Philippine National Bank vs. Uy Teng Piao

An alleged condonation of a debt owed to a corporation must be established by clear and unequivocal evidence, and it must be shown that the corporate agent who allegedly made the promise possessed actual or apparent authority from the board of directors to bind the corporation.

The Philippine National Bank obtained a judgment for P17,232.42 against Uy Teng Piao in 1924. After the debtor failed to satisfy the judgment, the sheriff sold two mortgaged parcels at public auction to the bank for nominal amounts. Uy Teng Piao later executed a written waiver of his right of redemption over one parcel, and the bank resold both properties, crediting him with the proceeds totaling P11,300. The bank then sued to recover the deficiency of approximately P11,574.33.

• The 1924 Judgment and Foreclosure Sale: On September 9, 1924, the Court of First Instance of Manila rendered judgment in civil case No. 26328 ordering Uy Teng Piao to pay the Philippine National Bank P17,232.42, with 7% interest per annum from June 1, 1924, plus 10% attorney’s fees and costs. The judgment directed the sale of two mortgaged parcels of land covered by Transfer Certificates of Title Nos. 7264 and 8274 if payment was not made within three months. Uy Teng Piao failed to pay; the sheriff sold both parcels at public auction to the bank on October 14, 1924 for P300 and P1,000, respectively.

• The Waiver and Resale: On February 11, 1925, Uy Teng Piao executed a written waiver of his right to redeem the property covered by TCT No. 8274 (the Ronquillo property). On the same date, the bank sold that property to Mariano Santos for P8,600. The other parcel was subsequently resold by the bank for P2,700. The bank credited the defendant’s account with the total proceeds of both resales, P11,300, and then brought the present action to recover the remaining deficiency balance of P11,574.33 with interest from August 1, 1930.

• The Defendant’s Alleged Promise of Condonation: In his amended answer, Uy Teng Piao alleged as a special defense that he waived his right of redemption over the Ronquillo property in consideration of an understanding between him and the bank that the bank would not collect the balance of the judgment. The trial court accepted this defense and absolved the defendant.

• Testimony at Trial: The defendant was the only witness on the alleged agreement. On direct examination he testified that a bank employee, Mr. Pecson, had told him words to the effect that it would be better for him to leave all his properties to the bank to cover his debts, and that after he executed the waiver, Pecson said the properties would cover all his debts. The defendant stated he did not remember precisely when or where the conversation occurred. He received no money upon signing the waiver. On cross-examination, he could not say whether Pecson was in Iloilo at the time of execution, nor when Pecson spoke to him. The waiver document, Exhibit 1, contained no mention of any condonation or promise not to collect the balance. One of the plaintiff’s attorneys testified that the defendant renounced his right to redeem the Ronquillo property because a friend of the defendant was interested in buying it.

• No Valid Condonation Agreement: Petitioner maintained that the defendant failed to prove any agreement by the bank to condone the balance of the judgment. The defendant’s testimony was uncorroborated, vague, and uncertain; the written waiver (Exhibit 1) made no reference to condonation, and the more reasonable explanation was that the waiver was given to allow a friend to purchase the property. The trial court’s inference that the absence of demand from 1925 to 1930 constituted “inequívoca prueba evidente” of condonation was error.

• Lack of Authority: Petitioner argued that even if Pecson made the statement attributed to him, he was a mere employee, not an officer authorized to bind the bank to condone a substantial debt. Only the board of directors or an officer specifically empowered by the board could make such an agreement. The bank’s acceptance of the benefit of the waiver did not ratify an unauthorized promise because the waiver was sufficiently supported by the independent consideration of the crediting of the resale price.

• Sufficient Consideration: Petitioner contended that the consideration for the execution of the waiver was the bank’s resale of the property at the defendant’s instance for P8,600 and the crediting of that full amount to the defendant’s account, not a promise of condonation. The bank was therefore entitled to recover the remaining deficiency.

• Condonation in Consideration of Waiver: Respondent alleged that he executed the waiver of his redemption right over the Ronquillo property in reliance on an understanding with the bank, communicated through Pecson, that the bank would not collect the balance of the judgment. He maintained that this constituted a valid novation by condonation, extinguishing the remaining obligation.

• Acceptance of Benefit: Respondent argued that since the bank accepted the benefit of the waiver — reselling the property for P8,600 and crediting him with that amount — it could not repudiate the accompanying promise of condonation. He further claimed that his offers to pay reflected only a desire to avoid litigation and did not acknowledge the debt.

• Existence of Condonation Agreement: Whether the defendant proved by clear and competent evidence that the bank promised to condone the balance of the judgment in civil case No. 26328 in exchange for his waiver of redemption rights.

• Authority of Bank Employee: Whether Mr. Pecson, as an employee of the bank, had the authority to make a binding promise of condonation on behalf of the bank.

• Sufficiency of Consideration: Whether the consideration for the waiver (Exhibit 1) was the condonation of the balance of the judgment, or merely the bank’s crediting of the proceeds of the resale.

• Existence of Condonation Agreement: The evidence was insufficient to establish any valid condonation. The defendant’s testimony was uncorroborated, uncertain, and contradicted by the written waiver, which contained no mention of a promise to forgo the deficiency. The more credible inference was that the defendant waived his right to redeem because a friend wished to purchase the property and the bank agreed to credit him with the full resale price. The mere absence of a demand for payment for several years, without more, did not constitute unequivocal proof of condonation. The alleged agreement therefore failed for want of credible proof.

• Authority of Bank Employee: Even if it were assumed that Pecson made the statement attributed to him, the defendant did not show that Pecson possessed actual or apparent authority to bind the Philippine National Bank to a condonation of debt. A corporation acts through its board of directors or officers duly empowered by the board; a mere employee’s oral statement cannot bind the corporation to such a substantial extinguishment of a claim. The bank’s acceptance of the waiver and crediting of the proceeds did not constitute ratification of an unauthorized promise, because those acts were fully accounted for by an independent, legitimate consideration — the defendant’s waiver enabled the bank to resell the property for a significantly higher price and credit that amount to the debt.

• Sufficiency of Consideration: The consideration for the defendant’s waiver was not the condonation of the balance but the bank’s undertaking to resell the property at the defendant’s instance and credit him with the full amount of P8,600, a benefit distinct from any alleged promise to cancel the remaining obligation. The waiver was thus supported by a valid and independent consideration, and the defendant remained liable for the deficiency.

• Proof of Condonation — A condonation or remission of a debt must be established by clear, unequivocal, and convincing evidence. An oral promise of condonation that is uncorroborated, uncertain in its terms, and contradicted by a contemporaneous written document that omits any reference to it does not satisfy this standard. The mere failure of a creditor to demand payment for several years is not, by itself, sufficient proof that the debt has been condoned.

• Authority of Corporate Agents — A corporation can only be bound by contracts or acts of its agents that are within the scope of their actual or apparent authority. The power to condone or release a substantial debt is a fundamental corporate act that resides in the board of directors or in officers specifically authorized by the board. An employee who is not shown to possess such authority cannot bind the corporation by an oral promise to extinguish a debt, and the corporation’s acceptance of a benefit does not ratify the unauthorized promise when that benefit is fully explained by an independent consideration.

• Consideration for Waiver of Redemption — Where a debtor waives his right of redemption over a foreclosed property and the creditor resells the property for a price substantially higher than the auction price, the crediting of the full resale price to the debtor’s account constitutes sufficient consideration for the waiver. This independent consideration prevents the creditor’s acceptance of the waiver from being construed as ratification of an alleged, but unproven, promise to condone the remaining debt.

• “Defendant’s testimony as to the alleged agreement is very uncertain. There is no mention in Exhibit 1 as to such an agreement on the part of the bank. … It appears to us that the defendant waived his right to redeem the land in Calle Ronquillo, because a friend of his wished to purchase it and was willing to pay therefor P8,600, and the bank agreed to credit the defendant with the full amount of the sale.”

• “Furthermore, if it be conceded that there was such an understanding between Pecson and the defendant as the latter claims, it is not shown that Pecson was authorized to make any such agreement for the bank. Only the board of directors or the persons empowered by the board of directors could bind the bank by such an agreement.”

• “There is no merit in the contention that since the bank accepted the benefit of the waiver it cannot now repudiate the alleged agreement. The fact that the bank after having bought the land for P1,000 resold it at the instance of the defendant for P8,600 and credited the defendant with the full amount of the resale was a sufficient consideration for the execution of defendant’s waiver of his right to redeem.”

N/A — The decision does not cite prior jurisprudence on condonation or corporate authority; it refers only to Canon 19 of the Code of Legal Ethics in connection with an attorney testifying as a witness.

N/A — The ruling rests on general principles of evidence, obligations, and corporate authority without citing specific codal provisions, statutes, or procedural rules.

Malcolm, Villamor, Ostrand, Villa-Real, Abad Santos, Hull, Imperial, and Butte, JJ., concurred.

N/A — No dissenting opinions were recorded.