Interested party

This is a case where an interested third party paid the debt of another. It is a case of a couple Gerry and Gina and their friend Romy.

Romy was the president of a realty company (the Company) who agreed to help his friend Gerry and Gina by lending them two parcels of land owned by the company which the couple would use as collateral for the credit line they were applying from a bank (the Bank). So Gerry and Gina were able to get the owner’s duplicate copies of the lands by virtue of the Company’s board resolution contained in a secretary’s certificate and mortgaged the same to the Bank as security for a loan of P600,000. However it turned out that the signature of the corporate secretary in the Secretary’s Certificate was forged by Gina.

When the spouses failed to pay their obligation, the Bank initiated foreclosure proceedings. On the other hand, the Company also tried to annul the Real Estate Mortgage in a case filed before the Regional Trial Court (RTC) alleging forgery of the signature of its corporate secretary which the Company allegedly discovered only after the REM was executed.

 The foreclosure was thus initially enjoined. But eventually, in a ruling sustained by the Supreme Court itself, the Bank was allowed to proceed with the foreclosure after finding that the Company ratified the REM. To avoid foreclosure of its properties the Company was thus forced to settle Gerry and Gina’s obligation to the Bank already amounting to P3.3 million including interests, penalties and service charges.

Then the Company in turn demanded reimbursement from the spouses the amount it paid to the Bank. But despite the lapse of almost two months, the spouses did not heed its demand. So the company already filed a complaint against the spouses before another branch of the RTC to claim reimbursement of said amount. The RTC however dismissed the Company’s complaint upon motion of the spouses. According to the RTC, the complaint based on fraud or the forgery of the Secretary’s Certificate must be filed within four years from its discovery by the Company, but in this case the complaint was filed only after almost 6 years. Was the RTC correct?

No. In effect, the Company became a third party accommodation mortgagor in this case. It paid the Bank to avoid foreclosure of the mortgage which it tried to annul but failed forcing it to pay the debt of Gerry and Gina to the Bank as an interested third party. Under Article 1236 second paragraph of the Civil Code, “whoever pays for another may demand from the debtor what he has paid except that if he paid without the knowledge or against the will of the debtor he can recover only insofar as the payment has been beneficial to the debtor.”

Even if the spouses insist that the Company’s payment was without their knowledge or against their will, the Company still has a right to reimbursement under Article 1302 (3) of the Civil Code because it is a person interested in the fulfillment of the obligation. The Company has an interest in the fulfillment of the obligation because it owns the properties mortgaged to secure the obligation of the spouses. It is subrogated to the right of the creditor Bank. It actually steps into the shoes of the Bank and becomes entitled not only to recover what it has paid but also to exercise all the rights the Bank could have exercised. There is, in such cases, no real extinguishment of the obligation, but a change in the active subject.

The Company’s action against the spouses is based on a mortgaged created by law and prescribes in 10 years (Article 1144 CC). Prescription accrues from the date when the Company paid the debt of the spouses to the Bank which only two years before it sued the couple and almost two months from the extrajudicial demands on the couple. Whether the date of payment or the date of demand, it is clear that the Company’s cause of action has not yet prescribed. So the spouses should reimburse the Company the amount it paid to the Bank with 16% interest plus attorney’s fees of 5% of the total award. This is the ruling in the case of Cecilleville Realty etc. vs. Spouse Acuna, G.R. 162074, June 13, 2009.

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