CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
CASE No. 61
SAURA VS. DBP
44 SCRA 445
Topic: Modes of Extinguishment of Obligations –
Mutual Desistance(Mutuo Disenso)
FACTS: The plaintiff, Saura, applied to the
Rehabilitation Finance Corporation (RFC), before
its conversion into DBP, for an industrial loan of
P500,000.00, to be used as follows: P250,000.00
for the construction of a factory building (for the
manufacture of jute sacks); P240,900.00 to pay
the balance of the purchase price of the jute mill
machinery and equipment; and P9,100.00 as
additional working capital. On January 7, 1954
RFC passed Resolution No. 145 approving the
loan application on the given terms for
P500,000.00, to be secured by a first mortgage
on the factory building to be constructed, the
land site thereof, and the machinery and
equipment to be installed.
Later the loan was reduced to P 300,000.00 but
was restored to the original amount provided
that Department of Agriculture and Natural
Resources shall certify; (1)that the raw materials
needed by the borrower-corporation to carry out
its operation are available in the immediate
vicinity; and (2)that there is prospect of
increased production thereof to provide
adequately for the requirements of the factory.
The certification by the Department of
Agriculture and Natural Resources was required
"as the intention of the original approval (of the
loan) is to develop the manufacture of sacks on
the basis of locally available raw materials”; the
venture "is the first serious attempt in this
country to use 100% locally grown raw
materials notably kenaf which is presently
grown commercially in the Island of Mindanao
where the proposed jutemill is located ..."
ARELLANO UNIVERSITY SCHOOL OF LAW
Plaintiff then asked for a release of funds on
terms different from that originally agreed upon
requiring funds be dispersed for importation of
raw materials and equipment. The Bank refused
in a letter saying that the release of funds is
subject to availability of the same, and a revision
of the purpose of the loan shall be subject to
approval upon the re-appraisal of the securities
of the loan. The Bank also reiterated the
necessity of the certification of the DENR,
because the basis of the original approval is to
develop the manufacture of sacks on the basis of
the locally available raw materials. Plaintiff’s
statement that he will have to rely on the
importation of jute, would not be in line with the
Bank’s principle in approving the loan.
With the foregoing letter the negotiations
stopped. Saura, Inc. did not pursue the matter
further. Instead, it requested RFC to cancel the
mortgage, RFC executed the corresponding deed
of cancellation and delivered it to Ramon F.
Saura himself as president of Saura, Inc. It
appears that the cancellation was requested to
enable the registration of a mortgage contract
over the same property in favor of the Prudential
Bank and Trust Co., under which contract Saura,
Inc. had up to December 31 of the same year to
pay its obligation on the trust receipt heretofore
mentioned. It appears further that for failure to
pay the said obligation the Prudential Bank and
Trust Co. sued Saura, Inc. 9 years after the
mortgage was cancelled at the request of Saura,
Inc., plaintiff commenced the present suit for
damages, alleging failure of RFC (as predecessor
of the defendant DBP) to comply with its
obligation to release the proceeds of the loan
applied for and approved, thereby preventing
the plaintiff from completing or paying
contractual commitments it had entered into.
The trial court ruled for the plaintiff, ruling that
there was a perfected contract between the
parties and that the defendant was guilty of
breach thereof.
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M ODES OF EXTINGUISHM ENT OF OBLIGATIONS

ISSUE: Whether or not the parties mutual

desistance from pursuing the contract
extinguished the same.

RULING: Yes. When RFC turned down the

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

The subsequent conduct of Saura, Inc. confirms

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

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
Case No. 62
NPC VS. IBRAHIM
G.R. No. 175863 February 18, 2015
FACTS:wred
In 1988, petitioner, NPC, took possession of a
21,995 square meter parcel of land in Marawi
City for the purpose of building a hydroelectric
power plant pursuant to its Agus 1 project. A
portion of a private estate registered in the name
of private respondent Macapanton K.
Mangondato was occupied by NPC under the
mistaken beloef that such land is part of the
public land reserved for its use by the
government under Proclamation No. 1354.
Mangondato discovered NPC’s occupation of the
subject land in 1979, the year that petitioner
started its construction of the hydroelectric
power plant. Shortly after, Mangondato began
demanding compensation for the subject land
from NPC. In support of Mangondato’s demand
of compensation, a letter was sent to NPC
detailing the origins of ownership of
Mangondato over the land.
NPC, first, rejected the claim of ownership by
Mangondato believing that the subject land is a
public land. After more than a decade, NPC
finally assented to the fact that the subject land is
a private land and acknolwedged Mangondato’s
rights to receive compensation as registered
owner.
During the 1990s, Mangondato and NPC partook
in a series of communications aimed to settle the
amount of compensation. However, the
communication failed to yield a genuine
consensus as to the fair market value of the
subject land.
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Mangondato filed a complaint for reconveyance
against NPC before the RTC of Marawi City. The
Court ruled in favor of Mangondato and decreed
the subject land condemned in favor of
Mangondato and as to the the occupation of the
subject land, for NPC to pay rentals. NPC filed an
appeal before the CA.
During the pendency of the appeal filed by NPC,
respondents Ibrahims and Maruhoms filed a
complaint against Mangondato and NPC before
the RTC of Marawi City disputing the ownership
of Mangondato. Ibrahims and Maruhoms
asserted that they are the lawful owners of the
subject land as heirs of Datu Magayo-ong
Maruhom, the original proprietor of the said land
and that Mangondato’s right is only that of a
trustee. Hence, they are entitled to the rental fees
or expropriation that maybe found due on the
said land.
ISSUE:
WON NPC can be held liable to the Ibrahims and
Maruhoms?
HELD:
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.Either way,
petitioner cannot be made liable to the Ibrahims
and Maruhoms:
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M ODES OF EXTINGUISHM ENT OF OBLIGATIONS

First. If Mangondato is the real owner of the

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

Article 1242 of the Civil Code is an exception

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

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
CASE NO. 63
LAND BANK OF THE PHILIPPINES VS.
ALFREDO ONG
G.R. No. 190755, Nov 24, 2010
TOPIC: MODES OF EXTINGUISHMENT OF
OBLIGATION : AS TO PAYMENT OR
PERFORMANCE
FACTS:
On March 18, 1996, spouses Johnson and
Evangeline Sy secured a loan from Land Bank
Legazpi City in the amount of PhP 16 million.The
loan was secured by three (3) residential lots,
five (5) cargo trucks, and a warehouse. Under the
loan agreement, PhP 6 million of theloan would
be short-term and would mature on February 28,
1997, while the balance of PhP 10 million would
be payable in seven (7) years.
The Spouses Sy could no longer pay their
loan which resulted to the sale of three (3) of
their mortgaged parcels of land for PhP 150,000
to Angelina Gloria Ong, Evangeline’s mother,
under a Deed of Sale with Assumption of
Mortgage.
Evangeline’s father, petitioner Alfredo
Ong, later went to Land Bank to informthem
about the sale and assumption of mortgage. Land
BankBranch Head told Alfredo that there was
nothing wrong with agreement with the Spouses
Sy and provided him requirements for
theassumption of mortgage. Alfredo later found
out that his application for assumption of
mortgage was not approved by Land Bank.
OnDecember 12, 1997, Alfredo initiated an
action for recovery of sum of money with
damages against Land Bank, as Alfredo’s
payment wasnot returned by Land Bank. Alfredo
saidthat Land Bank’s foreclosure without
informing him of the denial of his assumption of
the mortgagewas done in bad faith and that he
was made to believed that P750,000 would cause
Land Bank to approve his assumption to
ARELLANO UNIVERSITY SCHOOL OF LAW
themortgageHe also claimed incurring expenses
for attorney’s fees of PhP 150,000, filing fee of
PhP 15,000, and PhP 250,000 in moraldamages.
ISSUE:
Whether the Court of Appeals erred in holding
that Art. 1236 of the Civil Code does not apply
and in finding that there is no novation.
RULING:
On the matter of novation, Spouses
Benjamin and Agrifina Lim v. M.B. Finance
Corporation provides the following discussion:
Novation, in its broad concept, may either be
extinctive or modificatory. It is extinctive when an
old obligation is terminated by the creation of a
new obligation that takes the place of the former;
it is merely modificatory when the old obligation
subsists to the extent it remains compatible with
the amendatory agreement. An extinctive
novation results either by changing the object or
principal conditions (objective or real), or by
substituting the person of the debtor or
subrogating a third person in the rights of the
creditor (subjective or personal). Under this mode,
novation would have dual functions ─ one to
extinguish an existing obligation, the other to
substitute a new one in its place ─ requiring a
conflux of four essential requisites: (1) a previous
valid obligation; (2) an agreement of all
parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4)
the birth of a valid new obligation. x x x
In order that an obligation may be extinguished
by another which substitutes the same, it is
imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be
on every point incompatible with each other. The
test of incompatibility is whether or not the two
obligations can stand together, each one having
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M ODES OF EXTINGUISHM ENT OF OBLIGATIONS

its independent existence. x x x (Emphasis

supplied.)

Furthermore, Art. 1293 of the Civil Code states:

Novation which consists in substituting a new

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

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

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

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

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

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
Case No. 64
J. M. TUASON & Co. INC. VS. JAVIER
G.R. No. L-28569. February 27, 1970
FACTS:
On September 7, 1954, a contract was
entered into between the plaintiff, and
defendant-appellee, Ligaya Javier, whereby
plaintiff agreed to sell, transfer and convey to the
defendant a parcel of land of Sta. Mesa Heights
Subdivision for the total sum of P3, 691.20 with
interest thereon at the rate of 10% a year,
payable as follows: P396.12 upon the execution
of the contract and P43.92 every month
thereafter, for a period of 10 years. Upon the
execution of the contract and the payment of the
first installment, the defendant was placed in
possession of the land. Until January 5, 1962, she
paid the stipulated monthly installments which
aggregated to P4, 134.08. Subsequently, she
defaulted in the payment of said monthly
installments. On May 22, 1964, plaintiff informed
her by letter that their contract had been
rescinded.
On July 9, 1964, plaintiff commenced the
present action against defendant due to failure
and refusal of the defendant to vacate said land.
Plaintiff prayed for that the contract be declared
validly rescinded, and additionally, defendant
and all persons claiming under be ordered to
deliver to the plaintiff the lot in question, with
the improvement thereon and to pay monthly
rentals from January 5, 1962 until the property
had been surrendered to the plaintiff.
In her answer, defendant admitted she
had defaulted in the payment of the stipulated
monthly installments from January 5, 1962 due
to unforeseen circumstances. She is also willing
to pay all arrears in installments under the
contract and had in fact, offered the same to the
plaintiff and that the contract cannot be
rescinded upon the unilateral act of the plaintiff.
The Court rendered its Decision, applying
Art. 1592 of our Civil Code, declaring that the
ARELLANO UNIVERSITY SCHOOL OF LAW
contract to sell has not yet been rescinded and
ordering the defendant to pay te plaintiff within
60 days from receipt hereof all installment
payments in arrears together with interests.
Hence, this appeal by the plaintiff.
ISSUE:
Whether or not the defendant is entitled
to a new period for payment of its obligation.
RULING:
In the interest of justice and equity, court
may grant the vendee a new term where he
substantially performed in good faith his
obligation, as stated in Article 1234 of the Civil
Code “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.
Apart from the initial paid upon the
execution of the contract, the defendant
religiously satisfied the monthly installments
accruing thereafter, for a period of almost 8
years, that, although the principal obligation was
P3, 691.20, the total payments made by the
defendant aggregated P4,134.08; that the
defendant has offered to pay all of the
installments over due, including interests. Thus,
plaintiff will recover everything due him
pursuant to its contract with the defendant,
including such damages as the former may have
suffered in consequence of the latter’s default.
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
Case No. 65
LEGARDA V. SALDANA
55 SCRA 324
DOCTRINE: A defaulting party may be granted
lesser benefits, since no rescission of
contractmay be permitted, for, according to Art.
1234 of said Code: '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.
FACTS:
The action originated as a complaint for delivery
of two parcels of land in Sampaloc, Manila and
for execution of the corresponding deed of
conveyance after payment of the balance still
due on their purchase price. Private respondent
entered into two written contracts with
petitioner subdivision owner, whereby the latter
agreed to sell to him 2 lots for the sum of
P1,500.00 per lot, payable over the span of ten
years divided into 120 equal monthly
installments of P19.83. Subsequently, Legarda
Hermanos partitioned the subdivision among the
brothers and sisters, and the two lots were
among those allotted to co-petitioner Jose
Legarda. Respondent faithfully paid for eight
continuous years about 95 (of the stipulated
120) monthly installments totalling P3,582.06 up
to the month of February, 1956. After that,
respondent did not make further payments,
leaving a balance of P1,317.72. Almost five years
later, respondent wrote petitioners stating that
his desire to build a house on the lots was
prevented by their failure to introduce
improvements on the subdivision as "there is
still no road to these lots," and requesting
information of the amount owing to update his
account as "I intend to continue paying the
balance due on said lots." Petitioners replied that
cancellation was in order.
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ISSUE:
WON defendants be compelled to allow plaintiff
to complete payment of the purchase price of the
two lots in dispute and to execute the final deeds
of conveyance.
RULING:
NO. However, 1 lot should be given.
The Court finds that the appellate court's
judgment finding that of the total sum of
P3,582.06 already paid by respondent (which
was more than the value of two lots), the sum
applied by petitioners to the principal alone in
the amount of P1,682.28 was already more than
the value of one lot of P1,500.00 and hence one
of the two lots as chosen by respondent would
be considered as fully paid, is fair and just and in
accordance with law and equity. The monthly
payments for eight years made by respondent
were applied to his account without specifying
or distinguishing between the two lots subject of
the two agreements under petitioners' own
statement of account. Even considering
respondent as having defaulted after February
1956, he had as of the already paid by way of
principal (P1,682.28) more than the full value of
one lot (P1,500.00).
The Court's doctrine in J.M. Tuason & Co. Inc. vs.
Javier is applicable, with the respondent at bar
being granted lesser benefits, since no rescission
of contract was therein permitted. There, the
Court held that "Regardless, however, of the
propriety of applying said Art. 1592 thereto, We
find that plaintiff herein has not been denied
substantial justice, for, according to Art. 1234 of
said Code: '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,'" and "that in the interest of
justice and equity, the decision appealed from
may be upheld upon the authority of Article
1234 of the Civil Code.
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M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
Case No. 66
AZCONA VS. JAMANDRE
151 SCRA 317
TOPIC: Modes of Extinguishment of Obligations –
1. Payment or performance
FACTS:
This involves the interpretation of a
contract of lease which was found by the trial
court to have been violated by both the plaintiff
and the defendant. By the said contract,
petitioner leased 80 hectares of his 150-hectare
pro indiviso share to Jamandre (represented here
by the administrator of his intestate estate, the
private respondent). The agreed yearly rental
was P7,200.00. The lease was for three
agricultural years beginning 1960, extendible at
the lessee's option to two more agricultural
years, up to 1965. The first annual rental was
due on or before March 30, 1960, but because
the petitioner did not deliver possession of the
leased property to the respondent, he "waived"
payment, as he put it, of that rental. The
respondent actually entered the premises only
on October 26, 1960, after payment by him to the
petitioner of the sum of P7,000.00. On April 6,
1961, the petitioner, through his lawyer, notified
the respondent that the contract of lease was
deemed cancelled, terminated, and of no further
effect, for violation of the conditions specified in
the said agreement. Earlier, in fact, the
respondent had been ousted from the possession
of 60 hectares of the leased premises and left
with only 20 hectares of the original area
Citing the stipulation in the lease contract
for an annual rental of P7,200.00, the petitioner
now submits that there was default in the
payment thereof by the respondent because he
was P200.00 short of such rental. That deficiency
never having been repaired, the petitioner
concludes, the contract should be deemed
cancelled in accordance with its paragraph 8. For
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his part, the respondent argues that the receipt
represented an express reduction of the
stipulated rental in consideration of his allowing
the use of 16 hectares of the leased area by the
petitioner as grazing land for his cattle. Having
unqualifiedly accepted the amount of P7,000.00
as rental for the agricultural year 1961-62, the
petitioner should not now be heard to argue that
the payment was incomplete.
ISSUE/S: WON the lease contract should be
deemed cancelled by the respondent's failure: 1)
to attach thereto the parcelary plan Identifying
the exact area subject of the agreement, as
stipulated in the contract; 2; to secure the
approval by the Philippine National Bank of the
said contract; and 3) to pay the rentals.
RULING: No. The relative insignificance of the
alleged balance seems to us a paltry justification
for annulling the contract for its supposed
violation. If the petitioner is fussy enough to
invoke it now, it stands to reason that he would
have fussed over it too in the receipt he willingly
signed after accepting, without reservation and
apparently without protest, only P7,000.00.
The applicable provision is Article 1235 of the
Civil Code, declaring that:
Art. 1235. 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 says that he could not demand
payment of the balance of P200.00 on October
26, 1960, date of the receipt because the rental
for the crop year 1961-62 was due on or before
January 30, 1961. But this would not have
prevented him from reserving in the receipt his
right to collect the balance when it fell due.
Moreover, there is no evidence in the record that
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M ODES OF EXTINGUISHM ENT OF OBLIGATIONS

when the due date arrived, he made any demand,

written or verbal, for the payment of that
amount.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
Case No. 67
ARAÑAS VS. JUDGE TUTAAN
127 SCRA 828
FACTS: On May 3, 1971 the lower court declared
thatPetitioner Luisa Quijencio (and by her
spouse Jose Arañas)was the owner of 400 shares
including the stock dividendsthat accrued to said
shares, of respondent Universal Textile Mills, Inc.
(UTEX) as defendant and Gene Manueland B. R.
Castañeda as co-defendants, and subsequently
ordered UTEX to cancel said certificates and
issue new ones in the name of Plaintiff and to
deliver all dividendsappertaining to the same,
whether in cash or in stocks.UTEX filed a motion
for clarification whether thephrase “to deliver to
her all dividends appertaining to thesame,
whether in cash or in stocks” meant dividends
properly pertaining to plaintiffs after the
court’sdeclaration of plaintiff ownership of said
400 shares of stock. Defendant UTEX has always
maintained it would rightfully abide by whatever
decision may be rendered since such would be
the logical consequence after the ruling in
respect to the rightful ownership of said shares
of stock. The motion was granted which ruled
against UTEX, ordering it to pay plaintiff the cash
dividends, which accrued to the stocks in
question after rendition of its current decision
excluding cash dividends already paid to Gene
Manuel and B. R. Castañeda which accrued
before its decision. UTEX alleged that the cash
dividends had already been paid thereby
absolving it from payment thereof.
ISSUE: Was the contention of UTEX, alleging that
the cash dividends of stock had already been
paid and thereby absolving it from any further
payment, valid?
RULING: No. The final and executory judgment
against UTEX declared petitioners as the owners
of the questioned UTEX shares of stock against
its co-defendants. It was further made clear in
the motion for clarification that all dividends
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accruing to the said shares after the rendition of
the decision of Aug. 7, 1971 rightfully belonged
to petitioners. If UTEX nevertheless chose to pay
the wrong parties, notwithstanding its full
knowledge and understanding of the final
judgment, it was still liable to pay the petitioners
as the lawful declared owners of the questions
shares of stocks. The burden of recovering the
supposed payment of the cash dividends made
by UTEX to the wrong parties Castañeda and
Manuel falls upon itself by its own action and
cannot be passed by it to the petitioner as the
innocent parties. It is elementary that payment
made by a judgment debtor to a wrong party
cannot extinguish the judgment obligation of
such debtor to its creditor.
It is equally elementary that once a judgment
becomes final and executory, the court which
rendered it cannot change or modify the same in
any material aspect such as what respondent
judge has without authority attempted to do
with his questioned order, which would relieve
the judgment debtor UTEX of its acknowledged
judgment obligation to pay to petitioners as the
lawful owners of the questioned shares of stock,
the cash dividends that accrued after the
rendition of the judgment recognizing them as
the lawful owners. (Miranda vs. Tiangco, 96 Phil.
526 [1955]). Execution of a final and executory
judgment according to its terms is a matter of
right for the prevailing party and becomes the
ministerial duty of the court (De los Angeles vs.
Victoriano, 109 Phil. 12).
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
Case No.68
KALALO VS.LUZ
G.R. No. L-27782 July 31, 1970
Facts:
On November 17, 1959, Octavio A. Kalalo, a
licensed civil engineer entered into an
agreement with Alfredo J. Luz, a licensed
architect, whereby the former was to render
engineering design services to the latter for fees,
as stipulated in the agreement. Pursuant to said
agreement, appellee rendered engineering
services to appellant in different projects. The
fees agreed upon were percentages of the
architect’s fee.
On December 1 1, 1961, Kalalo sent a statement
of account to which was attached an itemized
statement of account, according to which the
total engineering fee for services rendered
amounted to P116,565.00 from which sum was
to be deducted the previous payments made in
the amount of P57,000.00, thus leaving a balance
due in the amount of P59,565.00.
On May 18, 1962 Luz sent a resume of fees due
to the Kalalo. Said fees amounted to P10,861.08
instead of the amount claimed by Kalalo, and
subsequently sent the latter a check for said
amount, which Kalalo refused to accept as full
payment of the balance of the fees due him.
On August 10, 1962, Kalalo filed a complaint
against Luz. He alleged that for services
rendered in connection with the different
projects, there was due him fees in sums
consisting of $28,000 (U.S.) and P100,204.46,
excluding interests, of which sums only
P69,323.21 had been paid, thus leaving unpaid
the $28,000.00 and the balance of P30,881.25. In
his answer, Luz averred that some of Kalalo's
services were not in accordance with the
agreement and Kalalo's claims were not justified
by the services actually rendered, and that the
aggregate amount actually due to was only
P80,336.29, of which P69,475.21 had already
ARELLANO UNIVERSITY SCHOOL OF LAW
been paid, thus leaving a balance of only
P10,861.08. Luz also alleged that Kalalo’s
services were not complete or were performed
in violation of the agreement and/or otherwise
unsatisfactory.
The trial court, upon agreement of the parties,
authorized the case to be heard before a
Commissioner. The Commissioner rendered a
report which states that the amount due to
Kalalo was $28,000.00 (U.S.) as his fee in the
International Research Institute Project which
was twenty percent (20%) of the $140,000.00
that was paid to Luz, and P51,539.91 for the
other projects, less the sum of P69,475.46 which
was already paid by him. The Commissioner also
recommended the payment to Kalalo of the sum
of P5,000.00 as attorney's fees.
After the parties had submitted their respective
memorandum on said issues, the trial court
rendered its decision ordering the Luz to pay
Kalalo the sum of P51,539.91 and $28,000.00,
the latter to be converted into the Philippine
currency on the basis of the current rate of
exchange at the time of the payment of this
judgment, as certified to by the Central Bank of
the Philippines, from which shall be deducted
the sum of P69,475.46, which the Luz had paid
the Kalalo, and the legal rate of interest thereon
from the filing of the complaint in the case until
fully paid for.
From the decision, this appeal was brought,
directly to the S.C. raising only questions of law.
Issue:
WON the lower court erred in declaring and
holding that the balance owed by Luz on the IRRI
Project should be paid on the basis of the rate of
exchange of the U.S. dollar to the Philippine peso
at the time of payment of judgment.
Ruling:
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
No. Under the agreement, Kalalo was entitled to
20% of $140,000.00, or the amount of
$28,000.00. However, he cannot oblige the Luz
to pay him in dollars, even if Luz himself had
received his fee for the IRRI project in dollars.
This payment in dollars is prohibited by
Republic Act 529 which was enacted on June 16,
1950. Said act provides as follows:
SECTION 1. Every provision contained in, or
made with respect to, any obligation which
provision purports to give the obligee the right
to require payment in gold or in a particular kind
of coin or currency other than Philippine
currency or in an amount of money of the
Philippines measured thereby, be as it is hereby
declared against public policy, and null, void and
of no effect, and no such provision shall be
contained in, or made with respect to, any
obligation hereafter incurred. Every obligation
heretofore or here after incurred, whether or not
any such provision as to payment is contained
therein or made with respect thereto, shall be
discharged upon payment in any coin or
currency which at the time of payment is legal
tender for public and private debts: Provided,
That, ( a) if the obligation was incurred prior to
the enactment of this Act and required payment
in a particular kind of coin or currency other
than Philippine currency, it shall be discharged
in Philippine currency measured at the
prevailing rate of exchange at the time the
obligation was incurred, (b) except in case of a
loan made in a foreign currency stipulated to be
payable in the same currency in which case the
rate of exchange prevailing at the time of the
stipulated date of payment shall prevail. All coin
and currency, including Central Bank notes,
heretofore or hereafter issued and declared by
the Government of the Philippines shall be legal
tender for all debts, public and private.
Under the above-quoted provision of Republic
Act 529, if the obligation was incurred priorto
the enactment of the Act and require payment in
a particular kind of coin or currency other than
the Philippine currency the same shall be
ARELLANO UNIVERSITY SCHOOL OF LAW
discharged in Philippine currency measured at
the prevailing rate of exchange at the time the
obligation was incurred. Republic Act 529 was
enacted on June 16, 1950. In this case the
obligation of Luz to pay Kalalo the 20% of
$140,000.00, or the sum of $28,000.00, accrued
on August 25, 1961, or after the enactment of
Republic Act 529. It follows that the provision of
Republic Act 529 which requires payment at the
prevailing rate of exchange when the obligation
was incurred cannot be applied. Republic Act
529 does not provide for the rate of exchange for
the payment of obligation incurred after the
enactment of said Act. The logical Conclusion,
therefore, is that the rate of exchange should be
that prevailing at the time of payment.This view
finds support in the ruling of this Court in the
case of Engel vs. Velasco & Co. where this Court
held that even if the obligation assumed by the
defendant was to pay the plaintiff a sum of
money expressed in American currency, the
indemnity to be allowed should be expressed in
Philippine currency at the rate of exchange at the
time of judgment rather than at the rate of
exchange prevailing on the date of defendant's
breach.
It is Our considered view, therefore, that
appellant should pay the appellee the equivalent
in pesos of the $28,000.00 at the free market rate
of exchange at the time of payment. And so the
trial court did not err when it held that herein
appellant should pay appellee $28,000.00 "to be
converted into the Philippine currency on the
basis of the current rate of exchange at the time
of payment of this judgment, as certified to by
the Central Bank of the Philippines, ...."
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
Case No. 69
PONCE VS. CA and AFABLE
90 SCRA 533
FACTS:
On June 3, 1969, private respondent Jesusa B.
Afable, together with Felisa L. Mendoza and Ma.
Aurora C. Diño executed a promissory note in
favor of petitioner Nelia G. Ponce in the sum of
P814,868.42, Philippine Currency, payable,
without interest, on or before July 31, 1969. It
was further provided therein that should the
indebtedness be not paid at maturity, it shall
draw interest at 12% per annum, without
demand; that should it be necessary to bring suit
to enforce pay ment of the note, the debtors shall
pay a sum equivalent to 10% of the total amount
due for attorney's fees; and, in the event of
failure to pay the indebtedness plus interest in
accordance with its terms, the debtors shall
execute a first mortgage in favor of the creditor
over their properties or of the Carmen Planas
Memorial, Inc.
Upon the failure of the debtors to comply with
the terms of the promissory note, petitioners
(Nelia G. Ponce and her husband) filed, on July
27, 1970, a Complaint against them with the
Court of First Instance of Manila for the recovery
of the principal sum of P814,868.42, plus interest
and damages.
Defendant Ma. Aurora C. Diño's Answer
consisted more of a general denial and the
contention that she did not borrow any amount
from plaintiffs and that her signature on the
promissory note was obtained by plaintiffs on
their assurance that the same was for " formality
only."
Defendant Jesusa B. Afable, for her part, asserted
in her Answer that the promissory note failed to
express the true intent and agreement of the
parties, the true agreement being that the
obligation therein mentioned would be assumed
ARELLANO UNIVERSITY SCHOOL OF LAW
and paid entirely by defendant Felisa L.
Mendoza; that she had signed said document
only as President of the Carmen Planas
Memorial, Inc., and that she was not to incur any
personal obligation as to the payment thereof
because the same would be repaid by defendant
Mendoza and/or Carmen Planas Memorial, Inc.
In her Amended Answer, defendant Felisa L.
Mendoza admitted the authenticity and due
execution of the promissory note, but averred
that it was a recapitulation of a series of
transactions between her and the plaintiffs,
"with defendant Ma. Aurora C. Diño and Jesusa B.
Afable coming only as accomodation parties." As
affirmative defense, defendant Mendoza
contended that the promissory note was the
result of usurious transactions, and, as
counterclaim, she prayed that plaintiffs be
ordered to account for all the interests paid.
Plaintiffs filed their Answer to defendant
Mendoza's counterclaim denying under oath the
allegations of usury.
After petitioners had rested, the case was
deemed submitted for decision since respondent
Afable and her co-debtors had repeatedly failed
to appear before the trial Court for the
presentation of their evidence.
The trial Court rendered judgment ordering
respondent Afable and her co-debtors, Felisa L.
Mendoza and Ma. Aurora C. Diño , to pay
petitioners, jointly and severally, the sum of
P814,868.42, plus 12% interest per annum from
July 31, 1969 until full payment, and a sum
equivalent to 10% of the total amount due as
attorney's fees and costs.
From said Decision, by respondent Afable
appealed to the Court of Appeals. She argued that
the contract under consideration involved the
payment of US dollars and was, therefore, illegal;
and that under the in pari delicto rule, since both
parties are guilty of violating the law, neither one
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can recover. It is to be noted that said defense
was not raised in her Answer.
The Court of Appeals rendered judgment
affirming the decision of the trial Court. In a
Resolution dated February 27, 1978, the Court of
Appeals,** denied respondent's Motion for
Reconsideration. However, in a Resolution dated
June 8, 1978, the Court of Appeals acting on the
Second Motion for Reconsideration filed by
private respondent, set aside the Decision of
December 13, 1977, reversed the judgment of
the trial Court and dismissed the Complaint. The
Court of Appeals opined that the intent of the
parties was that the promissory note was
payable in US dollars, and, therefore, the
transaction was illegal with neither party
entitled to recover under the in pari delicto rule.
ISSUE: Whether or not the agreement of the
parties is null and void under RA 529, therefore
the parties cannot recover under the in pari
delicto rule
HELD: NO. It is to be noted that while an
agreement to pay in dollars is declared as null
and void and of no effect, what the law
specifically prohibits is payment in currency
other than legal tender. It does not defeat a
creditor's claim for payment, as it specifically
provides that "every other domestic obligation ...
whether or not any such provision as to payment
is contained therein or made with respect
thereto, shall be discharged upon payment in any
coin or currency which at the time of payment is
legal tender for public and private debts." A
contrary rule would allow a person to profit or
enrich himself inequitably at another's expense.
As the Court of Appeals itself found, the
promissory note in question provided on its face
for payment of the obligation in Philippine
currency, i.e., P814,868.42. So that, while the
agreement between the parties originally
involved a dollar transaction and that petitioners
ARELLANO UNIVERSITY SCHOOL OF LAW
expected to be paid in the amount of
US$194,016.29, petitioners are not now insisting
on their agreement with respondent Afable for
the payment of the obligation in dollars. On the
contrary, they are suing on the basis of the
promissory note whereby the parties have
already agreed to convert the dollar loan into
Philippine currency at the rate of P4.20 to $1.00.
It may likewise be pointed out that the
Promissory Note contains no provision "giving
the obligee the right to require payment in a
particular kind of currency other than Philippine
currency, " which is what is specifically
prohibited by RA No. 529.
At any rate, even if we were to disregard the
promissory note providing for the payment of
the obligation in Philippine currency and
consider that the intention of the parties was
really to provide for payment of the obligation
would be made in dollars, petitioners can still
recover the amount of US$194,016.29, which
respondent Afable and her co-debtors do not
deny having received, in its peso equivalent. As
held in Eastboard Navigation, Ltd. vs. Juan
Ysmael & Co. Inc., 102 Phil. 1 (1957), and Arrieta
vs. National Rice & Corn Corp., if there is any
agreement to pay an obligation in a currency
other than Philippine legal tender, the same is
nun and void as contrary to public policy,
pursuant to Republic Act No. 529, and the most
that could be demanded is to pay said obligation
in Philippine currency. In other words, what is
prohibited by RA No. 529 is the payment of an
obligation in dollars, meaning that a creditor
cannot oblige the debtor to pay him in dollars,
even if the loan were given in said currency. In
such a case, the indemnity to be allowed should
be expressed in Philippine currency on the basis
of the current rate of exchange at the time of
payment
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Case No. 70
NEW PACIFIC TIMBER vs. SIÑERIS
101 SCRA 686
FACTS: Petitioner, New Pacific Timber & Supply
Co. Inc. was the defendant in a complaint for
collection of money filed by private respondent,
Ricardo A. Tong.
In this complaint, respondent Judge rendered a
compromise judgment based on the amicable
settlement entered by the parties wherein
petitioner will pay to private respondent
P54,500.00 at 6% interest per annum and
P6,000.00 as attorney’s fee of which P5,000.00
has been paid.
Upon failure of the petitioner to pay the
judgment obligation, a writ of execution worth
P63,130.00 was issued levied on the personal
properties of the petitioner.
Before the date of the auction sale, petitioner
deposited with the Clerk of Court in his capacity
as the Ex-Officio Sheriff P50,000.00 in Cashier’s
Check of the Equitable Banking Corporation and
P13,130.00 in cash for a total of P63,130.00.
Private respondent refused to accept the check
and the cash and requested for the auction sale
to proceed.
The properties were sold for P50,000.00 to the
highest bidder with a deficiency of P13,130.00.
Petitioner subsequently filed an ex-parte motion
for issuance of certificate of satisfaction of
judgment which was denied by the respondent
Judge.
Hence this present petition, alleging that the
respondent Judge capriciously and whimsically
abused his discretion in not granting the
requested motion for the reason that the
judgment obligation was fully satisfied before
the auction sale with the deposit made by the
petitioner to the Ex-Officio Sheriff.
ARELLANO UNIVERSITY SCHOOL OF LAW
In upholding the refusal of the private
respondent to accept the check, the respondent
Judge cited Article 1249 of the New Civil Code
which provides that payments of debts shall be
made in the currency which is the legal tender of
the Philippines and Section 63 of the Central
Bank Act which provides that checks
representing deposit money do not have legal
tender power. In sustaining the contention of the
private respondent to refuse the acceptance of
the cash, the respondent Judge cited Article 1248
of the New Civil Code which provides that
creditor cannot be compelled to accept partial
payment unless there is an express stipulation to
the contrary.
ISSUE: Can the check be considered a valid
payment of the judgment obligation?
RULING: Yes. It is to be emphasized that it is a
well-known and accepted practice in the
business sector that a Cashier’s Check is deemed
cash. Moreover, since the check has been
certified by the drawee bank, this certification
implies that the check is sufficiently funded in
the drawee bank and the funds will be applied
whenever the check is presented for payment.
The object of certifying a check is to enable the
holder to use it as money. When the holder
procures the check to be certified, it operates as
an assignment of a part of the funds to the
creditors. Hence, the exception provided in
Section 63 of the Central Bank Act which states
that checks which have been cleared and
credited to the account of the creditor shall be
equivalent to a delivery to the creditor in cash
the amount equal to that which is credited to his
account. The Cashier’s Check and the cash are
valid payment of the obligation of the petitioner.
The private respondent has no valid reason to
refuse the acceptance of the check and cash as
full payment of the obligation.
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M ODES OF EXTINGUISHM ENT OF OBLIGATIONS
Case No. 71
Topic: Modes of Extinguishment of Obligations;
Payment or Performance
ROMAN CATHOLIC BISHOP OF MALOLOS, INC.
vs. IAC
G.R. No. 72110. November 16, 1990
FACTS: On July 7, 1971, the subject contract over
the land in question was executed between the
petitioner as vendor and the private respondent
(ROBES-FRANCISCO REALTY AND
DEVELOPMENT CORPORATION) through its
then president, Mr. Carlos F. Robes, as vendee,
stipulating for a downpayment of P23,930.00
and the balance of P100,000.00 plus 12%
interest per annum to be paid within four (4)
years from execution of the contract, that is, on
or before July 7, 1975. The contract likewise
provides for cancellation, forfeiture of previous
payments, and reconveyance of the land in
question in case the private respondent would
fail to complete payment within the said period.
On March 12, 1973, the private respondent,
through its new president, Atty. Adalia Francisco,
addressed a letter to Father Vasquez, parish
priest of San Jose Del Monte, Bulacan, requesting
to be furnished with a copy of the subject
contract and the supporting documents.
On July 17, 1975, admittedly after the expiration
of the stipulated period for payment, the same
Atty. Francisco wrote the petitioner a formal
request that her company be allowed to pay the
principal amount of P100,000.00 in three (3)
equal installments of six (6) months each with
the first installment and the accrued interest of
P24,000.00 to be paid immediately upon
approval of the said request.
On July 29, 1975, the petitioner, through its
counsel, Atty. Carmelo Fernandez, formally
denied the said request of the private
respondent, but granted the latter a grace period
ARELLANO UNIVERSITY SCHOOL OF LAW
of five (5) days from the receipt of the denial 8 to
pay the total balance of P124,000.00, otherwise,
the provisions of the contract regarding
cancellation, forfeiture, and reconveyance would
be implemented.
On August 4, 1975, the private respondent,
through its president, Atty. Francisco, wrote the
counsel of the petitioner requesting an extension
of 30 days from said date to fully settle its
account. The counsel for the petitioner, Atty.
Fernandez, received the said letter on the same
day. Upon consultation with the petitioner in
Malolos, Bulacan, Atty. Fernandez, as instructed,
wrote the private respondent a letter dated
August 7, 1975 informing the latter of the denial
of the request for an extension of the grace
period.
Consequently, Atty. Francisco, the private
respondent’s president, wrote a letter dated
August 22, 1975, directly addressed to the
petitioner, protesting the alleged refusal of the
latter to accept tender of payment purportedly
made by the former on August 5, 1975, the last
day of the grace period. In the same letter of
August 22, 1975, received on the following day
by the petitioner, the private respondent
demanded the execution of a deed of absolute
sale over the land in question and after which it
would pay its account in full, otherwise, judicial
action would be resorted to.
On August 27, 1975, the petitioner’s counsel,
Atty. Fernandez, wrote a reply to the private
respondent stating the refusal of his client to
execute the deed of absolute sale due to its
(private respondent’s) failure to pay its full
obligation. Moreover, the petitioner denied that
the private respondent had made any tender of
payment whatsoever within the grace period. In
view of this alleged breach of contract, the
petitioner cancelled the contract and considered
all previous payments forfeited and the land as
ipso facto reconveyed.
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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
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From a perusal of the foregoing facts, we find
that both the contending parties have conflicting
versions on the main question of tender of
payment.
The trial court, in its ratiocination, preferred not
to give credence to the evidence presented by
the private Respondent. According to the trial
court
. . . What made Atty. Francisco suddenly decide to
pay plaintiff’s obligation on August 5, 1975, go to
defendant’s office at Malolos, and there tender
her payment, when her request of August 4,
1975 had not yet been acted upon until August 7,
1975? If Atty. Francisco had decided to pay the
obligation and had available funds for the
purpose on August 5, 1975, then there would
have been no need for her to write defendant on
August 4, 1975 to request an extension of time.
Indeed, Atty. Francisco’s claim that she made a
tender of payment on August 5, 1975 — such
alleged act, considered in relation to the
circumstances both antecedent and subsequent
thereto, being not in accord with the normal
pattern of human conduct — is not worthy of
credence.
TC: ruled in favor of Petitioner. Declared the
subject contract as cancelled.
IAC: reversed the TC’s decision and ruled that it
is convinced from the testimony of Atty. Adalia
Francisco and her witnesses that in behalf of the
plaintiff-appellant they have a total available
sum of P364,840.00 at her and at the plaintiff’s
disposal on or before August 4, 1975 to answer
for the obligation of the plaintiff-appellant. It was
not correct for the trial court to conclude that the
plaintiff-appellant had only about P64,840.00 in
savings deposit on or before August 5, 1975, a
sum not enough to pay the outstanding account
of P124,000.00. The plaintiff-appellant, through
Atty. Francisco proved and the trial court even
acknowledged that Atty. Adalia Francisco had
about P300,000.00 in money market placement -
ARELLANO UNIVERSITY SCHOOL OF LAW
thus proving her financial capability of meeting
more than the whole of P124,000.00 then due
per contract.
ISSUE: Is a finding that private respondent had
sufficient available funds on or before the grace
period for the payment of its obligation proof
that it (private respondent) did tender of
payment for its said obligation within said
period?
RULING: No. SC agrees with the petitioner that a
finding that the private respondent had sufficient
available funds on or before the grace period for
the payment of its obligation does not constitute
proof of tender of payment by the latter for its
obligation within the said period. Tender of
payment involves a positive and unconditional
act by the obligor of offering legal tender
currency as payment to the obligee for the
former’s obligation and demanding that the
latter accept the same. Thus, tender of payment
cannot be presumed by a mere inference from
surrounding circumstances. At most, sufficiency
of available funds is only affirmative of the
capacity or ability of the obligor to fulfill his part
of the bargain. But whether or not the obligor
avails himself of such funds to settle his
outstanding account remains to be proven by
independent and credible evidence. Tender of
payment presupposes not only that the obligor is
able, ready, and willing, but more so, in the act of
performing his obligation. Ab posse ad actu non
vale illatio. "A proof that an act could have been
done is no proof that it was actually done."
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Case No. 72
TIBAJIA JR. VS. CA
223 SCRA 163
Facts:
Tibajia Jr. and his wife are indebted to Ms.
Eden Tan. A suit for collection of sum of money
was filed by Ms. Eden Tan against the spouses
Tibajia and the trial court ruled in her favor. The
Court of Appeals then affirmed the decision but
modified the decision by reducing the award of
moral and exemplary damages. The judgment
became final, thus the spouses Tibajia delivered
to the Deputy Sheriff P262,750 in cashier's check
and P135,733.70 in cash. Consequently, creditor
Ms. Tan refused to accept the payment.
The spouses Tibajia filed a motion to lift the writ
of execution, contending that the judgment debt
has already been paid but said motion was
denied. A subsequent motion for reconsideration
was also denied; the Court of Appeals also
dismissed a consequent petition for certiorari on
the ground that payment by cashier's check is
not legal tender as required by Republic Act No.
529.
Thus, this petition for review contending
that the cashier's check of the BPI is considered
legal tender and operates to discharge their
monetary obligation, citing the case of New
Pacific Timber and Supply Co., Inc. vs. Seneris
where it was held that a cashier's check is
deemed as cash.
Issue:
Is a cashier's check considered payment
in legal tender as required by the Civil Code, RA
No. 529, and Central Bank Act?
Ruling:
No. The cashier's check is not considered
payment in legal tender due to the following
reasons:
ARELLANO UNIVERSITY SCHOOL OF LAW
a. Art. 1249 of the Civil Code provides that
payment of debts in money shall be made in the
currency stipulated, and if it is not possible to
deliver such currency, then in the currency
which is legal tender in the Philippines. The
delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents
shall produce the effect of payment only when
they have been cashed, or when through the fault
of the creditor they have been impaired.
b. Sec. 1 of RA 529, as amended provides
that every obligation heretofore and hereafter
incurred, whether or not any such provision as
to payment is contained therein or made with
respect thereto, shall be discharged upon
payment in any coin or currency which at the
time of payment is legal tender for public and
private debts.
c. Sec. 63 of the Central Bank Act provides
that checks representing deposit money do not
have legal tender power and their acceptance in
the payment of debts, both public and private, is
at the option of the creditor: Provided, however,
that a check which has been cleared and credited
to the account of the creditor shall be equivalent
to a delivery to the creditor of cash in an amount
equal to the amount credited to his account.
The aforementioned laws clearly do not
support herein petitioners' contention.
Moreover, it was held in cases of Philippine
Airlines, Inc. v. Court of Appeals and Roman
Catholic Bishop of Malolos, Inc. v. Intermediate
Appellate Court, that"A check, whether a
manager’s check or ordinary check, is not legal
tender, and an offer of a check in payment of a
debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor."
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Case No. 73
BOGNOT VS. RRI LENDING CORP
GR No. 180144, September 24, 2014
FACTS:
In September 1996, Leonardo Bognot and his
younger brother, Rolando Bognot applied for
and obtained a loan of P500,000.00 from RRI
Lending, payable on November 30, 1996. The
loan was evidenced by a promissory note and
was secured by a post dated check dated
November 30, 1996.
Evidence on record shows that Leonardo
renewed the loan several times on a monthly
basis. He paid a renewal fee of P54,600.00 for
each renewal, issued a new post-dated check as
security, and executed and/or renewed the
promissory note previously issued. RRI Lending
on the other hand, cancelled and returned to
Leonardo the post-dated checks issued prior to
their renewal.
Leonardo purportedly paid the renewal fees and
issued a post-dated check dated June 30, 1997 as
security. As had been done in the past, RRI
Lending superimposed the date "June 30, 1997"
on the promissory note to make it appear that it
would mature on the said date.
Several days before the loan’s maturity,
Rolando’s wife, Julieta, went to the respondent’s
office and applied for another renewal of the
loan. She issued in favor of RRI Lending a
promissory note and a check dated July 30, 1997,
in the amount of P54,600.00 as renewal fee.
On the excuse that she needs to bring home the
loan documents for the Bognot siblings’
signatures and replacement, Julieta asked the
RRI Lending clerk to release to her the
promissory note, the disclosure statement, and
the check dated July 30, 1997. Julieta, however,
never returned these documents nor issued a
new post-dated check. Consequently, RRI
ARELLANO UNIVERSITY SCHOOL OF LAW
Lending sent Leonardo follow-up letters
demanding payment of the loan, plus interest
and penalty charges. These demands went
unheeded.
In his Answer, Leonardo, claimed, among other
things, that the complaint states no cause of
action because RRI Lending’s claim had been
paid, waived, abandoned or otherwise
extinguished, and that the one (1) month loan
contracted by Rolando and his wife in November
1996 which was lastly renewed in March 1997
had already been fully paid and extinguished in
April 1997.
ISSUE:Whether the parties’ obligation was
extinguished by: 1) payment; 2) Novation?
HELD:1.) Jurisprudence tells us that one who
pleads payment has the burden of proving it; the
burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-
payment. Indeed, once the existence of an
indebtedness is duly established by evidence, the
burden of showing with legal certainty that the
obligation has been discharged by payment rests
on the debtor.
In the present case, Leonardo failed to
satisfactorily prove that his obligation had
already been extinguished by payment. As the CA
correctly noted, the petitioner failed to present
any evidence that RRI Lending had in fact
encashed his check and applied the proceeds to
the payment of the loan. Neither did he present
official receipts evidencing payment, nor any
proof that the check had been dishonored.
We note that the petitioner merely relied on the
respondent’s cancellation and return to him of
the check dated April 1, 1997. The evidence
shows that this check was issued to secure the
indebtedness. The acts imputed on the
respondent, standing alone, do not constitute
sufficient evidence of payment.
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Article 1249, paragraph 2 of the Civil Code
provides: The delivery of promissory notes
payable to order, or bills of exchange or other
mercantile documents shall produce the effect of
payment only when they have been cashed, or
when through the fault of the creditor they have
been impaired.
Also, we held in Bank of the Philippine Islands v.
Spouses Royeca: Settled is the rule that payment
must be made in legal tender. A check is not legal
tender and, therefore, cannot constitute a valid
tender of payment. Since a negotiable instrument
is only a substitute for money and not money,
the delivery of such an instrument does not, by
itself, operate as payment. Mere delivery of
checks does not discharge the obligation under a
judgment. The obligation is not extinguished and
remains suspended until the payment by
commercial document is actually realized.
Although Article 1271 of the Civil Code provides
for a legal presumption of renunciation of action
(in cases where a private document evidencing a
credit was voluntarily returned by the creditor
to the debtor), this presumption is merely prima
facie and is not conclusive; the presumption
loses efficacy when faced with evidence to the
contrary.
Moreover, the cited provision merely raises a
presumption, not of payment, but of the
renunciation of the credit where more
convincing evidence would be required than
what normally would be called for to prove
payment. Thus, reliance by the petitioner on the
legal presumption to prove payment is
misplaced.
To reiterate, no cash payment was proven by the
petitioner. The cancellation and return of the
check dated April 1, 1997, simply established his
renewal of the loan – not the fact of payment.
Furthermore, it has been established during trial,
ARELLANO UNIVERSITY SCHOOL OF LAW
through repeated acts, that the respondent
cancelled and surrendered the post-dated check
previously issued whenever the loan is renewed.
2.) Novation is a mode of extinguishing an
obligation by changing its objects or principal
obligations, by substituting a new debtor in place
of the old one, or by subrogating a third person
to the rights of the creditor.
To give novation legal effect, the original debtor
must be expressly released from the obligation,
and the new debtor must assume the original
debtors place in the contractual relationship.
Depending on who took the initiative, novation
by substitution of debtor has two forms:
substitution by expromision and substitution by
delegacion. The difference between these two
was explained in Garcia v. Llamas, 417 SCRA 292
(2003): “In expromision, the initiative for the
change does not come from and may even be
made without the knowledge of the debtor, since
it consists of a third persons assumption of the
obligation. As such, it logically requires the
consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor
accepts, a third person who consents to the
substitution and assumes the obligation; thus,
the consent of these three persons are
necessary.”
In both cases, the original debtor must be
released from the obligation; otherwise, there
can be no valid novation. Furthermore, novation
by substitution of debtor must always be made
with the consent of the creditor.
In order to give novation legal effect, the creditor
should consent to the substitution of a new
debtor. Novation must be clearly and
unequivocally shown, and cannot be presumed.
Since the petitioner failed to show that the
respondent assented to the substitution, no valid
novation took place with the effect of releasing
the petitioner from his obligation to the
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respondent. Moreover, in the absence of showing

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

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

Appellant Velasco also urged that the damages

awarded him are inadequate considering the
present high cost of living and calls attention to
Article 1250 of the New Civil Code.

ART. 1250. In case an extraordinary inflation or

deflation of the currency stipulated should
supervene, the value of the currency at the time
of the establishment of the obligation shall be the
basis of payment, unless there is an agreement to
the contrary.
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Case No. 75
COMMISSIONER OF PUBLIC HIGHWAYS VS.
JUDGE BURGOS
96 SCRA 831
Facts:
On 1924, the government took private
respondent Victor Amigable's land for road-
right-of-way purpose.
On 1959, Amigable filed in the Court of First
Instance a complaint to recover the ownership
and possession of the land and for damages for
the alleged illegal occupation of the land by the
government (entitled Victor Amigable vs. Nicolas
Cuenco, in his capacity as Commissioner of
Public Highways and Republic of the
Philippines).
Amigable's complaint was dismissed on the
grounds that the land was either donated or sold
by its owners to enhance its value, and that in
any case, the right of the owner to recover the
value of said property was already barred by
estoppel and the statute of limitations. Also, the
non-suability of the government was invoked.
In the hearing, the government proved that the
price of the property at the time of taking was
P2.37 per square meter. Amigable, on the other
hand, presented a newspaper showing that the
price was P6.775.
The public respondent Judge ruled in favor of
Amigable and directed the Republic of the
Philippines to pay Amigable the value of the
property taken with interest at 6% and the
attorney's fees.
Issue:
Whether or not the provision of Article 1250 of
the New Civil Code is applicable in determining
the amount of compensation to be paid to
private respondent Amigable for the property
taken.
ARELLANO UNIVERSITY SCHOOL OF LAW
Held: Not applicable.
Article 1250 of the NCC provides that the value
of currency at the time of the establishment of
the obligation shall be the basis of payment
which would be the value of peso at the time of
taking of the property when the obligation of the
government to pay arises. It is only when there is
an agreement that the inflation will make the
value of currency at the time of payment, not at
the time of the establishment, the basis for
payment.
It is clear that the foregoing provision applies
only to cases where a contract or agreement is
involved. It does not apply where the obligation
to pay arises from law, independent of contract.
The taking of private property by the
Government in the exercise of its power of
eminent domain does not give rise to a
contractual obligation. We have expressed this
view in the case of Velasco vs. Manila Electric Co.,
et al., L-19390, December 29, 1971.
Moreover, the law as quoted, clearly provides
that the value of the currency at the time of the
establishment of the obligation shall be the basis
of payment which, in cases of expropriation,
would be the value of the peso at the time of the
taking of the property when the obligation of the
Government to pay arises. It is only when there
is an "agreement to the contrary" that the
extraordinary inflation will make the value of the
currency at the time of payment, not at the time
of the establishment of the obligation, the basis
for payment. In other words, an agreement is
needed for the effects of an extraordinary
inflation to be taken into account to alter the
value of the currency at the time of the
establishment of the obligation which, as a rule,
is always the determinative element, to be varied
by agreement that would find reason only in the
supervention of extraordinary inflation or
deflation.
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We hold, therefore, that under the law, in the was permanent in character, for the land was
absence of any agreement to the contrary, even intended for, and had become, avenues in the
assuming that there has been an extraordinary City of Cebu. A penalty is always visited upon one
inflation within the meaning of Article 1250 of for his inaction, neglect or laches in the assertion
the New Civil Code, a fact We decline to declare of his rights allegedly withheld from him, or
categorically, the value of the peso at the time of otherwise transgressed upon by another.
the establishment of the obligation, which in the
instant case is when the property was taken The correct amount of compensation would be
possession of by the Government, must be P14,615.79 at P2.37 per square meter, not
considered for the purpose of determining just P49,459.34, and the interest in the sum of
compensation. Obviously, there can be no P145,410.44 at the rate of 6% from 1924 up to
"agreement to the contrary" to speak of because the time respondent court rendered its decision
the obligation of the Government sought to be as was awarded by the said court should
enforced in the present action does not originate accordingly be reduced.
from contract, but from law which, generally is
not subject to the will of the parties. And there
being no other legal provision cited which would
justify a departure from the rule that just
compensation is determined on the basis of the
value of the property at the time of the taking
thereof in expropriation by the Government, the
value of the property as it is when the
Government took possession of the land in
question, not the increased value resulting from
the passage of time which invariably brings
unearned increment to landed properties,
represents the true value to be paid as just
compensation for the property taken.

In the present case, the unusually long delay of

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

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Case No. 76 currency stipulated should supervene, the value

Filipino Pipe and Foundry Corp. vs NAWASA of the currency at the time of the establishment
161 SCRA 32 of the obligation shall be the basis of payment,
unless there is an agreement to the contrary”
Topic: Modes of Extinguishment of Obligations Extraordinary inflation exists "when there is a
(1) Payment or performance decrease or increase in the purchasing power of
the Philippine currency which is unusual or
FACTS: beyond the common fluctuation in the value said
currency, and such decrease or increase could
NAWASA entered into a contract with the not have reasonably foreseen or was manifestly
plaintiff FPFC for the latter to supply iron beyond contemplation the parties at the time of
pressure pipes worth P270,187.50 to be used in the establishment of the obligation.” While
the construction of the Anonoy Waterworks in appellant's voluminous records and statistics
Masbate and the Barrio San Andres-Villareal proved that there has been a decline in the
Waterworks in Samar. NAWASA paid in purchasing power of the Philippine peso, this
installments on various dates, a total of downward fall of the currency cannot be
P134,680.00 leaving a balance of P135,507.50 considered "extraordinary." Therefore, the basis
excluding interest. FPFC demanded payment of payment should still be the value of the
from NAWASA of the unpaid balance of the price currency at the time of the establishment of the
with interest in accordance with the terms of contract.
their contract. NAWASA failed to pay, plaintiff
filed a collection suit. RTC rendered judgment
ordered NAWASA to pay the unpaid balance in
NAWASA negotiable bonds. NAWASA did not
deliver the bonds to the judgment creditor. FPFC
filed another complaint seeking an adjustment of
the unpaid balance in accordance with the value
of the Philippine peso. FPFC presented
voluminous records and statistics showing that a
spiralling inflation has marked the progress of
the country from 1962 up to the present. There
is no denying that the price index of
commodities, which is the usual evidence of the
value of the currency has been rising.

ISSUE:
Whether or not there is an extraordinary
inflation of the currency justifying an adjustment
of NAWASA's unpaid judgment obligation to
FPFC.

RULING:

None. Article 1250 of the Civil Code provides ”In

case an extraordinary inflation or deflation of the

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

3. The trial court in dismissed the complaint

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

ISSUE: W/N there has been diminution of

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

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Case No. 78
FILINVEST V. PHILIPPINE ACETYLENE
G.R. No. L-50449 January 30, 1982.
FACTS:
Philippine Acetylene Co. purchased from
Alexander Lim a motor vehicle described as
Chevorlet 1969 model for P55K to be paid
in installments. As security for the payment of
said promissory note, the appellant executed a
chattel mortgage over the same motor vehicle in
favor of said Alexander Lim. Then, Lim assigned
to the Filinvest all his rights, title, and interests
in the promissory note and chattel mortgage by
virtue of a Deed of Assignment.
Phil Acetylene defaulted in the payment of nine
successive installments. Filinvest sent a demand
letter. Replying thereto, Phil Acetylene wrote
back of its desire to return the mortgaged
property, which return shall be in full
satisfaction of its indebtedness. So the vehicle
was returned to the Filinvest together with the
document “Voluntary Surrender with Special
Power of Attorney To Sell.” Filinvest failed to sell
the motor vehicle as there were unpaid taxes on
the said vehicle. Filinvest requested the
appellant to update its account by paying the
installments in arrears and accruing interest.
Filinvest offered to deliver back the motor
vehicle to the appellant but the latter refused to
accept it, so appellee instituted an action for
collection of a sum of money with damages.
Phil Acetylene’s defense: The delivery of the
motor vehicle to Filinvest extinguished its money
obligation as it amounted to a dation in payment.
Assuming arguendo that the return did not
extinguish, it was justified in refusing payment
since the appellee is not entitled to recover the
same due to the breach of warranty committed
by the original vendor-assignor Alexander Lim.
ARELLANO UNIVERSITY SCHOOL OF LAW
ISSUE: WON there was dation in payment that
extinguished Phil Acetylene’s obligation?
HELD:NO.
The mere return of the mortgaged motor vehicle
by the mortgagor does not constitute dation in
payment in the absence, express or implied of
the true intention of the parties. Dacion en pago
is the transmission of the ownership of a thing
by the debtor to the creditor as an accepted
equivalent of the performance of obligation. In
dacion, the debtor offers another thing to the
creditor who accepts it as equivalent of payment
of an outstanding debt. 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, payment for which is to
be charged against the debtor’s debt. As such, the
essential elements of a contract of sale, namely,
consent, object certain, and cause or
consideration must be present. In its modern
concept, what actually takes place in dacion en
pago is an objective novation of the obligation
where the thing offered as an accepted
equivalent of the performance of an obligation is
considered as the object of the contract of sale,
while the debt is considered as the purchase
price. In any case, common consent is an
essential prerequisite, be it sale or innovation to
have the effect of totally extinguishing the debt
or obligation.
The evidence on the record fails to show that the
Filinvest consented, or at least intended, that the
mere delivery to, and acceptance by him, of the
mortgaged motor vehicle be construed as actual
payment, more specifically dation in payment or
dacion en pago. The fact that the mortgaged
motor vehicle was delivered to him does not
necessarily mean that ownership thereof, as
juridically contemplated by dacion en pago, was
transferred from appellant to appellee. In the
absence of clear consent of appellee to the
proferred special mode of payment, there can be
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no transfer of ownership of the mortgaged motor

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

As to the strength of the “Voluntary Surrender

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

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Case # 79
CITIZENS SURETY and INSURANCE COMPANY,
INC., vs. CA and PASCUAL M. PEREZ
G.R. No. L-48958 June 28, 1988
FACTS:
The petitioner issued two (2) surety bonds to
guarantee compliance by the principal Pascual
M. Perez Enterprises of its obligation under a
"Contract of Sale of Goods" entered into with the
Singer Sewing Machine Co. In consideration of
the issuance of the aforesaid bonds, Pascual M.
Perez, in his personal capacity and as attorney-
in-fact of his wife, Nicasia Sarmiento and in
behalf of the Pascual M. Perez Enterprises
executed on the same date two (2) indemnity
agreements wherein he obligated himself and
the Enterprises to indemnify the petitioner
jointly and severally, whatever payments
advances and damage it may suffer or pay as a
result of the issuance of the surety bonds.
In addition, Pascual M. Perez Enterprises was
also required to put up a collateral security to
further insure reimbursement to the petitioner
of whatever losses or liabilities it may be made
to pay under the surety bonds. Pascual M. Perez
executed a deed of assignment on the same day,
of his stock of lumber with a total value of
P400,000.00. A second real estate mortgage was
further executed in favor of the petitioner to
guarantee the fulfillment of said obligation.
Pascual M. Perez Enterprises failed to comply
with its obligation under the contract of sale of
goods with Singer Sewing Machine Co., Ltd. The
Petitioner paid the fair value of the two surety
Except for partial payments and notwithstanding
several demands, Pascual M. Perez Enterprises
failed to reimburse the petitioner for the losses it
sustained under the said surety bonds.
The petitioner filed a claim for sum of money
against the estate of the late Nicasia Sarmiento
ARELLANO UNIVERSITY SCHOOL OF LAW
which was being administered by Pascual M.
Perez.
ISSUE:
Whether or not the administrator's obligation
under the surety bonds and indemnity
agreements had been extinguished by reason of
the execution of the deed of assignment
HELD:
It is the general rule that when the words of a
contract are plain and readily understandable,
there is no room for construction thereof (San
Mauricio Milling Co. v. Ancheta, 105 SCRA 371).
However, this is only a general rule and it admits
exceptions.
On its face, the document speaks of an
assignment where there seems to be a complete
conveyance of the stocks of lumber to the
petitioner, as assignee. However, in the light of
the circumstances obtaining at the time of the
execution of said deed of assignment, we can not
regard the transaction as an absolute
conveyance. As held in the case of Sy v. Court of
Appeals, (131 SCRA 116,124):
It is a basic and fundamental rule in the
interpretation of contract that if the terms
thereof are clear and leave no doubt as to the
intention of the contracting parties, then the
literal meaning of the stipulations shall control
but when the words appear contrary to the
evident intention of the parties, the latter shall
prevail over the former. (Labasan v. Lacuesta,
86 SCRA 16) In order to judge the intention of
the parties, their contemporaneous and
subsequent acts shall be principally
considered. (Emphasis supplied)
The petitioner issued the two (2) surety bonds
on December 4, 1959 in behalf of the Pascual M.
Perez Enterprises to guaranty fullfillment of its
obligation under the "Contract of Sale of Goods"
entered into with the Singer Sewing Machine Co.
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In consideration of the two surety bonds, two another collateral security for the issuance of the
indemnity agreements were executed by Pascual two surety bonds.
M. Perez followed by a Deed of Assignment
which was also executed on the same date.

The transaction could not be dation in payment.

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

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
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Case No. 80
PNB vs. DEE, ANTIPOLO PROPERTIES, INC.,
(NOW PRIME EAST PROPERTIES, INC.) AND
AFP–RSBS, INC.
G.R. No. 182128 February 19, 2014
FACTS:
Sometime in July 1994, respondent Dee
Dee bought from respondent Prime East
Properties Inc.5 (PEPI) on an installment basis a
residential lot located in Binangonan, Rizal, with
an area of 204 square meters and covered by
TCT No. 619608. Subsequently, PEPI assigned its
rights over a 213,093–sq m property on August
1996 to respondent Armed Forces of the
Philippines–Retirement and Separation Benefits
System, Inc. (AFP–RSBS), which included the
property purchased by Dee.
Thereafter, or on September 10, 1996,
PEPI obtained a P205,000,000.00 loan from
petitioner Philippine National Bank, secured by a
mortgage over several properties, including
Dee’s property. The mortgage was cleared by the
Housing and Land Use Regulatory Board
(HLURB) on September 18, 1996.
After Dee’s full payment of the purchase
price, a deed of sale was executed by
respondents PEPI and AFP–RSBS on July 1998 in
Dee’s favor. Consequently, Dee sought from the
petitioner the delivery of the
owner’s duplicate title over the property, to no
avail. Thus, she filed with the HLURB a complaint
for specific performance to compel delivery of
TCT No. 619608 by the petitioner, PEPI and
AFP–RSBS, among others.
ISSUE:Whether or not PNB, as mortgagee, was
bound by the contract to sell previously executed
over the subdivision lot mortgaged.
HELD:
ARELLANO UNIVERSITY SCHOOL OF LAW
YES. In this case, there are two
phases involved in the transactions between
respondents PEPI and Dee – the first phase is the
contract to sell, which eventually became the
second phase, the absolute sale, after Dee’s full
payment of the purchase price. In a contract of
sale, the parties’ obligations are plain and simple.
The law obliges the vendor to transfer the
ownership of and to deliver the thing that is the
object of sale. On the other hand, the principal
obligation of a vendee is to pay the full purchase
price at the agreed time. Based on the final
contract of sale between them, the obligation of
PEPI, as owners and vendors of Lot 12, Block 21–
A, Village East Executive Homes, is to transfer
the ownership of and to deliver Lot 12, Block 21–
A to Dee, who, in turn, shall pay, and has in fact
paid, the full purchase price of the property.
It must be stressed that the mortgage
contract between PEPI and the petitioner is
merely an accessory contract to the principal
three–year loan takeout from the petitioner by
PEPI for its expansion project. It need not be
belabored that “a mortgage is an accessory
undertaking to secure the fulfillment of a
principal obligation,” and it does not affect the
ownership of the property as it is nothing more
than a lien thereon serving as security for a debt.
Owner or developer of subdivision lot or
condominium unit may mortgage the same
despite contract to sell
Note that at the time PEPI mortgaged
the property to the petitioner, the prevailing
contract between respondents PEPI and Dee was
still the Contract to Sell, as Dee was yet
to fully pay the purchase price of the property.
On this point, PEPI was acting fully well within
its right when it mortgaged the property to the
petitioner, for in a contract to sell, ownership is
retained by the seller and is not to pass until full
payment of the purchase price. In other words, at
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the time of the mortgage, PEPI was still the protected by PD 957. x x x More so in this case
owner of the property. where the contract to sell has already ripened
into a contract of absolute sale.
Thus, in China Banking Corporation v.
Spouses Lozada, the Court affirmed the right of The Court affirmed HLURB’s orders:
the owner/developer to mortgage the
property subject of development, to wit: “P.D. 1. PNB to cancel the mortgage and
No. 957 cannot totally prevent the owner or surrender/release the title to Dee.
developer from mortgaging the subdivision lot 2. PEPI and AFP-RSBS to pay PNB the redemption
or condominium unit when the title thereto value of the subject property as agreed upon by
still resides in the owner or developer them in the REM within 6 months from the time
awaiting the full payment of the purchase the owner’s duplicate of TCT is actually
price by the installment buyer.” Moreover, the surrendered and released by PNB to Dee.
mortgage bore the clearance of the HLURB, in 3. In the alternative, in case of legal and physical
compliance with Section 18 of P.D. No. 957, impossibility on the part of PEPI, AFP–RSBS, and
which provides that “no mortgage on any unit or PNB to comply and perform their respective
lot shall be made by the owner or developer obligation/s, as above–mentioned, respondents
without prior written approval of the HLURB.” PEPI and AFP–RSBS are hereby ordered
to jointly and severally pay to Dee the amount of
Bank-mortgagee bound by the contract to sell P520,000.00) plus interest to be computed from
over the property mortgaged the filing of complaint on April 24, 2002
until fully paid.
Nevertheless, despite the apparent 4. PEPI, AFP-RSBS and PNB to pay solidarily Dee
validity of the mortgage between the petitioner attorney’s fees, cost of litigation, and
and PEPI, the former is still bound to respect the administrative fine.
transactions between respondents PEPI and Dee.
The petitioner was well aware that the
properties mortgaged by PEPI were also the
subject of existing contracts to sell with other
buyers. While it may be that the petitioner is
protected by Act No. 3135, as amended, it cannot
claim any superior right as against the
installment buyers. This is because the contract
between the respondents is protected by P.D. No.
957, a social justice measure enacted primarily
to protect innocent lot buyers. Thus, in Luzon
Development Bank v. Enriquez, the Court
reiterated the rule that a bank dealing with a
property that is already subject of a contract
to sell and is protected by the provisions of P.D.
No. 957, is bound by the contract to sell.

The transferee BANK is bound by the

Contract to Sell and has to respect Enriquez’s
rights there under. This is because the Contract
to Sell, involving a subdivision lot, is covered and
ARELLANO UNIVERSITY SCHOOL OF LAW Page 33
 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
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Case No. 81
SOCO V MILITANTE
G.R. No. L-58961 June 28, 1983
FACTS:
1. Plaintiff-appellee-Soco, and the 'defendant-
appellant-Francisco, entered into a contract
of lease on January 17, 1973, whereby Soco
leased her commercial building and lot
situated at Manalili Street, Cebu City, to
Francisco for a monthly rental of P 800.00 for
a period of 10 years renewable for another
10 years at the option of the lessee.
2. Claiming that paragraph 11 of the Contract of
Lease was in fact not part of the contract
because it was cancelled, Soco filed Civil Case
No. R-16261 in the Court of First Instance of
Cebu seeking the annulment and/or
reformation of the Contract of Lease. ...
3. Sometime before the filing of Civil Case No. R-
16261 Francisco noticed that Soco did not
anymore send her collector for the payment
of rentals and at times there were payments
made but no receipts were issued. This
situation prompted Francisco to write Soco
the letter dated February 7, 1975 which the
latter received. After writing this letter,
Francisco sent his payment for rentals by
checks issued by the Commercial Bank and
Trust Company.
4. The factual background setting of this case
clearly indicates that soon after Soco learned
that Francisco sub-leased 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, the latter
felt that she was on the losing end of the lease
agreement so she tried to look for ways and
means to terminate the contract. ...
5. In view of this alleged non-payment of rental
of the leased premises beginning May, 1977,
ARELLANO UNIVERSITY SCHOOL OF LAW
Soco through her lawyer sent a letter dated
November 23, 1978 to Francisco serving
notice to the latter 'to vacate the premises
leased.' In answer to this letter, Francisco
through his lawyer informed Soco and her
lawyer that all payments of rental due her
were in fact paid by Commercial Bank and
Trust Company through the Clerk of Court of
the City Court of Cebu Despite this
explanation, Soco filed this instant case of
Illegal Detainer on January 8, 1979. ...
6. the Court holds that there was in fact a
tender of payment of the rentals made by
Francisco to Soco through Comtrust and
since these 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, 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. ...
7. the decision of the Court of First Instance
reversed the judgment of the City Court of
Cebu ordering the defendants to vacate
ISSUE: WON there is a valid consignation by the
defendant with the Clerk of Court of the City
Court of Cebu as regard to the said rentals
HELD: CFI REVERSED, City court of Cebu
REINSTATED
According to Article 1256, New Civil Code, if
the creditor to whom tender of payment has
been made refuses without just cause to accept
it, the debtor shall be released from
responsibility by the consignation of the thing or
sum due. Consignation alone shall produce
the same effect in the following cases:
(1) When the creditor is absent or unknown, or
does not appear at the place of payment;
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(2) When he is incapacitated to receive the
payment at the time it is due;
(3) When, without just cause, he refuses to give
a receipt;
(4) When two or more persons claim the same
right to collect;
(5) When the title of the obligation has been lost.
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. (Limkako vs. Teodoro,
74 Phil. 313).
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. (Jose Ponce de Leon vs.
Santiago Syjuco, Inc., 90 Phil. 311).
Without the notice first announced to the
persons interested in the fulfillment of the
obligation, the consignation as a payment is void.
(Limkako vs. Teodoro, 74 Phil. 313),
ARELLANO UNIVERSITY SCHOOL OF LAW
In order to be valid, the tender of payment
must be made in lawful currency. While
payment in check by the debtor may be
acceptable as valid, if no prompt objection to
said payment is made (Desbarats vs. Vda. de
Mortera, L-4915, May 25, 1956) the fact that in
previous years payment in check was accepted
does not place its creditor in estoppel from
requiring the debtor to pay his obligation in cash
(Sy vs. Eufemio, L-10572, Sept. 30, 1958). Thus,
the tender of a check to pay for an obligation is
not a valid tender of payment thereof (Desbarats
vs. Vda. de Mortera, supra
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. (8 Manresa 325).
Reviewing carefully the evidence presented by
respondent lessee at the trial of the case to prove
his compliance with all the requirements of a
valid tender of payment and consignation and
from which the respondent Judge based his
conclusion that there was substantial compliance
with the law on consignation, All evidences,
according to respondent Judge, proved that
petitioner lessor was notified of the deposit of
the monthly rentals.
We hold that the respondent lessee has
utterly failed to prove the following
requisites of a valid consignation:
First, tender of payment of the monthly rentals
to the lessor except that indicated in the June 9,
l977 Letter, Exhibit 10. In the original records of
the case, We note that the certification, Exhibit
11 of Filemon Soon, messenger of the FAR
Corporation, certifying that the letter of Soledad
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Soco sent last May 10 by Commercial Bank and
Trust Co. was marked RTS (return to sender) for
the reason that the addressee refused to receive
it, was rejected by the court for being immaterial,
irrelevant and impertinent per its Order dated
November 20, 1980. (See p. 117, CFI Records).
Second, respondent lessee also failed to prove
the first notice to the lessor prior to
consignation, except the payment referred to in
Exhibit 10.
In this connection, the purpose of the notice is in
order to give the creditor an opportunity to
reconsider his unjustified refusal and to accept
payment thereby avoiding consignation and the
subsequent litigation. This previous notice is
essential to the validity of the consignation and
its lack invalidates the same. (Cabanos vs. Calo,
104 Phil. 1058; Limkako vs. Teodoro, 74 Phil.
313).
There is no factual basis for the lower court's
finding that the lessee had tendered payment of
the monthly rentals, thru his bank, citing the
lessee's letter (Exh. 4) requesting the bank to
issue checks in favor of Soco in the amount of
P840.00 every 10th of each month and to deduct
the full amount and service fee from his current
account, as well as Exhibit 5, letter of the Vice
President agreeing with the request. But
scrutinizing carefully Exhibit 4, this is what the
lessee also wrote: "Please immediately notify us
everytime you have the check ready so we may
send somebody over to get it. " And this is
exactly what the bank agreed: "Please be advised
that we are in conformity to the above
arrangement with the understanding that you
shall send somebody over to pick up the
cashier's check from us." (Exhibit 4, see p. 230,
Original Records; Exhibit 5, p. 231, Original
Records)
Evidently, from this arrangement, it was the
lessee's duty to send someone to get the
cashier's check from the bank and logically, the
lessee has the obligation to make and tender the
ARELLANO UNIVERSITY SCHOOL OF LAW
check to the lessor. This the lessee failed to do,
which is fatal to his defense.
Third, respondent lessee likewise failed to prove
the second notice, that is after consignation has
been made, to the lessor except the consignation
referred to in Exhibit 12 which are the cashier's
check Nos. 478439 and 47907 CBTC dated May
11, 1977 and June 15, 1977 under Official
Receipt No. 04369 dated July 6, 1977.
Respondent lessee, attempting to prove
compliance with the requisites of valid
consignation, presented the representative of the
Commercial Bank and Trust Co., Edgar Ocañada,
Bank Comptroller, who unfortunately belied
respondent's claim
Recapitulating the above testimony of the Bank
Comptroller, it is clear 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."
And the fourth requisite that respondent lessee
failed to prove is the actual deposit or
consignation of the monthly rentals except the
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two cashier's checks referred to in Exhibit 12. As The decision under review cites Exhibits 6, 7, 8
indicated earlier, not a single copy of the official and 9, the Debit Memorandum issued by
receipts issued by the Clerk of Court was Comtrust Bank deducting the amounts of the
presented at the trial of the case to prove the checks therein indicated from the account of the
actual deposit or consignation. We find, however, lessee, to prove payment of the monthly rentals.
reference to some 45 copies of official receipts But these Debit Memorandums are merely
issued by the Clerk of Court marked Annexes "B- internal banking practices or office procedures
1 " to "B-40" to the Motion for Reconsideration involving the bank and its depositor which is not
of the Order granting execution pending appeal binding upon a third person such as the lessor.
filed by defendant Francisco in the City Court of What is important is whether the checks were
Cebu (pp, 150-194, CFI Original Records) as well picked up by the lessee as per the arrangement
as in the Motion for Reconsideration of the CFI indicated in Exhibits 4 and 5 wherein the lessee
decision, filed by plaintiff lessor (pp. 39-50, had to pick up the checks issued by CBTC or to
Records, marked Annex "E ") the allegation that send somebody to pick them up, and logically,
"there was no receipt at all showing that for the lessee to tender the same to the lessor. On
defendant Francisco has deposited with the this vital point, the lessee miserably failed to
Clerk of Court the monthly rentals present any proof that he complied with the
corresponding to the months of May and June, arrangement.
1977. And for the months of July and August,
We, therefore, find and rule that the lessee has
1977, the rentals were only deposited with the
failed to prove tender of payment except that in
Clerk of Court on 20 November 1979 (or more
Exh. 10; he has failed to prove the first notice to
than two years later)."... The deposits of these
the lessor prior to consignation except that given
monthly rentals for July and August, 1977 on 20
in Exh. 10; he has failed to prove the second
November 1979, is very significant because on
notice after consignation except the two made in
24 October 1979, plaintiff Soco had testified
Exh. 12; and he has failed to pay the rentals for
before the trial court that defendant had not paid
the months of July and August, 1977 as of the
the monthly rentals for these months. Thus,
time the complaint was filed for the eviction of
defendant had to make a hurried deposit on the
the lessee. We hold that the evidence is clear,
following month to repair his failure. " (pp. 43-
competent and convincing showing that the
44, Records).
lessee has violated the terms of the lease
We have verified the truth of the above claim or contract and he may, therefore, be judicially
allegation and We find that indeed, under Official ejected.
Receipt No. 1697161Z, the rental deposit for
August, 1977 in cashier's check No. 502782
dated 8-10-77 was deposited on November 20,
1979 (Annex "B-15", p. 169, Original CFI
Records) and under Official Receipt No.
1697159Z, the rental deposit for July under
Check No. 479647 was deposited on November
20, 1979 (Annex "B-16", p. 170, Original CFI
Records). Indeed, these two rental deposits were
made on November 20, 1979, two years late and
after the filing of the complaint for illegal
detainer.

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
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Case No. 82
LAURO IMMACULATA VS. HON. PEDRO C.
NAVARRO
G.R. No. L- 42230April 15, 1988
FACTS:
On March 24, 1975, petitioner Lauro
Immaculata, represented by his wife Amparo
Velasco as guardian ad litem filed in the CFI of
Rizal a complaint, for annulment of judgment
and deed of sale with reconveyance of real
property, against private respondents herein and
respondent sheriff.
The complaint alleged that on or about
December, 1969 Juanito Victoria with the
cooperation of defendant Juanita Naval, and
others succeeded in causing plaintiff Lauro
Immaculata, petitioner herein, to execute a Deed
of Absolute Sale in favor of Juanito Victoria, by
unduly taking advantage of the mental illness
and/or weakness of petitioner and thru deceit
and fraudulent means, purportedly disposed of
by way of absolute sale, a 5,000-square meter
parcel of land covered by a TCT, for the sum of P
58k, which petitioner supposedly received, but
in truth and in fact did not; that although it was
made to appear that petitioner voluntarily and
freely appeared before the Notary Public on
January 13, 1970, petitioner, then already
suffering from chronic mental illness, could not
possibly appear before the said Notary Public;
and that said Deed of Sale was not freely and
voluntarily executed by petitioner, and the same
was absolutely fictitious and simulated, and,
consequently, null and void;
that based on said fictitious and simulated sale,
an action for specific performance was filed by
Juanito Victoria, during his lifetime, against
petitioner herein before the respondent Court to
compel petitioner to execute a document
registerable with the Register of Deeds of Rizal
in order that Juanito Victoria may be able to
ARELLANO UNIVERSITY SCHOOL OF LAW
obtain title over the property; that no proper and
valid service of summons was ever made upon
the petitioner, and thus, notwithstanding, the
latter was declared in default and judgment by
default was rendered against him; that said
judgment by default was null and void, having
been rendered against a person who is/was
admittedly insane and over whose person, the
respondent court did not validly acquire
jurisdiction; that the judgment by default was
not properly served upon the petitioner and/or
the supposed guardian ad litem, and this,
notwithstanding, Juanito Victoria, thru counsel,
succeeded in securing the issuance of a writ of
execution to enforce the judgment by default
rendered by the respondent Court against the
petitioner; that Juanito Victoria, alleging that the
herein petitioner failed to comply with the
alleged writ of execution, prayed before the
respondent Court that the respondent Sheriff be
directed to execute the necessary deed of
conveyance in favor of Juanito Victoria and thus
consequently, without the knowledge and
consent of petitioner, a new TCT was issued in
favor of Victoria; that, in the alternative,
petitioner prays that he be allowed to
repurchase the property within five (5) years
from the time judgment is rendered by the
respondent court upholding the validity of the
proceedings and the sale since the land in
question was originally covered by a Free Patent
title; and finally, petitioner prays for actual and
moral damages as well as exemplary damages,
attorney's fees, expenses of litigation and costs of
suit.
Private respondents moved for the complaint’s
dismissal. Respondent Court dismissed the
complaint on the ground of res judicata.
Petitioner filed an MR on the ground that res
judicata is not applicable when the main cause of
action is to annul the very judgment. However,
the respondent court denied the MR.
ISSUE:
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The case is remanded to the court a quo for it to

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

Be it noted that in an action (Civil Case No.

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

We hereby grant said alternative cause of action

or prayer. While the sale was originally executed
sometime in December, 1969, it was only on
February 3, 1974 when, as prayed for 1 by
private respondent, and as ordered by the court
a quo, a "deed of conveyance" was formally
executed. Since offer to redeem was made on
March 24, 1975, this was clearly within the five-
year period of legal redemption allowed by the
Public Land Act

The allegation that the offer to redeem was not

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

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Case No. 83
DEL CARMEN vs. SPOUSES SABORDO
G.R. No. 181723
TOPIC: Tender of payment and Consignation
FACTS:
Sometime in 1961, the spouses Suico along with
several partners established a rice and corn mill
at Mandaue City, Cebu. As part of their capital,
they obtained a loan from the Development Bank
of the Philippines (DBP), and to secure the loan,
four parcels of land owned by the Suico spouses,
denominated as Lots 506, 512, 513 and 514
were mortgaged. Subsequently, the Suico
spouses and their partners defaulted forcing DBP
to foreclose the mortgage. After failing to
redeem, DBP consolidated its ownership over
the same.
(NOTE: Del Carmen is among the legal heirs of
the spouses Suico who continued this case as a
substitute when one of the spouses died
during the pendency of this case.)
This case principally involves the two lots of
spouses Suico designated as 512 and 513 which
were redeemed by the spouses Sabordo from
DBP through aconditional sale. The Sabordos
acquired the rights over the lots when herein
petioners sold it to them for the purpose of
redeeming the lots from DBP, which the
Sabordos successfully accomplished. During the
pendency of a litigation involving the said lots
(whether the spouses Suico and heirs could
repurchase the property from the Sabordos), the
Sabordos mortgaged the lots to Republic
Planters Bank (RPB), and the loan became
delinquent. This was later discovered by herein
petioners .
Thereafter, claiming that they are ready with the
payment of P127,500.00, but alleging that they
cannot determine as to whom such payment
shall be made, petitioners (Del Carmen) filed a
ARELLANO UNIVERSITY SCHOOL OF LAW
Complaint with the RTC seeking to compel
herein respondents and RPB to interplead and
litigate between themselves their respective
interests on the abovementioned sum of money.
Upon filing of their complaint, the heirs of
Toribio Del Carmen deposited the amount of
P127,500.00 with the RTC of San Carlos City.
RTC dismissed the Complaint of petitioner and
her co-heirs for lack of merit.
Petitioners filed an appeal with the CA
contending that the judicial deposit or
consignation of the amount of P127,500.00 was
valid and binding and produced the effect of
payment of the purchase price of the subject lots.
CA denied the above appeal for lack of merit and
affirmed RTC's decision. MR was likewise denied.
ISSUE: Whether or not the consignation was
valid.
RULING: NO. The petition lacks merit. At the
outset, the Court quotes with approval the
discussion of the CA regarding the definition and
nature of consignation, to wit: … 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. It should be distinguished
from tender of payment which is the
manifestation by the debtor to the creditor of his
desire to comply with his obligation, with the
offer of immediate performance.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.
Tender and consignation, where validly made,
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produces the effect of payment and extinguishes
the obligation.
In the case of Arzaga v. Rumbaoa, which was
cited by petitioner in support of his contention,
this Court ruled that the deposit made with the
court by the plaintiff-appellee in the said case is
considered a valid payment of the amount
adjudged, even without a prior tender of
payment thereof to the defendants-
appellants,because the plaintiff-appellee, upon
making such deposit, expressly petitioned the
court that the defendants-appellees be notified
to receive the tender of payment.This Court held
that while "[t]he deposit, by itself alone, may not
have been sufficient, but with the express terms
of the petition, there was full and complete offer
of payment made directly to defendants-
appellants."
judgment creditor who refuses to accept it. The
same principle was reiterated in the later case of
Pabugais v. Sahijwani.As stated above, tender of
payment involves a positive and unconditional
act by the obligor of offering legal tender
currency as payment to the obligee for the
former’s obligation and demanding that the
latter accept the same. In the instant case, the
Court finds no cogent reason to depart from the
findings of the CA and the RTC that petitioner
and her co-heirs failed to make a prior valid
tender of payment to respondents.
It is settled that compliance with the requisites
of a valid consignation is mandatory. Failure to
comply strictly with any of the requisites will
render the consignation void. One of these
requisites is a valid prior tender of payment.

In the instant case, however, petitioner and her

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

In the cases of Del Rosario v. Sandico and

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

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
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CASE NO. 84
PEOPLE VS. NATIVIDAD FRANKLIN, accused,
ASIAN SURETY AND INSURANCE COMPANY
[39 SCRA 363]
FACTS:
Appeal taken by the Asian Surety & Insurance
Company, Inc. from the decision of the Court of
First Instance of Pampanga dated April 17, 1963,
forfeiting the bail bond posted by it for the
provisional release of Natividad Franklin, the
accused in Criminal Case No. 4300 of said court,
as well as from the latter's orders denying the
surety company's motion for a reductions of bail,
and its motion for reconsideration thereof.
It appears that an information filed with the
Justice of the Peace Court of Angeles, Pampanga,
docketed as Criminal Case No. 5536, Natividad
Franklin was charged with estafa. Upon a bail
bond posted by the Asian Surety & Insurance
Company, Inc. in the amount of P2,000.00, she
was released from custody.
After the preliminary investigation of the case,
the arraignment was set on July 14, 1962, on
which date she failed to appear, but the court
postponed the arraignment to July 28 of the
same year upon motion of counsel for the surety
company. The accused failed to appear again, for
which reason the court ordered her arrest and
required the surety company to show cause why
the bail bond posted by it should not be forfeited.
The court granted the surety company a period
of thirty days within which to produce and
surrender the accused, with the warning that
upon its failure to do so the bail bond posted by
it would be forfeited. On October 25, 1962 the
surety company filed a motion praying for an
extension of thirty days within which to produce
the body of the accused and to show cause why
its bail bond should not be forfeited. As not
withstanding the extension granted the surety
ARELLANO UNIVERSITY SCHOOL OF LAW
company failed to produce the accused again, the
court had no other alternative but to render the
judgment of forfeiture.
Subsequently, the surety company filed a motion
for a reduction of bail alleging that the reason for
its inability to produce and surrender the
accused to the court was the fact that the
Philippine Government had allowed her to leave
the country and proceed to the United States on
February 27, 1962. The reason thus given not
being to the satisfaction of the court, the motion
for reduction of bail was denied. The surety
company's motion for reconsideration was also
denied by the lower court on May 27, 1963,
although it stated in its order that it would
consider the matter of reducing the bail bond
"upon production of the accused." The surety
company never complied with this condition.
Appellant now contends that the lower court
should have released it from all liability under
the bail bond posted by it because its failure to
produce and surrender the accused was due to
the negligence of the Philippine Government
itself in issuing a passport to said accused,
thereby enabling her to leave the country. In
support of this contention the provisions of
Article 1266 of the New Civil Code are invoked.
ISSUE:
WON Surety should be held liable?
HELD:
Article 1266, NCC does not apply to a surety upon
a bail bond.
The abovementioned legal provision does not
apply to its case, because the same speaks of the
relation between a debtor and a creditor, which
does not exist in the case of a surety upon a bail
bond, on the one hand, and the State, on the
other.
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For while sureties upon a bail bond (or

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

It is clear, therefore, that in the eyes of the law a

surety becomes the legal custodian and jailer of
the accused, thereby assuming the obligation to
keep the latter at all times under his surveillance,
and to produce and surrender him to the court
upon the latter's demand.

That the accused in this case was able to secure a

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

UPON ALL THE FOREGOING, the decision

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

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
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Case No. 85
FRANCISCO C. MANABAT vs. LAGUNA
FEDERATION OF FACOMAS, INC., ET AL.,
58 SCRA 650
FACTS:
In a suit filed by Laguna Federation of Facomas,
Inc. against Nieves M. Vda. De Roxas, a judgment
for the plaintiff was rendered. And pursuant to it,
a writ of execution was issued on February, 8,
1960, by virtue of which Francisco Manabat, the
provincial sheriff, sold at public auction on
November 24, 1960 all rights, titles and interests
of Nieves M. Vda. de Roxas in ten (10) parcels of
land for a total price of P37,000.
Discovering, however, that the parcels of land
sold were subject to registered liens such as
writs of execution and attachment annotated at
the back of the respective title certificates, the
sheriff instituted an action for interpleader on
February 21, 1961 in the same Court of First
Instance of Laguna, 2 for the different creditors
or lien holders to litigate among themselves and
determine their rights to the P37,000 proceeds
of the sale.
After stipulation of facts and submission of
documentary evidence by the parties, the Court
of First Instance ruled, in its decision of
December 6, 1961, that the aforementioned
defendants-claimants are entitled to the
proceeds of the sale in the order of preference in
accordance with the dates of the registration of
their credits.
From said judgment only Florentino Cayco and
Jose Fernandez Zorilia appealed. 4And finding
that it involves a question purely of law, the
Court of Appeals, by resolution of November 12,
1964, has certified their appeal to Us.
ISSUE: Whether the rule to follow in the
satisfaction of the credits involved is that of
ARELLANO UNIVERSITY SCHOOL OF LAW
preference in the order of dates of registration,
as held by the court a quo, or distribution pro
rata, as appellants maintain.
HELD:
The judgment appealed from ruling preference is
hereby affirmed.
Appellants' reasoning is that this is an instance of
several credits referring to the same specific real
property; and that the rule in such case is to
satisfy all the aforesaid credits pro rata, following
Article 2249 of the Civil Code:
ART. 2249. If there are two or more credits with
respect to the same specific real property or real
rights, they shall be satisfied pro rata, after the
payment of the taxes and assessments upon the
immovable property or real right.1äwphï1.ñët
The above provision of the new Civil Code
altered the set-up under the old one in that while
previously the rule provided for was priority of
payment in regard to credits referring to the
same specific real property, now the general rule
is pro rata.
Nonetheless, even under the new system, not all
credits referring to the same specific real
property come under the pro rata rule. Article
2249 itself, supra, expressly provides that taxes
and assessments upon the real property are to be
paid first.
Similarly, the rule of pro rata does not apply to
the credits mentioned in subpar. (7) of Article
2242 of the Civil Code:
ART. 2242. With reference to specific immovable
property and real rights of the debtor, the
following claims, mortgages and liens shall be
preferred, and shall constitute an encumbrance
on the immovable or real right:
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(7) Credits annotated in the Registry of Property,

in virtue of a judicial order, by attachments or
executions, upon the property affected, and only
as to later credits.

It being expressly provided that said credits are

preferred "only as to later credits", it follows that
the same limitation applies as to their preference
among themselves; i.e., for purposes of satisfying
several credits annotated by attachments or
executions, the rule is still preference according
to priority of the credits in the order of time. For,
otherwise, the result would be absurd: the
preference of an attachment or execution lien
over later credits, as above provided for, could
easily be defeated by simply obtaining writs of
attachment or execution, and annotating them,
no matter how much later.

It not being disputed that appellants' credit is

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

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 CIVIL LAW REVIEW II BATCH 2017 CASE DIGEST
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Case No. 86
OCCENA VS. JABSON, COURT OF APPEALS AND
TROPICAL HOMES, INC
73 SCRA 637
NO. L-44349, October 29, 1976
FACTS: Private respondent Tropical Homes, Inc
had a subdivision contract with petitioners who
are the owners of the land subject of subdivision
development by private respondent. The
contract stipulated that the petitioners’ fixed and
sole share and participation is the land which is
equivalent to forty percent of all cash receipts
from the sale of the subdivision lots. When the
development costs increased to such level not
anticipated during the signing of the contract
and which threatened the financial viability of
the project as assessed by the private
respondent, respondent filed at the lower court a
complaint for the modification of the terms and
conditions of the contract by fixing the proper
shares that should pertain to the parties therein
out of the gross proceeds from the sales of the
subdivision lots. Petitioners moved for the
dismissal of the complaint for lack of cause of
action. The lower court denied the motion for
dismissal which was upheld by the CA based on
the civil code provision that “when the service
has become so difficult as to be manifestly
beyond the contemplation of the parties, the
obligor may also be released therefrom, in whole
or in part”. Insisting that the worldwide increase
in prices cited by private respondent does not
constitute a sufficient cause of action for the
modification of the terms and conditions of the
contract, petitioners filed the instant petition.
ISSUE: Whether or not private respondent may
demand modification of the terms of the contract
on the ground that the prestation has manifestly
come beyond the contemplation of the parties.
ARELLANO UNIVERSITY SCHOOL OF LAW
RULING: If respondent's complaint were to be
released from having to comply with the
subdivision contract, assuming it could show at
the trial that the service undertaken
contractually by it had "become so difficult as to
be manifestly beyond the contemplation of the
parties", then respondent court's upholding of
respondent's complaint and dismissal of the
petition would be justifiable under the cited
codal article (ART. 1267. When the service has
become so difficult as to be manifestly beyond
the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part).
Without said article, respondent would remain
bound by its contract under the theretofore
prevailing doctrine that performance therewith
is not excused "by the fact that the contract turns
out to be hard and improvident, unprofitable, or
unexpectedly burdensome", 3 since in case a
party desires to be excuse from performance in
the event of such contingencies arising, it is his
duty to provide therefor in the contract.
But respondent's complaint seeks not release
from the subdivision contract but that the court
"render judgment I modifying the terms and
Conditions of the Contract by fixing the proper
shares that should pertain to the herein parties
out of the gross proceed., from the sales of
subdivided lots of subject subdivision". The cited
article does not grant the courts this authority to
remake, modify or revise the contract or to fix
the division of shares between the parties as
contractually stipulated with the force of law
between the parties, so as to substitute its own
terms for those covenanted by the
partiesthemselves. Respondent's complaint for
modification of contract manifestly has no basis
in law and therefore states no cause of action.
Under the particular allegations of respondent's
complaint and the circumstances therein
averred, the courts cannot even in equity grant
the relief sought.
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ACCORDINGLY, the resolution of respondent

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

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