Civ Ii - Modes of Extinguishment

CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
CASE No. 61 Plaintiff then asked for a release of funds on

terms different from that originally agreed upon
SAURA VS. DBP requiring funds be dispersed for importation of
44 SCRA 445 raw materials and equipment. The Bank refused
in a letter saying that the release of funds is
Topic: Modes of Extinguishment of Obligations – subject to availability of the same, and a revision
Mutual Desistance(Mutuo Disenso) of the purpose of the loan shall be subject to
approval upon the re-appraisal of the securities
FACTS: The plaintiff, Saura, applied to the of the loan. The Bank also reiterated the
Rehabilitation Finance Corporation (RFC), before necessity of the certification of the DENR,
its conversion into DBP, for an industrial loan of because the basis of the original approval is to
P500,000.00, to be used as follows: P250,000.00 develop the manufacture of sacks on the basis of
for the construction of a factory building (for the the locally available raw materials. Plaintiff’s
manufacture of jute sacks); P240,900.00 to pay statement that he will have to rely on the
the balance of the purchase price of the jute mill importation of jute, would not be in line with the
machinery and equipment; and P9,100.00 as Bank’s principle in approving the loan.
additional working capital. On January 7, 1954
RFC passed Resolution No. 145 approving the With the foregoing letter the negotiations
loan application on the given terms for stopped. Saura, Inc. did not pursue the matter
P500,000.00, to be secured by a first mortgage further. Instead, it requested RFC to cancel the
on the factory building to be constructed, the mortgage, RFC executed the corresponding deed
land site thereof, and the machinery and of cancellation and delivered it to Ramon F.
equipment to be installed. Saura himself as president of Saura, Inc. It
appears that the cancellation was requested to
Later the loan was reduced to P 300,000.00 but enable the registration of a mortgage contract
was restored to the original amount provided over the same property in favor of the Prudential
that Department of Agriculture and Natural Bank and Trust Co., under which contract Saura,
Resources shall certify; (1)that the raw materials Inc. had up to December 31 of the same year to
needed by the borrower-corporation to carry out pay its obligation on the trust receipt heretofore
its operation are available in the immediate mentioned. It appears further that for failure to
vicinity; and (2)that there is prospect of pay the said obligation the Prudential Bank and
increased production thereof to provide Trust Co. sued Saura, Inc. 9 years after the
adequately for the requirements of the factory. mortgage was cancelled at the request of Saura,
The certification by the Department of Inc., plaintiff commenced the present suit for
Agriculture and Natural Resources was required damages, alleging failure of RFC (as predecessor
"as the intention of the original approval (of the of the defendant DBP) to comply with its
loan) is to develop the manufacture of sacks on obligation to release the proceeds of the loan
the basis of locally available raw materials”; the applied for and approved, thereby preventing
venture "is the first serious attempt in this the plaintiff from completing or paying
country to use 100% locally grown raw contractual commitments it had entered into.
materials notably kenaf which is presently
grown commercially in the Island of Mindanao The trial court ruled for the plaintiff, ruling that
where the proposed jutemill is located ..." there was a perfected contract between the
parties and that the defendant was guilty of
breach thereof.
ARELLANO UNIVERSITY SCHOOL OF LAW Page 1

ISSUE: Whether or not the parties mutual

desistance from pursuing the contract
extinguished the same.
RULING: Yes. When RFC turned down the

request in its letter the negotiations which had
been going on for the implementation of the
agreement reached an impasse. Saura, Inc.
obviously was in no position to comply with
RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed
upon, Saura, Inc. asked that the mortgage be
cancelled. The action thus taken by both parties
was in the nature of mutual desistance — what
Manresa terms "mutuo disenso" — which is a
mode of extinguishing obligations. It is a
concept that derives from the principle that
since mutual agreement can create a
contract, mutual disagreement by the parties
can cause its extinguishment.
The subsequent conduct of Saura, Inc. confirms

this desistance. It did not protest against any
alleged breach of contract by RFC, or even point
out that the latter's stand was legally unjustified.
Its request for cancellation of the mortgage
carried no reservation of whatever rights it
believed it might have against RFC for the latter's
non-compliance. In 1962 it even applied with
DBP for another loan to finance a rice and corn
project, which application was disapproved. It
was only nine years after the loan agreement had
been cancelled at its own request, that Saura, Inc.
brought this action for damages. All these
circumstances demonstrate beyond doubt that
the said agreement had been extinguished by
mutual desistance — and that on the initiative of
the plaintiff-appellee itself.

Case No. 62 Mangondato filed a complaint for reconveyance

against NPC before the RTC of Marawi City. The
NPC VS. IBRAHIM Court ruled in favor of Mangondato and decreed
the subject land condemned in favor of
G.R. No. 175863 February 18, 2015 Mangondato and as to the the occupation of the
subject land, for NPC to pay rentals. NPC filed an
FACTS:wred appeal before the CA.
In 1988, petitioner, NPC, took possession of a During the pendency of the appeal filed by NPC,
21,995 square meter parcel of land in Marawi respondents Ibrahims and Maruhoms filed a
City for the purpose of building a hydroelectric complaint against Mangondato and NPC before
power plant pursuant to its Agus 1 project. A the RTC of Marawi City disputing the ownership
portion of a private estate registered in the name of Mangondato. Ibrahims and Maruhoms
of private respondent Macapanton K. asserted that they are the lawful owners of the
Mangondato was occupied by NPC under the subject land as heirs of Datu Magayo-ong
mistaken beloef that such land is part of the Maruhom, the original proprietor of the said land
public land reserved for its use by the and that Mangondato’s right is only that of a
government under Proclamation No. 1354. trustee. Hence, they are entitled to the rental fees
or expropriation that maybe found due on the
Mangondato discovered NPC’s occupation of the said land.
subject land in 1979, the year that petitioner
started its construction of the hydroelectric ISSUE:
power plant. Shortly after, Mangondato began
demanding compensation for the subject land WON NPC can be held liable to the Ibrahims and
from NPC. In support of Mangondato’s demand Maruhoms?
of compensation, a letter was sent to NPC
detailing the origins of ownership of HELD:
Mangondato over the land.
Without the existence of bad faith, the ruling
NPC, first, rejected the claim of ownership by of the RTC and of the Court of Appeals apropos
Mangondato believing that the subject land is a petitioner’s remaining liability to the Ibrahims
public land. After more than a decade, NPC and Maruhoms becomes devoid of legal basis. In
finally assented to the fact that the subject land is fact, petitioner’s previous payment to
a private land and acknolwedged Mangondato’s Mangondato of the rental fees and
rights to receive compensation as registered expropriation indemnity due the subject land
owner. pursuant to the final judgment in Civil Case
No. 605-92 and Civil Case No. 610-92 may be
During the 1990s, Mangondato and NPC partook considered to have extinguished the former’s
in a series of communications aimed to settle the obligation regardless of who between
amount of compensation. However, the Mangondato, on one hand, and the Ibrahims
communication failed to yield a genuine and Maruhoms, on the other, turns out to be
consensus as to the fair market value of the the real owner of the subject land.Either way,
subject land. petitioner cannot be made liable to the Ibrahims
and Maruhoms:

First. If Mangondato is the real owner of the

subject land, then the obligation by petitioner Borrowing the principles behind Article 1242 of
to pay for the rental fees and expropriation the Civil Code, we find that Mangondato—
indemnity due the subject land is already being the judgment creditor in Civil Case No.
deemed extinguished by the latter’s previous 605-92 and Civil Case No. 610-92 as well as the
payment under the final judgment in Civil Case registered owner of the subject land at the
No. 605-92 and Civil Case No. 610-92. This would time—may be considered as a “possessor of
be a simple case of an obligation being credit” with respect to the rental fees and
extinguished through payment by the debtor expropriation indemnity adjudged due for
to its creditor.Under this scenario, the the subject land in the two cases, if the
Ibrahims and Maruhoms would not even be Ibrahims and Maruhoms turn out to be the
entitled to receive anything from anyone for real owners of the subject land. Hence,
the subject land. Hence, petitioner cannot be petitioner’s payment to Mangondato of the
held liable to the Ibrahims and Maruhoms. fees and indemnity due for the subject land as
a consequence of the execution of Civil Case No.
Second. We, however, can reach the same 605-92 and Civil Case No. 610-92 could still
conclusion even if the Ibrahims and Maruhoms validly extinguish its obligation to pay for the
turn out to be the real owners of the subject land. same even as against the Ibrahims and
Maruhoms.
Should the Ibrahims and Maruhoms turn out
to be the real owners of the subject land,
petitioner’s previous payment to Mangondato
pursuant to Civil Case No. 605-92 and Civil Case
No. 610-92—given the absence of bad faith on
petitioner’s part as previously discussed—
may nonetheless be considered as akin to
a payment made in “good faith” to a person
in “possession of credit” per Article 1242 of
the Civil Code that, just the same,
extinguishes its obligation to pay for the
rental fees and expropriation indemnity due
for the subject land.
Article 1242 of the Civil Code is an exception

to the rule that a valid payment of an
obligation can only be made to the person to
whom such obligation is rightfully owed.It
contemplates a situation where a debtor pays
a “possessor of credit” i.e., someone who is not the
real creditor but appears, under the
circumstances, to be the real creditor.In such
scenario, the law considers the payment to
the “possessor of credit” as valid even as against
the real creditor taking into account the good
faith of the debtor.

CASE NO. 63 themortgageHe also claimed incurring expenses

for attorney’s fees of PhP 150,000, filing fee of
LAND BANK OF THE PHILIPPINES VS. PhP 15,000, and PhP 250,000 in moraldamages.
ALFREDO ONG
G.R. No. 190755, Nov 24, 2010 ISSUE:
TOPIC: MODES OF EXTINGUISHMENT OF Whether the Court of Appeals erred in holding

OBLIGATION : AS TO PAYMENT OR that Art. 1236 of the Civil Code does not apply
PERFORMANCE and in finding that there is no novation.
FACTS: RULING:
On March 18, 1996, spouses Johnson and On the matter of novation, Spouses
Evangeline Sy secured a loan from Land Bank Benjamin and Agrifina Lim v. M.B. Finance
Legazpi City in the amount of PhP 16 million.The Corporation provides the following discussion:
loan was secured by three (3) residential lots,
five (5) cargo trucks, and a warehouse. Under the Novation, in its broad concept, may either be
loan agreement, PhP 6 million of theloan would extinctive or modificatory. It is extinctive when an
be short-term and would mature on February 28, old obligation is terminated by the creation of a
1997, while the balance of PhP 10 million would new obligation that takes the place of the former;
be payable in seven (7) years. it is merely modificatory when the old obligation
The Spouses Sy could no longer pay their subsists to the extent it remains compatible with
loan which resulted to the sale of three (3) of the amendatory agreement. An extinctive
their mortgaged parcels of land for PhP 150,000 novation results either by changing the object or
to Angelina Gloria Ong, Evangeline’s mother, principal conditions (objective or real), or by
under a Deed of Sale with Assumption of substituting the person of the debtor or
Mortgage. subrogating a third person in the rights of the
Evangeline’s father, petitioner Alfredo creditor (subjective or personal). Under this mode,
Ong, later went to Land Bank to informthem novation would have dual functions ─ one to
about the sale and assumption of mortgage. Land extinguish an existing obligation, the other to
BankBranch Head told Alfredo that there was substitute a new one in its place ─ requiring a
nothing wrong with agreement with the Spouses conflux of four essential requisites: (1) a previous
Sy and provided him requirements for valid obligation; (2) an agreement of all
theassumption of mortgage. Alfredo later found parties concerned to a new contract; (3) the
out that his application for assumption of extinguishment of the old obligation; and (4)
mortgage was not approved by Land Bank. the birth of a valid new obligation. x x x
OnDecember 12, 1997, Alfredo initiated an
action for recovery of sum of money with In order that an obligation may be extinguished
damages against Land Bank, as Alfredo’s by another which substitutes the same, it is
payment wasnot returned by Land Bank. Alfredo imperative that it be so declared in unequivocal
saidthat Land Bank’s foreclosure without terms, or that the old and the new obligations be
informing him of the denial of his assumption of on every point incompatible with each other. The
the mortgagewas done in bad faith and that he test of incompatibility is whether or not the two
was made to believed that P750,000 would cause obligations can stand together, each one having
Land Bank to approve his assumption to

its independent existence. x x x (Emphasis

supplied.)
Furthermore, Art. 1293 of the Civil Code states:
Novation which consists in substituting a new

debtor in the place of the original one, may be
made even without the knowledge or against the
will of the latter, but not without the consent of
the creditor. Payment by the new debtor gives
him rights mentioned in articles 1236 and 1237.
We do not agree, then, with the CA in holding

that there was a novation in the contract
between the parties. Not all the elements of
novation were present. Novation must be
expressly consented to. Moreover, the conflicting
intention and acts of the parties underscore the
absence of any express disclosure or
circumstances with which to deduce a clear and
unequivocal intent by the parties to novate the
old agreement. Land Bank is thus correct when it
argues that there was no novation in the
following:
[W]hether or not Alfredo Ong has an interest in

the obligation and payment was made with the
knowledge or consent of Spouses Sy, he may still
pay the obligation for the reason that even
before he paid the amount of P750,000.00 on
January 31, 1997, the substitution of debtors was
already perfected by and between Spouses Sy
and Spouses Ong as evidenced by a Deed of Sale
with Assumption of Mortgage executed by them
on December 9, 1996. And since the substitution
of debtors was made without the consent of
Land Bank a requirement which is indispensable
in order to effect a novation of the obligation, it
is therefore not bound to recognize the
substitution of debtors. Land Bank did not
intervene in the contract between Spouses Sy
and Spouses Ong and did not expressly give its
consent to this substitution.

Case No. 64 contract to sell has not yet been rescinded and
ordering the defendant to pay te plaintiff within
J. M. TUASON & Co. INC. VS. JAVIER 60 days from receipt hereof all installment
G.R. No. L-28569. February 27, 1970 payments in arrears together with interests.
Hence, this appeal by the plaintiff.
FACTS: ISSUE:
On September 7, 1954, a contract was Whether or not the defendant is entitled
entered into between the plaintiff, and to a new period for payment of its obligation.
defendant-appellee, Ligaya Javier, whereby
plaintiff agreed to sell, transfer and convey to the RULING:
defendant a parcel of land of Sta. Mesa Heights In the interest of justice and equity, court
Subdivision for the total sum of P3, 691.20 with may grant the vendee a new term where he
interest thereon at the rate of 10% a year, substantially performed in good faith his
payable as follows: P396.12 upon the execution obligation, as stated in Article 1234 of the Civil
of the contract and P43.92 every month Code “If the obligation has been substantially
thereafter, for a period of 10 years. Upon the performed in good faith, the obligor may recover
execution of the contract and the payment of the as though there had been a strict and complete
first installment, the defendant was placed in fulfillment, less damages suffered by the obligee.
possession of the land. Until January 5, 1962, she Apart from the initial paid upon the
paid the stipulated monthly installments which execution of the contract, the defendant
aggregated to P4, 134.08. Subsequently, she religiously satisfied the monthly installments
defaulted in the payment of said monthly accruing thereafter, for a period of almost 8
installments. On May 22, 1964, plaintiff informed years, that, although the principal obligation was
her by letter that their contract had been P3, 691.20, the total payments made by the
rescinded. defendant aggregated P4,134.08; that the
On July 9, 1964, plaintiff commenced the defendant has offered to pay all of the
present action against defendant due to failure installments over due, including interests. Thus,
and refusal of the defendant to vacate said land. plaintiff will recover everything due him
Plaintiff prayed for that the contract be declared pursuant to its contract with the defendant,
validly rescinded, and additionally, defendant including such damages as the former may have
and all persons claiming under be ordered to suffered in consequence of the latter’s default.
deliver to the plaintiff the lot in question, with
the improvement thereon and to pay monthly
rentals from January 5, 1962 until the property
had been surrendered to the plaintiff.
In her answer, defendant admitted she
had defaulted in the payment of the stipulated
monthly installments from January 5, 1962 due
to unforeseen circumstances. She is also willing
to pay all arrears in installments under the
contract and had in fact, offered the same to the
plaintiff and that the contract cannot be
rescinded upon the unilateral act of the plaintiff.
The Court rendered its Decision, applying
Art. 1592 of our Civil Code, declaring that the

Case No. 65 ISSUE:

WON defendants be compelled to allow plaintiff
LEGARDA V. SALDANA to complete payment of the purchase price of the
55 SCRA 324 two lots in dispute and to execute the final deeds
of conveyance.
DOCTRINE: A defaulting party may be granted
lesser benefits, since no rescission of RULING:
contractmay be permitted, for, according to Art. NO. However, 1 lot should be given.
1234 of said Code: 'If the obligation has been The Court finds that the appellate court's
substantially performed in good faith, the obligor judgment finding that of the total sum of
may recover as though there had been a strict P3,582.06 already paid by respondent (which
and complete fulfillment, less damages suffered was more than the value of two lots), the sum
by the obligee. applied by petitioners to the principal alone in
the amount of P1,682.28 was already more than
FACTS: the value of one lot of P1,500.00 and hence one
The action originated as a complaint for delivery of the two lots as chosen by respondent would
of two parcels of land in Sampaloc, Manila and be considered as fully paid, is fair and just and in
for execution of the corresponding deed of accordance with law and equity. The monthly
conveyance after payment of the balance still payments for eight years made by respondent
due on their purchase price. Private respondent were applied to his account without specifying
entered into two written contracts with or distinguishing between the two lots subject of
petitioner subdivision owner, whereby the latter the two agreements under petitioners' own
agreed to sell to him 2 lots for the sum of statement of account. Even considering
P1,500.00 per lot, payable over the span of ten respondent as having defaulted after February
years divided into 120 equal monthly 1956, he had as of the already paid by way of
installments of P19.83. Subsequently, Legarda principal (P1,682.28) more than the full value of
Hermanos partitioned the subdivision among the one lot (P1,500.00).
brothers and sisters, and the two lots were
among those allotted to co-petitioner Jose The Court's doctrine in J.M. Tuason & Co. Inc. vs.
Legarda. Respondent faithfully paid for eight Javier is applicable, with the respondent at bar
continuous years about 95 (of the stipulated being granted lesser benefits, since no rescission
120) monthly installments totalling P3,582.06 up of contract was therein permitted. There, the
to the month of February, 1956. After that, Court held that "Regardless, however, of the
respondent did not make further payments, propriety of applying said Art. 1592 thereto, We
leaving a balance of P1,317.72. Almost five years find that plaintiff herein has not been denied
later, respondent wrote petitioners stating that substantial justice, for, according to Art. 1234 of
his desire to build a house on the lots was said Code: 'If the obligation has been
prevented by their failure to introduce substantially performed in good faith, the obligor
improvements on the subdivision as "there is may recover as though there had been a strict
still no road to these lots," and requesting and complete fulfillment, less damages suffered
information of the amount owing to update his by the obligee,'" and "that in the interest of
account as "I intend to continue paying the justice and equity, the decision appealed from
balance due on said lots." Petitioners replied that may be upheld upon the authority of Article
cancellation was in order. 1234 of the Civil Code.

Case No. 66 his part, the respondent argues that the receipt
AZCONA VS. JAMANDRE represented an express reduction of the
151 SCRA 317 stipulated rental in consideration of his allowing
the use of 16 hectares of the leased area by the
petitioner as grazing land for his cattle. Having
TOPIC: Modes of Extinguishment of Obligations – unqualifiedly accepted the amount of P7,000.00
1. Payment or performance as rental for the agricultural year 1961-62, the
petitioner should not now be heard to argue that
the payment was incomplete.
FACTS:
This involves the interpretation of a
ISSUE/S: WON the lease contract should be
contract of lease which was found by the trial
deemed cancelled by the respondent's failure: 1)
court to have been violated by both the plaintiff
to attach thereto the parcelary plan Identifying
and the defendant. By the said contract,
the exact area subject of the agreement, as
petitioner leased 80 hectares of his 150-hectare
stipulated in the contract; 2; to secure the
pro indiviso share to Jamandre (represented here
approval by the Philippine National Bank of the
by the administrator of his intestate estate, the
said contract; and 3) to pay the rentals.
private respondent). The agreed yearly rental
was P7,200.00. The lease was for three
agricultural years beginning 1960, extendible at RULING: No. The relative insignificance of the
the lessee's option to two more agricultural alleged balance seems to us a paltry justification
years, up to 1965. The first annual rental was for annulling the contract for its supposed
due on or before March 30, 1960, but because violation. If the petitioner is fussy enough to
the petitioner did not deliver possession of the invoke it now, it stands to reason that he would
leased property to the respondent, he "waived" have fussed over it too in the receipt he willingly
payment, as he put it, of that rental. The signed after accepting, without reservation and
respondent actually entered the premises only apparently without protest, only P7,000.00.
on October 26, 1960, after payment by him to the
petitioner of the sum of P7,000.00. On April 6, The applicable provision is Article 1235 of the
1961, the petitioner, through his lawyer, notified Civil Code, declaring that:
the respondent that the contract of lease was
deemed cancelled, terminated, and of no further Art. 1235. When the obligee accepts the
effect, for violation of the conditions specified in performance, knowing its incompleteness or
the said agreement. Earlier, in fact, the irregularity, and without expressing any protest
respondent had been ousted from the possession or objection, the obligation is deemed fully
of 60 hectares of the leased premises and left complied with.
with only 20 hectares of the original area
Citing the stipulation in the lease contract The petitioner says that he could not demand
for an annual rental of P7,200.00, the petitioner payment of the balance of P200.00 on October
now submits that there was default in the 26, 1960, date of the receipt because the rental
payment thereof by the respondent because he for the crop year 1961-62 was due on or before
was P200.00 short of such rental. That deficiency January 30, 1961. But this would not have
never having been repaired, the petitioner prevented him from reserving in the receipt his
concludes, the contract should be deemed right to collect the balance when it fell due.
cancelled in accordance with its paragraph 8. For Moreover, there is no evidence in the record that

when the due date arrived, he made any demand,

written or verbal, for the payment of that
amount.

Case No. 67 accruing to the said shares after the rendition of

ARAÑAS VS. JUDGE TUTAAN the decision of Aug. 7, 1971 rightfully belonged
127 SCRA 828 to petitioners. If UTEX nevertheless chose to pay
the wrong parties, notwithstanding its full
FACTS: On May 3, 1971 the lower court declared knowledge and understanding of the final
thatPetitioner Luisa Quijencio (and by her judgment, it was still liable to pay the petitioners
spouse Jose Arañas)was the owner of 400 shares as the lawful declared owners of the questions
including the stock dividendsthat accrued to said shares of stocks. The burden of recovering the
shares, of respondent Universal Textile Mills, Inc. supposed payment of the cash dividends made
(UTEX) as defendant and Gene Manueland B. R. by UTEX to the wrong parties Castañeda and
Castañeda as co-defendants, and subsequently Manuel falls upon itself by its own action and
ordered UTEX to cancel said certificates and cannot be passed by it to the petitioner as the
issue new ones in the name of Plaintiff and to innocent parties. It is elementary that payment
deliver all dividendsappertaining to the same, made by a judgment debtor to a wrong party
whether in cash or in stocks.UTEX filed a motion cannot extinguish the judgment obligation of
for clarification whether thephrase “to deliver to such debtor to its creditor.
her all dividends appertaining to thesame, It is equally elementary that once a judgment
whether in cash or in stocks” meant dividends becomes final and executory, the court which
properly pertaining to plaintiffs after the rendered it cannot change or modify the same in
court’sdeclaration of plaintiff ownership of said any material aspect such as what respondent
400 shares of stock. Defendant UTEX has always judge has without authority attempted to do
maintained it would rightfully abide by whatever with his questioned order, which would relieve
decision may be rendered since such would be the judgment debtor UTEX of its acknowledged
the logical consequence after the ruling in judgment obligation to pay to petitioners as the
respect to the rightful ownership of said shares lawful owners of the questioned shares of stock,
of stock. The motion was granted which ruled the cash dividends that accrued after the
against UTEX, ordering it to pay plaintiff the cash rendition of the judgment recognizing them as
dividends, which accrued to the stocks in the lawful owners. (Miranda vs. Tiangco, 96 Phil.
question after rendition of its current decision 526 [1955]). Execution of a final and executory
excluding cash dividends already paid to Gene judgment according to its terms is a matter of
Manuel and B. R. Castañeda which accrued right for the prevailing party and becomes the
before its decision. UTEX alleged that the cash ministerial duty of the court (De los Angeles vs.
dividends had already been paid thereby Victoriano, 109 Phil. 12).
absolving it from payment thereof.
ISSUE: Was the contention of UTEX, alleging that

the cash dividends of stock had already been
paid and thereby absolving it from any further
payment, valid?
RULING: No. The final and executory judgment

against UTEX declared petitioners as the owners
of the questioned UTEX shares of stock against
its co-defendants. It was further made clear in
the motion for clarification that all dividends

Case No.68 been paid, thus leaving a balance of only

KALALO VS.LUZ P10,861.08. Luz also alleged that Kalalo’s
G.R. No. L-27782 July 31, 1970 services were not complete or were performed
in violation of the agreement and/or otherwise
Facts: unsatisfactory.
On November 17, 1959, Octavio A. Kalalo, a
licensed civil engineer entered into an The trial court, upon agreement of the parties,
agreement with Alfredo J. Luz, a licensed authorized the case to be heard before a
architect, whereby the former was to render Commissioner. The Commissioner rendered a
engineering design services to the latter for fees, report which states that the amount due to
as stipulated in the agreement. Pursuant to said Kalalo was $28,000.00 (U.S.) as his fee in the
agreement, appellee rendered engineering International Research Institute Project which
services to appellant in different projects. The was twenty percent (20%) of the $140,000.00
fees agreed upon were percentages of the that was paid to Luz, and P51,539.91 for the
architect’s fee. other projects, less the sum of P69,475.46 which
On December 1 1, 1961, Kalalo sent a statement was already paid by him. The Commissioner also
of account to which was attached an itemized recommended the payment to Kalalo of the sum
statement of account, according to which the of P5,000.00 as attorney's fees.
total engineering fee for services rendered
amounted to P116,565.00 from which sum was After the parties had submitted their respective
to be deducted the previous payments made in memorandum on said issues, the trial court
the amount of P57,000.00, thus leaving a balance rendered its decision ordering the Luz to pay
due in the amount of P59,565.00. Kalalo the sum of P51,539.91 and $28,000.00,
the latter to be converted into the Philippine
On May 18, 1962 Luz sent a resume of fees due currency on the basis of the current rate of
to the Kalalo. Said fees amounted to P10,861.08 exchange at the time of the payment of this
instead of the amount claimed by Kalalo, and judgment, as certified to by the Central Bank of
subsequently sent the latter a check for said the Philippines, from which shall be deducted
amount, which Kalalo refused to accept as full the sum of P69,475.46, which the Luz had paid
payment of the balance of the fees due him. the Kalalo, and the legal rate of interest thereon
from the filing of the complaint in the case until
On August 10, 1962, Kalalo filed a complaint fully paid for.
against Luz. He alleged that for services
rendered in connection with the different From the decision, this appeal was brought,
projects, there was due him fees in sums directly to the S.C. raising only questions of law.
consisting of $28,000 (U.S.) and P100,204.46, Issue:
excluding interests, of which sums only
P69,323.21 had been paid, thus leaving unpaid WON the lower court erred in declaring and
the $28,000.00 and the balance of P30,881.25. In holding that the balance owed by Luz on the IRRI
his answer, Luz averred that some of Kalalo's Project should be paid on the basis of the rate of
services were not in accordance with the exchange of the U.S. dollar to the Philippine peso
agreement and Kalalo's claims were not justified at the time of payment of judgment.
by the services actually rendered, and that the
aggregate amount actually due to was only Ruling:
P80,336.29, of which P69,475.21 had already

No. Under the agreement, Kalalo was entitled to discharged in Philippine currency measured at
20% of $140,000.00, or the amount of the prevailing rate of exchange at the time the
$28,000.00. However, he cannot oblige the Luz obligation was incurred. Republic Act 529 was
to pay him in dollars, even if Luz himself had enacted on June 16, 1950. In this case the
received his fee for the IRRI project in dollars. obligation of Luz to pay Kalalo the 20% of
This payment in dollars is prohibited by $140,000.00, or the sum of $28,000.00, accrued
Republic Act 529 which was enacted on June 16, on August 25, 1961, or after the enactment of
1950. Said act provides as follows: Republic Act 529. It follows that the provision of
SECTION 1. Every provision contained in, or Republic Act 529 which requires payment at the
made with respect to, any obligation which prevailing rate of exchange when the obligation
provision purports to give the obligee the right was incurred cannot be applied. Republic Act
to require payment in gold or in a particular kind 529 does not provide for the rate of exchange for
of coin or currency other than Philippine the payment of obligation incurred after the
currency or in an amount of money of the enactment of said Act. The logical Conclusion,
Philippines measured thereby, be as it is hereby therefore, is that the rate of exchange should be
declared against public policy, and null, void and that prevailing at the time of payment.This view
of no effect, and no such provision shall be finds support in the ruling of this Court in the
contained in, or made with respect to, any case of Engel vs. Velasco & Co. where this Court
obligation hereafter incurred. Every obligation held that even if the obligation assumed by the
heretofore or here after incurred, whether or not defendant was to pay the plaintiff a sum of
any such provision as to payment is contained money expressed in American currency, the
therein or made with respect thereto, shall be indemnity to be allowed should be expressed in
discharged upon payment in any coin or Philippine currency at the rate of exchange at the
currency which at the time of payment is legal time of judgment rather than at the rate of
tender for public and private debts: Provided, exchange prevailing on the date of defendant's
That, ( a) if the obligation was incurred prior to breach.
the enactment of this Act and required payment It is Our considered view, therefore, that
in a particular kind of coin or currency other appellant should pay the appellee the equivalent
than Philippine currency, it shall be discharged in pesos of the $28,000.00 at the free market rate
in Philippine currency measured at the of exchange at the time of payment. And so the
prevailing rate of exchange at the time the trial court did not err when it held that herein
obligation was incurred, (b) except in case of a appellant should pay appellee $28,000.00 "to be
loan made in a foreign currency stipulated to be converted into the Philippine currency on the
payable in the same currency in which case the basis of the current rate of exchange at the time
rate of exchange prevailing at the time of the of payment of this judgment, as certified to by
stipulated date of payment shall prevail. All coin the Central Bank of the Philippines, ...."
and currency, including Central Bank notes,
heretofore or hereafter issued and declared by
the Government of the Philippines shall be legal
tender for all debts, public and private.
Under the above-quoted provision of Republic
Act 529, if the obligation was incurred priorto
the enactment of the Act and require payment in
a particular kind of coin or currency other than
the Philippine currency the same shall be

Case No. 69 and paid entirely by defendant Felisa L.

PONCE VS. CA and AFABLE Mendoza; that she had signed said document
90 SCRA 533 only as President of the Carmen Planas
Memorial, Inc., and that she was not to incur any
FACTS: personal obligation as to the payment thereof
On June 3, 1969, private respondent Jesusa B. because the same would be repaid by defendant
Afable, together with Felisa L. Mendoza and Ma. Mendoza and/or Carmen Planas Memorial, Inc.
Aurora C. Diño executed a promissory note in
favor of petitioner Nelia G. Ponce in the sum of In her Amended Answer, defendant Felisa L.
P814,868.42, Philippine Currency, payable, Mendoza admitted the authenticity and due
without interest, on or before July 31, 1969. It execution of the promissory note, but averred
was further provided therein that should the that it was a recapitulation of a series of
indebtedness be not paid at maturity, it shall transactions between her and the plaintiffs,
draw interest at 12% per annum, without "with defendant Ma. Aurora C. Diño and Jesusa B.
demand; that should it be necessary to bring suit Afable coming only as accomodation parties." As
to enforce pay ment of the note, the debtors shall affirmative defense, defendant Mendoza
pay a sum equivalent to 10% of the total amount contended that the promissory note was the
due for attorney's fees; and, in the event of result of usurious transactions, and, as
failure to pay the indebtedness plus interest in counterclaim, she prayed that plaintiffs be
accordance with its terms, the debtors shall ordered to account for all the interests paid.
execute a first mortgage in favor of the creditor Plaintiffs filed their Answer to defendant
over their properties or of the Carmen Planas Mendoza's counterclaim denying under oath the
Memorial, Inc. allegations of usury.
Upon the failure of the debtors to comply with After petitioners had rested, the case was
the terms of the promissory note, petitioners deemed submitted for decision since respondent
(Nelia G. Ponce and her husband) filed, on July Afable and her co-debtors had repeatedly failed
27, 1970, a Complaint against them with the to appear before the trial Court for the
Court of First Instance of Manila for the recovery presentation of their evidence.
of the principal sum of P814,868.42, plus interest The trial Court rendered judgment ordering
and damages. respondent Afable and her co-debtors, Felisa L.
Mendoza and Ma. Aurora C. Diño , to pay
Defendant Ma. Aurora C. Diño's Answer petitioners, jointly and severally, the sum of
consisted more of a general denial and the P814,868.42, plus 12% interest per annum from
contention that she did not borrow any amount July 31, 1969 until full payment, and a sum
from plaintiffs and that her signature on the equivalent to 10% of the total amount due as
promissory note was obtained by plaintiffs on attorney's fees and costs.
their assurance that the same was for " formality
only." From said Decision, by respondent Afable
appealed to the Court of Appeals. She argued that
Defendant Jesusa B. Afable, for her part, asserted the contract under consideration involved the
in her Answer that the promissory note failed to payment of US dollars and was, therefore, illegal;
express the true intent and agreement of the and that under the in pari delicto rule, since both
parties, the true agreement being that the parties are guilty of violating the law, neither one
obligation therein mentioned would be assumed

can recover. It is to be noted that said defense expected to be paid in the amount of
was not raised in her Answer. US$194,016.29, petitioners are not now insisting
on their agreement with respondent Afable for
The Court of Appeals rendered judgment the payment of the obligation in dollars. On the
affirming the decision of the trial Court. In a contrary, they are suing on the basis of the
Resolution dated February 27, 1978, the Court of promissory note whereby the parties have
Appeals,** denied respondent's Motion for already agreed to convert the dollar loan into
Reconsideration. However, in a Resolution dated Philippine currency at the rate of P4.20 to $1.00.
June 8, 1978, the Court of Appeals acting on the It may likewise be pointed out that the
Second Motion for Reconsideration filed by Promissory Note contains no provision "giving
private respondent, set aside the Decision of the obligee the right to require payment in a
December 13, 1977, reversed the judgment of particular kind of currency other than Philippine
the trial Court and dismissed the Complaint. The currency, " which is what is specifically
Court of Appeals opined that the intent of the prohibited by RA No. 529.
parties was that the promissory note was
payable in US dollars, and, therefore, the At any rate, even if we were to disregard the
transaction was illegal with neither party promissory note providing for the payment of
entitled to recover under the in pari delicto rule. the obligation in Philippine currency and
consider that the intention of the parties was
ISSUE: Whether or not the agreement of the really to provide for payment of the obligation
parties is null and void under RA 529, therefore would be made in dollars, petitioners can still
the parties cannot recover under the in pari recover the amount of US$194,016.29, which
delicto rule respondent Afable and her co-debtors do not
deny having received, in its peso equivalent. As
HELD: NO. It is to be noted that while an held in Eastboard Navigation, Ltd. vs. Juan
agreement to pay in dollars is declared as null Ysmael & Co. Inc., 102 Phil. 1 (1957), and Arrieta
and void and of no effect, what the law vs. National Rice & Corn Corp., if there is any
specifically prohibits is payment in currency agreement to pay an obligation in a currency
other than legal tender. It does not defeat a other than Philippine legal tender, the same is
creditor's claim for payment, as it specifically nun and void as contrary to public policy,
provides that "every other domestic obligation ... pursuant to Republic Act No. 529, and the most
whether or not any such provision as to payment that could be demanded is to pay said obligation
is contained therein or made with respect in Philippine currency. In other words, what is
thereto, shall be discharged upon payment in any prohibited by RA No. 529 is the payment of an
coin or currency which at the time of payment is obligation in dollars, meaning that a creditor
legal tender for public and private debts." A cannot oblige the debtor to pay him in dollars,
contrary rule would allow a person to profit or even if the loan were given in said currency. In
enrich himself inequitably at another's expense. such a case, the indemnity to be allowed should
be expressed in Philippine currency on the basis
As the Court of Appeals itself found, the of the current rate of exchange at the time of
promissory note in question provided on its face payment
for payment of the obligation in Philippine
currency, i.e., P814,868.42. So that, while the
agreement between the parties originally
involved a dollar transaction and that petitioners

Case No. 70
NEW PACIFIC TIMBER vs. SIÑERIS In upholding the refusal of the private
101 SCRA 686 respondent to accept the check, the respondent
Judge cited Article 1249 of the New Civil Code
FACTS: Petitioner, New Pacific Timber & Supply which provides that payments of debts shall be
Co. Inc. was the defendant in a complaint for made in the currency which is the legal tender of
collection of money filed by private respondent, the Philippines and Section 63 of the Central
Ricardo A. Tong. Bank Act which provides that checks
representing deposit money do not have legal
In this complaint, respondent Judge rendered a tender power. In sustaining the contention of the
compromise judgment based on the amicable private respondent to refuse the acceptance of
settlement entered by the parties wherein the cash, the respondent Judge cited Article 1248
petitioner will pay to private respondent of the New Civil Code which provides that
P54,500.00 at 6% interest per annum and creditor cannot be compelled to accept partial
P6,000.00 as attorney’s fee of which P5,000.00 payment unless there is an express stipulation to
has been paid. the contrary.
Upon failure of the petitioner to pay the ISSUE: Can the check be considered a valid
judgment obligation, a writ of execution worth payment of the judgment obligation?
P63,130.00 was issued levied on the personal
properties of the petitioner. RULING: Yes. It is to be emphasized that it is a
well-known and accepted practice in the
Before the date of the auction sale, petitioner business sector that a Cashier’s Check is deemed
deposited with the Clerk of Court in his capacity cash. Moreover, since the check has been
as the Ex-Officio Sheriff P50,000.00 in Cashier’s certified by the drawee bank, this certification
Check of the Equitable Banking Corporation and implies that the check is sufficiently funded in
P13,130.00 in cash for a total of P63,130.00. the drawee bank and the funds will be applied
Private respondent refused to accept the check whenever the check is presented for payment.
and the cash and requested for the auction sale The object of certifying a check is to enable the
to proceed. holder to use it as money. When the holder
procures the check to be certified, it operates as
The properties were sold for P50,000.00 to the an assignment of a part of the funds to the
highest bidder with a deficiency of P13,130.00. creditors. Hence, the exception provided in
Petitioner subsequently filed an ex-parte motion Section 63 of the Central Bank Act which states
for issuance of certificate of satisfaction of that checks which have been cleared and
judgment which was denied by the respondent credited to the account of the creditor shall be
Judge. equivalent to a delivery to the creditor in cash
the amount equal to that which is credited to his
Hence this present petition, alleging that the account. The Cashier’s Check and the cash are
respondent Judge capriciously and whimsically valid payment of the obligation of the petitioner.
abused his discretion in not granting the The private respondent has no valid reason to
requested motion for the reason that the refuse the acceptance of the check and cash as
judgment obligation was fully satisfied before full payment of the obligation.
the auction sale with the deposit made by the
petitioner to the Ex-Officio Sheriff.

Case No. 71 of five (5) days from the receipt of the denial 8 to
Topic: Modes of Extinguishment of Obligations; pay the total balance of P124,000.00, otherwise,
Payment or Performance the provisions of the contract regarding
cancellation, forfeiture, and reconveyance would
ROMAN CATHOLIC BISHOP OF MALOLOS, INC. be implemented.
vs. IAC
G.R. No. 72110. November 16, 1990 On August 4, 1975, the private respondent,
through its president, Atty. Francisco, wrote the
FACTS: On July 7, 1971, the subject contract over counsel of the petitioner requesting an extension
the land in question was executed between the of 30 days from said date to fully settle its
petitioner as vendor and the private respondent account. The counsel for the petitioner, Atty.
(ROBES-FRANCISCO REALTY AND Fernandez, received the said letter on the same
DEVELOPMENT CORPORATION) through its day. Upon consultation with the petitioner in
then president, Mr. Carlos F. Robes, as vendee, Malolos, Bulacan, Atty. Fernandez, as instructed,
stipulating for a downpayment of P23,930.00 wrote the private respondent a letter dated
and the balance of P100,000.00 plus 12% August 7, 1975 informing the latter of the denial
interest per annum to be paid within four (4) of the request for an extension of the grace
years from execution of the contract, that is, on period.
or before July 7, 1975. The contract likewise
provides for cancellation, forfeiture of previous Consequently, Atty. Francisco, the private
payments, and reconveyance of the land in respondent’s president, wrote a letter dated
question in case the private respondent would August 22, 1975, directly addressed to the
fail to complete payment within the said period. petitioner, protesting the alleged refusal of the
latter to accept tender of payment purportedly
On March 12, 1973, the private respondent, made by the former on August 5, 1975, the last
through its new president, Atty. Adalia Francisco, day of the grace period. In the same letter of
addressed a letter to Father Vasquez, parish August 22, 1975, received on the following day
priest of San Jose Del Monte, Bulacan, requesting by the petitioner, the private respondent
to be furnished with a copy of the subject demanded the execution of a deed of absolute
contract and the supporting documents. sale over the land in question and after which it
would pay its account in full, otherwise, judicial
On July 17, 1975, admittedly after the expiration action would be resorted to.
of the stipulated period for payment, the same
Atty. Francisco wrote the petitioner a formal On August 27, 1975, the petitioner’s counsel,
request that her company be allowed to pay the Atty. Fernandez, wrote a reply to the private
principal amount of P100,000.00 in three (3) respondent stating the refusal of his client to
equal installments of six (6) months each with execute the deed of absolute sale due to its
the first installment and the accrued interest of (private respondent’s) failure to pay its full
P24,000.00 to be paid immediately upon obligation. Moreover, the petitioner denied that
approval of the said request. the private respondent had made any tender of
payment whatsoever within the grace period. In
On July 29, 1975, the petitioner, through its view of this alleged breach of contract, the
counsel, Atty. Carmelo Fernandez, formally petitioner cancelled the contract and considered
denied the said request of the private all previous payments forfeited and the land as
respondent, but granted the latter a grace period ipso facto reconveyed.

thus proving her financial capability of meeting

From a perusal of the foregoing facts, we find more than the whole of P124,000.00 then due
that both the contending parties have conflicting per contract.
versions on the main question of tender of
payment.
ISSUE: Is a finding that private respondent had
The trial court, in its ratiocination, preferred not sufficient available funds on or before the grace
to give credence to the evidence presented by period for the payment of its obligation proof
the private Respondent. According to the trial that it (private respondent) did tender of
court payment for its said obligation within said
. . . What made Atty. Francisco suddenly decide to period?
pay plaintiff’s obligation on August 5, 1975, go to
defendant’s office at Malolos, and there tender
her payment, when her request of August 4, RULING: No. SC agrees with the petitioner that a
1975 had not yet been acted upon until August 7, finding that the private respondent had sufficient
1975? If Atty. Francisco had decided to pay the available funds on or before the grace period for
obligation and had available funds for the the payment of its obligation does not constitute
purpose on August 5, 1975, then there would proof of tender of payment by the latter for its
have been no need for her to write defendant on obligation within the said period. Tender of
August 4, 1975 to request an extension of time. payment involves a positive and unconditional
Indeed, Atty. Francisco’s claim that she made a act by the obligor of offering legal tender
tender of payment on August 5, 1975 — such currency as payment to the obligee for the
alleged act, considered in relation to the former’s obligation and demanding that the
circumstances both antecedent and subsequent latter accept the same. Thus, tender of payment
thereto, being not in accord with the normal cannot be presumed by a mere inference from
pattern of human conduct — is not worthy of surrounding circumstances. At most, sufficiency
credence. of available funds is only affirmative of the
capacity or ability of the obligor to fulfill his part
TC: ruled in favor of Petitioner. Declared the of the bargain. But whether or not the obligor
subject contract as cancelled. avails himself of such funds to settle his
IAC: reversed the TC’s decision and ruled that it outstanding account remains to be proven by
is convinced from the testimony of Atty. Adalia independent and credible evidence. Tender of
Francisco and her witnesses that in behalf of the payment presupposes not only that the obligor is
plaintiff-appellant they have a total available able, ready, and willing, but more so, in the act of
sum of P364,840.00 at her and at the plaintiff’s performing his obligation. Ab posse ad actu non
disposal on or before August 4, 1975 to answer vale illatio. "A proof that an act could have been
for the obligation of the plaintiff-appellant. It was done is no proof that it was actually done."
not correct for the trial court to conclude that the
plaintiff-appellant had only about P64,840.00 in
savings deposit on or before August 5, 1975, a
sum not enough to pay the outstanding account
of P124,000.00. The plaintiff-appellant, through
Atty. Francisco proved and the trial court even
acknowledged that Atty. Adalia Francisco had
about P300,000.00 in money market placement -

Case No. 72 a. Art. 1249 of the Civil Code provides that

TIBAJIA JR. VS. CA payment of debts in money shall be made in the
223 SCRA 163 currency stipulated, and if it is not possible to
deliver such currency, then in the currency
Facts: which is legal tender in the Philippines. The
Tibajia Jr. and his wife are indebted to Ms. delivery of promissory notes payable to order, or
Eden Tan. A suit for collection of sum of money bills of exchange or other mercantile documents
was filed by Ms. Eden Tan against the spouses shall produce the effect of payment only when
Tibajia and the trial court ruled in her favor. The they have been cashed, or when through the fault
Court of Appeals then affirmed the decision but of the creditor they have been impaired.
modified the decision by reducing the award of
moral and exemplary damages. The judgment b. Sec. 1 of RA 529, as amended provides
became final, thus the spouses Tibajia delivered that every obligation heretofore and hereafter
to the Deputy Sheriff P262,750 in cashier's check incurred, whether or not any such provision as
and P135,733.70 in cash. Consequently, creditor to payment is contained therein or made with
Ms. Tan refused to accept the payment. respect thereto, shall be discharged upon
payment in any coin or currency which at the
The spouses Tibajia filed a motion to lift the writ time of payment is legal tender for public and
of execution, contending that the judgment debt private debts.
has already been paid but said motion was
denied. A subsequent motion for reconsideration c. Sec. 63 of the Central Bank Act provides
was also denied; the Court of Appeals also that checks representing deposit money do not
dismissed a consequent petition for certiorari on have legal tender power and their acceptance in
the ground that payment by cashier's check is the payment of debts, both public and private, is
not legal tender as required by Republic Act No. at the option of the creditor: Provided, however,
529. that a check which has been cleared and credited
to the account of the creditor shall be equivalent
Thus, this petition for review contending to a delivery to the creditor of cash in an amount
that the cashier's check of the BPI is considered equal to the amount credited to his account.
legal tender and operates to discharge their
monetary obligation, citing the case of New The aforementioned laws clearly do not
Pacific Timber and Supply Co., Inc. vs. Seneris support herein petitioners' contention.
where it was held that a cashier's check is Moreover, it was held in cases of Philippine
deemed as cash. Airlines, Inc. v. Court of Appeals and Roman
Catholic Bishop of Malolos, Inc. v. Intermediate
Issue: Appellate Court, that"A check, whether a
Is a cashier's check considered payment manager’s check or ordinary check, is not legal
in legal tender as required by the Civil Code, RA tender, and an offer of a check in payment of a
No. 529, and Central Bank Act? debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor."
Ruling:
No. The cashier's check is not considered
payment in legal tender due to the following
reasons:

Case No. 73 Lending sent Leonardo follow-up letters

BOGNOT VS. RRI LENDING CORP demanding payment of the loan, plus interest
GR No. 180144, September 24, 2014 and penalty charges. These demands went
unheeded.
FACTS:
In September 1996, Leonardo Bognot and his In his Answer, Leonardo, claimed, among other
younger brother, Rolando Bognot applied for things, that the complaint states no cause of
and obtained a loan of P500,000.00 from RRI action because RRI Lending’s claim had been
Lending, payable on November 30, 1996. The paid, waived, abandoned or otherwise
loan was evidenced by a promissory note and extinguished, and that the one (1) month loan
was secured by a post dated check dated contracted by Rolando and his wife in November
November 30, 1996. 1996 which was lastly renewed in March 1997
had already been fully paid and extinguished in
Evidence on record shows that Leonardo April 1997.
renewed the loan several times on a monthly
basis. He paid a renewal fee of P54,600.00 for ISSUE:Whether the parties’ obligation was
each renewal, issued a new post-dated check as extinguished by: 1) payment; 2) Novation?
security, and executed and/or renewed the
promissory note previously issued. RRI Lending HELD:1.) Jurisprudence tells us that one who
on the other hand, cancelled and returned to pleads payment has the burden of proving it; the
Leonardo the post-dated checks issued prior to burden rests on the defendant to prove payment,
their renewal. rather than on the plaintiff to prove non-
payment. Indeed, once the existence of an
Leonardo purportedly paid the renewal fees and indebtedness is duly established by evidence, the
issued a post-dated check dated June 30, 1997 as burden of showing with legal certainty that the
security. As had been done in the past, RRI obligation has been discharged by payment rests
Lending superimposed the date "June 30, 1997" on the debtor.
on the promissory note to make it appear that it
would mature on the said date. In the present case, Leonardo failed to
satisfactorily prove that his obligation had
Several days before the loan’s maturity, already been extinguished by payment. As the CA
Rolando’s wife, Julieta, went to the respondent’s correctly noted, the petitioner failed to present
office and applied for another renewal of the any evidence that RRI Lending had in fact
loan. She issued in favor of RRI Lending a encashed his check and applied the proceeds to
promissory note and a check dated July 30, 1997, the payment of the loan. Neither did he present
in the amount of P54,600.00 as renewal fee. official receipts evidencing payment, nor any
proof that the check had been dishonored.
On the excuse that she needs to bring home the
loan documents for the Bognot siblings’ We note that the petitioner merely relied on the
signatures and replacement, Julieta asked the respondent’s cancellation and return to him of
RRI Lending clerk to release to her the the check dated April 1, 1997. The evidence
promissory note, the disclosure statement, and shows that this check was issued to secure the
the check dated July 30, 1997. Julieta, however, indebtedness. The acts imputed on the
never returned these documents nor issued a respondent, standing alone, do not constitute
new post-dated check. Consequently, RRI sufficient evidence of payment.

through repeated acts, that the respondent

Article 1249, paragraph 2 of the Civil Code cancelled and surrendered the post-dated check
provides: The delivery of promissory notes previously issued whenever the loan is renewed.
payable to order, or bills of exchange or other
mercantile documents shall produce the effect of 2.) Novation is a mode of extinguishing an
payment only when they have been cashed, or obligation by changing its objects or principal
when through the fault of the creditor they have obligations, by substituting a new debtor in place
been impaired. of the old one, or by subrogating a third person
to the rights of the creditor.
Also, we held in Bank of the Philippine Islands v.
Spouses Royeca: Settled is the rule that payment To give novation legal effect, the original debtor
must be made in legal tender. A check is not legal must be expressly released from the obligation,
tender and, therefore, cannot constitute a valid and the new debtor must assume the original
tender of payment. Since a negotiable instrument debtors place in the contractual relationship.
is only a substitute for money and not money, Depending on who took the initiative, novation
the delivery of such an instrument does not, by by substitution of debtor has two forms:
itself, operate as payment. Mere delivery of substitution by expromision and substitution by
checks does not discharge the obligation under a delegacion. The difference between these two
judgment. The obligation is not extinguished and was explained in Garcia v. Llamas, 417 SCRA 292
remains suspended until the payment by (2003): “In expromision, the initiative for the
commercial document is actually realized. change does not come from and may even be
made without the knowledge of the debtor, since
Although Article 1271 of the Civil Code provides it consists of a third persons assumption of the
for a legal presumption of renunciation of action obligation. As such, it logically requires the
(in cases where a private document evidencing a consent of the third person and the creditor. In
credit was voluntarily returned by the creditor delegacion, the debtor offers, and the creditor
to the debtor), this presumption is merely prima accepts, a third person who consents to the
facie and is not conclusive; the presumption substitution and assumes the obligation; thus,
loses efficacy when faced with evidence to the the consent of these three persons are
contrary. necessary.”
Moreover, the cited provision merely raises a In both cases, the original debtor must be
presumption, not of payment, but of the released from the obligation; otherwise, there
renunciation of the credit where more can be no valid novation. Furthermore, novation
convincing evidence would be required than by substitution of debtor must always be made
what normally would be called for to prove with the consent of the creditor.
payment. Thus, reliance by the petitioner on the
legal presumption to prove payment is In order to give novation legal effect, the creditor
misplaced. should consent to the substitution of a new
debtor. Novation must be clearly and
To reiterate, no cash payment was proven by the unequivocally shown, and cannot be presumed.
petitioner. The cancellation and return of the Since the petitioner failed to show that the
check dated April 1, 1997, simply established his respondent assented to the substitution, no valid
renewal of the loan – not the fact of payment. novation took place with the effect of releasing
Furthermore, it has been established during trial, the petitioner from his obligation to the

respondent. Moreover, in the absence of showing

that Mrs. Bognot and the respondent had agreed
to release the petitioner, the respondent can still
enforce the payment of the obligation against the
original debtor. Mere acquiescence to the
renewal of the loan, when there is clearly no
agreement to release the petitioner from his
responsibility, does not constitute novation.

Case No. 74
ISSUE:
VELASCO VS. MERALCO
Whether or not Article 1250 of the New Civil
42 SCRA 556
Code may be applied in cases of tort?
FACTS:
RULING:
Appellee, Manila Electric Company’s substation
emitted noise above 50 decibel level. The NO. It can be seen from the employment of the
intensity of the noise emitted by appellee’s words "extraordinary inflation or deflation of the
transformers is most objectionable at night, currency stipulated" that the legal rule
when people are endeavoring to rest and sleep. envisages contractual obligations where a
The court ordered the appellee to bring down specific currency is selected by the parties as the
the noise to 50 decibel level upon complaint of medium of payment; hence it is inapplicable to
appellant, Velasco. The appellee argued that obligations arising from tort and not from
instead of lowering the noise, wall barrier will be contract, as in the case at bar, besides there
erected to separate the substation from the being no showing that the factual assumption of
property but it did not push thru due to the article has come into existence.
objections of appellant’s wife.
The damages awarded to herein appellant were
by no means full compensatory damages, since
The appellant claimed for damages from
the decision makes clear that appellant, by his
the company but was not satisfied with the
failure to minimize his damages by means easily
decision of the court for he believed that the
within his reach, was declared entitled only to a
decision has incorrectly assessed appellant’s
reduce award for nuisance sued upon. And the
damages and unreasonably reduced the amount
amount granted him had already taken into
of the claim because the decision erred in not
account the changed economic circumstances.
taking into account appellant’s loss of income.
His declared income in 1954 is P10,975 and
undeclared income is P8,338.20 (Total:
P19313.20), which was abnormally high
compared to the preceding years 1951-1953
with an average of P7000 per annum.
Appellant Velasco also urged that the damages

awarded him are inadequate considering the
present high cost of living and calls attention to
Article 1250 of the New Civil Code.
ART. 1250. In case an extraordinary inflation or

deflation of the currency stipulated should
supervene, the value of the currency at the time
of the establishment of the obligation shall be the
basis of payment, unless there is an agreement to
the contrary.
Case No. 75
COMMISSIONER OF PUBLIC HIGHWAYS VS. Held: Not applicable.
JUDGE BURGOS
96 SCRA 831 Article 1250 of the NCC provides that the value
of currency at the time of the establishment of
Facts: the obligation shall be the basis of payment
On 1924, the government took private which would be the value of peso at the time of
respondent Victor Amigable's land for road- taking of the property when the obligation of the
right-of-way purpose. government to pay arises. It is only when there is
an agreement that the inflation will make the
On 1959, Amigable filed in the Court of First value of currency at the time of payment, not at
Instance a complaint to recover the ownership the time of the establishment, the basis for
and possession of the land and for damages for payment.
the alleged illegal occupation of the land by the
government (entitled Victor Amigable vs. Nicolas It is clear that the foregoing provision applies
Cuenco, in his capacity as Commissioner of only to cases where a contract or agreement is
Public Highways and Republic of the involved. It does not apply where the obligation
Philippines). to pay arises from law, independent of contract.
The taking of private property by the
Amigable's complaint was dismissed on the Government in the exercise of its power of
grounds that the land was either donated or sold eminent domain does not give rise to a
by its owners to enhance its value, and that in contractual obligation. We have expressed this
any case, the right of the owner to recover the view in the case of Velasco vs. Manila Electric Co.,
value of said property was already barred by et al., L-19390, December 29, 1971.
estoppel and the statute of limitations. Also, the
non-suability of the government was invoked. Moreover, the law as quoted, clearly provides
that the value of the currency at the time of the
In the hearing, the government proved that the establishment of the obligation shall be the basis
price of the property at the time of taking was of payment which, in cases of expropriation,
P2.37 per square meter. Amigable, on the other would be the value of the peso at the time of the
hand, presented a newspaper showing that the taking of the property when the obligation of the
price was P6.775. Government to pay arises. It is only when there
is an "agreement to the contrary" that the
The public respondent Judge ruled in favor of extraordinary inflation will make the value of the
Amigable and directed the Republic of the currency at the time of payment, not at the time
Philippines to pay Amigable the value of the of the establishment of the obligation, the basis
property taken with interest at 6% and the for payment. In other words, an agreement is
attorney's fees. needed for the effects of an extraordinary
inflation to be taken into account to alter the
Issue: value of the currency at the time of the
Whether or not the provision of Article 1250 of establishment of the obligation which, as a rule,
the New Civil Code is applicable in determining is always the determinative element, to be varied
the amount of compensation to be paid to by agreement that would find reason only in the
private respondent Amigable for the property supervention of extraordinary inflation or
taken. deflation.

We hold, therefore, that under the law, in the was permanent in character, for the land was
absence of any agreement to the contrary, even intended for, and had become, avenues in the
assuming that there has been an extraordinary City of Cebu. A penalty is always visited upon one
inflation within the meaning of Article 1250 of for his inaction, neglect or laches in the assertion
the New Civil Code, a fact We decline to declare of his rights allegedly withheld from him, or
categorically, the value of the peso at the time of otherwise transgressed upon by another.
the establishment of the obligation, which in the
instant case is when the property was taken The correct amount of compensation would be
possession of by the Government, must be P14,615.79 at P2.37 per square meter, not
considered for the purpose of determining just P49,459.34, and the interest in the sum of
compensation. Obviously, there can be no P145,410.44 at the rate of 6% from 1924 up to
"agreement to the contrary" to speak of because the time respondent court rendered its decision
the obligation of the Government sought to be as was awarded by the said court should
enforced in the present action does not originate accordingly be reduced.
from contract, but from law which, generally is
not subject to the will of the parties. And there
being no other legal provision cited which would
justify a departure from the rule that just
compensation is determined on the basis of the
value of the property at the time of the taking
thereof in expropriation by the Government, the
value of the property as it is when the
Government took possession of the land in
question, not the increased value resulting from
the passage of time which invariably brings
unearned increment to landed properties,
represents the true value to be paid as just
compensation for the property taken.
In the present case, the unusually long delay of

private respondent in bringing the present
action-period of almost 25 years which a stricter
application of the law on estoppel and the statute
of limitations and prescription may have
divested her of the rights she seeks on this action
over the property in question, is an added
circumstance militating against payment to her
of an amount bigger-may three-fold more than
the value of the property as should have been
paid at the time of the taking. For conformably to
the rule that one should take good care of his
own concern, private respondent should have
commenced proper action soon after she had
been deprived of her right of ownership and
possession over the land, a deprivation she knew

Case No. 76 currency stipulated should supervene, the value

Filipino Pipe and Foundry Corp. vs NAWASA of the currency at the time of the establishment
161 SCRA 32 of the obligation shall be the basis of payment,
unless there is an agreement to the contrary”
Topic: Modes of Extinguishment of Obligations Extraordinary inflation exists "when there is a
(1) Payment or performance decrease or increase in the purchasing power of
the Philippine currency which is unusual or
FACTS: beyond the common fluctuation in the value said
currency, and such decrease or increase could
NAWASA entered into a contract with the not have reasonably foreseen or was manifestly
plaintiff FPFC for the latter to supply iron beyond contemplation the parties at the time of
pressure pipes worth P270,187.50 to be used in the establishment of the obligation.” While
the construction of the Anonoy Waterworks in appellant's voluminous records and statistics
Masbate and the Barrio San Andres-Villareal proved that there has been a decline in the
Waterworks in Samar. NAWASA paid in purchasing power of the Philippine peso, this
installments on various dates, a total of downward fall of the currency cannot be
P134,680.00 leaving a balance of P135,507.50 considered "extraordinary." Therefore, the basis
excluding interest. FPFC demanded payment of payment should still be the value of the
from NAWASA of the unpaid balance of the price currency at the time of the establishment of the
with interest in accordance with the terms of contract.
their contract. NAWASA failed to pay, plaintiff
filed a collection suit. RTC rendered judgment
ordered NAWASA to pay the unpaid balance in
NAWASA negotiable bonds. NAWASA did not
deliver the bonds to the judgment creditor. FPFC
filed another complaint seeking an adjustment of
the unpaid balance in accordance with the value
of the Philippine peso. FPFC presented
voluminous records and statistics showing that a
spiralling inflation has marked the progress of
the country from 1962 up to the present. There
is no denying that the price index of
commodities, which is the usual evidence of the
value of the currency has been rising.
ISSUE:
Whether or not there is an extraordinary
inflation of the currency justifying an adjustment
of NAWASA's unpaid judgment obligation to
FPFC.
RULING:
None. Article 1250 of the Civil Code provides ”In

case an extraordinary inflation or deflation of the

Case No. 77
DEL ROSARIO VS. SHELL COMPANY OF THE HELD: Yes. In the case at bar, while no express
PHILS. LIMITED reference has been made to metallic content,
No. L-28776. August 19, 1988. there nonetheless is a reduction in par value or
in the purchasing power of Philippine currency.
FACTS: Even assuming there has been no official
1. The parties herein entered into a Lease devaluation as the term is technically
Agreement at a monthly rental of Two Hundred understood, the fact is that there has been a
Fifty Pesos (P250.00). Paragraph 14 of said diminution or lessening in the purchasing power
contract of lease provides: In the event of an of the peso, thus, there has been a "depreciation"
official devaluation or appreciation of the (opposite of "appreciation"). Moreover, when
Philippine cannot the rental specified herein laymen unskilled in the semantics of economics
shall be adjusted in accordance with the use the terms "devaluation" or "depreciation"
provisions of any law or decree declaring such they certainly mean them in their ordinary
devaluation or appreciation as may specifically signification — decrease in value. Hence as
apply to rentals." contemplated currency the parties herein in
their lease agreement, the term "devaluation"
2. On November 6, 1965, President Diosdado may be regarded as synonymous with
Macapagal promulgated Executive Order No. "depreciation," for certainly both refer to a
1951 titled "Changing the Par Value of the Peso decrease in the value of the currency. The rentals
from US$0.50 to US$0.2564103. should therefore by their agreement be
proportionately increased.
By reason of this Executive Order No. 195,
plaintiff Simeon Del Rosario demanded from the Decision: Reversed.
defendant company alleged increase in the
monthly rentals from P250.00 a month to
P487.50 a month. Defendant company fertilize to
pay the increased monthly rentals, hence a
complaint was filed by Simeon.
3. The trial court in dismissed the complaint

stating said Executive Order No. 195, contrary to
the contention of the plaintiff, has not officially
devalued the Philippine peso but merely
modified the par value of the peso. Petitioner
contended that Executive Order No. 195 in effect
decreased the worth or value of our currency,
there has taken place a "devaluation" or
"depreciation" which would justify the
proportionate increase of rent.
ISSUE: W/N there has been diminution of

purchasing power of peso after the issuance of
Executive Order No. 195, thus entitling the
petitioner an increase in rentals.

Case No. 78 ISSUE: WON there was dation in payment that

extinguished Phil Acetylene’s obligation?
FILINVEST V. PHILIPPINE ACETYLENE
G.R. No. L-50449 January 30, 1982. HELD:NO.
FACTS: The mere return of the mortgaged motor vehicle

by the mortgagor does not constitute dation in
Philippine Acetylene Co. purchased from payment in the absence, express or implied of
Alexander Lim a motor vehicle described as the true intention of the parties. Dacion en pago
Chevorlet 1969 model for P55K to be paid is the transmission of the ownership of a thing
in installments. As security for the payment of by the debtor to the creditor as an accepted
said promissory note, the appellant executed a equivalent of the performance of obligation. In
chattel mortgage over the same motor vehicle in dacion, the debtor offers another thing to the
favor of said Alexander Lim. Then, Lim assigned creditor who accepts it as equivalent of payment
to the Filinvest all his rights, title, and interests of an outstanding debt. The undertaking really
in the promissory note and chattel mortgage by partakes in one sense of the nature of sale, that
virtue of a Deed of Assignment. is, the creditor is really buying the thing or
property of the debtor, payment for which is to
Phil Acetylene defaulted in the payment of nine be charged against the debtor’s debt. As such, the
successive installments. Filinvest sent a demand essential elements of a contract of sale, namely,
letter. Replying thereto, Phil Acetylene wrote consent, object certain, and cause or
back of its desire to return the mortgaged consideration must be present. In its modern
property, which return shall be in full concept, what actually takes place in dacion en
satisfaction of its indebtedness. So the vehicle pago is an objective novation of the obligation
was returned to the Filinvest together with the where the thing offered as an accepted
document “Voluntary Surrender with Special equivalent of the performance of an obligation is
Power of Attorney To Sell.” Filinvest failed to sell considered as the object of the contract of sale,
the motor vehicle as there were unpaid taxes on while the debt is considered as the purchase
the said vehicle. Filinvest requested the price. In any case, common consent is an
appellant to update its account by paying the essential prerequisite, be it sale or innovation to
installments in arrears and accruing interest. have the effect of totally extinguishing the debt
Filinvest offered to deliver back the motor or obligation.
vehicle to the appellant but the latter refused to
accept it, so appellee instituted an action for The evidence on the record fails to show that the
collection of a sum of money with damages. Filinvest consented, or at least intended, that the
mere delivery to, and acceptance by him, of the
Phil Acetylene’s defense: The delivery of the mortgaged motor vehicle be construed as actual
motor vehicle to Filinvest extinguished its money payment, more specifically dation in payment or
obligation as it amounted to a dation in payment. dacion en pago. The fact that the mortgaged
Assuming arguendo that the return did not motor vehicle was delivered to him does not
extinguish, it was justified in refusing payment necessarily mean that ownership thereof, as
since the appellee is not entitled to recover the juridically contemplated by dacion en pago, was
same due to the breach of warranty committed transferred from appellant to appellee. In the
by the original vendor-assignor Alexander Lim. absence of clear consent of appellee to the
proferred special mode of payment, there can be

no transfer of ownership of the mortgaged motor

vehicle from appellant to appellee. If at all, only
transfer of possession of the mortgaged motor
vehicle took place, for it is quite possible that
appellee, as mortgagee, merely wanted to secure
possession to forestall the loss, destruction,
fraudulent transfer of the vehicle to third
persons, or its being rendered valueless if left in
the hands of the appellant.
As to the strength of the “Voluntary Surrender

with Special Power of Attorney To Sell”, it only
authorized Filinvest to look for a buyer and sell
the vehicle in behalf of the appellant who retains
ownership thereof, and to apply the proceeds of
the sale to the mortgage indebtedness, with the
undertaking of the appellant to pay the
difference, if any, between the selling price and
the mortgage obligation. Filinvest in essence was
constituted as a mere agent to sell the motor
vehicle which was delivered not as its property.
If it were, he would have full power of
disposition of the property, not only to sell it.

Case # 79 which was being administered by Pascual M.

Perez.
CITIZENS SURETY and INSURANCE COMPANY,
INC., vs. CA and PASCUAL M. PEREZ
G.R. No. L-48958 June 28, 1988
ISSUE:
FACTS: Whether or not the administrator's obligation
under the surety bonds and indemnity
The petitioner issued two (2) surety bonds to agreements had been extinguished by reason of
guarantee compliance by the principal Pascual the execution of the deed of assignment
M. Perez Enterprises of its obligation under a HELD:
"Contract of Sale of Goods" entered into with the It is the general rule that when the words of a
Singer Sewing Machine Co. In consideration of contract are plain and readily understandable,
the issuance of the aforesaid bonds, Pascual M. there is no room for construction thereof (San
Perez, in his personal capacity and as attorney- Mauricio Milling Co. v. Ancheta, 105 SCRA 371).
in-fact of his wife, Nicasia Sarmiento and in However, this is only a general rule and it admits
behalf of the Pascual M. Perez Enterprises exceptions.
executed on the same date two (2) indemnity
agreements wherein he obligated himself and On its face, the document speaks of an
the Enterprises to indemnify the petitioner assignment where there seems to be a complete
jointly and severally, whatever payments conveyance of the stocks of lumber to the
advances and damage it may suffer or pay as a petitioner, as assignee. However, in the light of
result of the issuance of the surety bonds. the circumstances obtaining at the time of the
execution of said deed of assignment, we can not
In addition, Pascual M. Perez Enterprises was regard the transaction as an absolute
also required to put up a collateral security to conveyance. As held in the case of Sy v. Court of
further insure reimbursement to the petitioner Appeals, (131 SCRA 116,124):
of whatever losses or liabilities it may be made
to pay under the surety bonds. Pascual M. Perez It is a basic and fundamental rule in the
executed a deed of assignment on the same day, interpretation of contract that if the terms
of his stock of lumber with a total value of thereof are clear and leave no doubt as to the
P400,000.00. A second real estate mortgage was intention of the contracting parties, then the
further executed in favor of the petitioner to literal meaning of the stipulations shall control
guarantee the fulfillment of said obligation. but when the words appear contrary to the
evident intention of the parties, the latter shall
Pascual M. Perez Enterprises failed to comply prevail over the former. (Labasan v. Lacuesta,
with its obligation under the contract of sale of 86 SCRA 16) In order to judge the intention of
goods with Singer Sewing Machine Co., Ltd. The the parties, their contemporaneous and
Petitioner paid the fair value of the two surety subsequent acts shall be principally
Except for partial payments and notwithstanding considered. (Emphasis supplied)
several demands, Pascual M. Perez Enterprises
failed to reimburse the petitioner for the losses it The petitioner issued the two (2) surety bonds
sustained under the said surety bonds. on December 4, 1959 in behalf of the Pascual M.
Perez Enterprises to guaranty fullfillment of its
The petitioner filed a claim for sum of money obligation under the "Contract of Sale of Goods"
against the estate of the late Nicasia Sarmiento entered into with the Singer Sewing Machine Co.
In consideration of the two surety bonds, two another collateral security for the issuance of the
indemnity agreements were executed by Pascual two surety bonds.
M. Perez followed by a Deed of Assignment
which was also executed on the same date.
The transaction could not be dation in payment.

As pointed out in the concurring and dissenting
opinion of Justice Edgardo L. Paras and the
dissenting opinion of Justice Mariano Serrano
when the deed of assignment was executed on
December 4, 1959, the obligation of the assignor
to refund the assignee had not yet arisen. In
other words, there was no obligation yet on the
part of the petitioner, Citizens' Surety and
Insurance Company, to pay Singer Sewing
Machine Co. There was nothing to be
extinguished on that date, hence, there could not
have been a dation in payment.
The deed of assignment cannot be regarded as
an absolute conveyance whereby the obligation
under the surety bonds was automatically
extinguished. The subsequent acts of the private
respondent bolster the fact that the deed of
assignment was intended merely as a security
for the issuance of the two bonds. Partial
payments amounting to P55,600.00 were
made after the execution of the deed of
assignment to satisfy the obligation under the
two surety bonds. Since later payments were
made to pay the indebtedness, it follows that no
debt was extinguished upon the execution of the
deed of assignment. Moreover, a second real
estate mortgage was executed on April 12, 1960
and eventually cancelled only on May 15, 1962. If
indeed the deed of assignment extinguished the
obligation, there was no reason for a second
mortgage to still have to be executed. We agree
with the two dissenting opinions in the Court of
Appeals that the only conceivable reason for the
execution of still another mortgage on April 12,
1960 was because the obligation under the
indemnity bonds still existed. It was not yet
extinguished when the deed of assignment was
executed on December 4, 1959. The deed of
assignment was therefore intended merely as

Case No. 80 YES. In this case, there are two

phases involved in the transactions between
PNB vs. DEE, ANTIPOLO PROPERTIES, INC., respondents PEPI and Dee – the first phase is the
(NOW PRIME EAST PROPERTIES, INC.) AND contract to sell, which eventually became the
AFP–RSBS, INC. second phase, the absolute sale, after Dee’s full
G.R. No. 182128 February 19, 2014 payment of the purchase price. In a contract of
sale, the parties’ obligations are plain and simple.
FACTS: The law obliges the vendor to transfer the
ownership of and to deliver the thing that is the
Sometime in July 1994, respondent Dee object of sale. On the other hand, the principal
Dee bought from respondent Prime East obligation of a vendee is to pay the full purchase
Properties Inc.5 (PEPI) on an installment basis a price at the agreed time. Based on the final
residential lot located in Binangonan, Rizal, with contract of sale between them, the obligation of
an area of 204 square meters and covered by PEPI, as owners and vendors of Lot 12, Block 21–
TCT No. 619608. Subsequently, PEPI assigned its A, Village East Executive Homes, is to transfer
rights over a 213,093–sq m property on August the ownership of and to deliver Lot 12, Block 21–
1996 to respondent Armed Forces of the A to Dee, who, in turn, shall pay, and has in fact
Philippines–Retirement and Separation Benefits paid, the full purchase price of the property.
System, Inc. (AFP–RSBS), which included the
property purchased by Dee. It must be stressed that the mortgage
contract between PEPI and the petitioner is
Thereafter, or on September 10, 1996, merely an accessory contract to the principal
PEPI obtained a P205,000,000.00 loan from three–year loan takeout from the petitioner by
petitioner Philippine National Bank, secured by a PEPI for its expansion project. It need not be
mortgage over several properties, including belabored that “a mortgage is an accessory
Dee’s property. The mortgage was cleared by the undertaking to secure the fulfillment of a
Housing and Land Use Regulatory Board principal obligation,” and it does not affect the
(HLURB) on September 18, 1996. ownership of the property as it is nothing more
than a lien thereon serving as security for a debt.
After Dee’s full payment of the purchase
price, a deed of sale was executed by Owner or developer of subdivision lot or
respondents PEPI and AFP–RSBS on July 1998 in condominium unit may mortgage the same
Dee’s favor. Consequently, Dee sought from the despite contract to sell
petitioner the delivery of the
owner’s duplicate title over the property, to no Note that at the time PEPI mortgaged
avail. Thus, she filed with the HLURB a complaint the property to the petitioner, the prevailing
for specific performance to compel delivery of contract between respondents PEPI and Dee was
TCT No. 619608 by the petitioner, PEPI and still the Contract to Sell, as Dee was yet
AFP–RSBS, among others. to fully pay the purchase price of the property.
On this point, PEPI was acting fully well within
ISSUE:Whether or not PNB, as mortgagee, was its right when it mortgaged the property to the
bound by the contract to sell previously executed petitioner, for in a contract to sell, ownership is
over the subdivision lot mortgaged. retained by the seller and is not to pass until full
payment of the purchase price. In other words, at
HELD:

the time of the mortgage, PEPI was still the protected by PD 957. x x x More so in this case
owner of the property. where the contract to sell has already ripened
into a contract of absolute sale.
Thus, in China Banking Corporation v.
Spouses Lozada, the Court affirmed the right of The Court affirmed HLURB’s orders:
the owner/developer to mortgage the
property subject of development, to wit: “P.D. 1. PNB to cancel the mortgage and
No. 957 cannot totally prevent the owner or surrender/release the title to Dee.
developer from mortgaging the subdivision lot 2. PEPI and AFP-RSBS to pay PNB the redemption
or condominium unit when the title thereto value of the subject property as agreed upon by
still resides in the owner or developer them in the REM within 6 months from the time
awaiting the full payment of the purchase the owner’s duplicate of TCT is actually
price by the installment buyer.” Moreover, the surrendered and released by PNB to Dee.
mortgage bore the clearance of the HLURB, in 3. In the alternative, in case of legal and physical
compliance with Section 18 of P.D. No. 957, impossibility on the part of PEPI, AFP–RSBS, and
which provides that “no mortgage on any unit or PNB to comply and perform their respective
lot shall be made by the owner or developer obligation/s, as above–mentioned, respondents
without prior written approval of the HLURB.” PEPI and AFP–RSBS are hereby ordered
to jointly and severally pay to Dee the amount of
Bank-mortgagee bound by the contract to sell P520,000.00) plus interest to be computed from
over the property mortgaged the filing of complaint on April 24, 2002
until fully paid.
Nevertheless, despite the apparent 4. PEPI, AFP-RSBS and PNB to pay solidarily Dee
validity of the mortgage between the petitioner attorney’s fees, cost of litigation, and
and PEPI, the former is still bound to respect the administrative fine.
transactions between respondents PEPI and Dee.
The petitioner was well aware that the
properties mortgaged by PEPI were also the
subject of existing contracts to sell with other
buyers. While it may be that the petitioner is
protected by Act No. 3135, as amended, it cannot
claim any superior right as against the
installment buyers. This is because the contract
between the respondents is protected by P.D. No.
957, a social justice measure enacted primarily
to protect innocent lot buyers. Thus, in Luzon
Development Bank v. Enriquez, the Court
reiterated the rule that a bank dealing with a
property that is already subject of a contract
to sell and is protected by the provisions of P.D.
No. 957, is bound by the contract to sell.
The transferee BANK is bound by the

Contract to Sell and has to respect Enriquez’s
rights there under. This is because the Contract
to Sell, involving a subdivision lot, is covered and
Case No. 81 Soco through her lawyer sent a letter dated

SOCO V MILITANTE November 23, 1978 to Francisco serving
G.R. No. L-58961 June 28, 1983 notice to the latter 'to vacate the premises
leased.' In answer to this letter, Francisco
FACTS: through his lawyer informed Soco and her
lawyer that all payments of rental due her
1. Plaintiff-appellee-Soco, and the 'defendant- were in fact paid by Commercial Bank and
appellant-Francisco, entered into a contract Trust Company through the Clerk of Court of
of lease on January 17, 1973, whereby Soco the City Court of Cebu Despite this
leased her commercial building and lot explanation, Soco filed this instant case of
situated at Manalili Street, Cebu City, to Illegal Detainer on January 8, 1979. ...
Francisco for a monthly rental of P 800.00 for
6. the Court holds that there was in fact a
a period of 10 years renewable for another
tender of payment of the rentals made by
10 years at the option of the lessee.
Francisco to Soco through Comtrust and
2. Claiming that paragraph 11 of the Contract of since these payments were not accepted by
Lease was in fact not part of the contract Soco evidently because of her intention to
because it was cancelled, Soco filed Civil Case evict Francisco, by all means, culminating in
No. R-16261 in the Court of First Instance of the filing of Civil Case R-16261, There was
Cebu seeking the annulment and/or therefore substantial compliance of the
reformation of the Contract of Lease. ... requisites of consignation, hence his
payments were valid and effective.
3. Sometime before the filing of Civil Case No. R- Consequently, Francisco cannot be ejected
16261 Francisco noticed that Soco did not
from the leased premises for non-payment of
anymore send her collector for the payment
rentals. ...
of rentals and at times there were payments
made but no receipts were issued. This 7. the decision of the Court of First Instance
situation prompted Francisco to write Soco reversed the judgment of the City Court of
the letter dated February 7, 1975 which the Cebu ordering the defendants to vacate
latter received. After writing this letter,
ISSUE: WON there is a valid consignation by the
Francisco sent his payment for rentals by
defendant with the Clerk of Court of the City
checks issued by the Commercial Bank and
Court of Cebu as regard to the said rentals
Trust Company.
HELD: CFI REVERSED, City court of Cebu
4. The factual background setting of this case
REINSTATED
clearly indicates that soon after Soco learned
that Francisco sub-leased a portion of the According to Article 1256, New Civil Code, if
building to NACIDA, at a monthly rental of the creditor to whom tender of payment has
more than P3,000.00 which is definitely very been made refuses without just cause to accept
much higher than what Francisco was paying it, the debtor shall be released from
to Soco under the Contract of Lease, the latter responsibility by the consignation of the thing or
felt that she was on the losing end of the lease sum due. Consignation alone shall produce
agreement so she tried to look for ways and the same effect in the following cases:
means to terminate the contract. ...
(1) When the creditor is absent or unknown, or
5. In view of this alleged non-payment of rental does not appear at the place of payment;
of the leased premises beginning May, 1977,

(2) When he is incapacitated to receive the In order to be valid, the tender of payment
payment at the time it is due; must be made in lawful currency. While
(3) When, without just cause, he refuses to give payment in check by the debtor may be
a receipt; acceptable as valid, if no prompt objection to
(4) When two or more persons claim the same said payment is made (Desbarats vs. Vda. de
right to collect; Mortera, L-4915, May 25, 1956) the fact that in
(5) When the title of the obligation has been lost. previous years payment in check was accepted
does not place its creditor in estoppel from
Consignation is the act of depositing the thing requiring the debtor to pay his obligation in cash
due with the court or judicial authorities (Sy vs. Eufemio, L-10572, Sept. 30, 1958). Thus,
whenever the creditor cannot accept or refuses the tender of a check to pay for an obligation is
to accept payment and it generally requires a not a valid tender of payment thereof (Desbarats
prior tender of payment. (Limkako vs. Teodoro, vs. Vda. de Mortera, supra
74 Phil. 313).
Tender of payment must be distinguished
In order that consignation may be effective, the from consignation. Tender is the antecedent of
debtor must first comply with certain consignation, that is, an act preparatory to the
requirements prescribed by law. The debtor consignation, which is the principal, and from
must show which are derived the immediate consequences
which the debtor desires or seeks to obtain.
(1) that there was a debt due;
Tender of payment may be extrajudicial, while
(2) that the consignation of the obligation had consignation is necessarily judicial, and the
been made because the creditor to whom tender priority of the first is the attempt to make a
of payment was made refused to accept it, or private settlement before proceeding to the
because he was absent or incapacitated, or solemnities of consignation. (8 Manresa 325).
because several persons claimed to be entitled to
Reviewing carefully the evidence presented by
receive the amount due (Art. 1176, Civil Code);
respondent lessee at the trial of the case to prove
(3) that previous notice of the consignation had his compliance with all the requirements of a
been given to the person interested in the valid tender of payment and consignation and
performance of the obligation (Art. 1177, Civil from which the respondent Judge based his
Code); conclusion that there was substantial compliance
with the law on consignation, All evidences,
(4) that the amount due was placed at the according to respondent Judge, proved that
disposal of the court (Art. 1178, Civil Code); and petitioner lessor was notified of the deposit of
(5) that after the consignation had been made the monthly rentals.
the person interested was notified thereof (Art.
1178, Civil Code). Failure in any of these We hold that the respondent lessee has
requirements is enough ground to render a utterly failed to prove the following
consignation ineffective. (Jose Ponce de Leon vs. requisites of a valid consignation:
Santiago Syjuco, Inc., 90 Phil. 311).
First, tender of payment of the monthly rentals
Without the notice first announced to the to the lessor except that indicated in the June 9,
persons interested in the fulfillment of the l977 Letter, Exhibit 10. In the original records of
obligation, the consignation as a payment is void. the case, We note that the certification, Exhibit
(Limkako vs. Teodoro, 74 Phil. 313), 11 of Filemon Soon, messenger of the FAR
Corporation, certifying that the letter of Soledad

Soco sent last May 10 by Commercial Bank and check to the lessor. This the lessee failed to do,
Trust Co. was marked RTS (return to sender) for which is fatal to his defense.
the reason that the addressee refused to receive
Third, respondent lessee likewise failed to prove
it, was rejected by the court for being immaterial,
the second notice, that is after consignation has
irrelevant and impertinent per its Order dated
been made, to the lessor except the consignation
November 20, 1980. (See p. 117, CFI Records).
referred to in Exhibit 12 which are the cashier's
Second, respondent lessee also failed to prove check Nos. 478439 and 47907 CBTC dated May
the first notice to the lessor prior to 11, 1977 and June 15, 1977 under Official
consignation, except the payment referred to in Receipt No. 04369 dated July 6, 1977.
Exhibit 10.
Respondent lessee, attempting to prove
In this connection, the purpose of the notice is in compliance with the requisites of valid
order to give the creditor an opportunity to consignation, presented the representative of the
reconsider his unjustified refusal and to accept Commercial Bank and Trust Co., Edgar Ocañada,
payment thereby avoiding consignation and the Bank Comptroller, who unfortunately belied
subsequent litigation. This previous notice is respondent's claim
essential to the validity of the consignation and
Recapitulating the above testimony of the Bank
its lack invalidates the same. (Cabanos vs. Calo,
104 Phil. 1058; Limkako vs. Teodoro, 74 Phil. Comptroller, it is clear that the bank did not send
notice to Soco that the checks will be deposited
313).
in consignation with the Clerk of Court (the first
There is no factual basis for the lower court's notice) and also, the bank did not send notice to
finding that the lessee had tendered payment of Soco that the checks were in fact deposited (the
the monthly rentals, thru his bank, citing the second notice) because no instructions were
lessee's letter (Exh. 4) requesting the bank to given by its depositor, the lessee, to this effect,
issue checks in favor of Soco in the amount of and this lack of notices started from September,
P840.00 every 10th of each month and to deduct 1977 to the time of the trial, that is June 3, 1980.
the full amount and service fee from his current
The reason for the notification to the persons
account, as well as Exhibit 5, letter of the Vice
President agreeing with the request. But interested in the fulfillment of the obligation
after consignation had been made, which is
scrutinizing carefully Exhibit 4, this is what the
separate and distinct from the notification which
lessee also wrote: "Please immediately notify us
is made prior to the consignation, is stated in
everytime you have the check ready so we may
Cabanos vs. Calo, G.R. No. L-10927, October 30,
send somebody over to get it. " And this is
1958, 104 Phil. 1058. thus: "There should be
exactly what the bank agreed: "Please be advised
notice to the creditor prior and after
that we are in conformity to the above
arrangement with the understanding that you consignation as required by the Civil Code. The
reason for this is obvious, namely, to enable the
shall send somebody over to pick up the
creditor to withdraw the goods or money
cashier's check from us." (Exhibit 4, see p. 230,
deposited. Indeed, it would be unjust to make
Original Records; Exhibit 5, p. 231, Original
him suffer the risk for any deterioration,
Records)
depreciation or loss of such goods or money by
Evidently, from this arrangement, it was the reason of lack of knowledge of the consignation."
lessee's duty to send someone to get the
And the fourth requisite that respondent lessee
cashier's check from the bank and logically, the
failed to prove is the actual deposit or
lessee has the obligation to make and tender the
consignation of the monthly rentals except the
two cashier's checks referred to in Exhibit 12. As The decision under review cites Exhibits 6, 7, 8
indicated earlier, not a single copy of the official and 9, the Debit Memorandum issued by
receipts issued by the Clerk of Court was Comtrust Bank deducting the amounts of the
presented at the trial of the case to prove the checks therein indicated from the account of the
actual deposit or consignation. We find, however, lessee, to prove payment of the monthly rentals.
reference to some 45 copies of official receipts But these Debit Memorandums are merely
issued by the Clerk of Court marked Annexes "B- internal banking practices or office procedures
1 " to "B-40" to the Motion for Reconsideration involving the bank and its depositor which is not
of the Order granting execution pending appeal binding upon a third person such as the lessor.
filed by defendant Francisco in the City Court of What is important is whether the checks were
Cebu (pp, 150-194, CFI Original Records) as well picked up by the lessee as per the arrangement
as in the Motion for Reconsideration of the CFI indicated in Exhibits 4 and 5 wherein the lessee
decision, filed by plaintiff lessor (pp. 39-50, had to pick up the checks issued by CBTC or to
Records, marked Annex "E ") the allegation that send somebody to pick them up, and logically,
"there was no receipt at all showing that for the lessee to tender the same to the lessor. On
defendant Francisco has deposited with the this vital point, the lessee miserably failed to
Clerk of Court the monthly rentals present any proof that he complied with the
corresponding to the months of May and June, arrangement.
1977. And for the months of July and August,
We, therefore, find and rule that the lessee has
1977, the rentals were only deposited with the
failed to prove tender of payment except that in
Clerk of Court on 20 November 1979 (or more
Exh. 10; he has failed to prove the first notice to
than two years later)."... The deposits of these
the lessor prior to consignation except that given
monthly rentals for July and August, 1977 on 20
in Exh. 10; he has failed to prove the second
November 1979, is very significant because on
notice after consignation except the two made in
24 October 1979, plaintiff Soco had testified
Exh. 12; and he has failed to pay the rentals for
before the trial court that defendant had not paid
the months of July and August, 1977 as of the
the monthly rentals for these months. Thus,
time the complaint was filed for the eviction of
defendant had to make a hurried deposit on the
the lessee. We hold that the evidence is clear,
following month to repair his failure. " (pp. 43-
competent and convincing showing that the
44, Records).
lessee has violated the terms of the lease
We have verified the truth of the above claim or contract and he may, therefore, be judicially
allegation and We find that indeed, under Official ejected.
Receipt No. 1697161Z, the rental deposit for
August, 1977 in cashier's check No. 502782
dated 8-10-77 was deposited on November 20,
1979 (Annex "B-15", p. 169, Original CFI
Records) and under Official Receipt No.
1697159Z, the rental deposit for July under
Check No. 479647 was deposited on November
20, 1979 (Annex "B-16", p. 170, Original CFI
Records). Indeed, these two rental deposits were
made on November 20, 1979, two years late and
after the filing of the complaint for illegal
detainer.

Case No. 82 obtain title over the property; that no proper and
LAURO IMMACULATA VS. HON. PEDRO C. valid service of summons was ever made upon
NAVARRO the petitioner, and thus, notwithstanding, the
G.R. No. L- 42230April 15, 1988 latter was declared in default and judgment by
default was rendered against him; that said
FACTS: judgment by default was null and void, having
been rendered against a person who is/was
On March 24, 1975, petitioner Lauro admittedly insane and over whose person, the
Immaculata, represented by his wife Amparo respondent court did not validly acquire
Velasco as guardian ad litem filed in the CFI of jurisdiction; that the judgment by default was
Rizal a complaint, for annulment of judgment not properly served upon the petitioner and/or
and deed of sale with reconveyance of real the supposed guardian ad litem, and this,
property, against private respondents herein and notwithstanding, Juanito Victoria, thru counsel,
respondent sheriff. succeeded in securing the issuance of a writ of
execution to enforce the judgment by default
The complaint alleged that on or about rendered by the respondent Court against the
December, 1969 Juanito Victoria with the petitioner; that Juanito Victoria, alleging that the
cooperation of defendant Juanita Naval, and herein petitioner failed to comply with the
others succeeded in causing plaintiff Lauro alleged writ of execution, prayed before the
Immaculata, petitioner herein, to execute a Deed respondent Court that the respondent Sheriff be
of Absolute Sale in favor of Juanito Victoria, by directed to execute the necessary deed of
unduly taking advantage of the mental illness conveyance in favor of Juanito Victoria and thus
and/or weakness of petitioner and thru deceit consequently, without the knowledge and
and fraudulent means, purportedly disposed of consent of petitioner, a new TCT was issued in
by way of absolute sale, a 5,000-square meter favor of Victoria; that, in the alternative,
parcel of land covered by a TCT, for the sum of P petitioner prays that he be allowed to
58k, which petitioner supposedly received, but repurchase the property within five (5) years
in truth and in fact did not; that although it was from the time judgment is rendered by the
made to appear that petitioner voluntarily and respondent court upholding the validity of the
freely appeared before the Notary Public on proceedings and the sale since the land in
January 13, 1970, petitioner, then already question was originally covered by a Free Patent
suffering from chronic mental illness, could not title; and finally, petitioner prays for actual and
possibly appear before the said Notary Public; moral damages as well as exemplary damages,
and that said Deed of Sale was not freely and attorney's fees, expenses of litigation and costs of
voluntarily executed by petitioner, and the same suit.
was absolutely fictitious and simulated, and,
consequently, null and void; Private respondents moved for the complaint’s
dismissal. Respondent Court dismissed the
that based on said fictitious and simulated sale, complaint on the ground of res judicata.
an action for specific performance was filed by Petitioner filed an MR on the ground that res
Juanito Victoria, during his lifetime, against judicata is not applicable when the main cause of
petitioner herein before the respondent Court to action is to annul the very judgment. However,
compel petitioner to execute a document the respondent court denied the MR.
registerable with the Register of Deeds of Rizal
in order that Juanito Victoria may be able to ISSUE:

The case is remanded to the court a quo for it to

WON consignation is required when an offer accept payment or consignation 2 (in connection
to redeem is made within the legal with the legal redemption which We are hereby
redemption period? allowing the petitioner to do) by the herein
petitioner of whatever he received from
HELD: respondent at the time the transaction was
made.
The reconsideration of this issue is hereby
GRANTED.
While res judicata may bar questions on the
validity of the sale in view of alleged insanity and
intimidation (and this point is no longer pressed
by counsel for the petitioner) still the question of
the right of legal redemption has remained
unresolved.
Be it noted that in an action (Civil Case No.

20968) filed on March 24, 1975 before the
defunct Court of First Instance of Rizal,
petitioner presented an alternative cause of
action or prayer just in case the validity of the
sale would be sustained. And this alternative
cause of action or prayer is to allow petitioner to
legally redeem the property.
We hereby grant said alternative cause of action

or prayer. While the sale was originally executed
sometime in December, 1969, it was only on
February 3, 1974 when, as prayed for 1 by
private respondent, and as ordered by the court
a quo, a "deed of conveyance" was formally
executed. Since offer to redeem was made on
March 24, 1975, this was clearly within the five-
year period of legal redemption allowed by the
Public Land Act
The allegation that the offer to redeem was not

sincere, because there was no consignation of
the amount in Court is devoid of merit. The right
to redeem is a RIGHT, not an obligation,
therefore, there is no consignation required (De
Jesus v. Garcia, C.A. 47 O.G. 2406; Resales v.
Reyes, 25 Phil. 495, Vda. de Quirino v. Palarca, L-
28269, Aug. 16, 1969) to preserve the right to
redeem (Villegas v. Capistrano, 9 Phil. 416).

Case No. 83 Complaint with the RTC seeking to compel

DEL CARMEN vs. SPOUSES SABORDO herein respondents and RPB to interplead and
G.R. No. 181723 litigate between themselves their respective
interests on the abovementioned sum of money.
TOPIC: Tender of payment and Consignation Upon filing of their complaint, the heirs of
Toribio Del Carmen deposited the amount of
FACTS: P127,500.00 with the RTC of San Carlos City.
Sometime in 1961, the spouses Suico along with RTC dismissed the Complaint of petitioner and
several partners established a rice and corn mill her co-heirs for lack of merit.
at Mandaue City, Cebu. As part of their capital,
they obtained a loan from the Development Bank Petitioners filed an appeal with the CA
of the Philippines (DBP), and to secure the loan, contending that the judicial deposit or
four parcels of land owned by the Suico spouses, consignation of the amount of P127,500.00 was
denominated as Lots 506, 512, 513 and 514 valid and binding and produced the effect of
were mortgaged. Subsequently, the Suico payment of the purchase price of the subject lots.
spouses and their partners defaulted forcing DBP
to foreclose the mortgage. After failing to CA denied the above appeal for lack of merit and
redeem, DBP consolidated its ownership over affirmed RTC's decision. MR was likewise denied.
the same.
ISSUE: Whether or not the consignation was
(NOTE: Del Carmen is among the legal heirs of valid.
the spouses Suico who continued this case as a
substitute when one of the spouses died RULING: NO. The petition lacks merit. At the
during the pendency of this case.) outset, the Court quotes with approval the
discussion of the CA regarding the definition and
This case principally involves the two lots of nature of consignation, to wit: … consignation
spouses Suico designated as 512 and 513 which [is] the act of depositing the thing due with the
were redeemed by the spouses Sabordo from court or judicial authorities whenever the
DBP through aconditional sale. The Sabordos creditor cannot accept or refuses to accept
acquired the rights over the lots when herein payment, and it generally requires a prior
petioners sold it to them for the purpose of tender of payment. It should be distinguished
redeeming the lots from DBP, which the from tender of payment which is the
Sabordos successfully accomplished. During the manifestation by the debtor to the creditor of his
pendency of a litigation involving the said lots desire to comply with his obligation, with the
(whether the spouses Suico and heirs could offer of immediate performance.Tender is the
repurchase the property from the Sabordos), the antecedent of consignation, that is, an act
Sabordos mortgaged the lots to Republic preparatory to the consignation, which is the
Planters Bank (RPB), and the loan became principal, and from which are derived the
delinquent. This was later discovered by herein immediate consequences which the debtor
petioners . desires or seeks to obtain. Tender of payment
may be extrajudicial, while consignation is
Thereafter, claiming that they are ready with the necessarily judicial, and the priority of the first is
payment of P127,500.00, but alleging that they the attempt to make a private settlement before
cannot determine as to whom such payment proceeding to the solemnities of consignation.
shall be made, petitioners (Del Carmen) filed a Tender and consignation, where validly made,

produces the effect of payment and extinguishes judgment creditor who refuses to accept it. The
the obligation. same principle was reiterated in the later case of
In the case of Arzaga v. Rumbaoa, which was Pabugais v. Sahijwani.As stated above, tender of
cited by petitioner in support of his contention, payment involves a positive and unconditional
this Court ruled that the deposit made with the act by the obligor of offering legal tender
court by the plaintiff-appellee in the said case is currency as payment to the obligee for the
considered a valid payment of the amount former’s obligation and demanding that the
adjudged, even without a prior tender of latter accept the same. In the instant case, the
payment thereof to the defendants- Court finds no cogent reason to depart from the
appellants,because the plaintiff-appellee, upon findings of the CA and the RTC that petitioner
making such deposit, expressly petitioned the and her co-heirs failed to make a prior valid
court that the defendants-appellees be notified tender of payment to respondents.
to receive the tender of payment.This Court held It is settled that compliance with the requisites
that while "[t]he deposit, by itself alone, may not of a valid consignation is mandatory. Failure to
have been sufficient, but with the express terms comply strictly with any of the requisites will
of the petition, there was full and complete offer render the consignation void. One of these
of payment made directly to defendants- requisites is a valid prior tender of payment.
appellants."
In the instant case, however, petitioner and her

co-heirs, upon making the deposit with the RTC,
did not ask the trial court that respondents be
notified to receive the amount that they have
deposited. In fact, there was no tender of
payment. Instead, what petitioner and her co-
heirs prayed for is that respondents and RPB be
directed to interplead with one another to
determine their alleged respective rights over
the consigned amount; that respondents be
likewise directed to substitute the subject lots
with other real properties as collateral for their
loan with RPB and that RPB be also directed to
accept the substitute real properties as collateral
for the said loan. Nonetheless,the trial court
correctly ruled that interpleader is not the
proper remedy because RPB did not make any
claim whatsoever over the amount consigned by
petitioner and her co-heirs with the court.
In the cases of Del Rosario v. Sandico and

Salvante v. Cruz, likewise cited as authority by
petitioner, this Court held that, for a
consignation or deposit with the court of an
amount due on a judgment to be considered as
payment, there must bep rior tender to the

CASE NO. 84 company failed to produce the accused again, the

court had no other alternative but to render the
PEOPLE VS. NATIVIDAD FRANKLIN, accused, judgment of forfeiture.
ASIAN SURETY AND INSURANCE COMPANY
[39 SCRA 363] Subsequently, the surety company filed a motion
for a reduction of bail alleging that the reason for
FACTS: its inability to produce and surrender the
accused to the court was the fact that the
Appeal taken by the Asian Surety & Insurance Philippine Government had allowed her to leave
Company, Inc. from the decision of the Court of the country and proceed to the United States on
First Instance of Pampanga dated April 17, 1963, February 27, 1962. The reason thus given not
forfeiting the bail bond posted by it for the being to the satisfaction of the court, the motion
provisional release of Natividad Franklin, the for reduction of bail was denied. The surety
accused in Criminal Case No. 4300 of said court, company's motion for reconsideration was also
as well as from the latter's orders denying the denied by the lower court on May 27, 1963,
surety company's motion for a reductions of bail, although it stated in its order that it would
and its motion for reconsideration thereof. consider the matter of reducing the bail bond
"upon production of the accused." The surety
It appears that an information filed with the company never complied with this condition.
Justice of the Peace Court of Angeles, Pampanga,
docketed as Criminal Case No. 5536, Natividad Appellant now contends that the lower court
Franklin was charged with estafa. Upon a bail should have released it from all liability under
bond posted by the Asian Surety & Insurance the bail bond posted by it because its failure to
Company, Inc. in the amount of P2,000.00, she produce and surrender the accused was due to
was released from custody. the negligence of the Philippine Government
itself in issuing a passport to said accused,
After the preliminary investigation of the case, thereby enabling her to leave the country. In
the arraignment was set on July 14, 1962, on support of this contention the provisions of
which date she failed to appear, but the court Article 1266 of the New Civil Code are invoked.
postponed the arraignment to July 28 of the
same year upon motion of counsel for the surety ISSUE:
company. The accused failed to appear again, for
which reason the court ordered her arrest and WON Surety should be held liable?
required the surety company to show cause why
the bail bond posted by it should not be forfeited. HELD:
The court granted the surety company a period Article 1266, NCC does not apply to a surety upon
of thirty days within which to produce and a bail bond.
surrender the accused, with the warning that The abovementioned legal provision does not
upon its failure to do so the bail bond posted by apply to its case, because the same speaks of the
it would be forfeited. On October 25, 1962 the relation between a debtor and a creditor, which
surety company filed a motion praying for an does not exist in the case of a surety upon a bail
extension of thirty days within which to produce bond, on the one hand, and the State, on the
the body of the accused and to show cause why other.
its bail bond should not be forfeited. As not
withstanding the extension granted the surety
For while sureties upon a bail bond (or

recognizance) can discharge themselves from
liability by surrendering their principal, sureties
on ordinary bonds or commercial contracts, as a
general rule, can only be released by payment
of the debt or performance of
the act stipulated.
It is clear, therefore, that in the eyes of the law a

surety becomes the legal custodian and jailer of
the accused, thereby assuming the obligation to
keep the latter at all times under his surveillance,
and to produce and surrender him to the court
upon the latter's demand.
That the accused in this case was able to secure a

Philippine passport which enabled her to go to
the United States was, in fact, due to the surety
company's fault because it was its duty to do
everything and take all steps necessary to
prevent that departure. This could have been
accomplished by seasonably informing the
Department of Foreign Affairs and other
agencies of the government of the fact that the
accused for whose provisional liberty it had
posted a bail bond was facing a criminal charge
in a particular court of the country. Had the
surety company done this, there can be no doubt
that no Philippine passport would have been
issued to Natividad Franklin.
UPON ALL THE FOREGOING, the decision

appealed from is affirmed in all its parts, with
costs.

Case No. 85 preference in the order of dates of registration,

FRANCISCO C. MANABAT vs. LAGUNA as held by the court a quo, or distribution pro
FEDERATION OF FACOMAS, INC., ET AL., rata, as appellants maintain.
58 SCRA 650
HELD:
FACTS:
The judgment appealed from ruling preference is
In a suit filed by Laguna Federation of Facomas, hereby affirmed.
Inc. against Nieves M. Vda. De Roxas, a judgment
for the plaintiff was rendered. And pursuant to it, Appellants' reasoning is that this is an instance of
a writ of execution was issued on February, 8, several credits referring to the same specific real
1960, by virtue of which Francisco Manabat, the property; and that the rule in such case is to
provincial sheriff, sold at public auction on satisfy all the aforesaid credits pro rata, following
November 24, 1960 all rights, titles and interests Article 2249 of the Civil Code:
of Nieves M. Vda. de Roxas in ten (10) parcels of
land for a total price of P37,000. ART. 2249. If there are two or more credits with
respect to the same specific real property or real
Discovering, however, that the parcels of land rights, they shall be satisfied pro rata, after the
sold were subject to registered liens such as payment of the taxes and assessments upon the
writs of execution and attachment annotated at immovable property or real right.1äwphï1.ñët
the back of the respective title certificates, the
sheriff instituted an action for interpleader on The above provision of the new Civil Code
February 21, 1961 in the same Court of First altered the set-up under the old one in that while
Instance of Laguna, 2 for the different creditors previously the rule provided for was priority of
or lien holders to litigate among themselves and payment in regard to credits referring to the
determine their rights to the P37,000 proceeds same specific real property, now the general rule
of the sale. is pro rata.
After stipulation of facts and submission of Nonetheless, even under the new system, not all
documentary evidence by the parties, the Court credits referring to the same specific real
of First Instance ruled, in its decision of property come under the pro rata rule. Article
December 6, 1961, that the aforementioned 2249 itself, supra, expressly provides that taxes
defendants-claimants are entitled to the and assessments upon the real property are to be
proceeds of the sale in the order of preference in paid first.
accordance with the dates of the registration of
their credits. Similarly, the rule of pro rata does not apply to
the credits mentioned in subpar. (7) of Article
From said judgment only Florentino Cayco and 2242 of the Civil Code:
Jose Fernandez Zorilia appealed. 4And finding
that it involves a question purely of law, the ART. 2242. With reference to specific immovable
Court of Appeals, by resolution of November 12, property and real rights of the debtor, the
1964, has certified their appeal to Us. following claims, mortgages and liens shall be
preferred, and shall constitute an encumbrance
ISSUE: Whether the rule to follow in the on the immovable or real right:
satisfaction of the credits involved is that of

(7) Credits annotated in the Registry of Property,

in virtue of a judicial order, by attachments or
executions, upon the property affected, and only
as to later credits.
It being expressly provided that said credits are

preferred "only as to later credits", it follows that
the same limitation applies as to their preference
among themselves; i.e., for purposes of satisfying
several credits annotated by attachments or
executions, the rule is still preference according
to priority of the credits in the order of time. For,
otherwise, the result would be absurd: the
preference of an attachment or execution lien
over later credits, as above provided for, could
easily be defeated by simply obtaining writs of
attachment or execution, and annotating them,
no matter how much later.
It not being disputed that appellants' credit is

"later" than those of appellees Laguna Federation
of Facomas, Inc., Valeriana Lim-aco de Almeda
and Cosmopolitan Insurance Co., Inc., the
appellees' credits must be deemed preferred to
that of appellants. To satisfy them pro rata would
erase the difference between earlier and later
credits provided for by subpar. (7) of Article
2242 aforementioned.

Case No. 86 RULING: If respondent's complaint were to be

released from having to comply with the
OCCENA VS. JABSON, COURT OF APPEALS AND subdivision contract, assuming it could show at
TROPICAL HOMES, INC the trial that the service undertaken
73 SCRA 637 contractually by it had "become so difficult as to
NO. L-44349, October 29, 1976 be manifestly beyond the contemplation of the
parties", then respondent court's upholding of
FACTS: Private respondent Tropical Homes, Inc respondent's complaint and dismissal of the
had a subdivision contract with petitioners who petition would be justifiable under the cited
are the owners of the land subject of subdivision codal article (ART. 1267. When the service has
development by private respondent. The become so difficult as to be manifestly beyond
contract stipulated that the petitioners’ fixed and the contemplation of the parties, the obligor may
sole share and participation is the land which is also be released therefrom, in whole or in part).
equivalent to forty percent of all cash receipts
from the sale of the subdivision lots. When the Without said article, respondent would remain
development costs increased to such level not bound by its contract under the theretofore
anticipated during the signing of the contract prevailing doctrine that performance therewith
and which threatened the financial viability of is not excused "by the fact that the contract turns
the project as assessed by the private out to be hard and improvident, unprofitable, or
respondent, respondent filed at the lower court a unexpectedly burdensome", 3 since in case a
complaint for the modification of the terms and party desires to be excuse from performance in
conditions of the contract by fixing the proper the event of such contingencies arising, it is his
shares that should pertain to the parties therein duty to provide therefor in the contract.
out of the gross proceeds from the sales of the
subdivision lots. Petitioners moved for the But respondent's complaint seeks not release
dismissal of the complaint for lack of cause of from the subdivision contract but that the court
action. The lower court denied the motion for "render judgment I modifying the terms and
dismissal which was upheld by the CA based on Conditions of the Contract by fixing the proper
the civil code provision that “when the service shares that should pertain to the herein parties
has become so difficult as to be manifestly out of the gross proceed., from the sales of
beyond the contemplation of the parties, the subdivided lots of subject subdivision". The cited
obligor may also be released therefrom, in whole article does not grant the courts this authority to
or in part”. Insisting that the worldwide increase remake, modify or revise the contract or to fix
in prices cited by private respondent does not the division of shares between the parties as
constitute a sufficient cause of action for the contractually stipulated with the force of law
modification of the terms and conditions of the between the parties, so as to substitute its own
contract, petitioners filed the instant petition. terms for those covenanted by the
partiesthemselves. Respondent's complaint for
ISSUE: Whether or not private respondent may modification of contract manifestly has no basis
demand modification of the terms of the contract in law and therefore states no cause of action.
on the ground that the prestation has manifestly Under the particular allegations of respondent's
come beyond the contemplation of the parties. complaint and the circumstances therein
averred, the courts cannot even in equity grant
the relief sought.

ACCORDINGLY, the resolution of respondent

appellate court is reversed and the petition for
certiorari is granted and private respondent's
complaint in the lower court is ordered
dismissed for failure to state a sufficient cause of
action. With costs in all instances against private
respondent.

Civ Ii - Modes of Extinguishment

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CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST

M ODES OF EXTINGUISHM ENT OF OBLIGATIONS

CASE No. 61 Plaintiff then asked for a release of funds on

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ISSUE: Whether or not the parties mutual

RULING: Yes. When RFC turned down the

The subsequent conduct of Saura, Inc. confirms

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Case No. 62 Mangondato filed a complaint for reconveyance

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First. If Mangondato is the real owner of the

Article 1242 of the Civil Code is an exception

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CASE NO. 63 themortgageHe also claimed incurring expenses

TOPIC: MODES OF EXTINGUISHMENT OF Whether the Court of Appeals erred in holding

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its independent existence. x x x (Emphasis

Furthermore, Art. 1293 of the Civil Code states:

Novation which consists in substituting a new

We do not agree, then, with the CA in holding

[W]hether or not Alfredo Ong has an interest in

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Case No. 65 ISSUE:

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when the due date arrived, he made any demand,

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Case No. 67 accruing to the said shares after the rendition of

ISSUE: Was the contention of UTEX, alleging that

RULING: No. The final and executory judgment

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Case No.68 been paid, thus leaving a balance of only

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Case No. 69 and paid entirely by defendant Felisa L.

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thus proving her financial capability of meeting

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Case No. 72 a. Art. 1249 of the Civil Code provides that

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Case No. 73 Lending sent Leonardo follow-up letters

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through repeated acts, that the respondent

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respondent. Moreover, in the absence of showing

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Appellant Velasco also urged that the damages

ART. 1250. In case an extraordinary inflation or

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In the present case, the unusually long delay of

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Case No. 76 currency stipulated should supervene, the value

None. Article 1250 of the Civil Code provides ”In

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