Doctrine: An invoice, in and by itself, and as opposed to a receipt, may not be

considered evidence of payment. In addition, it does not mean that possession by a

debtor of an invoice raises the presumption that it has already paid its obligation.

Royal Cargo Corporation vs. DFS Sports Unlimited, Inc. G.R. No. 158621
December 10, 2008 (J. Austria-Martinez)

Facts:

In 1993, DFS Sports, a corporation engaged in the importation and local sale of duty-
free sporting goods and other similar products engaged the services of Royal Cargo, an
international freight forwarder offering services for transportation of cargos. Royal
Cargo rendered trucking, brokerage, storage and other services for DFS Sports, thus it
incurred expenses for brokerage forms, stamps, notarial fees, arrastre charges, wharfage
fees, storage charges, guarding fees, etc. upon demand by Royal Cargo. DFS Sports
refused and failed to pay the total amount for the services rendered. Thus, Royal Cargo
filed with the RTC Manila, a complaint for collection of sum of money against DFS
Sports.

DFS Sports, filed it answer alleging that except for the May 1994 transaction, it did not
engage the services of Royal Cargo for the importation of various products and that it is
under no legal obligation to heed its demand. DFS Sports alleged that Royal Cargo
owes it sum of money representing the value of the imported goods respondent lost by
reason of the gross negligence as well as illegal activities of the latter in the
transshipment of its goods. Both parties presented invoices as evidence representing
their claims.

The trial court, in its decision, dismissed both Royal Cargo’s complaint and DFS Sports’
counterclaim.

On appeal, filed by Royal Cargo, the Court of Appeals denied the same and affirmed
the trial court decision.

Issues: (1) Whether respondent, who is the debtor, has the burden of proving payment.
(2) Whether the subject invoices prove such payment or at least raise a
disputable presumption that payment has been made.

Ruling:

(1) Yes.

1
The settled rule is that one who pleads payment has the burden of proving it. Even
where the creditor alleges non-payment, the general rule is that the onus rests on the
debtor to prove payment, rather than on the creditor to prove non-payment. The debtor
has the burden of showing with legal certainty that the obligation has been discharged
by payment. Where the debtor introduces some evidence of payment, the burden of
going forward with the evidence as distinct from the general burden of proof shifts to
the creditor, who is then under a duty of producing some evidence to show non-
payment.

Since respondent claims that it had already paid petitioner for the services rendered by
the latter, it follows that the former carries the burden of proving such payment.

(2) No.

An invoice or bill is a commercial document issued by a seller to the buyer indicating

the products, quantities and agreed prices for product or services the seller has
provided the buyer. An invoice indicates the buyer must pay the seller according to the
payment terms. From the point of view of a seller, an invoice is a sales invoice. From the
point of view of a buyer, an invoice is a purchase invoice. The document indicates the
buyer and seller, but the term "invoice" indicates money is owed or owing. The context
of the term "invoice" is usually used to clarify its meaning, such as "We sent them an
invoice" (they owe us money) or "We received an invoice from them" (we owe them
money).

An invoice, in and by itself, and as opposed to a receipt, may not be considered

evidence of payment. In addition, it does not mean that possession by a debtor of an
invoice raises the presumption that it has already paid its obligation. An invoice is
simply a list sent to a purchaser, factor, consignee, etc., containing the items, together
with the prices and charges, of merchandise sent or to be sent to him; a mere detailed
statement of the nature, quantity and cost or price of the things invoiced.

In this case, the Court finds that the trial court committed a serious error in appreciating
the evidence when it discredited petitioner’s claim that its purpose in sending the
subject invoices to respondent was only to collect the latter's debt, not to evidence
payment by the latter. Furthermore, respondent's defense of payment is made more
untenable by its failure to present any supporting evidence, such as official receipts or
the testimony of its employee who actually paid or the one who had direct knowledge
of the payment allegedly made in petitioner's favor, to prove that it had indeed paid its
obligations to the latter. Respondent is a corporation engaged in the business of
importation and local sale of duty-free sporting goods and similar products. It is
presumed that it takes ordinary care of its concerns.

2
WHEREFORE, the petition for review is GRANTED. The Decision dated January 24,
2003 and the Resolution of June 4, 2003 of the Court of Appeals as well as the Decision
of the Regional Trial Court dated June 3, 1998 are REVERSED and SET ASIDE.
Respondent is ORDERED to pay petitioner: (1) the amount of Two Hundred Forty-
Eight Thousand Four Hundred Forty-Nine Pesos and Sixty-Three Centavos
(P248,449.63) plus legal interest of 6% per annum from February 10, 1995 until this
Decision becomes final and executory; (2) the legal interest of 12% per annum on the
total amount due from such finality until fully paid; (3) 10% of the total amount due as
and by way of attorney's fees, and (4) the costs of suit.

3
Doctrine: A contractor is allowed to recover the reasonable value of the thing or
services rendered despite the lack of a written contract, in order to avoid unjust
enrichment. Quantum meruit means that, in an action for work and labor, payment
shall be made in such amount as the plaintiff reasonably deserves.

Rivelisa Realty, Inc., represented by Ricardo Ventura vs. First Sta. Clara Builders
Corporation, represented by Ramon Pangilinan G. R. No. 189618
January 15, 2014 (J. Perlas-Bernabe)

Facts:

In 1995, Rivelisa Realty entered into a JVA with First Sta. Clara for the construction and
development of a residential subdivision located in Cabanatuan City. Under their
agreement. First Sta. Clara shall assume the horizontal development works in the
remaining undeveloped portion of the project owned by Rivelisa Realty, and complete
it within 12 months. It was also agreed that First Sta. Clara shall use it resources since
31% of the project has already been completed before can it claim for additional funds
for the construction. First Sta. Clara then hired a subcontractor to do the horizontal
development work as well as works on the riprap and elevation of the road
embankment. After running out of funds, Rivelisa shouldered the payment of the
subcontractor. First Sta. Clara then manifested its intention to back out from the JVA
and to discontinue operations when Rivelisa Realty refused to advance any more funds.
Rivelisa agreed to release First Sta. Clara and computed the amount of accomplishment
and cash advances. Rivelisa then agreed to reimburse First Sta. Clara of P3M, however,
the same remained unpaid despite several demands. First Sta. Clara, thus, filed a
complaint for rescission of the JVA against Rivelisa. On its part, Rivelisa alleged that
that it was not obligated to pay First Sta. Clara any amount at all since the latter had
even failed to comply with its obligation.

The trial court, in its decision, dismissed the complaint of First Sta. Clara and ordered it
to pay Rivelisa. It found that First Sta. Clara had agreed to first accomplish several
conditions before it could demand from Rivelisa Realty the performance of the latter’s
obligations under the JVA and that as the former Clara stopped working on the project
halfway into the construction period due to its own lack of funds, the RTC concluded
that it was actually the party that first violated the JVA.

On appeal, the Court of Appeals ruled in favor of First Sta. Clara. It found that Rivelisa
Realty still liable for First Sta. Clara’s actual accomplishments in the project and that
First Sta. Clara was no longer obligated to comply with the terms and conditions of the
JVA after Rivelisa Realty agreed that it be dissolved and was entitled to reimbursement
for the work done.

4
Issue: Whether First Sta. Clara is entitled to be compensated for the development works
it had accomplished on the project.

Ruling: Yes.

A contractor is allowed to recover the reasonable value of the thing or services rendered
despite the lack of a written contract, in order to avoid unjust enrichment. Quantum
meruit means that, in an action for work and labor, payment shall be made in such
amount as the plaintiff reasonably deserves. The measure of recovery should relate to
the reasonable value of the services performed because the principle aims to prevent
undue enrichment based on the equitable postulate that it is unjust for a person to
retain any benefit without paying for it.

In this case, it is undisputed that First Sta. Clara already performed certain works on the
project with an estimated value of ₱4,578, 152.10. Clearly, to completely deny it
payment for the same would result in Rivelisa Realty's unjust enrichment at the
former's expense. Besides, as may be gleaned from the parties' correspondence, Rivelisa
Realty obligated itself to unconditionally reimburse First Sta. Clara the amount of
₱3,000,000.00 (representing First Sta. Clara's valuation of its accomplished works at
₱4,578,152.10, less the cash advances and subcontractor's fees) after the JV A had
already been terminated by them through mutual assent. As such, Rivelisa Realty
cannot unilaterally renege on its promise by citing First Sta. Clara's non-fulfillment of
the terms and conditions of the terminated JVA. For all these reasons, the CA's ruling
must be upheld.

WHERFORE, the petition is DENIED. The Decision dated February 27, 2009, and
Resolutions dated May 22, 2009 and September 8, 2009 of the Court of Appeals in CA-
G.R. CV No. 67198 are hereby AFFIRMED.

5
Doctrine: Jurisprudence abounds that, in civil cases, one who pleads payment has the
burden of proving it. Even where the plaintiff must allege non-payment, the general
rule is that the burden rests on the defendant to prove payment, rather than on the
plaintiff to prove non-payment.

Philippine Commercial International Bank (BDO Unibank, Inc.) vs. Artutro Franco,
substituted by his heirs. G.R. No. 180069 march 5, 2014 (J. Peralta)

Facts:

In 2000, Arturo Franco file an action for damages against PCIBank alleging that the
latter refused and continuously refusing to return to him the proceed of his Trust
Indenture Certificates (TIC). Under these TICs, Franco in making such trust investment
he was actually providing for his future since the money invested was going to be
managed and administered by their PCIB-Trust Services Group and will be
commingled, pooled and automatically rolled- over for better investment return. But
after learning that his son has leukemia, Franco started to inquire about details on how
to liquidate the TICs. After some time, he received a letter, informing him that his TICs
have been rendered null and void.

PCIBank, in its answer, admitted the issuance of the TICs but denied that the
investments subject of the TICs are automatically rolled-over as such certificates have
their own fixed term and maturity date, and that the present action had already
prescribed.

Both parties presented their respective witness(es). Franco presenting himself as to the
trust he entered with PCIBank, with the belief that he entered the same for the his and
his family’s future security but was later informed that his TIC were already null and
void, thus, he and his wife suffered sleepless nights.

PCIBank presented its Operations Officers which testified as to their familiarity with
these TICs. They testified that these TICs were converted to Common Trust Funds
which both have the same features and that the only difference is that Common Trust
Funds are classified into several product types depending on the limit of the amount of
investment, and that if a guest comes with the original Trust Indenture Certificate
without any stamp as being taken or cancelled, the bank should verify with the
outstanding copy because the bank should have an outstanding copy of such TICs.

The RTC, in its decision, ruled in favor of Franco and ordered PCIBank to pay the
former including moral, exemplary damages, and reimbursement of filing fees. The
RTC held that the relationship of express trust between petitioner Bank and respondent

6
still subsists at the time the latter demanded the withdrawal of his funds under them
and that PCIBank is in bad faith in its dealings with respondent when it unilaterally
declared – despite claiming that respondent was one of its valued clients – the TICs as
null and void by reason of their conversion to Common Trust Funds in 1991.

On appeal, the Court of Appeals, affirmed the RTC Decision. The CA held that PCIBank
failed to adduce any documentary evidence to establish the alleged fact that the four
TICs were already paid or cancelled, or that respondent’s participation therein was
already withdrawn.

Issue: Whether the bank has paid Franco on the subject trust certificate indentures.

Ruling: No.

Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the general rule is that
the burden rests on the defendant to prove payment, rather than on the plaintiff to
prove non-payment. When the creditor is in possession of the document of credit, he
need not prove non-payment for it is presumed. The creditor's possession of the
evidence of debt is proof that the debt has not been discharged by payment.

In this case, respondent's possession of the original copies of the subject TICs strongly
supports his claim that petitioner Bank's obligation to return the principal plus interest
of the money placement has not been extinguished. The TICs in the hands of
respondent is a proof of indebtedness and a prima facie evidence that they have not
been paid. Petitioner Bank could have easily presented documentary evidence to
dispute the claim, but it did not. In its omission, it may be reasonably deduced that no
evidence to that effect really exist. Worse, the testimonies of petitioner Bank's own
witnesses, reinforce, rather than belie, respondent's allegations of non-payment.

WHEREFORE, premises considered, the instant Petition is DENIED. The July 31, 2007
Decision and October 4, 2007 Resolution of the Court of Appeals in CA-G.R. CV No.
82340, which affirmed the October 21, 2003 Decision of the Makati City Regional Trial
Court, Branch 61, are AFFIRMED.

7
Doctrine: As a general rule, all obligations shall be paid in Philippine currency.
However, the contracting parties may stipulate that foreign currencies may be used for
settling obligations.

Netlink Computer Incorporated vs. Eric Delmo G.R. No. 160827 June 18, 2014
(J. Bersamin)

Facts:

Eric Delmo was one of the account managers of Netlink and was tasked to canvass and
source clients and convince them to purchase the products and services provided by
Netlink. Delmo worked in the field most of the time and was not required to
accomplish time cards to record their personal presence in the office of Netlink. Because
Delmo was able to generate big sales for Netlink, his commission reached almost P1M,
however, upon his request payment of such commission Netlink refused and only gave
him partial cash advances chargeable to his commissions. Netlink, then issued
memoranda detailing the alleged Delmo’s infractions of company attendance policy.
Because he was refused entrance from the company and to take his belongings, Delmo
filed a complaint for illegal dismissal against Netlink.

Netlink, in its answer alleged that all company personnel are required to use bundy
clock to punch in and out, which Delmo did not follow. Netlink also alleged that it
would be losing on the business transactions closed by Delmo due to the high costs of
equipment, and in fact his biggest client has not paid yet.

The Labor Arbiter, in its Decision, ruled in favor that Delmo was illegally dismissed and
ordered Netlink to reinstate him and pay him backwages, 13 th moth pay and his unpaid
commissions.

On appeal with the NLRC, it set aside and entered a new Decision. It held that Delmo
was not illegally dismissed since his dismissal was for just causes. The NLRC orderd
Netlink to pay Delmo unpaid commissions, 13 th month and the amount for its failure to
observe procedural due process.

Netlink, filed an appeal with the Court of Appeals. In its decision, the Ca upheld the
NLRC decision but with modification. The CA held that since the payment of the
commission is made to depend on the future and uncertain event – which is the
payment of the accounts by the persons who have transacted business with the
petitioner, without payment by the former to the latter, the obligation to pay the
commission has not yet arisen.

8
Issue: Whether the payment of the commission is in US Dollars.

Ruling: Yes.

As a general rule, all obligations shall be paid in Philippine currency. However, the
contracting parties may stipulate that foreign currencies may be used for settling
obligations. This is pursuant to Republic Act No. 8183, which provides that all
monetary obligations shall be settled in the Philippine currency which is legal tender in
the Philippines. However, the parties may agree that the obligation or transaction shall
be settled in any other currency at the time of payment.

The repeal of Republic Act No. 529 had the effect of removing the prohibition on the
stipulation of currency other than Philippine currency, such that obligations or
transactions could already be paid in the currency agreed upon by the parties.

There was no written contract between Netlink and Delmo stipulating that the latter’s
commissions would be paid in US dollars. The absence of the contractual stipulation
notwithstanding, Netlink was still liable to pay Delmo in US dollars because the
practice of paying its sales agents in US dollars for their US dollar-denominated sales
had become a company policy. This was impliedly admitted by Netlink when it did not
refute the allegation that the commissions earned by Delmo and its other sales agents
had been paid in US dollars. Instead of denying the allegation, Netlink only sought a
declaration that the US dollar commissions be paid using the exchange rate at the time
of sale. The principle of non-diminution of benefits, which has been incorporated in
Article 100 of the Labor Code, forbade Netlink from unilaterally reducing, diminishing,
discontinuing or eliminating the practice. Verily, the phrase "supplements, or other
employee benefits" in Article 100 is construed to mean the compensation and privileges
received by an employee aside from regular salaries or wages.

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the
decision promulgated on May 9, 2003; and ORDERS the petitioner to pay the costs of
suit.

Doctrine: A bank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor. The right of a collecting bank to

9
debit a client's account for the value of a dishonored check that has previously been
credited has fairly been established by jurisprudence.

Bank of the Philippine Islands vs. Court of Appeals. Annabelle Salazar and Julio
Templonuevo G.R. No. 136202 January 25, 2007 (J. Azcuna)

Facts:

In 1991, Annabelle Salazar filed an action for recovery of money against BPI, alleging
that BPI had debited from her account P267,707.70. In its answer, BPI alleged that
Templonuevo demanded it the payment of the aggregate value of three checks
allegedly payable to him, but which were deposited by BPI to Salazar’s account without
his knowledge and corresponding endorsement. Bpi, then froze the account of A.A.
Salazar Construction, instead of the account of Salazar since the same was already
closed by the latter or had an insufficient fund. Salazar and Templonuevo never
reached an agreement.

Templonuevo, in his third-party complaint admitted the payment made and argued
that such payment was to correct the malicious deposit made by private respondent
Salazar to her private account, and that BPI’s negligence and tolerance regarding the
matter was violative of the primary and ordinary rules of banking. He likewise
contended that the debiting or taking of the reimbursed amount from the account of
Salazar by BPI was a matter exclusively between said parties and may be pursuant to
banking rules and regulations, but did not in any way affect him.

The RTC, in its decision, ruled in favor of Salazar and ordered BPI to pay the former the
amount debited, damages and attorney’s fee. Templonuevo’s counterclaim was also
dismissed for lack of merit.

The Court of Appearls affirmed the RTC Decision, and held that Salazar was entitled to
the proceeds of the checks despite lack of endorsement from Templonuevo.

Issue: Whether a bank generally has a right of set-off over the deposits therein for the
payment of any withdrawals on the part of a depositor

Ruling: Yes.

Consequently, petitioner, as the collecting bank, had the right to debit Salazar’s account
for the value of the checks it previously credited in her favor. It is of no moment that the
account debited by petitioner was different from the original account to which the
proceeds of the check were credited because both admittedly belonged to Salazar, the

10
former being the account of the sole proprietorship which had no separate and distinct
personality from her, and the latter being her personal account.

A bank generally has a right of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank to debit a client's
account for the value of a dishonored check that has previously been credited has fairly
been established by jurisprudence. To begin with, Article 1980 of the Civil Code
provides that "fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan."

Hence, the relationship between banks and depositors has been held to be that of
creditor and debtor. Thus, legal compensation under Article 1278 of the Civil Code may
take place "when all the requisites mentioned in Article 1279 are present.

WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3,
1998 and Resolution dated April 3, 1998 rendered by the Court of Appeals in CA-G.R.
CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the Philippine
Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred
and Seven and 70/100 Pesos (P267,707.70) to respondent Annabelle A. Salazar, which
portion is REVERSED and SET ASIDE. In all other respects, the same are AFFIRMED.

Doctrine: Payment made by the debtor to a wrong party does not extinguish the
obligation as to the creditor, if there is no fault or negligence which can be imputed to
the latter.

11
Allied Banking orporation vs. Lim Sio Wan, Metropolitan Bank and Trust Co. and
Producers Bank G.R. No. 133179 March 27, 2008 (J. Velasco, Jr. )

Facts:

In 1983, Lim Sio Wan deposited with Allied Bank a money market placement for a term
of 31 days and to mature on December 14, 1983. Heowever, in Dec. 5, a person claiming
to be Lim Sio Wan called up Cristina So, an officer of Allied, and instructed the latter to
pre-terminate Lim Sio Wan’s money market placement, to issue a manager’s check
representing the proceeds of the placement, and to give the check to one Deborah Dee
Santos who would pick up the check. Santos arrived at the bank and signed the
application form for a manager’s check to be issued, thus, it issued a manager’s check
and gave to Santos. Thereafter, the manager’s check was deposited in the account of
Filipinas Cement Corporation at MetroBank with the forged signature of Lim Sio Wan
as indorser. FCC then deposited the check to Producers Bank. In other words, the Allied
check was deposited with Metrobank in the account of FCC as Producers Bank’s
payment of its obligation to FCC. The check was sent to Allied through the PCHC.
Upon the presentment of the check, Allied funded the check even without checking the
authenticity of Lim Sio Wan’s purported indorsement. Thus, the amount on the face of
the check was credited to the account of FCC.

Lim Sio Wan, then went to Allied Bank to withdraw the proceeds of the money market
placement. However, she was informed that the placement had been pre-terminated
upon her instructions. She denied giving any instructions and receiving the proceeds
thereof. She desisted from further complaints when she was assured by the bank’s
manager that her money would be recovered.

On her second money market placement, Lim Sio Wan instructed So to roll-over the
placement for another 30 days but upon realizing that the promise that her money
would be recovered would not materialize, sent a demand letter to Allied asking for the
payment of the first placement. Allied refused to pay Lim Sio Wan, claiming that the
latter had authorized the pre-termination of the placement and its subsequent release to
Santos. Thus, she filed with the RTC, a complaint against Allied to recover the proceeds
of her first money market placement.

The RTC, in its decision, ruled in favor of Lim Sio Wan and ordered Allied to pay her
the proceeds of the money market placement, moral damages and attorney’s fees. The
court also dismissed Allied’s cross-claim and Metrobank’s third-party complaint and
FCC’s fourth-party complaint.

12
On appeal, the Court of Appeals affirmed the RTC decision but with modification as to
the percentage of liability of Allied bank and Metrobank on the proceeds of the money
market placement.

Issue: Whether Allied bank is still liable to Lim Sio Wan.

Ruling: Yes.

Fundamental and familiar is the doctrine that the relationship between a bank and a
client is one of debtor-creditor.

Thus, we have ruled in a line of cases that a bank deposit is in the nature of a simple
loan or mutuum. More succinctly, in Citibank, N.A. v. Sabeniano, this Court ruled that
a money market placement is a simple loan or mutuum. Further, we defined a money
market in Cebu International Finance Corporation v. Court of Appeals, as follows: A
money market is a market dealing in standardized short-term credit instruments
(involving large amounts) where lenders and borrowers do not deal directly with each
other but through a middle man or dealer in open market. In a money market
transaction, the investor is a lender who loans his money to a borrower through a
middleman or dealer.

In the case at bar, the money market transaction between the petitioner and the private
respondent is in the nature of a loan. Lim Sio Wan, as creditor of the bank for her
money market placement, is entitled to payment upon her request, or upon maturity of
the placement, or until the bank is released from its obligation as debtor. Until any such
event, the obligation of Allied to Lim Sio Wan remains unextinguished.

Art. 1231 of the Civil Code provides that obligations are extinguished: (1) By payment
or performance; (2) By the loss of the thing due; (3) By the condonation or remission of
the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By
compensation; (6) By novation or other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition, and prescription, are
governed elsewhere in this Code.

Payment made by the debtor to a wrong party does not extinguish the obligation as to
the creditor, if there is no fault or negligence which can be imputed to the latter. Even
when the debtor acted in utmost good faith and by mistake as to the person of his
creditor, or through error induced by the fraud of a third person, the payment to one
who is not in fact his creditor, or authorized to receive such payment, is void, except as
provided in Article 1241. Such payment does not prejudice the creditor, and accrual of
interest is not suspended by it. Since there was no effective payment of Lim Sio Wan’s

13
money market placement, the bank still has an obligation to pay her at six percent (6%)
interest from March 16, 1984 until the payment thereof.

WHEREFORE, premises considered, the decision appealed from is MODIFIED.

Judgment is rendered ordering and sentencing defendant-appellant Allied Banking
Corporation to pay sixty (60%) percent and defendant-appellee Metropolitan Bank and
Trust Company forty (40%) of the amount of P1,158,648.49 plus 12% interest per annum
from March 16, 1984 until fully paid. The moral damages, attorney’s fees and costs of
suit adjudged shall likewise be paid by defendant-appellant Allied Banking
Corporation and defendant-appellee Metropolitan Bank and Trust Company in the
same proportion of 60-40. Except as thus modified, the decision appealed from is
AFFIRMED.

Additionally and by way of MODIFICATION, Producers Bank is hereby ordered to

pay Allied and Metrobank the aforementioned amounts. The liabilities of the parties are
concurrent and independent of each other.

Doctrine: 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.

Elizabeth Del Carmen vs. Spouses Restituto Sabordo and Mima Mahilum-Sabordo
G.R. No. 181723 August 11, 2014 (J. Peralta)

14
Facts:

In 1961, Spouses Suico along with their business partners entered into a business
venture. They obtained a loan from DBP and as security they mortgaged four parcels of
land owned by Spouses Suico and another owned by Del Rosario. After failoure to pay
their loan, DBP foreclosed the motgage. DBP still allowed the Spouses Suico and
Spouses Flores to repurchase the lands but they failed to make subsequent installments.
Threatened with the cancellation of the conditional sale, the Suico and Flores spouses
sold their rights over the said properties to herein Spouses Sabordo, subject to the
condition that the latter shall pay the balance of the sale price. the Suico and Flores
spouses executed a supplemental agreement whereby they affirmed that what was
actually sold to respondents were Lots 512 and 513, while Lots 506 and 514 were given
to them as usufructuaries which was approved by the DBP. Subsequently Spouses
Sabordo were able to repurchase the foreclosed properties. Restituto Sabordo then filed
an action for declaratory relief with damages and prayer for a writ of preliminary
injunction raising the issue of whether or not the Suico spouses have the right to recover
the lots from them.

The RTC, ruled in favor of Spouses Suico and ordered them to redeem or buy back the
lots to Spouses Sabordo. On appeal, the Court of Appeals modified the RTC decision
within which Spouses can exercise their option to repurchase or redeem the lots.

After the death of Toribio Suico, his heirs discovered that Spouses Sabordo mortgaged
the lots for a loan which already became delinquent. The heirs claimed that they already
prepared the payment for the repurchase of the lot but they alleged that they do not
know to whom payment be made. Thus, they file with the RTC an action seeking to
compel Spouses Sabordo and RPB to interplead and litigate among themselves.

Spouses Sabordo, in their answer with counterclaim prayed for the dismissal of the
action alleging that an action for interpleader was improper since RBP is not laying any
claim. RBP, filed a motion to dismiss alleging that Del Carmen and other heirs have no
cause of action and have no primary legal right which is enforceable.

The RTC, in its decision, dismissed the complaint and the counterclaim of Spouses
Sarbodo. Such decision was later affirmed by the Court of Appeals.

Issue: Whether petitioners made a valid consignation.

Ruling: No.

15
Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment, and it generally
requires a prior tender of payment. It should be distinguished from tender of payment
which is the manifestation by the debtor to the creditor of his desire to comply with his
obligation, with the offer of immediate performance. Tender of payment may be
extrajudicial, while consignation is necessarily judicial, and the priority of the first is the
attempt to make a private settlement before proceeding to the solemnities of
consignation. Tender and consignation, where validly made, produces the effect of
payment and extinguishes the obligation.

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

It is settled that compliance with the requisites of a valid consignation is mandatory.

Failure to comply strictly with any of the requisites will render the consignation void.
One of these requisites is a valid prior tender of payment.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals,
dated May 25, 2007, and its Resolution dated January 24, 2008, both in CA-G.R. CV No.
75013, are AFFIRMED.

Doctrine: Jurisprudence tells us that one who pleads payment has the burden of
proving it; the burden rests on the defendant to prove payment, rather than on the
plaintiff to prove non-payment

Leonardo Bognot vs. RRI Lending Corporation, represented by its General Manager,
Dario Bernardez G.R. No. 180144 September 24, 2014 (J. Brion)

16
Facts:

In 1996, the Bagnot siblings applied for and obtained a loan of P500,000.00 from
respondent RRI Lending Corporation, payable on November 30, 1996. The loan was
evidenced by a promissory note and was secured by a postdated check. Evidence on
record shows that petitioner renewed the loan several times on a monthly basis. He
paid a renewal fee of P54,600.00 for each renewal, issued a new post-dated check as
security, and executed and/or renewed the promissory note previously issued. RRi
Lending, on the other hand, cancelled and returned to the petitioner the post-dated
checks issued prior to their renewal. Several days before the loan’s maturity, Rolando’s
wife, Julieta, went to the respondent’s office and applied for another renewal of the
loan. On the excuse that she needs to bring home the loan documents for the Bagnot
siblings’ signatures and replacement, Mrs. Bagnot aked the respondent’s clerk to release
to her the promissory note, the disclosure statement, and the check dated July 30, 1997.
Mrs. Bagnot, however, never returned these documents nor issued a new post-dated
check. Consequently, the respondent sent the petitioner follow-up letters demanding
payment of the loan, plus interest and penalty charges. These demands went unheeded.

The RRI Lending then filed a complaint for sum of money against the Bognot siblings
before the RTC. The RTC ruled in the respondent’s favor and brushed aside the
petitioner’s defense of full payment.

On appeal, the CA affirmed the RTC’s findings. It observed that the petitioner did not
present any evidence showing that the check dated June 30, 1997 had in fact, been
encashed by respondent and the proceeds applied to the loan, or any official receipt
evidencing the payment of the loan.

Issue: Whether the parties’ obligation was extinguished by: (i) payment; and (ii)
novation by substitution of debtors.

Ruling: No.

No Evidence Was Presented to Establish the Fact of Payment. Jurisprudence tells us that
one who pleads payment has the burden of proving it; the burden rests on the
defendant to prove payment, rather than on the plaintiff to prove non-payment.

In the present case, the petitioner failed to satisfactorily prove that his obligation had
already been extinguished by payment. As the CA correctly noted, the petitioner failed
to present any evidence that the respondent had in fact encashed his check and applied
the proceeds to the payment of the loan. Neither did he present official receipts
evidencing payment, nor any proof that the check had been dishonored.

17
The Petitioner’s belated claim of novation by substitution may no longer be entertained.
Novation is a mode of extinguishing an obligation by changing its objects or principal
obligations, by substituting a new debtor in place of the old one, or by subrogating a
third person to the rights of the creditor.

Art. 1293 of the Civil Code provides that novation which consists in substituting a new
debtor in the place of the origin alone, may be made even without the knowledge or
against the will of the latter, but not without the consent of the creditor. Payment by the
new debtor gives him rights mentioned in Articles 1236 and 1237. To give novation
legal effect, the original debtor must be expressly released from the obligation, and the
new debtor must assume the original debtor’s place in the contractual relationship.

Contrary to the petitioner’s contention, Mrs. Bognot did not substitute the petitioner as
debtor. She merely attempted to renew the original loan by executing a new promissory
note and check. The purported one month renewal of the loan, however, did not push
through, as Mrs. Bognot did not return the documents or issue a new post dated check.
Since the loan was not renewed for another month, the originaldue date, June 30,1997,
continued to stand.

WHEREFORE, premises considered, the Decision dated March 28, 2007 of the Court of
Appeals in CA-G.R. CV No. 66915 is hereby AFFIRMED with MODIFICATION, as
follows:
1. The petitioner Leonardo A. Bognotand his brother, Rolando A. Bognot are
JOINTLY LIABLE to pay the sum of ₱500,000.00 plus 12% interest per annum
from December 3, 1997 until fully paid.
2. The rest of the Court of Appeals' dispositions are hereby AFFIRMED.

Doctrine: There are four instances when demand is not necessary to constitute the
debtor in default: (1) when there is an express stipulation to that effect; (2) where the
law so provides; (3) when the period is the controlling motive or the principal
inducement for the creation of the obligation; and (4) where demand would be useless.

Rodrigo Rivera vs Spouses Salvador Chua and Violeta Chua G.R. No. 184458
January 14, 2015 (J. Perez)

Facts:

18
In this case, Rivera obtained a loan from his friend Spouses Chua for P120,000. To
assure payment of the loan, Rivera executed a promissory note promising to pay
Spouses Chua on Dec. 31, 1995 and failure to pay he agreed to pay an additional 5%
monthly interest from the date of default and until the obligation is fully paid. After
almost three years from the date of supposed payment, Rivera, issued a two checks for
partial payment of his obligation in favor of the Spouses. However, upon presentment
for payment, these checks were dishonored by PCIBank for the reason that the account
is closed. Because of continuous failure and refusal of Rivera to pay despite demand by
Spouses Chua, the latter filed a suit against the former with the MeTC, Manila.

In his answer, Rivera alleged that his signature in the promissory note was forged since
he did not execute any and that his loan with the Spouses was secured by a real estate
mortgage. He also alleged that he cannot be in default since there was no demand from
Spouse Chua for the payment of his obligation prior to the encashment of the check.

Upon examination, it was declared that the signature in the promissory note and the
sample of signature of Rivera was written by the same and one person, Rivera himself.

After trial, the MeTC ruled in favor of Spouses Chua and ordered Rivera to pay his
obligation plus interest rate, legal interest and actual and compensatory damages.

On appeal, the RTC affirmed the MeTC Decision but deleted the awards of attorney’s
fees. Both trial courts found the Promissory Note as authentic and validly bore the
signature of Rivera.

On appeal, the CA affirmed the RTC ruling and affirmed Rivera’s liability under the
promissory note.

Issue: Whether demand is necessary before Rivera be declared in default.

Ruling: No.

The Promissory Note is unequivocal about the date when the obligation falls due and
becomes demandable—31 December 1995. As of 1 January 1996, Rivera had already
incurred in delay when he failed to pay the amount of ₱120,000.00 due to the Spouses
Chua on 31 December 1995 under the Promissory Note.

Article 1169 of the Civil Code explicitly provides that “those obliged to deliver or to do
something incur in delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation.” However, the demand by the creditor
shall not be necessary in order that delay may exist: (1) When the obligation or the law

19
expressly so declare; or (2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the thing is to be delivered
or the service is to be rendered was a controlling motive for the establishment of the
contract; or (3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.

There are four instances when demand is not necessary to constitute the debtor in
default: (1) when there is an express stipulation to that effect; (2) where the law so
provides; (3) when the period is the controlling motive or the principal inducement for
the creation of the obligation; and (4) where demand would be useless. In the first two
paragraphs, it is not sufficient that the law or obligation fixes a date for performance; it
must further state expressly that after the period lapses, default will commence.

In this case, the date of default under the Promissory Note is 1 January 1996, the day
following 31 December 1995, the due date of the obligation. On that date, Rivera
became liable for the stipulated interest which the Promissory Note says is equivalent to
5% a month. In sum, until 31 December 1995, demand was not necessary before Rivera
could be held liable for the principal amount of ₱120,000.00. Thereafter, on 1 January
1996, upon default, Rivera became liable to pay the Spouses Chua damages, in the form
of stipulated interest.

WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the Court of
Appeals in CA-G.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo Rivera is ordered
to pay respondents Spouse Salvador and Violeta Chua the following:

(1) the principal amount of ₱120,000.00;

(2) legal interest of 12% per annum of the principal amount of ₱120,000.00
reckoned from 1 January 1996 until 30 June 2013;

(3) legal interest of 6% per annum of the principal amount of ₱120,000.00 form 1
July 2013 to date when this Decision becomes final and executory;

(4) 12% per annum applied to the total of paragraphs 2 and 3 from 11 June 1999,
date of judicial demand, to 30 June 2013, as interest due earning legal interest;

20
 (5) 6% per annum applied to the total amount of paragraphs 2 and 3 from 1 July
2013 to date when this Decision becomes final and executor, as interest due
earning legal interest;

(6) Attorney’s fees in the amount of ₱50,000.00; and

(7) 6% per annum interest on the total of the monetary awards from the finality
of this Decision until full payment thereof.

Costs against petitioner Rodrigo Rivera.

Doctrine: Novation by presumption has never been favored. To be sustained, it need be

established that the old and new contracts are incompatible in all points, or that the will
to novate appears by express agreement of the parties or in acts of similar import.

The Wellex Group, Inc. vs. U-Land Airlines, Co. Ltd. G.R. No. 167519
January 14, 2015 (J. Leonen)

Facts:

In 1998, Wellex and U-Land entered into a First Memorandum of Agreement to expand
their respective airline operations in Asia. In their agreement, it stated that within 40
days from its execution date, Wellex and U-Land would execute a share purchase

21
agreement covering U-Land’s acquisition of the shares of stock of both APIC and PEC.
In this share purchase agreement, U-Land would purchase from Wellex its APIC shares
and PEC shares. Wellex and U-Land agreed to an initial purchase price of P0.30 per
share of APIC and 0.65 per share of PEC. However, they likewise agreed that the final
price of the shares of stock would be reflected in the actual share purchase agreement.
Both parties agreed that the purchase price of APIC shares and PEC shares would be
paid upon the execution of the share purchase agreement and Wellex’s delivery of the
stock certificates covering the shares of stock. The transfer of APIC shares and PEC
shares to U-Land was conditioned on the full remittance of the final purchase price as
reflected in the share purchase agreement and upon approval of the SEC of the issuance
of the shares of stock and approval of the Taiwanese government.

Wellex and U-Land also agreed to enter into a joint development agreement
simultaneous with the execution of the share purchase agreement which covers the
housing and other real estate development projects. U-Land agreed to remit the sum
ofUS$3M not later than May 22, 1998. This sum was to serve as initial funding for the
development projects that Wellex and U-Land were to undertake pursuant to the joint
development agreement. In exchange for the US$3 million, Wellex would deliver stock
certificates covering 57M PEC shares to U-Land.

A second memorandum of agreement was allegedly incorporated into the first MOA as
a disclosure to U-Land that Wellex was still in the process of acquiring and
consolidating its title to shares of stock of APIC. It "included the terms of a share swap
whereby Wellex agreed to transfer to APIC its shareholdings and advances to APC in
exchange for the issuance by APIC of shares of stock to Wellex. Despite the absence of a
share purchase agreement, U-Land remitted to Wellex a total of US$ 7.49M which was
acknowledge by Wellex. Wellex, then delivered the stock certificates representing PEC
shares and APIC shares, and aslo the TCTs covering the properties owned by Westland
Pacific.
U-Land received a letter from Wellex, indicating a list of stock certificates that the latter
was giving to the former by way of "security” and despite these transactions, they still
failed to enter into the share purchase agreement and the joint development agreement.
U-Land demanded return of the payment it made but was denied by Wellex. Thus, U-
land filed a complaint against Wellex for the rescission of the first MOA and damages.
U-land alleged that it discovered that APIC did not own a single share of stock in APC.
Wellex countered that U-Land had no cause of action and maintained that under the
First MOA, the parties agreed to enter into a share purchase agreement and a joint
development agreement but U-land breached the same since payment for the shares
was to begin during the 40-day period.

22
The trial court, in its decision ruled in favor of U-land. The RTC held that the rescission
of the First MOA was proper. It found that APIC does not own a single share of APC.
On the other hand, defendant could not even satisfactorily substantiate its claim that at
least it had the intention to cause the transfer of APC shares to APIC.

On appeal, the Court of Appeals affirmed the RTC Decision. The CA held that appellee
is the injured party in this case, and therefore is entitled to rescission, because the
rescission referred to here is predicated on the breach of faith by the appellant which
breach is violative of the reciprocity between the parties.

Issues: (1) Whether there was a novation of the First memorandum of Agreement.

(2)Whether the Court of Appeals erred in affirming the Decision of the Regional Trial
Court that granted the rescission of the First Memorandum of Agreement prayed for by
U-Land.

Ruling:
(1) No.

Novation extinguishes an obligation between two parties when there is a substitution of

objects or debtors or when there is subrogation of the creditor. It occurs only when the
new contract declares so "in unequivocal terms" or that "the old and the new obligations
be on every point incompatible with each other." Novation extinguishes an obligation
between two parties when there is a substitution of objects or debtors or when there is
subrogation of the creditor. It occurs only when the new contract declares so "in
unequivocal terms" or that "the old and the new obligations be on every point
incompatible with each other." Because novation requires that it be clear and
unequivocal, it is never presumed.

Novation by presumption has never been favored. To be sustained, it need be

established that the old and new contracts are incompatible in all points, or that the will
to novate appears by express agreement of the parties or in acts of similar import.

There being no novation of the First Memorandum of Agreement, respondent U-Land

is entitled to the return of the amount it remitted to petitioner Wellex. Petitioner Wellex
is likewise entitled to the return of the certificates of shares of stock and titles of land it
delivered to respondent U-Land. This is simply an enforcement of Section 9 of the First
Memorandum of Agreement. Pursuant to Section 9, only the execution of a final share
purchase agreement within either of the periods contemplated by this stipulation will
justify the parties’ retention of what they received or would receive from each other.

23
(2) No.

Article 1191 of the Civil Code provides: “The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is incumbent
upon him.” The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible. The court
shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

For Article 1191 to be applicable, however, there must be reciprocal prestations as

distinguished from mutual obligations between or among the parties. A prestation is
the object of an obligation, and it is the conduct required by the parties to do or not to
do, or to give. Parties may be mutually obligated to each other, but the prestations of
these obligations are not necessarily reciprocal. The reciprocal prestations must
necessarily emanate from the same cause that gave rise to the existence of the contract.
The failure of one of the parties to comply with its reciprocal prestation allows the
wronged party to seek the remedy of Article 1191. The wronged party is entitled to
rescission or resolution under Article 1191, and even the payment of damages. It is a
principal action precisely because it is a violation of the original reciprocal prestation.

Contrary to petitioner Wellex’s argument, this is not rescission under Article 1381 of the
Civil Code. This case does not involve prejudicial transactions affecting guardians,
absentees, or fraud of creditors. . There is no allegation of fraud for purposes of evading
obligations to other creditors. The actions of the parties involving the terms of the First
Memorandum of Agreement do not fall under any of the enumerated contracts that
may be subject of rescission.

Rescission or resolution under Article 1191, therefore, is a principal action that is

immediately available to the party at the time that the reciprocal prestation was
breached. Article 1383 mandating that rescission be deemed a subsidiary action cannot
be applicable to rescission or resolution under Article 1191. Thus, respondent U-Land
correctly sought the principal relief of rescission or resolution under Article 1191.

WHEREFORE, the petition is DENIED. The Decision of the Regional Trial Court in
Civil Case No. 99-1407 and the Decision of the Court of Appeals in CA-G.R. CV No.
74850 are AFFIRMED. Costs against petitioner The Wellex Group, Inc.

24
Doctrine: Tender of payment is the definitive act of offering the creditor what is due
him or her, together with the demand that the creditor accept the same. More
important, there must be a fusion of intent, ability and capability to make good such
offer, which must be absolute and must cover the amount due.

Far East Bank & Trust Company vs. Diaz Realty Inc. G.R. No. 138588 August 23, 2001
(J. Panganiban)

Facts:

In 1973, Diaz and Company obtained a loan from Pacific Banking and as security it
executed a real estate mortgage over its land in Davao City. In the said mortgaged
property, Allied Bank rented the space which PaBC approved and was agreed that
monthly rentals shall be paid to PaBC for the account of Diaz. PaBC, was later closed by

25
the Central Bnak and palced it under receivership. In 1986, Far East purchased the
credit of Diaz & Company in favor of PaBC, but Diaz was not informed immediately
about the same.

Diaz, then went to the office of PaCB, wherin Far East was located and tolf him that it
already acquired PaBC. Diaz, then asked for the computation of his total loan and the
payments made by Allied Bank. Upon learning of the total obligation, Diaz issued a
check in favor of Far East to satisfy his obligation but the latter did not accept it as
payment but instead asked the former to deposit the same to its Davao office. After
some time, Diaz was told by Far East to deposit his payment in a money market
placement for which he did. After receiving nothing from Far East, Diaz filed a case
against Far East.

Far East alleged that despite its purchase of the account of Diaz & Company, PaBC
Davao Branch continued to collect interests and penalty charges on the loan until July
1988 and that it has no knowledge of the rates of interest imposed and collected by
PaBC prior to the purchase of the account from the latter, hence it could not be held
responsible for those transactions which transpired prior to the purchase.

The RTC, in its decision ordered the partied to compute the total obligation and to
cancel the mortgage. This decision, was later modified by the RTC. On appeal, the
Court of Appeals, affirmed the RTC decision and sustained that there was a valid
tender of payment made by Diaz in favor of Far East, which the latter failed to rebut.

Issue: Whether there was a valid tender of payment made by Diaz.

Ruling: Yes.

In general, a check does not constitute legal tender, and that a creditor may validly
refuse it. It must be emphasized, however, that this dictum does not prevent a creditor
from accepting a check as payment. In other words, the creditor has the option and the
discretion of refusing or accepting it.

In the present case, petitioner bank did not refuse respondent's check. On the contrary,
it accepted the check which, it insisted, was a deposit. As earlier stated, the check
proved to be fully funded and was in fact honored by the drawee bank. Moreover,
petitioner was in possession of the money for several months.

Tender of payment is the definitive act of offering the creditor what is due him or her,
together with the demand that the creditor accept the same. More important, there must

26
be a fusion of intent, ability and capability to make good such offer, which must be
absolute and must cover the amount due.

That respondent intended to settle its obligation with petitioner is evident from the
records of the case. After learning that its loan balance was P1,447,142.03, it presented to
petitioner a check in the amount of P1,450,000, with the specific notation that it was for
full payment of its Pacific Bank account that had been purchased by petitioner. The
latter accepted the check, even if it now insists that it considered the same as a mere
deposit. The check was sufficiently funded, as in fact it was honored by the drawee
bank. When petitioner refused to release the mortgage, respondent instituted the
present case to compel the bank to acknowledge the tender of payment, accept payment
and cancel the mortgage. These acts demonstrate respondent's intent, ability and
capability to fully settle and extinguish its obligation to petitioner.

To iterate, the tender was made by respondent for the purpose of settling its obligation.
It was incumbent upon petitioner to refuse, or accept it as payment. The latter did not
have the right or the option to accept and treat it as a deposit. Thus, by accepting the
tendered check and converting it into money, petitioner is presumed to have accepted it
as payment. To hold otherwise would be inequitable and unfair to the obligor.

WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the Court of
Appeals is AFFIRMED with the following modifications: Respondent Diaz Realty Inc. is
ORDERED to pay Far East Bank and Trust Co. its principal loan obligation in the
amount of P1,067,000, with interest thereon computed at 20 percent per annum until
November 14, 1988, less any interest payments made to PaBC, petitioner's assignor.
Thereafter, interest shall be computed at 12 percent per annum until fully paid.

Doctrine: The tender of a check is sufficient to compel redemption but is not in itself a
payment that relieves the redemptioner from his liability to pay the redemption price.

Jaime Biana vs. George Gimenez G.R. No. 132768 September 9, 2005 (J. Garcia)

Facts:

In lieu of the satisfaction Decision in a labor case against George Gimenez and others to
pay Santos Mendones, Sheriff Madera levied and attached four parcels of urban land
which were registered in the name of Jose, Tessa, Mariel and George, all surnamed
Gimenez, for failure to pay the judgment obligation. In 1978, apublic auction was
conducted by Sheriff madera for the sale of the four parcels of land in which Mendones
as the highest bidder. A provisional certificate of sale was issued in favor of Mendones.

27
Gimenez alleged that he was not informed of the execution sale conducted, and was
only informed upon asking the payment for publication fee. Gimenez, the approached
Sheriff Garchitorena for the purpose of redeeming the lands, since Sheriff Madera was
not located. Gimenez issued four checks in the name of Provincial Sheriff Garchitorena
to facilitate the redemption, and in turn Sheriff Garchitorena acknowledge the same as
full payment and satisfaction of the judgment.

Gimenez, then received a letter from Sheriff Madera informing him that 1-year
redemption period will soon expire and submitted an itemization including the
publication fee. Gimenez disagreed to the itemization contending that he already paid
the same. After some expiration, Sheriff Madera issued a Definite Deed of Sale in favor
of Mendones. Thus, Gimenez filed a special civil action for mandamus against Sheriff
Madera to execute the deed of redemption.

The trial court, ruled in favor of Gimenez and set aside the Deed of Sale and to execute
a Deed of Redemption reconveying the parcels of land. On appeal, the Court of
Appeals, affirmed in toto the trial court’s decision.

Issue: Whether the Provincial Sheriff of Camarines Sur can be legally compelled to
execute a deed of redemption in favor of respondent Gimenez.

Ruling: Yes.

The instant case involves not the payment of an obligation but the exercise of a right,
i.e., the right of redemption. Accordingly, the Civil Code provisions on payment of
obligations may not be applied here. What applies is the settled rule that a mere tender
of a check is sufficient to compel redemption. In the words of this Court in Fortunado,
et al. vs. Court of Appeals, et al.: “What we are saying is that a check may be used for
the exercise of the right of redemption, the same being a right and not an obligation.
The tender of a check is sufficient to compel redemption but is not in itself a payment
that relieves the redemptioner from his liability to pay the redemption price. In other
words, while we hold that the private respondents properly exercise their right of
redemption, they remain liable, of course, for the payment of the redemption price.”

The records before us are bereft of any evidence indicating that Sheriff Garchitorena
absconded or disappeared with the checks of respondent. Quite the contrary, in the
letter of Deputy Sheriff Madera addressed to Santos B. Mendones, the former even
stated that "in this connection, please come to our office. Clearly, therefore, it is not
impossible for the judgment oblige or the court to collect the amount of the judgment
obligation from Sheriff Garchitorena who even issued a receipt bearing date 19 July
1979 acknowledging that he "received from the Gimenez Park Subdivision and George

28
G. Gimenez the sum of FIVE THOUSAND SIX HUNDRED FIFTEEN & 89/100 in full
payment and satisfaction of the judgment.

Besides, Sheriff Madera himself deducted the aggregate amount of the four (4) checks
(₱5,615.89) from respondent Gimenez’ liability when he submitted the itemization15
requested by the latter’s counsel, Atty. Augusto A. Pardalis.

Given the above, we agree with the ruling of the two courts below that there has been a
valid payment of the redemption price which would entitle respondent to the issuance
of a Deed of Redemption in his favor.

WHEREFORE, the instant petition is DENIED and the assailed Decision and
Resolution of the Court of Appeals AFFIRMED in toto.

Doctrine: Article 1242 of the Civil Code is an exception to the rule that a valid payment
of an obligation can only be made to the person to whom such obligation is rightfully
owed.

National Power Corporation vs. Lucman Ibrahim, et al. G.R. No. 175863
February 18, 2015 (J. Perez)

Facts:

In 1978, NAPOCOR took possession of a 21,995 square meter parcel of land in Marawi
City for the purpose of building thereon a hydroelectric power plant pursuant to its
Agus 1 project. The parcels of land, however, was occupied by NAPOCOR under the
mistaken belief that such land is part of the vast tract of public land reserved for its use
by the government under Proclamation No. 1354. Mangondato, upon knowledge of
such occupation demanded compensation from NAPOCOR claiming ownership over
the subject lands. NAPOCOR acknowledge Mangondato’s ownership, however, they

29
failed to settle regarding the fair market value of the land. Thus, Mangondato filed a
complaint for reconveyance with RTC Marawi City against NAPOCOR and prayed for
the recovery of the same. NAPOCOR, on the other hand, filed an expropriation
complaint.

The RTC rendered its decision in favor of NAPOCOR and upheld its right to
expropriate the land upon payment of just compensation. On appeal, the Court of
Appeals affirmed the trial court’s decision on the issue of just compensation. The same
was upheld by the Supreme Court.

While the case was pending, Ibrahim and Maruhoms filed with the RTC Marawi City a
complaint against Mangondato and NAPOCOR claiming ownership over the subject
land. They also prayed for the issuance TRO and a Writ of Preliminary Injuction. The
RTC granted the same and issued a TRO and subsequently issued the Writ.

Issue: Whether NAPOCOR is liable in favor of Ibrahim and Maruhoms for the rental
fees and expropriation indemnity adjudged due for the subject land.

Ruling: No.

Without the existence of bad faith, the ruling of the RTC and of the Court of Appeals
apropos petitioner’s remaining liability to the Ibrahims and Maruhoms becomes devoid
of legal basis. In fact, petitioner’s previous payment to Mangondato of the rental fees
and expropriation indemnity due the subject land pursuant to the final judgment in
Civil Case No. 605-92 and Civil Case No. 610-92 may be considered to have
extinguished the former’s obligation regardless of who between Mangondato, on one
hand, and the Ibrahims and Maruhoms, on the other, turns out to be the real owner of
the subject land. Either way, petitioner cannot be made liable to the Ibrahims and
Maruhoms.

Article 1242 of the Civil Code that, just the same, extinguishes its obligation to pay for
the rental fees and expropriation indemnity due for the subject land. Article 1242 of the
Civil Code reads: "Payment made in good faith to any person in possession of the credit
shall release the debtor." Article 1242 of the Civil Code is an exception to the rule that a
valid payment of an obligation can only be made to the person to whom such obligation
is rightfully owed. It contemplates a situation where a debtor pays a "possessor of
credit" i.e., someone who is not the real creditor but appears, under the circumstances,
to be the real creditor. In such scenario, the law considers the payment to the "possessor
of credit" as valid even as against the real creditor taking into account the good faith of
the debtor.

30
Borrowing the principles behind Article 1242 of the Civil Code, we find that
Mangondato—being the judgment creditor in Civil Case No. 605-92 and Civil Case No.
610-92 as well as the registered owner of the subject land at the time —may be
considered as a "possessor of credit" with respect to the rental fees and expropriation
indemnity adjudged due for the subject land in the two cases, if the Ibrahims and
Maruhoms turn out to be the real owners of the subject land. Hence, petitioner’s
payment to Mangondato of the fees and indemnity due for the subject land as a
consequence of the execution of Civil Case No. 605-92 and Civil Case No. 610-92 could
still validly extinguish its obligation to pay for the same even as against the Ibrahims
and Maruhoms.

WHEREFORE, premises considered, the instant petition is GRANTED. The Decision

dated 24 June2005 and Resolution dated 5 December 2006 of the Court of Appeals in
CA-G.R. CV No. 68061 is hereby SET ASIDE. The Decision dated 16 April 1998 of the
Regional Trial Court in Civil Case No. 967-93 is MODIFIED in that petitioner is
absolved from any liability in that case in favor of the respondents Lucman M. Ibrahim,
Atty. 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. Civil Case No. 967-93 is
DISMISSED as against petitioner.

Doctrine: Payment made by the debtor to the person of the creditor or to one
authorized by him or by the law to receive it extinguishes the obligation

Spouses Miniano Dela Cruz and Leta Dela Cruz vs. Ana Marie Concepcion
G.R. No. 172825 October 11, 2012 (J. Peralta)

Facts:

In 1996, Spouses Dela Cruz and Concepcion entered in a Contraact to Sell, wherein the
Spouses sold their house and lot located in Antipolo city for P2M. Concepcion made
several payments representing her downpayment and her full obligation. Thereofore,
she was able to pay the full P2M. Prior to the issuance of the replacement check,
Concepcion told the Spouses that her outstanding balance is only P200,000.00 including
interest and penalties based on the computation of her accountant. Subsequently, the

31
title was transferred in the name of Concepcion. The Spouses then reminded her of her
balance shall be paid within three months. However, Concepcion did not heed to their
demands. The Spouses also made presented an allegedly correct computation as to
Concepcion’s outstanding balance. However, they still failed to collect from
Concepcion. Thus, they filed with RTC Antipolo a complaint for sum of money with
damages against Concepcion.

The RTC, in its decision, ruled in favor of Concepcion and dismissed the complaint. The
RTC noted that the evidence formally offered by petitioners have not actually been
marked as none of the markings were recorded. Thus, it found no basis to grant their
claims, especially since the amount claimed in the complaint is different from that
testified to.

On appeal, the CA affirmed the decision with modification by deleting the award of
moral damages and attorney’s fees. It agreed with the RTC that the evidence presented
by petitioners cannot be given credence in determining the correct liability of
respondent. Considering that the purchase price had been fully paid by respondent
ahead of the scheduled date agreed upon by the parties, petitioners were not awarded
the excessive penalties and interests.

Issues: Whether Concepcion’s obligation was extinguished by payment.

Ruling: Yes.

Respondent’s obligation consists of payment of a sum of money. In order to extinguish

said obligation, payment should be made to the proper person as set forth in Article
1240 of the Civil Code, to wit: Article 1240. Payment shall be made to the person in
whose favor the obligation has been constituted, or his successor in interest, or any
person authorized to receive it.

Payment made by the debtor to the person of the creditor or to one authorized by him
or by the law to receive it extinguishes the obligation. When payment is made to the
wrong party, however, the obligation is not extinguished as to the creditor who is
without fault or negligence even if the debtor acted in utmost good faith and by mistake
as to the person of the creditor or through error induced by fraud of a third person.

In general, a payment in order to be effective to discharge an obligation, must be made

to the proper person. Thus, payment must be made to the obligee himself or to an agent
having authority, express or implied, to receive the particular payment. Payment made
to one having apparent authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise, if payment is made to

32
one who by law is authorized to act for the creditor, it will work a discharge. The
receipt of money due on a judgment by an officer authorized by law to accept it will,
therefore, satisfy the debt.

Admittedly, payment of the remaining balance of P200,000.00 was not made to the
creditors themselves. Rather, it was allegedly made to a certain Losloso. Respondent
claims that Losloso was the authorized agent of petitioners, but the latter dispute it.

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The
Court of Appeals Decision dated March 31, 2005 and Resolution dated May 24, 2006 in
CA-G.R. CV No. 83030, are AFFIRMED.

Doctrine: Persons with capacity to alienate property may renounce prescription already
obtained, but not the right to prescribe in the future. Prescription is deemed to have
been tacitly renounced when the renunciation results from acts which imply the
abandonment of the right acquired.

Hydro Resources Contractors Corporation vs. National Irrigation Administration

G.R. No. 160215 November 10, 2004 (J. Ynares-Santiago)

Facts:

In 1978, Hydro Contractors won the competitive bidding conducted by NIA involving
the main civil work of the Magat River Multi-Purpose Project. The parties signed
Amendment No. 1 of the contract whereby NIA agreed to increase the foreign currency
allocation for equipment financing from US$28M for the first and second years of the
contract to US$38M, to be made available in full during the first year of the contract to
enable the contractor to purchase the needed equipment and spare parts, as approved

33
by NIA, for the construction of the project. Thereafter, they entered in a MOA whereby
they agreed that Hydro may directly avail of the foreign currency component of the
contract for the sole purpose of purchasing necessary spare parts and equipment for the
project to avoid delays in the procurement of the said spare parts and equipment.
Hydro Resources then finished the project in 1982, but during the execution of the
contract, the foreign exchange value declined and deteriorated.

Upon completion of the project, a final reconciliation of the total entitlement of Hydro
to the foreign currency component of the contract was made. The result of this final
reconciliation showed that the total entitlement of Hydro to the foreign currency
component of the contract exceeded the amount of US dollars required by Hydro.
Hydro then requested a full and final payment due to the underpayment of the foreign
exchange portion caused by price escalations and extra work orders. Hydro then
presented its claim for said foreign exchange differential to NIA but the latter refused to
honor the same despite several demands.

Hydro, then filed a request for arbitration with the Construction Industry Arbitration
Commission (CIAC). NIA, in its answer, alleged that Hydro is already estopped and
barred by laches in its claims and assailed the jurisdiction of CIAC. CIAC, in its
decision, ruled in favor of Hydro Resources.

On appeal, the Court of Appeals, reversed the CIAC decision on the grounds that
Hydro’s claim has already prescribed.

Issue: Whether the Court of Appeals erred in ruling that Hydro’s claim had prescribed.

Ruling: Yes.

First, the appellate court clearly overlooked the fact that NIA, through then
Administrator Fedrico N. Alday, Jr., denied "with finality" Hydro's claim only on
January 6, 1987 in a letter bearing the same date.

Second, as early as April 1983, Hydro and NIA, through its Administrator Cesar L.
Tech, prepared the Joint Computation which shows that Hydro is entitled to the foreign
currency differential. As correctly found by the CIAC, this computation constitutes a
written acknowledgment of the debt by the debtor under Article 1155 of the Civil Code,
which states that “The prescription of actions is interrupted when they are filed before
the court, when there is a written extrajudicial demand by the creditors, and when there
is any written acknowledgment of the debt by the debtor.”

34
Third, NIA has clearly waived the prescriptive period when it continued to entertain
Hydro's claim regarding new matters raised by the latter in its letters to NIA and then
issuing rulings thereon. In this regard, Article 1112 of the Civil Code provides that
“Persons with capacity to alienate property may renounce prescription already
obtained, but not the right to prescribe in the future. Prescription is deemed to have
been tacitly renounced when the renunciation results from acts which imply the
abandonment of the right acquired. ” Certainly, when a party has renounced a right
acquired by prescription through its actions, it can no longer claim prescription as a
defense.

Fourth, even assuming that NIA did not waive the thirty-day prescriptive period, it
clearly waived the effects of such period when it actively participated in arbitration
proceedings.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-
G.R. SP No. 44527 dated October 29, 2002 and the Resolution dated September 24, 2003
are REVERSED and SET ASIDE. The Decision of the Construction Industry
Arbitration Commission dated June 10, 1997 in CIAC Case No. 18-94 is REINSTATED.

Doctrine: Compensation takes place by operation of law, even though the debts may be
payable at different places, but there shall be an indemnity for expenses of exchange or
transportation to the place of payment.

Citibank, N.A and Investors Finance Corporation vs. Modesta Sabeniano

G.R. No. 156132 February 6, 2007 (J. Chico-Nazario)

Facts:

Sabeniano had several deposits and market placements with Citibank-Manila.

Sabeniano also have money market placements with FNCB and dollar accounts with
Citibank-Geneva. At the same time, she had outstanding loans with Citibank, incurred
at Citibank-Manila, tfor ₱1.92M all of which had become due and demandable by May
1979. Despite repeated demands by Citibank, Sabeniano failed to pay her outstanding
loans. Thus, Citibank used her deposits and money market placements to off-set and
liquidate her outstanding obligations. Sabeniano, however, denied having any

35
outstanding loans with Citibank and that she was duly informed of the off-setting or
compensation thereof. Thus, she filed a complaint for accounting, sum of money and
damages against Citibank and FNBC.

The RTC, in its decision, declared the off-setting as illegal, null and void made by
Citibank and ordered it to refund. The Court also ordered Sabeniano to pay her
outstanding obligation with Citibank.

On appeal, the Court of Appeals, affirmed with modification, the RTC decision. The CA
declared that Citibank failed to establish the indebtedness of Sabeniano.

Issue: Whether Citibank can off-set Sabeniano’s outstanding loan balance with her
dollar deposits in Citibank-Geneva.

Ruling: No.

Without the Declaration of Pledge, petitioner Citibank had no authority to demand the
remittance of respondent’s dollar accounts with Citibank-Geneva and to apply them to
her outstanding loans. It cannot effect legal compensation under Article 1278 of the
Civil Code since, petitioner Citibank itself admitted that Citibank-Geneva is a distinct
and separate entity. As for the dollar accounts, respondent was the creditor and
Citibank-Geneva is the debtor; and as for the outstanding loans, petitioner Citibank was
the creditor and respondent was the debtor. The parties in these transactions were
evidently not the principal creditor of each other.

Section 20 of the General Banking Law of 2000 expressly states that the bank and its
branches shall be treated as one unit. It should be pointed out, however, that the said
provision applies to a universal9 or commercial bank, duly established and organized
as a Philippine corporation in accordance with Section 8 of the same statute, and
authorized to establish branches within or outside the Philippines.

Therefore, this Court maintains its original position in the Decision that the off-setting
or compensation of respondent’s loans with Citibank- Manila using her dollar accounts
with Citibank-Geneva cannot be effected. The parties cannot be considered principal
creditor of the other. As for the dollar accounts, respondent was the creditor and
Citibank-Geneva was the debtor; and as for the outstanding loans, petitioner Citibank,
particularly Citibank-Manila, was the creditor and respondent was the debtor. Since
legal compensation was not possible, petitioner Citibank could only use respondent’s
dollar accounts with Citibank-Geneva to liquidate her loans if she had expressly
authorized it to do so by contract.

36
IN VIEW OF THE FOREGOING, petitioners’ Motion for Partial Reconsideration of
this Court’s Decision, dated 16 October 2006, and respondent’s Motion for this Court to
declare the same Decision already final and executory, are both DENIED for lack of
merit.

Doctrine: Article 1250 of the Civil Code provides that in case an extraordinary inflation
or deflation of the currency stipulated should supervene, the value of the currency at
the time of the establishment of the obligation shall be the basis of payment, unless
there is an agreement to the contrary.

Telengtan Brothers & Sons, Inc. vs. united States Lines, Inc. and Court of Appeals
G.R. No. 132284 February 28, 2006 (J. Garcia)

Facts:

In 1981, US Lines filed a suit against Telengtan seeking payment of demurrage charges
plus interest and damages. It alleged that between the years 1979 and 1980, goods
belonging to Telengtan loaded on containers aboard its vessels arrived in Manila from
U.S. ports. However, after the 10-day free period, Telengtan still failed to withdraw its
goods from the containers wherein the goods had been shipped, thus, it incurred a
demurrage which Telengtan refused to pay despite several demands.

37
In its answer, Telengtan alleged that it has never entered into a contract nor signed an
agreement to be bound by any rule on demurrage. It likewise maintains that, absent an
obligation to pay US Lines who made no proper or legal demands in the first place,
there is justifiable reason to refuse payment of the latter’s unwarranted claims.
Telengtan also alleged that after presenting its Bill of Ladings, it was informed that US
Lines already unloaded the goods from the container vans, stripped them of their
contents which contents were then stored in warehouses.

The trial court, in its decision ruled in favor of US Lines and ordered Telengtan to pay
the former the demurrage incurred. The Court finds that the charges for warehousing
were necessary expenses covered by the terms of the bill of lading which the consignee
was responsible for.

On appeal, the Court of Appeals affirmed in toto the trial court’s decision.

Issue: Whether the Court of Appeals erred in in affirming the trial court’s order for the
recomputation of the judgment award in accordance with Article 1250 of the Civil
Code.

Ruling: Yes.

Article 1250 of the Civil Code provides that in case an extraordinary inflation or
deflation of the currency stipulated should supervene, the value of the currency at the
time of the establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary. Extraordinary inflation or deflation, as the case may be,
exists when there is an unusual increase or decrease in the purchasing power of the
Philippine peso which is beyond the common fluctuation in the value of said currency,
and such increase or decrease could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time of the establishment of
the obligation.19 Extraordinary inflation can never be assumed; he who alleges the
existence of such phenomenon must prove the same.

The Court holds that there has been no extraordinary inflation within the meaning of
Article 1250 of the Civil Code. Accordingly, there is no plausible reason for ordering the
payment of an obligation in an amount different from what has been agreed upon
because of the purported supervention of extraordinary inflation.

As it were, respondent was unable to prove the occurrence of extraordinary inflation

since it filed its complaint in 1981. Indeed, the record is bereft of any evidence,
documentary or testimonial, that inflation, nay, an extraordinary one, existed. Even if
the price index of goods and services may have risen during the intervening period, this

38
increase, without more, cannot be considered as resulting to "extraordinary inflation" as
to justify the application of Article1250.

In other words, an agreement is needed for the effects of an extraordinary inflation to be

taken into account to alter the value of the currency at the time of the establishment of
the obligation which, as a rule, is always the determinative element, to be varied by
agreement that would find reason only in the supervention of extraordinary inflation or
deflation.

WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED with the
MODIFICATION that the order for recomputation as of the date of payment in
accordance with the provisions of Article 1250 of the Civil Code is deleted.

Doctrine: Extraordinary inflation exists when there is a decrease or increase in the

purchasing power of the Philippine currency which is unusual or beyond the common
fluctuation in the value of said currency, and such increase or decrease could not have
been reasonably foreseen or was manifestly beyond the contemplation of the parties at
the time of the establishment of the obligation.

Eufenia Almeda and Romel Almeda vs. Bathala marketing Industries, Inc. G.R. No.
150809 January 28,2008 (J. Nachura)

Facts:

In 1997, Bathala Marketing, as lessee, renewed its Contract of Lease with Ponciano,
husband of Eufemia and father of Romel. Under the said contract, Ponciano agreed to
lease a portion of the Almeda Compound for a monthly rental of P1,107,348.69, for a
term of 4 years from May 1, 1997 unless sooner terminated as provided in the contract.
Under the contract, the parties stipulated that in case the assessment should increase or
any new tax, charge or burden be imposed by authorities on the lot and building where
the leased premises are located, Bathala shall pay and that in case an extraordinary
inflation or devaluation of Philippine Currency should supervene, the value of

39
Philippine peso at the time of the establishment of the obligation shall be the basis of
payment. After Ponciano died, Eufenia and Romel dealt with Bathala. In 1997, Bathala
was informed through a letter that they shall assess and collect VAT on its monthly
rentals. Bathala opposed stating that VAT was not imposed in their contract. In 1998,
Bathala was informed through a letter that its monthly rental should be increased by
73%, which it opposed alleging that there was no extraordinary inflation, thus, refusing
to pay the VAT and increased rentals.

Bathala, then, instituted an action for declaratory relief for purposes of determining the
correct interpretation of the stipulations in their lease contract. In turn, the Almedas
filed an action for ejectment against Bathala for its failure to vacate the property even
after demand.

After trial, the RTC ruled in favor of Bathala, declaring that it is not liable for the VAT
and the increased rental fee. The trial court denied Almedas their right to pass on to
Bathala the burden of paying the VAT since it was not a new tax that would call for the
application of the sixth clause of the contract. The court, likewise, denied their right to
collect the demanded increase in rental, there being no extraordinary inflation or
devaluation as provided for in the seventh clause of the contract. On appeal, the Court
of Appeals affirmed the trial court’s decision.

Issue: Whether the amount of rentals due the petitioners should be adjusted by reason
of extraordinary inflation or devaluation.

Ruling: No.

Article 1250 of the Civil Code states that in case an extraordinary inflation or deflation
of the currency stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary. Inflation has been defined as the sharp increase of money or
credit, or both, without a corresponding increase in business transaction. There is
inflation when there is an increase in the volume of money and credit relative to
available goods, resulting in a substantial and continuing rise in the general price level.

Extraordinary inflation exists when there is a decrease or increase in the purchasing

power of the Philippine currency which is unusual or beyond the common fluctuation
in the value of said currency, and such increase or decrease could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties at the
time of the establishment of the obligation.

40
The factual circumstances obtaining in the present case do not make out a case of
extraordinary inflation or devaluation as would justify the application of Article 1250 of
the Civil Code. We would like to stress that the erosion of the value of the Philippine
peso in the past three or four decades, starting in the mid-sixties, is characteristic of
most currencies. And while the Court may take judicial notice of the decline in the
purchasing power of the Philippine currency in that span of time, such downward
trend of the peso cannot be considered as the extraordinary phenomenon contemplated
by Article 1250 of the Civil Code. Furthermore, absent an official pronouncement or
declaration by competent authorities of the existence of extraordinary inflation during a
given period, the effects of extraordinary inflation are not to be applied.

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court
of Appeals in CA-G.R. CV No. 67784, dated September 3, 2001, and its Resolution dated
November 19, 2001, are AFFIRMED.

Doctrine: A contract of adhesion is a contract whereby almost all of its provisions are
drafted by one party. The participation of the other party is limited to affixing his
signature or his "adhesion" to the contract.

Equitable PCI Bank, Aimee Yu and Bejan Apas vs. Ng Sheung Ngor, Ken Appliance
Division, Inc. and Benjamin Go G.R. No. 171545 December 19, 2007 (J. Corona)

Facts:

In 2001, herein respondents filed an action for annulment or reformation of documents

and contracts against Equitable. They alleged that Equitable induced them to avail of its
peso and dollar credit facilities by offering low interest rates which they accepted
signed the bank's pre-printed promissory notes on various dates beginning 1996. They,
however, were unaware that the documents contained identical escalation clauses
granting Equitable authority to increase interest rates without their consent. Equitable,
in its answer alleged that the respondents knew all the terms and conditions in the
promissory notes.

The RTC, in its decision, upheld the validity of the promissory notes but invalidated the
escalation clause therein. The trial court also declared the existence of an extraordinary

41
inflation. The RTC, then issued an omnibus motion denying Equitable’s MR for lack of
merit and issued a Writ of Execution. Thereafter, properties of Equitable were levied.
These properties were subsequently sold in a public auction which took place despite
the issuance of a writ of preliminary injuction. Thus, it prayed that the auction sale to be
annulled.

The Court of Appeals, in its decision dismissed the petition filed by Equitable declaring
it guilty of forum shopping because the bank filed its petition for certiorari in the CA
several hours before withdrawing its petition for relief in the RTC.

Issue: Whether the promissory notes and escalation clause are valid.

Ruling: Yes.

A contract of adhesion is a contract whereby almost all of its provisions are drafted by
one party. The participation of the other party is limited to affixing his signature or his
"adhesion" to the contract. For this reason, contracts of adhesion are strictly construed
against the party who drafted it. It is erroneous, however, to conclude that contracts of
adhesion are invalid per se. They are, on the contrary, as binding as ordinary contracts.
A party is in reality free to accept or reject it. A contract of adhesion becomes void only
when the dominant party takes advantage of the weakness of the other party,
completely depriving the latter of the opportunity to bargain on equal footing.

That was not the case here. As the trial court noted, if the terms and conditions offered
by Equitable had been truly prejudicial to respondents, they would have walked out
and negotiated with another bank at the first available instance. But they did not.
Instead, they continuously availed of Equitable's credit facilities for five long years.

Escalation clauses are not void per se. However, one "which grants the creditor an
unbridled right to adjust the interest independently and upwardly, completely
depriving the debtor of the right to assent to an important modification in the
agreement" is void. Clauses of that nature violate the principle of mutuality of contracts.
Article 1308 of the Civil Code holds that a contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of them.

ACCORDINGLY, the petition is hereby GRANTED.

The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals
in CA-G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.

42
The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in
Civil Case No. CEB-26983 is hereby ANNULLED for being rendered with grave abuse
of discretion amounting to lack or excess of jurisdiction. All proceedings undertaken
pursuant thereto are likewise declared null and void.

The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil
Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI
Bank, Aimee Yu and Bejan Lionel Apas is therefore given due course.

Doctrine: The giving of notice to the persons interested in the performance of the
obligation is mandatory. Failure to notify the persons interested in the performance of
the obligation will render the consignation void.

Soledad Dalton vs. FGR Realty and Development Coproation, et al. G.R. No. 172577
January 19, 2011 (J. Carpio)

Facts:

Dayrit leased her properties in Cebu with several persons including Dalton. In 1985,
Dayrit sold the property to FGR Realty, thus, they stopped accepting monthly rentals
because they wanted to terminate the lease agreements with Dalton and Sasam, et al.

Dalton and Sasam et al. consigned the rental payment with the RTC, however, they
failed to notify Dayrit and FGR Realty relating the consignation. Although the
withdrew the rental payments, they still question the validity of the consignation made
since they were not informed. The parties, except Dalton, entered into a compromise
agreements where they agreed to abandon all claims they have against each other.

43
The RTC rendered its decision which dismissed the complaint of Dalton and ordered
the latter to vacate the property. The court ruled that there was no valid consignation
which took place and was proven that she was no longer residing in the property.

The Court of Appeals, affirmed the trial court decision that there was no consignation
made.

Issue: Whether there was a valid consignation made by Dalton.

Ruling: No.

Art. 1257 of the Civil Code provides that in order that the consignation of the thing due
may release the obligor, it must first be announced to 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. In 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.
The giving of notice to the persons interested in the performance of the obligation is
mandatory. Failure to notify the persons interested in the performance of the obligation
will render the consignation void.

In Soco v. Militante, et al., the Court held that: 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.

WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9 November
2005 Decision and 10 April 2006 Resolution of the Court of Appeals in CA-G.R. CV No.
76536.

44
Doctrine: Article 2088 of the Civil Code prohibits the creditor from appropriating or
disposing the things pledged, and any contrary stipulation is void.

Fort Bonifacio Development Corporation vs. Yllas lending Corporation and Jose
Lauraya G.R. No. 158997 October 6, 2008 (J. Carpio)

Facts:

In 1998, FBDC executed a lease contract in favor of Tirreno Inc. over a property in
Taguig. Under the lease contracts, it provided the terms in case of default, the contract
may be terminated without the need of any judicial action. Another stipulation was
about the lien on the properties of Tirreno. After some time, Tirreno defaulted from
payment. Thus, Tirreno and FBDC entered into a settlement agreement but still the
former failed to satisfy its conditions and obligations. Thus, FBDC sent a written notice
of termination to Tirreno.
Issue: Whether Section 22 of the leas contract is valid. FBDC also appropriated the
equipment and properties left by Tirreno pursuant to Section 22 of their Contract of
Lease as partial payment for Tirreno's outstanding obligations.

Tirreno, then, filed an action for forcible entry against FBDC before the Municipal Trial
Court of Taguig. Tirreno also filed a complaint for specific performance with a prayer

45
for the issuance of a temporary restraining order and/or a writ of preliminary
injunction against FBDC before the RTC Pasig but was dismissed for forum-shopping.

Yllas Lending and Lauraya caused the sheriff of Branch 59 of the trial court to serve an
alias writ of seizure against FBDC. In 2000, Tirreno, Eloisa and Antonio executed a Deed
of Chattel Mortgage in favor of respondents as security for the loan. Despite FBDC's
service upon him of an affidavit of title and third party claim, the sheriff proceeded
with the seizure of certain items from FBDC's premises.

The trial court, rendered a decision against FBDC. The trial court declared that Section
22 of the lease contract between FBDC and Tirreno is void under Article 2088 of the
Civil Code.

Ruling: No.

Articles 2085 and 2093 of the Civil Code enumerate the requisites essential to a contract
of pledge: (1) the pledge is constituted to secure the fulfillment of a principal obligation;
(2) the pledgor is the absolute owner of the thing pledged; (3) the persons constituting
the pledge have the free disposal of their property or have legal authorization for the
purpose; and (4) the thing pledged is placed in the possession of the creditor, or of a
third person by common agreement. Article 2088 of the Civil Code prohibits the
creditor from appropriating or disposing the things pledged, and any contrary
stipulation is void.

On the other hand, Article 1245 of the Civil Code defines dacion en pago, or dation in
payment, as the alienation of property to the creditor in satisfaction of a debt in because
of the Contract of Lease, which gives Tirreno possession of the personal properties.
Since Section 22 is not a contract of pledge, there is no pactum commissorium.

FBDC admits that it took Tirreno's properties from the leased premises without judicial
intervention after terminating the Contract of Lease in accordance with Section 20.2.
FBDC further justifies its action by stating that Section 22 is a forfeiture clause in the
Contract of Lease and that Section 22 gives FBDC a remedy against Tirreno's failure to
comply with its obligations. FBDC claims that Section 22 authorizes FBDC to take
whatever properties that Tirreno left to pay off Tirreno's obligations.

WHEREFORE, we GRANT the petition. We SET ASIDE the Orders dated 7 March
2003 and 3 July 2003 of Branch 59 of the Regional Trial Court of Makati City in Civil
Case No. 01-1452 dismissing Fort Bonifacio Development Corporation's Third Party
Claim and denying Fort Bonifacio Development Corporation's Motion to Intervene and
Admit Complaint in Intervention. We REINSTATE Fort Bonifacio Development

46
Corporation's Third Party Claim and GRANT its Motion to Intervene and Admit
Complaint in Intervention. Fort Bonifacio Development Corporation may hold the
Sheriff liable for the seizure and delivery of the properties subject of this case because of
the lack of an indemnity bond.

Doctrine: The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.

Spouses Wilfredo Ong and Edna Shiela Pagiou-Ong vs. Roban Lending Corporation
G.R. No. 172592 July 9, 2008 (J. Carpio Morales)

Facts:

Spouses Ong obtained several loans from Roban Lending with the total of P4M. The
loans were secured by a real estate mortgage covering the land owned by the spouses.
In the parties Amendment to the real estate mortgage the total obligation including
interest is P5.9M. Thereafter, they exxcuted a dacion in payment agreement where the
Spouses assigned the property to settle their obligation. In 2002, the Spouses filed a
complaint with the RTC Tarlac for the declaration of mortgage contract as abandoned,
annulment of deeds, illegal exaction alleging that the Memorandum of Agreement and
the Dacion in Payment executed are void for being pactum commissorium. The spouses
alleged that the addition charges are illegal iniquitous, unconscionable, and revolting to
the conscience as they hardly allow any borrower any chance of survival in case of
default.

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Roban Lending in its answer, alleged that the transactions are valid. It alleged that if the
voluntary execution of the Memorandum of Agreement and Dacion in Payment
Agreement novated the Real Estate Mortgage then the allegation of Pactum
Commissorium has no more legal leg to stand on.

The RTC, rendered its decision declaring that there was no pactum commissorium. On
appeal, the Court of Appeals, upheld the RTC ruling.

Issue: Whether the MOA and the Dacion en pago constitute pactum commissorium.

Ruling: Yes.

Under Article 2088 of the Civil Code which provides: “The creditor cannot appropriate
the things given by way of pledge or mortgage, or dispose of them. Any stipulation to
the contrary is null and void."

The elements of pactum commissorium, which enables the mortgagee to acquire

ownership of the mortgaged property without the need of any foreclosure proceedings,
are: (1) there should be a property mortgaged by way of security for the payment of the
principal obligation, and (2) there should be a stipulation for automatic appropriation
by the creditor of the thing mortgaged in case of non-payment of the principal
obligation within the stipulated period.

In the case at bar, the Memorandum of Agreement and the Dacion in Payment contain
no provisions for foreclosure proceedings nor redemption. Under the Memorandum of
Agreement, the failure by the petitioners to pay their debt within the one-year period
gives respondent the right to enforce the Dacion in Payment transferring to it
ownership of the properties covered by TCT No. 297840. Respondent, in effect,
automatically acquires ownership of the properties upon petitioners’ failure to pay their
debt within the stipulated period.

In a true dacion en pago, the assignment of the property extinguishes the monetary
debt. In the case at bar, the alienation of the properties was by way of security, and not
by way of satisfying the debt. The Dacion in Payment did not extinguish petitioners’
obligation to respondent. On the contrary, under the Memorandum of Agreement
executed on the same day as the Dacion in Payment, petitioners had to execute a
promissory note for ₱5,916,117.50 which they were to pay within one year.

WHEREFORE, the challenged Court of Appeals Decision is REVERSED and SET

ASIDE. The Memorandum of Agreement and the Dacion in Payment executed by
petitioner- spouses Wilfredo N. Ong and Edna Sheila Paguio-Ong and respondent

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Roban Lending Corporation on February 12, 2001 are declared NULL AND VOID for
being pactum commissorium.

Doctrine: An assignment of credit is an agreement by virtue of which the owner of a

credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange
or donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor.

Sonny Lo vs. KJS Eco-Formwok System Phil., Inc. G.R. No. 149420 October 8, 2003
(J. Ynares-Santiago)

Facts:

In 1990, Lo ordered with KJS Eco-Formwok scaffolding equipment. Lo maid a

downpayment and was able to pay the subsequent two monthly installments. However,
Lo’s business encountered financial liabilities and was unable to pay his obligation
despite oral and written demands made by KJS Eco-formwork. To satisfy his obligation,
Lo and KJS Eco-Formwork executed a Deed of Assignment where Lo assigned to KJS
his alleged receivables with Jomero realty. However, when KJS Eco_formwork tried to
collect from Jomero Realty it refused to honor the Deed of Assignment claiming that Lo
has existing obligation to them. Thus, KJS sent a letter to Lo demanding him to pay,
which Lo refused claiming that his obligation with KJS has been extinguished by the

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Deed of Assignment. KJS Eco-Formwork then filed an action fro recovery of sum of
money against Lo with RTC Makati.

The trial court in its decision, dismissed the complaint declaring that Lo’s liability has
been extinguished by the execution of the Deed of Assignment.

On appeal, the Court of Appeals, reversed the trial court decision. The CA ruled that
the Deed of Asignment did not extinguish Lo’s liability.

Issue: Whether the Deed of Assignment extinguished the obligation of Lo to KJS.

Ruling: No.

An assignment of credit is an agreement by virtue of which the owner of a credit,

known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
donation, and without the consent of the debtor, transfers his credit and accessory
rights to another, known as the assignee, who acquires the power to enforce it to the
same extent as the assignor could enforce it against the debtor.

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.16 In order that
there be a valid dation in payment, the following are the requisites: (1) There must be
the performance of the prestation in lieu of payment (animo solvendi) which may
consist in the delivery of a corporeal thing or a real right or a credit against the third
person; (2) There must be some difference between the prestation due and that which is
given in substitution (aliud pro alio); (3) There must be an agreement between the
creditor and debtor that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due.

Hence, it may well be that the assignment of credit, which is in the nature of a sale of
personal property, produced the effects of a dation in payment which may extinguish
the obligation. However, as in any other contract of sale, the vendor or assignor is
bound by certain warranties. More specifically, the first paragraph of Article 1628 of the
Civil Code provides: “The vendor in good faith shall be responsible for the existence
and legality of the credit at the time of the sale, unless it should have been sold as
doubtful; but not for the solvency of the debtor, unless it has been so expressly
stipulated or unless the insolvency was prior to the sale and of common knowledge.”

From the above provision, petitioner, as vendor or assignor, is bound to warrant the
existence and legality of the credit at the time of the sale or assignment. When Jomero
claimed that it was no longer indebted to petitioner since the latter also had an unpaid

50
obligation to it, it essentially meant that its obligation to petitioner has been
extinguished by compensation. In other words, respondent alleged the non-existence of
the credit and asserted its claim to petitioner’s warranty under the assignment.
Therefore, it behooved on petitioner to make good its warranty and paid the obligation.

WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated
April 19, 2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum
of P335,462.14 with legal interest of 6% per annum from January 10, 1991 until fully
paid is AFFIRMED with MODIFICATION. Upon finality of this Decision, the rate of
legal interest shall be 12% per annum, inasmuch as the obligation shall thereafter
become equivalent to a forbearance of credit. The award of attorney’s fees is DELETED
for lack of evidentiary basis.

Doctrine: Consignation shall be made by depositing the things due at the disposal of a
judicial authority, before whom the tender of payment shall be proved in a proper case,
and the announcement of the consignation in other cases.

Subhash Pasricha and Josephine Pasricha vs. Don Luis Dison Realty, Inc.
G.R. No. 136409 March 14, 2008 (J. Nachura)

Facts:

Don Luis Dison Realty, Inc. and the Pasrichas executed two Contracts of Lease whereby
the former, agreed to lease to the latter nine units of the San Luis Building in Ermita,
Manila. Pasricha, agreed to pay monthly rentals and the cost of electric consumption,
water bills and the use of telephone cables. Only the lease of five units was materialize.
While the contracts were in effect, Pasrichas dealt with Francis Pacheco, then General
Manager of Don Luis Realty and later was replaced by Roswinda Bautista.

The Pasrichas religiously paid the monthly rentals until May 1992. After that, however,
despite repeated demands, they failed and continuously refused to pay their monthly
rentals. Thus, Don Luis realty, because of the failure and refusal to comply, filed a
complaint for ejectment was filed by private respondent through its representative, Ms.
Bautista, before the MeTC of Manila.

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They admitted their failure to pay the stipulated rent for the leased premises starting
July until November 1992, but claimed that such refusal was justified because of the
internal squabble as to the person authorized to receive payment. They also alleged that
they were prevented from using the units (rooms) subject matter of the lease contract,
except Room 35 and claimed that Don Luis waived its right to collect the rents for the
months of July to November 1992 since they were prevented from the other units. They
also alleged that the complaint for ejectment was prematurely filed, as the controversy
was not referred to the barangay for conciliation.

The MeTC, in its decision, dismissed the complaint for ejectment. It considered
petitioners’ non-payment of rentals as unjustified. The court held that mere willingness
to pay the rent did not amount to payment of the obligation; petitioners should have
deposited their payment in the name of respondent company.

On appeal, the Regional Trial Court of Manila reversed and set aside the MeTC
Decision. The court adopted the MeTC’s finding on petitioners’ unjustified refusal to
pay the rent, which is a valid ground for ejectment. It, however, faulted the MeTC in
dismissing the case on the ground of lack of capacity to sue. Instead, it upheld Ms.
Bautista’s authority to represent respondent notwithstanding the absence of a board
resolution.

On appeal, the CA affirmed the RTC Decision but deleted the award of attorney’s fees.

Issue: Whether or not petitioners are justified in withholding payments of rental fee on
the ground that there is confusion as to whom shall payment be made.

Ruling: No.

Although it was clearly established by the evidence that petitioners’ non-payment of

rentals because ostensibly they did not know to whom payment should be made.
However, this did not justify their failure to pay, because if such were the case, they
were not without any remedy. They should have availed of the provisions of the Civil
Code of the Philippines on the consignation of payment and of the Rules of Court on
interpleader.

Article 1256 of the Civil Code provides that “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: (4) When two or more persons claim the
same right to collect. Consignation shall be made by depositing the things due at the

52
disposal of a judicial authority, before whom the tender of payment shall be proved in a
proper case, and the announcement of the consignation in other cases.

In the instant case, consignation alone would have produced the effect of payment of
the rentals. The rationale for consignation is to avoid the performance of an obligation
becoming more onerous to the debtor by reason of causes not imputable to him.
Petitioners claim that they made a written tender of payment and actually prepared
vouchers for their monthly rentals. But that was insufficient to constitute a valid tender
of payment. Even assuming that it was valid tender, still, it would not constitute
payment for want of consignation of the amount. Well-settled is the rule that tender of
payment must be accompanied by consignation in order that the effects of payment
may be produced.

WHEREFORE, premises considered, the petition is DENIED and the Status Quo Order
dated January 18, 1999 is hereby LIFTED. The Decision of the Court of Appeals dated
May 26, 1998 and its Resolution dated December 10, 1998 in CA-G.R. SP No. 37739 are
AFFIRMED.

Doctrine: Obligations are extinguished, among others, by payment or performance, the

mode most relevant to the factual situation in the present case. Under Article 1232 of the
Civil Code, payment means not only the delivery of money but also the performance, in
any other manner, of an obligation.

Manuel Go Cinco and Araceli Go Cinco vs. Court of Appeals, Ester Servacio and
Maasin Tradiners Lending Corporation G.R. No. 151903 Ocober 9, 2009 (J. Brion)

Facts:

In 1987, Manuel Cinco obtained a loan from Maasin Traders as evidenced by a

promissory notes and secured by a real estate mortgage over their land and building in
Southern Leyte. The total obligation of Cinco including its interest amounted to P1.07M.
To satisfy the obligation, Spouses Cinco applied for a loan with PNB and secured by a
real estate mortgage over the same properties. The PNB approved the loan but under
the condition that the mortgaged in favor Maasain Realty be cancelled. Thereafter,
Manuel went to the house of Ester, and informed her that there was money with the
PNB for the payment of his loan. Under the assurance that there was money, and upon
execution of a SPA in favor of Ester to collect proceeds, the latter went to the bank upon
confirmation of the same. Before handing her the proceeds, PNb first required Ester that
the mortgaged over the properties of Spouses Cinco be cancelled. However, Ester
refused to sign the deed and did not collect the loan proceeds.

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After, the loan obligation of Cinco with Massin became due, Ester executed a
foreclosure proceeding over the properties. The Spouses, then filed an action for specific
performance before the RTC alleging that the foreclosure was not proper since the
obligation has been settled.

Ester, alleged that there was no agreement between her and the Spouses authorizing
her to apply the proceeds of the PNB loan to Manuel’s loan with Maasin and that the
SPA merely authorized her to collect the proceeds.

The RTC ruled in favor of Spouses Cinco. The trial court found that the evidence
sufficiently established the existence of the PNB loan whose proceeds were available to
satisfy Manuel’s obligation with Maasin, and that Ester unjustifiably refused to collect
the amount.

On appeal, the Court of Appeals reversed the trial court’s decision. The appellate court
found it significant that there was no explicit agreement between Ester and the spouses
Go Cinco for the cancellation of the MTLC mortgage in favor of PNB to facilitate the
release and collection by Ester of the proceeds of the PNB loan.

Issue: Whether Spouses Cincos’ obligation has been extinguished.

Ruling:

Obligations are extinguished, among others, by payment or performance, the mode

most relevant to the factual situation in the present case. Under Article 1232 of the Civil
Code, payment means not only the delivery of money but also the performance, in any
other manner, of an obligation. Article 1233 of the Civil Code states that "a debt shall
not be understood to have been paid unless the thing or service in which the obligation
consists has been completely delivered or rendered, as the case may be." In contracts of
loan, the debtor is expected to deliver the sum of money due the creditor. These
provisions must be read in relation with the other rules on payment under the Civil
Code, which rules impliedly require acceptance by the creditor of the payment in order
to extinguish an obligation.

Under these facts, Manuel posits two things: first, that Ester’s refusal was based on
completely unjustifiable grounds; and second, that the refusal was equivalent to
payment that led to the extinguishment of the obligation. After considering Ester’s
arguments, we agree with Manuel that Ester’s refusal of the payment was without
basis. Ester refused to accept the payment because the bank required her to first sign a
deed of release/cancellation of the mortgage before the proceeds of the PNB loan could

54
be released. Moreover, Ester alleged that the SPA merely authorized her to collect the
proceeds of the loan; there was no explicit agreement that the MTLC loan would be
paid out of the proceeds of the PNB loan.

There is nothing legally objectionable in a mortgagor’s act of taking a second or

subsequent mortgage on a property already mortgaged; a subsequent mortgage is
recognized as valid by law and by commercial practice, subject to the prior rights of
previous mortgages. Under Article 2130 of the Civil Code, a stipulation forbidding the
owner from alienating the immovable mortgaged is considered void. If the mortgagor-
owner is allowed to convey the entirety of his interests in the mortgaged property,
reason dictates that the lesser right to encumber his property with other liens must also
be recognized. Ester, therefore, could not validly require the spouses Go Cinco to first
obtain her consent to the PNB loan and mortgage. Besides, with the payment of the
MTLC loan using the proceeds of the PNB loan, the mortgage in favor of the MTLC
would have naturally been cancelled.

WHEREFORE, we GRANT the petitioners’ petition for review on certiorari, and

REVERSE the decision of June 22, 2001 of the Court of Appeals in CA-G.R. CV No.
47578, as well as the resolution of January 25, 2002 that followed. We REINSTATE the
decision dated August 16, 1994 of the Regional Trial Court, Branch 25, Maasin, Southern
Leyte, with the following MODIFICATIONS.

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Doctrine: 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.

Spouses Oscar and Thelma Cacayorin vs. Armed Forces and Police Mutual Benefit
Association, Inc. G.R. No. 171298 April 15, 2013 (J. Del Castillo)

Facts:

Oscar Cacayorin filed an application with AFPMBAI to purchase a piece of property

which the latter owned in San Pedro, Puerto Princesa City. In 1994, Spouses Cacayorin
executed a Loan and Mortgage Agreement. Thus, Rural Bank issued a letter of guaranty
informing AFPMBAI that the proceeds of petitioners’ approved loan in the amount of
₱77,418.00 shall be released to AFPMBAI after title to the property is transferred in
petitioners’ name and after the registration and annotation of the parties’ mortgage
agreement. AFPMBAI, then issued a Deed of Absolute sale in favor of the Spouses, and
a TCT was then issued in their favor.

After some time, the Pag-IBIG loan facility did not push through and the Rural Bank
closed and was placed under receivership by thePDIC. Meanwhile, AFPMBAI
somehow was able to take possession of petitioners’ loan documents. AFPMBAI made
oral and written demands to the Spouses to pay the moan for the property.

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The Spouses then filed a complaint for consignation of loan payment alleging that as a
result of the Rural Bank’s closure and PDIC’s claim that their loan papers could not be
located, they were left in a quandary as to where they should tender full payment of the
loan and how to secure cancellation of the mortgage annotation on the TCT.

The RTC, ruled in favor of the Spouses and dismissed the motion filed by AFPMBAI. It
declared that since title has been transferred in the name of petitioners and the action
involves consignation of loan payments, it possessed jurisdiction to continue with the
case. It further held that the only remaining unsettled transaction is between petitioners
and PDIC as the appointed receiver of the Rural Bank.

On appeal, the Court of Appeals, granted the petition and vacated and set aside the trial
court’s decision. It held that the HLURB has the exclusive jurisdiction over the case.

Issue: Whether the Complaint in Civil Case No. 3812 fall within the exclusive
jurisdiction of the HLURB.

Ruling: No.

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

Clearly, the allegations in the Complaint present a situation where the creditor is
unknown, or that two or more entities appear to possess the same right to collect from
petitioners. Whatever transpired between the Rural Bank or PDIC and AFPMBAI in
respect of petitioners’ loan account, if any, such that AFPMBAI came into possession of
the loan documents and TCT No. 37017, it appears that petitioners were not informed
thereof, nor made privy thereto.

Consignation is necessarily judicial, as the Civil Code itself provides that consignation
shall be made by depositing the thing or things due at the disposal of judicial authority,

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thus: Art. 1258. Consignation shall be made by depositing the things due at the disposal
of judicial authority, before whom the tender of payment shall be proved, in a proper
case, and the announcement of the consignation in other cases. The consignation having
been made, the interested parties shall also be notified thereof.

WHEREFORE, premises considered, the Petition is GRANTED. The September 29,

2005 Decision and January 12, 2006 Resolution of the Court of Appeals in CA-G.R. SP
No. 84446 are ANNULLED and SET ASIDE. The October 16, 2003 and March 19, 2004
Orders of the Regional Trial Court of Puerto Princesa City, Branch 47, are
REINSTATED, and the case is REMANDED to the said court for continuation of the
proceedings.

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