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NPC v. Ibrahim, et al.

, - Eminent Domain

G.R. No. 168732, June 29, 2007

The NPC constructed underground tunnels on the property of the respondents without their knowledge and
consent and without any expropriation proceeding. It contended that it constructed an easement on the
property. Was there taking of the property considering that the owners were deprived of their beneficial use
and enjoyment of the same, hence, entitled to just compensation?

Yes. The manner in which the easement was created by the NPC, violated the due process rights of the owners as it
was without notice and indemnity to them and did not go through proper expropriation proceedings. NPC could
have, at any time, validly exercised the power of eminent domain to acquire the easement over the property as this
power encompasses not only the taking or appropriation of title to and possession of the expropriated property but
likewise covers even the imposition of a mere burden upon the owner of the condemned property. (Rep. v. PLDT,
136 Phil. 20 (1969)). Significantly, though, landowners cannot be deprived of their right over their land until
expropriation proceedings are instituted in court. The court must then see to it that the taking is for pubic use, that
there is payment of just compensation and that there is due process of law.

In disregarding this procedure and failing to recognize the owners’ ownership of the sub-terrain portion, NPC
took a risk and exposed itself to greater liability with the passage of time. It must be emphasized that the
acquisition of the easement is not without expense. The underground tunnels imposed limitations on the owners’
use of the property for an indefinite period and deprived them of its ordinary use. The owners are clearly entitled
to the payment of just compensation. Notwithstanding the fact that NPC only occupied the sub-terrain
portion, it is liable to pay not merely an easement fee but rather the full compensation for the land. This is so
because, the nature of the easement practically deprived the owners of its normal beneficial use. The owners,
as the owners of the property thus expropriated, are entitled to a just compensation which should be neither more nor
less, whenever it is possible to make the assessment, than the money equivalent of said property. (NPC v. Ibrahim,
et al., G.R. No. 168732, June 29, 2007).

Valuation of the property.

NPC contended that if ever it is liable, it should be made to pay the value of the land from the time it
constructed the tunnels. Is the contention correct? Why?

No. To it to use the date it constructed the tunnels as the date of valuation would be grossly unfair. First, it did not
enter the land under warrant or color of legal authority or with intent to expropriate the same. It did not notify the
owners and wrongly assumed that it had the right to dig the tunnels under their property. Secondly, the
improvements introduced in no way contributed to an increase in the value of the land. The valuation should be
based at the time of the discovery of the construction of the underground tunnels. (NPC v. Ibrahim, et al., G.R.
No. 168732, June 29, 2007).

It is undisputed that there is a legal easement of right-of-way in favor of the Republic. Andaya’s transfer
certificates of title contained the reservation that the lands covered thereby are subject to the provisions of
the Land Registration Act and the Public Land Act. Section 112 of the Public Land Act provides that land
granted by patent shall be subject to a right-of-way not exceeding 60 meters in width for public highways,
irrigation ditches, aqueducts, and other similar works of the government or any public enterprise, free of
charge, except only for the value of the improvements existing thereon that may be affected. In view of this,
the Court of Appeals declared that all Republic needs to do is to enforce such right without having to initiate
expropriation proceedings and without having to pay any just compensation. Hence, the Republic may
appropriate the 701 square meters necessary for the construction of the floodwalls without paying for it. Is
the Republic liable for just compensation if in enforcing the legal easement of right-of-way on a property, the
remaining area would be rendered unusable and uninhabitable?

Yes, it is liable to pay consequential damages if in enforcing the legal easement on Andaya’s property, the
remaining area would be rendered unusable and uninhabitable. “Taking”, in the exercise of the power of eminent
domain, occurs not only when the government actually deprives or dispossess the property owner of his
property or of its ordinary use, but also when there is a practical destruction or material impairment of the
value of his property. Using this standard, there was undoubtedly a taking of the remaining area of Andaya’s
property. True, no burden was imposed thereon and Andaya still retained title and possession of the property. But,
the nature and the effect of the floodwalls would deprive Andaya of the normal use of the remaining areas. It would
prevent ingress and egress to the property and turn it into a catch basin for the floodwaters coming from the Agusan
River.

For this reason, Andaya is entitled to payment of just compensation, which must be neither more nor less
than the monetary equivalent of the land. One of the basic principles enshrined in our Constitution is that no
person shall be deprived of his private property without due process of law; and in expropriation cases, an essential
element of due process is that there must be just compensation whenever private property is taken for public use.
Noteworthy, Section 9, Article III of our Constitution mandates that private property shall not be taken for public
use without just compensation. (Rep. v. Lim, G.R. No. 161656, June 29, 2005, 462 SCRA 265; Rep. v. Andaya, G.R.
No. 160656, June 15, 2007).

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 168732 June 29, 2007

NATIONAL POWER CORPORATION, petitioner,


vs.
LUCMAN G. IBRAHIM, OMAR G. MARUHOM, ELIAS G.MARUHOM, BUCAY G. MARUHOM,
FAROUK G. MARUHOM, HIDJARA G. MARUHOM, ROCANIA G. MARUHOM, POTRISAM G.
MARUHOM, LUMBA G. MARUHOM, SINAB G. MARUHOM, ACMAD G. MARUHOM, SOLAYMAN G.
MARUHOM, MOHAMAD M. IBRAHIM, and CAIRONESA M. IBRAHIM, respondents.

DECISION

AZCUNA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul the Decision1 dated
June 8, 2005 rendered by the Court of Appeals (CA) in C.A.-G.R. CV No. 57792.

The facts are as follows:

On November 23, 1994, respondent Lucman G. Ibrahim, in his personal capacity and in behalf of his co-heirs Omar
G. Maruhom, Elias G. Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G.
Maruhom, Rocania G. Maruhom, Potrisam G. Maruhom, Lumba G. Maruhom, Sinab G. Maruhom, Acmad G.
Maruhom, Solayman G. Maruhom, Mohamad M. Ibrahim and Caironesa M. Ibrahim, instituted an action against
petitioner National Power Corporation (NAPOCOR) for recovery of possession of land and damages before the
Regional Trial Court (RTC) of Lanao del Sur.

In their complaint, Ibrahim and his co-heirs claimed that they were owners of several parcels of land described in
Survey Plan FP (VII-5) 2278 consisting of 70,000 square meters, divided into three (3) lots, i.e. Lots 1, 2, and 3
consisting of 31,894, 14,915, and 23,191 square meters each respectively. Sometime in 1978, NAPOCOR, through
alleged stealth and without respondents’ knowledge and prior consent, took possession of the sub-terrain area of
their lands and constructed therein underground tunnels. The existence of the tunnels was only discovered sometime
in July 1992 by respondents and then later confirmed on November 13, 1992 by NAPOCOR itself through a
memorandum issued by the latter’s Acting Assistant Project Manager. The tunnels were apparently being used by
NAPOCOR in siphoning the water of Lake Lanao and in the operation of NAPOCOR’s Agus II, III, IV, V, VI, VII
projects located in Saguiran, Lanao del Sur; Nangca and Balo-i in Lanao del Norte; and Ditucalan and Fuentes in
Iligan City.

On September 19, 1992, respondent Omar G. Maruhom requested the Marawi City Water District for a permit to
construct and/or install a motorized deep well in Lot 3 located in Saduc, Marawi City but his request was turned
down because the construction of the deep well would cause danger to lives and property. On October 7, 1992,
respondents demanded that NAPOCOR pay damages and vacate the sub-terrain portion of their lands but the latter
refused to vacate much less pay damages. Respondents further averred that the construction of the underground
tunnels has endangered their lives and properties as Marawi City lies in an area of local volcanic and tectonic
activity. Further, these illegally constructed tunnels caused them sleepless nights, serious anxiety and shock thereby
entitling them to recover moral damages and that by way of example for the public good, NAPOCOR must be held
liable for exemplary damages.

Disputing respondents’ claim, NAPOCOR filed an answer with counterclaim denying the material allegations of the
complaint and interposing affirmative and special defenses, namely that (1) there is a failure to state a cause of
action since respondents seek possession of the sub-terrain portion when they were never in possession of the same,
(2) respondents have no cause of action because they failed to show proof that they were the owners of the property,
and (3) the tunnels are a government project for the benefit of all and all private lands are subject to such easement
as may be necessary for the same.2
On August 7, 1996, the RTC rendered a Decision, the decretal portion of which reads as follows:

WHEREFORE, judgment is hereby rendered:

1. Denying plaintiffs’ [private respondents’] prayer for defendant [petitioner] National Power Corporation to
dismantle the underground tunnels constructed between the lands of plaintiffs in Lots 1, 2, and 3 of Survey Plan FP
(VII-5) 2278;

2. Ordering defendant to pay to plaintiffs the fair market value of said 70,000 square meters of land covering Lots 1,
2, and 3 as described in Survey Plan FP (VII-5) 2278 less the area of 21,995 square meters at ₱1,000.00 per square
meter or a total of ₱48,005,000.00 for the remaining unpaid portion of 48,005 square meters; with 6% interest per
annum from the filing of this case until paid;

3. Ordering defendant to pay plaintiffs a reasonable monthly rental of ₱0.68 per square meter of the total area of
48,005 square meters effective from its occupancy of the foregoing area in 1978 or a total of ₱7,050,974.40.

4. Ordering defendant to pay plaintiffs the sum of ₱200,000.00 as moral damages; and

5. Ordering defendant to pay the further sum of ₱200,000.00 as attorney’s fees and the costs.

SO ORDERED.3

On August 15, 1996, Ibrahim, joined by his co-heirs, filed an Urgent Motion for Execution of Judgment Pending
Appeal. On the other hand, NAPOCOR filed a Notice of Appeal by registered mail on August 19, 1996. Thereafter,
NAPOCOR filed a vigorous opposition to the motion for execution of judgment pending appeal with a motion for
reconsideration of the Decision which it had received on August 9, 1996.

On August 26, 1996, NAPOCOR filed a Manifestation and Motion withdrawing its Notice of Appeal purposely to
give way to the hearing of its motion for reconsideration.

On August 28, 1996, the RTC issued an Order granting execution pending appeal and denying NAPOCOR’s motion
for reconsideration, which Order was received by NAPOCOR on September 6, 1996.

On September 9, 1996, NAPOCOR filed its Notice of Appeal by registered mail which was denied by the RTC on
the ground of having been filed out of time. Meanwhile, the Decision of the RTC was executed pending appeal and
funds of NAPOCOR were garnished by respondents Ibrahim and his co-heirs.

On October 4, 1996, a Petition for Relief from Judgment was filed by respondents Omar G. Maruhom, Elias G.
Maruhom, Bucay G. Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Potrisam G.
Maruhom and Lumba G. Maruhom asserting as follows:

1) they did not file a motion to reconsider or appeal the decision within the reglementary period of fifteen (15) days
from receipt of judgment because they believed in good faith that the decision was for damages and rentals and
attorney’s fees only as prayed for in the complaint:

2) it was only on August 26, 1996 that they learned that the amounts awarded to the plaintiffs represented not only
rentals, damages and attorney’s fees but the greatest portion of which was payment of just compensation which in
effect would make the defendant NPC the owner of the parcels of land involved in the case;

3) when they learned of the nature of the judgment, the period of appeal has already expired;
4) they were prevented by fraud, mistake, accident, or excusable negligence from taking legal steps to protect and
preserve their rights over their parcels of land in so far as the part of the decision decreeing just compensation for
petitioners’ properties;

5) they would never have agreed to the alienation of their property in favor of anybody, considering the fact that the
parcels of land involved in this case were among the valuable properties they inherited from their dear father and
they would rather see their land crumble to dust than sell it to anybody. 4

The RTC granted the petition and rendered a modified judgment dated September 8, 1997, thus:

WHEREFORE, a modified judgment is hereby rendered:

1) Reducing the judgment award of plaintiffs for the fair market value of ₱48,005,000.00 by 9,526,000.00 or for a
difference by ₱38,479,000.00 and by the further sum of ₱33,603,500.00 subject of the execution pending appeal
leaving a difference of 4,878,500.00 which may be the subject of execution upon the finality of this modified
judgment with 6% interest per annum from the filing of the case until paid.

2) Awarding the sum of ₱1,476,911.00 to herein petitioners Omar G. Maruhom, Elias G. Maruhom, Bucay G.
Maruhom, Mahmod G. Maruhom, Farouk G. Maruhom, Hidjara G. Maruhom, Portrisam G. Maruhom and Lumba
G. Maruhom as reasonable rental deductible from the awarded sum of ₱7,050,974.40 pertaining to plaintiffs.

3) Ordering defendant embodied in the August 7, 1996 decision to pay plaintiffs the sum of ₱200,000.00 as moral
damages; and further sum of ₱200,000.00 as attorney’s fees and costs.

SO ORDERED.5

Subsequently, both respondent Ibrahim and NAPOCOR appealed to the CA.

In the Decision dated June 8, 2005, the CA set aside the modified judgment and reinstated the original Decision
dated August 7, 1996, amending it further by deleting the award of moral damages and reducing the amount of
rentals and attorney’s fees, thus:

WHEREFORE, premises considered, herein Appeals are hereby partially GRANTED, the Modified Judgment is
ordered SET ASIDE and rendered of no force and effect and the original Decision of the court a quo dated 7 August
1996 is hereby RESTORED with the MODIFICATION that the award of moral damages is DELETED and the
amounts of rentals and attorney’s fees are REDUCED to ₱6,888,757.40 and ₱50,000.00, respectively.

In this connection, the Clerk of Court of RTC Lanao del Sur is hereby directed to reassess and determine the
additional filing fee that should be paid by Plaintiff-Appellant IBRAHIM taking into consideration the total amount
of damages sought in the complaint vis-à-vis the actual amount of damages awarded by this Court. Such additional
filing fee shall constitute a lien on the judgment.

SO ORDERED.6

Hence, this petition ascribing the following errors to the CA:

(a) RESPONDENTS WERE NOT DENIED THE BENEFICIAL USE OF THEIR SUBJECT PROPERTIES TO
ENTITLE THEM TO JUST COMPENSATION BY WAY OF DAMAGES;

(b) ASSUMING THAT RESPONDENTS ARE ENTITLED TO JUST COMPENSATION BY WAY OF


DAMAGES, NO EVIDENCE WAS PRESENTED ANENT THE VALUATION OF RESPONDENTS’
PROPERTY AT THE TIME OF ITS TAKING IN THE YEAR 1978 TO JUSTIFY THE AWARD OF ONE
THOUSAND SQUARE METERS (₱1000.00/SQ. M.) EVEN AS PAYMENT OF BACK RENTALS IS ITSELF
IMPROPER.

This case revolves around the propriety of paying just compensation to respondents, and, by extension, the basis for
computing the same. The threshold issue of whether respondents are entitled to just compensation hinges upon who
owns the sub-terrain area occupied by petitioner.

Petitioner maintains that the sub-terrain portion where the underground tunnels were constructed does not belong to
respondents because, even conceding the fact that respondents owned the property, their right to the subsoil of the
same does not extend beyond what is necessary to enable them to obtain all the utility and convenience that such
property can normally give. In any case, petitioner asserts that respondents were still able to use the subject property
even with the existence of the tunnels, citing as an example the fact that one of the respondents, Omar G. Maruhom,
had established his residence on a part of the property. Petitioner concludes that the underground tunnels 115 meters
below respondents’ property could not have caused damage or prejudice to respondents and their claim to this effect
was, therefore, purely conjectural and speculative.7

The contention lacks merit.

Generally, in an appeal by certiorari under Rule 45 of the Rules of Court, the Court does not pass upon questions of
fact. Absent any showing that the trial and appellate courts gravely abused their discretion, the Court will not
examine the evidence introduced by the parties below to determine if they correctly assessed and evaluated the
evidence on record.8 The jurisdiction of the Court in cases brought to it from the CA is limited to reviewing and
revising the errors of law imputed to it, its findings of fact being as a rule conclusive and binding on the Court.

In the present case, petitioner failed to point to any evidence demonstrating grave abuse of discretion on the part of
the CA or to any other circumstances which would call for the application of the exceptions to the above rule.
Consequently, the CA’s findings which upheld those of the trial court that respondents owned and possessed the
property and that its substrata was possessed by petitioner since 1978 for the underground tunnels, cannot be
disturbed. Moreover, the Court sustains the finding of the lower courts that the sub-terrain portion of the property
similarly belongs to respondents. This conclusion is drawn from Article 437 of the Civil Code which provides:

ART. 437. The owner of a parcel of land is the owner of its surface and of everything under it, and he can construct
thereon any works or make any plantations and excavations which he may deem proper, without detriment to
servitudes and subject to special laws and ordinances. He cannot complain of the reasonable requirements of aerial
navigation.

Thus, the ownership of land extends to the surface as well as to the subsoil under it. In Republic of the Philippines v.
Court of Appeals,9 this principle was applied to show that rights over lands are indivisible and, consequently, require
a definitive and categorical classification, thus:

The Court of Appeals justified this by saying there is "no conflict of interest" between the owners of the surface
rights and the owners of the sub-surface rights. This is rather strange doctrine, for it is a well-known principle that
the owner of a piece of land has rights not only to its surface but also to everything underneath and the airspace
above it up to a reasonable height. Under the aforesaid ruling, the land is classified as mineral underneath and
agricultural on the surface, subject to separate claims of title. This is also difficult to understand, especially in its
practical application.

Under the theory of the respondent court, the surface owner will be planting on the land while the mining locator
will be boring tunnels underneath. The farmer cannot dig a well because he may interfere with the mining operations
below and the miner cannot blast a tunnel lest he destroy the crops above. How deep can the farmer, and how high
can the miner go without encroaching on each others rights? Where is the dividing line between the surface and the
sub-surface rights?
The Court feels that the rights over the land are indivisible and that the land itself cannot be half agricultural and half
mineral. The classification must be categorical; the land must be either completely mineral or completely
agricultural.

Registered landowners may even be ousted of ownership and possession of their properties in the event the latter are
reclassified as mineral lands because real properties are characteristically indivisible. For the loss sustained by such
owners, they are entitled to just compensation under the Mining Laws or in appropriate expropriation proceedings.10

Moreover, petitioner’s argument that the landowners’ right extends to the sub-soil insofar as necessary for their
practical interests serves only to further weaken its case. The theory would limit the right to the sub-soil upon the
economic utility which such area offers to the surface owners. Presumably, the landowners’ right extends to such
height or depth where it is possible for them to obtain some benefit or enjoyment, and it is extinguished beyond such
limit as there would be no more interest protected by law. 11

In this regard, the trial court found that respondents could have dug upon their property motorized deep wells but
were prevented from doing so by the authorities precisely because of the construction and existence of the tunnels
underneath the surface of their property. Respondents, therefore, still had a legal interest in the sub-terrain portion
insofar as they could have excavated the same for the construction of the deep well. The fact that they could not was
appreciated by the RTC as proof that the tunnels interfered with respondents’ enjoyment of their property and
deprived them of its full use and enjoyment, thus:

Has it deprived the plaintiffs of the use of their lands when from the evidence they have already existing residential
houses over said tunnels and it was not shown that the tunnels either destroyed said houses or disturb[ed] the
possession thereof by plaintiffs? From the evidence, an affirmative answer seems to be in order. The plaintiffs and
[their] co-heirs discovered [these] big underground tunnels in 1992. This was confirmed by the defendant on
November 13, 1992 by the Acting Assistant Project Manager, Agus 1 Hydro Electric Project (Exh. K). On
September 16, 1992, Atty. Omar Maruhom (co-heir) requested the Marawi City Water District for permit to
construct a motorized deep well over Lot 3 for his residential house (Exh. Q). He was refused the permit "because
the construction of the deep well as (sic) the parcels of land will cause danger to lives and property." He was
informed that "beneath your lands are constructed the Napocor underground tunnel in connection with Agua
Hydroelectric plant" (Exh. Q-2). There in fact exists ample evidence that this construction of the tunnel without the
prior consent of plaintiffs beneath the latter’s property endangered the lives and properties of said plaintiffs. It has
been proved indubitably that Marawi City lies in an area of local volcanic and tectonic activity. Lake Lanao has
been formed by extensive earth movements and is considered to be a drowned basin of volcano/tectonic origin. In
Marawi City, there are a number of former volcanoes and an extensive amount of faulting. Some of these faults are
still moving. (Feasibility Report on Marawi City Water District by Kampsa-Kruger, Consulting Engineers,
Architects and Economists, Exh. R). Moreover, it has been shown that the underground tunnels [have] deprived the
plaintiffs of the lawful use of the land and considerably reduced its value. On March 6, 1995, plaintiffs applied for a
two-million peso loan with the Amanah Islamic Bank for the expansion of the operation of the Ameer Construction
and Integrated Services to be secured by said land (Exh. N), but the application was disapproved by the bank in its
letter of April 25, 1995 (Exh. O) stating that:

"Apropos to this, we regret to inform you that we cannot consider your loan application due to the following
reasons, to wit:

That per my actual ocular inspection and verification, subject property offered as collateral has an existing
underground tunnel by the NPC for the Agus I Project, which tunnel is traversing underneath your property, hence,
an encumbrance. As a matter of bank policy, property with an existing encumbrance cannot be considered neither
accepted as collateral for a loan."

All the foregoing evidence and findings convince this Court that preponderantly plaintiffs have established the
condemnation of their land covering an area of 48,005 sq. meters located at Saduc, Marawi City by the defendant
National Power Corporation without even the benefit of expropriation proceedings or the payment of any just
compensation and/or reasonable monthly rental since 1978. 12
In the past, the Court has held that if the government takes property without expropriation and devotes the property
to public use, after many years, the property owner may demand payment of just compensation in the event
restoration of possession is neither convenient nor feasible. 13 This is in accordance with the principle that persons
shall not be deprived of their property except by competent authority and for public use and always upon payment of
just compensation.14

Petitioner contends that the underground tunnels in this case constitute an easement upon the property of
respondents which does not involve any loss of title or possession. The manner in which the easement was created
by petitioner, however, violates the due process rights of respondents as it was without notice and indemnity to them
and did not go through proper expropriation proceedings. Petitioner could have, at any time, validly exercised the
power of eminent domain to acquire the easement over respondents’ property as this power encompasses not only
the taking or appropriation of title to and possession of the expropriated property but likewise covers even the
imposition of a mere burden upon the owner of the condemned property. 15 Significantly, though, landowners cannot
be deprived of their right over their land until expropriation proceedings are instituted in court. The court must then
see to it that the taking is for public use, that there is payment of just compensation and that there is due process of
law.16

In disregarding this procedure and failing to recognize respondents’ ownership of the sub-terrain portion, petitioner
took a risk and exposed itself to greater liability with the passage of time. It must be emphasized that the acquisition
of the easement is not without expense. The underground tunnels impose limitations on respondents’ use of the
property for an indefinite period and deprive them of its ordinary use. Based upon the foregoing, respondents are
clearly entitled to the payment of just compensation.17 Notwithstanding the fact that petitioner only occupies the
sub-terrain portion, it is liable to pay not merely an easement fee but rather the full compensation for land. This is so
because in this case, the nature of the easement practically deprives the owners of its normal beneficial use.
Respondents, as the owners of the property thus expropriated, are entitled to a just compensation which should be
neither more nor less, whenever it is possible to make the assessment, than the money equivalent of said property. 18

The entitlement of respondents to just compensation having been settled, the issue now is on the manner of
computing the same. In this regard, petitioner claims that the basis for the computation of the just compensation
should be the value of the property at the time it was taken in 1978. Petitioner also impugns the reliance made by the
CA upon National Power Corporation v. Court of Appeals and Macapanton Mangondato 19 as the basis for
computing the amount of just compensation in this action. The CA found that "the award of damages is not
excessive because the ₱1000 per square meter as the fair market value was sustained in a case involving a lot
adjoining the property in question which case involved an expropriation by [petitioner] of portion of Lot 1 of the
subdivision plan (LRC) PSD 116159 which is adjacent to Lots 2 and 3 of the same subdivision plan which is the
subject of the instant controversy." 20

Just compensation has been understood to be the just and complete equivalent of the loss 21 and is ordinarily
determined by referring to the value of the land and its character at the time it was taken by the expropriating
authority.22 There is a "taking" in this sense when the owners are actually deprived or dispossessed of their property,
where there is a practical destruction or a material impairment of the value of their property, or when they are
deprived of the ordinary use thereof. There is a "taking" in this context when the expropriator enters private property
not only for a momentary period but for more permanent duration, for the purpose of devoting the property to a
public use in such a manner as to oust the owner and deprive him of all beneficial enjoyment thereof.23Moreover,
"taking" of the property for purposes of eminent domain entails that the entry into the property must be under
warrant or color of legal authority.24

Under the factual backdrop of this case, the last element of taking mentioned, i.e., that the entry into the property is
under warrant or color of legal authority, is patently lacking. Petitioner justified its nonpayment of the indemnity due
respondents upon its mistaken belief that the property formed part of the public dominion.

This situation is on all fours with that in the Mangondato case. NAPOCOR in that case took the property of therein
respondents in 1979, using it to build its Aqua I Hydroelectric Plant Project, without paying any compensation,
allegedly under the mistaken belief that it was public land. It was only in 1990, after more than a decade of
beneficial use, that NAPOCOR recognized therein respondents’ ownership and negotiated for the voluntary
purchase of the property.

In Mangondato, this Court held:

The First Issue: Date of Taking or Date of Suit?

The general rule in determining "just compensation" in eminent domain is the value of the property as of the date of
the filing of the complaint, as follows:

"Sec. 4. Order of Condemnation. When such a motion is overruled or when any party fails to defend as required by
this rule, the court may enter an order of condemnation declaring that the plaintiff has a lawful right to take the
property sought to be condemned, for the public use or purpose described in the complaint, upon the payment of just
compensation to be determined as of the date of the filing of the complaint. x x x" (Italics supplied).

Normally, the time of the taking coincides with the filing of the complaint for expropriation. Hence, many ruling of
this Court have equated just compensation with the value of the property as of the time of filing of the complaint
consistent with the above provision of the Rules. So too, where the institution of the action precedes entry to the
property, the just compensation is to be ascertained as of the time of filing of the complaint.

The general rule, however, admits of an exception: where this Court fixed the value of the property as of the date it
was taken and not the date of the commencement of the expropriation proceedings.

In the old case of Provincial Government of Rizal vs. Caro de Araullo, the Court ruled that "x x x the owners of the
land have no right to recover damages for this unearned increment resulting from the construction of the public
improvement (lengthening of Taft Avenue from Manila to Pasay) from which the land was taken. To permit them to
do so would be to allow them to recover more than the value of the land at the time it was taken, which is the true
measure of the damages, or just compensation, and would discourage the construction of important public
improvements."

In subsequent cases, the Court, following the above doctrine, invariably held that the time of taking is the critical
date in determining lawful or just compensation. Justifying this stance, Mr. Justice (later Chief Justice) Enrique
Fernando, speaking for the Court in Municipality of La Carlota vs. The Spouses Felicidad Baltazar and Vicente Gan,
said, "x x x the owner as is the constitutional intent, is paid what he is entitled to according to the value of the
property so devoted to public use as of the date of taking. From that time, he had been deprived thereof. He had no
choice but to submit. He is not, however, to be despoiled of such a right. No less than the fundamental law
guarantees just compensation. It would be injustice to him certainly if from such a period, he could not recover the
value of what was lost. There could be on the other hand, injustice to the expropriator if by a delay in the collection,
the increment in price would accrue to the owner. The doctrine to which this Court has been committed is intended
precisely to avoid either contingency fraught with unfairness."

Simply stated, the exception finds the application where the owner would be given undue incremental advantages
arising from the use to which the government devotes the property expropriated -- as for instance, the extension of a
main thoroughfare as was in the case in Caro de Araullo. In the instant case, however, it is difficult to conceive of
how there could have been an extra-ordinary increase in the value of the owner’s land arising from the
expropriation, as indeed the records do not show any evidence that the valuation of P1,000.00 reached in 1992 was
due to increments directly caused by petitioner’s use of the land. Since the petitioner is claiming an exception to
Rule 67, Section 4, it has the burden in proving its claim that its occupancy and use -- not ordinary inflation and
increase in land values -- was the direct cause of the increase in valuation from 1978 to 1992.

Side Issue: When is there "Taking" of Property?


But there is yet another cogent reason why this petition should be denied and why the respondent Court should be
sustained. An examination of the undisputed factual environment would show that the "taking" was not really made
in 1978.

This Court has defined the elements of "taking" as the main ingredient in the exercise of power of eminent domain,
in the following words:

"A number of circumstances must be present in "taking" of property for purposes of eminent domain: (1) the
expropriator must enter a private property; (2) the entrance into private property must be for more than a momentary
period; (3) the entry into the property should be under warrant or color of legal authority; (4) the property must be
devoted to a public use or otherwise informally appropriated or injuriously affected; and (5) the utilization of the
property for public use must be in such a way to oust the owner and deprive him of all beneficial enjoyment of the
property."(Italics supplied)

In this case, the petitioner’s entrance in 1978 was without intent to expropriate or was not made under warrant or
color of legal authority, for it believed the property was public land covered by Proclamation No. 1354. When the
private respondent raised his claim of ownership sometime in 1979, the petitioner flatly refused the claim for
compensation, nakedly insisted that the property was public land and wrongly justified its possession by alleging it
had already paid "financial assistance" to Marawi City in exchange for the rights over the property. Only in 1990,
after more than a decade of beneficial use, did the petitioner recognize private respondent’s ownership and negotiate
for the voluntary purchase of the property. A Deed of Sale with provisional payment and subject to negotiations for
the correct price was then executed. Clearly, this is not the intent nor the expropriation contemplated by law. This is
a simple attempt at a voluntary purchase and sale. Obviously, the petitioner neglected and/or refused to exercise the
power of eminent domain.

Only in 1992, after the private respondent sued to recover possession and petitioner filed its Complaint to
expropriate, did petitioner manifest its intention to exercise the power of eminent domain. Thus the respondent
Court correctly held:

"If We decree that the fair market value of the land be determined as of 1978, then We would be sanctioning a
deceptive scheme whereby NAPOCOR, for any reason other than for eminent domain would occupy another’s
property and when later pressed for payment, first negotiate for a low price and then conveniently expropriate the
property when the land owner refuses to accept its offer claiming that the taking of the property for the purpose of
the eminent domain should be reckoned as of the date when it started to occupy the property and that the value of
the property should be computed as of the date of the taking despite the increase in the meantime in the value of the
property."

In Noble vs. City of Manila, the City entered into a lease-purchase agreement of a building constructed by the
petitioner’s predecessor-in-interest in accordance with the specifications of the former. The Court held that being
bound by the said contract, the City could not expropriate the building. Expropriation could be resorted to "only
when it is made necessary by the opposition of the owner to the sale or by the lack of any agreement as to the price."
Said the Court:

"The contract, therefore, in so far as it refers to the purchase of the building, as we have interpreted it, is in force, not
having been revoked by the parties or by judicial decision. This being the case, the city being bound to buy the
building at an agreed price, under a valid and subsisting contract, and the plaintiff being agreeable to its sale, the
expropriation thereof, as sought by the defendant, is baseless. Expropriation lies only when it is made necessary by
the opposition of the owner to the sale or by the lack of any agreement as to the price. There being in the present
case a valid and subsisting contract, between the owner of the building and the city, for the purchase thereof at an
agreed price, there is no reason for the expropriation." (Italics supplied)

In the instant case, petitioner effectively repudiated the deed of sale it entered into with the private respondent when
it passed Resolution No. 92-121 on May 25, 1992 authorizing its president to negotiate, inter alia, that payment
"shall be effective only after Agus I HE project has been placed in operation." It was only then that petitioner’s
intent to expropriate became manifest as private respondent disagreed and, barely a month, filed suit. 25

In the present case, to allow petitioner to use the date it constructed the tunnels as the date of valuation would be
grossly unfair. First, it did not enter the land under warrant or color of legal authority or with intent to expropriate
the same. In fact, it did not bother to notify the owners and wrongly assumed it had the right to dig those tunnels
under their property. Secondly, the "improvements" introduced by petitioner, namely, the tunnels, in no way
contributed to an increase in the value of the land. The trial court, therefore, as affirmed by the CA, rightly
computed the valuation of the property as of 1992, when respondents discovered the construction of the huge
underground tunnels beneath their lands and petitioner confirmed the same and started negotiations for their
purchase but no agreement could be reached.26

As to the amount of the valuation, the RTC and the CA both used as basis the value of the adjacent property, Lot 1
(the property involved herein being Lots 2 and 3 of the same subdivision plan), which was valued at ₱1,000 per sq.
meter as of 1990, as sustained by this Court in Mangondato, thus:

The Second Issue: Valuation

We now come to the issue of valuation.

The fair market value as held by the respondent Court, is the amount of ₱1,000.00 per square meter. In an
expropriation case where the principal issue is the determination of just compensation, as is the case here, a trial
before Commissioners is indispensable to allow the parties to present evidence on the issue of just compensation.
Inasmuch as the determination of just compensation in eminent domain cases is a judicial function and factual
findings of the Court of Appeals are conclusive on the parties and reviewable only when the case falls within the
recognized exceptions, which is not the situation obtaining in this petition, we see no reason to disturb the factual
findings as to valuation of the subject property. As can be gleaned from the records, the court-and-the-parties-
appointed commissioners did not abuse their authority in evaluating the evidence submitted to them nor
misappreciate the clear preponderance of evidence. The amount fixed and agreed to by the respondent appellate
Court is not grossly exorbitant. To quote:

"Commissioner Ali comes from the Office of the Register of Deeds who may well be considered an expert, with a
general knowledge of the appraisal of real estate and the prevailing prices of land in the vicinity of the land in
question so that his opinion on the valuation of the property cannot be lightly brushed aside.

"The prevailing market value of the land is only one of the determinants used by the commissioners’ report the other
being as herein shown:

xxx

xxx

"Commissioner Doromal’s report, recommending P300.00 per square meter, differs from the 2 commissioners only
because his report was based on the valuation as of 1978 by the City Appraisal Committee as clarified by the latter’s
chairman in response to NAPOCOR’s general counsel’s query."

In sum, we agree with the Court of Appeals that petitioner has failed to show why it should be granted an exemption
from the general rule in determining just compensation provided under Section 4 of Rule 67. On the contrary,
private respondent has convinced us that, indeed, such general rule should in fact be observed in this case. 27

Petitioner has not shown any error on the part of the CA in reaching such a valuation. Furthermore, these are factual
matters that are not within the ambit of the present review.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals in C.A.-G.R. CV No. 57792
dated June 8, 2005 is AFFIRMED.

No costs.

SO ORDERED.

ADOLFO S. AZCUNA
Associate Justice

WE CONCUR:

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-26578 January 28, 1974

LEGARDA HERMANOS and JOSE LEGARDA, petitioners,


vs.
FELIPE SALDAÑA and COURT OF APPEALS (FIFTH DIVISION) * respondents.

Manuel Y. Macias for petitioners.

Mario E. Ongkiko for private respondent.

TEEHANKEE, J.:1äwphï1.ñët

The Court, in affirming the decision under review of the Court of Appeals, which holds that the respondent
buyer of two small residential lots on installment contracts on a ten-year basis who has faithfully paid for
eight continuous years on the principal alone already more than the value of one lot, besides the larger
stipulated interests on both lots, is entitled to the conveyance of one fully paid lot of his choice, rules that the
judgment is fair and just and in accordance with law and equity.

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 as plaintiff had entered into two written contracts with petitioner Legarda
Hermanos as defendant subdivision owner, whereby the latter agreed to sell to him Lots Nos. 7 and 8 of block
No. 5N of the subdivision with an area of 150 square meters each, 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 with 10% interest per
annum, to commence on May 26, 1948, date of execution of the contracts. Subsequently, Legarda Hermanos
partitioned the subdivision among the brothers and sisters, and the two lots were among those allotted to co-
petitioner Jose Legarda who was then included as co-defendant in the action.

It is undisputed that 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, which as per petitioners' own
statement of account, Exhibit "1", was applied to respondent's account (without distinguishing the two lots),
as follows:

To interests P1,889.78

To principal 1,682.28

Total P3,582.061

It is equally undisputed that after February, 1956 up to the filing of respondent's complaint in the Manila court of
first instance in 1961, respondent did not make further payments. The account thus shows that he owed petitioners
the sum of P1,317.72 on account of the balance of the purchase price (principal) of the two lots (in the total sum of
P3,000.00), although he had paid more than the stipulated purchase price of P1,500.00 for one lot.

Almost five years later, on February 2, 1961 just before the filing of the action, 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 in their letter of February 11, 1961 that as respondent had failed to complete total payment of the
120 installments by May, 1958 as stipulated in the contracts to sell, "pursuant to the provisions of both contracts all
the amounts paid in accordance with the agreement together with the improvements on the premises have been
considered as rents paid and as payment for damages suffered by your failure," 2 and "Said cancellation being in
order, is hereby confirmed."

From the adverse decision of July 17, 1963 of the trial court sustaining petitioners' cancellation of the contracts and
dismissing respondent's complaint, respondent appellate court on appeal rendered its judgment of July 27, 1966
reversing the lower court's judgment and ordering petitioners "to deliver to the plaintiff possession of one of the two
lots, at the choice of defendants, and to execute the corresponding deed of conveyance to the plaintiff for the said
lot,"3 ruling as follows: —

During the hearing, plaintiff testified that he suspended payments because the lots were not
actually delivered to him, or could not be, due to the fact that they were completely under water;
and also because the defendants-owners failed to make improvements on the premises, such as
roads, filling of the submerged areas, etc., despite repeated promises of their representative, the
said Mr. Cenon. As regards the supposed cancellation of the contracts, plaintiff averred that no
demand has been made upon him regarding the unpaid installments, and for this reason he could
not be declared in default so as to entitle the defendants to cancel the said contracts.

The issue, therefore, is: Under the above facts, may defendants be compelled, or not, to allow
plaintiff to complete payment of the purchase price of the two lots in dispute and thereafter to
execute the final deeds of conveyance thereof in his favor?

xxx xxx xxx

Whether or not plaintiffs explanation for his failure to pay the remaining installments is true,
considering the circumstances obtaining in this case, we elect to apply the broad principles
of equity and justice. In the case at bar, we find that the plaintiff has paid the total sum of
P3,582.06 including interests, which is even more than the value of the two lots. And even if the
sum applied to the principal alone were to be considered, which was of the total of P1,682.28, the
same was already more than the value of onelot, which is P1,500.00. The only balance due on
both lots was P1,317.72, which was even less than the value of one lot. We will consider as fully
paid by the plaintiff at least one of the two lots, at the choice of the defendants. This is more in
line with good conscience than a total denial to the plaintiff of a little token of what he has paid the
defendant Legarda Hermanos.4

Hence, the present petition for review, wherein petitioners insist on their right of cancellation under the "plainly
valid written agreements which constitute the law between the parties" as against "the broad principles of equity and
justice" applied by the appellate court. Respondent on the other hand while adhering to the validity of the doctrine of
the Caridad Estates cases5 which recognizes the right of a vendor of land under a contract to sell to cancel the
contract upon default, with forfeiture of the installments paid as rentals, disputes its applicability herein contending
that here petitioners-sellers were equally in default as the lots were "completely under water" and "there is neither
evidence nor a finding that the petitioners in fact cancelled the contracts previous to receipt of respondent's letter."6

The Court finds that the appellate court's judgment finding that of the total sum of P3,582.06 (including interests of
P1,889.78) 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.

As already stated, 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, Exhibit "1".7 Even considering respondent as having defaulted after February 1956, when he suspended
payments after the 95th installment, 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 judgment recognizing this fact and ordering the conveyance to him of one lot of
his choice while also recognizing petitioners' right to retain the interests of P1,889.78 paid by him for eight years
on both lots, besides the cancellation of the contract for one lot which thus reverts to petitioners, cannot be deemed
to deny substantial justice to petitioners nor to defeat their rights under the letter and spirit of the contracts in
question.

The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs. Javier8 is fully applicable to the present
case, with the respondent at bar being granted lesser benefits, since no rescission of contract was therein permitted.
There, where the therein buyer-appellee identically situated as herein respondent buyer had likewise defaulted in
completing the payments after having religiously paid the stipulated monthly installments for almost eight years and
notwithstanding that the seller-appellant had duly notified the buyer of the rescission of the contract to sell, the
Court upheld the lower court's judgment denying judicial confirmation of the rescission and instead granting the
buyer an additional grace period of sixty days from notice of judgment to pay all the installment payments in
arrears together with the stipulated 10% interest per annum from the date of default, apart from reasonable
attorney's fees and costs, which payments, the Court observed, would have the plaintiff-seller "recover everything
due thereto, pursuant to its contract with the defendant, including such damages as the former may have suffered in
consequence of the latter's default."

In affirming, 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." 9

ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed. Without pronouncement as to
costs.

Makalintal, C.J., Castro, Makasiar, Esguerra and Muñoz Palma, JJ., concur.1äwphï1.ñët

Footnotes
* Composed of Julio Villamor, Jesus Y. Perez and Ramon

G.R. No. L-30597

GUILLERMO AZCONA and FE JALANDONI AZCONA, petitioners,


vs.
JOSE JAMANDRE, Administrator of the Intestate Estate of Cirilo Jamandre (Sp. Proc. 6921 of the Court of
First Instance of Negros Occidental), and the HONORABLE COURT OF APPEALS, respondents.

CRUZ, J.:

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. On appeal, its decision was modified by the respondent court in favor of the
plaintiff, for which reason the defendant has now come to us in a petition for certiorari.

By the said contract, 1 Guillermo Azcona (hereinafter called the petitioner) leased 80 hectares of his 150-hectare pro
indiviso share in Hacienda Sta. Fe in Escalante, Negros Occidental, to Cirilo Jamandre (represented here by the
administrator of his intestate estate, and hereinafter called 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. 2 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,
which was acknowledged in the receipt later offered as Exhibit "B".

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," pursuant to its paragraph 8, for violation of the conditions specified
in the said agreement. 3 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. 4

The reaction of the respondent to these developments was to file a complaint for damages against the petitioner, who
retaliated with a counterclaim. As previously stated, both the complaint and the counterclaim were dismissed by the
trial court * on the finding that the parties were in pari delicto. 5

The specific reasons invoked by the petitioner for canceling the lease contract were 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. 6

The parcelary plan was provided for in the contract as follows:

That the LESSOR by these presents do hereby agree to lease in favor of the LESSEE a portion of the said
lots above-described with an extension of EIGHTY (80) hectares, more or less, which portion is to be
Identified by the parcelary plan duly marked and to be initialed by both LESSOR and LESSEE, and which
parcelary plan is known as Annex "A" of this contract and considered as an integral part hereof. 7

According to the petitioners, the parcelary plan was never agreed upon or annexed to the contract, which thereby
became null and void under Article 1318 of the Civil Code for lack of a subject matter. Moreover, the failure of the
parties to approve and annex the said parcelary plan had the effect of a breach of the contract that justified its
cancellation under its paragraph 8. 8
In one breath, the petitioner is arguing that there was no contract because there was no object and at the same time
that there was a contract except that it was violated.

The correct view, as we see it, is that there was an agreed subject-matter, to wit, the 80 hectares of the petitioner's
share in the Sta. Fe hacienda, although it was not expressly defined because the parcelary plan was not annexed and
never approved by the parties. Despite this lack, however, there was an ascertainable object because the leased
premises were sufficiently Identified and delineated as the petitioner admitted in his amended answer and in his
direct testimony. 9

Thus, in his amended answer, he asserted that "the plaintiff . . .must delimit his work to the area previously
designated and delivered." Asked during the trial how many hectares the private respondent actually occupied, the
petitioner declared: "About 80 hectares. The whole 80 hectares." 10 The petitioner cannot now contradict these
written and oral admissions." 11

Moreover, it appears that the failure to attach the parcelary plan to the contract is imputable to the petitioner himself
because it was he who was supposed to cause the preparation of the said plan. As he testified on direct examination,
"Our agreement was to sign our agreement, then I will have the parcelary plan prepared so that it will be a part of
our contract." 12 That this was never done is not the respondent's fault as he had no control of the survey of the
petitioner's land.

Apparently, the Court of Appeals ** found, the parties impliedly decided to forego the annexing of the parcelary plan
because they had already agreed on the area and limits of the leased premises. 13 The Identification of the 80
hectares being leased rendered the parcelary plan unnecessary, and its absence did not nullify the agreement.

Coming next to the alleged default in the payment of the stipulated rentals, we observe first that when in Exhibit "B"
the petitioner declared that "I hereby waive payment for the rentals corresponding to the crop year 1960-61 and
which was due on March 30, 1960, " there was really nothing to waive because, as he himself put it in the same
document, possession of the leased property "was not actually delivered" to the respondent. 14

The petitioner claims that such possession was not delivered because the approval by the PNB of the lease contract
had not "materialized" due to the respondent's neglect. Such approval, he submitted, was to have been obtained by
the respondents, which seems logical to us, for it was the respondent who was negotiating the loan from the PNB.
As the respondent court saw it, however, "paragraph 6 (of the contract) does not state upon whom fell the obligation
to secure the approval" so that it was not clear that "the fault, if any, was due solely to one or the other." 15

At any rate, that issue and the omission of the parcelary plan became immaterial when the parties agreed on the lease
for the succeeding agricultural year 1961-62, the respondent paying and the petitioner receiving therefrom the sum
of P7,000.00, as acknowledged in Exhibit "B," which is reproduced in full as follows:

Bacolod City

October 26, 1960

RECEIPT

RECEIVED from Mr. Cirilo Jamandre at the City of Bacolod, Philippines, this 26th day of October, 1960,
Philippine National Bank Check No. 180646-A (Manager's Check Binalbagan Branch) for the amount of
SEVEN THOUSAND PESOS (P7,000.00), Philippine Currency as payment for the rental corresponding to
crop year 1961-62, by virtue of the contract of lease I have executed in his favor dated November 23, 1959,
and ratified under Notary Public Mr. Enrique F. Marino as Doc. No. 119, Page No. 25, Book No. XII,
Series of 1959. It is hereby understood, that this payment corresponds to the rentals due on or before
January 30, 1961, as per contract. It is further understood that I hereby waive payment for the rentals
corresponding to crop year 1960-61 and which was due on March 30, 1960, as possession of the property
lease in favor of Mr. Cirilo Jamandre was not actually delivered to him, but the same to be delivered only
after receipt of the amount as stated in this receipt. That Mr. Cirilo Jamandre is hereby authorized to take
immediate possession of the property under lease effective today, October 26, 1960.

WITNESS my hand at the City of Bacolod, Philippines, this 26th day of October, 1960.

(SGD.) GUILLERMO AZCONA

SIGNED IN THE PRESENCE OF:

(SGD.) JOSE T. JAMANDRE

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. 16

For 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. 17

After a study of the receipt as signed by the petitioner and witnessed for the respondent, this Court has come to the
conclusion, and so holds, that the amount of P7,000.00 paid to by the respondent and received by the petitioner
represented payment in full of the rental for the agricultural year 1961-62.

The language is clear enough: "The amount of SEVEN THOUSAND PESOS (P7,000.00), Philippine Currency, as
payment for the rental corresponding to crop year 1961-62 ... to the rental due on or before January 30, 1961, as per
contract." The conclusion should be equally clear.

The words "as per contract" are especially significant as they suggest that the parties were aware of the provisions of
the agreement, which was described in detail elsewhere in the receipt. The rental stipulated therein was P7,200.00.
The payment being acknowledged in the receipt was P7,000.00 only. Yet no mention was made in the receipt of the
discrepancy and, on the contrary, the payment was acknowledged "as per contract." We read this as meaning that the
provisions of the contract were being maintained and respected except only for the reduction of the agreed rental.

The respondent court held that the amount of P200.00 had been condoned, but we do not think so. The petitioner is
correct in arguing that the requisites of condonation under Article 1270 of the Civil Code are not present. What we
see here instead is a mere reduction of the stipulated rental in consideration of the withdrawal from the leased
premises of the 16 hectares where the petitioner intended to graze his cattle. The signing of Exhibit "B " by the
petitioner and its acceptance by the respondent manifested their agreement on the reduction, which modified the
lease contract as to the agreed consideration while leaving the other stipulations intact.

The petitioner says that having admittedly been drafted by lawyer Jose Jamandre, the respondent's son, the receipt
would have described the amount of P7,000.00 as "payment in full" of the rental if that were really the case.

It seems to us that this meaning was adequately conveyed in the acknowledgment made by the petitioner that this
was "payment for the rental corresponding to crop year 1961-62" and "corresponds to the rentals due on or before
January 30, 1961, as per contract." On the other hand, if this was not the intention, the petitioner does not explain
why he did not specify in the receipt that there was still a balance of P200.00 and, to be complete, the date when it
was to be paid by the respondent.
It is noted that the receipt was meticulously worded, suggesting that the parties were taking great pains, indeed, to
provide against any possible misunderstanding, as if they were even then already apprehensive of future litigation.
Such a reservation-if there was one-would have been easily incorporated in the receipt, as befitted the legal
document it was intended to be.

In any event, 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. 18 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 when the due date arrived, he made any demand, written or verbal, for the payment of
that amount.

As this Court is not a trier of facts, 19 we defer to the findings of the respondent court regarding the losses sustained
by the respondent on the basis of the estimated yield of the properties in question in the years he was supposed to
possess and exploit them. While the calculations offered by the petitioner are painstaking and even apparently
exhaustive, we do not find any grave abuse of discretion on the part of the respondent court to warrant its reversal on
this matter. We also sustain the P5,000.00 attorney's fee.

WHEREFORE, the decision of the respondent Court of Appeals is AFFIRMED in full, with costs against the
petitioners.

SO ORDERED.

Yap (Chairman), Narvasa, Melencio-Herrera, Feliciano, Gancayco and Sarmiento, JJ., concur.

FIRST DIVISION

[G.R. No. L-52807. February 29, 1984.]

JOSE ARAÑAS and LUISA QUIJENCIO ARAÑAS, Petitioners, v. HON. EDUARDO C. TUTAAN, as Judge
of the Court of First Instance of Quezon City, and UNIVERSAL TEXTILE MILLS, INC., Respondents.

Jose R. Francisco, for Petitioners.

Reyes, Santayana, Tayao & Picazo Law Office for Respondents.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENTS; PAYMENT OF JUDGMENT DEBT TO WRONG


PARTY DOES NOT EXTINGUISH JUDGMENT DEBTOR’S OBLIGATION TO RIGHTFUL PARTY. — If
UTEX chose to pay the wrong parties, notwithstanding its full knowledge and understanding of the final judgment,
that it was liable to pay all dividends after the trial court’s judgment in 1971 to petitioners as the lawfully declared
owners of the questioned shares of stock (but which could not be enforced against it pending the outcome of the
appeal filed by the co-defendants Castañeda and Manuel in the Court of Appeals), it only had itself to blame
therefor. The burden of recovery the supposed payment of the cash dividends made by UTEX to the wrong parties
Castañeda and Manuel squarely falls upon itself by its own action and cannot be passed by it to petitioners as
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.

2. ID.; ID.; ID.; MODIFICATION OR ALTERATION NOT ALLOWED AFTER FINALITY. — 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.

3. ID.; ID.; ID.; ID.; EXECUTION, A MATTER OF RIGHT. — 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.

DECISION

TEEHANKEE, J.:

In a decision rendered on May 3, 1971 by the now defunct Court of First Instance of Rizal, Branch V, at Quezon
City, in Civil Case No. Q-40689 thereof, entitled "Jose Arañas, Et. Al. v. Juanito R. Castañeda, Et Al.," the said
court declared that petitioner Luisa Quijencio as plaintiff (assisted by her spouse co-petitioner Jose Arañas) was the
owner of 400 shares of stock of respondent Universal Textile Mills, Inc. (UTEX) as defendant issued "in the names
of its co-defendants Gene Manuel and B.R. Castañeda, including the stock dividends that accrued to said shares, and
ordering defendant Universal Textile Mills, Inc. to cancel said certificates and issue new ones in the name of said
plaintiff Luisa Quijencio Arañas and to deliver to her all dividends appertaining to same, whether in cash or in
stocks." chanrobles law library : red

In a motion for clarification and/or motion for reconsideration, respondent UTEX manifested, inter alia, that" (I)f
this Honorable Court by the phrase ‘to deliver to her all dividends appertaining to same, whether in cash or in
stocks,’ meant dividends properly pertaining to plaintiffs after the court’s declaration of plaintiffs’ ownership of said
400 shares of stock, then as defendant UTEX has always maintained it would rightfully abide by whatever decision
may be rendered by this Honorable Court since such would be the logical consequence after the declaration or ruling
in respect to the rightful ownership of the said shares of stock." The motion for clarification was granted by the trial
court which ruled that its judgment against UTEX was to pay to Luisa Quijencio Arañas the cash dividends which
accrued to the stocks in question after the rendition of this decision excluding cash dividends already paid to its co-
defendants Gene Manuel and B.R. Castañeda which accrued before its decision and could not be claimed by the
petitioners-spouses, as follows:jgc:chanrobles.com.ph

"This in mind, clarification of the dispositive portion of the decision as aforequoted is indeed necessary, and thus
made as to ordain the payment to plaintiff Luisa Quijencio Arañas of cash dividends which accrue to the stocks in
question after the rendition of this decision. Cash dividends already paid to defendants which accrued before this
decision may not, therefore, be claimed by plaintiffs."cralaw virtua1aw library

Apparently satisfied with the clarification, UTEX neither moved for reconsideration of the order nor appealed from
the judgment. Subsequently, the trial court granted the motion for new trial of the two co-defendants Manuel and
Castañeda, and after such new trial, it rendered under date of October 23, 1972 its decision against them which was
substantially the same as its first decision of May 3, 1971 which had already become final and executory as against
UTEX, declaring petitioners-spouses the owners of the questioned shares of stock in the names of aforementioned
co-defendants Castañeda and Manuel and ordering the cancellation of the certificates in their names and to issue
new ones in the names of petitioners.chanrobles lawlibrary : rednad
Co-defendants Castañeda and Manuel appealed this judgment of October 23, 1972 against them to the Court of
Appeals (now Intermediate Appellate Court), which rendered on September 1, 1978 its judgment affirming in toto
the trial court’s judgment. Said co-defendants sought to appeal the appellate’s court’s adverse judgment on a petition
for review with this Court, which rendered its Resolution of March 7, 1979 denying the petition for review for lack
of merit and the judgment against the defendants accordingly became final and executory.

At petitioners’ instance, the lower court issued a writ of execution and a specific order of December 5, 1979
directing UTEX:jgc:chanrobles.com.ph

"1. To effect the cancellation of the certificates of stock in question in the names of B.R. Castañeda and Gene G.
Manuel and the issuance of new ones in the names of the plaintiffs;

"2. To pay the amount of P100,701.45 representing the cash dividends that accrued to the same stocks from 1972 to
1979 with interest thereon at the rate of 12% per annum from the date of the service of the writ of execution on
October 3, 1979 until fully paid."cralaw virtua1aw library

Upon UTEX’ motion for partial reconsideration alleging that the cash dividends of the stocks corresponding to the
period from 1972 to 1979 had already been paid and delivered by it to co-defendants Castañeda and Manuel who
then still appeared as the registered owners of the said shares, the lower court issued its order of January 4, 1980
granting said motion of UTEX and partially reconsidered its order "to the effect that the defendant Universal Textile
Mills, Inc. is absolved from paying the cash dividend corresponding to the stocks in question to the plaintiffs for the
period 1972 to 1979."cralaw virtua1aw library

Hence, the present action for certiorari to set aside respondent judge’s questioned order of January 4, 1980 as
having been issued without jurisdiction and for mandamus to compel respondent judge to perform his ministerial
duty of ordering execution of the final and executory judgment against UTEX according to its terms.

The Court finds merit in the petition and accordingly grants the same.

The final and executory judgment against UTEX in favor of petitioners, declared petitioners as the owners of the
questioned UTEX shares of stock as againsts its co-defendants Castañeda and Manuel. It was further made clear
upon UTEX’ own motion for clarification that all dividends accruing to the said shares of stock after the rendition of
the decision of August 7, 1971 which for the period from 1972 to 1979 amounted to P100,701.45 were to be paid by
UTEX to petitioners, and UTEX, per the trial court’s order of clarification of June 16, 1971 above quoted had
expressly maintained "it would rightfully abide by whatever decision may be rendered by this Honorable Court since
such would be the logical consequence after the declaration or ruling in respect to the rightful ownership of the said
shares of stock." chanrobles.com.ph : virtual law library

Consequently, there is no legal nor equitable basis for respondent judge’s position "that it would indeed be most
unjust and inequitable to require the defendant Universal Textile Mills, Inc. to pay twice cash dividends on
particular shares of stocks." 1 If UTEX nevertheless chose to pay the wrong parties, notwithstanding its full
knowledge and understanding of the final judgment, that it was liable to pay all dividends after the trial court’s
judgment in 1971 to petitioners as the lawfully declared owners of the questioned shares of stock (but which could
not be enforced against it pending the outcome of the appeal filed by the co-defendants Castañeda and Manuel in the
Court of Appeals), it only had itself to blame therefor.

The burden of recovering the supposed payment of the cash dividends made by UTEX to the wrong parties
Castañeda and Manuel squarely falls upon itself by its own action and cannot be passed by it to petitioners as
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 v. Tiangco, 96 Phil. 626 [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 v.
Victoriano, 109 Phil. 12).chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

ACCORDINGLY, judgment is rendered setting aside the questioned order of January 4, 1980 of respondent judge
and a writ of mandamus is hereby issued commanding said respondent judge to order the execution of his judgment
against respondent Universal Textile Mills, Inc., pursuant to his first order of June 16, 1971 ordering it to pay the
sum of P100,701.45, representing the cash dividends that accrued to petitioners’ UTEX shares of stock from 1972 to
1979, with interest thereon at the rate of 12% per annum from the date of service of the writ of execution on October
3, 1979 until fully paid, as well as to pay petitioners any subsequent cash dividends that may have been issued by it
thereafter, with interest from due date of payment until actual payment, and directing the sheriff to satisfy such
judgment out of the properties of respondent UTEX. With costs against respondent UTEX. This judgment is
immediately executory.

Plana, Escolin, * Gutierrez, Jr., and De la Fuente, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-41764 December 19, 1980

NEW PACIFIC TIMBER & SUPPLY COMPANY, INC., petitioner,


vs.
HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX-OFFICIO SHERIFF HAKIM S.
ABDULWAHID, respondents.

CONCEPCION JR., J.:

A petition for certiorari with preliminary injunction to annul and/or modify the order of the Court of First Instance
of Zamboanga City (Branch ii) dated August 28, 1975 denying petitioner's Ex-Parte Motion for Issuance of
Certificate Of Satisfaction Of Judgment.

Herein petitioner is the defendant in a complaint for collection of a sum of money filed by the private
respondent. 1On July 19, 1974, a compromise judgment was rendered by the respondent Judge in accordance with an
amicable settlement entered into by the parties the terms and conditions of which, are as follows:

(1) That defendant will pay to the plaintiff the amount of Fifty Four Thousand Five Hundred Pesos
(P54,500.00) at 6% interest per annum to be reckoned from August 25, 1972;

(2) That defendant will pay to the plaintiff the amount of Six Thousand Pesos (P6,000.00) as
attorney's fees for which P5,000.00 had been acknowledged received by the plaintiff under
Consolidated Bank and Trust Corporation Check No. 16-135022 amounting to P5,000.00 leaving
a balance of One Thousand Pesos (P1,000.00);

(3) That the entire amount of P54,500.00 plus interest, plus the balance of P1,000.00 for attorney's
fees will be paid by defendant to the plaintiff within five months from today, July 19, 1974; and

(4) Failure one the part of the defendant to comply with any of the above-conditions, a writ of
execution may be issued by this Court for the satisfaction of the obligation. 2
For failure of the petitioner to comply with his judgment obligation, the respondent Judge, upon motion of the
private respondent, issued an order for the issuance of a writ of execution on December 21, 1974. Accordingly, writ
of execution was issued for the amount of P63,130.00 pursuant to which, the Ex-Officio Sheriff levied upon the
following personal properties of the petitioner, to wit:

(1) Unit American Lathe 24

(1) Unit American Lathe 18 Cracker Wheeler

(1) Unit Rockford Shaper 24

and set the auction sale thereof on January 15, 1975. However, prior to January 15, 1975, petitioner deposited with
the Clerk of Court, Court of First Instance, Zamboanga City, in his capacity as Ex-Officio Sheriff of Zamboanga
City, the sum of P63,130.00 for the payment of the judgment obligation, consisting of the following:

1. P50.000.00 in Cashier's Check No. S-314361 dated January 3, 1975 of the Equitable Banking
Corporation; and

2. P13,130.00 incash. 3

In a letter dated January 14, 1975, to the Ex-Officio Sheriff, 4 private respondent through counsel, refused to accept
the check as well as the cash deposit. In the 'same letter, private respondent requested the scheduled auction sale on
January 15, 1975 to proceed if the petitioner cannot produce the cash. However, the scheduled auction sale at 10:00
a.m. on January 15, 1975 was postponed to 3:00 o'clock p.m. of the same day due to further attempts to settle the
case. Again, the scheduled auction sale that afternoon did not push through because of a last ditch attempt to
convince the private respondent to accept the check. The auction sale was then postponed on the following day,
January 16, 1975 at 10:00 o'clock a.m. 5 At about 9:15 a.m., on January 16, 1975, a certain Mr. Tañedo representing
the petitioner appeared in the office of the Ex-Officio Sheriff and the latter reminded Mr. Tañedo that the auction
sale would proceed at 10:00 o'clock. At 10:00 a.m., Mr. Tañedo and Mr. Librado, both representing the petitioner
requested the Ex-Officio Sheriff to give them fifteen minutes within which to contract their lawyer which request
was granted. After Mr. Tañedo and Mr. Librado failed to return, counsel for private respondent insisted that the sale
must proceed and the Ex-Officio Sheriff proceeded with the auction sale. 6 In the course of the proceedings, Deputy
Sheriff Castro sold the levied properties item by item to the private respondent as the highest bidder in the amount of
P50,000.00. As a result thereof, the Ex-Officio Sheriff declared a deficiency of P13,130.00. 7 Thereafter, on January
16, 1975, the Ex-Officio Sheriff issued a "Sheriff's Certificate of Sale" in favor of the private respondent, Ricardo
Tong, married to Pascuala Tong for the total amount of P50,000.00 only. 8 Subsequently, on January 17, 1975,
petitioner filed an ex-parte motion for issuance of certificate of satisfaction of judgment. This motion was denied by
the respondent Judge in his order dated August 28, 1975. In view thereof, petitioner now questions said order by
way of the present petition alleging in the main that said respondent Judge capriciously and whimsically abused his
discretion in not granting the motion for issuance of certificate of satisfaction of judgment for the following reasons:
(1) that there was already a full satisfaction of the judgment before the auction sale was conducted with the deposit
made to the Ex-Officio Sheriff in the amount of P63,000.00 consisting of P50,000.00 in Cashier's Check and
P13,130.00 in cash; and (2) that the auction sale was invalid for lack of proper notice to the petitioner and its counsel
when the Ex-Officio Sheriff postponed the sale from June 15, 1975 to January 16, 1976 contrary to Section 24, Rule
39 of the Rules of Court. On November 10, 1975, the Court issued a temporary restraining order enjoining the
respondent Ex-Officio Sheriff from delivering the personal properties subject of the petition to Ricardo A. Tong in
view of the issuance of the "Sheriff Certificate of Sale."

We find the petition to be impressed with merit.

The main issue to be resolved in this instance is as to whether or not the private respondent can validly refuse
acceptance of the payment of the judgment obligation made by the petitioner consisting of P50,000.00 in Cashier's
Check and P13,130.00 in cash which it deposited with the Ex-Officio Sheriff before the date of the scheduled
auction sale. In upholding private respondent's claim that he has the right to refuse payment by means of a check, the
respondent Judge cited the following:

Section 63 of the Central Bank Act:

Sec. 63. Legal Character. — Checks representing deposit money do not have legal tender power
and their acceptance in 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 in cash in an amount equal to the amount credited
to his account.

Article 1249 of the New Civil Code:

Art. 1249. — The 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.

In the meantime, the action derived from the original obligation shall be held in abeyance.

Likewise, the respondent Judge sustained the contention of the private respondent that he has the right to refuse
payment of the amount of P13,130.00 in cash because the said amount is less than the judgment obligation, citing
the following Article of the New Civil Code:

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the presentations in which the obligation consists. Neither may the debtor be
required to make partial payment.

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand
and the debtor may effect the payment of the former without waiting for the liquidation of the
latter.

It is to be emphasized in this connection that the check deposited by the petitioner in the amount of P50,000.00 is
not an ordinary check but a Cashier's Check of the Equitable Banking Corporation, a bank of good standing and
reputation. As testified to by the Ex-Officio Sheriff with whom it has been deposited, it is a certified crossed
check. 9It is a well-known and accepted practice in the business sector that a Cashier's Check is deemed as cash.
Moreover, since the said check had been certified by the drawee bank, by the certification, the funds represented by
the check are transferred from the credit of the maker to that of the payee or holder, and for all intents and purposes,
the latter becomes the depositor of the drawee bank, with rights and duties of one in such situation. 10 Where a check
is certified by the bank on which it is drawn, the certification is equivalent to acceptance.11 Said certification
"implies that the check is drawn upon sufficient funds in the hands of the drawee, that they have been set apart for
its satisfaction, and that they shall be so applied whenever the check is presented for payment. It is an understanding
that the check is good then, and shall continue good, and this agreement is as binding on the bank as its notes in
circulation, a certificate of deposit payable to the order of the depositor, or any other obligation it can assume. The
object of certifying a check, as regards both parties, is to enable the holder to use it as money." 12When the holder
procures the check to be certified, "the check operates as an assignment of a part of the funds to the
creditors." 13 Hence, the exception to the rule enunciated under Section 63 of the Central Bank Act to the effect "that
a check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the
creditor in cash in an amount equal to the amount credited to his account" shall apply in this case. Considering that
the whole amount deposited by the petitioner consisting of Cashier's Check of P50,000.00 and P13,130.00 in cash
covers the judgment obligation of P63,000.00 as mentioned in the writ of execution, then, We see no valid reason
for the private respondent to have refused acceptance of the payment of the obligation in his favor. The auction sale,
therefore, was uncalled for. Furthermore, it appears that on January 17, 1975, the Cashier's Check was even
withdrawn by the petitioner and replaced with cash in the corresponding amount of P50,000.00 on January 27, 1975
pursuant to an agreement entered into by the parties at the instance of the respondent Judge. However, the private
respondent still refused to receive the same. Obviously, the private respondent is more interested in the levied
properties than in the mere satisfaction of the judgment obligation. Thus, petitioner's motion for the issuance of a
certificate of satisfaction of judgment is clearly meritorious and the respondent Judge gravely abused his discretion
in not granting the same under the circumstances.

In view of the conclusion reached in this instance, We find no more need to discuss the ground relied in the petition.

It is also contended by the private respondent that Appeal and not a special civil action for certiorari is the proper
remedy in this case, and that since the period to appeal from the decision of the respondent Judge has already
expired, then, the present petition has been filed out of time. The contention is untenable. The decision of the
respondent Judge in Civil Case No. 250 (166) has long become final and executory and so, the same is not being
questioned herein. The subject of the petition at bar as having been issued in grave abuse of discretion is the order
dated August 28, 1975 of the respondent Judge which was merely issued in execution of the said decision. Thus,
even granting that appeal is open to the petitioner, the same is not an adequate and speedy remedy for the respondent
Judge had already issued a writ of execution. 14

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

1. Declaring as null and void the order of the respondent Judge dated August 28, 1975;

2. Declaring as null and void the auction sale conducted on January 16, 1975 and the certificate of sale issued
pursuant thereto;

3. Ordering the private respondent to accept the sum of P63,130.00 under deposit as payment of the judgment
obligation in his favor;

4. Ordering the respondent Judge and respondent Ex-Officio Sheriff to release the levied properties to the herein
petitioner.

The temporary restraining order issued is hereby made permanent.

Costs against the private respondent.

SO ORDERED.

Barredo (Chairman), Aquino, Abad Santos and De Castro, JJ., concur.

ROMAN CATHOLIC BISHOP OF MALOLOS, INC., Petitioner, v. INTERMEDIATE APPELLATE


COURT, and ROBES-FRANCISCO REALTY AND DEVELOPMENT CORPORATION, Respondents.

Rodrigo Law Office for Petitioner.

Antonio P. Barredo and Napoleon M. Malinas for Private Respondent.

SYLLABUS
1. CIVIL LAW; CONTRACTS; TENDER OF PAYMENT; CANNOT BE PRESUMED BY MERE INFERENCE
FROM SURROUNDING CIRCUMSTANCES. — We agree 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." The respondent court was therefore in error to have concluded from the sheer proof of
sufficient available funds on the part of the private respondent to meet more than the total obligation within the
grace period, the alleged truth of tender of payment. The same is a classic case of non-sequitur.

2. ID.; ID.; ID.; NOT VALIDLY CONSTITUTED BY PAYMENT OF A CERTIFIED PERSONAL CHECK. —
With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding issues, the
case of the private respondent still can not succeed in view of the fact that the latter used a certified personal check
which is not legal tender nor the currency stipulated, and therefore, can not constitute valid tender of payment. The
first paragraph of Art. 1249 of the Civil Code provides that "the 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 Court en banc in the recent case of Philippine Airlines v. Court of Appeals, (Promulgated on
January 30, 1990) G.R. No. L-49188, stated thus: 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 (citing Sec. 189, Act 2031 on
Negs. Insts.; Art. 1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil.
44; 21 R.C.L. 60, 61). 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.
Hence, where the tender of payment by the private respondent was not valid for failure to comply with the requisite
payment in legal tender or currency stipulated within the grace period and as such, was validly refused receipt by the
petitioner, the subsequent consignation did not operate to discharge the former from its obligation to the latter.

3. ID.; ID.; OBLIGATIONS ARISING THEREFROM HAVE THE FORCE OF LAW BETWEEN THE
CONTRACTING PARTIES. — Art. 1159 of the Civil Code of the Philippines provides that "obligations arising
from contracts have the force of law between the contracting parties and should be complied with in good faith."
And unless the stipulations in said contract are contrary to law, morals, good customs, public order, or public policy,
the same are binding as between the parties. (Article 1409, Civil Code, par. 1). What the private respondent should
have done if it was indeed desirous of complying with its obligations would have been to pay the petitioner within
the grace period and obtain a receipt of such payment duly issued by the latter. Thereafter, or, allowing a reasonable
time, the private respondent could have demanded from the petitioner the execution of the necessary documents. In
case the petitioner refused, the private respondent could have had always resorted to judicial action for the legitimate
enforcement of its right. For the failure of the private respondent to undertake this more judicious course of action, it
alone shall suffer the consequences.

4. REMEDIAL LAW; APPEAL; FACTUAL FINDINGS OF TRIAL COURT AS A RULE, SHOULD BE


ACCORDED FULL CONSIDERATION AND RESPECT. — On the contrary, the respondent court finds itself
remiss in overlooking or taking lightly the more important findings of fact made by the trial court which we have
earlier mentioned and which as a rule, are entitled to great weight on appeal and should be accorded full
consideration and respect and should not be disturbed unless for strong and cogent reasons. (Natividad del Rosario
Vda. de Alberto v. Court of Appeals, G.R. 29759, May 18, 1989; Matabuena v. Court of Appeals, G.R. 76542, May
5, 1989).

5. ID.; SUPREME COURT; INSTANCES WHEN THE COURT HAS TO REVIEW THE EVIDENCE. — While
the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at variance with those of
the trial court, (Robleza v. Court of Appeals, G.R. 80364, June 28, 1989) or when the inference of the Court of
Appeals from its findings of fact is manifestly mistaken, (Reynolds Philippine Corporation v. Court of Appeals,
G.R. 38187, January 17, 1987) the Court has to review the evidence in order to arrive at the correct findings based
on the record.

DECISION

SARMIENTO, J.:

This is a petition for review on certiorari which seeks the reversal and setting aside of the decision 1 of the Court of
Appeals, 2 the dispositive portion of which reads:chanrobles law library : red

WHEREFORE, the decision appealed from is hereby reversed and set aside and another one entered for the plaintiff
ordering the defendant-appellee Roman Catholic Bishop of Malolos, Inc. to accept the balance of P124,000.00 being
paid by plaintiff-appellant and thereafter to execute in favor of Robes-Francisco Realty Corporation a registerable
Deed of Absolute Sale over 20,655 square meters portion of that parcel of land situated in San Jose del Monte,
Bulacan described in OCT No. 575 (now Transfer Certificates of Title Nos. T-169493, 169494,169495 and 169496)
of the Register of Deeds of Bulacan. In case of refusal of the defendant to execute the Deed of Final Sale, the clerk
of court is directed to execute the said document. Without pronouncement as to damages and attorney’s fees. Costs
against the defendant-appellee. 3

The case at bar arose from a complaint filed by the private respondent, then plaintiff, against the petitioner, then
defendant, in the Court of First Instance (now Regional Trial Court) of Bulacan, at Sta. Maria, Bulacan, 4 for
specific performance with damages, based on a contract 5 executed on July 7, 1971.

The property subject matter of the contract consists of a 20,655 sq.m.-portion, out of the 30,655 sq.m. total area, of a
parcel of land covered by Original Certificate of Title No. 575 of the Province of Bulacan, issued and registered in
the name of the petitioner which it sold to the private respondent for and in consideration of P123,930.00.chanrobles
virtual lawlibrary

The crux of the instant controversy lies in the compliance or non-compliance by the private respondent with the
provision for payment to the petitioner of the principal balance of P100,000.00 and the accrued interest of
P24,000.00 within the grace period.

A chronological narration of the antecedent facts is as follows:chanrob1es virtual 1aw library

On July 7, 1971, the subject contract over the land in question was executed between the petitioner as vendor and
the private respondent 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 6 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 7 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 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 9 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 10 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 11 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.chanrobles.com.ph : virtual law library

On August 27, 1975, the petitioner’s counsel, Atty. Fernandez, wrote a reply 12 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.

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:chanrob1es virtual 1aw library

. . . 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. 13

The trial court likewise noted the inconsistency in the testimony of Atty. Francisco, president of the private
respondent, who earlier testified that a certain Mila Policarpio accompanied her on August 5, 1975 to the office of
the petitioner. Another person, however, named Aurora Oracion, was presented to testify as the secretary-companion
of Atty. Francisco on that same occasion.

Furthermore, the trial court considered as fatal the failure of Atty. Francisco to present in court the certified personal
check allegedly tendered as payment or, at least, its xerox copy, or even bank records thereof. Finally, the trial court
found that the private respondent had insufficient funds available to fulfill the entire obligation considering that the
latter, through its president, Atty. Francisco, only had a savings account deposit of P64,840.00, and although the
latter had a money-market placement of P300,000.00, the same was to mature only after the expiration of the 5-day
grace period.

Based on the above considerations, the trial court rendered a decision in favor of the petitioner, the dispositive
portion of which reads:chanrobles virtual lawlibrary

WHEREFORE, finding plaintiff to have failed to make out its case, the court hereby declares the subject contract
cancelled and plaintiff’s downpayment of P23,930.00 forfeited in favor of defendant, and hereby dismisses the
complaint; and on the counterclaim, the Court orders plaintiff to pay defendant.

(1) Attorney’s fees of P10,000.00;


(2) Litigation expenses of P2,000.00; and

(3) Judicial costs.

SO ORDERED. 14

Not satisfied with the said decision, the private respondent appealed to the respondent Intermediate Appellate Court
(now Court of Appeals) assigning as reversible errors, among others, the findings of the trial court that the available
funds of the private respondent were insufficient and that the latter did not effect a valid tender of payment and
consignation.

The respondent court, in reversing the decision of the trial court, essentially relies on the following
findings:chanrob1es virtual 1aw library

. . . We are 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. The error
of the trial court has in concluding that the money market placement of P300,000.00 was out of reach of Atty.
Francisco. But as testified to by Mr. Catalino Estrella, a representative of the Insular Bank of Asia and America,
Atty. Francisco could withdraw anytime her money market placement and place it at her disposal, thus proving her
financial capability of meeting more than the whole of P124,000.00 then due per contract. This situation, We
believe, proves the truth that Atty. Francisco apprehensive that her request for a 30-day grace period would be
denied, she tendered payment on August 4, 1975 which offer defendant through its representative and counsel
refused to receive. . .15 (Emphasis supplied)

In other words, the respondent court, finding that the private respondent had sufficient available funds, ipso facto
concluded that the latter had tendered payment. Is such conclusion warranted by the facts proven? The petitioner
submits that it is not.cralawnad

Hence, this petition. 16

The petitioner presents the following issues for resolution:chanrob1es virtual 1aw library

x x x

A. 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 (sic) payment for its said obligation within said period?

x x x

B. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in favor of the private
respondent (as vendee) before the latter has actually paid the complete consideration of the sale — where the
contract between and executed by the parties stipulates —

"That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause the
execution of a Deed of Absolute Sale in favor of the VENDEE."cralaw virtua1aw library

x x x.

C. Is an offer of a check a valid tender of payment of an obligation under a contract which stipulates that the
consideration of the sale is in Philippine Currency? 17
We find the petition impressed with merit.

With respect to the first issue, we agree 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."cralaw virtua1aw library

The respondent court was therefore in error to have concluded from the sheer proof of sufficient available funds on
the part of the private respondent to meet more than the total obligation within the grace period, the alleged truth of
tender of payment. The same is a classic case of non-sequitur.chanrobles virtual lawlibrary

On the contrary, the respondent court finds itself remiss in overlooking or taking lightly the more important findings
of fact made by the trial court which we have earlier mentioned and which as a rule, are entitled to great weight on
appeal and should be accorded full consideration and respect and should not be disturbed unless for strong and
cogent reasons. 18

While the Court is not a trier of facts, yet, when the findings of fact of the Court of Appeals are at variance with
those of the trial court, 19 or when the inference of the Court of Appeals from its findings of fact is manifestly
mistaken, 20 the Court has to review the evidence in order to arrive at the correct findings based on the record.

Apropos the second issue raised, although admittedly the documents for the deed of absolute sale had not been
prepared, the subject contract clearly provides that the full payment by the private respondent is an a priori condition
for the execution of the said documents by the petitioner.

That upon complete payment of the agreed consideration by the herein VENDEE, the VENDOR shall cause the
execution of a Deed of Absolute Sale in favor of the VENDEE. 21

The private respondent is therefore in estoppel to claim otherwise as the latter did in the testimony in cross-
examination of its president, Atty. Francisco, which reads:chanrob1es virtual 1aw library

Q Now, you mentioned, Atty. Francisco, that you wanted the defendant to execute the final deed of sale before you
would given (sic) the personal certified check in payment of your balance, is that correct?

A Yes, sir. 22

x x x

Art. 1159 of the Civil Code of the Philippines provides that "obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith." And unless the stipulations in said
contract are contrary to law, morals, good customs, public order, or public policy, the same are binding as between
the parties.23

What the private respondent should have done if it was indeed desirous of complying with its obligations would
have been to pay the petitioner within the grace period and obtain a receipt of such payment duly issued by the
latter. Thereafter, or, allowing a reasonable time, the private respondent could have demanded from the petitioner
the execution of the necessary documents. In case the petitioner refused, the private respondent could have had
always resorted to judicial action for the legitimate enforcement of its right. For the failure of the private respondent
to undertake this more judicious course of action, it alone shall suffer the consequences.chanrobles.com:cralaw:red

With regard to the third issue, granting arguendo that we would rule affirmatively on the two preceding issues, the
case of the private respondent still can not succeed in view of the fact that the latter used a certified personal check
which is not legal tender nor the currency stipulated, and therefore, can not constitute valid tender of payment. The
first paragraph of Art. 1249 of the Civil Code provides that "the 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 Court en banc in the recent case of Philippine Airlines v. Court of Appeals, 24 G.R. No. L-49188, stated
thus:chanrob1es virtual 1aw library

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 (citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan London
Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). 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.

Hence, where the tender of payment by the private respondent was not valid for failure to comply with the requisite
payment in legal tender or currency stipulated within the grace period and as such, was validly refused receipt by the
petitioner, the subsequent consignation did not operate to discharge the former from its obligation to the latter.

In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject contract, did
validly order therefore the cancellation of the said contract, the forfeiture of the previous payment, and the
reconveyance ipso facto of the land in question.chanrobles lawlibrary : rednad

WHEREFORE, the petition for review on certiorari is GRANTED and the DECISION of the respondent court
promulgated on April 25, 1985 is hereby SET ASIDE and ANNULLED and the DECISION of the trial court dated
May 25, 1981 is hereby REINSTATED. Costs against the private Respondent.

SO ORDERED.

Melencio-Herrera, Paras and Regalado, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-50449 January 30, 1982

FILINVEST CREDIT CORPORATION, plaintiff-appellee,


vs.
PHILIPPINE ACETYLENE, CO., INC., defendant-appellant.

DE CASTRO, J.:

This case is certified to Us by the Court of Appeals in its Resolution 1 dated March 22, 1979 on the ground that it
involves purely questions of law, as raised in the appeal of the decision of the Court of First Instance of Manila,
Branch XII in Civil Case No. 91932, the dispositive portion of which reads as follows:
In view of the foregoing consideration, the court hereby renders judgment -

l) directing defendant to pay plaintiff:

a) the sum of P22,227.81 which is the outstanding unpaid obligation of the


defendant under the assigned credit, with 12 %interest from the date of the firing
of the complaint in this suit until the same is fully paid;

b) the sum equivalent to l5% of P22,227.81 as and for attorney's fees; and

2) directing plaintiff to deliver to, and defendant to accept, the motor vehicle, subject of the chattel
may have been changed by the result of ordinary wear and tear of the vehicle.

Defendant to pay the cost of suit.

SO ORDERED.

The facts, as found in the decision 2 subject of the instant appeal, are undisputed.

On October 30, 1971, the Philippine Acetylene Co., Inc., defendant-appellant herein, purchased from one Alexander
Lim, as evidenced by a Deed of Sale marked as Exhibit G, a motor vehicle described as Chevorlet, 1969 model with
Serial No. 136699Z303652 for P55,247.80 with a down payment of P20,000.00 and the balance of P35,247.80
payable, under the terms and conditions of the promissory note (Exh. B), at a monthly installment of P1,036.70 for
thirty-four (34) months, due and payable on the first day of each month starting December 1971 through and
inclusive September 1, 1974 with 12 % interest per annum on each unpaid installment, and attorney's fees in the
amount equivalent to 25% of the total of the outstanding unpaid amount.

As security for the payment of said promissory note, the appellant executed a chattel mortgage (Exh. C) over the
same motor vehicle in favor of said Alexander Lim. Subsequently, on November 2, 1971. Alexander Lim assigned
to the Filinvest Finance Corporation all his rights, title, and interests in the promissory note and chattel mortgage by
virtue of a Deed of Assignment (Exh. D).

Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with the Credit and Development
Corporation assigned to the new corporation, the herein plaintiff-appellee Filinvest Credit Corporation, all its rights,
title, and interests on the aforesaid promissory note and chattel mortgage (Exh. A) which, in effect, the payment of
the unpaid balance owed by defendant-appellant to Alexander Lim was financed by plaintiff-appellee such that Lim
became fully paid.

Appellant failed to comply with the terms and conditions set forth in the promissory note and chattel mortgage since
it had defaulted in the payment of nine successive installments. Appellee then sent a demand letter (Exh. 1) whereby
its counsel demanded "that you (appellant) remit the aforesaid amount in full in addition to stipulated interest and
charges or return the mortgaged property to my client at its office at 2133 Taft Avenue, Malate, Manila within five
(5) days from date of this letter during office hours. " Replying thereto, appellant, thru its assistant general- manager,
wrote back (Exh. 2) advising appellee of its decision to "return the mortgaged property, which return shall be in full
satisfaction of its indebtedness pursuant to Article 1484 of the New Civil Code." Accordingly, the mortgaged
vehicle was returned to the appellee together with the document "Voluntary Surrender with Special Power of
Attorney To Sell" 3 executed by appellant on March 12, 1973 and confirmed to by appellee's vice-president.

On April 4, 1973, appellee wrote a letter (Exh. H) to appellant informing the latter that appellee cannot sell the
motor vehicle as there were unpaid taxes on the said vehicle in the sum of P70,122.00. On the last portion of the said
letter, appellee requested the appellant to update its account by paying the installments in arrears and accruing
interest in the amount of P4,232.21 on or before April 9, 1973.
On May 8, 1973, appellee, in a letter (Exh. 1), 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 in the Court of
First Instance of Manila on September 14, 1973.

In its answer, appellant, while admitting the material allegations of the appellee's complaint, avers that appellee has
no cause of action against it since its obligation towards the appellee was extinguished when in compliance with the
appellee's demand letter, it returned the mortgaged property to the appellee, and that assuming arguendo that the
return of the property did not extinguish its obligation, it was nonetheless 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.

After the case was submitted for decision, the Court of First Instance of Manila, Branch XII rendered its decision
dated February 25, 1974 which is the subject of the instant appeal in this Court.

Appellant's five assignment of errors may be reduced to, or said to revolve around two issues: first, whether or not
the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary surrender by the appellant totally
extinguished and/or cancelled its obligation to the appellee; second, whether or not the warranty for the unpaid taxes
on the mortgaged motor vehicle may be properly raised and imputed to or passed over to the appellee.

Consistent with its stand in the court a quo, appellant now reiterates its main contention that appellee, after giving
appellant an option either to remit payment in full plus stipulated interests and charges or return the mortgaged
motor vehicle, had elected the alternative remedy of exacting fulfillment of the obligation, thus, precluding the
exercise of any other remedy provided for under Article 1484 of the Civil Code of the Philippines which reads:

Article 1484. Civil Code. - In a contract of sale of personal property the price of which is payable
in installments, the vendor may exercise any of the following remedies:

1) Exact fulfillment of the obligation, should the vendee fail to pay;

2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary
shall be void.

In support of the above contention, appellant maintains that when it opted to return, as in fact it did return, the
mortgaged motor vehicle to the appellee, said return necessarily had the effect of extinguishing appellant's
obligation for the unpaid price to the appellee, construing the return to and acceptance by the appellee of the
mortgaged motor vehicle as a mode of payment, specifically, dation in payment or dacion en pago which according
to appellant, virtually made appellee the owner of the mortgaged motor vehicle by the mere delivery thereof, citing
Articles 1232, 1245, and 1497 of the Civil Code, to wit:

Article 1232. Payment means not only the delivery of money but also the performance, in any
manner, of an obligation.

xxx xxx xxx

Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of sales.

xxx xxx xxx


Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee.

Passing at once on the relevant issue raised in this appeal, We find appellant's contention devoid of persuasive force.
The mere return of the mortgaged motor vehicle by the mortgagor, the herein appellant, to the mortgagee, the herein
appellee, does not constitute dation in payment or dacion en pago in the absence, express or implied of the true
intention of the parties. Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of obligation. 4 In dacion en pago, as a special
mode of payment, 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. 5 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 mortgagee, the herein appellee, 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 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.

A more solid basis of the true intention of the parties is furnished by the document executed by appellant captioned
"Voluntary Surrender with Special Power of Attorney To Sell" dated March 12, 1973, attached as Annex "C" of the
appellant's answer to the complaint. An examination of the language of the document reveals that the possession of
the mortgaged motor vehicle was voluntarily surrendered by the appellant to the appellee authorizing the latter 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. With the stipulated conditions as stated, the appellee, in
essence was constituted as a mere agent to sell the motor vehicle which was delivered to the appellee, not as its
property, for if it were, he would have full power of disposition of the property, not only to sell it as is the limited
authority given him in the special power of attorney. Had appellee intended to completely release appellant of its
mortgage obligation, there would be no necessity of executing the document captioned "Voluntary Surrender with
Special Power of Attorney To Sell." Nowhere in the said document can We find that the mere surrender of the
mortgaged motor vehicle to the appellee extinguished appellant's obligation for the unpaid price.

Appellant would also argue that by accepting the delivery of the mortgaged motor vehicle, appellee is estopped from
demanding payment of the unpaid obligation. Estoppel would not he since, as clearly set forth above, appellee never
accepted the mortgaged motor vehicle in full satisfaction of the mortgaged debt.

Under the law, the delivery of possession of the mortgaged property to the mortgagee, the herein appellee, can only
operate to extinguish appellant's liability if the appellee had actually caused the foreclosure sale of the mortgaged
property when it recovered possession thereof. 6 It is worth noting that it is the fact of foreclosure and actual sale of
the mortgaged chattel that bar the recovery by the vendor of any balance of the purchaser's outstanding obligation
not satisfied by the sale. 7 As held by this Court, if the vendor desisted, on his own initiative, from consummating
the auction sale, such desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still sue
for specific performance. 8 This is exactly what happened in the instant case.

On the second issue, there is no dispute that there is an unpaid taxes of P70,122.00 due on the mortgaged motor
vehicle which, according to appellant, liability for the breach of warranty under the Deed of Sale is shifted to the
appellee who merely stepped into the shoes of the assignor Alexander Lim by virtue of the Deed of Assignment in
favor of appellee. The Deed of Sale between Alexander Lim and appellant and the Deed of Assignment between
Alexander Lim and appellee are very clear on this point. There is a specific provision in the Deed of Sale that the
seller Alexander Lim warrants the sale of the motor vehicle to the buyer, the herein appellant, to be free from liens
and encumbrances. When appellee accepted the assignment of credit from the seller Alexander Lim, there is a
specific agreement that Lim continued to be bound by the warranties he had given to the buyer, the herein appellant,
and that if it appears subsequently that "there are such counterclaims, offsets or defenses that may be interposed by
the debtor at the time of the assignment, such counterclaims, offsets or defenses shall not prejudice the FILINVEST
FINANCE CORPORATION and I (Alexander Lim) further warrant and hold the said corporation free and harmless
from any such claims, offsets, or defenses that may be availed of." 9

It must be noted that the unpaid taxes on the motor vehicle is a burden on the property. Since as earlier shown, the
ownership of the mortgaged property never left the mortgagor, the herein appellant, the burden of the unpaid taxes
should be home by him, who, in any case, may not be said to be without remedy under the law, but definitely not
against appellee to whom were transferred only rights, title and interest, as such is the essence of assignment of
credit. 10

WHEREFORE, the judgment appealed from is hereby affirmed in toto with costs against defendant-appellant.

SO ORDERED.

Barredo (Chairman), Aquino, Concepcion, Jr., Ericta and Escolin, JJ.,

Republic of the Philippines


SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 182128 February 19, 2014

PHILIPPINE NATIONAL BANK, Petitioner,


vs.
TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (now PRIME EAST PROPERTIES, INC.) and
AFP-RSBS, INC., Respondents.

DECISION

REYES, J.:

This is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the Decision2 dated August 13, 2007
and Resolution3 dated March 13, 2008 rendered by the Court of Appeals (CA) in CA-G.R. SP No. 86033, which
affirmed the Decision4 dated August 4, 2004 of the Office of the President (OP) in O.P. Case No. 04-D-182
(HLURB Case No. REM-A-030724-0186).

Facts of the Case

Some time in July 1994, respondent Teresita Tan 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
meters6 and covered by Transfer Certificate of Title (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 ₱205,000,000.00 loan from petitioner Philippine National
Bank (petitioner), 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. 7

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. In its Decision8 dated May 21,
2003, the HLURB ruled in favor of Dee and disposed as follows:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Directing [the petitioner] to cancel/release the mortgage on Lot 12, Block 21-A, Village East Executive
Homes covered by Transfer Certificate of Title No. -619608-(TCT No. -619608-), and accordingly,
surrender/release the title thereof to [Dee];

2. Immediately upon receipt by [Dee] of the owner’s duplicate of Transfer Certificate of Title No. -619608-
(TCT No. -619608-), respondents PEPI and AFP-RSBS are hereby ordered to deliver the title of the subject
lot in the name of [Dee] free from all liens and encumbrances;

3. Directing respondents PEPI and AFP-RSBS to pay [the petitioner] the redemption value of Lot 12, Block
21-A, Village East Executive Homes covered by Transfer Certificate of Title No. -619608- (TCT No. -
619608-) as agreed upon by them in their Real Estate Mortgage within six (6) months from the time the
owner’s duplicate of Transfer Certificate of Title No. -619608- (TCT No. -619608-) is actually surrendered
and released by [the petitioner] to [Dee];

4. In the alternative, in case of legal and physical impossibility on the part of [PEPI, AFP-RSBS, and the
petitioner] to comply and perform their respective obligation/s, as above-mentioned, respondents PEPI and
AFP-RSBS are hereby ordered to jointly and severally pay to [Dee] the amount of FIVE HUNDRED
TWENTY THOUSAND PESOS ([P]520,000.00) plus twelve percent (12%) interest to be computed from
the filing of complaint on April 24, 2002 until fully paid; and

5. Ordering [PEPI, AFP-RSBS, and the petitioner] to pay jointly and severally [Dee] the following sums:

a) The amount of TWENTY FIVE THOUSAND PESOS ([P]25,000.00) as attorney’s fees;

b) The cost of litigation[;] and

c) An administrative fine of TEN THOUSAND PESOS ([P]10,000.00) payable to this Office


fifteen (15) days upon receipt of this decision, for violation of Section 18 in relation to Section 38
of PD 957.

SO ORDERED.9

The HLURB decision was affirmed by its Board of Commissioners per Decision dated March 15, 2004, with
modification as to the rate of interest.10

On appeal, the Board of Commissioners’ decision was affirmed by the OP in its Decision dated August 4, 2004,
with modification as to the monetary award.11

Hence, the petitioner filed a petition for review with the CA, which, in turn, issued the assailed Decision dated
August 13, 2007, affirming the OP decision. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision dated August 4, 2004 rendered by
the Office of the President in O. P. Case No. 04-D-182 (HLURB Case No. REM-A-030724-0186) is hereby
AFFIRMED.

SO ORDERED.12

Its motion for reconsideration having been denied by the CA in the Resolution dated March 13, 2008, the petitioner
filed the present petition for review on the following grounds:

I. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING OUTRIGHT RELEASE OF TCT


NO. 619608 DESPITE PNB’S DULY REGISTERED AND HLURB[-] APPROVED MORTGAGE ON
TCT NO. 619608.

II. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING CANCELLATION OF


MORTGAGE/RELEASE OF TITLE IN FAVOR OF RESPONDENT DEE DESPITE THE LACK OF
PAYMENT OR SETTLEMENT BY THE MORTGAGOR (API/PEPI and AFP-RSBS) OF ITS
EXISTING LOAN OBLIGATION TO PNB, OR THE PRIOR EXERCISE OF RIGHT OF REDEMPTION
BY THE MORTGAGOR AS MANDATED BY SECTION 25 OF PD 957 OR DIRECT PAYMENT
MADE BY RESPONDENT DEE TO PNB PURSUANT TO THE DEED OF UNDERTAKING WHICH
WOULD WARRANT RELEASE OF THE SAME.13

The petitioner claims that it has a valid mortgage over Dee’s property, which was part of the property mortgaged by
PEPI to it to secure its loan obligation, and that Dee and PEPI are bound by such mortgage. The petitioner also
argues that it is not privy to the transactions between the subdivision project buyers and PEPI, and has no obligation
to perform any of their respective undertakings under their contract. 14

The petitioner also maintains that Presidential Decree (P.D.) No. 957 15 cannot nullify the subsisting agreement
between it and PEPI, and that the petitioner’s rights over the mortgaged properties are protected by Act 3135 16. If at
all, the petitioner can be compelled to release or cancel the mortgage only after the provisions of P.D. No. 957 on
redemption of the mortgage by the owner/developer (Section 25) are complied with. The petitioner also objects to
the denomination by the CA of the provisions in the Affidavit of Undertaking as stipulations pour autrui,17 arguing
that the release of the title was conditioned on Dee’s direct payment to it. 18

Respondent AFP-RSBS, meanwhile, contends that it cannot be compelled to pay or settle the obligation under the
mortgage contract between PEPI and the petitioner as it is merely an investor in the subdivision project and is not
privy to the mortgage.19

Respondent PEPI, on the other hand, claims that the title over the subject property is one of the properties due for
release by the petitioner as it has already been the subject of a Memorandum of Agreement and dacion en pago
entered into between them.20 The agreement was reached after PEPI filed a petition for rehabilitation, and contained
the stipulation that the petitioner agreed to release the mortgage lien on fully paid mortgaged properties upon the
issuance of the certificates of title over the dacioned properties. 21

For her part, respondent Dee adopts the arguments of the CA in support of her prayer for the denial of the petition
for review.22

Ruling of the Court

The petition must be DENIED.

The petitioner is correct in arguing that it is not obliged to perform any of the undertaking of respondent PEPI and
AFP-RSBS in its transactions with Dee because it is not a privy thereto. The basic principle of relativity of contracts
is that contracts can only bind the parties who entered into it, 23 and cannot favor or prejudice a third person, even if
he is aware of such contract and has acted with knowledge thereof.24 "Where there is no privity of contract, there is
likewise no obligation or liability to speak about." 25

The petitioner, however, is not being tasked to undertake the obligations of PEPI and AFP-RSBS.1avvphi1 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. 26 On the other hand, the principal
obligation of a vendee is to pay the full purchase price at the agreed time. 27 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. There is nothing in the decision of the HLURB, as affirmed by the OP and
the CA, which shows that the petitioner is being ordered to assume the obligation of any of the respondents. There is
also nothing in the HLURB decision, which validates the petitioner’s claim that the mortgage has been nullified. The
order of cancellation/release of the mortgage is simply a consequence of Dee’s full payment of the purchase price, as
mandated by Section 25 of P.D. No. 957, to wit:

Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full
payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of
Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at
the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the
corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or
unit may be secured and delivered to the buyer in accordance herewith.

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 belaboured that
"[a] mortgage is an accessory undertaking to secure the fulfillment of a principal obligation," 28 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. 29

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. 30 In other words,
at the time of the mortgage, PEPI was still the owner of the property. Thus, in China Banking Corporation v.
Spouses Lozada,31 the Court affirmed the right of the owner/developer to mortgage the property subject of
development, to wit: "[P.D.] No. 957 cannot totally prevent the owner or developer from mortgaging the subdivision
lot or condominium unit when the title thereto still resides in the owner or developer awaiting the full payment of
the purchase price by the installment buyer." 32 Moreover, the mortgage bore the clearance of the HLURB, in
compliance with Section 18 of P.D. No. 957, which provides that "[n]o mortgage on any unit or lot shall be made by
the owner or developer without prior written approval of the [HLURB]."

Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI, the former is still bound
to respect the 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.33 Thus, in Luzon Development Bank v. Enriquez,34the 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.35

However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder.
This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957.

x x x.
xxxx

x x x Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned
properties were already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the
Court in another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with
a third party:

"[The Bank] should have considered that it was dealing with a property subject of a real estate development project.
A reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project,
funds other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence,
there was a need to verify whether any part of the property was already intended to be the subject of any other
contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely
with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the
existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee.
x x x"36 (Citation omitted)

More so in this case where the contract to sell has already ripened into a contract of absolute sale.1âwphi1

Moreover, PEPI brought to the attention of the Court the subsequent execution of a Memorandum of Agreement
dated November 22, 2006 by PEPI and the petitioner. Said agreement was executed pursuant to an Order dated
February 23, 2004 by the Regional Trial Court (RTC) of Makati City, Branch 142, in SP No. 02-1219, a petition for
Rehabilitation under the Interim Rules of Procedure on Corporate Rehabilitation filed by PEPI. The RTC order
approved PEPI’s modified Rehabilitation Plan, which included the settlement of the latter’s unpaid obligations to its
creditors by way of dacion of real properties. In said order, the RTC also incorporated certain measures that were not
included in PEPI’s plan, one of which is that "[t]itles to the lots which have been fully paid shall be released to the
purchasers within 90 days after the dacion to the secured creditors has been completed." 37 Consequently, the
agreement stipulated that as partial settlement of PEPI’s obligation with the petitioner, the former absolutely and
irrevocably conveys by way of "dacion en pago" the properties listed therein, 38 which included the lot purchased by
Dee. The petitioner also committed to –

[R]elease its mortgage lien on fully paid Mortgaged Properties upon issuance of the certificates of title over the
Dacioned Properties in the name of the [petitioner]. The request for release of a Mortgaged Property shall be
accompanied with: (i) proof of full payment by the buyer, together with a certificate of full payment issued by the
Borrower x x x. The [petitioner] hereby undertakes to cause the transfer of the certificates of title over the Dacioned
Properties and the release of the Mortgaged Properties with reasonable dispatch. 39

Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation. 40 It is a mode of extinguishing an existing
obligation41 and partakes the nature of sale as the creditor is really buying the thing or property of the debtor, the
payment for which is to be charged against the debtor’s debt.42 Dation in payment extinguishes the obligation to the
extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties
by agreement – express or implied, or by their silence – consider the thing as equivalent to the obligation, in which
case the obligation is totally extinguished.43

There is nothing on record showing that the Memorandum of Agreement has been nullified or is the subject of
pending litigation; hence, it carries with it the presumption of validity. 44 Consequently, the execution of the dation in
payment effectively extinguished respondent PEPI’s loan obligation to the petitioner insofar as it covers the value of
the property purchased by Dee. This negates the petitioner’s claim that PEPI must first redeem the property before it
can cancel or release the mortgage. As it now stands, the petitioner already stepped into the shoes of PEPI and there
is no more reason for the petitioner to refuse the cancellation or release of the mortgage, for, as stated by the Court
in Luzon Development Bank, in accepting the assigned properties as payment of the obligation, "[the bank] has
assumed the risk that some of the assigned properties are covered by contracts to sell which must be honored under
PD 957."45 Whatever claims the petitioner has against PEPI and AFP-RSBS, monetary or otherwise, should not
prejudice the rights and interests of Dee over the property, which she has already fully paid for.
As between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious
that the law—as an instrument of social justice—must favor the weak.46 (Emphasis omitted)

Finally, the Court will not dwell on the arguments of AFP-RSBS given the finding of the OP that "[b]y its non-
payment of the appeal fee, AFP-RSBS is deemed to have abandoned its appeal and accepts the decision of the
HLURB."47 As such, the HLURB decision had long been final and executory as regards AFP-RSBS and can no
longer be altered or modified.48

WHEREFORE, the petition for review is DENIED for lack of merit. Consequently, the Decision dated August 13,
2007 and Resolution dated March 13, 2008 of the Court of Appeals in CA-G.R. SP No. 86033 are AFFIRMED.

Petitioner Philippine National Bank and respondents Prime East Properties Inc. and Armed Forces of the
Philippines-Retirement and Separation Benefits System, Inc. are hereby ENJOINED to strictly comply with the
Housing and Land Use Regulatory Board Decision dated May 21, 2003, as modified by its Board of Commissioners
Decision dated March 15, 2004 and Office of the President Decision dated August 4, 2004.

SO ORDERED.

G.R. No. L-58961 June 28, 1983

SOLEDAD SOCO, petitioner,


vs.
HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the Court of First Instance of Cebu, Branch
XII, Cebu City and REGINO FRANCISCO, JR., respondents.

Chua & Associates Law Office (collaborating counsel) and Andales, Andales & Associates Law Office for
petitioner.

Francis M. Zosa for private respondent.

GUERRERO, J.:

The decision subject of the present petition for review holds the view that there was substantial compliance with the
requisites of consignation and so ruled in favor of private respondent, Regino Francisco, Jr., lessee of the building
owned by petitioner lessor, Soledad Soco in the case for illegal detainer originally filed in the City Court of Cebu
City, declaring the payments of the rentals valid and effective, dismissed the complaint and ordered the lessor to pay
the lessee moral and exemplary damages in the amount of P10,000.00 and the further sum of P3,000.00 as attorney's
fees.

We do not agree with the questioned decision. We hold that the essential requisites of a valid consignation must be
complied with fully and strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That these
Articles must be accorded a mandatory construction is clearly evident and plain from the very language of the codal
provisions themselves which require absolute compliance with the essential requisites therein provided. Substantial
compliance is not enough for that would render only a directory construction to the law. The use of the words "shall"
and "must" which are imperative, operating to impose a duty which may be enforced, positively indicate that all the
essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and explicitly
direct what must be essentially done in order that consignation shall be valid and effectual. Thus, the law provides:

1257. In order that the consignation of the thing due may release the obligor, it must first be
announcedto the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions
which regulate payment.

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.

Art. 1249. The 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.

In the meantime, the action derived from the original obligation shall be held in abeyance.

We have a long line of established precedents and doctrines that sustain the mandatory nature of the above
provisions. The decision appealed from must, therefore, be reversed.

The antecedent facts are substantially recited in the decision under review, as follows:

It appears from the evidence that the plaintiff-appellee-Soco, for short-and the 'defendant-
appellant-Francisco, for brevity- 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. The terms of the contract are embodied in the Contract of Lease (Exhibit "A"
for Soco and Exhibit "2" for Francisco). It can readily be discerned from Exhibit "A" that
paragraphs 10 and 11 appear to have been cancelled while in Exhibit "2" only paragraph 10 has
been cancelled. 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. ...

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 (Exhibit "3") which the latter received as shown in Exhibit "3-A". After writing this letter,
Francisco sent his payment for rentals by checks issued by the Commercial Bank and Trust
Company. Obviously, these payments in checks were received because Soco admitted that prior to
May, 1977, defendant had been religiously paying the rental. ....

1. 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. ...

In view of this alleged non-payment of rental of the leased premises beginning May, 1977, Soco
through her lawyer sent a letter dated November 23, 1978 (Exhibit "B") 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
(Exhibit " 1 "). Despite this explanation, Soco filed this instant case of Illegal Detainer on January
8, 1979. ...

2. Pursuant to his letter dated February 7, 1975(Exhibit"3") and for reasons stated therein,
Francisco paid his monthly rentals to Soco by issuing checks of the Commercial Bank and Trust
Company where he had a checking account. On May 13, 1975, Francisco wrote the Vice-President
of Comtrust, Cebu Branch (Exhibit "4") requesting the latter to issue checks to Soco in the amount
of P 840.00 every 10th of the month, obviously for payment of his monthly rentals. This request of
Francisco was complied with by Comtrust in its letter dated June 4, 1975 (Exhibit "5"). Obviously,
these payments by checks through Comtrust were received by Soco from June, 1975 to April,
1977 because Soco admitted that an rentals due her were paid except the rentals beginning May,
1977. While Soco alleged in her direct examination that 'since May, 1977 he (meaning Francisco)
stopped paying the monthly rentals' (TSN, Palicte, p. 6, Hearing of October 24, 1979), yet on cross
examination she admitted that before the filing of her complaint in the instant case, she knew that
payments for monthly rentals were deposited with the Clerk of Court except rentals for the months
of May, June, July and August, 1977. ...

Pressing her point, Soco alleged that 'we personally demanded from Engr. Francisco for the
months of May, June, July and August, but Engr. Francisco did not pay for the reason that he had
no funds available at that time.' (TSN-Palicte, p. 28, Hearing October 24, 1979). This allegation of
Soco is denied by Francisco because per his instructions, the Commercial Bank and Trust
Company, Cebu Branch, in fact, issued checks in favor of Soco representing payments for
monthly rentals for the months of May, June, July and August, 1977 as shown in Debit
Memorandum issued by Comtrust as follows:

(a) Exhibit "6"-Debit Memo dated May 11, 1977 for P926.10 as payment for May, 1977;

(b) Exhibit"7"-Debit Memo dated June l5, 197 7for P926.10 as payment for June, 1977;

(c) Exhibit "8"-Debit Memo dated July 11, 1977 for P1926.10 as payment for July, 1977;

(d) Exhibit "9"-Debit Memo dated August 10, 1977 for P926. 10 as payment for August, 1977.

These payments are further bolstered by the certification issued by Comtrust dated October 29,
1979 (Exhibit "13"). Indeed the Court is convinced that payments for rentals for the months of
May, June, July and August, 1977 were made by Francisco to Soco thru Comtrust and deposited
with the Clerk of Court of the City Court of Cebu. There is no need to determine whether
payments by consignation were made from September, 1977 up to the filing of the complaint in
January, 1979 because as earlier stated Soco admitted that the rentals for these months were
deposited with the Clerk of Court. ...

Taking into account the factual background setting of this case, 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, Francisco was impelled to deposit
the rentals with the Clerk of Court of the City Court of Cebu. Soco was notified of this deposit by
virtue of the letter of Atty. Pampio Abarientos dated June 9, 1977 (Exhibit "10") and the letter of
Atty. Pampio Abarientos dated July 6. 1977 (Exhibit " 12") as well as in the answer of Francisco
in Civil Case R-16261 (Exhibit "14") particularly paragraph 7 of the Special and Affirmative
Defenses. She was further notified of these payments by consignation in the letter of Atty.
Menchavez dated November 28, 1978 (Exhibit " 1 "). 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. ...
As indicated earlier, the above decision of the Court of First Instance reversed the judgment of the
City Court of Cebu, Branch 11, the dispositive portion of the latter reading as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendant,
Regino Francisco, Jr.:

(1) To vacate immediately the premises in question, consisting of a building located at Manalili
St., Cebu City;

(2) To pay to the plaintiff the sum of P40,490.46 for the rentals, covering the period from May,
1977 to August, 1980, and starting with the month of September, 1980, to pay to the plaintiff for
one (1) year a monthly rental of P l,072.076 and an additional amount of 5 per cent of said
amount, and for so much amount every month thereafter equivalent to the rental of the month of
every preceding year plus 5 percent of same monthly rental until the defendant shall finally vacate
said premises and possession thereof wholly restored to the plaintiff-all plus legal interest from
date of filing of the complaint;

(3) To pay to the plaintiff the sum of P9,000.00 for attorney's fee;

(4) To pay to the plaintiff the sum of P5,000.00 for damages and incidental litigation expenses;
and

(5) To pay the Costs.

SOORDERED.

Cebu City, Philippines, November 21, 1980.

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According to the findings of fact made by the City Court, the defendant Francisco had religiously paid to the
plaintiff Soco the corresponding rentals according to the terms of the Least Contract while enjoying the leased
premises until one day the plaintiff had to demand upon the defendant for the payment of the rentals for the month
of May, 1977 and of the succeeding months. The plaintiff also demanded upon the defendant to vacate the premises
and from that time he failed or refused to vacate his possession thereof; that beginning with the month of May, 1977
until at present, the defendant has not made valid payments of rentals to the plaintiff who, as a consequence, has not
received any rental payment from the defendant or anybody else; that for the months of May to August, 1977,
evidence shows that the plaintiff through her daughter, Teolita Soco and salesgirl, Vilma Arong, went to the office
or residence of defendant at Sanciangko St., Cebu City, on various occasions to effect payment of rentals but were
unable to collect on account of the defendant's refusal to pay; that defendant contended that payments of rental thru
checks for said four months were made to the plaintiff but the latter refused to accept them; that in 1975, defendant
authorized the Commercial Bank and Trust Company to issue checks to the plaintiff chargeable against his bank
account, for the payment of said rentals, and the delivery of said checks was coursed by the bank thru the
messengerial services of the FAR Corporation, but the plaintiff refused to accept them and because of such refusal,
defendant instructed said bank to make consignation with the Clerk of Court of the City Court of Cebu as regard
said rentals for May to August, 1977 and for subsequent months.

The City Court further found that there is no showing that the letter allegedly delivered to the plaintiff in May, 1977
by Filomeno Soon, messenger of the FAR Corporation contained cash money, check, money order, or any other
form of note of value, hence there could never be any tender of payment, and even granting that there was, but
plaintiff refused to accept it without any reason, still no consignation for May, 1977 rental could be considered in
favor of the defendant unless evidence is presented to establish that he actually made rental deposit with the court in
cash money and prior and subsequent to such deposit, he notified the plaintiff thereof.

Notwithstanding the contradictory findings of fact and the resulting opposite conclusions of law by the City Court
and the Court of First Instance, both are agreed, however, that the case presents the issue of whether the lessee failed
to pay the monthly rentals beginning May, 1977 up to the time the complaint for eviction was filed on January 8,
1979. This issue in turn revolves on whether the consignation of the rentals was valid or not to discharge effectively
the lessee's obligation to pay the same. The City Court ruled that the consignation was not valid. The Court of First
Instance, on the other hand, held that there was substantial compliance with the requisites of the law on
consignation.

Let us examine the law and consider Our jurisprudence on the matter, aside from the codal provisions already cited
herein.

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; (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),

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).
See Annotation, The Mechanics of Consignation by Atty. S. Tabios, 104 SCRA 174-179.

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, We note from the assailed decision
hereinbefore quoted that these evidences are: Exhibit 10, the letter of Atty. Pampio Abarintos dated June 9, 1977:
Exhibit 12, letter of Atty. Pampio Abarintos dated July 6, 1977; Exhibit 14, the Answer of respondent Francisco in
Civil Case R- 16261, particularly paragraph 7 of the Special and Affirmative Defenses; and Exhibit 1, letter of Atty.
Eric Menchavez dated November 28, 1978. All these evidences, according to respondent Judge, proved that
petitioner lessor was notified of the deposit of the monthly rentals.
We have analyzed and scrutinized closely the above exhibits and We find that the respondent Judge's conclusion is
manifestly wrong and based on misapprehension of facts. Thus-

(1) Exhibit 10 reads: (see p. 17, Records)

June 9,
1977

Miss Soledad Soco


Soledad Soco Retazo
P. Gullas St., Cebu City

Dear Miss Soco:

This is in connection with the payment of rental of my client, Engr. Regino Francisco, Jr., of your
building situated at Manalili St., Cebu City.

It appears that twice you refused acceptance of the said payment made by my client.

It appears further that my client had called your office several times and left a message for you to
get this payment of rental but until the present you have not sent somebody to get it.

In this connection, therefore, in behalf of my client, you are hereby requested to please get and
claim the rental payment aforestated from the Office of my client at Tagalog Hotel and Restaurant,
Sanciangko St., Cebu City. within three (3) days from receipt hereof otherwise we would be
constrained to make a consignation of the same with the Court in accordance with law.

Hoping for your cooperation on this matter, we remain.

Very truly yours,

(SGD.) PAMPIO A.
ABARINTOS
Counsel for Engr.
REGINO FRANCISCO,
Jr.

We may agree that the above exhibit proves tender of payment of the particular monthly rental referred to (the letter
does not, however, indicate for what month and also the intention to deposit the rental with the court, which is the
first notice. But certainly, it is no proof of tender of payment of other or subsequent monthly rentals. Neither is it
proof that notice of the actual deposit or consignation was given to the lessor, which is the second notice required by
law.

(2) Exhibit 12 (see p. 237, Records) states:

J
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6
,
1
9
7
7

Miss Soledad Soco


Soledad Soco Reta
P. Gullas St., Cebu City

Dear Miss Soco:

This is to advise and inform you that my client, Engr. Regino Francisco, Jr., has consigned to you,
through the Clerk of Court, City Court of Cebu, Cebu City, the total amount of Pl,852.20, as
evidenced by cashier's checks No. 478439 and 47907 issued by the Commercial Bank and Trust
Company (CBTC) Cebu City Branch, dated May 11, 1977 and June 15, 1977 respectively and
payable to your order, under Official Receipt No. 0436936 dated July 6,1977.

This amount represents payment of the rental of your building situated at Manalili St., Cebu City
which my client, Engr. Regino Francisco, Jr., is renting. You can withdraw the said amount from
the Clerk of Court, City Court of Cebu, Cebu City at any time.

Please be further notified that all subsequent monthly rentals will be deposited to the Clerk of
Court, City Court of Cebu, Cebu City.

Very truly yours,

(SGD.) PAMPIO A.
ABARINTOS
Counsel for ENGR.
REGINO FRANCISCO,
JR.

The above evidence is, of course, proof of notice to the lessor of the deposit or consignation of only the two
payments by cashier's checks indicated therein. But surely, it does not prove any other deposit nor the notice thereof
to the lessor. It is not even proof of the tender of payment that would have preceded the consignation.

(3) Exhibit 14, paragraph 7 of the Answer (see p. 246, Records) alleges:

7. That ever since, defendant had been religiously paying his rentals without any delay which,
however, the plaintiff had in so many occasions refused to accept obviously in the hope that she
may declare non-payment of rentals and claim it as a ground for the cancellation of the contract of
lease. This, after seeing the improvements in the area which were effected, at no small expense by
the defendant. To preserve defendant's rights and to show good faith in up to date payment of
rentals, defendant had authorized his bank to issue regularly cashier's check in favor of the
plaintiff as payment of rentals which the plaintiff had been accepting during the past years and
even for the months of January up to May of this year, 1977 way past plaintiff's claim of lease
expiration. For the months of June and July, however, plaintiff again started refusing to accept the
payments in going back to her previous strategy which forced the defendant to consign his
monthly rental with the City Clerk of Court and which is now the present state of affairs in so far
as payment of rentals is concerned. These events only goes to show that the wily plaintiff had
thought of this mischievous scheme only very recently and filed herein malicious and unfounded
complaint.
The above exhibit which is lifted from Civil Case No. R-16261 between the parties for annulment of the lease
contract, is self-serving. The statements therein are mere allegations of conclusions which are not evidentiary.

(4) Exhibit 1 (see p. 15, Records) is quoted thus:

Novemb
er 28,
1978

Atty. Luis V. Diores


Suite 504, SSS Bldg.
Jones Avenue, Cebu City

Dear Compañero:

Your letter dated November 23, 1978 which was addressed to my client, Engr. Regino Francisco,
Jr. has been referred to me for reply.

It is not true that my client has not paid the rentals as claimed in your letter. As a matter of fact, he
has been religiously paying the rentals in advance. Payment was made by Commercial Bank and
Trust Company to the Clerk of Court, Cebu City. Attached herewith is the receipt of payment
made by him for the month of November, 1978 which is dated November 16, 1978.

You can check this up with the City Clerk of Court for satisfaction.

Regards.

(SGD.)
ERIC
MENC
HAVEZ
Counsel
for
Regino
Francisc
o, Jr.
377-B
Junquer
a St.,
Cebu
City
(new
address)

Again, Exhibit 1 merely proves rental deposit for the particular month of November, 1978 and no other. It is no
proof of tender of payment to the lessor, not even proof of notice to consign. We hold that the best evidence of the
rental deposits with the Clerk of Court are the official receipts issued by the Clerk of Court. These the respondent
lessee utterly failed to present and produce during the trial of the case. As pointed out in petitioner's Memorandum,
no single official receipt was presented in the trial court as nowhere in the formal offer of exhibits for lessee
Francisco can a single official receipt of any deposit made be found (pp. 8-9, Memorandum for Petitioner; pp. 163-
164, Records).
Summing up Our review of the above four (4) exhibits, 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 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 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. We quote below excerpts from his testimony, as follows:

ATTY. LUIS DIORES:

Q What month did you say you made ,you started making the deposit? When
you first deposited the check to the Clerk of Court?

A The payment of cashier's check in favor of Miss Soledad Soco was coursed
thru the City Clerk of Court from the letter of request by our client Regino
Francisco, Jr., dated September 8, 1977. From that time on, based on his request,
we delivered the check direct to the City Clerk of Court.

Q What date, what month was that, you first delivered the check to the Clerk of
Court.?

A We started September 12, 1977.


Q September 1977 up to the present time, you delivered the cashier's check to
the City Clerk of Court?

A Yes.

Q You were issued the receipts of those checks?

A Well, we have an acknowledgment letter to be signed by the one who


received the check.

Q You mean you were issued, or you were not issued any official receipt? My
question is whether you were issued any official receipt? So, were you issued, or
you were not issued?

A We were not issued.

Q On September, 1977, after you deposited the manager's check for that month
with the Clerk of Court, did you serve notice upon Soledad Soco that the deposit
was made on such amount for the month of September, 1977 and now to the
Clerk of Court? Did you or did you not?

A Well, we only act on something upon the request of our client.

Q Please answer my question. I know that you are acting upon instruction of
your client. My question was-after you made the deposit of the manager's check
whether or not you notified Soledad Soco that such manager's check was
deposited in the Clerk of Court from the month of September, 1977?

A We are not bound to.

Q I am not asking whether you are bound to or not. I'masking whether you did
or you did not?

A I did not.

Q Alright, for October, 1977, after having made a deposit for that particular
month, did you notify Miss Soledad Soco that the deposit was in the Clerk of
Court?

A No, we did not.

Q Now, on November, 1977, did you notify Soledad Soco that you deposited the
manager's check to the City Clerk of Court for that month?

A I did not.

Q You did not also notify Soledad Soco for the month December, 1977, so also
from January, February, March, April, May, June, July until December, 1978,
you did not also notify Miss Soledad Soco all the deposits of the manager's
check which you said you deposited with the Clerk of Court in every end of the
month? So also from each and every month from January 1979 up to December
1979, you did not also serve notice upon Soledad Socco of the deposit in the
Clerk of Court, is that correct?

A Yes.

Q So also in January 1980 up to this month 1980, you did not instructed by your
client Mr. and Mrs. Regino Francisco, jr. to make also serve notice upon
Soledad Soco of the Manager's check which you said you deposited to the Clerk
of Court?

A I did not.

Q Now, you did not make such notices because you were not such notices after
the deposits you made, is that correct?

A Yes, sir.

Q Now, from 1977, September up to the present time, before the deposit was
made with the Clerk of Court, did you serve notice to Soledad Soco that a
deposit was going to be made in each and every month?

A Not.

Q In other words, from September 1977 up to the present time, you did not
notify Soledad Soco that you were going to make the deposit with the Clerk of
Court, and you did not also notify Soledad Soco after the deposit was made, that
a deposit has been made in each and every month during that period, is that
correct?

A Yes

Q And the reason was because you were not instructed by Mr. and Mrs. Regino
Francisco, Jr. that such notification should be made before the deposit and after
the deposit was made, is that correct?

A No, I did not. (Testimony of Ocanada pp. 32-41, Hearing on June 3, 1980).

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 two cashier's checks referred to in Exhibit 12. As indicated earlier, not a single copy of the official
receipts issued by the Clerk of Court was presented at the trial of the case to prove the actual deposit or
consignation. We find, however, reference to some 45 copies of official receipts issued by the Clerk of Court
marked Annexes "B-1 " to "B-40" to the Motion for Reconsideration of the Order granting execution pending appeal
filed by defendant Francisco in the City Court of Cebu (pp, 150-194, CFI Original Records) as well as in the Motion
for Reconsideration of the CFI decision, filed by plaintiff lessor (pp. 39-50, Records, marked Annex "E ") the
allegation that "there was no receipt at all showing that defendant Francisco has deposited with the Clerk of Court
the monthly rentals corresponding to the months of May and June, 1977. And for the months of July and August,
1977, the rentals were only deposited with the Clerk of Court on 20 November 1979 (or more than two years
later)."... The deposits of these monthly rentals for July and August, 1977 on 20 November 1979, is very significant
because on 24 October 1979, plaintiff Soco had testified before the trial court that defendant had not paid the
monthly rentals for these months. Thus, defendant had to make a hurried deposit on the following month to repair
his failure. " (pp. 43-44, Records).

We have verified the truth of the above claim or allegation and We find that indeed, under Official 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.

The decision under review cites Exhibits 6, 7, 8 and 9, the Debit Memorandum issued by Comtrust Bank deducting
the amounts of the checks therein indicated from the account of the lessee, to prove payment of the monthly rentals.
But these Debit Memorandums are merely internal banking practices or office procedures involving the bank and its
depositor which is not binding upon a third person such as the lessor. What is important is whether the checks were
picked up by the lessee as per the arrangement indicated in Exhibits 4 and 5 wherein the lessee had to pick up the
checks issued by CBTC or to send somebody to pick them up, and logically, for the lessee to tender the same to the
lessor. On this vital point, the lessee miserably failed to present any proof that he complied with the arrangement.

We, therefore, find and rule that the lessee has failed to prove tender of payment except that in Exh. 10; he has failed
to prove the first notice to the lessor prior to consignation except that given in Exh. 10; he has failed to prove the
second notice after consignation except the two made in Exh. 12; and he has failed to pay the rentals for the months
of July and August, 1977 as of the time the complaint was filed for the eviction of the lessee. We hold that the
evidence is clear, competent and convincing showing that the lessee has violated the terms of the lease contract and
he may, therefore, be judicially ejected.

The other matters raised in the appeal are of no moment. The motion to dismiss filed by respondent on the ground of
"want of specific assignment of errors in the appellant's brief, or of page references to the records as required in
Section 16(d) of Rule 46," is without merit. The petition itself has attached the decision sought to be reviewed. Both
Petition and Memorandum of the petitioner contain the summary statement of facts; they discuss the essential
requisites of a valid consignation; the erroneous conclusion of the respondent Judge in reversing the decision of the
City Court, his grave abuse of discretion which, the petitioner argues, "has so far departed from the accepted and
usual course of judicial proceeding in the matter of applying the law and jurisprudence on the matter." The
Memorandum further cites other basis for petitioner's plea.

In Our mind, the errors in the appealed decision are sufficiently stated and assigned. Moreover, under Our rulings,
We have stated that:

This Court is clothed with ample authority to review matters, even if they are not assigned as
errors in the appeal, if it finds that their consideration is necessary in arriving at a just decision of
the case. Also, an unassigned error closely related to an error properly assigned or upon which the
determination of the questioned raised by the error properly assigned is dependent, will be
considered by the appellate court notwithstanding the failure to assign it as an error." (Ortigas, Jr.
vs. Lufthansa German Airlines, L-28773, June 30, 1975, 64 SCRA 610)
Under Section 5 of Rule 53, the appellate court is authorized to consider a plain error, although it
was not specifically assigned by appellants." (Dilag vs. Heirs of Resurreccion, 76 Phil. 649)

Appellants need not make specific assignment of errors provided they discuss at length and assail
in their brief the correctness of the trial court's findings regarding the matter. Said discussion
warrants the appellate court to rule upon the point because it substantially complies with Section
7, Rule 51 of the Revised Rules of Court, intended merely to compel the appellant to specify the
questions which he wants to raise and be disposed of in his appeal. A clear discussion regarding an
error allegedly committed by the trial court accomplishes the purpose of a particular assignment of
error." (Cabrera vs. Belen, 95 Phil. 54; Miguel vs Court of Appeals, L- 20274, Oct. 30, 1969, 29
SCRA 760-773, cited in Moran, Comments on the Rules of Court, Vol. 11, 1970 ed., p. 534).

Pleadings as well as remedial laws should be construed liberally in order that the litigants may
have ample opportunity to prove their respective claims, and that a possible denial of substantial
justice, due to legal technicalities, may be avoided." (Concepcion, et al. vs. The Payatas Estate
Improvement Co., Inc., 103 Phil. 10 17).

WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the Court of First Instance of Cebu, 14th
Judicial District, Branch XII is hereby REVERSED and SET ASIDE, and the derision of the City Court of Cebu,
Branch II is hereby reinstated, with costs in favor of the petitioner.

SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Abad Santos, and De Castro, JJ., concur.

Aquino and Escolin JJ., concurs in the result,