17 Condonation or Remission

CONDONATION OR REMISSION
TRANS PACIFIC V CA
G.R.No. 109172 August 19, 1994
FACTS:
Sometime in 1979, petitioner applied for and was granted several

financial accommodations amounting to P1,300,000.00 by respondent
Associated Bank. The loans were evidence and secured by four (4)
promissory notes, a real estate mortgage covering three parcels of land and
a chattel mortgage over petitioner's stock and inventories.
Unable to settle its obligation in full, petitioner requested for, and was granted
by respondent bank, a restructuring of the remaining indebtedness which
then amounted to P1,057,500.00, as all the previous payments made were
applied to penalties and interests.
The mortgaged parcels of land were substituted by another mortgage

covering two other parcels of land and a chattel mortgage on petitioner's
stock inventory. The released parcels of land were then sold and the
proceeds amounting to P1,386,614.20, according to petitioner, were turned
over to the bank and applied to Trans-Pacific's restructured loan.
Subsequently, respondent bank returned the duplicate original copies of the
three promissory notes to Trans-Pacific with the word "PAID" stamped
thereon. Despite the return of the notes, or on December 12, 1985,
Associated Bank demanded from Trans-Pacific payment of the amount of
P492,100.00 representing accrued interest on PN No. TL-9077-82.
According to the bank, the promissory notes were erroneously released.
ISSUE :
Whether or not petitioner has indeed paid in full its obligation to

respondent bank.
RULING:
Art. 1271. The delivery of a private document evidencing a credit,

made voluntarily by the creditor to the debtor, implies the renunciation of the
action which the former had against the latter."
The surrender and return to plaintiffs of the promissory notes
evidencing the consolidated obligation as restructured, produces a legal
presumption that Associated had thereby renounced its actionable claim
against plaintiffs (Art. 1271, NCC). The presumption is fortified by a showing
that said promissory notes all bear the stamp "PAID", and has not been
otherwise overcome. Upon a clear perception that Associated's record
keeping has been less than exemplary . . . , a proffer of bank copies of the
promissory notes without the "PAID" stamps thereon does not impress the
Court as sufficient to overcome presumed remission of the obligation vis-a-
vis the return of said promissory notes. Indeed, applicable law is supportive
of a finding that in interest bearing obligations-as is the case here, payment
of principal (sic) shall not be deemed to have been made until the interests
have been covered (Art. 1253, NCC). Conversely, competent showing that
the principal has been paid, militates against postured entitlement to unpaid
interests.
LOPEZ V TAMBUNTING
G.R.No. 9806 January 19, 1916
FACTS:
These proceedings were brought to recover from the defendant the

sum of P2,000, amount of the fees, which, according to the complaint, are
owing for professional medical services rendered by the plaintiff to a
daughter of the defendant from March 10 to July 15, 1913, which fees the
defendant refused to pay, notwithstanding the demands therefor made upon
him by the plaintiff.
The defendant denied the allegations of the complaint, and furthermore

alleged that the obligation which the plaintiff endeavored to compel him to
fulfill was already extinguished.
ISSUE:
Whether or not implied condonation can be legally pressumed in the

instant case?
RULING:
It is true that number 8 of section 334 of the Code of Civil Procedure

provides as a legal presumption "that an obligation delivered up to the debtor
has been paid." Article 1188 of the Civil Code also provides that the voluntary
surrender by a creditor to his debtor, of a private instrument proving a credit,
implies the renunciation of the right of action against the debtor; and article
1189 prescribes that whenever the private instrument which evidences the
debt is in the possession of the debtor, it will be presumed that the creditor
delivered it of his own free will, unless the contrary is proven.
But the legal presumption established by the foregoing provisions of

law cannot stand if sufficient proof is adduced against it. In the case at bar
the trial court correctly held that there was sufficient evidence to the contrary,
in view of the preponderance thereof in favor of the plaintiff and of the
circumstances connected with the defendant's possession of said receipt
Exhibit 1. Furthermore, in order that such a presumption may be taken into
account, it is necessary, as stated in the laws cited, that the evidence of the
obligation be delivered up to the debtor and that the delivery of the instrument
proving the credit be made voluntarily by the creditor to the debtor. In the
present case, it cannot be said that these circumstances concurred,
inasmuch as when the plaintiff sent the receipt to the defendant for the
purpose of collecting his fee, it was not his intention that that document
should remain in the possession of the defendant if the latter did not forthwith
pay the amount specified therein.
UNITED PLANTERS MILLING CO. V. CA

GR No. 126890; April 2, 2009
FACTS:
In 1987, the Republic of the Philippines lost around 1.5 Billion Pesos after it
had waived its right to collect on an outstanding indebtedness from petitioner,
by virtue of a so-called “friendly foreclosure agreement” that ultimately was
friendly only to petitioner.
Petitioner United Planters Sugar Milling Co. (UPSUMCO) was engaged in
the business of milling sugar. In 1974, as UPSUMCO commenced
operations, it obtained a set of loans from respondent Philippine National
Bank (PNB). The loans were secured over two parcels of land where the
milling plant stood and chattel mortgages over the machineries and
equipment.
On 27 February 1987, through a Deed of Transfer, PNB assigned to the

Government its “rights, titles and interests” over UPSUMCO, among several
other assets.[6] The Deed of Transfer acknowledged that said assignment
was being undertaken “in compliance with Presidential Proclamation No.
50.” The Government subsequently transferred these “rights, titles and
interests” over UPSUMCO to the respondent Asset and Privatization Trust
(APT).
ISSUE:
Whether or not there was compensation in the present case.
RULING:
The right of PNB to set-off payments from UPSUMCO arose out of

conventional compensation rather than legal compensation, even though all
of the requisites for legal compensation were present as between those two
parties. The determinative factor is the mutual agreement between PNB and
UPSUMCO to set-off payments. Even without an express agreement
stipulating compensation, PNB and UPSUMCO would have been entitled to
set-off of payments, as the legal requisites for compensation under Article
1279 were present.
As soon as PNB assigned its credit to APT, the mutual creditor-debtor

relation between PNB and UPSUMCO ceased to exist. However, PNB and
UPSUMCO had agreed to a conventional compensation, a relationship
which does not require the presence of all the requisites under Article 1279.
And PNB too had assigned all its rights as creditor to APT, including its rights
under conventional compensation. The absence of the mutual creditor-
debtor relation between the new creditor APT and UPSUMCO cannot negate
the conventional compensation. Accordingly, APT, as the assignee of credit
of PNB, had the right to set-off the outstanding obligations of UPSUMCO on
the basis of conventional compensation before the condonation took effect
on 3 September 1987.
REYNA V. COA
FEBRUARY 8, 2011
FACTS:
The Land Bank of the Philippines (Land Bank) was engaged in a cattle-
financing program wherein loans were granted to various
cooperatives. Pursuant thereto, Land Bank's Ipil, Zamboanga del Sur
Branch (Ipil Branch) went into a massive information campaign offering the
program to cooperatives.Cooperatives who wish to avail of a loan under the
program must fill up a Credit Facility Proposal (CFP) which will be reviewed
by the Ipil Branch. The Ipil Branch approved the applications of four
cooperatives.One of the conditions stipulated in the CFP is that prior to the
release of the loan, a Memorandum of Agreement (MOA) between the
supplier of the cattle, Remad Livestock Corporation (REMAD), and the
cooperative, shall have been signed. As alleged by petitioners, the terms of
the CFP allowed for pre-payments or advancement of the payments prior to
the delivery of the cattle by the supplier REMAD but such was not stipulated
in the contracts.
Three checks were issued by the Ipil Branch to REMAD to serve as
advanced payment for the cattle. REMAD, however, failed to supply the
cattle on the dates agreed upon.
In post audit, the Land Bank Auditor disallowed the amount of
P3,115,000.00 under CSB No. 95-005 dated December 27, 1996 and
Notices of Disallowance Nos. 96-014 to 96-019 in view of the non-delivery of
the cattle. Also made as the basis of the disallowance was the fact that
advanced payment was made in violation of bank policies and COA rules
and regulations.
Petitioners were made liable for the amount
ISSUE:
Whether or not the writing off of a loan is considered as condonation
RULING:
This Court rules that writing-off a loan does not equate to a
condonation or release of a debt by the creditor.
As an accounting strategy, the use of write-off is a task that can help a
company maintain a more accurate inventory of the worth of its current
assets. In general banking practice, the write-off method is used when an
account is determined to be uncollectible and an uncollectible expense is
recorded in the books of account. If in the future, the debt appears to be
collectible, as when the debtor becomes solvent, then the books will be
adjusted to reflect the amount to be collected as an asset. In turn, income
will be credited by the same amount of increase in the accounts receivable.
Write-off is not one of the legal grounds for extinguishing an obligation
under the Civil Code. It is not a compromise of liability. Neither is it a
condonation, since in condonation gratuity on the part of the obligee and
acceptance by the obligor are required. In making the write-off, only the
creditor takes action by removing the uncollectible account from its books
even without the approval or participation of the debtor.
LEGARDA VS MIAILHE
GR No. L-3435 April 28, 1951
FACTS:
On June 3, 1944, plaintiffs filed a complaint against the original

defendant William J.B. Burke, alleging defendant’s unjustified refusal to
accept payment in discharge of a mortgage indebtedness in his favor, and
praying that the latter be order (1) to receive the sum of P75,920.83; (2) to
execute the corresponding deed of release of mortgage, and; (3) to pay
damages in the sum of P1,000. The Court then decided in favor of plaintiff
Legarda. After the war and the subsequent defeat of the Japanese
occupants, defendant filed a case in court claiming that plaintiff Clara de
Legarda violated her agreement with defendant, by forcing to deposit
worthless Japanese military notes when they originally agreed that the
interest was to be condoned until after the occupation and that payment
was rendered either in Philippine or English currency. Defendant was later
substituted upon death by his heir Miailhe and the Courts judged in
defendant’s favor. Plaintiff now assails said decision.
ISSUE:
Is the tender of payment by plaintiff valid?
RULING:
On February 17, 1943, the only currency available was the Philippine
currency, or the Japanese Military notes, because all other currencies,
including the English, were outlawed by a proclamation issued by the
Japanese Imperial Commander on January 3, 1942. The right to election
ceased to exist on the date of plaintiff’s payment because it had become
legally impossible. And this is so because in alternative obligations there is
no right to choose undertakings that are impossible or illegal. In other
words, the obligation on the part of the debtor to pay the mortgage
indebtedness has since then ceased to be alternative. It appears therefore,
that the tender of payment in Japanese Military notes was a valid tender
because it was the only currency permissible at the time and its payment
was tantamount to payment in Philippine currency.
However, payment with the clerk of court did not have any legal
effect because it was made in certified check, and a check does not meet
the requirements of legal tender. Therefore, her consignation did not have
the effect of relieving her from her obligation of the defendant.

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CONDONATION OR REMISSION

Sometime in 1979, petitioner applied for and was granted several

The mortgaged parcels of land were substituted by another mortgage

Whether or not petitioner has indeed paid in full its obligation to

Art. 1271. The delivery of a private document evidencing a credit,

These proceedings were brought to recover from the defendant the

The defendant denied the allegations of the complaint, and furthermore

Whether or not implied condonation can be legally pressumed in the

It is true that number 8 of section 334 of the Code of Civil Procedure

But the legal presumption established by the foregoing provisions of

UNITED PLANTERS MILLING CO. V. CA

On 27 February 1987, through a Deed of Transfer, PNB assigned to the

Whether or not there was compensation in the present case.

The right of PNB to set-off payments from UPSUMCO arose out of

As soon as PNB assigned its credit to APT, the mutual creditor-debtor

Whether or not the writing off of a loan is considered as condonation

On June 3, 1944, plaintiffs filed a complaint against the original

Is the tender of payment by plaintiff valid?

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