Rehabilitation Finance Corporation vs. Court of Appeals

The Court held that where a creditor grants a deferment of payment based on information supplied by the debtor regarding the release of loan proceeds, and the guarantor who possesses superior knowledge regarding the actual terms and certainty of such release fails to disclose that the information is incorrect, the creditor's assent to the proposed payment date does not operate as a waiver of the guarantor's absolute obligation to pay, nor does it convert the obligation into one contingent upon the actual release of funds; the guarantor remains liable for the guaranteed amount.

Delfin Dominguez contracted to purchase a registered lot from Realty Investments, Inc., making a down payment and agreeing to pay the balance in monthly installments. To finance improvements on a house he constructed on the lot, Dominguez secured a P10,000 loan from the Rehabilitation Finance Corporation (RFC), secured by a mortgage on the house and lot. At Dominguez's instance, RFC wrote to Realty Investments requesting the execution of documents to transfer title to Dominguez, assuring Realty Investments that upon registration of the mortgage as first lien, RFC would pay the balance of the purchase price amounting to P3,086.98.

• On June 17, 1948, Delfin Dominguez entered into a contract with Realty Investments, Inc. to purchase a registered lot, making a down payment of P39.98 and promising to pay the balance in 119 monthly installments.
• To finance improvements on a house constructed on the lot, Dominguez negotiated a P10,000 loan from the Rehabilitation Finance Corporation (RFC), secured by a mortgage on the house and lot.
• On September 17, 1948, RFC wrote to Realty Investments requesting the execution of documents necessary to transfer title to Dominguez, assuring that upon issuance of title in Dominguez's name and registration of RFC's mortgage as first lien, RFC would pay Realty Investments the balance of the purchase price amounting to P3,086.98.
• On September 20, 1948, relying on RFC's assurance, Realty Investments executed a deed conveying the lot to Dominguez "free of all liens and incumbrances."
• On September 17, 1948, Dominguez had executed a mortgage deed in favor of RFC, which was subsequently registered in the Registry of Deeds for the City of Manila as first lien on the lot and building.
• RFC released only P6,500 of the loan proceeds to Dominguez; the remainder was never released because Dominguez defaulted on the amortizations.
• RFC foreclosed the mortgage, purchased the mortgaged property at the foreclosure sale, and obtained title thereto upon Dominguez's failure to redeem.
• On September 20, 1948, Realty Investments wrote to RFC stating that, at Dominguez's request, it was agreeable to receive payment of the balance "at the second release of proceeds of his loan, which he informs us will be on or about October 15, 1948."
• Both Dominguez and RFC kept Realty Investments ignorant of the actual terms and conditions of the loan agreement and the manner in which the P10,000 was to be released.

• Petitioner RFC contended that its obligation to pay the balance of the purchase price had been modified, if not extinguished, by Realty Investments' letter dated September 20, 1948.
• Petitioner argued that the letter constituted an agreement to accept payment at the second release of the loan proceeds, thereby making its obligation contingent upon such release.
• Petitioner maintained that the letter operated as a waiver of the absolute guaranty contained in its September 17, 1948 letter.

• Respondent Realty Investments argued that the September 20, 1948 letter merely indicated assent to a deferment of payment, not a waiver of RFC's guaranty.
• Respondent contended that it would be absurd to construe the letter as a waiver of the guaranty contained in RFC's September 17, 1948 letter, which bound RFC to pay the unpaid balance after title transfer.
• Respondent asserted that because RFC failed to disclose the actual terms of the loan and the uncertainty of the second release, despite having superior knowledge, it could not now rely on the deferment letter to avoid liability.
• Respondent maintained that RFC, having induced Realty Investments to convey the title free from encumbrances based on its assurance of payment, could not retain the foreclosed property without paying the guaranteed balance.

• Procedural: Whether the Court of Appeals erred in declaring the trial court's judgment against Delfin Dominguez void for having been rendered after his exclusion from the case.
• Substantive Issues: Whether RFC's obligation to pay the balance of the purchase price was modified or extinguished by Realty Investments' letter of September 20, 1948, which expressed agreement to receive payment at the "second release" of Dominguez's loan proceeds.

• Procedural: The Court affirmed the Court of Appeals' decision, implicitly sustaining the appellate court's determination that the judgment against Dominguez was void and that liability properly attached to RFC.
• Substantive: The Court held that RFC's obligation was not modified or extinguished. The Court ruled that Realty Investments' letter constituted merely an assent to a deferment of payment, not a waiver of the guaranty or a condition precedent. Because RFC possessed superior knowledge regarding the terms of the loan and the likelihood of a second release, and failed to correct Realty Investments' misconception that payment would be forthcoming on or about October 15, 1948, it would be unfair to construe the letter as making payment contingent upon the actual release of funds. The Court found that Realty Investments was lulled by RFC's assurance into looking to RFC rather than Dominguez for payment, and RFC could not benefit from its own failure to disclose material facts.

• Estoppel and Good Faith in Contractual Relations — A party who induces another to act to its detriment based on an assurance of payment cannot subsequently avoid liability by relying on the other party's agreement to a deferred payment schedule, where the deferment was based on information known to be incorrect by the inducing party who failed to make disclosure. The Court applied this principle to prevent RFC from retaining the property without paying the guaranteed balance.
• Interpretation of Assent to Deferment — A creditor's expression of willingness to receive payment at a future date specified by the debtor does not operate as a waiver of an existing absolute obligation, nor does it convert the obligation into a conditional one, where the creditor grants such extension in reliance on information supplied by the debtor and the guarantor fails to disclose the inaccuracy of such information.

• "Plaintiff was induced to part with his title to a piece of real property upon RFC's assurance that it would itself pay the balance of the purchase price due from the purchaser after its mortgage lien thereon had been registered."
• "It would be unreasonable to suppose that the creditor, already assured of payment by the RFC itself, would want to create uncertainty by making such payment dependent upon a contingency."
• "It was the Rehabilitation Finance Corporation that induced plaintiff to issue title to the lot free from all encumbrances to Dominguez on its guaranty, and it cannot now without any fault of the plaintiff keep the lot in question and Dominguez' building without paying anything to the plaintiff."