Domel vs CA

Facts: Domel enters into a contract with NNMRC to deliver rattan and buri. Contract stipulates that if Domel fails to deliver,
2000 pesos per day of delay shall be the penalty. Domel defaults. Courts fault Domel. Domel argues that it defaulted
because NNMRC failed to perform the promised inspection of the goods to be delivered, a measure intended to protect
Domel from the costs associated with shipping forth and back merchandise not acceptable to NNMRC. Court gives the
argument no credence. Lower court awards 900K in damages. CA lowers amount, since the damages awarded were
merely projected profits which had no basis other than pure conjecture. CA further reduces stipulated penalty to 1000 per
day of delay instead of 2000, exercising the discretion granted to it by Article 1229. Was it right?
Held: Yes, CA was right in lowering the damages. Actual and compensatory damages must be substantiated. In the case
at bar, NNMRC failed to do so, merely providing projected figures. The only amounts it managed to substantiate were those
involved in the purchase of the Letters of Credit.
CA was also correct in reducing the penalty as the penalty of 2000 per day of delay is in fact iniquitous and excessive.
Pryce Corp v Pagcor
Facts: Pagcor leases some hotel space from PPC in Cagayan for the purpose of establishing a Casino. The venture is
fraught with problems from the start as near incessant protests and rallies by locals plagues the Casino. Pagcor is
subsequently advised to stop operations by no less than the president of the RP. Pagcor stops paying the rent after
stopping operations despite the fact that the lease contract had no yet expired. PPC sends several letters demanding the
unpaid balance to no avail. Finally, PPC decides to exercise its contractual right to terminate the lease contract and to
claim the forfeiture of the future rentals deposited with it by Pagcor. This right to forfeiture was stipulated in the contract
as a penalty. May it be exercised?
Held: Although the contract falls under one of those exceptions where both the actual damages and the penalty may be
claimed by virtue of the provision which states that aside from the payment of the rentals corresponding to the remaining
term of the lease, the lessee shall also be liable 'for any and all damages, actual or consequential, resulting from such
default and termination of this contract. the right to claim the forfeiture of the future rentals may not be exercised by PPC,
as such penalty would be unconscionable and iniquitous. The question of whether a penalty is reasonable or iniquitous is
addressed to the sound discretion of the courts. To be considered in fixing the amount of penalty are factors such as -- but
not limited to -- the type, extent and purpose of the penalty; the nature of the obligation; the mode of the breach and its
consequences; the supervening realities; the standing and relationship of the parties; and the like. In this case, PAGCOR's
breach was occasioned by events that, although not fortuitous in law, were in fact real and pressing.
From the CA's factual findings, which are not contested by either party, we find that PAGCOR conducted a series of
negotiations and consultations before entering into the Contract. It did so not only with the PPC, but also with local
government officials, who assured it that the problems were surmountable. Likewise, PAGCOR took pains to contest the
ordinances[34] before the courts, which consequently declared them unconstitutional. On top of these developments, the
gaming corporation was advised by the Office of the President to stop the games in Cagayan de Oro City, prompting the
former to cease operations prior to September 1993.Also worth mentioning is the CA's finding that PAGCOR's casino
operations had to be suspended for days on end since their start in December 1992; and indefinitely from July 15, 1993,
upon the advice of the Office of President, until the formal cessation of operations in September 1993. Needless to say,
these interruptions and stoppages meant that PAGCOR suffered a tremendous loss of expected revenues, not to mention
the fact that it had fully operated under the Contract only for a limited time.
While petitioner's right to a stipulated penalty is affirmed, we consider the claim for future rentals to the tune
ofP7,037,835.40 to be highly iniquitous. The amount should be equitably reduced. Article 1229
Suatengco v. Reyes.
Facts: Congressman Carmencita Reyes lends the Suatengco couple roughly 1.3 million. In the loan contract, it is stipulated
that in the event of default, Suatengco must pay the balance plus 12% interest per annum plus 5% atty fee's for the total
award. Atty. Ed Reyes (Son), appears as the atty in fact of Rep. Reyes, and files a case for collecting the sum of money plus
the 12% interest, plus 20% atty's fees. The RTC and C A award the same. Suatengco counters by stating that the
stipulated Atty. Fee is only 5%. Are they right?
Held: Suatengco is right. The stipulated atty's fee, which is in the nature of a penalty made in favor of the the litigant and
not the litigant's counsel, must supercede any oral claims for a different amount made by Atty. Reyes. Written
documentary evidence have greater probative value than oral claims. (Article 1226 atty's fees in contracts is a penalty,
not an actual sum of money awarded to counsel)
Florentino v. Supervalue
Facts: Petitioner rents a stall inside SM mall from Supervalue Inc. Petitioner commits several breaches of the contract it
entered into with SM, among them violating the requirement to be open on certain days of the year and also for introducing
a new product (mini-embutido) without the consent of Supervalue. Supervalue decides not to renew the lease contract

after its expiration. Supervalue also retains the deposit of Florentino in the amount of 192,000. Florentino files a case to
recover the deposit, as well as the value of the improvements made upon the property. RTC awards, CA reverses. In the
lease contract, 3 months deposit of rentals was provided as a penalty to ensure full compliance with each and every term,
provision and covenant, which would be subject to forfeiture in case of breach and which was not advance rental. Was the
award of the CA proper?
Held: Although the penal clause is valid and unequivocal, still the amount is unconscionable.
discretion under article 1229 and reduces the penalty to 50% of the value of 192,000.

The SC exercises its

Stronghold Insurance v Republic Asahi

Facts: Republic Asahi Glass contracts with JDS for the contruction of roadways and drainage systems in RAG's compound.
JDS does so and files the required compliance bond with Stronghold Insurance acting as surety. The contract is 5.3M the
bond is 795k. JDS falls woefully behind schedule, prompting RAG to rescind the contract and demand the compliance bond.
The owner of JDS dies and JDS disappears. SHI refuses to pay the bond claiming that the death of JDS owner extinguishes
the obligation. Is SHI right?
Held:As a general rule, the death of either the creditor or the debtor does not extinguish the obligation.[8] Obligations are
transmissible to the heirs, except when the transmission is prevented by the law, the stipulations of the parties, or the
nature of the obligation.[9] Only obligations that are personal[10] or are identified with the persons themselves are
extinguished by death.[11]
Furthermore, The liability of petitioner is contractual in nature, because it executed a performance bond, As a surety,
petitioner is solidarily liable with Santos in accordance with the Civil Code
Culaba vs CA

Facts: Culaba sells SMB. One day, an agent from SMB driving an SMB van drops by to collect Culaba's balance, issuing
SMB receipts for the payment. Susbequently, Culaba receives demand letters from SMB for not paying his balance. The
agent turns out to be a spurious agent, and the receipts lost receipts which had been published in the papers as lost after
the payment. Culaba invokes articles 1240 and 1242 in his defense. SMB's counsel invokes 1233, that the burden of proof
of payment is on the debtor and that Culaba failed to exercise due diligence when he failed to question the irregular nature
of the invoices as well as the authority of the purported agent. Was Culaba excused by his mistaken payment?

Held: Culaba failed to observe the due diligence required in parting with such a valuable consideration. He should have
verified the identity of the agent and his authority to receive. He did not, thus he was guilty of negligence, the effects of
which not even his claims of good faith can shield him from. Culaba is liable to pay SMB.

Allied Banking v Lim Sio Wan

Facts: Lim Sio Wan has a time deposit with Allied Bank. One day, someeone claiming to be her calls up Allied Bank
requesting the bank to preterminate her deposit and to turn over the proceeds too a certain Deborah Lee Santos. Allied
Bank issues a crossed checked payable to Lim Sio Wan. Subsequently, the check is deposited by Deborah Lee in Filipinas
Cement Corporation purportedly as the proceeds from the termination of FCC's TD with Producers Bank, of which Deborah
Lee is an employee of. Lim Sio Wan subsequently discovers the fraud and files a case against Allied Bank. Allied Bank files
a cross claim against metrobank and also alleges the defense that it was in fact Lim Sio Wan who authorized the payment.

Held: The factual findings of the RTC and CA which concur will be not be disturbed. Allied Bank had not discharged its
obligation to deliver the money to Lim Sio Wan as it had delivered the money to an unauthorized 3 rd person. Even good
faith will not excuse the debtor who makes a mistaken payment to a 3 rd person unless such payment falls within the

purview of article 1241 (2) of the new civil code. Such not being the case, the obligation subsists. Furthermore, Metrobank
is also partly liable for making the negligent endorsement of the check without verifying the indorsement found on the back
of the check. Both banks are liable in the ratio of 60/40, but shall be rei mbursed by Producers Bank who was unjustly
enriched by the convoluted chain of events.

Royal Cargo Corp. vs DFS Sports Unlimited

Facts: DFS sports unlimited engages the services of Royal Cargo Corp to undertake its trucking and to act as its
importation broker. Royal Cargo files a case for collection against DFS, claiming that the latter owes RCC roughly 248K
worth of various expences associated with its services, including 10%vat insurance premiums, brokerage fees. DFS
counterfiles, claiming that it only transacted with RCC once and that RCC owes it 40k worth of taxes that it had not paid to
customs. This alleged failure as well as the falsification of import documents resulted in the seizure of DFS goods resulting
in damages worth 200k. The RTC dismisses the case. On appeal with the CA, RCC adduces evidence in the form of invoices
showing DFS debt. DFS counters by showing 28 original invoices in its possession which it claims serves as evidence that it
has already paid its obligations. Is this claim valid?
Held: The burden of proof of proving payment lies with debtor. Invoices are merely documents that evidence the existence
of an obligation as well as showing the details of the transaction by reason of which the obligation was formed. Black's Law
Dictionary defines an invoice as an itemized list of goods or services furnished by a seller to a buyer, usually specifying the
price and terms of a sale; a bill of costs.

From the foregoing definitions, an invoice, in and by itself, and as opposed to a receipt, may not be considered evidence of
payment.In addition, it does not mean that possession by a debtor of an invoice raises the presumption that it has already
paid its obligation. An invoice is simply a list sent to a purchaser, factor, consignee, etc., containing the items, together
with the prices and charges, of merchandise sent or to be sent to him. The words paid and audited found on the invoice
were stamped by employees of DFS and not those of RCC, as attested to by Adorica Co. Receipt is an evidence of payment.
Mere possession of Original Invoice does not raise the presumption of payment.

Estanislao vs EWB

Facts: Estanislao takes out 1 loans from EWB, secured by two different chattel mortgages. The first chattel mortgage is for
the amount of 2.375m covering 2 dumptrucks and one bulldozer, second chattel mortgage for the amount of 1.55m
covering 1 bulldozer and a wheel loader. Estanislao defaults and a case is subsequently filed by EWB to foreclose on the
mortgages. This case is later withdrawn by EWB on account of a compromise whereby Estanislao surrenders the vehicles
in the first chattel mortgage to satisfy the entire loan obligation which now stands at 7 million. The agreement is signed by
Estanislao, but not by the representative from EWB. The chattel mortgages are delivered too EWB without any protest from
the latter. A few months after the delivery, EWB files a writ of replevin for the objects of the 2 nd chattel mortgage claiming
that the compromise agreement had been an honest mistake on its part. Is this contention valid?

Held: The agreement clearly stated that the delivery of the mortgaged vehicles would extinguish the full obligation. This is
tantamount to Dacion in Pago, which results to the total extinguishment of the debt. EWB's claims that it had made an
honest mistake cannot excuse it, as its actions were inconsistent with the claim of having made a mistake (it failed to
protest the delivery).
It only filed the amended complaint after several months had elapsed since the delivery.
Furthermore, the fact that its representative did not sign the agreement will not discount the fact that the agreement had
already been ratified by EWB's own actions. EWB, being a bank, should have been more circumspect iin drafting the
contract.

Ong vs Roban Lending.

Facts: William Ong borrows 4 million from Roban Lending, mortgaging a piece of land as security. Ong defaults and agrees
with Roban to restructure the debt by consolidating it and by entering into a Dacion in Pago Agreement whereby WO

promises to deliver to RL the mortgaged land if it fails to pay the newly consolidated promissory note amounting to 5.9m.
Sometime in 2002, petitioners file a case seeking to 1.) Annul the Dacion in Pago for being Pactum Commisorium 2.)
Reduce the penalties and the interest as they are unconscionable (5% penalty on unpaid balance/month 3.5% monthly
int/25% atty fee of total balance). Robal Lending alleges not pactum commmisorium, but merely DIP as contemplated
under artcile 1245. RTC agrees, and so does CA...were they right?

Held: No. This Court finds that the Memorandum of Agreement and Dacion in Payment constitute pactum commissorium,
which is prohibited under Article 2088 of the Civil Code which provides:
The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void."
The elements of pactum commissorium, which enables the mortgagee to acquire ownership of the mortgaged property
without the need of any foreclosure proceedings,[30] are: (1) there should be a property mortgaged by way of security for
the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of
the thing mortgaged in case of non-payment of the principal obligation within the stipulated period. In the case at bar, the
Memorandum of Agreement and the Dacion in Payment contain no provisions for foreclosure proceedings nor redemption.
Under the Memorandum of Agreement, the failure by the petitioners to pay their debt within the one-year period gives
respondent the right to enforce the Dacion in Payment transferring to it ownership of the properties covered by TCT No.
297840. Respondent, in effect, automatically acquires ownership of the properties upon petitioners' failure to pay their debt
within the stipulated period.
In a true dacion en pago, the assignment of the property extinguishes the monetary debt.[33] In the case at bar, the
alienation of the properties was by way of security, and not by way of satisfying the debt.[34] The Dacion in Payment did
not extinguish petitioners' obligation to respondent. On the contrary, under the Memorandum of Agreement executed on
the same day as the Dacion in Payment, petitioners had to execute a promissory note for P5,916,117.50 which they were to
pay within one year.
Respecting the charges on the loans, courts may reduce interest rates, penalty charges, and attorney's fees if they are
iniquitous or unconscionable. (1229)
Equitable Bank v Ng Sheung Ngor
Facts: Ng Sheung Ngor and Ken Appliance Division file an action to annul/reform contracts entered into with Equitable
Bank, claiming that EPCI induced them to avail of their low interest dollar loans which also contained escalation clauses
which they were not made aware of (cr. May increase interest rate). RTC upholds the validity of the documents, but also
awards damages to Respondent by reason of the purported damage which their business reputation incurred as a result of
EPCI's freezing of their bank account. In the same judgment, the RTC orders respondents to pay the principal plus interest,
and to pay the dollar loan at the old exchange rate of 26.5, the rate which existed at the time of the constitution of the
obligation since the RTC deemed it proper to apply article 1250... Was it in fact proper?
Held: No. In order to apply article 1250, the following requisites are required:
1. that there was an official declaration of extraordinary inflation or deflation from the Bangko Sentral ng Pilipinas (BSP);
2. that the obligation was contractual in nature;[75]and
3. that the parties expressly agreed to consider the effects of the extraordinary inflation or
deflation.

Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation.Moreover, although the
obligation in this instance arose out of a contract, the parties did not agree to recognize the effects of extraordinary
inflation (or deflation).[77] The RTC never mentioned that there was a such stipulation either in the promissory note or loan
agreement. Therefore, respondents should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the
date of maturity. Furthermore, whatever damages were awarded were baseless, as EPCI was not in bad faith when it froze
the accounts but rather merely exercising its right to offset. Whatever damages the debtor might have suffered was but a
result of its own failure to comply with the obligation

Premiere Development Bank v. Central Surety

Facts: Central Surety and the owners of the same borrow 6M from PDB, secured by a deed of assignment and pledge on
some Central Surety membership share in Wack Wack Golf Club. Central Surety also had other loans outstanding, including
40m to central surety maturing in 2001. Central Surety defaults, prompting bank to write a collection letter. Central surety
tenders 6m in check, which is at first declined but subsequently accepted upon the second tender. The 6m was supposed
to satisfy the 6m loan, but PDB applied it to other loans. Was this application valid?
Held: Notwithstanding the fact that 1252 of the Civil Code provides that the debtor shall have the right to chose how the
debt is applied, in the case at bar, it was expressly stipulated in the promissory note that PDB reserved the right to apply
the payments made by the debtor in any manner it saw fit. Such was the contract between the parties and thus this must
be respected.
Pabugais v Sahijwani
Facts: Pabugais sells a 15m property to Sahijwani. 600K is to be paid as dp, while the balance will be delivered after the
documents are handed over to the buyer. Also, an agreement was included whereby if the seller fails to deliver the
documents, the buyer will have the right to reclaim the dp plus 18% interest per annum. Pabugais fails to deliver the
documents. Sahijwani demands the return of his dp plus the interest. Pabugais pays with a check but the check is
subsequently dishonored. Pabugais issues a second check and mails it to Sj's counsel who alleges that she did not receive
the thing. Pabugais consigns the check with the RTC. Consignation deemed invalid. Subsequently, Pabugais new counsel
(who assumed the role by virtue of the death of the old one)tries to withdraw the consigned money but is prevented from
doing so by the CA. New counsel invokes article 1260, claiming that they still have the right to withdraw the consigned
money as the same had not yet been accepted by the creditor or deemed as valid by the judge. Is this contention correct?
Was there not in fact a valid consignation? Was there a valid tender?
Held: There was a valid tender of payment. Although the general rule is that paying a manager's check is not tender of
payment (coz manager' checks are not legal tender), payment in check by the debtor may be valid if no prompt objection
to the same is made. In the case at bar, none was made. What was merely made was a denial of the actual receipt of the
check, a claim which was contradicted by petitioners own claims.
There was also a valid consignation as the requisites for a valid consignation were present in the case. There was a debt
owing, the debtor refused to accept the payment unjustly, previous notice had been given, the amount was consigned with
the judicial authorities and there was notice given after the consignation....also, the prayer of SJ in his reply to be awarded
the sum of money consigned signified an acceptance of the consignation on the part of the creditor, thus Dr. may no longer
withdraw.
Llobera v Fernandez
Facts: Spouses Llobera refuse to vacate a 1800 sq. mtr piece of land after the same had been sold to Fernandez. Alleging
that they had been staying on the land since 1945 as lessees to the tune of Php 20/month paid to a certain Mr. De venecia,
the spouses refused to leave and instead, consigned the monthly rentals to a bank account made out in the name of Mr. De
Venecia. Was this consignation valid?
Held: The judgment favoring the ejectment of petitioners being consistent with law and jurisprudence can only be
affirmed. The alleged consignation of the P20.00 monthly rental to a bank account in respondents name cannot save the
day for the petitioners simply because of the absence of any contractual basis for their claim to rightful possession of the
subject property. Consignation based on Article 1256 of the Civil Code indispensably requires a creditor-debtor relationship
between the parties, in the absence of which, the legal effects thereof cannot be availed of. (They did not have a least
contract)
Article 1256 pertinently provides: 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.
Unless there is an unjust refusal by a creditor to accept payment from a debtor, Article 1256 cannot apply. In the
present case, the possession of the property by the petitioners being by mere tolerance as they failed to establish through
competent evidence the existence of any contractual relations between them and the respondent, the latter has no
obligation to receive any payment from them. Since respondent is not a creditor to petitioners as far as the alleged P20.00
monthly rental payment is concerned, respondent cannot be compelled to receive such payment even through
consignation under Article 1256. The bank deposit made by the petitioners intended as consignation has no legal effect
insofar as the respondent is concerned.

BPI vs CA
Facts: BPI makes out 8 loans to Noah's Ark Merchandising, all secured by a mortgaged property. Incidentally, BPI is also
leasing its office from the borrower. The borrower defaults, prompting BPI to foreclose on the mortgaged property and also

to withhold the rental payments it had been making on a monthly basis to petitioner. Petitioner prays for a TRO, gets one
by virtue of the twin defences of 1.)lack of demand thus no default and that only 4/8 debts had matured 2.) Novation by
virtue of the withholding of the payments. Were the lower courts right?
Held: They were wrong. The loan needed no demand as it was already expressly provided for in the agreement that
respondent waived the need for demand, also an acceleration clause provided for the immediate maturation of all debts if
the borrower defaulted on any.
There was also no novation as what BPI did in holding on to the monthly rent was not novation. It was merely applying the
rules on legal compensation, which occurs by operation of law and which was applicable in the case at bar since all the
requisites set forth for legal compensation under article 1278 and 1279 of the code were present.
Banco Filipino v Diaz
Facts: Diaz spouses borrow money from BF sometime in 1979. In 1982, the loan which had then grown to 3M was
consolidated under 1 loan secured by mortgages. Diaz spouses default sometime in 1986, prompting petitioner bank to
foreclose. While the case was on going, BF goes under and is placed under the management of BSP liquidators. Diaz
spouses attempt to pay off the loan by consigning 1M to the courts. The consignation is not accepted by BF's liquidator on
the ground that the amount did not include the interests and surcharges due. CA also says that the consignation is invalid.
Upon finality of the CA decision, the Diaz spouses file a case with the concerned RTC to withdraw the consigned money. In
the case, the Diaz spouses allege that the Gaisano Bros had already settled the entire obligation on their behalf. (Paying
25.1M) Petitioner Bank opposes the spouses motion to withdraw, claiming that they had already accepted the consignation
as they only agreed to the settlement of the 28M account with a payment of 25.1m from the G brothers since they already
counted the prior payments as well as the consignation in computing the settlement account. Is this valid?
Held: The Diaz spouses are entitled to withdraw the consigned item. As petitioner had not in fact accepted the
consignation, despite its self serving statement of account purporting otherwise, we must apply article 1260 which states in
part that the debtor has the right to withdraw the consigned item prior to acceptance or a judicial declaration of validity.
The petitioner had not accepted, and the CA had already dealed the consignation invalid. Furthermore, the fact that the
obligation had already ballooned to 28.1M from a mere 400K amounts to an unconscionable penalty which this court
believes makes it necessary to exercise the discretion afforded to it by article 1229 of the civil code. The SC decides that
the 25.1m payment made by the atty's in fact is substantial compliance as to warrant the exitinguishment of the oblig.
Benos v Lawilao
Facts: The Benos's sell their house to the Lawilao's requiring 150k as payment and another 150k to be paid directly to the
bank whom the Benos's owe. The sale is written out as a pacto de retro giving the benos spouses the right to repurchase
the entire property within 18 months. The Lawilao's pay the 150k to the spouses but do not pay the 150k to the bank,
instead opting to restructure. A few months later, the son of Benos pays the entire 159k to the bank. The Lawilao's try to
do the same but the bank does not accept their payment. Thus, the respondents decide to consign the thing with court
and file an action for consignation against the bank w/out however informing the Benos spouses. The action is dismissed
by the RTC. The Lawilao's nevertheless manage to consolidate ownership over the purchased property. The case goes up
to the CA, which affirms the adverse decision of the RTC hence the present case.
Held: There was no valid consignation as the Lawilao's did not inform the Benos spouses (parties interested in the
fulfillment of the obligation) of the consignation. Article 1271 was not complied with. Furthermore, the lower court erred
in consolidating the ownership as by their reply, the Benos spouses had already exercised their right to rescind the
contract. Under 1291, the Benos spouses had the right to rescind the contract on account of the failure of the lawilao
spouses to comply with the contractual stipulations. Thus, the Benos spouses got their land back but were also ordered to
return the 150k (payment made to them) to the lawilao spouses.

United Planter vs CA
Facts: Upsumco borrows 2.1B as take-off loans from PNB, secured by mortgages on its assets. Subsequently, it defaults.
PNB assigns the credit to APT. APT forecloses on the mortgaged assets which are sold for .45B leaving a balance of 1.6B.
The balance is condoned on Aug 27 1987 by APT upon Upsumco's agreement to abandon its right to redeem the
mortgaged assets. Despite the condonation on Aug 27, PNB proceeds to offset the funds of Upsumco, amounting to
roughly 90m. Upsumco holds that this is invalid, as APT had already condoned the debt. PNB claims it was proper because

1.) It was exercising its right as a 3 rd party who was paying on behalf of the debtor (that is to be reimbursed in so far as the
payment has redounded to the benefit of the debtorr) 2.) The debt had not yet been condoned since it was only the take off
loans and not the operational loans (which were allegedly not assigned to APT) which had been condoned in the
agreement. Is PNB right?
Held: The supreme court held that PNB did not have a right to offset. It could not compensate since it was merely an
agent and not a principal creditor in the loan, which is required for compensation. (1278, 1279) Also, it could not claim the
compensation as reimbursement for the payments it made to APT, since it did not have the consent of Upsumco and since
the payments did not redound to the benefit of Umpsumco as the debt to which these were applied had already been
previously remitted by APT. As for the controversy regarding the take off loan and the operational loan, the fact that PNB
did not mention these and did not even show any proof to bolster its claims that the operational loans were still
outstanding and that it was only the takeoff loans that had been condoned convinces the SC that these had already been
also included in the condonation. Thus Upsumco must be refunded for the mistakenly offset money.
Solid Homes V Laserna
Facts: Solid Homes enters into a contract to sell with the buyers Laserna. The buyers, after having paid 90% of the balance
due, suddenly demand that Solid Homes execute the deed of sale and the title in their favor. Solid Homes refuses to as
their contract provided that these would only be done upn full payment. A case is filed by respondents for the deilvery of
the title with HLURB. Solid Homes extradjudicially rescinds the contract pursuant to its contract to sell. The decision of the
HLURB is that 1.) Laserna should pay the full balance 2.) After the full payment, SH should deliver the title to Laserna. In
the meantime, Laserna profers the payment to SH which SH unjustifiably refuses to accept. SH prays for the reversal of the
decision and for a granting of its right to rescind. Does it have the right to rescind? Is the contract still subsisting?
Held: It does not have the right to rescind unless it follows the provisions of the law for how to properly rescind contracts to
sell involving real property sold on installment. It did not do so thus the rescission was invalid for not being compliant with
the law. The obligation still subsists since despite Lasernas tender of payment and unjust refusal on the part of Sh, Laserna
failed to consign the payment in court which would have discharged it of the obligation of paying. Hence Laserna must
pay, and afterwards, SH must deliver.
Phil. Nat Construct v CA
Facts: Phil Nat Construct is awarded damages by the RTC against Mr. Calupitan and his surety, Stronghold Insurance Co,
being jointly and solidarily liable. Mr. Calupitan is required by the court to pay SIC for whatever SIC might be forced to pay
Phil. Nat Construct. (Surety is converted into a creditor of the principal debtor)
Held: The rest of the case is prodecural and has nothing to do with oblicon
Magat Jr. vs CA
Facts: In 1972, Pvt Respondent Guerrero won the bid to provide taxi services to Subic Airbase. Among the requirements of
the contract was that the taxi fleet be radio equipped. On September 25 of that same year, Marcos issues a ban on the
issuance of licenses for radios. On the same day, G enters into a contract with Victorino Magat (petitioner), to purchase
radios from a japanese firm. G attempts to get a letter of credit from the bank to pay for the goods, but fails too procure it.
His attempt to apply for a permit to import was also rejected by the Radio control board. Thus G cancels the contract and
forfeits his deposit. Victorino dies and his heirs, represented by a certain Aligada (an engineer who played a role in the
earlier part of this story as an import broker) sues for damages arising from the alleged breach of contract. RTC awards. CA
reverses and dismisses the complaint of V' heirs. Hence the present case. Issues raised were the validity of the contract
and whether or not there was a breach.
Held: The contract was valid as Radios were not made contraband by the presidential act but merely turned into regulated
goods. However, the facts being as they are, the SC held that article 1267 was applicable to the case at bar, thus
discharging the defendant of his obligation to do.
BPI vs CA
Facts: Dr. Edvin reyes opens 2 bank accounts with BPI. One and/or account with his wife, and another and/or account with
his Grandma. His Grandma is a Us pensioner who receives 10,000 php per month from the US embassy. On 12/28/89,
granny dies without the knowledge of the US treasury, who still sends the pension check to granny. Dr. Edvin receives the
check and deposits it on1/4/1990. Two months after, respondent closes granny' account and transfers the fund to his joint
account with his wife. About a year later, the US treasury department realizes its mistake and disallows the check,
requesting petitioner bank for a refund. Petitioner bank, allegedly with the verbal consent of Dr. Reyes, debits the account
of Dr. Reyes for the amount refunded. Dr. Reyes files a case with the RTC demanding the return of the same alleging that
he did not in fact consent. RTC dismisses the claim, but CA grants Dr. Reyes claim for the amount. Was this right?

Held: The bank was correct in offsetting the obligation of Dr. Reyes. Even the latter did not in fact consent, the bank still
had the legal right to compensation since all the requisites for a legal compensation were present, since the bank and dr.
reyes were mutually principal creditor and debtor of each other. The conditions in Artcile 1279 of the civil code were all
present, and article 1290 of the same code provides that when all the conditions in article 1279 are present, legal
compensation occurs by operation of law even absent the knowledge of the parties, extinguishing the concurrent amounts
of the obligation. As for the issue that the wife who was also an account holder in the case was not a principal creditor or
debtor, such was glossed over by the supreme court in the interest of promoting equity and preventing unjust enrichment.
Also, she did not object to the compensation.
PNB vs CA
Facts: Two remittances from abroad were made thru Petitioner Bank. The 1 st by NCB, in the amount of $2.6k was intended
for clients (pvt. Respondent) Citibank account and the second, amounting to Php34K for the clients bank account with PNB.
PNB holds on to both payments, claiming compensation foroutstanding obligations the client has with the bank as a result
of two instances of double creditting by the bank amounting to roughly Php.87K. Respondent did not object to the
witholding of the 2nd remittance, for which it was duly issued a receipt. Was PNB right in claiming compensation?
Held: Although all of the other requisites for a legal compensation was present (art 1279) the first requirement was not
fully complied with for withholding the $2.6K. It is admitted without contention that the solutio indebitii committed by the
bank gave rise to an obligation on the part of the client to return the same. (thus, a principal debtor-creditor relationship
was established). On the part of the bank however, at least with regard to the amount that was supposed to be coursed
thru to citibank, the banks role was merely that of a trustee and its obligation was to deliver the amount of behalf of NCB to
petitioner's citibank account and not as a debtor to petitioner (which was the case in re the 34K which was directly
deposited in respondents account with PNB, which involved a debtor creditor relationship.) Thus the bank had no right to
compensate. It must return the $2.6k.
MBTC v Tonda
Facts: Tonda applies for commercial LC's with MBTC to import raw materials (cloth mainly) for HTAC. The term of the letters
was 8 months. The Tonda's execute 11 trust receipts in favor of MBTC to facilitate the release of the raw materials. Upon
the maturity of the debt, the Tonda's fail to pay of the obligation. A few months later, the Tonda's propose a compromise
payment to the offering to pay the 2.8M principal immediately and to restructure the rest of the balance (which had then
grown to 4.9m). Metrobank does not agree but the Tonda's nevertheless open a bank account in Metrobank (jointly with a
certain Wang Tien En) in the amount of 2.8m which was received by a teller thru written acknowledgement (such
acknowledgement however, not in any way referrgin to the trust receipts), such deposit to be placed at the disposal of
Metrobank upon the reaching of a compromise. Metrobank makes repeated demands for payment...and finally files a
criminal case against the Tonda's. The CA sides with the Tonda's holding that the Tonda's had already placed the payment
at the disposal of the bank which the bank should have offset against the old oblig...is the CA correct?
Held: No. Article 1288 provides that obligations arising from criminal offences cannot be offset. Furthermore, the deposit
cannot be presumed to be a payment since it was not made out in the name of petitioner but rather deposited into the
account of Wang Tien En and Pvt. Respondents and was furthermore, subject to the condition that it would only be at the
disposal of the bank upon the reaching of a compromise which did not in fact occur. The lower court may proceed with the
criminal case. The CA was wrong.
FEBTC v Diaz Realty

gFor a valid tender of payment, it is necessary that there be a fusion of intent, ability and capability to make good such
offer, which must be absolute and must cover the amount due. Though a check is not legal tender, and a creditor may
validly refuse to accept it if tendered as payment, one who in fact accepted a fully funded check after the debtors
manifestation that it had been given to settle an obligation is estopped from later on denouncing the efficacy of such
tender of payment. -sc food for thought
Facts: Diaz Realty borrows 720K from PABC at 20%. Diaz Realty assigns the rent it collects from ABC to PABC as payment
for its monthly amortizations. Sometime in 1985, PABC goes under and is placed under receivership by the CB. Sometime
in December of 1986, FEBTC buys the credit of PABC against Diaz. Diaz however only learns about it on March 23 1988.
Diaz wastes no time in asking about his balance, which had by 3/23/1988 grown to 1.44M. Diaz tenders the full payment in
the form of a fully funded check. FEBTC does no accept the check but instead asks Diaz to deposit it as a money market
instrument in its Davao Branch (Formerly PABC) pending the approval of the Liquidator. On April 14 1989, the placement
expired and with still no reply from FEBTC re the rate adjustment request, diaz goes to court. Thr RTC orders Diaz to pay
the principal plus the loan but at the reduced interest rate of 12% to be computed from April 18,1985 to Nov 14,1988 and
then to either be reimbursed the excess over 1.45m or to pay the difference if the result be lower than 1.45m. FEBTC is
ordered to pay 300k as damages. Also, the cancellation of the mortgage is ordered. On appeal to the CA, the CA upholds

that Diaz did in fact make a valid tender of payment, but makes the mistake of imposing a different rate of interest than
that which was stipulated working on the mistaken premise that such would be warranted because Diaz was not informed
about the sale of his credit to FEBTC.
Held: The SC agrees with the lower court that their was in fact a valid tender of payment as Diaz had tendered a fully
funded check which had been accepted by FEBTC but subsequently converted into a deposit. Diaz subsequent withdrawal
of the amount does not extinguish the fact that he did in fact pay and that in fact the payment had been accepted (albeit
converted into a deposit). Anent the interest rate, respondent is entitled to the 20% rate stipulated in the contract which
was assigned to it by PABC, but only uptil the time when valid tender of payment was made. The legal rate of interest
(12%) shall apply from that point onwards. Until the full and final settlement of the obligation. As for the mortgage, the
mortgage should subsist until the full and final settlement of the oblig. Diaz must pay the 1m principal plus interest of 20%
p/a from 4/18/85-11/14/88 and 12% afterwards. Anent the other issues, the CA is affirmed.
Garcia v Llamas
Facts: Respondent Llamas files a case for collection of sum of money against Garcia and Llamas for the sum of 400k.
Garcia refuses to pay, alleging that his role in the matter was merely that of an accomodation as he merely cosigned the
debt. Furthermore, Garcia contends that the obligation had already been novated by virtue of the acceptance of Llamas of
Ed de Jesus's (a solidary debtor) check, which incidentally bounced. Was there novation?
Held: No novation in the case at bar since some essential elements of novation were not present. Novation may be made
without the knowledge of the debtor, but must always have the consent of the creditor. For novation to occur, the following
facts must be present 1.) valid old obligation 2.) concerned parties must agree to a new contract 3.)the old contract must
be extinguished 4.)There must be a valid new contract. It may be express or implied. In case it is implied the new
obligation must be incompatible with the old obligation on all aspects. In the case at bar, the parties did not expressly
declare the novation. Nor was there an incompatibility between the old and the new. The old obligation was also not
extinguished since the check bounced. Furthermore, de Jesus could not be considered as a substitute debtor such as would
effect novation as he was in fact a principal debtor, being a solidary debtor. The payment of interest does not count as
novation either as such was expressly provided for in the note.
CBLI vs SIHI
Facts: Delta Motors takes an operational loan from CBLI. Meanwhile, Delta motors sells several buses to the present private
respondent. Delta defaults and assigns its credit in favor of SIHI. CBLI also defaults but agrees to restructure with SIHI.
Meanwhile Delta had already assigned a further five promissory notes to SIHI. SIHI seeks to collect on the notes but CBLI
won't pay, claiming that the restructuring had already novated the entire obligation and had thus extinguished its
obligation to pay the notes. Is this valid?
Held: There was no novation as it was not expressly stipulated by the parties in the restructuring agreement and the
restructuring waas not incompatible on all points with the existence of the promissory notes. In fact, a careful reading of
the restructuring agreement gives us the impression that the new agreement merely ratifies the old obligations
Food for Thought:
There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing
an obligation by another which substitutes the same. The first is when novation has been explicitly stated and declared in
unequivocal terms. The second is when the old and the new obligations are incompatible on every point. The test of
incompatibility is whether the two obligations can stand together, each one having its independent existence.[51] If they
cannot, they are incompatible and the latter obligation novates the first.[52]Corollarily, changes that breed incompatibility
must be essential in nature and not merely accidental.
The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or principal
conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original
obligation.
With respect to obligations to pay a sum of money, this Court has consistently applied the well-settled rule that the
obligation is not novated by an instrument that expressly recognizes the old, changes only the terms of payment, and adds
other obligations not incompatible with the old ones, or where the new contract merely supplements the old one sc
discourse on novation
Reyes v BPI
Facts: In the case at bar, Reyes executes a mortgage in favor of BPI to secure a 15m loan for Transbuilders Co.
Transbuilders co defaults, but subsequently enters into a restructuring with BPI. Petitioners, claiming that they were not
informed about the novation, now wish to cancel the mortgage. Is this valid? Was there in fact a novation?

Held: No novation. BPI-FSB and Transbuilders only extended the repayment term of the loan from one year to twenty
quarterly installments at 18% interest per annum.There was absolutely no intention by the parties to supersede or
abrogate the old loan contract secured by the real estate mortgage executed by petitioners in favor of BPI-FSB. In fact, the
intention of the new agreement was precisely to revive the old obligation after the original period expired and the loan
remained unpaid. The novation of a contract cannot be presumed. In the absence of an express agreement,novation takes
place only when the old and the new obligations are incompatible on every point.
Kwong v Gargantos
Facts: Kwong sells some lands to G, the sale is conditional. G pays the downpayment but fails to pay the balance. G's
brother steps in and pays on behalf of G, an amount sufficient to convince Kwong to execute a deed of absolute sale over
11/15 properties. Kwong refuses to deliver the 11 titles until he is fully paid. Kwong subsequently tries to rescind the
conditional sale. G raises the fact that it had already been novated and thus could no longer be invoked.
Held: Deed of absolute sale executed over the same property after a deed of conditional sale is considered a novation as
the two are absolutely incompatible with each other.
Sim vs. MB Finance:

Facts: The Sims buy a car on installments from A executing PN's. A assigns the credit to MB. The Sims have the car insured
by C. The Sims default on the payment. The car is also carnapped. MB files a collection case against the sims. The sims
claim that the insurance on the car novates the obligation. Valid?
Held: No. The insurance contract with CIC was a contract distinct from that of the PN contract between the sims and A that
was not incompatible. In the absence of an agreement, the mere fact that [respondent] is entitled to the proceeds of the
insurance policy issued by CIC does not release spouses Sim from their responsibility. Such a situation does not constitute
novation, and [respondent], as the creditor can still enforce the obligation of spouses Sim, as debtors.
Ricarze vs CA:
Fact: Ricarze, an employee of Caltex commits a clever fraud against the company by stealing checks and depositing them
in PCI bank under a fictitious account. The fraud is discovered by Caltex. PCI indemnifies Caltex for the loss. During the
criminal trial, PCI steps into the shoes of Caltex in pursuing the case against Ricarze. Ricarze says that subrogation is not
valid because he did not in anyway give his consent to it nor had any knowledge about it.
Held: What occurred in the case at bar was legal subrogation. In legal subrogation, subrogation occurs by operation of law
thus no longer needing consent. In the case at bar, PCI was legally subrogated in a manner consistent with article 1302 of
the civil code.

Japan Airlines vs Simangan

Facts: Mr. Simangan wants to go to the US to give his kidney to his cousin as a gift. He acquires a special travel permit
from the US embassy and books a flight with JAL. The folks at JAL suspect he is a possible TNT who is merely using this
flight to the USA as a pretext to getting into Japan and working there (as the flight is to be routed thru Narita). As a result
of this, Mr. Simangan is forced off the plane to await the verification of his travel permit. Mr. Simangan accedes as he has
no choice since the plane was already about to depart and JAL had already made it quite clear that they were unwilling to
wait for him. Consequently, Mr. S misses the flight but allegedly agrees to fly the next day. Does this constitute a novation
as would discharge JAL of its liability?
Held: No. Novation, when conventional, must be consented to. Considering that respondent was forced to get out of the
plane and left behind against his will, he could not have freely consented to be rebooked the next day. In short, he did not
agree to the alleged novation. Since novation implies a waiver of the right the creditor had before the novation, such
waiver must be express.[58] It cannot be supposed, without clear proof, that respondent had willingly done away with his
right to fly on July 29, 1992.
Foundation Specialist Inc. vs Betonval
Facts: FSI contracts with Betonval for B to mix F's cement. In the contract, the terms are clearly set out and the int rate of
30% p.a is stipulated. FSI, defaults after a while. B agrees to let F restructure, extending the credit terms as well as
reducing the int rate from 24% to 30%. Despite this, F still fails to fullypay the obligation. B proceeds to attach the assets
as well as to garnish the accounts of F. In the ensuing legal Morass, the RTC awards the case to B, but also requires B to
pay steep damages to F. Both sides are unhappy and bring the case up to the CA. The CA only takes notice of that of B.
B's main issue is that the RTC lowered the int rate to 12% from the 24% stipulated. F claims that there should have been

6% interestas the original interest rates in the novated contracts no longer apply. Were the contracts in fact novated by B's
restructuring?
Held: No. The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old,
changes only the terms of payment, adds other obligations not incompatible with the old ones or the new contract merely
supplements the old one.cralaw
CRALAW

The grant by Betonval to FSI of a 45-day credit extension did not novate the contracts so as to extinguish the
latter. There was no incompatibility between them. There was no intention by the parties to supersede the obligations
under the contracts. In fact, the intention of the 45-day credit extension was precisely to revive the old obligation after the
original period expired with the obligation unfulfilled. The grant of a 45-day credit period merely modified the contracts by
extending the period within which FSI was allowed to settle its obligation. Since the contracts remained the source of FSIs
obligation to Betonval, the stipulation to pay 30% p.a. interest likewise remained.

Cinco vs CA
Facts: The Cinco's take a loan from MTLC, said loan is secured by a mortgage. The loan grows due to the interest and
charges and the Cinco's are forced to apply for a second loan from a bank. The bank agrees to give them a loan, provided
that the 1st mortgage over the lots is cancelled and a second mortgage is constituted over the same lots to secure the
bank loan. Ester, the president of MTLC, upon learning about the subsequent mortgage (which happened because Mr.
Cinco informs her that she may withdraw the proceeds from the bank law and apply the amount to pay the debt), is
outraged and refuses to cancel the mortgage and to withdraw the loan proceeds from the bank. Was there an unjust
refusal?
Held: In this exceptional case the supreme court held that there was an unjsut refusal. Although what was tendered was
not valid payment per se, why the valid tender could not be effected was also because of ester's bad faith in refusing to
cancel the mortgage certificate which would suspend the banks issuance of the loan to the Cinco' which the Cinco's had
already authorized Ester to withdraw (SPA) and to apply as payment (Verbally). Ester was exercising her right in bad faith
and thus is guilty of abuse of rights as contemplated under article 19 of the civil code. The tender of payment unjustly
refused however did not extinguish the obligation as it was not followed by consignation as required by article 1256 of the
civil code.
Rockville vs Culla
Facts: The culla's borrow money (2m) from Rockville. They are unable to pay and as a result, agree to sell thru a deed of
absolute sale, land worth 3.5M to Rockville, with the condition that Rockville pay the balance after Mrs. Culla affixes her
signature on the deed of absolute sale. She refuses to do so. Rockville files an action for specific performance. The Culla's
for there part claim that the transaction was in the Nature of an equitable mortgage, and seek to rescind the contract by
paying back the 2M payment made by rockville. Are they right
Held: The facts of the case are consistent with those of an equitable mortgage and not with dation in pago as claimed by
rockville. The elements of DIP 1.) existence of money oblig 2.) Alienation of the property of debtor to creditor with the
latters consent 3.) Satisfaction of the money obligation were not all present in the case at bar. What were present were the
elements of an equitable mortgage (informal mortgage of real property not contrary to law) consistent with the provisions
of article 1602.
Typingco v Lim
Facts: The Lim's take a loan from J. Typingco $600k. They default. The lims, as an act of Dation in Pago, execute a deed of
absolute sale over their greenhills property...which BPI also has a claim (mortgage) on. Was the DIP valid?
Held: DIP valid inspite of BPI's claim because 1.) foreclosure had not yet been instituted by BPI... Thus Lim's still had the
ownership over the said lot in spite of the lien and thus had the right to dispose of the lot in the manner that they did. The
mortgage over the lot however, subsists and must be respected by Typingco. Thus the lot should be transferred to
Typingco's ownership, w/out prejudice to the subsisting mortgage the bank has over the said lot.
Urban Consolidated Constructors Phils. V Insular Life Assurance
Facts: ILA contracts with UCCP to have the latter build a 6 storey bldg w/in 1 year for the price of 30m. Several
adjustments and delays are encountered. In 1992, the building is finally completed ILA refuses to accept the
building...Convoluted litigation occurs.
Held: Considering the already near complete state of the building (97% complete) and the contributing fault on the part of
ILA to deliver the balance, damages are reduced by the SC in accordance with Article 1229 of the NCC