Civil Law Review 2

John Dominic T. Buhangin

Justice Carmelita S. Manahan
 1. Dalton v. FGR Realty and Development
Corp.
• G.R. No. 172577
• January 19, 2011
• Summary: Notice to creditor is an indispensable requisite for a valid
consignation
• Ponente: J. Carpio
 Facts:
• 1,811-sq.m. parcel of land located at the corner of Rama Avenue and Velez Street, Cebu
City – owned by Flora R. Dayrit
• Petitioners Dalton and Sasam were tenants
• Dayrit sold the property to respondent FGR
• August 1985 – Dayrit and FGR Realty stopped accepting rental payments and wished to
terminate the lease agreement
• September 1985 – Dalton and Sasam filed an action for consignation BUT FAILED TO
NOTIFY Dayrit and FGR
• Dayrit and FGR subsequently knew about the consignation and withdrew the amount
 Facts:
• Dayrit, FGR and petitioner Sasam entered into a separate compromise
agreement regarding the termination of the lease; Dalton did not join
• Dalton pushed through with the Consignation
• RTC dismissed the complaint and ordered Dalton to vacate the property – no valid
consignation
• CA affirmed RTC decision
 Issue/s:
• Whether or not the consignation is valid in case there is only substantial
compliance as to the requisites
• Whether or not the withdrawal of Dayrit and FGR of the amount
constitutes a waiver of the respondents’ right to question the validity of the
consignation
 Held:
• First issue: The consignation is void.
• SC: Compliance with the requisites of a valid consignation is mandatory; failure to comply
strictly with any of the requisites will render the consignation void. Substantial compliance is
not enough.
• Insular Life Assurance Company v. Toyota Bel-Air, Inc. – requisites for valid consignation:
• A debt due
• Creditor to whom tender of payment was made refused without just cause to accept the payment,
or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to
collect, or the title of the consignation was lost
 Held:
• The person interested in the performance of the obligation was GIVEN NOTICE
BEFORE consignation was made
• The amount was placed at the disposal of the court
• The person interested in the performance of the obligation was GIVEN NOTICE AFTER
consignation was made
 Held:
• SC cited Art. 1257 and 1258
• xxx The giving of notice to the persons interested in the performance of the obligation
is MANDATORY. Failure to notify the persons interested in the performance of the
obligation will render the consignation void.
 Held:
• Second issue:
• SC: In withdrawing the amounts consigned, Dayrit and FGR expressly reserved the
right to question the validity of the consignation
• Riesenbeck v. CA: When the creditor’s acceptance of the money consigned is
conditional and with reservations, he is not deemed to have waived the claims he
reserved against his debtor. Thus, when the amount consigned does not cover the entire
obligation, the creditor may accept it, reserving his right to the balance
 2. Union Bank of the Philippines v.
Development Bank of the Philippines
• G.R. No. 191555
• January 20, 2014
• Summary: No legal compensation may occur unless both debts are due and
demandable
• Ponente: J. Perlas-Bernabe
 Facts:
• Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Bank’s
predecessor-in-interest, Bancom Development Corp. (Bancom) and Development
Bank of the Philippines (DBP)
• FI and DBP entered into a dacion en pago whereby the former ceded in favor of
the latter certain properties including a processing plant
• DBP as the new owner of the processing plant, leased back for 20 years the said
property to FI, which was in turn, obliged to pay monthly rentals to be shared by
Bancom and DBP
• May 1979 – FI assigned its leasehold rights to Foodmasters Worldwide (FW)
 Facts:
• May 1984 – Bancom conveyed all its receivables to Union Bank
• Claiming that the subject rentals have not been duly remitted despite its
repeated demands, Union Bank filed a collection case against DBP before
the RTC
• DBP countered that the obligations it assumed were payable ONLY out of
the rental payments made by FI/FW
• RTC: Found for Union Bank; ordered DBP to pay; FW to indemnify DBP
 Facts:
• RTC ruled that when DBP failed to remit the subject rentals to Union Bank,
it defaulted on its assumed obligations
• CA: set aside RTC ruling
• Ordered FW to pay rentals to DBP
• Asserted that DBP remittance due with Union Bank ONLY UPON FW payment of
rent
• DBP did not default in its obligations to remit to Union Bank because it had yet to
receive rental payments from FW
 Facts:
• DBP and Union Bank filed separate petitions for Review on Certiorari; SC
rejected both and upheld the CA finding that DBP was only obliged to remit
lease rentals collected from FW
• Union Bank and DBP both filed Motions for Execution
• Union Bank for unpaid rental payments
• DBP for the return of said rental payments
 Facts:
• RTC granted both Motions for Execution and notice of garnishment was
issued against DBP
• DBP filed a motion for reconsideration averring that RTC prematurely
ordered DBP to remit the amount to Union Bank before FW’s rental
payment
• RTC denied the motion; CA affirmed denial
 Facts:
• SC granted DBP’s appeal; reversed and set aside the CA’s ruling
• Acknowledged that DBP’s obligation to Union Bank for remittance of the lease
payments is contingent on FW’s prior payment to DBP, and that any deficiency DBP
had to pay by December 29, 1998 as per the Assumption Agreement cannot be
determined until after the satisfaction of FW’s own rental obligations to DBP
• SC nullified the Writ of Execution and all related issuances; ordered Union Bank to
return to DBP the amounts it received pursuant to said Writ
 Facts:
• With the recent decision against it, Union Bank filed a Manifestation and
Motion to Affirm Legal Compensation to the RTC, praying that the RTC
apply legal compensation between itself and DBP in order to offset the
return of the funds it previously received from DBP
• RTC denied legal compensation; CA affirmed RTC’s denial
 Issue:
• Whether or not the Court of Appeals correctly upheld the denial of Union
Bank’s Motion to Affirm Legal Compensation
 Held:
• Yes. Union Bank’s petition is bereft of merit.
• Compensation is defined as a mode of extinguishing obligations whereby
two persons in their capacity as principals are mutual debtors and creditors
of each other with respect to equally liquidated and demandable obligations
to which no retention or controversy has been timely commenced and
communicated by third parties
 Held:
• Requisites for valid legal compensation – Art. 1279, NCC:
• That each one of the obligors be bound principally, and that he be at the same time a
principal creditor to the other
• That both debts consist in a sum of money, or if the things due are consumable, they
be of the same kind, and also of the same quality if the latter has been stated
• THAT THE TWO DEBTS BE DUE – not present herein
• THAT THEY BE LIQUIDATED AND DEMANDABLE – not present herein
• That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor
 Held:
• The rule on legal compensation is stated in Art. 1290 which provides that
when all the requisites mentioned in Art. 1279 are present, compensation
takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of
the compensation
 Held:
• SC: Therefore, compensation could not have taken place between these
debts for the apparent reason that requisites 3 and 4 under Art. 1279 of the
Civil Code are not present.
• Since DBP’s assumed obligations to Union Bank for remittance of the lease payments
are – in the Court’s words – “contingent on the prior payment thereof by FW to DBP,”
it cannot be said that both debts are due
• Any deficiency that DBP had to make up for the full satisfaction of the assumed
obligations cannot be determined until after the satisfaction of FW’s obligation to DBP
 10. Lim v. Court of Appeals
• G.R. No. 118347
• October 24, 1996
• Summary: The seller of a property invoked her failure to comply with an
obligation in a contract to rescind a contract of sale
• The offending party cannot rescind a contract without violating the principle of
mutuality
• Ponente: J. Mendoza
 Facts:
• Seller Liberty Luna sold a 1,013-sq.m. property to the Lims and received
Php200,000.00 as earnest money
• Condition: Luna is responsible for ejecting the informal settlers occupying the property
and shall refund the earnest money if she failed to do so
• If the informal settlers were ejected and the Lims do not pay the balance, the earnest
money shall be forfeited in favor of Luna
 Facts:
• Luna failed to eject the squatters
• Nonetheless, the Lims did not demand the return of their earnest money
• The parties subsequently met to negotiate the price increase to facilitate the ejectment
of the informal settlers and agreed to an increase
• Luna had a change of heart and tried to return the earnest money alleging
her failure to eject the informal settlers and claimed that as a result, the
contract of sale ceased to exist and she no longer has the obligation to sell
and deliver her property to the Lims
 Facts:
• The Lims refused to accept the refund and Luna informed them that the
amount would be deposited in court by consignation, which Luna
subsequently did
 Issue/s:
• Can the buyer lose the acquired right to demand from the seller to sell a
property to them because the seller failed to comply with the condition of
ejecting squatters from the property?
• Whether or not Luna, as the offending party, has a right to rescind the
contract upon breach of a condition to perform an obligation
 Held:
• No. The Lims did not lose their right.
• The agreement shows a perfected contract of sale. Under Art. 1475, there is
a perfected contract of sale if there is a meeting of the minds on the subject
and the price
• A sale is a consensual contract requiring only the consent of the parties on these two
points
• No particular form is required for the validity of their contract
 Held:
• On the first issue: Luna is wrong in citing her failure as a condition to void
the contract. She fails to distinguish between a condition imposed on the
perfection of the contract and a condition imposed on the performance
of an obligation.
• In this case, there is merely a failure in compliance of the condition perform an
obligation which only gives the aggrieved party the option either to refuse to proceed
with the sale or to waive the condition
• The failure of the first condition results in failure to contract
 Held:
• SC: There is already a perfected contract. The condition was imposed only
on the performance of the obligation.
• On the second issue: No, Luna, as the offending party, cannot rescind the
contract.
• She cannot rescind the contract without violating the principle of mutuality of
contracts, which prohibits allowing the validity and performance of contracts to be left
to the will of one of the parties.
 Held:
• The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him
• Art. 1191: The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either case. He
may also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.