Desamparado Oliva vs Intestate of Villalba (1233)

Pet is owner of parcel of aghri land

Marcelo Villalba asked to occupy Oliva’s house in said land with a promise to buy the house and lot.
Marcelo died without having paid the consideration.
Marcelo’s widow refused to vacate.

Oliva filed a petition for recovery of ownership and possession.

RTC and CA dismissed the petition.
RULING:
1. Petitioner barred by prescription – Villalba’s continuous possession for 16 yrs in good faith
(immovable 10 yrs).
2. Petitioner barred by laches.
3. It was a valid contract of sale. No invalidation of sale due to non-payment of full price. Furthermore,
contrary to petitioner’s submission, the nonpayment of the full consideration did not invalidate the
contract of sale. Under settled doctrine, nonpayment is a resolutory condition that extinguishes the
transaction existing for a time and discharges the obligations created thereunder.16 The remedy of the
unpaid seller is to sue for collection17 or, in case of a substantial breach, to rescind the contract.18

JM Tuason & Co vs Javier (1234)

J.M. Tuason & Co., Inc. entered a contract to sell with respondent Ligaya Javier a parcel of land at Sta.
Mesa Heights Subdivision for the sum of Php3,691.20 with 10% interest per annum; Php396.12 will be
payable upon execution of the contract, and an installment of Php43.92 monthly for a period of ten (10)
years. Failure to pay respondent will pay an additional 10% interest. And after 90 days from the end of
the grace period, petitioner can rescind the contract, the payments made by respondent will be
considered as rentals.

Respondent religiously paid the monthly installment until January 5, 1962. Respondent, however, was
unable to the pay the monthly installments within the grace period.

Petitioner rescinded the contract and asked the respondent to vacate the said land. Failure to vacate.
Petitioner filed an action to the Court of First Instance of Rizal for the rescission of the contract. The
CFI rendered a decision in favor of respondent in applying Article 1592 of the New Civil Code. Hence,
petitioner made an appeal to the Supreme Court alleging that Article 1592 of the New Civil Code
applies only to contracts of sale and not in contracts to sell.

ISSUE:
Did the CFI erroneously apply Article 1592 of the New Civil Code?

RULING: Yes. Regardless, however, of the propriety of applying Article 1592, petitioner has not been
denied substantial justice under Article 1234 of the New Civil Code. In this connection, respondent
religiously satisfied the monthly installments for almost eight (8) years or up to January 5, 1962. It has
been shown that respondent had already paid Php4,134.08 as of January 5, 1962 which is beyond the
stipulated amount of Php3,691.20. Also, respondent has offered to pay all installments overdue
including the stipulated interest, attorney’s fees and the costs which the CFI accordingly sentenced
respondent to pay such installment, interest, fees and costs. Thus, petitioner will be able recover
everything that was duethereto. Under these circumstances, the SC feel that, in the interest of justice
and equity, the decision appealed from may be upheld upon the authority of Article 1234 of the New
Civil Code.

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 PAGSIBIGAN VS CA (1234/1235)

Pilar Pagsibigan obtained a agricultural loan (4,500) from Planters Development Bank secured by
mortgage of a piece of land. A second loan for the same amount for the same mortgaged item (year
1976). Stipulated that first payment in May 1977 with payments every six months thereafter with 19%
for unpaid amortizations. Initial payment was made in July 1977 followed by several payments
amounting to 11,900. However only 4 of these payments were applied to the loan while the rest were
"temporarily lodged to accounts payable since the account was already past due". The property was
foreclosed extrajudicially failure to pay an outstanding balance of P29,554. This resulted in the property
being sold to the bank for P8,163.00, and the bank thereafter claimed a deficiency of P21,391.81.

RULING:
We hold that the payment amounting to P8,650.00 for the balance of P3,558.20 as of August 26, 1978 8
plus the P1,000.00 it was asked to pay on April 24, 1984 would at the very least constitute substantial
performance.

Article 1234 of the Civil Code, provides:

"Article 1234. If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages suffered by the
obligee."

Thus, aside from the fact that the respondent bank was estopped from enforcing its right to foreclose by
virtue of its acceptance of the delayed payments for a period of more than six years, the application of
such payment to the interest and the principal during the first three payments constitutes a virtual
waiver of the acceleration clause provided in the contract. We cannot sustain the legality of the
foreclosure under the peculiar facts of this case, because there is substantial performance of the
obligation on the part of petitioner. Under Article 1235 of the Civil Code, when the creditor accepts
performance, knowing its incompleteness and irregularity without protest or objection, the obligation is
deemed complied with.

ESGUERRA VS VILLANUEVA (1235)

FACTS

 Spouses Esguerra and Isidro de Guzman entered into a contract whereby Esguerra leased to De
Guzman a portion of the building, belonging to the Esguerra, for a term of 10 years.
 De guzman failed to pay the rental, and his mother, Segunda De Guzman, executed a promissory note.
 None of the aforementioned payments having been made when due, the Esguerras commenced an
action against Mrs. De Guzamn for the collection of the said money.
 The parties reached a compromised agreement, which was approved by Judge Villanueva
o Judge Villanueva acknowledged that De Guzman delivered to Esguerra P800 and P1,460, and that the
receipt of said sums by the Esguerras constituted full satisfaction of the aforementioned judgment by
compromise
 Respondents claim that the “receipt” of said sums of P800 and P1,460 by the Esguerras constituted
“acceptance” of the incomplete and irregular performance of respondent’s obligation.
 Without any protest or objection on the part of the Esguerras, said obligation must be deemed fully
complied with.
ISSUE: WON the receipt of the sums of money constitutes acceptance of the irregular performance?
NO.

HELD

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 The Supreme Court ruled in favor of Esguerra. The obligation in this case is deemed not extinguished.
 The verb “accept” as used in Art 1235 means to take as “satisfactory or sufficient”, or “to give assent
to”, or “to agree or accede” to an incomplete performance.
 In the case at bar, the Esguerras had neither acceded or assented to said payment, nor taken the same as
satisfactory or sufficient compliance with the rendered.
 The day immediately following that of the first payment of P800, the Esguerras asked Judge Villanueva
to issue the corresponding writes of execution in the 2 cases. Thus, the Esguerras patently manifested
their dissatisfaction with- which necessarily implied an objection or protest to- said partial payment.
 The law does not require the protest or objection of the creditor to be made in a particular manner or at
a particular time. In the case at bar, the Esguerras had performed said acts within such time.

TAYAG VS CA (1235)

* The deed of conveyance executed by Juan Galicia, Sr., prior to his demise in 1979, and Celerina
Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion of a piece of land
situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00 under the following terms:

1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY acknowledged to have

been paid upon the execution of this agreement;
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within ten (10) days from
and after the execution of this agreement;
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the VENDORS'
indebtedness with the Philippine Veterans Bank which is hereby assumed by the VENDEE; and
4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) shall be paid within
one (1) year from and after the execution of this instrument. (p. 53, Rollo)

* Juan Galicia, Sr. who assert breach of the conditions anchored on full payment and compliance with
the stipulations thereof.
*There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia.
* The P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was
tendered.
* Concerning private respondent's assumption of the vendors' obligation to the Philippine Veterans
Bank, the vendee paid only the sum of P6,926.41 while the difference the indebtedness came from
Celerina Labuguin (p. 73, Rollo).
* Moreover, petitioners asserted that not a single centavo of the P27,000.00 representing the remaining
balance was paid to them.
*RTC decided to uphold private respondent's theory on the basis of constructive fulfillment under
Article 1186 and estoppel through acceptance of piecemeal payments in line with Article 1235 of the
Civil Code.

ISSUE: Whether the contract could be rescinded on the basis of mere partial payment.

HELD: No.
* Petitioners' demeanor who, instead of immediately filing the case precisely to rescind the instrument
because of non-compliance, allowed private respondent to effect numerous payments posterior to the
grace periods provided in the contract. This apathy of petitioners who even permitted private
respondent to take the initiative in filing the suit for specific performance against them, is akin to
waiver or abandonment of the right to rescind normally conferred by Article 1191 of the Civil Code.
* * The acceptance by petitioners of the various payments even beyond the periods agreed upon, was
perceived by the lower court as tantamount to faithful performance of the obligation pursuant to Article
1235 of the Civil Code.

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* Both the trial and appellate courts were, therefore, correct in sustaining the claim of private
respondent anchored on estoppel or waiver by acceptance of delayed payments under Article 1235 of
the Civil Code in that: When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed fully complied
with.
* The petitioner- heirs of Juan Galicia, Sr. accommodated private respondent by accepting the latter's
delayed payments not only beyond the grace periods but also during the pendency of the case for
specific performance (p. 27, Memorandum for petitioners; p. 166, Rollo).
* Indeed, the right to rescind is not absolute and will not be granted where there has been substantial
compliance by partial payments.
* Constructive fulfillment case.

GEORGIA OSMEÑA-JALANDONI vs CARMEN A. ENCOMIENDA (1236-1238)

Facts: Encomienda narrated that she met petitioner Georgia Osmeña-Jalandoni in Cebu on October 24,
1995, when the former was purchasing a condominium unit and the latter was the real estate broker.
Thereafter, Encomienda and Jalandoni became close friends. On March 2, 1997, Jalandoni called
Encomienda to ask if she could borrow money for the search and rescue operation of her children in
Manila, who were allegedly taken by their father, Luis Jalandoni. All in all, Encomienda spent around
₱3,245,836.02 and $6,638.20 for Jalandoni.

When Jalandoni came back to Cebu on July 14, 1997, she never informed Encomienda. Encomienda
then later gave Jalandoni six (6) weeks to settle her debts. Despite several demands, no payment was
made. Jalandoni insisted that the amounts given were not in the form of loans. When they had to appear
before the Barangay for conciliation, no settlement was reached. Hence, Encomienda filed a complaint.
She impleaded Luis as a necessary party, being Georgia’s husband.
For her defense, Jalandoni claimed that there was never a discussion or even just an allusion about a
loan. She confirmed that Encomienda would indeed deposit money in her bank account and pay her
bills in Cebu. But when asked, Encomienda would tell her that she just wanted to extend some help and
that it was not a loan. When Jalandoni returned to Cebu, Encomienda wanted to fetch her at the airport
but the former refused. This allegedly made Encomienda upset, causing her to eventually demand
payment for the amounts originally intended to be gratuitous.
Issue: Whether or not Encomienda is entitled to be reimbursed for the amounts she defrayed for
Jalandoni considering that she claimed they were given without her knowledge.
RULING:
* Dismissed petition. Affirmed CA.
*Jalandoni insists that she never borrowed any amount of money from Encomienda. During the entire
time that Encomienda was sending hermoney and paying her bills, there was not one reference to a
loan. In other words, mere donation or charity. Jalandoni also contends that the amounts she received
from Encomienda were mostly provided and paid without her prior knowledge and thus she could not
have consented to any loan agreement. She relies on the trial court's finding that Encomienda's claims
were not supported by any documentary evidence.

*It must be stressed, however, that the trial court merely found that no documentary evidence was
offered showing Jalandoni's authorization or undertaking to pay the expenses. But the second paragraph
of Article 1236 of the Civil Code provides: Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been beneficial to the debtor.8

* Clearly, Jalandoni greatly benefited from the purportedly unauthorized payments. Thus, even if she
asseverates that Encomienda's payment of her household bills was without her knowledge or against
her will, she cannot deny the fact that the same still inured to her benefit and Encomienda must
therefore be consequently reimbursed for it. Also, when Jalandoni learned about the payments, she did

4
nothing to express her objection to or repudiation of the same, within a reasonable time. Even when she
claimed that she was prepared with her own money,9 she still accepted the financial assistance and
actually made use of it.

* In case of loans between friends and relatives, the absence of acknowledgment receipts or promissory
notes is more natural and real. In a similar case,11 the Court upheld the CA' s pronouncement that the
existence of a contract of loan cannot be denied merely because it was not reduced in writing. Surely,
there can be a verbal loan. Contracts are binding between the parties, whether oral or written. The law
is explicit that contracts shall be obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present.

* Encomienda immediately offered a helping hand when a friend asked for it. But this does not mean
that she had already waived herright to collect in the future

* The principle of unjust enrichment finds application in this case. There is unjust enrichment under
Article 22 of the Civil Code when (1) a person is unjustly benefited, and (2) such benefit is derived at
the expense of or with damages to another.

Victoria Moreo-Lentfer vs Wolff (136-1238)

Petitioners: Gunter and wife Victoria Lentfer; John Cross

Respondent: Jurgen Wolff
* Gunter and Cross – contract of sale and lease of land– beach house and land owned by Cross – Wolff
to pay the price.
* Wolff claims that Lentfers were his confidants and held in trust money for him.
* Lentfer and lawyer executed a deed where it was made to appear that the beach house was sold to
Lentfer including the assignment of lease.
* Therefore, complaint filed by Wolff. RTC for Lentfer. CA for Wolff.

ISSUE: Whether article 1238 is applicable to the effect that Wolff as third party gave the payment as
donation and did not intend to be reimbursed.
HELD: 1238 not applicable.
* There is no absence of intent to be reimbursed.
* When respondent learned that the sale of the beach house and assignment of the lease right were in
favor of Victoria Moreo-Lentfer, he immediately filed a complaint for annulment of the sale and
reconveyance of the property with damages and prayer for a writ of attachment.
*The donation of money equivalent to P3,297,800 as well as its acceptance should have been in
writing. It was not. Hence, the donation is invalid for non-compliance with the formal requisites
prescribed by law.

NAPOCOR VS IBRAHIM (1242)

* Petitioner took possession of a 21,995 square meter parcel of land in Marawi City (subject land) for
the purpose of building thereon a hydroelectric power plant pursuant to its Agus 1 project. The subject
land, while in truth a portion of a private estate registered under Transfer Certificate of Title (TCT) No.
378-A4 in the name of herein respondent Macapanton K. Mangondato (Mangondato),5 was occupied by
petitioner under the mistaken belief that such land is part of the vast tract of public land reserved for its
use by the government under Proclamation No. 1354, s. 1974.6cralawred

* During pendency of proceedings for determination of just compensation between NPC and
Mangondato, the Ibrahims filed a claim that they are the real owners of the land at issue. Eventually,
Mangondato was awarded just compensation (21 million).

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* Notably, the RTC ruled that it was the Ibrahims who own the land, but since it has been expropriated
already, it cannot be reconveyed to Ibrahim but Ibrahim will be entitled to rental fees and damages as a
result of expropriation.
* NPC questions the ruling that NPC is solidarily liable to Ibrahim and Mganondato.

RULING:
Sans Bad Faith, Petitioner Cannot Be Held Liable to the Ibrahims and Maruhoms

Without the existence of bad faith, the ruling of the RTC and of the Court of Appeals apropos
petitioner’s remaining liability to the Ibrahims and Maruhoms becomes devoid of legal basis. In fact,
petitioner’s previous payment to Mangondato of the rental fees and expropriation indemnity due the
subject land pursuant to the final judgment in Civil Case No. 605-92 and Civil Case No. 610-92 may
be considered to have extinguished the former’s obligation regardless of who between Mangondato,
on one hand, and the Ibrahims and Maruhoms, on the other, turns out to be the real owner of
the subject land.62 Either way, 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 to pay for
the rental fees and expropriation indemnity due the subject land is already deemed extinguished by
the latter’s previous payment under the final judgment in Civil Case No. 605-92 and Civil Case No.
610-92. This would be a simple case of an obligation being extinguished through payment by the
debtor to its creditor.63 Under this scenario, the Ibrahims and Maruhoms would not even be entitled to
receive anything from anyone for the subject land. Hence, petitioner cannot be held liable to the
Ibrahims and Maruhoms.

Second. We, however, can reach the same conclusion even if the Ibrahims and Maruhoms turn out to
be the real owners of the subject land.

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
reads:chanRoblesvirtualLawlibrary

“Payment made in good faith to any person in possession of the credit shall release the
debtor.” cralawlawlibrary

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.64 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.65 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.

Borrowing the principles behind Article 1242 of the Civil Code, we find that Mangondato—being the
judgment creditor in Civil Case No. 605-92 and Civil Case No. 610-92 as well as the registered owner
of the subject land at the time66—may be considered as a “possessor of credit” with respect to the
rental fees and expropriation indemnity adjudged due for the subject land in the two cases, if the
Ibrahims and Maruhoms turn out to be the real owners of the subject land. Hence, petitioner’s
payment to Mangondato of the fees and indemnity due for the subject land as a consequence of the
execution of Civil Case No. 605-92 and Civil Case No. 610-92 could still validly extinguish its
obligation to pay for the same even as against the Ibrahims and Maruhoms.

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CALTEX VS IAC (1245)
FACTS: On January 12, 1978, private respondent Asia Pacific Airways Inc. entered into an
agreement with petitioner Caltex (Philippines) Inc., whereby petitioner agreed to supply private
respondent's aviation fuel requirements for two (2) years, covering the period from January 1, 1978
until December 31, 1979. Pursuant thereto, petitioner supplied private respondent's fuel supply
requirements.

As of June 30, 1980, private respondent had an outstanding obligation to petitioner in the total amount
of P4,072,682.13, representing the unpaid price of the fuel supplied. To settle this outstanding
obligation, private respondent executed a Deed of Assignment dated July 31, 1980, wherein it
assigned to petitioner its receivables or refunds of Special Fund Import Payments from the National
Treasury of the Philippines to be applied as payment of the amount of P4,072,683.13 which private
respondent owed to petitioner. On February 12, 1981, pursuant to the Deed of Assignment, Treasury
Warrant No. B04708613 in the amount of P5,475,294.00 representing the refund to respondent of
Special Fund Import Payment on its fuel purchases was issued by the National Treasury in favor of
petitioner. Four days later, on February 16, 1981, private respondent, having learned that the amount
remitted to petitioner exceeded the amount covered by the Deed of Assignment, wrote a letter to
petitioner, requesting a refund of said excess.

Petitioner, acting on said request, made a refund in the amount of P900,000.00 plus in favor of private
respondent. The latter, believing that it was entitled to a larger amount by way of refund, wrote
petitioner anew, demanding the refund of the remaining amount. In response thereto, petitioner
informed private respondent that the amount not returned (P510,550.63) represented interest and
service charges at the rate of 18% per annum on the unpaid and overdue account of respondent from
June 1, 1980 to July 31, 1981.

Thus, on September 13, 1982, private respondent filed a complaint against petitioner in the Regional
Trial Court of Manila, to collect the sum of P510,550.63.00.

Petitioner (defendant in the trial court) filed its answer, reiterating that the amount not returned
represented interest and service charges on the unpaid and overdue account at the rate of 18% per
annum. It was further alleged that the collection of said interest and service charges is sanctioned by
law, and is in accordance with the terms and conditions of the sale of petroleum products to
respondent, which was made with the conformity of said private respondent who had accepted the
validity of said interest and service charges.

On November 7, 1983, the trial court rendered its decision dismissing the complaint, as well as the
counterclaim filed by defendant therein. Private respondent (plaintiff) appealed to the Intermediate
Appellate Court (IAC). On August 27, 1985, a decision was rendered by the said appellate court
reversing the decision of the trial court, and ordering petitioner to return the amount of P510,550.63 to
private respondent.
ISSUE: Whether or not there is a valid dation in payment in this case.
RULING: The Supreme Court ruled that the Deed of Assignment executed by the parties on July 31,
1980 is not a dation in payment and did not totally extinguish respondent's obligations as stated
therein.

The then Intermediate Appellate Court ruled that the three (3) requisites of dacion en pago are all
present in the instant case, and concluded that the Deed of Assignment of July 31, 1980) constitutes a
dacion in payment provided for in Article 1245 of the Civil Code which has the effect of
extinguishing the obligation, thus supporting the claim of private respondent for the return of the
amount retained by petitioner.

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The Supreme Court, speaking of the concept of dation in payment, in the case of Lopez vs. Court of
Appeals, among others, stated: "'The dation in payment extinguishes the obligation to the extent of the
value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the
parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished."

From the above, it is clear that a dation in payment does not necessarily mean total extinguishment of
the obligation. The obligation is totally extinguished only when the parties, by agreement, express or
implied, or by their silence, consider the thing as equivalent to the obligation. In the instant case, the
then Intermediate Appellate Court failed to take into account the express recitals of the Deed of
Assignment.

"That Whereas, ASSIGNOR has an outstanding obligation with ASSIGNEE in the amount of
P4,072,682.13 as of June 30, 1980, plus any applicable interest on overdue account. Now therefore in
consideration of the foregoing premises, ASSIGNOR by virtue of these presents, does hereby
irrevocably assign and transfer unto ASSIGNEE any and all funds and/or Refund of Special Fund
Payments, including all its rights and benefits accruing out of the same, that ASSIGNOR might be
entitled to, by virtue of and pursuant to the decision in BOE Case No. 80-123, in payment of
ASSIGNOR's outstanding obligation plus any applicable interest charges on overdue account and
other avturbo fuel lifting and deliveries that ASSIGNOR may from time to time receive from the
ASSIGNEE, and ASSIGNEE does hereby accepts such assignment in its favor."

Hence, it could easily be seen that the Deed of Assignment speaks of three (3) obligations (1) the
outstanding obligation of P4,072,682.13 as of June 30, 1980; (2) the applicable interest charges on
overdue accounts; and (3) the other avturbo fuel lifting and deliveries that assignor (private
respondent) may from time to time receive from assignee (Petitioner). As aptly argued by petitioner,
if it were the intention of the parties to limit or fix respondent's obligation to P4,072.682.13, they
should have so stated and there would have been no need for them to qualify the statement of said
amount with the clause "as of June 30, 1980 plus any applicable interest charges on overdue account"
and the clause "and other avturbo fuel lifting and deliveries that ASSIGNOR may from time to time
receive from the ASSIGNEE".

The terms of the Deed of Assignment being clear, the literal meaning of its stipulations should
control. In the construction of an instrument where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all.

Likewise, the then Intermediate Appellate Court failed to take into consideration the subsequent acts
of the parties which clearly show that they did not intend the Deed of Assignment to totally extinguish
the obligation: (1) After the execution of the Deed of Assignment on July 31, 1980, petitioner
continued to charge respondent with interest on its overdue account up to January 31, 1981. This was
pursuant to the Deed of Assignment which provides for respondent's obligation for "applicable
interest charges on overdue account". The charges for interest were made every month and not once
did respondent question or take exception to the interest; and (2) In its letter of February 16, 1981,
respondent addressed the following request to petitioner:

In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts
shall be principally considered (Art. 1253, Civil Code). The foregoing subsequent acts of the parties
clearly show that they did not intend the Deed of Assignment to have the effect of totally
extinguishing the obligations of private respondent without payment of the applicable interest charges
on the overdue account.
Finally, the payment of applicable interest charges on overdue account, separate from the principal
obligation of P4,072,682.13 was expressly stipulated in the Deed of Assignment. The law provides
that "if the debt produces interest, payment of the principal shall not be deemed to have been made
until the interests have been covered." (Art. 1253, Civil Code).

8
TAN SHUY VS SPS MAULAWIN (1245) (Dacion en pago)

Tan Shuy is engaged in the business of buying copra and corn whenever they would buy
copra or corn from crop sellers, they would prepare and issue a pesada in their favor. A pesada is a
document containing details of the transaction. When a pesada contained the annotation “pd” on the
total amount of the purchase price, it meant that the crop delivered had already been paid for by
petitioner.
Maulawin , is a farmer-businessman engaged in the buying and selling of copra and corn. Tan
Shuy extended a loan to Guillermo in the amount of ₱420,000. In consideration thereof, Guillermo
obligated himself to pay the loan and to sell copra to petitioner.
Tan Shuy alleged that despite repeated demands, Maulawin remitted only a total of P28,000.
Guillermo countered that he had already paid the subject loan in full. According to him, he
continuously delivered and sold copra to Tan Shuy. Maulawin said they had an oral arrangement that
the net proceeds thereof shall be applied as installment payments for the loan. To bolster his claim, he
presented copies of pesadas issued to him which meant that actual payment of the net proceeds from
copra deliveries was not given to him, but was instead applied as loan payment.
The trial court ruled that the net proceeds from Guillermo’s copra deliveries – represented in
the pesadas should be applied as installment payments for the loan. It gave weight and credence to the
pesadas. Accordingly, the trial court found that respondent had not made a full payment for the loan,
as the total creditable copra deliveries merely amounted to ₱378,952.43.
The CA affirmed the decision of the RTC. Hence, the appeal.
Issue
WON the delivery of copra amounted to installment payments for the loan obtained by Maulawin
from Tan Shuy.

Held
The pesadas served as proof that the net proceeds from the copra deliveries were used as
installment payments for the debts of Maulawin.
Pursuant to Article 1232 of the Civil Code, an obligation is extinguished by payment or
performance. There is payment when there is delivery of money or performance of an obligation.
Article 1245 of the Civil Code provides for a special mode of payment called dation in payment
(dación en pago). There is dation in payment when property is alienated to the creditor in satisfaction
of a debt in money. Here, the debtor delivers and transmits to the creditor the former’s ownership over
a thing as an accepted equivalent of the payment or performance of an outstanding debt. In such
cases, Article 1245 provides that the law on sales shall apply, since the undertaking really partakes –
in one sense – of the nature of sale; that is, the creditor is really buying the thing or property of the
debtor, the payment for which is to be charged against the debtor’s obligation. Dation in payment
extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by
the parties or as may be proved, unless the parties by agreement – express or implied, or by their
silence – consider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished.
However, some of the “pesadas” offered in evidence by Maulawin were not for copras that he
delivered to Tan Shuy but for corn.
Hence, the amount of P41,585.25 which the pesadas show as payment for corn delivered by
Maulawin to Tan Shuy cannot be claimed by Maulawin to have been applied also as payment to his
loan.
Therefore, the total amount of payment made by Maulawin to Tan Shuy for his obligation to
the latter is P378,952.43 which is the total amount of the copra delivered. Maulawin is still indebted
to Tan Shuy in the amount of P41,047.53.
The subsequent arrangement between Tan Shuy and Maulawin can thus be considered as one
in the nature of dation in payment. There was partial payment every time Maulawin delivered copra to
petitioner, chose not to collect the net proceeds of his copra deliveries, and instead applied the
collectible as installment payments for his loan from Tan Shuy.

9
BUSTAMANTE VS ROSEL (1245) (Pactum in commissorium – void)
Facts: Respondent Rosel entered into a loan agreement with petitioner spouses Bustamante wherein
the latter borrowed P100,000 payable in 2 years. To guarantee payment, the spouses put as collateral
70 sq m of their lot inclusive of the apartment therein. In the event of borrowers default, contract
states the lender has the option to buy or purchase the collateral for P200,000.
When the loan was about to mature on March 1, 1989, respondents proposed to buy the said portion at
the pre-set price. Petitioners, however, refused and requested for extension of time to pay the loan. On
the due date, petitioners tendered payment of the loan to respondents which the latter refused to
accept. On March 4, 1990, respondents sent a demand letter asking petitioner to sell the collateral
pursuant to the option to buy embodied in the loan agreement. Prior to that, they filed with the RTC
an action for specific performance in February.
Issue: Is the respondent justified in compelling petitioners to sell the portion of the lot pursuant to the
stipulation in the loan?
Held:
No as doing so is tantamount to pactum commissorium. The elements of pactum commissorium are as
follows: (1) there should be a property mortgaged by way of security for the payment of the principal
obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the
thing mortgaged in case of non-payment of the principal obligation within the stipulated period.
In this case, the intent to appropriate the property given as collateral in favor of the creditor appears to
be evident, for the debtor is obliged to dispose of the collateral at the pre-agreed consideration
amounting to practically the same amount as the loan. In effect, the creditor acquires the collateral in
the event of non payment of the loan. This is within the concept of pactum commissorium. Such
stipulation is void.

DBP vs CA (1245) (Neither Dacion en pago nor Pactum Commisorium, but Mortgages)
Private respondent Lydia Cuba is a grantee of a fishpond lease agreement from the Government. She
later obtained a loan from DBP in the amounts of P109, 000, P109, 000, and P98, 700 under the terms
stated in the three promissory notes. As a security for the said loan Cuba executed a two Deed of
Assignment of her Leasehold Rights. Then she failed to pay her loan when it became due in
accordance with the terms of the promissory notes. DBP in turn appropriated the leasehold rights of
Cuba over the fishpond, without foreclosure proceedings, whether judicial or extrajudicial. After
appropriating the said leasehold rights DBP executed a Deed of Conditional Sale of the Leasehold
Rights in favor of respondent Cuba over the same fishpond, to which Cuba agreed. Respondent Cuba
failed to pay the amortizations stipulated in the Deed of Conditional Sale, however she was able enter
with DBP a temporary arrangement with DBP for the Deferment Notarial Rescission of Deed of
Conditional Sale. However, a Notice of Rescission thru Notarial Act was sent the DBP to Cuba, then
it took possession of the fishpond in question. After it took possession of the said fishpond, DBP
disposed the property in favor of Agripina Caperal through a deed of conditional sale. Then a new
fishpond lease agreement was awarded by the Government to Caperal.
Lydia Cuba filed an action with the Regional Trial Court of Pangasinan for the declaration of nullity
of DBP’s appropriation of her leaseholds over the subject fishpond, for the annulment of the Deed of
Conditional Sale executed in her favor by DBP, the annulment of DBP’s sale of the fishpond to
Caperal, and the restoration of her rights over the said fishpond and for damages. The RTC ruled in
favor of Cuba, declaring that DBP’s taking possession and ownership of the subject property without
foreclosure was violative of Art. 2088 of the Civil Code, and that condition No. 12 of the Assignment
of the Leasehold Rights was void for being a clear case of pactum commissorium.
Both Cuba and DBP elevated the case to the CA, with Cuba seeking an increase in the amount of
damages, while DBP questioned the findings of fact and law of the RTC. The CA reversed the ruling
of the RTC with regards to the validity of the acts of DBP.

10
Issues:
1. Whether or not the two Deed of Assignment executed by Cuba in favor of DBP would
operate as a mortgage or some other contract.
2. Whether or not condition No. 12 of the Assignment of the Leasehold Rights would operate as
case of pactum commissorium
3. Whether the act of DBP in appropriating to itself Cuba’s leasehold rights over the fishpond in
question without foreclosure proceeding was contrary to Article 2088 of the Civil Code, and
therefore, invalid.

Held:

1. Lydia executed the 2 Deeds of Assignment as a security for the loans that she obtained from DBP,
according the case of People’s Bank and Trust Co. vs. Odom an assignment to guaranty an
obligation is in effect a mortgage. And it was also indicated in the provisions of the promissory
note executed by Cuba, that the her assigned leasehold rights were referred to as mortgaged
properties and the instrument itself a mortgage contract. (Not dacion en pago as they were not
designed to directly extinguish an obligation but was furnished to constitute as a security.

2. &3. The act of DBP under condition No. 12 of the Assignment of Leasehold Rights did not
constitute as a case of pactum commissorium, when appropriated for itself Cuba’s leasehold rights
over the subject fishpond, because condition No. 12 only gave DBP the authority to sell the said
property and use the proceeds of the sale to satisfy Cuba’s obligation, it did not operate as an
automatic transfer of ownership of the said property to DBP. However, DBP exceeded its authority
granted under condition No. 12, when it appropriated for itself such rights without judicial or
extrajudicial foreclosure, thereby making his acts violative of Article 2088 of the Civil Code, which
forbids a creditor from appropriating, or disposing of, the thing given as security for the payment of a
debt.
_______________________
We do not, however, buy CUBAs argument that condition no. 12 of the deed of assignment
constituted pactum commissorium. Said condition reads:
12. That effective upon the breach of any condition of this assignment, the Assignor hereby appoints
the Assignee his Attorney-in-fact with full power and authority to take actual possession of the
property above-described, together with all improvements thereon, subject to the approval of the
Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof and collect
rentals, to make repairs or improvements thereon and pay the same, to sell or otherwise dispose of
whatever rights the Assignor has or might have over said property and/or its improvements and
perform any other act which the Assignee may deem convenient to protect its interest. All expenses
advanced by the Assignee in connection with purpose above indicated which shall bear the same rate
of interest aforementioned are also guaranteed by this Assignment. Any amount received from rents,
administration, sale or disposal of said property may be supplied by the Assignee to the payment of
repairs, improvements, taxes, assessments and other incidental expenses and obligations and the
balance, if any, to the payment of interest and then on the capital of the indebtedness secured hereby.
If after disposal or sale of said property and upon application of total amounts received there shall
remain a deficiency, said Assignor hereby binds himself to pay the same to the Assignee upon
demand, together with all interest thereon until fully paid. The power herein granted shall not be
revoked as long as the Assignor is indebted to the Assignee and all acts that may be executed by the
Assignee by virtue of said power are hereby ratified.

The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by
way of security for the payment of the principal obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period.

11
SELEGNA MANAGEMENT AND DEVELOPMENT CORP VS. UCPB (1248)
Facts:
On September 19, 1995, Petitioners Selegna Management and Development Corporation and Spouses
Edgardo and Zenaida Angeles were granted a credit facility in the amount of P70 million by
Respondent United Coconut Planters Bank (UCPB). As security for this credit facility,... petitioners
executed real estate mortgages over several parcels of land located in the cities of Muntinlupa, Las
Piñas, Antipolo and Quezon; and over several condominium units in Makati. Petitioners were
likewise required to execute a promissory note in favor of respondent every... time they availed of the
credit facility. As required in these notes, they paid the interest in monthly amortizations.
The parties stipulated in their Credit Agreement dated September 19, 1995,[5] that failure to pay "any
availment of the accommodation or interest, or any sum due" shall constitute an event of default,[6]
which shall consequently allow... respondent bank to "declare [as immediately due and payable] all
outstanding availments of the accommodation together with accrued interest and any other sum
payable."
In need of further business capital, petitioners obtained from UCPB an increase in their credit
facility.[8] For this purpose, they executed a Promissory Note for P103,909,710.82, which was to
mature on March 26, 1999.[9] In the same... note, they agreed to an interest rate of 21.75 percent per
annum, payable by monthly amortizations.
On December 21, 1998, respondent sent petitioners a demand letter
Respondent decided to invoke the acceleration provision in their Credit Agreement.
Respondent sent another letter of demand on March 4, 1999. It contained a final demand on
petitioners "to settle in full [petitioners'] said past due obligation to [UCPB] within five (5) days from
[petitioners'] receipt of [the] letter."
In response, petitioners paid respondent the amount of P10,199,473.96 as partial payment of the
accrued interests.[13] Apparently unsatisfied, UCPB applied for extrajudicial foreclosure of
petitioners' mortgaged properties.
When petitioners received the Notice of Extra Judicial Foreclosure Sale on May 18, 1999, they
requested UCPB to give them a period of sixty (60) days to update their accrued interest charges; and
to restructure or, in the alternative, to negotiate for a takeout of their... account.
On May 25, 1999, the Bank denied petitioners' request
In order to forestall the extrajudicial foreclosure scheduled for May 31, 1999, petitioners filed a
Complaint[16] (docketed as Civil Case No. 99-1061) for "Damages, Annulment of Interest, Penalty
Increase and Accounting with Prayer for Temporary Restraining
Order/Preliminary Injunction." All subsequent proceedings in the trial court and in the CA involved
only the propriety of issuing a TRO and a writ of preliminary injunction.
Judge Salonga denied their motion on... the ground that no great or irreparable injury would be
inflicted on them if the parties would first be heard.
Unsatisfied, petitioners filed an Ex-Parte Motion for Reconsideration, by reason of which the case
was eventually raffled to Branch 148,... presided by Judge Oscar B. Pimentel.
Judge Pimentel issued an Order dated May 31, 1999, granting a 20-day TRO on the scheduled
foreclosure of the Antipolo properties, on the ground that the Notice of Foreclosure had indicated an
inexistent auction venue.

12
To resolve that... issue, respondent filed a Manifestation[21] that it would withdraw all its notices
relative to the foreclosure of the mortgaged properties, and that it would re-post or re-publish a new
set of notices.
Judge Pimentel denied petitioners' application for a TRO for having been rendered moot by
respondent's Manifestation.
Subsequently, respondent filed new applications for foreclosure in the cities where the mortgaged
properties were located.
petitioners filed another Motion for the Issuance of a TRO/Injunction and a Supplementary Motion
for the Issuance of TRO/Injunction with Motion... to Clarify Order
Judge Pimentel issued an Order[25] granting a 20-day TRO in favor of petitioners. After several
hearings, he issued his November 26, 1999 Order,[26] granting their prayer for a writ of preliminary
injunction on the... foreclosures, but only for a period of twenty (20) days.
Respondent moved for reconsideration.
Judge Pimentel issued an Order[29] granting respondent's Motion for Reconsideration
Consequently, respondent proceeded with the foreclosure sale of some of the mortgaged properties.
petitioners filed an "[O]mnibus [M]otion [for Reconsideration] and to [S]pecify the [A]pplication of
the P92 [M]illion [R]ealized from the [F]oreclosure [S]ale
The case was re-raffled to the pairing judge of Branch 58, Winlove M. Dumayas.
Judge Dumayas granted petitioners' Omnibus Motion for Reconsideration and Specification of the
Foreclosure Proceeds
The aggrieved respondent filed before the Court of Appeals a Petition for Certiorari, seeking the
nullification of the RTC Order dated March 15, 2002, on the ground that it was issued with grave
abuse of discretion.
The Special Fifteenth Division, speaking through Justice Rebecca de Guia-Salvador, affirmed the
ruling of Judge Dumayas. It held that petitioners had a clear right to an injunction, based on the fact
that respondent had kept them in the dark as to how and why their principal... obligation had
ballooned to almost P132 million. The CA held that respondent's refusal to give them a detailed
accounting had prevented the determination of the maturity of the obligation and precluded the
possibility of a foreclosure of the mortgaged properties. Moreover, their... payment of P10 million had
the effect of updating, and thereby averting the maturity of, the outstanding obligation.
Respondent filed a Motion for Reconsideration... the appellate court held in its Amended
Decision[41] that the foreclosure proceedings should not be enjoined in the light of the clear failure of
petitioners to... meet their obligations upon maturity.
A pending question on accounting did not warrant an injunction on the foreclosure.
The CA added that petitioners were not without recourse or protection. Further, it noted their pending
action for annulment of interest, damages and accounting. It likewise said that they could protect
themselves by causing the annotation of lis... pendens on the titles of the mortgaged or foreclosed
properties.
Issues:
Whether petitioners are in default
Ruling:
Petition has no merit.

13
* Default: It is a settled rule of law that foreclosure is proper when the debtors are in default of the
payment of their obligation. In fact, the parties stipulated in their credit agreements, mortgage
contracts and promissory notes that respondent was authorized to foreclose on the... mortgages, in
case of a default by petitioners.
There are three requisites necessary for a finding of default.
First, the obligation is demandable and liquidated; second, the debtor delays performance; third, the
creditor judicially or extrajudicially requires the debtor's performance.
* In the present case, the Promissory Note executed on March 29, 1998, expressly states that
petitioners had an obligation to pay monthly interest on the principal obligation. From respondent's
demand letter,[52] it is clear and undisputed by petitioners that... they failed to meet those monthly
payments since May 30, 1998. Their nonpayment is defined as an "event of default" in the parties'
Credit Agreement
Considering that the contract is the law between the parties,[54] respondent is justified in invoking the
acceleration clause declaring the entire obligation immediately due and payable.[55] That clause
obliged petitioners to pay the... entire loan on January 29, 1999, the date fixed by respondent.
* A debt is liquidated when the amount is known or is determinable by inspection of the terms and
conditions of the relevant promissory notes and related documentation.[60] Failure to furnish a debtor
a detailed statement of account does not ipso facto result... in an unliquidated obligation.
** Petitioners' Debt Considered Liquidated Despite the Alleged Lack of Accounting
PAPA VS VALENCIA (1249)

Myron Papa is the administrator of the estate of Angela Butte. In 1973, he sold a portion of said estate
to Felix Peñarroyo through A.U. Valencia and Co., Inc. Peñarroyo gave Papa P5,000.00 plus a check
worth P40,000.00. However, Papa was not able to deliver the certificate of title to Peñarroyo. A
litigation ensued and ten years after, Papa argued that the sale between him and Peñarroyo was never
consummated because he did not encash the P40,000.00 check and that the P5,000.00 cash was
merely earnest money.
ISSUE: Whether the sale was consummated or not?
HELD: Yes. Consummated.
It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C. Papa
the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos
(P40,000.00) in check on 15 June 1973, in payment of the purchase price of the subject lot. Petitioner
himself admits having received said amounts,[9] and having issued receipts therefor.[10] Petitioners
assertion that he never encashed the aforesaid check is not subtantiated and is at odds with his
statement in his answer that he can no longer recall the transaction which is supposed to have
happened 10 years ago. After more than ten (10) years from the payment in part by cash and in part
by check, the presumption is that the check had been encashed. As already stated, he even waived the
presentation of oral evidence.

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years
undoubtedly resulted in the impairment of the check through his unreasonable and unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is cashed,
pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced by the
creditors unreasonable delay in presentment. The acceptance of a check implies an undertaking of due
diligence in presenting it for payment, and if he from whom it is received sustains loss by want of
such diligence, it will be held to operate as actual payment of the debt or obligation for which it was
given.[11] It has, likewise, been held that if no presentment is made at all, the drawer cannot be held
liable irrespective of loss or injury[12] unless presentment is otherwise excused. This is in harmony

14
with Article 1249 of the Civil Code under which payment by way of check or other negotiable
instrument is conditioned on its being cashed, except when through the fault of the creditor, the
instrument is impaired. The payee of a check would be a creditor under this provision and if its non-
payment is caused by his negligence, payment will be deemed effected and the obligation for which
the check was given as conditional payment will be discharged.[13]

January 31, 1973 (1249)

National Marketing Corporation vs. Federation of United NAMARCO Distributor’s Inc.

1. NAMARCO and the FEDERATION entered into a Contract of Sale. NAMARCO was
authorized to import the following items with the corresponding dollar value totalling $2,001,031.00.
Among the goods covered by the Contract of Sale were 2,000 cartons of PK Chewing Gums, 1,000
cartons of Juicy Fruit Chewing Gums, 500 cartons of Adams Chicklets, 168 cartons of Blue Denims,
and 138 bales of Khaki Twill.

2. To insure the payment of those goods by the FEDERATION, the NAMARCO accepted three
domestic letters of credit.

3. FEDERATION received from the NAMARCO the 2,000 cartons of PK Chewing Gums,
1,000 cartons of Juicy Fruit Chewing Gums, and 500 cartons of Adams Chicklets, all with a total
value of P277,357.91, under the condition that the cost thereof would be paid in cash through PNB
Domestic L/C No. 600570; and on February 20, 1960, the FEDERATION received from the
NAMARCO the 168 cartons of Blue Denims and 183 bales of Khaki Twill, with a total value of
P135,891.82 and P197,804.12, respectively, under the condition that the cost thereof would be paid in
cash through PNB Domestic L/C Nos. 600606 and 600586, respectively.

4. FEDERATION filed a complaint against the NAMARCO for specific performance and
damages, alleging that after the NAMARCO had delivered a great portion of the goods listed in the
Contract of Sale, it refused to deliver the other goods mentioned in the said contract.

a. In its answer, NAMARCO has refused and declined to accept the cash payments by the
FEDERATION. According to NAMARCO, the Contract of Sale was not validly entered into by the
NAMARCO and, therefore, it is not bound by the provisions thereof.
b. NAMARCO tried to encash the three domestic letters but PNB denied.
i. The common condition of the three letters of credit is that the sight drafts drawn on them
must be duly accepted by the FEDERATION before they will be honored by the Philippine National
Bank. But the said drafts were not presented to the FEDERATION for acceptance.
ii. NAMARCO demanded from the FEDERATION the payment of the total amount of
P611,053.35, but the latter failed and refused to pay the said amount. CFI Manila promulgated its
decision ordering the NAMARCO to specifically perform its obligation in the Contract of Sale, by
delivering to the FEDERATION the undelivered goods. SC affirms

5. Then, NAMARCO instituted the present action (Civil Case No. 46124) alleging, that the
FEDERATION'S act or omission in refusing to satisfy the former's valid, just and demandable claim
has compelled it to file the instant action; and praying that the FEDERATION be ordered to pay the
NAMARCO the sum of P611,053.35, representing the cost of merchandise mentioned in the
preceding paragraph, with interest.

HELD:
Furthermore the mere delivery by the FEDERATION of the domestic letters of credit to NAMARCO
did not operate to discharge the debt of the FEDERATION. As shown by the appealed judgment
NAMARCO accepted the three letters of credit "to insure the payment of those goods by the

15
FEDERATION ... ." It was given therefore as a mere guarantee for the payment of the merchandise.
The delivery of promissory notes payable to order, or bills of exchange or drafts or other mercantile
document shall produce the effect of payment only when realized, or when by the fault of the creditor,
the privileges inherent in their negotiable character have been impaired. (Art. 1249 New Civil Code.)
The clause of Article 1249 relative to the impairment of the negotiable character of the commercial
paper by the fault of the creditor, is applicable only to instruments executed by third persons and
delivered by the debtor to the creditor, and does not apply to instruments executed by the debtor
himself and delivered to the creditor. 39 In the case at bar it is not even pretended that the negotiable
character of the sight drafts was impaired as a result of the fault of NAMARCO. The fact that
NAMARCO attempted to collect from the Philippine National Bank on the sight drafts on March 10,
1960, is of no material significance. As heretofore stated they were never taken, in the first instance as
payment. There was no agreement that they should be accepted as payment. The mere fact that
NAMARCO proceeded in good faith to try to collect payments thereon, did not amount to an
appropriation by it of the amounts mentioned in the sight drafts so as to release its claims against the
FEDERATION. A mere attempt to collect or enforce a bill or note from which no payment results is
not such an appropriation of it as to discharge the debt. 40

VELASCO VS MERALCO (1250)

Motion for Reconsideration of a civil case wherein Petitioner owned lots in Diliman; sold parcel of
the land to Meralco; Meralco built a substation.
Petitioner complained of noise emission as nuisance. The Court granted the petition ruling it to be a
nuisance after relying on tests and evidence.
ISSUE: Re Velasco’s MR = W/O the court has incorrectly awarded to Velasco an inadequate amount
of damages.
HELD: No. MR denied.
Appellant Velasco urges that the damages awarded him are inadequate considering the present high
cost of living, and calls attention to Article 1250 of the present Civil Code, and to the doctrines laid
down in People v. Pantoja, G.R. No. L-18793, 11 October 1968, 25 SCRA 468. We do not deem the
rules invoked to be applicable. Article 1250 of the Civil Code is to the effect that:
"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."cralaw virtua1aw library

It can be seen from the employment of the words "extraordinary inflation or deflation of the currency
stipulated" that the legal rule envisages contractual obligations where a specific currency is selected
by the parties as the medium of payment; hence it is inapplicable to obligations arising from tort and
not from contract, as in the case at bar, besides there being no showing that the factual assumption of
the article has come into existence As to the Pantoja ruling, the regard paid to the decreasing purchase
of the peso was considered a factor in estimating the indemnity due for loss of life, which in itself is
not susceptible of accurate estimation. It should not be forgotten that the damages awarded to herein
appellant were by no means full compensatory damages, since the decision makes clear that appellant,
by his failure to minimize his damages by means easily within his reach, was declared entitled only to
a reduced award for the nuisance sued upon (Steel v. Rail & River Coal Co., 43 Ohio App. 228, 182
N.E. 552); and the amount granted him had already taken into account the changed economic
circumstances.

Nor is the fact that appellant lost a chance to sell his house for P95,000 to Jose Valencia constitute a
ground for an award of damages in that amount. As remarked in the main decision, there is no
adequate proof of loss, since there is no evidence of the depreciation in the market value of the house
in question caused by the acts of defendant Meralco. The house, after all, has remained with appellant,
and he admits in his motion for reconsideration (page 48) that properties have increased in value by
200% since then.

16
TELENGTAN VS US LINES (1250)
Petitioner Telengtan is a domestic corporation doing business under the name and style
La Suerte Cigar & Cigarette Factory, while respondent U.S. Lines is a foreign corporation engaged in
the business of overseas shipping. During the period material, the provisions of the Far East
Conference Tariff No. 12 were specifically made applicable to Philippine containerized
cargo from the U.S. and Gulf Ports, effective with vessels arriving at Philippine ports on and after
December 15, 1978. After that date, consignees who fail to take delivery of their containerized cargo
within the 10-day free period are liable to pay demurrage charges.
On June 22, 1981, respondent U.S. Lines filed a suit against petitioner Telengtan seeking
payment of demurrage charges plus interest and damages. The complaint alleged that between the
years 1979 and 1980, goods belonging to petitioner loaded on containers aboard its (respondents)
vessels arrived in Manila from U.S. ports. After the 10-day free period, petitioner still failed to
withdraw its goods from the containers wherein the goods had been shipped. Continuing, respondent
U.S. Lines alleged that petitioner incurred on all those shipments a demurrage in the total amount
of P94,000.00 which the latter refused to pay despite repeated demands.

Trial Court ruled in favor of US Lines. Affirmed by CA.

ISSUE: W/O the CA erred in in affirming the trial courts order for the recomputation of the judgment
award in accordance with Article 1250 of the Civil Code contrary to existing jurisprudence and
without any evidence at all to support it.
HELD: Yes. Erroneous.

Extraordinary inflation or deflation, as the case may be, exists when there is an unusual increase or
decrease in the purchasing power of the Philippine peso which is beyond the common fluctuation in
the value of said currency, and such increase or decrease could not have been reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the establishment of the
obligation.[19] Extraordinary inflation can never be assumed; he who alleges the existence of such
phenomenon must prove the same.[20]

The Court holds that there has been no extraordinary inflation within the meaning of Article 1250 of
the Civil Code. Accordingly, there is no plausible reason for ordering the payment of an obligation in
an amount different from what has been agreed upon because of the purported supervention of
extraordinary inflation.

As it were, respondent was unable to prove the occurrence of extraordinary inflation since it filed its
complaint in 1981. Indeed, the record is bereft of any evidence, documentary or testimonial, that
inflation, nay, an extraordinary one, existed. Even if the price index of goods and services may have
risen during the intervening period,[21] this increase, without more, cannot be considered as resulting
to extraordinary inflation as to justify the application of Article 1250. The erosion of the value of the
Philippine peso in the past three or four decades, starting in the mid-sixties, is, as the Court observed
in Singson vs. Caltex (Phil), Inc., [22] characteristics of most currencies. And while the Court may
take judicial notice of the decline in the purchasing power of the Philippine currency in that span of
time, such downward trend of the peso cannot be considered as the extraordinary phenomenon
contemplated by Article 1250 of the Civil Code. Furthermore, absent an official pronouncement or
declaration by competent authorities of the existence of extraordinary inflation during a given period,
as here, the effects of extraordinary inflation, if that be the case, are not to be applied.

Lest it be overlooked, Article 1250 of the Code, as couched, clearly provides that the value of the
peso at the time of the establishment of the obligation shall control and be the basis of payment of the
contractual obligation, unless there is agreement to the contrary. It is only when there is a contrary
agreement that extraordinary inflation will make the value of the currency at the time of payment, not
at the time of the establishment of obligation, the basis for payment.

17
PACULDO VS REGALADO (1252) (Digest taken in toto from google)

FACTS: On December 27, 1990, petitioner Nereo Paculdo and respondent Bonifacio Regalado
entered into a contract of lease over a parcel of land with a wet market building, located at Fairview
Park, Quezon City. The contract was for twenty five (25) years, commencing on January 1, 1991 and
ending on December 27, 2015. For the first five (5) years of the contract beginning December 27,
1990, Nereo would pay a monthly rental of P450,000, payable within the first five (5) days of each
month with a 2% penalty for every month of late payment.

Aside from the above lease, petitioner leased eleven (11) other property from the respondent, ten (10)
of which were located within the Fairview compound, while the eleventh was located along Quirino
Highway Quezon City. Petitioner also purchased from respondent eight (8) units of heavy equipment
and vehicles in the aggregate amount of Php 1, 020,000.

On account of petitioner’s failure to pay P361, 895.55 in rental for the month of May, 1992, and the
monthly rental of P450, 000.00 for the months of June and July 1992, the respondent sent two demand
letters to petitioner demanding payment of the back rentals, and if no payment was made within
fifteen (15) days from the receipt of the letter, it would cause the cancellation of the lease contract.

Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the land subject of the
lease contract, including the improvements which petitioner introduced into the land amounting to
P35, 000,000.00, to Monte de Piedad Savings Bank, as a security for a loan.

On August 12, 1992, and the subsequent dates thereafter, respondent refused to accept petitioner’s
daily rental payments.

Subsequently, petitioner filed an action for injunction and damages seeking to enjoin respondents
from disturbing his possession of the property subject of the lease contract. On the same day,
respondent also filed a complaint for ejectment against petitioner.

The lower court rendered a decision in favor of the respondent, which was affirmed in toto by the
Court of Appeals.

ISSUE: Whether or not the petitioner was truly in arrears in the payment of rentals on the subject
property at the time of the filing of the complaint for ejectment.

RULING: NO, the petitioner was not in arrears in the payment of rentals on the subject property at the
time of the filing of the complaint for ejectment.

As found by the lower court there was a letter sent by respondent to herein petitioner, dated
November 19, 1991, which states that petitioner’s security deposit for the Quirino lot, be applied as
partial payment for his account under the subject lot as well as to the real estate taxes on the Quirino
lot. Petitioner interposed no objection, as evidenced by his signature signifying his conformity thereto.

Meanwhile, in an earlier letter, dated July 15, 1991, respondent informed petitioner that the payment
was to be applied not only to petitioner’s accounts under the subject land and the Quirino lot but also
to heavy equipment bought by the latter from respondent. Unlike in the November letter, the July
letter did not contain the signature of petitioner.

Petitioner submits that his silence is not consent but is in fact a rejection.

As provided in Article 1252 of the Civil Code, the right to specify which among his various
obligations to the same creditor is to be satisfied first rest with the debtor.

18
In the case at bar, at the time petitioner made the payment, he made it clear to respondent that they
were to be applied to his rental obligations on the Fairview wet market property. Though he entered
into various contracts and obligations with respondent, all the payments made, about P11,000,000.00
were to be applied to rental and security deposit on the Fairview wet market property. However,
respondent applied a big portion of the amount paid by petitioner to the satisfaction of an obligation
which was not yet due and demandable- the payment of the eight heavy equipments.

Under the law, if the debtor did not declare at the time he made the payment to which of his debts
with the creditor the payment is to be applied, the law provided the guideline; i.e. no payment is to be
applied to a debt which is not yet due and the payment has to be applied first to the debt which is most
onerous to the debtor.

The lease over the Fairview wet market is the most onerous to the petitioner in the case at bar.

Consequently, the petition is granted.

Sps. Juan Chuy Tan vs Chinabank (1252)

Lorenzo Realty (Tan brothers/ children of Sps) obtained a loan form Chinabank for a total of
71,050,000. Failure to pay amortization. Foreclosed mortgaged real properties. Sold in public auction
for 85mil. The indebtedness of Lorenze Realty already reached the amount P114,258,179.81
(interests, penalities etc). 85MIL applied to total debt. Remaining balance/ Deficiency obligation of
29Mil.
Chinabank filed a petition seeking the collection of this deficiency obligation. RTC ruled in favor of
Chinabank. CA affirmed.

ISSUE: WHETHER LORENZE REALTY'S OBLIGATION IS FULLY SETTLED WHEN THE

REAL PROPERTIES CONSTITUTED AS SECURITIES FOR THE LOAN WERE SOLD AT
THE PUBLIC AUCTION FOR P85,000,000.00.

HELD: NO. Petition denied.

Obligations are extinguished, among others, by payment or performance, the mode most relevant to
the factual situation in the present case. Under Article 1232 of the Civil Code, payment means not
only the delivery of money but also the performance, in any other manner, of an obligation.

Article 1233 of the Civil Code states that a debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely delivered or rendered, as the
case may be. In contracts of loan, the debtor is expected to deliver the sum of money due the creditor.
These provisions must be read in relation with the other rules on payment under the Civil Code, such
as the application of payment, to wit:

Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may
declare at the time of making the payment, to which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment is made by the party for whose benefit the
term has been constituted, application shall not be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an application of the payment is made, the
former cannot complain of the same, unless there is a cause for invalidating the contract.

In interpreting the foregoing provision of the statute, the Court in Premiere Development Bank v.
Central Surety & Insurance Company Inc. held that the right of the debtor to apply payment is

19
merely directory in nature and must be promptly exercised, lest, such right passes to the
creditor, viz:
"The debtor[']s right to apply payment is not mandatory. This is clear from the use of the word
[']may['] rather than the word [']shall['] in the provision which reads: [']He who has various debts of
the same kind in favor of one and the same creditor, may declare at the time of making the payment,
to which of the same must be applied.[']

Indeed, the debtor[']s right to apply payment has been considered merely directory, and not
mandatory, following this Court[']s earlier pronouncement that [']the ordinary acceptation of the
terms [']may['] and [']shall['] may be resorted to as guides in ascertaining the mandatory or directory
character of statutory provisions. [']

Article 1252 gives the right to the debtor to choose to which of several obligations to apply a
particular payment that he tenders to the creditor. But likewise granted in the same provision is the
right of the creditor to apply such payment in case the debtor fails to direct its application. This is
obvious in Art. 1252, par. 2, viz.: [']If the debtor accepts from the creditor a receipt in which an
application of payment is made, the former cannot complain of the same.[‘] It is the directory nature
of this right and the subsidiary right of the creditor to apply payments when the debtor does not elect
to do so that make this right, like any other right, waivable.

Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals or
good customs, or prejudicial to a third person with a right recognized by law.

A debtor, in making a voluntary payment, may at the time of payment direct an application of it to
whatever account he chooses, unless he has assigned or waived that right. If the debtor does not do so,
the right passes to the creditor, who may make such application as he chooses. But if neither party has
exercised its option, the court will apply the payment according to the justice and equity of the case,
taking into consideration all its circumstances." [Emphasis supplied, citations omitted.]

In the event that the debtor failed to exercise the right to elect the creditor may choose to which
among the debts the payment is applied as in the case at bar. It is noteworthy that after the sale of the
foreclosed properties at the public auction, Lorenze Realty failed to manifes": its preference as to
which among the obligations that were all due the proceeds of the sale should be applied. Its silence
can be construed as acquiescence to China Bank's application of the payment first to the interest and
penalties and the remainder to the principal which is sanctioned by Article 1253 of the New Civil
Code which provides that:
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been
made until the interests have been covered.

That they assume that the obligation is fully satisfied by the sale of the securities does not hold any
water. Nowhere in our statutes and jurisprudence do they provide that the sale of the collaterals
constituted as security of the obligation results in the extinguishment of the obligation. The rights and
obligations of parties are governed by the terms and conditions of the contract and not by assumptions
and presuppositions of the parties. The amount of their entire liability should be computed on the
basis of the rate of interest as imposed by the CA minus the proceeds of the sale of the foreclosed
properties in public auction.

20
ESTANISLAO and AFRICA SINAMBAN VS. CHINABANK (1252)

Sps Manalastas executed a real estate mortgaged in favor of Chinabank to secure a loan of 700k
which later became 2.4Mil. Several Promissory notes were executed, two of them signed by Sps
Sinamban as co-makers.
Chinabank filed a complaint for collection against Manalastas and Sinamban for allegedly failing to
fulfill the obligation in the PN. Mortgaged properties were foreclosed and sold for 4.6Mil. But by that
time, the indebtedness had risen to 5.4Mil which leaves a deficiency of 1.7Mil. Chinabank sought to
have the deficiency paid by both couples. After intial decision relieving the Sinambans of liability,
RTC’s final ruling is to have Manalastas pay the principal deficiency and the Sinamban a percentage
of that deficiency only on two PNs which they co-signed. CA modified decision which ruled that, in
one of the PNs, Sinamban are solidarily liable with the Manalastas.

Issue: Whether the Sinambans have liability to Chinabank.

HELD: Yes. They are solidarily liable with Manalastas.

Article 1216 of the Civil Code provides that "[t]he creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The demand made against one of them shall
not be an obstacle to those which may subsequently be directed against the others, so long as the debt
has not been fully collected." Article 125242 of the Civil Code does not apply, as urged by the
petitioners, because in the said article the situation contemplated is that of a debtor with several debts
due, whereas the reverse is true, with each solidary debt imputable to several debtors.
By deducting the auction proceeds from the aggregate amount of the three loans due, Chinabank in
effect opted to apply the entire proceeds of the auction simultaneously to all the three loans. This
implies that each PN will assume a pro rata portion of the resulting deficiency on the total
indebtedness as bears upon each PN’s outstanding balance. Contrary to the spouses Sinamban’s
insistence, none of the three PNs is more onerous than the others to justify applying the proceeds
according to Article 1254 of the Civil Code, in relation to Articles 1252 and 1253.44 Since each loan,
represented by each PN, was obtained under a single credit line extended by Chinabank for the
working capital requirements of the spouses Manalastas’ rice milling business, which credit line was
secured also by a single REM over their properties, then each PN is simultaneously covered by the
same mortgage security, the foreclosure of which will also benefit them proportionately. No PN
enjoys any priority or preference in payment over the others, with the only difference being that the
spouses Sinamban are solidarily liable for the deficiency on two of them.

MARQUEZ VS ELISAN CREDIT CORP (1253)

Marquez obtained from Elisan Credit Corporation a loan payable in weekly installments and subject
to annual interest with monthly penalties and attorney’s in case of nonpayment. A chattel mortgage
was also executed stipulating that “the motor vehicle shall stand as a security for all other obligations
of every kind already incurred or which hereafter may be incurred”. The payment of that loan was
acknowledged by both parties.
Subsequently, Marquez obtained another loan evidenced by a promissory note with the same terms
and conditions as the first loan. When the second loan matured, there still remained an unpaid
balance. Marquez requested the creditor to pay the unpaid balance by daily installments until the loan
is paid; the creditor agreed. Thus, several months after the maturity of the loan, Marquez had already
paid a total amount which is greater than the amount of the principal.
Despite such, the creditor filed a complaint for foreclosure of the CM on the ground that Marquez
allegedly failed to pay the principal of the second loan despite demand.

ISSUE: Did the respondent act lawfully when it credited the daily payments against the interest
instead of the principal?

21
HELD: Yes. On the basis of Article 1253.
Article 1176 in relation to Article 1253

Article 1176 falls under Chapter I (Nature and Effect of Obligations) while Article 1253 falls under
Subsection I (Application of Payments), Chapter IV (Extinguishment of Obligations) of Book IV
(Obligations and Contracts) of the Civil Code.

The structuring of these provisions, properly taken into account, means that Article 1176 should be
treated as a general presumption subject to the more specific presumption under Article 1253. Article
1176 is relevant on questions pertaining to the effects and nature of obligations in general, while
Article 1253 is specifically pertinent on questions involving application of payments and
extinguishment of obligations.

A textual analysis of the above provisions yields the results we discuss at length below:

The presumption under Article 1176 does not resolve the question of whether the amount received by
the creditor is a payment for the principal or interest. Under this article the amount received by the
creditor is the payment for the principal, but a doubt arises on whether or not the interest is waived
because the creditor accepts the payment for the principal without reservation with respect to the
interest. Article 1176 resolves this doubt by presuming that the creditor waives the payment of interest
because he accepts payment for the principal without any reservation.

On the other hand, the presumption under Article 1253 resolves doubts involving payment of interest-
bearing debts. It is a given under this Article that the debt produces interest. The doubt pertains to the
application of payment; the uncertainty is on whether the amount received by the creditor is payment
for the principal or the interest. Article 1253 resolves this doubt by providing a hierarchy: payments
shall first be applied to the interest; payment shall then be applied to the principal only after the
interest has been fully-paid.

Correlating the two provisions, the rule under Article 1253 that payments shall first be applied to the
interest and not to the principal shall govern if two facts exist: (1) the debt produces interest (e.g., the
payment of interest is expressly stipulated) and (2) the principal remains unpaid.

The exception is a situation covered under Article 1176, i.e., when the creditor waives payment of the
interest despite the presence of (1) and (2) above. In such case, the payments shall obviously be
credited to the principal.

Since the doubt in the present case pertains to the application of the daily payments, Article 1253 shall
apply. Only when there is a waiver of interest shall Article 1176 become relevant.

Under this analysis, we rule that the respondent properly credited the daily payments to the interest
and not to the principal because: (1) the debt produces interest, i.e., the promissory note securing the
second loan provided for payment of interest; (2) a portion of the second loan remained unpaid upon
maturity; and (3) the respondent did not waive the payment of interest.

There was no waiver of interest

The fact that the official receipts did not indicate whether the payments were made for the principal or
the interest does not prove that the respondent waived the interest.

We reiterate that the petitioner made the daily payments after the second loan had already matured
and a portion of the principal remained unpaid. As stipulated, the principal is subject to 26% annual
interest.

22
All these show that the petitioner was already in default of the principal when he started making the
daily payments. The stipulations providing for the 10% monthly penalty and the additional 25%
attorney's fees on the unpaid amount also became effective as a result of the petitioner's failure to pay
in full upon maturity.

In other words, the so-called interest for default25 (as distinguished from the stipulated monetary
interest of 26% per annum) in the form of the 10% monthly penalty accrued and became due and
demandable. Thus, when the petitioner started making the daily payments, two types of interest were
at the same time accruing, the 26% stipulated monetary interest and the interest for default in the form
of the 10% monthly penalty.

Article 1253 covers both types of interest. The petitioner failed to specify which of the two types of
interest the respondent allegedly waived. The respondent waived neither.

In the present case, it was not proven that the respondent accepted the payment of the principal. The
silence of the receipts on whether the daily payments were credited against the unpaid balance of the
principal or the accrued interest does not mean that the respondent waived the payment of interest.
There is no presumption of waiver of interest without any evidence showing that the respondent
accepted the daily installments as payments for the principal.

Ideally, the respondent could have been more specific by indicating on the receipts that the daily
payments were being credited against the interest. Its failure to do so, however, should not be taken
against it. The respondent had the right to credit the daily payments against the interest applying
Article 1253.

It bears stressing that the petitioner was already in default. Under the promissory note, the petitioner
waived demand in case of non-payment upon due date.30 The stipulated interest and interest for
default have both accrued. The only logical result, following Article 1253 of the Civil Code, is that
the daily payments were first applied against either or both the stipulated interest and interest for
default.

Moreover, Article 1253 is viewed as having an obligatory character and not merely suppletory. It
cannot be dispensed with except by mutual agreement. The creditor may oppose an application of
payment made by the debtor contrary to this rule.31redarclaw

In any case, the promissory note provided that "interest not paid when due shall be added to, and
become part of the principal and shall likewise bear interest at the same rate, compounded
monthly."32redarclaw

Hence, even if we assume that the daily payments were applied against the principal, the principal had
also increased by the amount of unpaid interest and the interest on such unpaid interest. Even under
this assumption, it is doubtful whether the petitioner had indeed fully paid the second loan.

Yulim International Company vs International Exchange Bank (1255)

FACTS: iBank granted Yulim, a domestic partnership, a credit facility in the form of an Omnibus
Loan Line for P5,000,000.00, as evidenced by a Credit Agreement3 which was secured by a Chattel
Mortgage over Yulim’s inventories in its merchandise warehouse in Caloocan. As further guarantee,
the partners, namely, James, Jonathan and Almerick, executed a Continuing Surety Agreement in
favor of iBank.

Promissory notes (PN) were later consolidated under a single promissory note, PN No.
SADDK001014188, for P4,246,310.00, to mature on February 28, 2002.7 Yulim defaulted on the said
note. On April 5, 2002, iBank sent demand letters to Yulim, through its President, James, and through

23
Almerick,8 but without success. iBank then filed a Complaint for Sum of Money with Replevin
against Yulim and its sureties. On August 8, 2002, the Court granted the application for a writ of
replevin. Pursuant to the Sheriff’s Certificate of Sale dated November 7, 2002,10 the items seized
from Yulim’s warehouse were worth only P140,000.00, not P500,000.00 as the petitioners have
insisted.

On October 2, 2002, the petitioners moved to dismiss the complaint insisting that their loan had been
fully paid after they assigned to iBank their Condominium Unit No. 141, with parking space, at 20
Landsbergh in Quezon City.12 They claimed that while the pre-selling value of the condominium unit
was P3.3 Million, its market value has since risen to P5.5 Million.13 The RTC, however, did not
entertain the motion to dismiss for non-compliance with Rule 15 of the Rules of Court.

On May 16, 2006, the petitioners filed their Answer reiterating that they have paid their loan by way
of assignment of a condominium unit to iBank.
RTC cleared the three individuals but held Yulim liable for the obligation to iBank. CA ruled that the
three are solidary liable with Yulim to Ibank as sureties.
ISSUE: Whether or not Yulim’s obligation has been extinguished by the execution of the Deed of
Assignment over the condominium unit.
HELD: No.
Nowhere can it be remotely construed that the letter even intimates an understanding by iBank that
the Deed of Assignment would serve to extinguish the petitioners’ loan. Otherwise, there would have
been no need for iBank to mention therein the three “collaterals” or “supports” provided by the
petitioners, namely, the Deed of Assignment, the Chattel Mortgage and the Continuing Surety
Agreement executed by the individual petitioners. In fact, Section 2.01 of the Deed of Assignment
expressly acknowledges that it is a mere “interim security for the repayment of any loan granted and
those that may be granted in the future by the BANK to the ASSIGNOR and/or the BORROWER, for
compliance with the terms and conditions of the relevant credit and/or loan documents thereof.”30
The condominium unit, then, is a mere temporary security, not a payment to settle their promissory
notes.31

Even more unmistakably, Section 2.02 of the Deed of Assignment provides that as soon as title to the
condominium unit is issued in its name, Yulim shall “immediately execute the necessary Deed of Real
Estate Mortgage in favor of the BANK to secure the loan obligations of the ASSIGNOR and/or the
BORROWER.”32 This is a plain and direct acknowledgement that the parties really intended to
merely constitute a real estate mortgage over the property.

To stress, the assignment being in its essence a mortgage, it was but a security and not a satisfaction
of the petitioners’ indebtedness.34 Article 125535 of the Civil Code invoked by the petitioners
contemplates the existence of two or more creditors and involves the assignment of the entire debtor’s
property, not a dacion en pago.36 Under Article 1245 of the Civil Code, “[d]ation in payment,
whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by
the law on sales.” Nowhere in the Deed of Assignment can it be remotely said that a sale of the
condominium unit was contemplated by the parties, the consideration for which would consist of the
amount of outstanding loan due to iBank from the petitioners.

Far East Bank and Trust Company vs Diaz Realty (11256-1258)

1. Diaz and Co. obtained a loan from Pacific Banking Corp. in 1974 in the amount of P720,000 at
12% interest p.a. which was increased thereafter. The said loan was secured with a real estate
mortgage over two parcels of land owned by Diaz Realty, herein respondent. Subsequently, the loan
account was purchased by the petitioner Far East Bank (FEBTC). Two years after, the respondent
through its President inquired about its obligation and upon learning of the outstanding obligation, it
tendered payment in the form of an Interbank check in the amount of P1,450,000 in order to avoid the
further imposition of interests. The payment was with a notation for the full settlement of the
obligation.

24
2. The petitioner accepted the check but it alleged in its defense that it was merely a deposit. When
the petitioner refused to release the mortgage, the respondent filed a suit. The lower court ruled that
there was a valid tender of payment and ordered the petitioner to cancel the mortgage. Upon appeal,
the appellate court affirmed the decision.

Issue: Whether there was a valid tender of payment.

HELD: Yes.
1. True, jurisprudence holds that, in general, a check does not constitute legal tender, and that a
creditor may validly refuse it.[12] It must be emphasized, however, that this dictum does not prevent a
creditor from accepting a check as payment. In other words, the creditor has the option and the
discretion of refusing or accepting it. In the present case, petitioner bank did not refuse respondents
check. On the contrary, it accepted the check which, it insisted, was a deposit. As earlier stated, the
check proved to be fully funded and was in fact honored by the drawee bank. Moreover, petitioner
was in possession of the money for several months.
2. Finally, petitioner points out that, in any case, tender of payment extinguishes the obligation only
after proper consignation, which respondent did not do.
The argument does not persuade. For a consignation to be necessary, the creditor must have
refused, without just cause, to accept the debtors payment.[15] However, as pointed out earlier,
petitioner accepted respondents check.
3. To reiterate, the tender was made by respondent for the purpose of settling its obligation. It was
incumbent upon petitioner to refuse, or accept it as payment. The latter did not have the right or the
option to accept and treat it as a deposit. Thus, by accepting the tendered check and converting it into
money, petitioner is presumed to have accepted it as payment. To hold otherwise would be
inequitable and unfair to the obligor.
For a valid tender of payment, it is necessary that there be a fusion of intent, ability and capability to
make good such offer, which must be absolute and must cover the amount due. Though a check is not
legal tender, and a creditor may validly refuse to accept it if tendered as payment, one who in fact
accepted a fully funded check after the debtors manifestation that it had been given to settle an
obligation is estopped from later on denouncing the efficacy of such tender of payment.

Soco v. Militante (1256-1258)

Soco and Francisco entered into a contract of lease on January 1973, whereby the former leased to the
latter her commercial building and lot situated at Manalili Street, Cebu City for P800 monthly for a
period of 10 years renewable for another 10 years at the option of the lessee. The terms of the contract
are stipulated in the Contract of Lease. In the Contract of Lease of Soco, paragraphs 10 and 11 appear
to have been cancelled while in Francisco’s copy, only paragraph 10 has been cancelled. Soco filed a
case seeking the annulment and/or reformation of the Contract of Lease.

Before this case, Soco also learned that Francisco subleased a portion of the building to NACIDA, at
a monthly rental of more than P3,000.00 which is definitely very much higher than what Francisco
was paying to Soco under the Contract of Lease. Since Soco felt he was on the losing end of the
contract, he looked for ways to terminate the contract. Soco through her lawyer served notice to the
Francisco 'to vacate the premises leased.' Soco stopped sending his collector to Francisco and has not
accepted payment. As a response, Francisco through his lawyer informed Soco that all payments of
rental due were in fact paid by Commercial Bank and Trust Company through the Clerk of Court of
the City Court of Cebu since Soco was not collecting anymore directly from Francisco.

Taking into account the factual background setting of this case, CA holds that there was in fact a
tender of payment of the rentals made by Francisco to Soco through Comtrust and since these

25
payments were not accepted by Soco evidently because of her intention to evict Francisco, by all
means, culminating in the filing of Civil Case R-16261, Francisco was impelled to deposit the rentals
with the Clerk of Court of the City Court of Cebu. There was therefore substantial compliance of the
requisites of consignation, hence his payments were valid and effective. Consequently, Francisco
cannot be ejected from the leased premises for non-payment of rentals. Thus, this appeal.

ISSUE: W/N there was valid consignation by Francisco?

HELD: NO.
Substantial compliance is not allowed. The rules on consignation must be followed strictly. Article
1257 provides: In order that the consignation of the thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which
regulate payment.

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the
creditor cannot accept or refuses to accept payment and it generally requires a prior tender of
payment. In order that consignation may be effective, the debtor must first comply with certain
requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made because the creditor to whom tender of payment was
made refused to accept it, or because he was absent or incapacitated, or because several persons
claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of
the consignation had been given to the person interested in the performance of the obligation (Art.
1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art. 1178, Civil
Code); and (5) that after the consignation had been made the person interested was notified thereof
(Art. 1178, Civil Code). Failure in any of these requirements is enough ground to render a
consignation ineffective.

Tender of payment must be distinguished from consignation. Tender is the antecedent of

consignation, that is, an act preparatory to the consignation, which is the principal, and from which
are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of
payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is
the attempt to make a private settlement before proceeding to the solemnities of consignation.

It is clear from the testimonies that the bank did not send notice to Soco that the checks will be
deposited in consignation with the Clerk of Court (the first notice) and also, the bank did not send
notice to Soco that the checks were in fact deposited (the second notice) because no instructions were
given by its depositor, the lessee, to this effect, and this lack of notices started from September, 1977
to the time of the trial, that is June 3, 1980.

The reason for the notification to the persons interested in the fulfillment of the obligation after
consignation had been made, which is separate and distinct from the notification which is made prior
to the consignation, is stated in Cabanos vs. Calo, G.R. No. L-10927, October 30, 1958, 104 Phil.
1058. thus: "There should be notice to the creditor prior and after consignation as required by the
Civil Code. The reason for this is obvious, namely, to enable the creditor to withdraw the goods or
money deposited. Indeed, it would be unjust to make him suffer the risk for any deterioration,
depreciation or loss of such goods or money by reason of lack of knowledge of the consignation."

Francisco also failed to prove there is actual deposit or consignation of the monthly rentals except the
two cashier's checks referred to in Exhibit 12. As indicated earlier, not a single copy of the official
receipts issued by the Clerk of Court was presented at the trial of the case to prove the actual deposit
or consignation. The copy of the receipts were only presented in the MR, and the date of payment on
the receipt was 2 years late than the actual demand.

26
GAMBOA VS TAN (1260)

This involves the effects of consignation.

In April 1960, Augusto G. Gamboa deposited with the Manila court of first instance, the sum of
P16,450.00 even as he requested that Agustin A. Cancio be required to take it as full settlement of the
latter's share or interest in the enterprise known as Gamboa's Manila,
Inc..chanroblesvirtualawlibrarychanrobles virtual law library

Answering the petition (on May 15, 1960), Cancio said he had previously refused to receive the
money as full settlement, because his share was worth P51,256.45 at least, and that Gamboa had
agreed to pay the said amount for such share. Nevertheless, Cancio expressed willingness to receive,
as partial payment, the amount of P16,450.00 thus deposited..chanroblesvirtualawlibrarychanrobles
virtual law library

Before Cancio had filed his answer Gamboa changed his mind and on May 6, 1960, he moved for
permission to withdraw the sum he had deposited; and the court granted such permission on May 9,
1960..chanroblesvirtualawlibrarychanrobles virtual law library

After filing his answer and knowing the withdrawal, Cancio moved for reconsideration of the order
granting such withdrawal, alleging principally that he had not been notified of the motion, and had a
right to be heard before it was so granted. The court reversed itself, and ordered Gamboa to re-deposit
the amount..chanroblesvirtualawlibrarychanrobles virtual law library

Hence this petition asserting abuse of discretion and plain legal error in view of the specific provision
of Art. 1260 of the Civil Code which reads as follows:.

Art. 1260. ... Before the creditor has accepted the consignation, or before a judicial declaration that
the consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force.".

We think the above article gives the depositor the right to withdraw the amount deposited at any time
before the creditor accepts it (not to speak of the court's order declaring it to be proper). Such right is
clear in this case, because the statement of the creditor came late, and, what is more, the acceptance
was partial. This last consideration renders it unnecessary to discuss the effect of failure to give the
creditor any notice of the withdrawal, since Cancio's statement was practically a rejection of the offer
of payment..chanroblesvirtualawlibrarychanrobles virtual law library

WHEREFORE, the order requiring the re-deposit of the money is revoked. Cost against respondent
Cancio.

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