila. Lim Ka Ping was a petitioner and defendant in the ensuing ejectment and execution proceedings.

From March 1983 up to the time the complaint was filed, the lessee defaulted in the payment of rentals. Roces-Reyes Realty, Inc. filed an ejectment case for unlawful detainer against Good Earth Emporium, Inc. and Lim Ka Ping. After the latter tendered their responsive pleading, the Metropolitan Trial Court of Manila rendered judgment on the pleadings dated April 17, 1984, ordering the defendants and all persons claiming title under them to vacate the premises and surrender the same to the plaintiff; to pay the plaintiff rental of P65,000 a month beginning March 1983 up to the time defendants actually vacate the premises and deliver possession; to pay attorney's fees of P5,000; and to pay the costs.

On May 16, 1984, Roces filed a motion for execution, which GEE opposed on May 28, 1984, simultaneously with its filing of a Notice of Appeal. On June 13, 1984, the trial court granted the motion for execution after finding that the defendant failed to file the necessary supersedeas bond. A writ of execution was issued on June 14, 1984. The appeal was assigned to the Regional Trial Court of Manila, Branch XLVI. On August 15, 1984, GEE, through counsel, filed a motion to withdraw appeal, citing as reason that it was satisfied with the decision of the Metropolitan Trial Court; the court granted the motion on August 27, 1984, and the records were remanded to the trial court.

Upon an ex-parte motion of Roces, the trial court issued an alias writ of execution dated February 25, 1985, which was implemented on February 27, 1985. GEE, through counsel, filed a motion to quash the writ of execution and notice of levy and an urgent ex-parte supplemental motion for the issuance of a restraining order on March 7 and March 20, 1985, respectively. On March 21, 1985, the lower court issued a restraining order to the sheriff to hold the execution of the judgment pending hearing on the motion to quash. While the motion was pending, GEE filed a Petition for Relief from judgment before another court, the Regional Trial Court of Manila, Branch IX, docketed as Civil Case No. 80-30019; the petition was dismissed and the injunctive writ issued in connection therewith was set aside. Both parties appealed to the Court of Appeals; GEE on the order of dismissal and Roces on denial of its motion for indemnity, both docketed as CA-G.R. No. 15873-CV.

Going back to the original case, the Metropolitan Trial Court, after hearing and disposing of some other incidents, promulgated the questioned Resolution dated April 8, 1985, denying the motion to quash the writ for lack of merit and recalling, lifting, and setting aside the restraining orders issued on March 11 and 23, 1985. GEE appealed, and the case was raffled to the same Court, RTC Branch IX. Roces moved to dismiss the appeal, but the Court denied the motion. On certiorari, the Court of Appeals dismissed Roces' petition and remanded the case to the RTC. Meanwhile, Branch IX became vacant and the case was re-raffled to Branch XLIV.

On April 6, 1987, the Regional Trial Court of Manila found that the amount of P1 million evidenced by Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument, Exhibit "2", were in full satisfaction of the judgment obligation; it reversed the decision of the Municipal Trial Court, quashed the writ of execution, ordered the cancellation of the notice of levy, and declared the judgment debt as having been fully paid and/or liquidated. On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and reinstated the Resolution of the Metropolitan Trial Court of Manila dated April 8, 1985, with no pronouncement as to costs. GEE's Motion for Reconsideration dated April 5, 1988 was denied.

The common exhibits, Exhibits 1/A and 2/B, contained no writing alluding to or referring to any settlement between the parties of petitioners' judgment obligation. The receipt, Exhibit "1", dated September 20, 1984, was signed by persons other than the judgment creditors, Roces-Reyes Realty, Inc., and contained no indication that it was in payment, full or partial, of the judgment obligation. The pacto de retro sale was drawn in favor of Jesus Marcos Roces and Marcos V. Roces, not the respondent corporation, and contained no indication that the obligation embodied therein had something to do with petitioners' judgment obligation with respondent corporation. Jesus Marcos Roces testified that the P1 million evidenced by the receipt was payment for a loan extended by him and Marcos Roces in favor of Lim Ka Ping, and the receipt itself acknowledged payment of the loan in their names and in no other capacity. The total amount covered by the receipt and the sale with pacto de retro, P2 million, exceeded petitioners' judgment obligation of P1,560,000 by P440,000. Petitioners' explanation that the excess was interest and advance rentals for an extension of the lease contract was belied by the absence of any interest awarded in the case, of any agreement as to the extension of the lease, and of any such pretense in the Motion to Quash the Alias Writ of Execution.

• Full Satisfaction of Judgment Debt: Petitioners maintained that the P1 million receipt, Exhibit "1", and the P1 million pacto de retro sale, Exhibit "2", fully satisfied the judgment obligation, justifying the quashing of the alias writ of execution.
• Overpayment and Excess: Petitioners claimed an overpayment of about half a million pesos, explaining that the P440,000 excess over the judgment obligation was for interest and advance rentals for an extension of the lease contract.
• Grave Abuse of Discretion: Petitioners averred that the respondent court gravely abused its discretion in arriving at the assailed factual findings as contrary to the evidence and applicable decisions of the Supreme Court.

• No Payment to Creditor: Respondent countered that the supposed payments were not made to Roces-Reyes Realty, Inc. or to its successor in interest, nor was there positive evidence that payment was made to a person authorized to receive it.
• Individual Capacity of Roces Brothers: Respondent argued that the receipt was signed by persons other than the judgment creditors and that the pacto de retro sale was in favor of Jesus Marcos Roces and Marcos V. Roces in their individual capacities, not the corporation; Jesus Marcos Roces was no longer President or an officer of the corporation at the time he received the money and denied being authorized to receive payment for the corporation.
• Burden of Proof: Respondent maintained that petitioners, as debtors claiming payment, bore the burden of proving that the judgment debt had been extinguished, and that the documents did not show payment of the judgment obligation.
• Belated Claim: Respondent pointed out that the alleged payment was not even alleged by GEE and Lim Ka Ping in their original motion to quash the alias writ of execution but was produced only during the hearing, resulting in petitioners belatedly claiming an overpayment.

• Full Satisfaction of Judgment Debt: Whether there was full satisfaction of the judgment debt in favor of Roces-Reyes Realty, Inc. which would justify the quashing of the writ of execution.
• Grave Abuse of Discretion: Whether the Court of Appeals gravely abused its discretion in finding lack of convincing and reliable evidence to establish payment of the judgment obligation and in reversing the Regional Trial Court.

• Full Satisfaction of Judgment Debt: No. The alleged payments did not satisfy the judgment debt because they were not made to the creditor corporation, its successor in interest, or an authorized person, as required by Article 1240 of the Civil Code. The receipt and pacto de retro sale were in favor of the Roces brothers in their individual capacities and contained no reference to the judgment obligation.
• Grave Abuse of Discretion: No. The Court of Appeals did not gravely abuse its discretion; the burden of proving payment rested on petitioners and was not discharged by the documents they submitted.

• Full Satisfaction of Judgment Debt: Article 1240 of the Civil Code provides that payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. The common exhibits, Exhibits 1/A and 2/B, contained no writing alluding to or referring to any settlement between the parties of petitioners' judgment obligation. The receipt, Exhibit "1", did not indicate that it was in payment, full or partial, of the judgment obligation. The pacto de retro sale was drawn in favor of Jesus Marcos Roces and Marcos V. Roces and not the respondent corporation, and there was no indication that the obligation embodied therein had something to do with petitioners' judgment obligation with respondent corporation. No proof was submitted that the supposed payments were made to Roces-Reyes Realty, Inc. or to its successor in interest or to a person authorized to receive them. The Regional Trial Court merely inferred authority from Marcos Roces having signed the Lease Contract as President, which was witnessed by Jesus Marcos Roces; however, Jesus Marcos Roces was no longer President or even an officer of Roces-Reyes Realty, Inc. at the time he received the money and signed the sale with pacto de retro, and he denied being in possession of authority to receive payment for the respondent corporation. Jesus Marcos Roces testified that the P1 million evidenced by the receipt was payment for a loan extended by him and Marcos Roces in favor of Lim Ka Ping, and the receipt itself acknowledged payment of the loan in their names and in no other capacity. A corporation has a personality distinct and separate from its individual stockholders or members; being an officer or stockholder does not make one's property also of the corporation, and vice-versa. As a consequence, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of the corporation. The delivery of the amount to and the receipt thereof by the Roces brothers in their names raised the presumption that the amount was due to them under Section 5(f), Rule 131, and it was for GEE and Lim Ka Ping to prove otherwise. The fact that at the time payment was made to the two Roces brothers, GEE was also indebted to respondent corporation for a larger amount did not support the conclusion that the payment was in favor of the corporation, especially where the amount was not receipted for by respondent corporation and there was no indication in the receipt that the payment was in satisfaction of the judgment debt. The total amount of P2 million far exceeded petitioners' judgment obligation of P1,560,000 by P440,000, which militated against the claim that the amount was in full payment of the judgment obligation. Petitioners' explanation that the excess was interest and advance rentals for an extension of the lease contract was belied by the absence of any interest awarded in the case, of any agreement as to the extension of the lease, and of any such pretense in the Motion to Quash the Alias Writ of Execution. Thus, there was no full satisfaction of the judgment debt.

• Grave Abuse of Discretion: The respondent court was correct in stating that it cannot go beyond what appears in the documents submitted by petitioners themselves, Exhibits "1" and "2", in the absence of clear and convincing evidence that would support the claim that the judgment obligation had indeed been fully satisfied. When the existence of a debt is fully established by the evidence, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor. Each party in a case must prove his own affirmative allegations by the degree of evidence required by law. The burden of evidence resting on petitioners to establish the facts upon which their action was premised was not satisfactorily discharged, and they must bear the consequences. The appellate court cannot therefore be said to have gravely abused its discretion in finding lack of convincing and reliable evidence to establish payment of the judgment obligation.

• Payment to the Proper Creditor — Under Article 1240 of the Civil Code, payment must be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. The Court applied this rule to hold that the supposed payments to Jesus Marcos Roces and Marcos V. Roces did not extinguish the judgment debt because they were not made to Roces-Reyes Realty, Inc. or to an authorized recipient.
• Separate Juridical Personality of Corporations — A corporation has a personality distinct and separate from its individual stockholders or members; being an officer or stockholder does not make one's property also of the corporation, and vice-versa. Corporate property or credits are owned by the corporation as a distinct legal person, and the corporate debt or credit is not the debt or credit of the stockholder. The Court applied this doctrine to hold that the judgment credit belonged to Roces-Reyes Realty, Inc., so payments received by the Roces brothers in their individual capacities did not satisfy the corporation's credit.
• Burden of Proof on Debtor Claiming Payment — When the existence of a debt is fully established by the evidence, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor. Petitioners failed to discharge this burden because the documents did not show payment of the judgment obligation.
• Disputable Presumption That Money Paid Was Due — Under Section 5(f), Rule 131 of the Rules of Court, there is a disputable presumption that money paid by one person to another was due to the latter. The receipt in the names of the Roces brothers raised this presumption, and petitioners failed to prove that the amount was intended for the corporation's judgment debt.
• Grave Abuse of Discretion in Factual Findings — The Court of Appeals did not gravely abuse its discretion in reversing the Regional Trial Court's factual finding of full satisfaction, because the finding lacked convincing and reliable evidence and the burden of evidence on petitioners was not satisfactorily discharged.

• "Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it." — Article 1240 of the Civil Code, quoted by the Court as the controlling rule on the proper recipient of payment; the Court used it to hold that payments to the Roces brothers did not satisfy the corporation's judgment debt.
• "A corporation has a personality distinct and separate from its individual stockholders or members. Being an officer or stockholder of a corporation does not make one's property also of the corporation, and vice-versa, for they are separate entities..." — The Court used this formulation to explain why the individual receipts of the Roces brothers did not extinguish the corporate judgment credit.
• "It has been an established rule that when the existence of a debt is fully established by the evidence (which has been done in this case), the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such a defense to the claim of the plaintiff creditor..." — The Court placed the burden on petitioners, as debtors claiming payment, to prove extinguishment of the judgment debt.
• "There is a disputable presumption that money paid by one to the other was due to the latter (Sec. 5(f) Rule 131, Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise." — The Court applied the presumption to the receipt in the Roces brothers' names and required petitioners to rebut it.

• Traders Royal Bank vs. CA, CA-G.R. No. 78412, September 26, 1989 — Cited in support of the rule that a corporation has a personality distinct and separate from its individual stockholders or members.
• Cruz vs. Dalisay, 152 SCRA 482 — Cited with Traders Royal Bank for the same separate-juridical-personality principle.
• Concepcion Magsaysay-Labrador vs. CA, CA-G.R. No. 58168, December 19, 1989 — Cited for the proposition that shareowners are not, in a legal sense, owners of corporate property or credits.
• Chua Chienco vs. Vargas, 11 Phil. 219; Ramos vs. Ledesma, 12 Phil. 656; Pinon vs. De Osorio, 30 Phil. 365 — Cited for the rule that the debtor bears the burden of proving payment when the existence of the debt is fully established.
• Stronghold Insurance Co. vs. CA, G.R. No. 83376, May 29, 1989; Tai Tong Chuache & Co. vs. Insurance Commission, 158 SCRA 366 — Cited for the principle that each party must prove his own affirmative allegations by the degree of evidence required by law.

• Article 1240, Civil Code of the Philippines — Provides that payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. Applied to hold that payments to the Roces brothers did not satisfy the judgment debt because they were not made to Roces-Reyes Realty, Inc. or an authorized recipient.
• Section 5(f), Rule 131, Rules of Court — Establishes a disputable presumption that money paid by one to another was due to the latter. Applied to the receipt in the names of the Roces brothers, raising the presumption that the amount was due to them and placing on petitioners the burden to prove otherwise.

Melencio-Herrera, Padilla, Sarmiento, and Regalado, JJ., concur.