CIV REV 2 - G.Modes of Extinguishment Case Digest - v2

CIVIL LAW REVIEW 2 | I.G.
Modes of Extinguishment
G. Modes of Extinguishment of Obligations - Article 1231
Other modes:
Saura vs DBP, 44 SCRA 445
Saura Import & Export Co., Inc. vs. Development Bank of the Phil
DOCTRINE:
Extinguishment of obligations by mutual desistance. Where after approval of his loan, the borrower, instead of insisting
for its release, asked that the mortgage given as security be cancelled and the creditor acceded thereto, the action
taken by both parties was in the nature of mutual desistance ·what Manresa terms mutuo disenso· which is a
mode of extinguishing obligations. It is a concept that derives from, the principle that since mutual agreement can
create a contract, mutual disagreement by the parties can cause its extinguishment.
FACTS:
· Plaintiff Saura applied to the Rehabilitation
Finance Corporation (RFC) before its conversion into DBP for an industrial loan of 500,000.00 to be used as follows:
1. P250,000.00 for the construction of a factory building (for the manufacture of jute sacks)
2. P240,900.00 to pay the balance of the
purchase price of the jute mill machinery and equipment
3. P240,900.00 to pay the balance of the purchase price of the jute mill machinery and equipment
· The jute mill machinery had already been
purchased by Saura on the strength of a letter of credit extended by the Prudential Bank and Trust Co. and to secure
the release of the same without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.
· RFC passed a resolution approving the loan
application for 500k, to be secured by a first mortgage on the factory buildings to be constructed, the
land site thereof, and the machinery and equipment to be installed. Saura was notified of the same.
·However, prior of the said approval Saura wrote a
letter to RFC, requesting a modification of the terms laid down that:
1. in lieu of having China Engineers, Ltd will sign as a comaker on the corresponding promissory
note to the extent of its stock subscription w/
Saura.
2. and that Maria S. Roca would be substituted for Inocencia Arellano as one of the other co-makers, having acquired
the latter’s shares in Saura, Inc.
· Saura wrote another letter to RFC that China
Engineers, Ltd. had again agreed to act as co- signer for the loan, and asked that the necessary documents be
prepared in accordance with the terms and conditions specified in Resolution.
· The loan documents were executed.
· However, despite formal execution of the loan
agreement a re-examination was conducted and in a meeting at which the president of Saura was present with
the RFC Board, it decided to REDUCE THE LOAN from 500k to 300k.
· Also, another hitched developed when FR Hailing
who had signed the promissory for China Engineers jointly and severally with other co- signors wrote
to RFC that his company no longer wished to avail of the loan and considered the same cancelled.
· In the meantime, Saura, Inc. had written RFC
requesting that the loan of P500,000.00 be
granted. The request was denied.
· RFC passed a resolution restoring the loan to 500k
it appearing that China Engineers is now willing to sign but with a condition that:
The Department of Agriculture and Natural Resources shall certify to the following:
1. That the raw materials needed by the borrower- corporation to carry out its operation are available in the
immediate vicinity; and
2. That there is prospect of increased production thereof to provide adequately for the requirements of the
factory.
· With the foregoing letter the negotiations came
to a standstill. Saura, Inc. did not pursue the matter further. Instead, it requested RFC to
cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of cancellation
and delivered it to Ramon F. Saura himself as president of Saura, Inc.
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CIVIL LAW REVIEW 2 | I.G. Modes of Extinguishment
· It appears that the cancellation was requested to make way for the registration of a mortgage contract over
the same property in favor of the Prudential Bank and Trust Co., under which contract Saura, Inc. had to pay
its obligation on the trust receipt.
· It appears further that for failure to pay the said
obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
· On January 9, 1964, almost 9 years after the
mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced the present suit for
damages, alleging failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to release the
proceeds of the loan applied for and approved, thereby preventing Saura from completing or
paying contractual commitments it had entered into, in connection with its jute mill project.
· RTC, rendered judgment for the plaintiff, ruling
that there was a perfected contract between the parties and that the defendant was guilty of breach thereof.
· The defendant pleaded below, and reiterates in
this appeal:
(1) that the plaintiff’s cause of action had prescribed, or that its claim had been waived or abandoned;
(2) that there was no perfected contract; and
(3) that assuming there was, the plaintiff itself did not comply with the terms thereof.
ISSUE:
Whether the obligation of the parties was extinguished.
HELD:
YES.
There was a perfected consensual contract. Where an application for a loan of money was approved by resolution
of the defendant corporation and the corresponding mortgage was executed and registered, there arises a
perfected-consensual contract of loan.
Here, there was undoubtedly offer and acceptance. the application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the corresponding mortgage was executed and registered.
It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that Saura will comply
with its conditions. The Court ruled that the imposition of those conditions was by no means a deviation from the
terms of the agreement, but rather a step in its implementation.
Evidently Saura, Inc. realized that it could not meet the conditions required by RFC, and so wrote its letter stating
that local jute „will not be available in sufficient quantity this year or probably next year. When RFC turned down the
request in its letter, the negotiations which had been going on for the implementation of the agreement.
Saura, Inc, obviously was in no position to comply with RFCÊs conditions. So instead of doing so and insisting that
the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled. The action thus taken by both
parties was in the nature of mutual desistance· what Manresa terms “mutuo disenso” ·which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can create a
contract, mutual disagreement by the parties can cause its
extinguishment.
The subsequent conduct of Saura, Inc. confirms this desistance:

1. It did not protest against any alleged breach of contract
by RFC, or even point out that the latter’s stand was legally
unjustified. Its request for cancellation of the mortgage
carried no reservation of whatever rights it believed it might have against RFC for the latter’s noncompliance.
2. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was
disapproved.
3. It was only in 1964, nine years after the loan agreement

had been cancelled at its own request, that Saura, Inc. brought this action for damages.
All these circumstances demonstrate beyond doubt that the
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said agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-
appellee
itself.
1. Payment of performance - Article 1232-1244, 1246-1251, 1302; RA 529, RA 8183; PD 72, Section 31-32
70. NPC vs Ibrahim, et. al., GR 175863, February 18, 2015
National Power Corporation vs. Ibrahim
DOCTRINE:
Bad Faith; A finding of bad faith usually assumes

the presence of two (2) elements: first, that the actor knew or should have known that a particular course
of action is wrong or illegal, and second, that despite such actual or imputable knowledge, the actor,
voluntarily, consciously and out of his own free will, proceeds with such course of
action.
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.
FACTS:
· Petitioner NPC took possession of a parcel of land in Marawi City for the purpose of building thereon a
hydroelectric power plant pursuant to Agus 1project. On the said land a portion thereof is private estate
under TCT in the name of herein respondent Macapanton K. Mangondato which was also occupied by
petitioner 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.
· When Mangondato discovered such occupation of NPC, it began demanding compensation for the subject land.
· Petitioner at first rejected Mangondato’s claim of ownership over the land. But after a decade NPC finally
acquiesced to the fact that the subject land is a private land and consequently acknowledged Mangondato’s right,
as registered owner, to receive compensation therefor. During the early 1990s, petitioner and Mangondato
partook in a series of communications aimed at settling the amount of compensation.
· With an agreement out reach a Mangondato filed a complaint for reconveyance against petitioner. While
petitioner filed an expropriation complaint. In both civil case RTC rendered its decision
where it upheld petitioners right to expropriate the subject land and subject to payment of just
compensation in the amount of 21,995,000.00.
· During the pendency of the appeal before CA, respondent Ibrahims and Maruhoms filed before RTC a
complaint against Mangondato and petitioner. They disputed Mangondato’s ownership over the land
and that they are the real owners. They being the lawful heirs of the late Datu Magayo-ong Maruhom, who
was the original proprietor of the said lands.
· The Ibrahims and Maruhoms submit that they should be the ones entitled to any rental fees or expropriation
indemnity that may be found due for the subject land.
· The appeal was denied and affirmed that decision in the first two civil case.
· An appeal before SC was made, of which SC upheld the CA’s denial of appeal and sustained CA’s
affirmance of the decision of the first two civil cases subject only to a reduction of rate of interest. The said
decision eventually became final and executory.
· In view of the finality Mangondato filed a motion for execution of the decision of the first 2 civil cases.
· RTC issued order of writ of execution and issuance of a notice of garnishment on the bank accounts of petitioner.
· However, on the case filed by Ibrahims and Maruhom, the RTC in its decision held that the Ibrahims and
Maruhoms not Mangondato are the true owners of the lands. That as true owners of the subject land, are the
rightful recipients of whatever rental fees and indemnity that may be due for the subject land as a result
of its expropriation.
· But it must be noted that in the said decision RTC, held both NPC and Magondato SOLIDARY LIABLE to the
Ibrahims and Maruhoms.
· Petitioner appealed before CA, contesting the holding of solidary liability. While this appeal was still pending,
the Ibrahims and Maruhoms were able to secure a writ of execution pending appeal. But consequently CA, denied
petitioners appeal. Hence this petition.
ISSUE:
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Whether petitioner is in bad faith in paying Mangondato the rental fees and expropriation indemnity of the land as
such still liable to the Ibrahims and Maruhoms?
HELD:
NO.
The Court ruled that petitioner there was no bad faith may be taken against it in paying Mangondato.
Various jurisprudence provides the concept of bad faith:

1. a breach of a known duty through some motive of interest or ill will. (Lopez v. Pan American World Airways)
2. a state of mind affirmatively operating with furtive design or with some motive of self-interest or will or for
ulterior purpose. (Air France v. Carrascoso)
3. bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means breach of a known duty thru some motive or interest of ill will; it
partakes of the nature of fraud. (Board of Liquidators v. Heirs
of M. Kalaw)
4. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or
moral
obliquity. (Far East Bank and Trust Company v. Court of Appeals)
As such the clear denominator in all of the foregoing judicial pronouncements is that the essence of bad faith consists
in the deliberate commission of a wrong.
Indeed, the concept has often been equated with malicious or fraudulent motives, yet distinguished from the mere
unintentional wrongs resulting from mere simple negligence or oversight. Two elements of bad faith:
1. that the actor knew or should have known that a particular course of action is wrong or illegal
2. that despite such actual or imputable knowledge, the actor, voluntarily, consciously and out of his own free will,
proceeds with such course of action.
Only with the concurrence of these two elements can we begin to consider that the wrong committed had been done
deliberately and, thus, in bad faith.
Here, the RTC and CA held that petitioner was in bad faith when it allowed such payment to take place despite the
latter’s alleged knowledge of the existing claim of the Ibrahims and Maruhoms. But SC do not agree.
It held RTC and CA erred when they have overlooked the utter significance of one important fact: that petitioner’s
payment to Mangondato of the rental fees and expropriation indemnity was required by the final and executory decision
in the said two cases and was compelled thru a writ of garnishment issued by the court that rendered such decision. In
other words, the payment to Mangondato was not a product of a deliberate choice on the part of the petitioner but was
made only in compliance to the lawful orders of a court with jurisdiction.
Without the existence of bad faith petitioners remaining liability to the Ibrahim and Maruhom becomes devoid of legal
basis. In fact, petitioner’s previous payment to Mangondato 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.
Given the absence of bad faith on petitioner’s part—may nonetheless be considered as akin to a payment in “good faith”
to a person in “possession of credit” as per Art. 1242, 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 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.65 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.
71. Land Bank of the Philippines vs Alfredo Ong, GR 190755, November 24, 2010
Page 4 of 46
Land Bank of the Philippines vs. Ong
FACTS:
• Sps. Johnson and Evangeline Sy, secured a loan
from Land Bank in the amount of PhP 16 million. It was secured by 3 residential lots, 5 cargo trucks and a warehouse.
The notice of Loan Approval contained an acceleration clause wherein any default in payment of amortizations or other
charges would accelerate the maturity of the loan.
• Subsequently, Sps. Sy found they could no longer pay their loan. They sold the 3 mortgaged land to Agelina Ong, under
a Deed of Sale with Assumption of Mortgage.
• The husband of Ms. Ong, later on went to Land Bank to inform it about the sale and assumption of mortgage. Atty.
Hingco of the Bank told Mr. Ong that there was nothing wrong with the agreement with the Sps. Sy but provided them
with requirements for the assumption of mortgage. They were also told that Mr. Ong should pay part of the principal
which was computed at 750,000 and to update due or accrued interests on the promissory notes so that Atty.
Hingco could easily approve the assumption of mortgage.
• Mr. Ong issued a check and personally gave it to Atty. Hingco. A receipt was issued for his payment.
• Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy would be transferred in his name but
this never materialized.
• Mr. Ong later found out that his application for assumption of mortgage was not approved by Land Bank. That the bank
learned from its credit investigation report that the Ongs had a real estate mortgage in the amount of PhP 18,300,000 with
another bank that was past due.
• Mr. Ong’s counsel then talked to the bank and was told that the 750,000.00 he paid would be returned to him.
• Mr. Ong initiated an action for recovery of sum of money as the payment was not returned. it maintained that Land
Bank’s foreclosure without informing him of the denial of his assumption of the mortgage was done in bad
faith.
• Atty Hingco however, claimed that as a branch manager she had no authority to approve loans and could not assure
anybody that their assumption of mortgage would be approved. Also that the bank processes an assumption of
mortgage as a new loan, since the new borrower is considered a new client. And that the application was
referred to a separate office, the Lending Center.
• Atty. Hingco testified that several months after Mr. Ong made the tender of payment, she received word that the
Lending Center rejected loan. That it must be the Lending Center and not her that should have informed Mr.
Ong of the denial.
• RTC, held that the contract approving the assumption of mortgage was not perfected as a result of the credit
investigation conducted. However, it ruled that under the principle of equity and justice, the bank should return
the amount Mr. Ong had paid with interest from the filing of the complaint.
• On appeal, CA affirmed RTC decision. According to the appellate court, the payment of PhP 750,000 was for the
approval of his assumption of mortgage and not for payment of arrears incurred by the Sy spouses.
• MR was filed but denied. Hence this petition.
ISSUE: Whether the bank is liable to return the 750,000 paid by Mr. Ong?
HELD: YES.Bank contends that Art. 1236 of the CC backs their claim that Mr. Ong should sought recourse against the
Sps. Sy instead of the Bank.
Art. 1236 provides:

The creditor is not bound to accept payment or performance by a thirdperson who has no interest in the fulfillment of the
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obligation, unless thereis a stipulation to the contrary. Whoever pays for another may demand fromthe debtor what he
has paid, except that if he paid without the knowledge oragainst the will of the debtor, he can recover only insofar as the
payment
SC agreed with the Bank’s point as to the first paragraph of Article 1234 of the Civil Code, regardless of Article Art.
1236. However, the context of the 2nd paragraph Mr. 1592 of the same Code.Ong was not making payment to fulfill the
obligation of Sps.Sy but instead made the conditional payment so that the properties subject of the Deed of Sale would be
titled in his name.
It is clear from the records that Land Bank required Alfredo to make payment before his assumption of mortgage
would be approved. He was informed that the certificate of title would be transferred accordingly. He, thus, made
payment not as a debtor but as a prospective mortgagor.
The circumstances of the instant case show that the second paragraph of Art. 1236 does not apply.
As Mr. Ong made the payment for his own interest and not on behalf of the Spouses Sy, recourse is not against the latter.
And as Mr. Ong was not paying for another, he cannot demand from the debtors, the Spouses Sy, what he has paid
SC held that Land Bank is still liable for the return of the PhP the first installment the defendant was placed in 750,000
based on the principle of unjust enrichment. While Land Bank is not bound to accept the substitution of debtors in the
subject real estate mortgage, it is estopped by its action of accepting Mr. Ongs payment from arguing it does not have to
recognize Alfredo as the new debtor.
Land Bank made Alfredo believe that with the payment of PhP 750,000, he would be able to assume the mortgage of the
Spouses Sy. The act of receiving payment without returning it when demanded is contrary to the adage of giving
someone what is due to him.
72. JM Tuason vs Javier, 31 SCRA 829

J. M. TUASON & Co. INC. v. LIGAYA JAVIER
G.R. No. L-28569, 27 February 1970, SECOND DIVISION (Concepcion, C.J.)
FACTS:
On September 7, 1954a contract was entered into between J.M. Tuason & Co., Inc., and Ligaya Javier whereby
J.M. Tuason & Co., Inc. agreed to sell, transfer and convey to the Javier a parcel of land for the total sum of P3,691.20,
with interest thereon at the rate of ten (10) per centum a year, payable as follows: P896.12 upon the execution of the
contract and P43.92 every month thereafter, for a period of ten (10) years. Thereafter and until January 5, 1962, Javier
paid the stipulated monthly installments which, including the initial payment of P396.12, aggregated P1,134.08.
Subsequently, however, she defaulted in the payment of said installments, in view of which, J.M. Tuason & Co., Inc.
informed her by letter that their contract had been rescinded. Javier having thereafter failed or refused to vacate said land,
J.M. Tuason & Co., Inc. commenced the present action against her, in the Court of First Instance of Rizal. Admitting that
she had defaulted in the payment of the stipulated monthly installments, Javier alleged in her answer that this fact was
due to unforeseen circumstances; that she is willing to pay all arrears in installments under the contract and had in fact
offered the same to J.M. Tuason & Co., Inc. which denied the offer. The trial court ruled in favor of Javier.
ISSUE:
Whether the contract may be validly rescinded by J.M. Tuason & Co., Inc.
RULING:
NO. Plaintiff maintains that this provision governs contracts of sale, not contracts to sell, such as the one entered
into by the parties in this case. Regardless, however, of the propriety of applying said Art. 1592 thereto, We find that
plaintiff herein has not been denied substantial justice, for, according to Art. 1234 of said Code:
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"If the obligation has been substantially performed in good faith, the obligor may recover as though there had
been a strict and complete fulfillment, less damages suffered by the obligee."
In this connection, it should be noted that, apart from the initial installment of P396.12, paid upon the execution
of the contract, on September 7, 1954, the defendant religiously satisfied the monthly installments accruing thereafter, for
a period of almost eight (8) years, or up to January 5, 1962; that, although the principal obligation under the contract was
P3,691.20, the total payments made by the defendant up to January 5, 1962, including stipulated interest, aggregated
P4,134.08; that the defendant has offered to pay all of the installments overdue including the stipulated interest, apart
from reasonable attorney’s fees and the costs; and that, accordingly, the trial court sentenced the defendant to pay all
such installments, interest, fees and costs. Thus, plaintiff will thereby recover everything due thereto, pursuant to its
contract with the defendant, including such damages as the former may have suffered in consequence of the latter’s
default. Under these circumstances, We feel that, in the interest of justice and equity, the decision appealed from may be
upheld upon the authority of Art. 1234 of the Civil Code.
73. Legarda vs SaldaṄa, 55 SCRA 324 BARRIOS

LEGARDA HERMANOS v. FELIPE SALDAÑA
GR NO. L-26578, Jan 28, 1974 Teehankee, J:
DOCTRINE:
Under Article 1234, “If the obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the obligee”.
FACTS:
Felipe Saldaña entered into a ten-year contract with Legarda Hermanos covering two lots valuing 1,500 each to
be paid on 120 equal monthly installments commencing from the date the contract was executed on May 26, 1948.
Respondent paid for eight continuous years about 95 (of the stipulated 120) monthly installments up to the month of
February, 1956. The statement of account appears that for the value of the lots (without distinguishing the lots),
respondent paid the sum of P1682.28 and for interests, the sums of P1889.78, thus a total of P3,582.06. Respondent
stopped from paying.
On February 2, 1961, respondent wrote a letter to petitioners stating his desire to construct a house which cannot
be done due to the lack of roads leading to the said lands. On February 11, 1961, Petitioners replied that as respondent
had failed to complete total payment of the 120 installments by May, 1958 as stipulated in the contracts to sell, they are
now cancelling the contracts, and all the payments that have been made were considered as rental payments.
Thereafter, in 1961, petitioners instituted a complaint for delivery of two parcels of land against respondent
showing that the latter owes the former the sum of P1,317.72 for the value of both lots. The trial court sustained the
cancellation of contracts. The respondent appellate court however, reversed the lower court’s judgement and ordered
Hermanos to deliver to Saldaña the possession of one of the two lots, at the choice of Saldaña, and to execute the
corresponding deed of conveyance to Saldaña for the said lot.
ISSUE: Whether or not the failure of Saldaña to complete the payment entitles Hermanos to cancel the contracts.
HELD: No.
The court has elected to apply the broad principles of equity and justice. The total sum of P3,582.06 (including
interests of P1,889.78) was already paid by respondent (which was more than the value of two lots), the sum applied by
petitioners to the principal alone in the amount of P1,682.28 was already more than the value of one lot of P1,500.00.
hence one of the two lots as chosen by respondent would be considered as fully paid, is fair and just and in accordance
with law and equity. The monthly payments for eight years made by respondent were applied to his account without
specifying or distinguishing between the two lots subject of the two agreements under petitioners' own statement of
account. Even considering respondent as having defaulted after February 1956, when he suspended payments after the
95th installment, he had as of then already paid by way of principal (P1,682.28) more than the full value of one lot
(P1,500.00).
Art. 1234 of said Code provides, “If the obligation has been substantially performed in good faith, the obligor
may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee”. Hence,
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under the authority of Article 1234 of the New Civil Code, Saldaña is entitled to one of the two lots of his choice and the
interest paid shall be forfeited in favor of the petitioners. Thus, Saldaña’s substantial compliance of the obligation entitles
him to the transfer of ownership of one lot
74. Azcona v Jamandre, 151 SCRA 317

G.R. No. L-30597 June 30, 1987
GUILLERMO AZCONA and FE JALANDONI AZCONA vs. JOSE JAMANDRE
CRUZ, J.
FACTS:
Guillermo Azcona leased 80 hectares out of his 150 hectare share in Hacienda Sta. Fe in NegrosOccidental to
Cirilo Jamandre. The agreed yearly rental was P7200 and the term was for 3agricultural years beginning 1960. On March
30, 1960, when the first annual rent was due, petitioner was not able to deliver possession of the leased property thus he
“waived” payment of that rental. Respondent only entered the premises on October 26, 1960 after paying P7000, which
was acknowledged by the petitioner in the receipt. On April 6, 1961, the petitioner notified respondent that the contract
of lease was deemed cancelled for violation of the conditions of the contract. Earlier, in fact, the respondent had been
ousted from the possession of the 60 hectares of the leased premises and let with only 20 hectares of the original area.
Issue:
Whether or not the obligation is extinguished by the acceptance of payment though incomplete?
Held:
Yes. The Supreme Court held that the obligation already ceased to exist when the petitioner accepted the
payment without contention even if it is incomplete. Under Art 1235 it clearly states that when the obligee accepts the
performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation
is deemed fully complied with. In the present case the petitioner contends that the payment of P7000, which was short of
P200, was a violation of the agreement, thus the contract should be deemed cancelled. But the petitioner unqualifiedly
accepted the amount. The absence of any mention of the discrepancy in the receipt nor any protest or demand to collect
the remaining balance, means that petitioner acknowledged the amount as the full payment for the rent. The SC affirms
the decision of the CA and petition is denied.
75. Araňas vs Tutaan, 127 SCRA 828
Facts:
 The stocks of Universal Textile Mills (UTEX) were issued to co-defendants Manuel and Castaneda.
Subsequently, in 1971, the lower court declared that Luisa Aranas is the rightful owner of the 400 shares of
stocks at Universal Textile Mills (UTEX. Further, it ordered that dividends in cash or stocks pertaining to the
same be delivered to Aranas.
 UTEX then filed a motion to clarify the phrase in said decision which states “to deliver to her all dividends
appertaining to the same, whether in cash or in stocks” meant dividends properly pertaining to the plaintiffs after
the court’s declaration of her ownership. The said motion was granted, where the court ordered UTEX to pay
the plaintiff the cash dividends which accrued to the stocks in question after the current decision was rendered
but the cash dividends already paid to the co-defendants before the court decision may not be claimed by the
plaintiffs.
 The co-defendants filed for a new trial and the decision was the same as the the 1971 ruling. Upon appeal to the
CA, the said ruling was affirmed. The lower court issued a writ of execution in 1979 directed to UTEX to 1)
cancel the certificate of stocks of the co-defendants and issue new ones in the name of the petitioners, and 2)
Pay the cash dividends accrued from 1972 to 1979 (period from the new trial to the issuance of writ of
execution). UTEX alleged that the cash dividends had alread been paid.
Issue:
 Whether or not there was valid payment?
Held:
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 No. It is elementary that payment made by a judgment debtor to a wrong party cannot extinguish the obligation
of such debtor to its creditor. It was clear in the motion for clarification that all dividends accruing to the said
shares after the rendition of judgement belonged to the Aranas. When UTEX paid the wrong parties, despite its
knowledge and understanding of the final judgment, it is still liable to pay Aranas as the lawful declared owners
of the said shares. The burden to recover the wrong payment is on UTEX and cannot be passed on to the Aranas
as the innocent parties.
76. Kalalo vs Luz, 34 SCRA 337
— Under RA 529, if the obligation was incurred prior to the enactment in a particular kind of coin or currency other than
the Phil. currency the same shall be discharged in Phil. currency measured at the prevailing rate of exchange at the time
the obligation was incurred. RA 529 does not provide for the rate of exchange for the payment of the obligation incurred
after the enactment of said Act. The logical conclusion is that the rate of exchange should be that prevailing at the time
of payment for such contracts.
FACTS:
Octavio KALALO, a licensed civil engineer doing business under the firm name of O. A. Kalalo and Associates, entered
into an agreement with Alfredo LUZ, a licensed architect, doing business under firm name of A. J. Luz and Associates,
whereby the former was to render engineering design services to the latter for fees, as stipulated in the agreement. The
services included design computation and sketches, contract drawing and technical specifications of all engineering
phases of the project designed by O. A. Kalalo and Associates bill of quantities and cost estimate, and consultation and
advice during construction relative to the work. The fees agreed upon were percentages of the architect's fee.
Kalalo in his complaint against Luz alleged that for services rendered in connection with the different projects there was
due him fees in US$, excluding interests, of which some were paid, thus leaving unpaid the balance plus prayer for
consequential and moral damages, as well as moral damages, attorney's fees and expenses of litigation; and actual
damages.
Luz admitted that appellee rendered engineering services, as alleged, but averred that some were not in accordance with
the agreement and such claims were not justified by the services actually rendered, and that the aggregate amount
actually due was only P80,336.29, of which P69,475.21 had already been paid, thus leaving a balance of only
P10,861.08. Luz denied liability for any damage claimed by appellee to have suffered, as alleged in the second, third and
fourth causes of action. Appellant also set up affirmative and special defenses, alleging that appellee had no cause of
action, that appellee was in estoppel because of certain acts, representations, admissions and/or silence, which led
appellant to believe certain facts to exist and to act upon said facts, that appellee's claim regarding the Menzi project was
premature because appellant had not yet been paid for said project, and that appellee's services were not complete or were
performed in violation of the agreement and/or otherwise unsatisfactory. Appellant also set up a counterclaim for actual
and moral damages for such amount as the court may deem fair to assess, and for attorney's fees.
Trial Court authorized the case to be heard before a Commissioner. The Commissioner rendered a report which, in
resume, states that the amount due to appellee was US$28K as his fee in the IRRI Project, and P51,539.91 for the other
projects, less the sum of P69,475.46 which was already paid by the appellant. The Commissioner also recommended the
payment to appellee of the sum of P5,000.00 as attorney's fees. Both had no objection to the findings of fact of the
Commissioner contained in the Report.
ISSUE:
WON the recommendation in the Report that the payment of the amount due to the plaintiff in dollars was legally
permissible, and if not, at what rate of exchange it should be paid in pesos.
HELD:
The exchange rate at the time of the judgment (payment) should be the basis because RA 529 does not apply in the
present case.
(Note: The official rate at the time Luz received his architect's fees for the IRRI project, and correspondingly his
obligation to Kalalo's fee on August 25, 1961, was P2.00 to $1.00.)
Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or the amount of $28,000.00. Appellee,
however, cannot oblige the appellant to pay him in dollars, even if appellant himself had received his fee for the IRRI
Page 9 of 46
project in dollars. This payment in dollars is prohibited by Republic Act 529 which was enacted on June 16, 1950.
Said act provides as follows:
SECTION 1. Every provision contained in, or made with respect to, any obligation which provision purports to give the
obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in
an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void
and of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred.
Every obligation heretofore or here after incurred, whether or not any such provision as to payment is contained
therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of
payment is legal tender for public and private debts: Provided, That, ( a) if the obligation was incurred prior to the
enactment of this Act and required payment in a particular kind of coin or currency other than Philippine currency, it
shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was
incurred, (b) except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which
case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin and currency,
including Central Bank notes, heretofore or hereafter issued and declared by the Government of the Philippines shall be
legal tender for all debts, public and private.
Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to the enactment of the
Act and require payment in a particular kind of coin or currency other than the Philippine currency the same
shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation
was incurred.
As we have adverted to, Republic Act 529 was enacted on June 16, 1950. In the case now before us the obligation of
appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or after the
enactment of Republic Act 529. It follows that the provision of Republic Act 529 which requires payment at the
prevailing rate of exchange when the obligation was incurred cannot be applied. Republic Act 529 does not provide for
the rate of exchange for the payment of obligation incurred after the enactment of said Act. The logical conclusion,
therefore, is that the rate of exchange should be that prevailing at the time of payment.
This view finds support in the ruling of this Court in the case of Engel vs. Velasco and Co. where this Court held that
even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency,
the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of judgment
rather than at the rate of exchange prevailing on the date of defendant's breach. This is also the ruling of American court
as follows:
The value in domestic money of a payment made in foreign money is fixed with respect to the rate of exchange at
the time of payment.
77. Ponce vs CA, 90 SCRA 533

G.R. No. L-49494
May 31, 1979
MELENCIO-HERRERA, J.:
FACTS:
Private respondent Jesusa B. Afable, together with Felisa L. Mendoza and Ma. Aurora C. Di ño executed a promissory
note in favor of petitioner Nelia G. Ponce in the sum of P814,868.42, Philippine Currency. It was further provided therein
that should the indebtedness be not paid at maturity, it shall draw interest at 12% per annum, without demand; that should
it be necessary to bring suit to enforce payment of the note, the debtors shall pay an amount due for attorney's fees; and,
in the event of failure to pay the indebtedness plus interest in accordance with its terms, the debtors shall execute a first
mortgage in favor of the creditor over their properties or of the Carmen Planas Memorial, Inc.
Upon the failure of the debtors to comply with the terms of the promissory note, petitioners Ponce filed a Complaint for
the recovery of the principal sum plus interest and damages.
Defendant Dino’s Answer contained a general denial and averred that the aforementioned promissory note was obtained
by plaintiffs on their assurance that it was only for formality. Defendant Afable likewise contended that the promissory
note failed to express the true intent of the agreement of the parties that the entire obligation was to be paid by defendant
Mendoza and that she only signed the promissory note as the President of Carmen Planas Memorial, Inc.
Page 10 of 46
The trial court rendered judgment in favor of petitioner.
Respondent Afable appealed to the Court of Appeals. She argued that the contract under consideration involved the
payment of US dollars and was, therefore, illegal; and that under the in pari delicto rule, since both parties are guilty of
violating the law, neither one can recover.
The Court of Appeals reversed the judgment of the trial court and opined that the intent of the parties was that the
promissory note was payable in US dollars, and, therefore, the transaction was illegal with neither party entitled to
recover under the in pari delicto rule.
ISSUE:
Whether or not the subject matter is illegal and against public policy, thereby warranting the application of the doctrine
of in pari delicto
HELD:
No.
It is to be noted that while an agreement to pay in dollars is declared as null and void and of no effect, what the law
specifically prohibits is payment in currency other than legal tender. It does not defeat a creditor's claim for payment, as
it specifically provides that "every other domestic obligation ... whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the
time of payment is legal tender for public and private debts." A contrary rule would allow a person to profit or enrich
himself inequitably at another's expense.
What is prohibited by RA No. 529 is the payment of an obligation in dollars, meaning that a creditor cannot oblige the
debtor to pay him in dollars, even if the loan were given in said currency. In such a case, the indemnity to be allowed
should be expressed in Philippine currency on the basis of the current rate of exchange at the time of payment.
78. New Pacific Timber vs Seneris, 101 SCRA 686
G.R. No. L-41764 December 19, 1980
FACTS:
Respondent Judge rendered a compromise judgment based on the amicable settlement entered by the parties wherein
petitioner will pay to private respondent P54, 500.00 at 6% interest per annum and P6, 000.00 as attorney's fee of
which P5,000.00 has been paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution worth
P63, 130.00 was issued levied on the personal properties of the petitioner. New Pacific Timber deposited with the Clerk
of Court in his capacity as the Ex-Officio Sheriff P50, 000.00 in Cashier's Check of the Equitable Banking Corporation
and P13, 130.00 in cash for a total of P63, 130.00, before the date of the auction sale. Private respondent refused to
accept the check and the cash and requested for the auction sale to proceed. The properties were sold for P50, 000.00 to
the highest bidder with a deficiency of P13, 130.00.
New Pacific Timber then filed an ex-parte motion for issuance of certificate of satisfaction of judgment which was
denied by the respondent Judge. Hence this present petition, they alleged that the respondent Judge capriciously and
whimsically abused his discretion in not granting the requested motion for the reason that the judgment obligation was
fully satisfied before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff.
The respondent Judge cited Article 1249 of the New Civil Code which provides that payments of debts shall be made in
the currency which is the legal tender of the Philippines and Section 63 of the Central Bank Act which provides that
checks representing deposit money do not have legal tender power, in upholding the refusal of the private respondent to
accept the check. In sustaining the contention of the private respondent to refuse the acceptance of the cash, the
respondent Judge cited Article 1248 of the New Civil Code which provides that creditor cannot be compelled to accept
partial payment unless there is an express stipulation to the contrary.
ISSUE: Can the check be considered a valid payment of the judgment obligation?
Page 11 of 46
RULING: YES. It is to be emphasized that it is a well-known and accepted practice in the business sector that a
Cashier's Check is deemed cash. Moreover, since the check has been certified by the drawee bank, this certification
implies that the check is sufficiently funded in the drawee bank and the funds will be applied whenever the check is
presented for payment. The object of certifying a check is to enable the holder to use it as money. When the holder
procures the check to be certified, it operates as an assignment of a part of the funds to the creditors. Hence, the
exception provided in Section 63 of the Central Bank Act which states that checks which have been cleared and credited
to the account of the creditor shall be equivalent to a delivery to the creditor in cash the amount equal to that which is
credited to his account. The Cashier's Check and the cash are valid payment of the obligation of the petitioner. The
private respondent has no valid reason to refuse the acceptance of the check and cash as full payment of the obligation.
79.Roman Catholic Bishop of Malolos, Inc. vs IAC, 191 SCRA 411 November 16, 1990
SARMIENTO, J.:
Validity of an offer to pay through checks as tender of payment of an obligation under a contract which stipulates that the
consideration of the sale is in Philippine Currency.
Facts:
Roman Catholic Bishop of Malolos, Inc. is vendor of parcels of land in Bulacan to vendee Robes-Francisco Realty Corp.
with downpayment of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to be paid within four (4)
years from execution of the contract, that is, on or before July 7, 1975. The contract likewise provides for cancellation,
forfeiture of previous payments, and reconveyance of the land in question in case the private respondent would fail to
complete payment within the said period.
On July 17, 1975, after the expiration of the stipulated period for payment, Atty. Francisco, president of respondent,
wrote the petitioner a formal request that her company be allowed to pay the principal amount of P100,000.00 in three
(3) equal installments of six (6) months each with the first installment and the accrued interest of P24,000.00 to be paid
immediately upon approval of the said request. This was denied.
On August 4, 1975, the private respondent, through its president, Atty. Francisco, wrote the counsel of the petitioner
requesting an extension of 30 days from said date to fully settle its account. This was also denied.
Consequently, Atty. Francisco, the private respondent’s president, wrote a letter dated August 22, 1975, directly
addressed to the petitioner, protesting the alleged refusal of the latter to accept tender of payment purportedly made by
the former (through check) on August 5, 1975, the last day of the grace period. In the same letter of August 22, 1975,
received on the following day by the petitioner, the private respondent demanded the execution of a deed of absolute sale
over the land in question and after which it would pay its account in full, otherwise, judicial action would be resorted to.
Petitioner’s counsel, Atty. Fernandez, wrote a reply to the private respondent stating the refusal of his client to execute
the deed of absolute sale due to its (private respondent’s) failure to pay its full obligation. Moreover, the petitioner denied
that the private respondent had made any tender of payment whatsoever within the grace period. In view of this alleged
breach of contract, the petitioner cancelled the contract and considered all previous payments forfeited and the land as
ipso facto reconveyed.
Issue: WON an offer of a check a valid tender of payment of an obligation under a contract which stipulates that the
consideration of the sale is in Philippine Currency?
Held: NO.
A finding that the private respondent had sufficient available funds on or before the grace period for the payment of its
obligation does not constitute proof of tender of payment by the latter for its obligation within the said period. Tender of
payment involves a positive and unconditional act by the obligor of offering legal tender currency as payment to the
obligee for the former’s obligation and demanding that the latter accept the same. Thus, tender of payment cannot be
presumed by a mere inference from surrounding circumstances. At most, sufficiency of available funds is only
affirmative of the capacity or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor avails
himself of such funds to settle his outstanding account remains to be proven by independent and credible evidence.
Page 12 of 46
Tender of payment presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing
his obligation. Ab posse ad actu non vale illatio. "A proof that an act could have been done is no proof that it was
actually done."
Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not,
by itself, operate as payment. A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of
a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.
Hence, where the tender of payment by the private respondent was not valid for failure to comply with the requisite
payment in legal tender or currency stipulated within the grace period and as such, was validly refused receipt by the
petitioner, the subsequent consignation did not operate to discharge the former from its obligation to the latter.
In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject contract, did validly
order therefore the cancellation of the said contract, the forfeiture of the previous payment, and the reconveyance ipso
facto of the land in question.
80. Tibaja Jr. vs CA, 223 SCRA 163, January 4, 1993
G.R. No. 100290 June 4, 1993

PADILLA, J.:
Payment through check is not considered as payment in legal tender

Facts:
In a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses, a writ of attachment was issued
by the trial court. The Deputy Sheriff filed a return stating that a deposit made by the Tibajia spouses in the Regional
Trial Court of Kalookan City in the amount of P442,750.00 in another case, had been garnished by him. In another case,
RTC rendered decision in favor of the plaintiff Eden Tan, ordering the Tibajia spouses to pay her an amount in excess of
P300,000.00. On appeal, the Court of Appeals modified the decision by reducing the award of moral and exemplary
damages. The decision having become final, Eden Tan filed the corresponding motion for execution and thereafter, the
garnished funds which by then were on deposit with the cashier of the Regional Trial Court of Pasig, Metro Manila, were
levied upon.
The Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment through cashier’s check
P262,750.00, and in Cash 135,733.70 = Total P398,483.70.
Tan, refused to accept such payment and instead insisted that the garnished funds deposited with RTC-Pasig be
withdrawn to satisfy the judgment obligation. Defendant spouses (petitioners) filed a motion to lift the writ of execution
on the ground that the judgment debt had already been paid. Trial court denied on the ground that payment in cashier's
check is not payment in legal tender and that payment was made by a third party other than the defendant. MR was
denied. CA affirmed, holding that payment by cashier's check is not payment in legal tender as required by RA No. 529.
MR denied again.
Issue: Whether or not payment by means of check (even by cashier's check) is considered payment in legal tender as
required by the Civil Code, Republic Act No. 529, and the Central Bank Act.
Held: NO.
Article 1249 of the Civil Code provides that the delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the
fault of the creditor they have been impaired.
A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is
not a valid tender of payment and may be refused receipt by the obligee or creditor.
Page 13 of 46
A check is not legal tender and that a creditor may validly refuse payment by check, whether it be a manager's, cashier's
or personal check.
81. Bognot vs RRI Lending Corp., GR 180144, September 24, 2014

Bognot vs. RRI Lending
GR No. 180144
September 24, 2014
Facts:
In September 1996, Leonardo Bognot and his younger brother, Rolando Bognot applied for and obtained a loan
of P500,000.00 from RRI Lending, payable on November 30, 1996. The loan was evidenced by a promissory note and
was secured by a post dated check dated November 30, 1996. Evidence on record shows that Leonardo 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 Leonardo the post-dated checks issued prior to their renewal. Leonardo purportedly paid the
renewal fees and issued a post-dated check dated June 30, 1997 as security. As had been done in the past, RRI Lending
superimposed the date "June 30, 1997" on the promissory note to make it appear that it would mature on the said date.
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. She issued in favor of RRI Lending a promissory note and a check dated July 30, 1997, in the
amount of P54,600.00 as renewal fee.
On the excuse that she needs to bring home the loan documents for the Bognot siblings’ signatures and
replacement, Julieta asked the RRI Lending clerk to release to her the promissory note, the disclosure statement, and the
check dated July 30, 1997. Julieta, however, never returned these documents nor issued a new post-dated check.
Consequently, RRI Lending sent Leonardo follow-up letters demanding payment of the loan, plus interest and penalty
charges. These demands went unheeded.
In his Answer, Leonardo, claimed, among other things, that the complaint states no cause of action because RRI
Lending’s claim had been paid, waived, abandoned or otherwise extinguished, and that the one (1) month loan contracted
by Rolando and his wife in November 1996 which was lastly renewed in March 1997 had already been fully paid and
extinguished in April 1997.
Issue:
Whether the parties’ obligation was extinguished by payment
Held:
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. Indeed, once the existence of an
indebtedness is duly established by evidence, the burden of showing with legal certainty that the obligation has been
discharged by payment rests on the debtor.
In the present case, Leonardo 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 RRI Lending 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.
We note that the petitioner merely relied on the respondent’s cancellation and return to him of the check dated
April 1, 1997. The evidence shows that this check was issued to secure the indebtedness. The acts imputed on the
respondent, standing alone, do not constitute sufficient evidence of payment.
Article 1249, paragraph 2 of the Civil Code provides:

xxxx
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.
(Emphasis supplied)
Also, we held in Bank of the Philippine Islands v. Spouses Royeca:

Settled is the rule that payment must be made in legal tender. A check is not legal tender and, therefore, cannot constitute
a valid tender of payment. Since a negotiable instrument is only a substitute for money and not money, the delivery of
Page 14 of 46
such an instrument does not, by itself, operate as payment. Mere delivery of checks does not discharge the obligation
under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document
is actually realized.(Emphasis supplied)
Although Article 1271 of the Civil Code provides for a legal presumption of renunciation of action (in cases
where a private document evidencing a credit was voluntarily returned by the creditor to the debtor), this presumption is
merely prima facie and is not conclusive; the presumption loses efficacy when faced with evidence to the contrary.
Moreover, the cited provision merely raises a presumption, not of payment, but of the renunciation of the credit where
more convincing evidence would be required than what normally would be called for to prove payment. Thus, reliance
by the petitioner on the legal presumption to prove payment is misplaced.
To reiterate, no cash payment was proven by the petitioner. The cancellation and return of the check dated April
1, 1997, simply established his renewal of the loan – not the fact of payment. Furthermore, it has been established during
trial, through repeated acts, that the respondent cancelled and surrendered the post-dated check previously issued
whenever the loan is renewed.
82. Velasco vs Meralco, 42 SCRA 556 GOJAR
83. Commissioner vs Burgos, 96 SCRA 831

Commissioner of Public Highways v. Burgos, G.R. No. L-36706, [March 31, 1980], 185 PHIL 606-614
Facts: Victoria Amigable is the owner of parcel of land situated in Cebu City. Sometime in 1924, the Government took
this land for road-right-of way purpose.
Victoria Amigable a complaint, to recover ownership and possession of the land, and for damages in the sum of
P50,000.00 for the alleged illegal occupation of the land by the Government, moral damages in the sum of P25,000.00,
and attorney's fees in the sum of P5,000.00, plus costs of suit. Republic alleged, among others, that the land was either
donated or sold by its owners to the province of Cebu to enhance its value, and that in any case, the right of the owner, if
any, to recover the value of said property was already barred by estoppel and the statute of limitations, defendants also
invoking the non-suability of the Government.|||
respondent court applied article 1250 by considering the value of the peso to the dollar at the time of hearing, in
determining due compensation to be paid for the property taken. The Solicitor General contends that in so doing, the
respondent court violated the order of this Court to make as basis of the determination of just compensation the price or
value of the land at the time of the taking.
Issue:||| whether or not the provision of Article 1250 of the New Civil Code is applicable in determining the amount of
compensation to be paid to respondent Victoria Amigable|||
Held: It is to be noted that respondent judge did consider the value of the property at the time of the taking, which as
proven by the petitioner was P2.37 per square meter in 1924. However, applying Article 1250 of the New Civil Code,
and considering that the value of the peso to the dollar during the hearing in 1972 was P6.775 to a dollar, as proven by
the evidence of the private respondent Victoria Amigable, the Court fixed the value of the property at the deflated value
of the peso in relation, to the dollar, and came up with the sum of P49,459.34 as the just compensation to be paid by the
Government. To this action of the respondent judge, the Solicitor General has taken exception.
Article 1250 of the New Civil Code seems to be the only provision in our statutes which provides for payment of an
obligation in an amount different from what has been agreed upon by the parties because of the supervention of extra-
ordinary inflation or deflation. Thus, the Article provides:
"ART. 1250. In case extra-ordinary 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."
It is clear that the foregoing provision applies only to cases where a contract or agreement is involved. It does not apply
where the obligation to pay arises from law, independent of contract. The taking of private property by the Government
Page 15 of 46
in the exercise of its power of eminent domain does not give rise to a contractual obligation. We have expressed this view
in the case of Velasco vs. Manila Electric Co., et al., L-19390, December 29, 1971.
Moreover, the law as quoted, clearly provides that the value of the currency at the time of the establishment of the
obligation shall be the basis of payment which, in cases of expropriation, would be the value of the peso at the time of the
taking of the property when the obligation of the Government to pay arises. It is only when there is an "agreement to the
contrary" that the extraordinary inflation will make the value of the currency at the time of payment, not at the time of the
establishment of the obligation, the basis for payment. 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.
We hold, therefore, that under the law, in the absence of any agreement to the contrary, even assuming that there has
been an extraordinary inflation within the meaning of Article 1250 of the New Civil Code, a fact We decline to declare
categorically, the value of the peso at the time of the establishment of the obligation, which in the instant case is when the
property was taken possession of by the Government, must be considered for the purpose of determining just
compensation. Obviously, there can be no "agreement to the contrary" to speak of because the obligation of the
Government sought to be enforced in the present action does not originate from contract, but from law which, generally
is not subject to the will of the parties. And there being no other legal provision cited which would justify a departure
from the rule that just compensation is determined on the basis of the value of the property at the time of the taking
thereof in expropriation by the Government, the value of the property as it is when the Government took possession of
the land in question, not the increased value resulting from the passage of time which invariably brings unearned
increment to landed properties, represents the true value to be paid as just compensation for the property taken.
In the present case, the unusually long delay of private respondent in bringing the present action — a period of almost 25
years — which a stricter application of the law on estoppel and the statute of limitations and prescription may have
divested her of the rights she seeks on this action over the property in question, is an added circumstance militating
against payment to her of an amount bigger — nay three-fold more — than the value of the property as should have been
paid at the time of the taking. For conformably to the rule that one should take good care of his own concern, private
respondent should have commenced proper action soon after she had been deprived of her right of ownership and
possession over the land, a deprivation she knew was permanent in character, for the land was intended for, and had
become, avenues in the City of Cebu. A penalty is always visited upon one for his inaction, neglect or laches in the
assertion of his rights allegedly withheld from him, or otherwise transgressed upon by another.
From what has been said, the correct amount of compensation due private respondent for the taking of her land for a
public purpose would be not P49,459.34, as fixed by the respondent court, but only P14,615.79 at P2.37 per square
meter, the actual value of the land of 6,167 square meters when it was taken in 1924. The interest in the sum of
P145,410.44 at the rate of 6% from 1924 up to the time respondent court rendered its decision, as was awarded by the
said court should accordingly be reduced.
84. Filipino Pipe and Foundry Corp. vs NAWASA, 161 SCRA 32
G.R. No. L-43446 May 3, 1988
FACTS:
NAWASA entered into a contract with the plaintiff FPFC for the latter to supply iron pressure pipes worth P270,187.50
to be used in the construction of the Anonoy Waterworks in Masbate and the Barrio San Andres-Villareal Waterworks in
Samar.
NAWASA paid in installments on various dates, a total of P134,680.00 leaving a balance of P135,507.50 excluding
interest.
FPFC demanded payment from NAWASA of the unpaid balance of the price with interest in accordance with the terms
of their contract
Page 16 of 46
NAWASA failed to pay, plaintiff filed a collection suit
RTC rendered judgment orderedNAWASA to pay the unpaid balance in NAWASA negotiable bonds.
NAWASA did not deliver the bonds to the judgment creditor.
FPFC filed another complaint seeking an adjustment of the unpaid balance in accordance with the value of the Philippine
peso.
FPFC presented voluminous records and statistics showing that a spiralling inflation has marked the progress of the
country from 1962 up to the present. There is no denying that the price index of commodities, which is the usual
evidence of the value of the currency has been rising.
ISSUE:
Whether there exists an extraordinary inflation of the currency justifying an adjustment of NAWASA's unpaid judgment
obligation to FPFC?
HELD: NO
Article 1250 of the Civil Code provides: “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 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 said currency, and such decrease or increase could not
have reasonably foreseen or was manifestly beyond contemplation the the parties at the time of the establishment of the
obligation. (Tolentino Commentaries and Jurisprudence on the Civil Code Vol. IV, p. 284.)
While appellant's voluminous records and statistics proved that there has been a decline in the purchasing power of the
Philippine peso, this downward fall of the currency cannot be considered "extraordinary." It is simply a universal trend
that has not spared our country.
85. Del Rosario vs Shell, 164 SCRA 556 MABASA
Special Forms of Payment

a. Dation in Payment - Article 1245
b. Application of Payments - Article 1252-1254, 1248
c. Payment in Cession or Assignment - Article 1255
d. Tender of Payment and Consignation - Article 1256 - 1261
86. Filinvest vs Philippine Acetylene, 111 SCRA 421
FACTS: Philippine Acetylene Co. purchased from Alexander Lim a motor vehicle described as Chevorlet 1969 model
for P55K to be paid in installments. As security for the payment of said promissory note, the appellant executed a chattel
mortgage over the same motor vehicle in favor of said Alexander Lim. Then, Lim assigned to the Filinvest all his rights,
title, and interests in the promissory note and chattel mortgage by virtue of a Deed of Assignment. Phil Acetylene
defaulted in the payment of nine successive installments. Filinvest sent a demand letter. Replying thereto, Phil Acetylene
wrote back of its desire to return the mortgaged property, which return shall be in full satisfaction of its indebtedness. So
the vehicle was returned to the Filinvest together with the document “Voluntary Surrender with Special Power of
Attorney To Sell.” Filinvest failed to sell the motor vehicle as there were unpaid taxes on the said vehicle. Filinvest
requested the appellant to update its account by paying the installments in arrears and accruing interest. Filinvest offered
to deliver back the motor vehicle to the appellant but the latter refused to accept it, so appellee instituted an action for
collection of a sum of money with damages. Phil Acetylene’s defense: The delivery of the motor vehicle to Filinvest
extinguished its money obligation as it amounted to a dation in payment. Assuming arguendo that the return did not
Page 17 of 46
extinguish, it was justified in refusing payment since the appellee is not entitled to recover the same due to the breach of
warranty committed by the original vendor-assignor Alexander Lim.
ISSUE: Whether there was dation in payment that extinguished Phil Acetylene’s obligation?
HELD: NO. The mere return of the mortgaged motor vehicle by the mortgagor does not constitute dation in payment in
the absence, express or implied of the true intention of the parties. Dacion en pago is the transmission of the ownership of
a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation. In dacion, the debtor
offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking
really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor’s debt. As such, the essential elements of a contract of sale,
namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes
place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the
purchase price. In any case, common consent is an essential prerequisite, be it sale or innovation to have the effect of
totally extinguishing the debt or obligation. The evidence on the record fails to show that the Filinvest consented, or at
least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual
payment, more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was
delivered to him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en pago, was
transferred from appellant to appellee. In the absence of clear consent of appellee to the proferred special mode of
payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only
transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as mortgagee,
merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or
its being rendered valueless if left in the hands of the appellant. As to the strength of the “Voluntary Surrender with
Special Power of Attorney To Sell”, it only authorized Filinvest to look for a buyer and sell the vehicle in behalf of the
appellant who retains ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness, with the
undertaking of the appellant to pay the difference, if any, between the selling price and the mortgage obligation. Filinvest
in essence was constituted as a mere agent to sell the motor vehicle which was delivered not as its property. If it were, he
would have full power of disposition of the property, not only to sell it.
87. Citizens Surety vs CA, 162 SCRA 738

G.R. No. L-48958, June 28, 1988
FACTS:
On 1959, Citizens Surety issued two surety bonds to guarantee compliance by Pascual M. Perez Enterprise of its
obligation with Singer Sewing Machine Co. In consideration of the issuance of the said bonds, Pascual M. Perez
executed two indemnity agreements (in his personal capacity and as attorney-in-fact of Nicasia Sarmiento and of the
enterprise) wherein he obligated himself and the enterprise to indemnify Citizens Surety jointly and severally, whatever
payments advances and damage it may suffer or pay as a result of the issuance of the surety bonds. In addition, the
enterprise was also required to put up a collateral security to further insure reimbursements, therefore Perez executed a
deed of assignment of his stock of lumber and a second real estate mortgage was further executed.
The enterprise failed to comply with its obligation to Singer. Consequently, Citizens Surety was compelled to pay, as it
did pay. However, the enterprise failed to reimburse Citizens Surety of the total amount the latter paid to Singer.
Thereafter, Citizens Surety filed a claim for some of money against the estate of the late Nicasia Sarmiento which was
being administered by Perez. Perez opposed the claim stating that the surety bonds and the indemnity agreements had
been extinguished by the execution of the deed of assignment.
The CFI of Batangas ordered Perez to pay the remaining balance of the amount to be reimbursed to Citizens Surety
which was subsequently reversed by the Court of Appeals on appeal.
Page 18 of 46
ISSUE: Whether the obligation under the surety bonds and indemnity agreements had been extinguished by the
execution of the deed of assignment.
RULING:
The transaction could not be dation in payment. xxx xxx when the deed of assignment was executed on December 4,
1959, the obligation of the assignor to refund the assignee had not yet arisen. In other words, there was no obligation yet
on the part of the petitioner to pay Singer Sewing Machine Co. There was nothing to be extinguished on that date, hence,
there could not have been dation in payment.
The deed of assignment cannot be regarded as an absolute conveyance whereby the obligation under the surety bonds
was automatically extinguished. The subsequent acts of the private respondent bolster the fact that the deed of
assignment was intended merely as a security for the issuance of the two bonds. Partial payments amounting to
P55,600.00 were made after the execution of the deed of assignment to satisfy the obligation under the two surety bonds.
Since later payments were made to pay the indebtedness, it follows that no debt was extinguished upon the execution of
the deed of assignment. xxx xxx xxx.
If indeed the deed of assignment extinguished the obligation, there was no reason for a second mortgage to still have to
be executed. xxx xxx xxx. It was not yet extinguished when the deed of assignment was executed on December 4, 1959.
The deed of assignment was therefore intended merely as another collateral security for the issuance of the two surety
bonds.
88. PNB vs DEE, Antipolo Properties Inc (now Prime Est Properties, Inc.) and AFP-RSBS, Inc., GR 182128,
February 19, 2014
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (NOW PRIME EAST PROPERTIES, INC.) AND AFP–
RSBS, INC., Respondents.
G.R. No. 182128 February 19, 2014
FACTS:
Respondent Dee bought from respondent Prime East Properties Inc. (PEPI) on an installment basis a
residential lot located in Binangonan, Rizal, sometime in July 1994, with an area of 204 square meters and covered by
TCT No. 619608. Subsequently, PEPI assigned its rights over a 213,093–sq m property on August 1996 to respondent
Armed Forces of the Philippines–Retirement and Separation Benefits System, Inc. (AFP–RSBS), which included the
property purchased by Dee.
On September 10, 1996, PEPI obtained a P205,000,000.00 loan from petitioner Philippine National Bank,
secured by a mortgage over several properties, including Dee’s property. The mortgage was cleared by the Housing
and Land Use Regulatory Board (HLURB) on September 18, 1996.
A deed of sale was then executed by respondents PEPI and AFP–RSBS on July 1998 in Dee’s favor after full
payment of the purchased price. Consequently, Dee sought from the petitioner the delivery of the owner’s duplicate title
over the property, to no avail. Thus, she filed with the HLURB a complaint for specific performance to compel delivery
of TCT No. 619608 by the petitioner, PEPI and AFP–RSBS, among others. In this case PNB claims that it has a
valid mortgage over Dee's property, which was part of the property mortgaged by PEPI to it to secure its loan obligation,
and that Dee and PEPI are bound by such mortgage. The petitioner also argues that it is not privy to the transactions
between the subdivision project buyers and PEPI, and has no obligation to perform any of their respective undertakings
under their contract.
AFP-RSBS, meanwhile, contends that it cannot be compelled to pay or settle the obligation under the mortgage contract
between PEPI and the petitioner as it is merely an investor in the subdivision project and is not privy to the mortgage.
PEPI claims that the title over the subject property is one of the properties due for release by the petitioner as it
has already been the subject of a Memorandum of Agreement and dacion en pago entered into between them. The
agreement was reached after PEPI filed a petition for rehabilitation, and contained the stipulation that the petitioner
Page 19 of 46
agreed to release the mortgage lien on fully paid mortgaged properties upon the issuance of the certificates of title over
the dacioned properties.
ISSUE:
Whether the execution of the dation in payment effectively extinguished respondent PEPI's loan obligation to
the petitioner insofar as it covers the value of the property purchased by Dee.
HELD:
Yes. Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of the obligation. it is a mode of extinguishing an
existing obligation and partakes the nature of sale as the creditor is really buying the thing or property of the debtor, the
payment for which is to be charged against the debtor's debt. Dation in payment extinguishes the obligation to the extent
of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by
agreement express or implied, or by their silence consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished.
There is nothing on record showing that the Memorandum of Agreement has been nullified or is the subject
of pending litigation; hence, it carries with it the presumption of validity. Consequently, the execution of the dation in
payment effectively extinguished respondent PEPI's loan obligation to the petitioner insofar as it covers the value of the
property purchased by Dee. This negates the petitioner's claim that PEPI must first redeem the property before it can
cancel or release the mortgage. As it now stands, the petitioner already stepped into the shoes of PEPI and there is no
more reason for the petitioner to refuse the cancellation or release of the mortgage.
89. Soco vs Militante, 123 SCRA 160
Case Title: SOLEDAD SOCO vs. HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the CFI of Cebu and
REGINO FRANCISCO, JR.,
GR number: G.R. No. L-58961 June 28, 1983
Date : June 28, 1983
Ponente: GUERRERO, J
Topic: Tender of Payment and Consignation
Facts
Soco and Francisco entered into a contract of lease on January 17, 1973, whereby Soco leased her commercial building
and lot situated at Manalili Street, Cebu City, to Francisco for a monthly rental of P 800.00 for a period of 10 years
renewable for another 10 years at the option of the lessee. Claiming that paragraph 11 of the Contract of Lease was in
fact not part of the contract because it was cancelled, Soco filed a civil case in the CFI of Cebu seeking the annulment
and/or reformation of the Contract of Lease.
Sometime before the filing of such Civil Case Francisco noticed that Soco did not anymore send her collector for the
payment of rentals and at times there were payments made but no receipts were issued. This prompted Francisco to write
Soco after which he sent his payment for rentals by checks issued by the Commercial Bank and Trust Company
(ComTrust). Obviously, these payments in checks were received because Soco admitted that prior to May, 1977,
defendant had been religiously paying the rental.
In view of this alleged non-payment of rental of the leased premises beginning May, 1977, Soco through her lawyer sent
a letter to Francisco serving notice to the latter 'to vacate the premises leased.' Francisco answered that all payments of
rental due her were in fact paid by Commercial Bank and Trust Company through the Clerk of Court of the City Court of
Cebu. Despite this explanation, Soco filed a case of Illegal Detainer against Francisco.
Page 20 of 46
The City Court held that there is no showing that the letter allegedly delivered to the plaintiff in May, 1977 contained
cash money, check, money order, or any other form of note of value, hence there could never be any tender of payment,
and even granting that there was, but plaintiff refused to accept it without any reason, still no consignation for May, 1977
rental could be considered in favor of the defendant unless evidence is presented to establish that he actually made rental
deposit with the court in cash money and prior and subsequent to such deposit, he notified the plaintiff thereof.
The CFI reversed the judgment of the City Court of Cebu. It held that there was in fact a tender of payment of the rentals
made by Francisco to Soco through Comtrust and since these payments were not accepted by Soco evidently because of
her intention to evict Francisco, the latter was impelled to deposit the rentals with the Clerk of Court of the City Court of
Cebu. Soco was notified of this deposit by virtue of the letters sent by Francisco’s counsel. She was further notified of
these payments by consignation in the letter of Atty. Menchavez (Francisco’s counsel). There was therefore substantial
compliance of the requisites of consignation, hence his payments were valid and effective. Consequently, Francisco
cannot be ejected from the leased premises for non-payment of rentals.
Issue
Whether the consignation of the rentals was valid or not to discharge effectively the lessee's obligation to pay the same.
Held
No valid consignation.
According to Article 1256, New Civil Code, if the creditor to whom tender of payment has been made refuses without
just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent or unknown, or
does not appear at the place of payment; (2) When he is incapacitated to receive the payment at the time it is due; (3)
When, without just cause, he refuses to give a receipt; (4) When two or more persons claim the same right to collect; (5)
When the title of the obligation has been lost.
In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law.
The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made because
the creditor to whom tender of payment was made refused to accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice
of the consignation had been given to the person interested in the performance of the obligation (Art. 1177, Civil Code);
(4) that the amount due was placed at the disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation
had been made the person interested was notified thereof (Art. 1178, Civil Code). Failure in any of these requirements is
enough ground to render a consignation ineffective.
Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which
the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial,
and the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of
consignation.
We hold that the respondent lessee has utterly failed to prove the following requisites of a valid consignation:
First, tender of payment of the monthly rentals to the lessor except that indicated in the June 9, l977 Letter.
Second, respondent lessee also failed to prove the first notice to the lessor prior to consignation, except the payment
referred to in June 9, l977 Letter.
In this connection, the purpose of the notice is in order to give the creditor an opportunity to reconsider his unjustified
refusal and to accept payment thereby avoiding consignation and the subsequent litigation. This previous notice is
essential to the validity of the consignation and its lack invalidates the same.
There is no factual basis for the lower court's finding that the lessee had tendered payment of the monthly rentals, thru his
bank, requesting the bank to issue checks in favor of Soco in the amount of P840.00 every 10th of each month and to
Page 21 of 46
deduct the full amount and service fee from his current account. In their arrangement, it was lessee’s duty to send
someone to get the cashier's check from the bank and logically, the lessee has the obligation to make and tender the check
to the lessor. This the lessee failed to do, which is fatal to his defense.
Third, respondent lessee likewise failed to prove the second notice to the lessor, that is after consignation has been made,
except the consignation of cashier's check Nos. 478439 and 47907 CBTC dated May 11, 1977 and June 15, 1977 under
Official Receipt No. 04369 dated July 6, 1977.
From the testimony of the Bank Comptroller, it is clear that the bank did not send notice to Soco that the checks will be
deposited in consignation with the Clerk of Court (the first notice) and also, the bank did not send notice to Soco that the
checks were in fact deposited (the second notice) because no instructions were given by its depositor, the lessee, to this
effect, and this lack of notices started from September, 1977 to the time of the trial, that is June 3, 1980.
Reason: "There should be notice to the creditor prior and after consignation as required by the Civil Code. The reason for
this is obvious, namely, to enable the creditor to withdraw the goods or money deposited. Indeed, it would be unjust to
make him suffer the risk for any deterioration, depreciation or loss of such goods or money by reason of lack of
knowledge of the consignation." (Cabanos vs. Calo, G.R. No. L-10927, October 30, 1958)
And the fourth requisite that respondent lessee failed to prove is the actual deposit or consignation of the monthly rentals
except the two cashier's checks (Nos. 478439 and 47907 CBTC). As indicated earlier, not a single copy of the official
receipts issued by the Clerk of Court was presented at the trial of the case to prove the actual deposit or consignation.
90. Immaculata vs Navarro, 160 SCRA
G.R. No. L-42230, April 15, 1988
FACTS: Petitioner Lauro Immaculata (Laura), represented by his wife, Amparo Velasco, as guardian ad litem, filed
with the CFI of Rizal, a complaint for the annulment of judgment and deed of sale with reconveyance of real property
against private respondents Heirs of Juanito Victoria (Juanito) and Juanita Naval (Juanita), and the Provincial Sheriff of
Rizal. The complaint alleged that Juanito Victoria, with the cooperation of his wife, Juanita Naval, and others, caused
Lauro, through deceit and fraudulent means, and taking advantage of Lauro’s mental illness, to execute a Deed of
Absolute Sale in favor of Juanito. The Deed of Absolute Sale purportedly disposed of a 5,000 square meter parcel of land
for the sum of P 58,000, which petitioner supposedly received, but did not. It was made to appear that Lauro appeared
before the Notary Public, but, because of his chronic mental illness, he could not have done so, hence, the Deed was null
and void for lack of consent. Juanito, during Lauro’s lifetime, filed an action for specific performance against the latter,
to compel him to execute a document registrable with the Register of Deeds, in order that Juanito may be able to obtain
title over the property. No summons was served upon Lauro. He was later declared in default and a judgment in default
was rendered against him. Notwithstanding the alleged nullity of the judgment in default, Juanito succeeded in securing
the issuance of a writ of execution to enforce the same judgment against Lauro. When the latter failed to comply, Juanito
prayed that the Sheriff execute a deed of conveyance. A new TCT was issued in his favor. In the present complaint,
petitioner alleges that the TCT was void for having been based on void proceedings, and that in the alternative, prays that
he be allowed to repurchase the property within five (5) years from the time the judgment is rendered by the respondent
court. Private respondents moved to dismiss the complaint based on the following grounds: lack of jurisdiction of the
CFI, res judicata, and failure of the complaint to state a cause of action. CFI dismissed the complaint on the ground of
res judicata. Petitioner moved for reconsideration on the ground that res judicata is not applicable when the main cause
of action is to annul the very judgment. The motion for reconsideration was denied.
ISSUE: Whether petitioner may be allowed to legally redeem the property in question
RULING: YES. While the sale was originally executed sometime in December 1969, it was only on February 3, 1974
when, as prayed for by private respondent, and as ordered by the court a quo, a "deed of conveyance" was formally
Page 22 of 46
executed. Since offer to redeem was made on March 24, 1975, this was clearly within the five-year period of legal
redemption allowed by the Public Land Act (See Abuan v. Garcia, 14 SCRA 759, 761). The allegation that the offer to
redeem was not sincere, because there was no consignation of the amount in Court is devoid of merit. The right to
redeem is a RIGHT, not an obligation, therefore, there is no consignation required (De Jesus v. Garcia, C.A. 47 O.G.
2406; Resales v. Reyes, 25 Phil. 495, Vda. de Quirino v. Palarca, L-28269, Aug. 16, 1969) to preserve the right to
redeem (Villegas v. Capistrano, 9 Phil. 416). WHEREFORE, as prayed for by the petitioner Lauro Immaculata
(represented by his wife, Amparo Velasco, as Guardian ad litem) the decision of this Court dated November 26, 1986 is
hereby MODIFIED, and the case is remanded to the court a quo for it to accept payment or consignation 2 (in connection
with the legal redemption which We are hereby allowing the petitioner to do) by the herein petitioner of whatever he
received from respondent at the time the transaction was made.
91. Del Carmen vs Sps Sabordo, GR 181723, August 11, 2014
Case Title: Del Carmen vs Spouses Sabordo

G.R. No. 181723 August 11, 2014
Ponente: J. Peralta
Topic: Special Forms of Payment
FACTS:
Spouses Toribio and Eufrocina Suico (Suico spouses), with other business partners, entered into a business
venture of rice and corn mill at Mandaue City, Cebu. They loaned from Development Bank of the Philippines (DBP) and
mortgaged four parcels of land owned by Suico spouses, Lots 506, 512, 513 and 514, and another lot owned by their
business partner, Juliana Del Rosario. They failed to pay their loan obligations so DBP foreclosed the properties to which
they did not also redeem so the latter consolidated its ownership over the same. However, DBP later allowed the Suico
spouses and Flores spouses (substitute for Del Rosario) to repurchase the subject lots by way of a conditional sale for
P240,571. The Suico and Flores spouses were able to pay the down payment and first monthly amortization but no
monthly installments were made thereafter. Threatened with the cancellation of the conditional sale, both spouses sold
their rights over the properties to respondents Restituto and Mima Sabordo, subject to the condition that the latter shall
pay the balance of the sale price. In addition to this, 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 as usufructuaries. DBP approved of the sale of rights. Subsequently, respondents were able to repurchase the
foreclosed properties.
Then, Restituto Sabordo filed with the CFI of Negros Occidental an original 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 from respondents Lots 596 and 514. The trial court ruled the Suico spouses have the right to redeem or
buy back until August 31, 1987. On appeal, the CA affirmed the CFI's decision and modified that right of repurchase
would be until October 31, 1990. Furthermore, in a resolution dated February 13, 1991, the CA granted the Suico spouses
an additional period of 90 days from notice within which to exercise their option to repurchase.
Toribio Suico died leaving his widow, Eufrocina, and others as legal heirs. Later, they discovered that
respondents mortgaged Lots 506 and 514 with Republic Planters Bank (RPB) as security for loan which, subsequently,
became delinquent. Thereafter, alleging that they are ready to pay P127,500 but cannot determine as to whom payment
Page 23 of 46
shall be made, petitioner and co-heirs filed a Complaint with the RTC San Carlos City seeking to compel respondents
and RPB to interplead and litigate between themselves their interests on the sum of money. Also, they prayed that
respondents be directed to substitute Lots 506 and 514 with other properties as collateral for their outstanding obligation
with RPB and that the latter be ordered to accept the substitute collateral and release of the mortgage on the said lots.
Upon filing of the complaint, the heirs of Toribio deposited the said amount with the RTC. Both respondents and RPB
filed a Motion to dismiss on the ground that there is no cause of action as RPB has no legal right nor claim over the lots.
The RTC dismissed the complaint to which the CA affirmed.
ISSUE:
Whether the judicial deposit made is a valid form of consignation?
HELD:
No.
There was no valid consignation made by the petitioner. 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 or the manifestation by the debtor to the creditor of his desire to comply with his obligation, with the
offer of immediate performance. In the case, petitioners, 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 petitioners 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 and that RPB be also directed to accept the substitute real
properties as collateral. 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 petitioners with the court.
Under Article 1256, the only instances where prior tender of payment is excused are: (1) when the creditor is
absent or unknown, or does not appear at the place of payment; (2) when the creditor is incapacitated to receive the
payment at the time it is due; (3) when, without just cause, the creditor refuses to give a receipt; (4) when two or more
persons claim the same right to collect; and (5) when the title of the obligation has been lost None of these instances are
present in the instant case. Hence, the fact that the subject lots are in danger of being foreclosed does not excuse
petitioner and her coheirs from tendering payment to respondents, as directed by the court.
2. Loss of the thing due or Impossibility of Performance - Article 1262-1269, 1189, 1174, 1165, 1268, 1942, 1979,
2147, 2159
92. People vs Franklin, 39 SCRA 363

PEOPLE VS FRANKLIN
FACTS:
Natividad Franklin was charged before the Justice of the Peace Court of Angeles, Pampanga with estafa. Upon a
bail bond posted by the Asian Surety & Insurance Company, Inc. in the amount of P2,000, she was released from
custody.
Page 24 of 46
After preliminary investigation, the Justice of the Peace Court elevated it to the CFI of Pampanga where the
Provincial Fiscal filed the corresponding information against the accused. As the accused failed to appear on the date set
for her arraignment, the court ordered her arrest and required the surety company to show cause why the bail bond posted
by it should not be forfeited.
Due to the failure of the surety company to produce the accused again notwithstanding the 60-day period
granted to it, the court rendered the judgment of forfeiture of the bail bond posted by it for the provisional release of
Natividad Franklin.
The trial court denied the surety company’s motion for a reduction of bail and its ensuing motion for
reconsideration. The surety company appealed before the SC.
Appellant contended that the lower court should have released it from all liability under the bail bond posted by
it because its failure to produce and surrender the accused was due to the negligence of the Philippine Government itself
in issuing a passport to said accused, thereby enabling her to leave the country and proceed to the United States. In
support of this contention the provisions of Article 1266 of the New Civil Code are invoked.
ISSUE:
WON Article 1266 of the NCC is applicable in this case?
RULING:
NO. Appellant's contention is untenable. The abovementioned legal provision does not apply to its case, because
the same speaks of the relation between a debtor and a creditor, which does not exist in the case of a surety upon a bail
bond, on the one hand, and the State, on the other.
It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian and jailer of the accused,
thereby assuming the obligation to keep the latter at all times under his surveillance, and to produce and surrender him to
the court upon the latter's demand.
That the accused in this case was able to secure a Philippine passport which enabled her to go to the United
States was, in fact, due to the surety company's fault because it was its duty to do everything and take all steps necessary
to prevent that departure. This could have been accomplished by seasonably informing the Department of Foreign Affairs
and other agencies of the government of the fact that the accused for whose provisional liberty it had posted a bail bond
was facing a criminal charge in a particular court of the country. Had the surety company done this, there can be no doubt
that no Philippine passport would have been issued to Natividad Franklin.
93. Laguna vs Manabat, 58 SCRA 650
FACTS:
In a suit filed by Laguna Federation of Facomas, Inc. against Nieves M. Vda. De Roxas, a judgment for the plaintiff was
rendered. And pursuant to it, a writ of execution was issued on February, 8, 1960, by virtue of which Francisco Manabat,
the provincial sheriff, sold at public auction on November 24, 1960 all rights, titles and interests of Nieves M. Vda. de
Roxas in ten (10) parcels of land for a total price of P37,000.
Discovering, however, that the parcels of land sold were subject to registered liens such as writs of execution and
attachment annotated at the back of the respective title certificates, the sheriff instituted an action for interpleader on
February 21, 1961 in the same Court of First Instance of Laguna, 2 for the different creditors or lien holders to litigate
among themselves and determine their rights to the P37,000 proceeds of the sale.
After stipulation of facts and submission of documentary evidence by the parties, the Court of First Instance ruled, in its
decision of December 6, 1961, that the aforementioned defendants-claimants are entitled to the proceeds of the sale in the
order of preference in accordance with the dates of the registration of their credits.
From said judgment only Florentino Cayco and Jose Fernandez Zorilia appealed. 4And finding that it involves a question
purely of law, the Court of Appeals, by resolution of November 12, 1964, has certified their appeal to Us.
Page 25 of 46
ISSUE: Whether the rule to follow in the satisfaction of the credits involved is that of preference in the order of dates of
registration, as held by the court a quo, or distribution pro rata, as appellants maintain.
HELD: The judgment appealed from ruling preference is hereby affirmed.
Appellants' reasoning is that this is an instance of several credits referring to the same specific real property; and that the
rule in such case is to satisfy all the aforesaid credits pro rata, following Article 2249 of the Civil Code:
ART. 2249. If there are two or more credits with respect to the same specific real property or real rights, they shall be
satisfied pro rata, after the payment of the taxes and assessments upon the immovable property or real right.
The above provision of the new Civil Code altered the set-up under the old one in that while previously the rule provided
for was priority of payment in regard to credits referring to the same specific real property, now the general rule is pro
rata.
Nonetheless, even under the new system, not all credits referring to the same specific real property come under the pro
rata rule. Article 2249 itself, supra, expressly provides that taxes and assessments upon the real property are to be paid
first.
Similarly, the rule of pro rata does not apply to the credits mentioned in subpar. (7) of Article 2242 of the Civil Code:
ART. 2242. With reference to specific immovable property and real rights of the debtor, the following claims, mortgages
and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right:
(7) Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the
property affected, and only as to later credits.
It being expressly provided that said credits are preferred "only as to later credits", it follows that the same limitation
applies as to their preference among themselves; i.e., for purposes of satisfying several credits annotated by attachments
or executions, the rule is still preference according to priority of the credits in the order of time. For, otherwise, the result
would be absurd: the preference of an attachment or execution lien over later credits, as above provided for, could easily
be defeated by simply obtaining writs of attachment or execution, and annotating them, no matter how much later.
It not being disputed that appellants' credit is "later" than those of appellees Laguna Federation of Facomas, Inc.,
Valeriana Lim-aco de Almeda and Cosmopolitan Insurance Co., Inc., the appellees' credits must be deemed preferred to
that of appellants. To satisfy them pro rata would erase the difference between earlier and later credits provided for by
subpar. (7) of Article 2242 aforementioned.
94. Occena vs Jabson, 73 SCRA 637

Case Title: OCCEÑA vs JABSON
Date: G.R. No. L-44349
Date:October 29, 1976
Ponente: TEEHANKEE, J.
Topic: Impossibility of PErformance
Facts:
On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for modification of the terms and
conditions of its subdivision contract with petitioner landowners in Davao City. The action stemmed from the worldwide
increase in prices.
In the said subdivision contract, respondent "guaranteed petitioners as the latter's fixed and sole share and participation
an amount equivalent to forty (40%) percent of all cash receipts from the sale of the subdivision lots."
Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon denial thereof and of
reconsideration by the lower court elevated the matter on certiorari to respondent Court of Appeals. The CA dismissed.
Page 26 of 46
Issue:
Whether the respondent could modify of the terms and conditions of the contract on the ground that the
prestation has manifestly come beyond the contemplation of the parties?
Held:
No. While respondent court correctly cited in its decision the Code Commission's report giving the rationale for
Article 1267 of the Civil Code, to wit;
The general rule is that impossibility of performance releases the obligor. However, it is submitted that
when the service has become so difficult as to be manifestly beyond the contemplation of the parties,
the court should be authorized to release the obligor in whole or in part. The intention of the parties
should govern and if it appears that the service turns out to be so difficult as have been beyond their
contemplation, it would be doing violence to that intention to hold the obligor still responsible. ... 2
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to comply with the subdivision contract, assuming it could
show at the trial that the service undertaken contractually by it had "become so difficult as to be manifestly beyond the
contemplation of the parties", then respondent court's upholding of respondet's complaint and dismissal of the petition
would be justifiable under the cited codal article. Without said article, respondent would remain bound by its contract
under the theretofore prevailing doctrine that performance therewith is ot excused "by the fact that the contract turns out
to be hard and improvident, unprofitable, or unespectedly burdensome", 3 since in case a party desires to be excuse from
performance in the event of such contingencies arising, it is his duty to provide threfor in the contract.
But respondent's complaint seeks not release from the subdivision contract but that the court "render judgment I
modifying the terms and Conditions of the Contract by fixing the proper shares that should pertain to the herein parties
out of the gross proceed., from the sales of subdivided lots of subject subdivision". The cited article does not grant the
courts this authority to remake, modify or revise the contract or to fix the division of shares between the parties as
contractually stipulated with the force of law between the parties, so as to substitute its own terms for those covenanted
by the partiesthemselves. Respondent's complaint for modification of contract manifestly has no basis in law and
therefore states no cause of action. Under the particular allegations of respondent's complaint and the circumstances
therein averred, the courts cannot even in equity grant the relief sought.
3. Condonation or remission of debt - Article 1270-1274, 748, 749

4. Confusion or Merger of Rights - Article 1275-1277, 1215, 1217
5. Compensation - Article 1278-1290, 1243, 1215
Kinds of Compensation
a. Legal
b. Conventional or facultative
c. Judicial
95. Gan Tion vs CA, 28 SCRA 2235

GAN TION, petitioner, vs. HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of
the Court of First Instance of Manila, ONG WAN SIENG and THE SHERIFF OF MANILA, respondents.
G.R. No. L-22490 May 21, 1969
FACTS: Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the latter filed an ejectment case
against the former, alleging non-payment of rents for August and September of that year, at P180 a month, or P360
altogether. The defendant denied the allegation and said that the agreed monthly rental was only P160, which he had
offered to but was refused by the plaintiff. The plaintiff obtained a favorable judgment in the municipal court (of
Manila), but upon appeal the CFI, on July 2, 1962, reversed the judgment and dismissed the complaint, and ordered the
plaintiff to pay the defendant the sum of P500 as attorney's fees. That judgment became final. On October 10, 1963 Gan
Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month, effective November 1st, and at
the same time demanded the rents in arrears at the old rate in the aggregate amount of P4,320.00, corresponding to a
period from August 1961 to October 1963. In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to
obtain a writ of execution of the judgment for attorney's fees in his favor. Gan Tion went on certiorari to the Court of
Appeals, where he pleaded legal compensation, claiming that Ong Wan Sieng was indebted to him in the sum of P4,320
for unpaid rents. The appellate court accepted the petition but eventually decided for the respondent, holding that
although "respondent Ong is indebted to the petitioner for unpaid rentals in an amount of more than P4,000.00," the sum
Page 27 of 46
of P500 could not be the subject of legal compensation, it being a "trust fund for the benefit of the lawyer, which would
have to be turned over by the client to his counsel." In the opinion of said court, the requisites of legal compensation,
namely, that the parties must be creditors and debtors of each other in their own right (Art. 1278, Civil Code) and that
each one of them must be bound principally and at the same time be a principal creditor of the other (Art. 1279), are not
present in the instant case, since the real creditor with respect to the sum of P500 was the defendant's counsel.
ISSUE: WON there was legal compensation between the parties as to the accrued rentals and attorney’s fees due to each
other?
HELD: Yes. This is not an accurate statement of the nature of an award for attorney's fee's. The award is made in favor
of the litigant, not of his counsel, and is justified by way of indemnity for damages recoverable by the former in the cases
enumerated in Article 2208 of the Civil Code. It is the litigant, not his counsel, who is the judgment creditor and who
may enforce the judgment by execution. Such credit, therefore, may properly be the subject of legal compensation. Quite
obviously it would be unjust to compel petitioner to pay his debt for P500 when admittedly his creditor is indebted to him
for more than P4,000. WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of execution issued
by the Court of First Instance of Manila in its Civil Case No. 49535 is set aside. Costs against respondent.
96. PNB vs Ong Acero, 148 SCRA 166

PNB v. Ong Acero (148 SCRA 166)
FACTS:
Isabela Wood Construction & Development Corp. (ISABELA) has a P2 Million savings account with PNB. A Notice of
garnishment was served on PNB,followed by a CFI order directing the latter to hand over the P1.5M to the sheriff for
delivery to the ACEROs. A second judgment was rendered ordering ISABELA to pay compensatory damages and
atty.’sfees all amounting to almost P600k.
On the other hand, PNB's main thesis is that when it opened a savings account for ISABELA in the amount of P 2M, it
(PNB) became indebted to ISABELA in that amount. So that when ISABELA itself subsequently came to be indebted to
PNB on account of ISABELA's breach of the terms of the Credit Agreement, ISABELA and PNB became at the same
time creditors and debtors of each other, compensation automatically took place between them.
PNB’s alternative theory: which is that the P2M deposit had been assigned to it by ISABELA as "collateral," although
not by way of pledge; that ISABELA had explicitly authorized it to apply the P2M deposit in payment of its
indebtedness; and that PNB had in factapplied the deposit to the payment of ISABELA's debt in concept of voluntary
compensation.
ISSUE:
W/N PNB’s contentions are correct, and that compensation automatically took place between the parties thus preventing
the Aceros’ garnishment thereof.
HELD:
NO. Article 1278 of the Civil Code provides that "Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other.” Such legal provision cannot apply to PNB’s advantage. PNB has no competent
evidence that it is a creditor of ISABELA. All that the documents presented by PNB prove is that a letter of credit might
have been opened for ISABELA by PNB, but not that the credit was ever availed of (by ISABELA's foreign
correspondentMAN, or that the goods thereby covered were in fact shipped, and received by ISABELA. PNB’s
alternative theory, is also untenable, there being no indebtedness to PNB on ISABELA's part which can result to any
mutual set-off, or compensation. While the Credit Agreement declares it to be ISABELA's intention to "assign to the
BANK the proceeds of its contract with the Department of Public Works” it does not appear that that intention was
adhered to, much less carried out.Thus, For compensation to automatically apply by law, it must be proved by competent
evidence that the parties are the creditors and debtors of each other and property already in custodia legis cannot be the
subject of a set-off.
97. Francia vs IAC, 162 SCRA 753
Page 28 of 46
GR Number: L-67649
Date: June 28, 1988
Ponente: Gutierrez Jr., J
Topic: Compensation against claims with the Government.
~ “We [the Court] have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer
may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an
amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit
against the government.”
FACTS: Engracio Francia is the registered owner of a 328 square meter residential lot and a twostory house built upon it
situated at Pasay City. A 125 square meter portion of Francia's property was expropriated by the Republic of the
Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid
portion.
Francia failed to pay his real estate taxes since 1963 up to 1977, Thus, his property was sold at public auction by the City
Treasurer of Pasay City pursuant to Presidential Decree No. 464 known as the Real Property Tax Code in order to satisfy
a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the
auction sale since he was in Iligan City at that time helping his uncle ship bananas.
Francia received a notice of hearing of the case for Petition for Entry of New Certificate of Title filed by Ho Fernandez,
seeking the cancellation of the old certificate of title and the issuance in his [Ho] name of a new one. Upon verification
through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City
Treasurer. The auction sale and the final bill of sale were both annotated at the back of Transfer Certificate of Title by the
Register of Deeds.
Francia filed a complaint to annul the auction sale.
ISSUE/S: WON Francia’s contention that his tax delinquency of P2,400.00 has been extinguished by legal compensation
is meritorious. That the government owed him P4,116.00 when a portion of his land was expropriated. Hence, his tax
obligation had been set-off by operation of law.
HELD: The contention is without merit.
We [the Court] have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may
have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount
equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the
government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622) […] "The general rule based on grounds of public
policy is well-settled that no set-off admissible against demands for taxes levied for general or local governmental
purposes. The reason on which the general rule is based, is that taxes are not in the nature of contracts between the party
and party but grow out of duty to, and are the positive acts of the government to the making and enforcing of which, the
personal consent of individual taxpayers is not required. ..."
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) "... internal revenue taxes can not be the subject
of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under Article
1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-
off."
Page 29 of 46
There are other factors which compel us [the Court] to rule against the petitioner. The tax was due to the city government
while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the
national government for the 125 square meter portion of his lot was deposited with the Philippine National Bank long
before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received
by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00
deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the
deposit so that he could pay the tax obligation thus aborting the sale at public auction.
98. Republic vs de los Angeles, 98 SCRA 103

REPUBLIC OF THE PHILIPPINES vs. HON. WALFRIDO DE LOS ANGELES
G.R. No. L-30187 June 25, 1980
FACTS:
On October 29, 1964, the spouses Petra R. Farin and Benjamin Farin obtained a loan from the Marcelo Steel
Corporation in the amount of P600,000.00, and as security therefor, the said spouses constituted, in favor of the said
corporation, a real estated mortgage upon their parcel of land situated at Quezon City covered by TCT No. 42589 of the
Registry of Deeds of Quezon City. 1 On July 24, 1965, the mortgagee wrote the Sheriff of Quezon City requesting the
extrajudicial foreclosure of the aforesaid mortgage. 2 Accordingly, the sheriff advertised and scheduled the extra-judicial
foreclosure sale of the mortgaged property for August 26, 1965. However, on August 21, 1965, the mortgagors filed a
petition for prohibition with injunction and damages against Benito Macrohon, as sheriff of Quezon City, and the
Marcelo Steel Corporation, with the Court of First Instance of Rizal docketed therein as Civil Case No. Q-9384, wherein
they prayed that the respondent Sheriff be permanently enjoined from proceeding with the scheduled sale at public
auction of the mortgaged property, and that the respondent Corporation be condemned to pay the petitioners P200,000.00
as actual and moral damages and P50,000.00 as penal and compensatory damages and P30,000.00 as attorney's fees,
upon the ground that they have not been in default in the payment of their obligation.3 Acting upon the petition, the
herein respondent Judge Walfrido de los Angeles, issued an order commanding the respondent Sheriff and the respondent
Corporation to desist from proceeding with the public auction sale of the property scheduled on August 26, 1965.
While the above case was pending, Petra Farin lease portions of the "Doña Petra Building situated on the
mortgaged premises, to the Rice and Corn Administration, (RCA, for short), for the amount of P11,500.00 per month,
payable on or before the 5th day of the incoming month.
ISSUE: Whether or not the Obligation was extinguish BY COMPENSATION
HELD: NO
"The records does not show any proof that the plaintiff is indebted to the aforesaid movant, RCA, as alleged in
the said motion and assuming that the herein plaintiff is really indebted to the RCA, the records further does not show
that a case has been filed against her, or a decision has been rendered against her for the payment of such obligation."
Proof of the liquidation of a claim, in order that there be compensation of debts, is proper if such claim is disputed. But,
if the claim is undisputed, as in the case at bar, the statement is sufficient and no other proof may be required. In the
instant case, the claim of the RCA that Petra R. Farin has an outstanding obligation to the RCA in the amount of
P263,062.40 which should be compensated against the rents already due or may be due, was raised by the RCA in its
motion for the reconsideration of the order of December 23, 1967. A copy of said motion was duly furnished counsel for
Petra R. Farin and although the said Petra R. Farin subsequently filed a similar motion for the reconsideration of the
order of December 23, 1967, she did not dispute nor deny such claim Neither did the Marcelo Steel Corporation dispute
such claim of compensation in its opposition to the motion for the reconsideration of the order of December 23, 1967. 21
The silence of Petra R. Farin, order of December 23, 1967. although the declaration is such as naturally one to call for
action or comment if not true, could be taken as an admission of the existence and validity of such a claim. Therefore,
since the claim of the RCA is undisputed, proof of its liquidation is not necessary. At any rate, if the record is bereft of
the proof mentioned by the respondent Judge of first instance, it is because the respondent Judge did not call for the
submission of such proof. Had the respondent Judge issued an order calling for proof, the RCA would have presented
sufficient evidence to the satisfaction of the court.
Page 30 of 46
99. Solinap vs del Rosario, 123 SCRA 640

LORETO J. SOLINAP vs. HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV, Court of First Instance
of Iloilo, SPOUSES JUANITO and HARDEVI R. LUTERO, and THE PROVINCIAL SHERIFF OF ILOILO
G.R. No. L-50638 July 25, 1983
Escolin; J.
Remedy for Breach of Obligation; Compensation
Facts:
The spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda Tambal, leased the said hacienda to
petitioner Loreto Solinap for 10 years for the stipulated rental of P50,000.00 a year. It was further agreed in the lease
contract that P25,000.00 from the rental should be paid by Solinap to the PNB to amortize the indebtedness of the
spouses Lutero. When Tiburcio Lutero died, his heirs instituted the testate estate proceedings. On the basis of an order,
respondents Juanito Lutero [grandson and heir of the late Tiburcio] and his wife Hardivi R. Lutero paid the PNB the sum
of P25,000.00 as partial settlement of the deceased's obligations. Spouses Lutero filed a motion seeking reimbursement
from the petitioner. They argued that the said amount should have been paid by petitioner to the PNB, as stipulated in the
lease contract. Before the motion could be resolved by the court, petitioner filed in the Court of First Instance of Iloilo a
separate action against the spouses Juanito Lutero and Hardivi R. Lutero for collection of the total amount of P71,000.00,
they borrowed from the petitioner.
Issue:
WON the obligation of petitioners to private respondents may be compensated or set- off against the amount sought to be
recovered in an action for a sum of money filed by the former against the latter.
Held:
No, compensation cannot take place where one's claim against the other is still the subject of court litigation. It is a
requirement, for compensation to take place, that the amount involved be certain and liquidated.
100. Sycip vs CA 134 SCRA 317

Case Title: Sycip vs Court of Appeals
Date: G.R. No. L-38711
Date: January 31, 1985
Ponente: Relova, J.
Topic: Compensation
Facts: Jose K. Lapuz received from Albert Smith in Manila 2,000 shares of stock of the Republic Flour Mills, Inc.
Sycip approached him and told him that he had good connections in the Stock Exchange, assuring him that he
could sell them at a good price. Before accepting the offer of the accused-appellant to sell the shares of stock,
Jose K. Lapuz made it clear to him that the shares of stock did not belong to him and were only entrusted to him
for sale. He then gave the shares of stock to the accused-appellant who put them in the market.
Sycip gave checks to Lapuz that as payment that were dishonored by the banks. Thus prompting Lapuz to file an
estafa case against Sycip. Court of First Instance found Sycip guilty of estafa, and ordered his imprisonment and
the indemnification of Lapuz.
Sycip appealed to the Supreme Court on the ground that Lapuz also has a debt to him and as such compensation
under the Civil Code must set in to set off the debts and obligations of each other.
Issue: WON compensation is applicable in this case thus exculpating Sycip of criminal liability for estafa.
Page 31 of 46
Held: No. Compensation cannot take place in this case since the evidence shows that Jose K. Lapuz is only an agent of
Albert Smith and/or Dr. Dwight Dill. Compensation takes place only when two persons in their own right are
creditors and debtors of each other, and that each one of the obligors is bound principally and is at the same time
a principal creditor of the other. Moreover, as correctly pointed out by the trial court, Lapuz did not consent to
the off-setting of his obligation with petitioner’s obligation to pay for the 500 shares.
101. Cia Maritima vs CA, 135 SCRA 593

COMPANIA MARITIMA vs. COURT OF APPEALS
G.R. No. L-50900, April 9, 1985
Facts: On March 7, 1947, Fernando Froilan purchased from the shipping Administration a boat for P200k with a
downpayment of P50k, secured by a real mortgage on the vessel in favour of the Shipping Administration.
Froilan defaulted in his payment on the unpaid balance.
The GM of Shipping Administration ordered the immediate possession of the vessel and to suspend the unloading of all
cargoes. The boat was repossessed and the title thereto was registered again in the name of the Shipping Administration,
thereby re-transferring the ownership thereof to the government.
In 1949, Pan Oriental Shipping offered to charter said vessel for a monthly rent of P3k. The vessel was delivered to the
possession of Pan Oriental. They entered into a bareboat charter with option to purchase filed on June 4, 1949, with the
Office of the President.
Meanwhile, upon protest of Froilan, the Cabinet restored to him all his rights in the contract of sale on condition that he
would settle partially the amounts overdue and to reimburse for repair and drydocking performed by Pan Oriental.
Because of this, the formal bareboat charter agreement was not approved.
Pan Oriental protested the restoration of Froilan’s rights under the contract of sale. Pan Oriental refused to surrender
possession of the vessel despite payment by Froilan of the required cash.
Froilan filed an action for replevin in the CFI Manila to recover possession thereof and to have him declared as the
rightful owner of the property. This was granted by the court and ordered the seizure of the vessel from Pan Oriental and
the delivery to Froilan.
This was questioned by Pan Oriental up to the Supreme Court via certiorari, but the same was dismissed in 1951. Pan
Pacific accordingly filed an ansewer in the proceeding. The Republic also intervened in the proceedings.
Subsequently, Compania Maritima, as purchaser of the vessel from Froilan, was allowed to intervene in the lower court
proceedings.
CFI Manila upheld the Compania Maritima’s right to the ownership and possession of the vessel.
This order was questioned by Pan Oriental 3 times to the SC. The case was remanded to the lower court for the
determination of necessary expenses, interest and rentals.
The CFI Manila, this time, ruled for Pan Oriental and ordered Compania and the Republic to pay, jointly and severally,
Pan Oriental with legal interest from the time of disbursement of legitimate expenses. CA affirmed this judgement.
From this, Compania and the Republic appealed to the SC.
Issue: WON there was compensation or set-off by operation of law that took place between the Republic and Pan-
Oriental as of February 3, 1951, the date Pan Oriental was disposed of the vessel.
Held: No. REPUBLIC maintains that compensation or set-off took place between it and PAN-ORIENTAL as of
February 3, 1951, the date the latter was dispossessed of the vessel for compensation to take place, one of the elements
necessary is that the debts be liquidated. In this case, all the elements for Compensation to take place were not present on
the date of dispossession, or on February 3, 1951. The amount expended for repairs and improvements had yet to be
determined by the Trial Court pursuant to the Decision of this Court promulgated on October 31, 1964. At the time of
dispossession also, PAN-ORIENTAL was still insisting on its right to purchase the vessel. The obligation of REPUBLIC
to reimburse PAN-ORIENTAL for expenses arose only after this Court had so ruled. Rentals for the use of the vessel by
PAN- ORIENTAL were neither due nor demandable at the time of dispossession but only after this Court had issued its
Resolution of August 27, 1965. More, the legal interest payable from February 3, 1951 on the sum of P40,797.54,
representing useful expenses incurred by PAN-ORIENTAL, is also still unliquidated since interest does not stop accruing
"until the expenses are fully paid." Thus, we find without basis REPUBLIC's allegation that PAN- ORIENTAL's claim in
the amount of P40,797.54 was extinguished by compensation since the rentals payable by PAN-ORIENTAL amount to
P59,500.00 while the expenses reach only P40,797.54. Deducting the latter amount from the former, REPUBLIC claims
that P18,702.46 would still be owing by PAN-ORIENTAL to REPUBLIC. That argument loses sight of the fact that to
Page 32 of 46
the sum of P40,797.54 will still have to be added the legal rate of interest "from February 3, 1951 until fully paid." But
although compensation by operation of law cannot take place as between REPUBLIC and PAN-ORIENTAL, by specific
pronouncement of this Court in its Resolution of November 23, 1966, supra, the rentals payable by PAN-ORIENTAL in
the amount of P59,500.00 should be deducted from the sum of useful expenses plus legal interest due, assuming that the
latter amount would still be greater. Otherwise, the corresponding adjustments can be made depending on the totality of
the respective amounts. Since we are holding that the obligation of REPUBLIC to pay P40,797.54 to PAN-ORIENTAL
was not extinguished by compensation, the obligation of REPUBLIC to pay legal interest on said amount has neither
become stale as REPUBLIC contends. Of special note is the fact that payment of that interest was the specific ruling of
this Court in its Resolution of August 27, 1965, thus: ... For this reason, Froilan and the REPUBLIC of the Philippines
are declared jointly and severally liable, not only for reimbursement to Pan Oriental, of the legitimate necessary expenses
incurred on the vessel, but also for payment of legal interest thereon, computed from the date of the defendant's
dispossession of the property.
102. International Corporate Bank vs IAC, 163 SCRA 296
Private respondent secured from petitioners’ predecessor in interest a loan, mortgaged in real properties (Manila and
Bulacan) in consideration thereof where 20 Million was released.
Private respondent made a money market placement with ATRIUM at 15% interest per annum. Having failed to pay her
mortgage indebtedness, the properties were auctioned off to ATRIUM being the only bidder at 20 million applying the
same to the payment of the money market placement, nonetheless, still indebted of 6.81 million.
Respondent filed for the annulment of sheriff’s sale, release the balance of her loan and recovery of proceeds for her
money market investment and damages alleging the foreclosure illegal as the mortgage was not yet due and demandable.
Petitioner asserts having the right to set off respondent’s claim and avers a counterclaim representing the balance of its
deficiency claim.
Respondent judge issued an order which stating
IN VIEW OF THE FOREGOING, the defendant International Corporate Bank is hereby ordered to deliver to
the plaintiff Natividad M. Pajardo the amount of P1,062,063.83 covered by the repurchase agreement with
Serial No. AOY-14822 (Exhibit "A'), this amount represented the principal of P1,046,253.77 which the plaintiff
held including its interest as of October 13, 1980, conditioned upon the plaintiff filing a bond amount to
P1,062,063.83 to answer for all damages which the said defendant bank may suffer in the event that the Court
should finally decide that the plaintiff was not entitled to the said amount.
International corporate bank now asserts grave abuse of discretion.
The CA dismissed the petition which reads
The respondent court cannot be successfully charged with grave abuse of discretion amounting to lack of
jurisdiction when it issued its Orders of February 13, 1984 and March 9, 1984, based as they are on a correct
appreciation of the import of the parties' evidence and the applicable law.
IN VIEW WHEREOF, the petition is dismissed for lack of merit and the temporary restraining order issued by
this Court on March 22, 1984 is lifted.
The crucial issue to be resolved in this case is whether or not there can be legal compensation in the case at bar.
Petitioner contends that after foreclosing the mortgage, there is still due from private respondent as deficiency the amount
of P6.81 million against which it has the right to apply or set off private respondent's money market claim of
P1,062,063.83.
Ruling
As correctly pointed out by the respondent Court of Appeals —
Page 33 of 46
Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
(Art. 1278, Civil Code). "When all the requisites mentioned in Art. 1279 of the Civil Code are present,
compensation takes effect by operation of law, even without the consent or knowledge of the debtors." (Art.
1290, Civil Code). Article 1279 of the Civil Code requires among others, that in order that legal compensation
shall take place, "the two debts be due" and "they be liquidated and demandable." Compensation is not proper
where the claim of the person asserting the set-off against the other is not clear nor liquidated; compensation
cannot extend to unliquidated, disputed claim arising from breach of contract. (Compañia General de Tabacos
vs. French and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17 Phil. 29).
There can be no doubt that petitioner is indebted to private respondent in the amount of P1,062,063.83 representing the
proceeds of her money market investment. This is admitted. But whether private respondent is indebted to petitioner in
the amount of P6.81 million representing the deficiency balance after the foreclosure of the mortgage executed to secure
the loan extended to her, is vigorously disputed. This circumstance prevents legal compensation from taking place. (CA
Decision, Rollo, pp. 112-113).
It must be noted that Civil Case No. 83-19717 is still pending consideration at the RTC Manila, for annulment of Sheriffs
sale on extra-judicial foreclosure of private respondent's property from which the alleged deficiency arose. (Annex "AA",
Rollo, pp. 181-189). Therefore, the validity of the extrajudicial foreclosure sale and petitioner's claim for deficiency are
still in question, so much so that it is evident, that the requirement of Article 1279 that the debts must be liquidated and
demandable has not yet been met. For this reason, legal compensation cannot take place under Article 1290 of the Civil
Code.
Petitioner now assails the motion of the plaintiff (now private respondent) filed in the trial court for the release of the
proceeds of the money market investment, arguing that it is deficient in form, the same being unverified (petitioner's
Memorandum, Rollo, p. 266). On this score, it has been held that "as enjoined by the Rules of Court and the controlling
jurisprudence, a liberal construction of the rules and the pleadings is the controlling principle to effect substantial
justice." (Maturan v. Araula, 111 SCRA 615 [1982]).
Finally, the filing of insufficient or defective bond does not dissolve absolutely and unconditionally the injunction issued.
Whatever defect the bond possessed was cured when private respondent filed another bond in the trial court.
PREMISES CONSIDERED, the questioned Decision and Resolution of the respondent Court of Appeals are hereby
AFFIRMED.
103. Mindanao Portland Cement vs CA, 120 SCRA 930
Mindanao Portland Cement vs CA, 120 SCRA 930

FACTS: Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld Steel Corporation (Pacweld for short) as
the latter's attorney, filed a pleading addressed to the defendant & Third-Party Plaintiff Mindanao Portland Cement
Corporation (MPCC, for short), for the collection of attorney’s fees from a previous case against MPCC.
MPCC filed an opposition to Atty. Laquihon's motion, stating that said amount is set-off by a like sum of
P10,000.00 which it MPCC has collectible in its favor from Pacweld also by way of attorney's fees which MPCC
recovered from the same Court of First Instance of Manila in another civil case, entitled Pacweld Steel Corporation, et al.
writ of execution to this effect having been issued by said court.
The court issued the order appealed from and despite MPCCs motion for reconsideration of said order, it was
denied. The writ of execution referred to above which MPCC has invoked to set- off the amount sought to be collected
by Pacweld through the latter's lawyer, Atty. Casiano P. Laquihon, is hereunder quoted in full.
In his brief, appellee comments that the statements in appellant's brief are 'substantially correct,' as follows:
STATEMENT OF THE CASE
Page 34 of 46
This is an appeal from the Order of the Court of First Instance of Manila (Branch X dated June 26, 1978
ordering the appellant (MINDANAO PORTLAND CEMENT CORPORATION) to pay the amount of P10,000.00
attorney's fees directly to Atty. Casiano B. Laquihon (Record on Appeal, pp. 24-25) and from the Order dated August 28,
1978 denying appellant's motion for reconsideration (Record on Appeal, p. 37).
There was no trial or submission of documentary evidence. Against the orders of June 26. 1978, and August 28,
1978, appellant has brought this appeal to this Court, contending that:
The lower court erred in not holding that the two obligations are extinguished reciprocally by operation of law.'
(p. 6, Appellant's Brief)
This appeal calls for the application of Arts. 1278, 1279 and 1290 of the Civil Code, as urged by the appellant.
Another question is: The judgment in Civil Case No. 75179 being already final at the time the motion under
consideration was filed, does not the order of June 26, 1976 constitute a change or alteration of the said judgment, though
issued by the very same court that rendered the judgment?
WHEREFORE, since only questions of law are involved and there is no factual issue left for us to determine, let
the records of the appeal in this case be certified to the Honorable Supreme Court for determination.
ISSUE: Whether or not the two obligations of MPCC and Pacweld Steel Corporation are extinguished reciprocally by
operation of law?
HELD: It is clear from the record that both corporations, petitioner MPCC and respondent Pacweld Steel Corporation
were creditors and debtors of each other, their debts to each other consisting in final and executory judgments of the
Court of First Instance in two (2) separate cases, ordering the payment to each other of the sum of P10,000.00 by way of
attorney's fees. The two (2) obligations, therefore, respectively offset each other, compensation having taken effect by
operation of law and extinguished both debts to the concurrent amount of P10,000.00, pursuant to the provisions of Arts.
1278, 1279 and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of the said Code for automatic
compensation "even though the creditors and debtors are not aware of the compensation" were duly present.”
The judgment of September 14, 1976 against Mindanao Portland Cement Corporation so as to make the award therein of
P10,000.00 as attorney's fees payable directly to himself as counsel of Pacweld Steel Corporation instead of payable
directly to said corporation as provided in the judgment, which had become final and executory long before the issuance
of said "amendatory" order was a void alteration of judgment.
104. BPI vs CA GR 136202, january 25, 2007
FACTS:
A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein
petitioner Bank of the Philippine Islands (BPI). The complaint was later amended by substituting the name of Annabelle
A. Salazar as the real party in interest in place of A.A. Salazar Construction and Engineering Services. Private respondent
Salazar prayed for the recovery of the amount of Two Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and
Seventy Centavos (P267,707.70) debited by petitioner BPI from her account. She likewise prayed for damages and
attorney’s fees.
Petitioner BPI, in its answer, alleged that third-party defendant and herein also a private respondent, demanded from the
former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two Pesos and Fifty
Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were allegedly payable to him, but
which were deposited with the petitioner bank to private respondent Salazar’s account (Account No. 0203-1187-67)
without his knowledge and corresponding endorsement.
It appeared that private respondent Salazar was not entitled to the funds represented by the checks which were deposited
and accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48
and the sum of P267,692.50 was paid to Templonuevo by means of a cashier’s check. The difference between the value
Page 35 of 46
of the checks (P267,692.50) and the amount actually debited from her account (P267,707.70) represented bank charges in
connection with the issuance of a cashier’s check to Templonuevo.
In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him of P267,692.50
and argued that said payment was to correct the malicious deposit made by private respondent Salazar to her private
account, and that petitioner bank’s negligence and tolerance regarding the matter was violative of the primary and
ordinary rules of banking.
ISSUE:
Whether or not a bank has a right of set-off over the deposits for the payment of any withdrawals on the part of a
depositor.
RULING:
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
"[f]ixed, 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," as follows:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
105 Union Bank vs DBP, GR 191555, January 20, 2014 LA MADRID
6. Novation - Article 1291-1304, 1215
Kinds of Novation
a. As to its nature
i. Subjective or personal
ii. Objective or real
b. As to its form
i. Express
ii. Implied
106. Fua vs Yap 74 Phil 287

Fua Cam Lu vs Yap Fauco and Yap Singco
G.R. no. L-48797 July 30, 1943
Facts:
Plaintiff-appellee Fua was the judgment creditor of the appellants, the Yaps. They were sentenced to pay Fua
P1,538.04 with legal interest and costs. By virtue of a writ of execution, a parcel of land belonging to the appellants was
levied and was scheduled to be sold to a public auction. The appellants then executed a mortgage in favor of appellee
where it was stipulated that the appellant’s obligation was reduced to P1,200 payable in four installments, to secure
payment of the P1,200, a camarin belonging to the appellants mortgaged to the appellee, that in case appellants default in
Page 36 of 46
payment, they would pay 10% of the unpaid balance as attorney’s fees, plus the costs of the action to be brought by
appellee by reason of such default and the amount of P338 representing the discount connected to the appellants.
By pursuant to an alias writ of execution, the land was eventually sold at a public auction with the appellee as
highest bidder. Appellants refused to vacate the said parcel so an action was instituted by Fua. Appellants relied on the
legal defenses, among others, that their obligation under the judgment in the civil case was novated by the mortgage
executed by them in favor of the appellee. The lower court ruled in favor of appellee and declared him to be the owner of
the land ordering appellants to deliver the same to the appellee.
Issue:
Whether the liability under the judgment in the civil case had been extinguished by the settlement evidenced by
the mortgage executed by them in favor of the appellee.
Ruling:
Yes. Appellants liability under jugdgment in the civil case had been extinguished by the statement evidenced by
the mortgage executed by them in favor of appellee. Although said mortgage did not expressly cancel the old obligation,
this was impliedly novated by reason of the incompatibility resulting from the fact that, whereas the judgment was for
P1,538.04 payable at one time, did not provide for attorney’s fees and was not secured by a mortgage. The latter
agreement did not merely extend the time to pay the judgment, because it was therein recited that appellant promise to
pay P1,200 to appellee as a settlement of said judgment. Said judgment cannot be said to have been settled, unless it was
extinguished.
107. Japan Airlines vs Simangan, GR 170141, April 2008 MORALES

108. Anamer-Salazar vs JY Brothers Marketing Corp., GR 171998 October 20, 1010
Salazar vs J.Y Brothers Marketing Corporation

G.R. No. 171998 October 20, 2010
Facts: J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, rice and
other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani Calleja
and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to J.Y. Bros. As a
consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth P214,000.00. As
payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, 1996
issued by Nena Jaucian Timario in the amount of P214,000.00 with the assurance that the check is good as cash. On that
assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon presentment, the check was dishonored
due to closed account. Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a
replacement cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in the
amount of P214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand letter
dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with
the crime of estafa before the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474.
Issue: Whether or not the issuance of the Solidbank crossed check constitutes novation?.
Held: No. Among the different types of checks issued by a drawer is the crossed check. 17 The Negotiable Instruments
Law is silent with respect to crossed checks, 18 although the Code of Commerce makes reference to such instruments. 19We
have taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner means that
it could only be deposited and could not be converted into cash. 20 Thus, the effect of crossing a check relates to the mode
of payment, meaning that the drawer had intended the check for deposit only by the rightful person, i.e., the payee named
therein.21 The change in the mode of paying the obligation was not a change in any of the objects or principal condition
of the contract for novation to take place.22
Page 37 of 46
109. Metropolitan Bank vs Rural Bank of Gerona Inc., GR 159097, July 5, 2010
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, v RURAL BANK OF GERONA, INC.,
Respondent.
G.R. No. 159097
July 5, 2010
BRION, J.
Facts:
Rural Bank of Gerona (RBG) is a rural bank located in Tarlac.

 In the 1970s - the Central Bank and RBG entered into agreement where RBG shall facilitate the loan applications of
farmers under the “Reconstruction and Development Rural Credit Project (IBRD Project).”
o The agreement required RBG to open a separate bank account where IBRD loan proceeds shall be deposited.
 RBG accordingly opened a special savings account with Metrobank.
 As depository bank of RBG, Metrobank was designated to receive credit advice released by Central Bank
representing the proceeds of the IBRD loan of farmers; Metrobank, in turn, credited the amounts to RBG’s special
savings account for RBG’s release to farmers.
 In 1978 - Central Bank released a credit advice, and accordingly credited (deposited?) Metrobank with the ff amounts
for the savings account of RBG ---
o P178,652, represented approved loan application of farmer de Jesus.
o P189,052, for farmer Panopio
o P220,000, for farmer Lagman
o RBG withdrew the first two amounts.

o For the 3rd amount, RBG only withdrew P75,375 out of the P220,000.
 Now, more than a month after RBG had made the above withdrawals, the Central Bank issued debit advices,
reversing all the approved loans. Central Bank debited from Metrobank’s demand deposit account the amount
corresponding to all three loans.
 Metrobank, in turn, debited the following amounts from RBG’s special savings account: P189,052, P115,000,
and P8,000.
Metrobank, however, claimed that these amounts were insufficient to cover all the credit advices that were reversed
by Central Bank. It demanded payment from RBG. Metrobank claimed that RBG still had an outstanding balance
of P334,220.

 To collect this amount, Metrobank filed complaint for collection of money against RBG.
 RTC: ruled for Metrobank, finding that legal subrogation had ensued; ordered RBG to pay Metrobank the sum
of P334,200, plus interest at 14% per annum.
Metrobank’s demand deposit reserves diminished correspondingly, Metrobank suffers prejudice in which case
legal subrogation has ensued.
(ELAM: There is legal subrogation > ergo, RBG has to pay Metrobank)
 CA: noted that this was not a case of legal subrogation under Art 1302 of Civil Code. Nevertheless, CA recognized
that Metrobank had right to be reimbursed of what it paid and failed to recover. It clarified, however, that a
determination still had to be made on who should reimburse Metrobank. CA declared that the Central Bank
should be impleaded as a necessary party so it could shed light on the IBRD loan reversals; remanded case to
RTC after the Central Bank is impleaded as a necessary party.
(ELAM: There is NO legal subrogation > ergo, Metrobank cannot debit from RBG; Central Bank has to be
impleaded to know who is liable to reimburse Metrobank)
 Metrobank elevated case with SC thru petition for review under Rule 45 ---
1 - Metrobank disagrees with the CA’s ruling to implead the Central Bank. It argues that inclusion of the Central
Bank as party to the case is unnecessary since RBG has already admitted its liability for the amount Metrobank
failed to recover.
2 - Metrobank contends that a remand would delay proceedings. Transactions took place in 1978, and case was
commenced more than 20 years ago.
(ELAM: Metrobank is saying that no need to implead Central Bank; and that there is legal subrogation.)
Page 38 of 46
ISSUE: WON Metrobank was subrogated to the rights of Central Bank after Central Bank pulled from its demand
deposit account. –YES
(ELAM: Is this a novation in terms of change in creditor?)
RULING:
Court ruled (with ):
The petition is impressed with merit.
 The first step in resolving case is to determine who the liable parties are on the IBRD loans that Central Bank
extended. The Terms and Conditions of the Credit Project shows that the farmers to whom credits have been
extended, are primarily liable for payment of borrowed amounts. The loans were extended through RBG which
handles collection and remittance. While the farmers were the principal debtors, RBG assumed liability under the
Project Terms and Conditions by solidarily binding itself with principal debtors to fulfill obligation.
 As per the Terms and Conditions, if RBG delays in remitting, Central Bank imposed a 14% per annum penalty on
RBG until amount is actually remitted. Central Bank was further authorized to deduct the amount due from RBG’s
demand deposit reserve should the latter become delinquent in payment. This are reflected in Par5 and 6 of the
Project Terms and Conditions read:
 Based on these arrangements, Central Bank’s immediate recourse, therefore should have been against the
farmers-borrowers and RBG; thus, it erred when it deducted the amounts from Metrobank’s demand deposit
account.
 Metrobank had no responsibility over proceeds of IBRD loans other than serving as a conduit for their
transfer from the Central Bank to RBG once credit advice has been issued. Metrobank was an outsider to
the agreement.
 However, Court disagrees with CA in its conclusion that no legal subrogation took place. The present case,
in fact, exemplifies the legal subrogation as contemplated in Par 2 of Art 1302 of Civil Code which
provides:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor’s knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval
of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as to the latter’s share.
(ELAM: Meaning that because of item2 MetroB can claim rmbursmnt from RBG; subrogated to rights
of Central Bank)
o In this case, Metrobank was a 3rd party to Central Bank-RBG agreement, had no interest except as a conduit,
and was not legally answerable for loans.
o Was there express or tacit approval by RBG of payment enforced against Metrobank? YES--- After Metrobank
received the Central Bank’s debit advices, Metrobank accordingly debited the amounts from RBG’s special
savings account W/O OBJECTION from RBG. RBG’s Pres and Mngr even wrote Metrobank regarding
possible means of settling amounts debited by Central Bank from Metrobank’s demand deposit account. These
are indicative of RBG’s approval of Metrobank’s payment of the IBRD loans.
o Also, fact that RBG’s tacit approval came after payment does not completely negate the legal subrogation that
had taken place.
 Art 1303 states that subrogation transfers to the person subrogated the credit with all the rights thereto appertaining,
either against the debtor or against third persons. As the entity against which the collection was enforced,
Metrobank was subrogated to the rights of Central Bank and has a cause of action to recover from RBG the amounts
it paid to the Central Bank, plus 14% per annum interest.
 Ergo, because of this subrogation thingy impleading Central Bank as party is unnecessary.
 As this Court is not a trier of facts, we deem it proper to remand the factual issue to RTC for computation of actual
amount RBG owes to Metrobank.
o Metrobank contends that it credited RBG’s account with 3 amounts P178,652.00 for Dominador de Jesus;
the P189,052.00 for Basilio Panopio; and the P220,000.00 for Ponciano Lagman. Metrobank claims that all of
the three credit advices were subsequently reversed by the Central Bank, evidenced by three debit advices. The
records, however, contained only the credit and debit advices for the amounts set aside for de Jesus and Lagman.
Nothing in findings referred to amount set aside for Panopio.
Page 39 of 46
o Thus, what were proven as credited and debited from Metrobank’s demand deposit account were only the
amounts of P178,652.00 and P189,052.00. With these amounts combined, RBG’s liability would amount
to P398,652.00 – the same amount RBG acknowledged as due to Metrobank.
o RBG asserts that it made partial payments amounting to P145,197.40, but neither the RTC nor the CA made a
conclusive finding as to the accuracy of this claim. Although Metrobank admitted that RBG indeed made partial
payments, it never mentioned the actual amount paid; neither did it state that the P145,197.40 was part of
theP312,052.41 that, it admitted, it debited from RBG’s special savings account. Deducting P312,052
(representing the amounts debited from RBG’s special savings account, as admitted by Metrobank)
from P398,652.00 amount due to Metrobank from RBG, the difference would only be P86,599.59. We are,
therefore, at a loss on how Metrobank computed the amount of P334,220.00 it claims as the balance of RBG’s
loan.
(ELAM: In short – there is discrepancy in amounts claimed for reimbursement by Metrobank, and amount
owed claim by RBG. Proper recourse is remand despite lengthy case.)
DISPOSITION:
WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE the decision and the resolution of the
Court of Appeals, in CA-G.R. CV No. 46777, promulgated on December 17, 2002 and July 14, 2003,
respectively. We AFFIRM the decision of the Regional Trial Court, Branch 65, Tarlac, promulgated on July 7, 1994,
insofar as it found respondent liable to the petitioner Metropolitan Bank and Trust Company, but order the REMAND of
the case to the trial court to determine the actual amounts due to the petitioner. Costs against respondent Rural Bank of
Gerona, Inc.
SO ORDERED.
110. Arco Pulp and Paper Co., Inc., and Santos vs Lim, GR 206806, June 25, 2014
Arco Pulp vs CA
FACTS: Dan T. Lim is engaged in supplying scarp papers, cartons and other raw materials under the namne of Quality
Paper and Plastic Products Enterprise to factories engaged in paper milling. From February to March 2007 he delivered
scrap of papers worth P7.2M to Arco Pulp. Dan Lim alleged that when he delivered the materials, Arco Pulp issued a
post-dated check for the partial value of the raw materials delivered. When Dan T. Lim deposited the check it was
dishonored. On the same day Arco pulp and a certain Eric Sy entered into a MOA where ARCO will deliver its finish
product to Megapack Container Corporation and according to the MOA Dan T. Lim will be the supplier for the raw
material. Dan T. Lim demanded for the payment and subsequently filed a complaint against ARCO. On September 19,
2008, the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the complaint, holding that when
Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement, novation took place, which extinguished
Arco Pulp and Paper’s obligation to Dan T. Lim. Dan T. Lim appealed 18 the judgment with the Court of Appeals.
According to him, novation did not take place since the memorandum of agreement between Arco Pulp and Paper and
Eric Sy was an exclusive and private agreement between them. He argued that if his name was mentioned in the contract,
it was only for supplying the parties their required scrap papers, where his conformity through a separate contract was
indispensable.19
ISSUE: WON the MOA constitutes Novation
HELD: No. The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation
of the contract between the parties. When petitioner Arco Pulp and Paper opted instead to deliver the finished products to
a third person, it did not novate the original obligation between the parties. Article 1293. Novation which consists in
substituting a new debtor in the place of the original one, 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 the rights mentioned in
Articles 1236 and 1237. (1205a)
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."
If the memorandum of agreement was intended to novate the original agreement between the parties, respondent must
have first agreed to the substitution of Eric Sy as his new debtor. The memorandum of agreement must also state in clear
and unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp and Paper to respondent.
Neither of these circumstances is present in this case.
Page 40 of 46
111. Millar vs CA, 38 SCRA 642 SALVACION
112. Sandico vs Piguing, 42 SCRA 322
G.R. No. L-26115 November 29, 1971

CARLOS SANDICO, SR., and TEOPISTO P. TIMBOL, petitioners,
vs.
THE HONORABLE MINERVA R. INOCENCIO PIGUING, Judge of the Court of First Instance of Pampanga, and
DESIDERIO PARAS, respondents.
Facts:
Petitioners Sandico and Timbol obtained a judgment in their favor against respondent D. Paras in an action for easement
and damages. The courts awarded them the “recognition of easement”, plus actual and exemplary damages, and
attorney’s fees. The petitioners then moved for the execution of the judgment.
Meanwhile, the petitioners and respondent reached a settlement, agreeing to the reduction of money judgment.
Respondents paid the petitioners a portion of the total sum, as evidenced by a receipt. However, the receipt also stated
that there should be a “reconstruction of the irrigation canal”.
Subsequently, petitioners demanded compliance by the respondents with the judgment relating to the reconstruction and
reopening of the irrigation canal. The writ of execution having been unsatisfied, the petitioners filed with the court
(presided by respondent judge Piguing) a motion to declare the respondent in contempt of court. Respondent opposed
the same, saying that he had dug a canal in its former place for the petitioners’ use; that the digging constituted the
“recognition of easement” as opposed to petitioner’s allegation that there should be a reconstruction and reopening of the
canal.
The respondent judge issued an order denying the petitioners’ motion to declare the respondents in contempt of court,
ruling that the earlier decision only ordered the defendant to recognize the easement and the payment of damages; and
that there is nothing to show that the defendant was ordered to reconstruct the canal. Eventually, the respondent judge
stated that the agreement of the parties “novated the money judgment”.
Issue:
Whether or not the settlement of the parties after the court’s judgment novated the obligation imposed by the judgment
itself.
Held: NO.
The appellate court’s judgment obliged the respondent to do two things: (1) to recognize the easement, and (2) to pay the
petitioners the sums of P5,000 actual and P500 exemplary damages and P500 attorney's fees, or a total of P6,000. The
full satisfaction of the said judgment requires specific performance and payment of a sum of money by the respondent.
SC adjudged the respondent's judgment debt as having been fully satisfied. SC saw no valid objection to the petitioners
and the respondent entering into an agreement regarding the monetary obligation of the latter under the judgment of the
Court of Appeals, reducing the same from P6,000 to P4,000. The payment by the respondent of the lesser amount of
P4,000, accepted by the petitioners without any protest or objection and acknowledged by them as "in full satisfaction of
the money judgment" in civil case 1554, completely extinguished the judgment debt and released the respondent from his
pecuniary liability.
Novation results in two stipulations — one to extinguish an existing obligation, the other to substitute a new one in its
place. Fundamental it is that novation effects a substitution or modification of an obligation by another or an
Page 41 of 46
extinguishment of one obligation in the creation of another. In the case at hand, SC failed to see what new or modified
obligation arose out of the payment by the respondent of the reduced amount of P4,000 and substitute the monetary
liability for P6,000 of the said respondent under the appellate court's judgment. Additionally, to sustain novation
necessitates that the same be so declared in unequivocal terms — clearly and unmistakably shown by the express
agreement of the parties or by acts of equivalent import — or that there is complete and substantial incompatibility
between the two obligations.
113. NPC vs Dayrit, 125 SCRA 849 TOLEDO

114. Integrated Construction vs Relova, 146 SCRA 360 UY
115. Cochingyan vs R&B Surety, 151 SCRA 339 AMOLATO
116. Balila vs IAC, 155 SCRA 262
SPOUSES ANICETO BALILA and EDITHA S. DE GUZMAN, ET AL. v.
HONORABLE INTERMEDIATE APPELLATE COURT, ET AL.
G.R. No. L-68477, 29 October 1987, SECOND DIVISION (Paras, J.)
FACTS:
Guadalupe C. Vda. del Castillo sold under a pacto de retro sale three parcels of land to Spouses Aniceto Balilia
and Editha De Guzman in the amount of P84,000.00, the latter promising to pay the said amount within the period of four
(4) months but not later than May 15,1981. Sps. De Guzman failed to comply with their obligation and as a result,
Guadalupe filed a claim before a court. In the said case filed, the parties agreed on an amicable settlement which was
approved by the trial court. However, more than seven months after the last day for making payments as embodied in the
settlement, Sps. De Guzman redeemed from Guadalupe one of the parcels of land by paying the amount of P20,000.00.
Subsequently, Guadalupe filed a motion for a hearing on the consolidation of title over the remaining two (2) parcels of
land alleging that the court's decision remained unenforced for no payment of the total obligation due from Sps. De
Guzman. For their part, Sps. De Guzman opposed said motion alleging that they had made partial payments of their
obligation through Guadalupe’s attorney in fact and son, Waldo del Castillo, as well as to the Sheriff. Thereafter, the
lower court issued an order affirming consolidation. While the Order of the lower court had not yet been enforced, Sps.
De Guzman paid Guadalupe by tendering the amount of P28,800.00 to her son Waldo thus leaving an unpaid balance of
P35,200.00. On appeal, the Court of Appeals sustained the lower court. Sps. De Guzman contend that despite the
rendition of the said decision by the appellate court, Guadalupe , represented by her son Waldo, accepted payments from
petitioners and gave the spouses several extensions of time to pay their remaining obligations thus the amicable
settlement is deemed novated.
ISSUE:
Whether the judgment by compromise based on the amicable settlement of the parties is novated by their
subsequent acts.
RULING:
YES. The root of all the issues raised before Us is that judgment by compromise rendered by the lower court
based on the terms of the amicable settlement of the contending parties. Such agreement not being contrary to law, good
morals or public policy was approved by the lower court and therefore binds the parties who are enjoined to comply
therewith.
However, the records show that petitioners made partial payments to private respondent Waldo del Castillo after
May 15, 1981 or the last day for making payments, redeeming Lot No. 52 as earlier stated.
The fact therefore remains that the amount of P84,000.00 payable on or before May 15, 1981 decreed by the
trial court in its judgment by compromise was novated and amended by the subsequent mutual agreements and actions of
petitioners and private respondents. Petitioners paid the aforestated amount on an instalment basis and they were given
by private respondents no less than eight extensions of time pay their obligation.
117. Peoples Bank vs Syvel’s, 164 SCRA 247 BARRIOS

PEOPLE’S BANK V. SYVEL INCORPORATED
GR No. L-29280 Aug 11, 1988 Paras, J:
Page 42 of 46
DOCTRINE:
Novation takes place when the object or principal condition of an obligation is changed or altered. It is
elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility
between the old and the new obligations in every aspect.
FACTS:
A chattel mortgage was executed by Antonio Syyap and Angel Syapp in connection with a commercial line.
When the credit expired, Antonio and Agel Syyap executed an undertaking in favor of People’s Bank whereby they both
agreed to guarantee and without benefit of excussion the full and prompt payment of any indebtedness incurred on
account the said credit line. Syvel Inc failed to make payment prompting People’s Bank to foreclose extrajudicially the
chattel mortgage, which was not pushed through in an attempt to settle. People’s Bank thereafter, filed an action for
foreclosure of chattel mortgage was executed on its stocks of goods, personal properties, and other materials owned by it
and located at its stores or warehouses. On petition, People’s Bank claimed that defendants are disposing their properties
to defraud their creditors as the stores were not anymore owned by the latter. A preliminary writ of attachment was then
issued. Hence, defendants Syyap set up a counterclaim for damages. During the pendency of the case, Antonio Syyap
proposed to settle the case. He requested for the dismissal of case and instead, offered to execute a Real Estate Mortgage
on his real property in Cavite. People’s Bank consented. The Defendants did not agree with the plaintiff's motion to
dismiss which included the dismissal of their counterclaim. Instead, they filed their own motion to dismiss on the ground
that by the execution of said real estate mortgage, the obligation secured by the chattel mortgage subject of this case was
novated, and therefore, People's Bank’s cause of action thereon was extinguished
ISSUE:
Whether or not a novation occurred when the real estate mortgage was executed.
HELD: NO.
Novation takes place when the object or principal condition of an obligation is changed or altered. It is
elementary that novation is never presumed; it must be explicitly stated or there must be manifest incompatibility
between the old and the new obligations in every aspect. In this case, the Real Estate Mortgage on its face does not show
existence of explicit novation nor incompatibility between the old and the new agreements. The second contract
evidently indicates that real estate mortgage was executed as new additional security only to the chattel mortgage
previously entered into by the parties. Moreover, records show that in the real estate mortgage, appellants agreed that the
chattel mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage".
The Contracts provides: “That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book No. I, Series
of 1965, Notary Public Jose C. Merris, Manila); real estate mortgage executed by Angel V. Syyap and Rita V. Syyap
(Doc. No. 441, Page No. 90, Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila) shall remain in full force
and shall not be impaired by this mortgage (par. 5, Exhibit"A,").
It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken as
additional security for the performance of the contract.
118. Rodriguez vs Reyes, 37 SCRA 195

G.R. No. L-22958 January 30, 1971
ESTRELLA BENIPAYO RODRIGUEZ, et al. vs. HON. JUAN O. REYES
REYES, J.B.L.
FACTS:
Petitioners filed with the respondent court a complaint against their brother, respondent Alberto for the partition
of the properties held by them in common as heirs of the late spouses, Donato D. Benipayo and Pura Disonglo. The
parties agreed to have the properties in litigation sold at public auction to the highest bidder. The parties submitted to the
court a list of the properties to be sold, among which were the improvements and two lots mortgaged with the
Page 43 of 46
Development Bank of the Philippines with an outstanding mortgage capital of about P50,000.00. A notice of the bidding
was published along with a warning that the properties were mortgaged with the DBP for P37,121.76.
The properties were sold. Jose N. Dualan and Vicente Saysob successfully bid at the auction sale. After the
sheriff had filed his return with the respondent judge, petitioners moved for the approval of the sale. Respondents
Benipayo and Dualan prayed that the respondent judge order (1) the payment of the mortgage debt in favor of the
Development Bank of the Philippines in the amount of P37,121.96 from the proceeds of the auction sale; (2) the issuance
by the sheriff of Manila of a certificate of sale in favor of Dualan of the property sold to him free from all liens and
encumbrances; and (3) the payment to respondent Benipayo of 1/12 of the proceeds of the sale after deducting therefrom
the payment to the Development Bank of the Philippines.
After hearing the arguments of the parties on the motion, the respondent judge apparently entertained some
doubts as to whether there had been a meeting of minds on the question of who was to discharge the mortgage obligation
in favor of the Development Bank, so he suggested that the properties be subjected to another "bidding" "with a clear-cut
understanding that the heirs shall assume all obligations and that they should not be paid by the buyers." The suggestion
was not accepted by the buyers; and the respondent judge issued the order complained of. The dispositive portion of
which reads as follows:
WHEREFORE, the Manila Sheriff's Report dated March 30, 1964, and the Quezon City Sheriff's Report dated April 6,
1964, are hereby approved, subject to the following conditions:
1. That the vendors or the owners of the properties sold shall clear said properties of all encumbrances that were incurred
in them long before the auction sales;
2. That since the taxes on said real estates are not encumbrances incurred by the owners of the properties, but are proper
charges attached and against the properties themselves, the real estate taxes shall be borne by the owner or owners of the
said properties on the date when said taxes become due for payment.
The petitioners, jointly with respondents Vicente Sayson and Alberto Benipayo, submitted a compromise
agreement, cancelling the sale to respondent Vicente Sayson of the property previously bidded for by him, upon the
consideration that the amount paid to the Sheriff by Sayson be returned to the latter. As respondent Jose Dualan
interposed no objection to the approval of the said compromise agreement. The Court rendered, a partial decision,
approving the compromise agreement and ordering the compliance with its provisions by the parties thereto, and, as
prayed for, dismissed this case as against Vicente Sayson, leaving only Jose N. Dualan, purchaser of the one property as
party respondent.
ISSUE:
Whether the purchasers should be the ones to pay for the mortgage given that they purchased the property at
their own peril with knowledge of the encumbrance (caveat emptor)?
HELD:
NO. The maxim “caveat emptor” applies only to execution sales, and this was not one such. The mere fact that
the purchaser of an immovable has notice that the required realty is encumbered with a mortgage does not render him
liable for the payment of the debt guaranteed by the mortgage, in the absence of stipulation or condition that he is to
assume payment of the mortgage debt. The reason is plain: the mortgage is merely an encumbrance on the property,
entitling the mortgagee to have the property foreclosed, i.e., sold, in case the principal obligor does not pay the mortgage
debt, and apply the proceeds of the sale to the satisfaction of his credit. Mortgage is merely an accessory undertaking for
the convenience and security of the mortgage creditor, and exists independently of the obligation to pay the debt secured
by it.
Certainly the buyer did not obligate himself to replace the debtor in the principal obligation, and he could not do
so in law without the creditor’s consent. Provided under Article 1293, Novation which consists in substituting a new
debtor in the place of the original one, 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 him the rights mentioned in articles 1236 and 1237.
119. Odiamar vs Odiamar Valencia, GR 213582, June 28, 2017

Odiamar vs Odiamar Valencia
FACTS:
Page 44 of 46
 On August 20, 2003, respondent filed a complaint for sum of money and damages against petitioner, alleging
that the latter owed her P2,100,000.00. Petitioner purportedly issued China Bank Check No. GHB1147212 7 (the
check) for the said amount to guarantee the payment of the debt, but upon presentment, the same was
dishonored. Respondent lamented that petitioner refused to pay despite repeated demands, and that had she
invested the money loaned to petitioner or deposited the same in a bank, it would have earned interest at the rate
of 36% per annum or three percent (3%) per month.chanrow
 For her part, petitioner sought the dismissal of the complaint on the ground that it was her deceased parents who
owed respondent money. Accordingly, respondent's claim should be filed in the proceedings for the settlement
of their estates. Petitioner averred that respondent had, in fact, participated in the settlement proceedings and had
issued a certification stating that it was petitioner's deceased parents who were indebted to respondent for
P2,000,000.00. She further maintained that as administratix of her parents' estates, she agreed to pay such
indebtedness on installment but respondent refused to accept her payments.chanro
 Respondent countered that petitioner personally borrowed almost half of the P2,100,000.00 from her, as
evidenced by the check which she issued after agreeing to settle the same in installments. While respondent
conceded that petitioner made several installment payments from December 29, 2000 until May 31, 2003, she
pointed out that the latter failed to make any succeeding payments. Moreover, respondent denied participating in
the proceedings for the settlement of the estates of petitioner's parents, clarifying that petitioner was the one who
prepared the certification alluded to and that she (respondent) signed it on the belief that petitioner would make
good her promise to pay her (respondent).chanrobleslaw
 In an Order dated October 3, 2003, the RTC denied petitioner's motion to dismiss, thus prompting her to file an
answer. She asserted that respondent merely persuaded her to issue the check to guarantee her deceased parents'
loan. She further claimed that the check was blank when she issued it and that despite having no authority to fill
up the same, respondent wrote the amount and date thereon. She also maintained that from December 29, 2000
to May 31, 2003, she made, in almost daily installments, payments to respondent ranging from P500.00 to
P10,000.00, and that while she tried to make succeeding payments, respondent refused to accept the same,
demanding, instead, the payment of the entire balance. As counterclaim, petitioner prayed that moral damages,
attorney's fees, litigation expenses, and exemplary and punitive damages be awarded to her.
 RTC ruled in favour of the respondent. CA affirmed the decision of the RTC. The CA concurred with the RTC
that novation took place insofar as petitioner was substituted in place of petitioner's late parents, considering that
petitioner undertook to pay her deceased parents' debt. However, the CA opined that there was no novation with
respect to the object of the contract, following the rule that an obligation is not novated by an instrument which
expressly recognizes the old obligation and changes only the terms of paying the same, as in this case where the
parties merely modified the terms of payment of the P2,100,000.00.
ISSUE:
 Whether or not petitioner should be held liable to respondent for the entire debt in the amount of P2,100,000.00?
 Whether or not there is novation?
HELD:
 No. At this juncture, the Court finds it apt to correct the mistaken notions that: (a) novation by substitution of
the debtor took place so as to release the estates of the petitioner's deceased parents from their obligation,
which, thus, rendered petitioner solely liable for the entire P2,100,000.00 debt; and (b) the P100,000.00 of the
P2,100,000,00 debt was in the nature of accrued monetary interests.
 The Court held that to constitute novation by substitution of debtor, the former debtor must be expressly
released from the obligation and the third person or new debtor must assume the former's place in the
contractual relations. Moreover, the Court ruled that the "fact that the creditor accepts payments from a third
person, who has assumed the obligation, will result merely in the addition of debtors and not novation.
Page 45 of 46
 It is fundamental that for monetary interest to be due, there must be an express written agreement
therefor. Article 1956 of the Civil Code provides that "[n]o interest shall be due unless it has been expressly
stipulated in writing." In this relation, case law states that the lack of a written stipulation to pay interest on the
loaned amount bars a creditor from charging monetary interest and the collection of interest without any
stipulation therefor in writing is prohibited by law. Here, respondent herself admitted that there was no written
agreement that interest would be due on the sum loaned, only that there was an implicit understanding that the
same would be subject to interest since she also borrowed the same from banks which, as a matter of course,
charged interest. Respondent also testified on cross examination that the P2,100,000.00 corresponds only to the
principal and does not include interest
 All told, having established that no novation took place and that no interest was actually due, and factoring in
the payments already made for her account, petitioner is, thus, ordered to pay respondent the amount
of P1,010,049.00, which is the remaining balance of her principal debt to the latter in the original amount of
P1,400,000.00.
Page 46 of 46

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CIVIL LAW REVIEW 2 | I.G.

G. Modes of Extinguishment of Obligations - Article 1231

The subsequent conduct of Saura, Inc. confirms this desistance:

3. It was only in 1964, nine years after the loan agreement

All these circumstances demonstrate beyond doubt that the

70. NPC vs Ibrahim, et. al., GR 175863, February 18, 2015

National Power Corporation vs. Ibrahim

Bad Faith; A finding of bad faith usually assumes

Various jurisprudence provides the concept of bad faith:

Land Bank of the Philippines vs. Ong

• MR was filed but denied. Hence this petition.

Art. 1236 provides:

72. JM Tuason vs Javier, 31 SCRA 829

73. Legarda vs SaldaṄa, 55 SCRA 324 BARRIOS

74. Azcona v Jamandre, 151 SCRA 317

GUILLERMO AZCONA and FE JALANDONI AZCONA vs. JOSE JAMANDRE

75. Araňas vs Tutaan, 127 SCRA 828

76. Kalalo vs Luz, 34 SCRA 337

77. Ponce vs CA, 90 SCRA 533

The trial court rendered judgment in favor of petitioner.

78. New Pacific Timber vs Seneris, 101 SCRA 686

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

80. Tibaja Jr. vs CA, 223 SCRA 163, January 4, 1993

G.R. No. 100290 June 4, 1993

Payment through check is not considered as payment in legal tender

81. Bognot vs RRI Lending Corp., GR 180144, September 24, 2014

Article 1249, paragraph 2 of the Civil Code provides:

Also, we held in Bank of the Philippine Islands v. Spouses Royeca:

82. Velasco vs Meralco, 42 SCRA 556 GOJAR

83. Commissioner vs Burgos, 96 SCRA 831

84. Filipino Pipe and Foundry Corp. vs NAWASA, 161 SCRA 32

G.R. No. L-43446 May 3, 1988

NAWASA failed to pay, plaintiff filed a collection suit

NAWASA did not deliver the bonds to the judgment creditor.

85. Del Rosario vs Shell, 164 SCRA 556 MABASA

Special Forms of Payment

86. Filinvest vs Philippine Acetylene, 111 SCRA 421

87. Citizens Surety vs CA, 162 SCRA 738

89. Soco vs Militante, 123 SCRA 160

90. Immaculata vs Navarro, 160 SCRA

G.R. No. L-42230, April 15, 1988

91. Del Carmen vs Sps Sabordo, GR 181723, August 11, 2014

Case Title: Del Carmen vs Spouses Sabordo

92. People vs Franklin, 39 SCRA 363

93. Laguna vs Manabat, 58 SCRA 650

94. Occena vs Jabson, 73 SCRA 637

3. Condonation or remission of debt - Article 1270-1274, 748, 749

95. Gan Tion vs CA, 28 SCRA 2235

96. PNB vs Ong Acero, 148 SCRA 166

97. Francia vs IAC, 162 SCRA 753

Topic: Compensation against claims with the Government.

Francia filed a complaint to annul the auction sale.

HELD: The contention is without merit.

98. Republic vs de los Angeles, 98 SCRA 103

ISSUE: Whether or not the Obligation was extinguish BY COMPENSATION

99. Solinap vs del Rosario, 123 SCRA 640

G.R. No. L-50638 July 25, 1983

Remedy for Breach of Obligation; Compensation

100. Sycip vs CA 134 SCRA 317