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ARTICLE 1256: CINCO VS. C.A., G.R. NO. 151903

Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from respondent Maasin
Traders Lending Corporation (MTLC). The loan was evidenced by the promissory note, and
secured by a real estate mortgage over the spouses Cincos land and 4-storey building. To pay
the loan in favor of MTLC, the spouses Cinco applied for a loan with the Philippine National Bank
(PNB), and offered the same properties they previously mortgage to MTLC. The PNB approved the
load application for 1.3 Million; the release was, however, conditioned on the cancellation of the
mortgage in favor of MTLC. Manuel went to Ester Servacio (Ester), MTLCs President to inform her
that there was money with PNB for Payment of his loan. Manuel executed a Special Power of
Attorney (SPA) authorizing Ester to collect the proceeds of the loan. Ester went to the PNB to
inquire, the second time around, about the proceeds. The bank officer confirmed the existence of
such loan, but they required Ester to first sign a deed of release/cancellation of the mortgage
before they could release the proceeds of the loan to her. Outraged, Ester refused the deed and
did not collect the 1.3 Million. Ester instituted foreclosure proceeding. To prevent the foreclosure,
the spouses Cinco filed an action for specific performance, damages, and preliminary injunction.

Issue: Whether the loan due the MTLC had been extinguished by the act of the spouses Cinco
amounted to payment.

Held: No, While Esters refusal was unjustified and unreasonable, we cannot agree with Manuels
position that this refusal had the effect of payment that extinguished his obligation to MTLC.
Article 1256 is clear and unequivocal on this point when it provides that ARTICLE 1256. 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. In short,
a refusal without just cause is not equivalent to payment; to have the effect of payment and the
consequent extinguishment of the obligation to pay, the law requires the companion acts of
tender of payment and consignation. Tender of payment, as defined in Far East Bank and Trust
Company v. Diaz Realty, Inc., is the definitive act of offering the creditor what is due him or her,
together with the demand that the creditor accept the same. When a creditor refuses the
debtors tender of payment, the law allows the consignation of the thing or the sum due. Tender
and consignation have the effect of payment, as by consignation, the thing due is deposited and
placed at the disposal of the judicial authorities for the creditor to collect. Nonetheless, the SPA
stood as an authority to collect the proceeds of the already-approved PNB loan that, upon receipt
by Ester, would have constituted as payment of the MTLC loan. The Court agrees with Manuel
that Esters refusal of the payment was without basis. Under these circumstances, we hold that
while no completed tender of payment and consignation took place sufficient to constitute
payment, the spouses Go Cinco duly established that they have legitimately secured a means of
paying off their loan with MTLC; they were only prevented from doing so by the unjust refusal of
Ester to accept the proceeds of the PNB loan through her refusal to execute the release of the
mortgage on the properties mortgaged to MTLC. We also find that under the circumstances, the
spouses Go Cinco have undertaken, at the very least, the equivalent of a tender of payment that
cannot but have legal effect. Since payment was available and was unjustifiably refused, justice
and equity demand that the spouses Go Cinco be freed from the obligation to pay interest on the
outstanding amount from the time the unjust refusal took place

ARTICLE 256: Cacayorin v. Armed Forces and Police (AFPMBAI) GR 171298

Facts: AFPMBAI is a mutual benefit association duly organized and existing under Philippine Laws
and engaged in the business of developing low-cost housing projects for personnel of the AFP,
PNP, Bureau of Fire Protection, Bureau of Jail Management and Penology, and Philippine Coast
Guard. Petitioner Cacayorin is a member of AFPMBAI.
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Petitioner applied to purchase a piece of property which the respondent owned through a
loan facility. Sps Cacayorin (borrower) and the Rural Bank (lender) executed a Loan and Mortgage
Agreement under the auspices of Pag IBIG or HDMF. The Rural Bank granted the loan and in a
letter of guaranty informed AFPMBAI to release the proceeds upon the transfer of title in
petitioners name, and after the registration and annotation of petitioners mortgage agreement.

AFPMBAI executed in petitioners favor a DEED OF ABSOLUTE SALE, and a new title was
issued in their name, with the corresponding annotation of their mortgage agreement with Rural
Bank. Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed
and was placed under receivership by the Philippine Deposit Insurance Corporation (PDIC).
Meanwhile, AFPMBAI somehow was able to take possession of petitioners loan documents and
TCT No. 37017, while petitioners were unable to pay the loan/consideration for the property.

AFPMBAI made oral and written demands for petitioners to pay the loan/consideration
for the property. Petitioners filed a Complaint for consignation of loan payment, recovery of title
and cancellation of mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of
Puerto Princesa City. Petitioners alleged in their Complaint that as a result of the Rural Banks
closure and PDICs claim that their loan papers could not be located, they were left in a quandary
as to where they should tender full payment of the loan and how to secure cancellation of the
mortgage annotation on TCT No. 37017.
Petitioner- jurisdiction in RTC; AFPMBAI- jurisdiction is in HLURB because of the seller-buyer
relationship.

From the above allegations, it appears that the petitioners debt is outstanding; that the
Rural Banks receiver, PDIC, informed petitioners that it has no record of their loan even as it
took over the affairs of the Rural Bank, which on
record is the petitioners creditor as per the July 4, 1994 Loan and Mortgage Agreement; that one
way or another, AFPMBAI came into possession of the loan documents as well as TCT No. 37017;
that petitioners are ready to pay the loan in
full; however, under the circumstances, they do not know which of the two the Rural Bank or
AFPMBAI should receive full payment of the purchase price, or to whom tender of payment
must validly be made.

ISSUE: Whether or not this is a case of consignation.

Ruling: Under Article 1256 of the Civil Code, the debtor shall be released from responsibility by
the consignation of the thing or sum due, without need of prior tender of payment, when the
creditor is absent or unknown, or when he is
incapacitated to receive the payment at the time it is due, or when two or more persons claim
the same right to collect, or when the title to the obligation has been lost. Applying Article 1256
to the petitioners case as shaped by the allegations in
their Complaint, the Court finds that a case for consignation has been made out, as it now
appears that there are two entities which petitioners must deal with in order to fully secure their
title to the property: 1) the Rural Bank (through PDIC), which is the apparent creditor under the
July 4, 1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which is currently in possession of
the loan documents and the certificate of title, and the one making demands upon petitioners to
pay.

Clearly, the allegations in the Complaint present a situation where the creditor is unknown, or
that two or more entities appear to possess the same right to collect from petitioners. Whatever
transpired between the Rural Bank or PDIC and AFPMBAI in respect of petitioners loan account, if
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any, such that AFPMBAI came into possession of the loan documents and TCT No. 37017, it
appears that petitioners were not informed thereof, nor made privy thereto.
Indeed, the instant case presents a unique situation where the buyer, through no fault of his
own, was able to obtain title to real property in his name even before he could pay the purchase
price in full. There appears to be no vitiated consent, nor is there any other impediment to the
consummation of their agreement, just as it appears that it would be to the best interests of all
parties to the sale that it be once and for all completed and terminated. For this reason, Civil
Case No. 3812 should at this juncture be allowed to proceed.

Finally, the lack of prior tender of payment by the petitioners is not fatal to their consignation
case. They filed the case for the exact reason that they were at a loss as to which between the
two the Rural Bank or AFPMBAI was entitled to
such a tender of payment.

On the question of jurisdiction, petitioners case should be tried in the Puerto Princesa RTC, and
not the HLURB. Consignation is necessarily judicial, as the Civil Code itself provides that
consignation shall be made by depositing the
thing or things due at the disposal of judicial authority, thus: Art. 1258. Consignation shall be
made by depositing the things due at the disposal of judicial authority, before whom the tender
of payment shall be proved, in a proper case, and the announcement of the consignation in other
cases.
The consignation having been made, the interested parties shall also be notified thereof.
(Emphasis and underscoring supplied)

The above provision clearly precludes consignation in venues other than the courts. Elsewhere,
what may be made is a valid tender of payment, but not consignation.

ARTICLE 1260: Banco Filipino Savings and Mortgage Bank v. Antonio and Elise Diaz

Facts:
On March 8, 1979, spouses Diaz secured a loan from Banco Filipino Savings and Mortgage
Bank in the amount of P400,000.00 bearing an interest rate of 16% per annum. In
November 1982, the said loan was restructured or consolidated in the increased amount of
P3,163,000.00 payable within a period of 20 years at an interest rate of 21% per annum.
The obligation was to be paid in equal monthly amortization of P56,227.00, and secured
by a real estate mortgage over two commercial lots situated at Bolton and Bonifacio
Streets in Davao City. As additional collateral, the respondents assigned the rentals on the
mortgaged properties in favor of petitioner bank.

Despite repeated demands made on them, the respondents defaulted in the payment of
their obligation beginning October 1986.

The Diaz spouses tried to settle their account by tendering the sum of P1,034,600.00 as
full payment but bank refuses to accept it.

The spouses then deposited by way of consignation with the RTC of Makati City, a
managers check dated December 5, 1991, in the amount of P1,034,600.00 as full
payment of their loan obligation. Petitioner bank was duly informed of such consignation.

the CA relied on Article 1260 of the Civil Code which provides, in part, that [b]efore the
creditor has accepted the consignation, or before a judicial declaration that the
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consignation has been properly made, the debtor may withdraw the thing or sum
deposited, allowing the obligation to remain in force.

As a result, interest rate became more than 60% per annum, CA said it is excessive,
iniquitous, unconscionable and exorbitant

Issue:
What is consignation? Can the consignation of Diaz be withdrawn?

Ruling:

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.

YES the Diaz spouses have a right to withdraw the consignation made. The bank has not
accepted the deposit. (CA finding).

About right of spouses to withdraw amount deposited/consignated:

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to
order the cancellation of the obligation.

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

The Court ruled:

Before the consignation has been accepted by the creditor or judicially declared as
properly made, the debtor is still the owner of the thing or amount deposited, and, therefore, the
other parties liable for the obligation have no right to oppose his withdrawal of such thing or
amount. The debtor merely uses his right, and unless the law expressly limits that use of his
right, it cannot be prevented by the objections of anyone. Our law grants to the debtor the right
to withdraw, without any limitation, and we should not read a non-existing limitation into the law.
Although the other parties liable for the obligation would have been benefited if the consignation
had been allowed to become effective, before that moment they have not acquired such an
interest as would give them a right to oppose the exercise of the right of the debtor to withdraw
the consignation.

Before the consignation has been judicially declared proper, the creditor may prevent the
withdrawal by the debtor, by accepting the consignation, even with reservations. Thus, when the
amount consigned does not cover the entire obligation, the creditor may accept it, reserving his
right to the balance

The Gaisano brothers, as attorneys-in-fact of the spouses, paid in January 2009,

P25,100,000.00 as settlement of the obligation. To the Courts mind, the payment of the said
sum already constituted substantial compliance by the spouses of their obligation considering
that their loan, as restructured or consolidated in November 1982, amounted to only
P3,163,000.00.

In addition, Article 1229 of the Civil Code specifically empowers the judge to reduce the
civil penalty equitably, when the principal obligation has been partly or irregularly complied with.
Upon this premise, the Court holds that the said surcharges should be equitably reduced such
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that the payment of P25,100,000.00 constituted substantial compliance by the respondents of

their obligation to petitioner bank.

ARTICLE 1263: Gaisano v Insurance G.R. No. 147839 June 8, 2006

Facts:

IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire insurance
policies with book debt endorsements. The insurance policies provide for coverage on "book
debts in connection with ready-made clothing materials which have been sold or delivered to
various customers and dealers of the Insured anywhere in the Philippines."

The policies defined book debts as the "unpaid account still appearing in the Book of Account of
the Insured 45 days after the time of the loss covered under this Policy." The policies also provide
for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the
close of every calendar month all amount shown in their books of accounts as unpaid and thus
become receivable item from their customers and dealers.

Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the
Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials
sold and delivered by IMC and LSPI.

Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC and LSPI
were paid for their claims and that the unpaid accounts of petitioner on the sale and delivery of
ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00.

The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was
purely accidental; that the cause of the fire was not attributable to the negligence of the
petitioner. Also, it said that IMC and LSPI retained ownership of the delivered goods and must
bear the loss.

The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to pay
Insurance the P 2 millionand the P 500,000 the latter paid to IMC and Levi Strauss.

Hence this petition.

Issues:
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1. WON the CA erred in construing a fire insurance policy on book debts as one covering the
unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner
2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by
stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise remains the property of the
vendor until the purchase price thereof is fully paid."
3. WON petitioner is liable for the unpaid accounts
4. WON it has been established that petitioner has outstanding accounts with IMC and LSPI.

Held: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted.

Ratio:

1. Nowhere is it provided in the questioned insurance policies that the subject of the insurance is
the goods sold and delivered to the customers and dealers of the insured.

Thus, what were insured against were the accounts of IMC and LSPI with petitioner which
remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods
delivered.

2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to the buyer
the goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller merely
to secure performance by the buyer of his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of
loss is borne by the buyer. Petitioner bears the risk of loss of the goods delivered.

IMC and LSPI had an insurable interest until full payment of the value of the delivered goods.
Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of
who bears the risk of loss, in property insurance, one's interest is not determined by concept of
title, but whether insured has substantial economic interest in the property.

Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature
that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14
of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.

Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein, in other words, so long as he would suffer by
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its destruction, as where he has a vendor's lien. In this case, the insurable interest of IMC and
LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of
the loss covered by the policies.

3. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article
117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article
1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but
for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the
fire. Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the
CA, where the obligation consists in the payment of money, the failure of the debtor to make the
payment even by reason of a fortuitous event shall not relieve him of his liability. The rationale
for this is that the rule that an obligor should be held exempt from liability when the loss occurs
thru a fortuitous event only holds true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding him liable even in case of fortuitous event.
It does not apply when the obligation is pecuniary in nature.

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." This rule is based
on the principle that the genus of a thing can never perish. An obligation to pay money is
generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.

4. With respect to IMC, the respondent has adequately established its claim. The P 3 m claim has
been proven. The subrogation receipt, by itself, is sufficient to establish not only the relationship
of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim Respondent's action against petitioner is squarely sanctioned by Article 2207 of
the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured against
the wrongdoer or the person who has violated the contract.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. There
was no evidence that respondent has been subrogated to any right which LSPI may have against
petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for
recovery of P535,613.00.

ARTICLE 1266: RAYMUNDO S. DE LEON, Petitioner, vs. BENITA T. ONG. Respondent.

Facts:
On March 10, 1993, Raymundo S. De Leon (petitioner) sold 3 parcels of land to Benita T.
Ong(respondent). The said properties were mortgaged to a financial institution; Real Savings
& Loan Association Inc. (RSLAI). The parties then executed a notarized deed of absolute sale with
assumption of mortgage. As indicated in the deed of mortgage, the parties stipulated that
the petitioner (de Leon) shall execute a deed of assumption of mortgage in favor of Ong
(respondent)after full payment of the P415,000. They also agreed that the respondent (Ong)
shall assume the mortgage. The respondent then subsequently gave petitioner P415,000 as
partial payment. On the other hand, de Leon handed the keys to Ong and de Leon wrote a letter
to inform RSLAI that the mortgage will be assumed by Ong. Thereafter, the respondent took
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repairs and made improvements in the properties. Subsequently, respondent learned that the
same properties were sold to a certain Viloria after March 10, 1993 and changed the locks,
rendering the keys given to her useless. Respondent proceeded to RSLAI but she was informed
that the mortgage has been fully paid and that the titles have been given to the said person.
Respondent then filed a complaint for specific performance and declaration of nullity of the
second sale and damages. The petitioner contended that respondent does not have a cause of
action against him because the sale was subject to a condition which requires the approval
of RSLAI of the mortgage. Petitioner reiterated that they only entered into a contract to sell. The
RTC dismissed the case. On appeal, the CA upheld the sale to respondent and nullified the sale to
Viloria. Petitioner moved for reconsideration to the SC.
Issue:
Whether the parties entered into a contract of sale or a contract to sell?

Held:
In a contract of sale, the seller conveys ownership of the property to the buyer upon the
perfection of the contract. The non-payment of the price is a negative resolutory condition.
Contract to sell is subject to a positive suspensive condition. The buyer does not acquire
ownership of the property until he fully pays the purchase price.In the present case, the deed
executed by the parties did not show that the owner intends to reserve ownership of the
properties. The terms and conditions affected only the manner of payment and not the
immediate transfer of ownership. It was clear that the owner intended a sale because he
unqualifiedly delivered and transferred ownership of the properties to the respondent