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Cinco vs. C.A., G.R. No.

151903

HAHN VS CA

Facts: Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from respondent
Maasin Traders Lending Corporation (MTLC). The loan was evidenced by the promissory
note, and secured by a real estate mortgage over the spouses Cincos land and 4-storey
building.

FACTS

To pay the loan in favor of MTLC, the spouses Cinco applied for a loan with the Philippine
National Bank (PNB), and offered the same properties they previously mortgage to MTLC.
The PNB approved the load application for 1.3 Million; the release was, however, conditioned
on the cancellation of the mortgage in favor of MTLC.
Manuel went to Ester Servacio (Ester), MTLCs President to inform her that there was money
with PNB for Payment of his loan. Manuel executed a Special Power of Attorney (SPA)
authorizing Ester to collect the proceeds of the loan. Ester went to the PNB to inquire, the
second time around, about the proceeds. The bank officer confirmed the existence of such
loan, but they required Ester to first sign a deed of release/cancellation of the mortgage before
they could release the proceeds of the loan to her. Outraged, Ester refused the deed and did not
collect the 1.3 Million.
Ester instituted foreclosure proceeding. To prevent the foreclosure, the spouses Cinco filed an
action for specific performance, damages, and preliminary injunction.
Issue: Whether the loan due the MTLC had been extinguished by the act of the spouses Cinco
amounted to payment.

It has been established that Santos received two diamond rings with a total value of
P47,000.00 in 1966 from the petitioner. She issued separate receipts therefor in which she
acknowledged that they had been delivered by Letty Hahn to her for sale on commission and
that they would be returned upon demand if unsold. 3 The rings were not sold nor were they
returned when demanded by Hahn.
Hahn sued for recovery of the rings or their value. While the civil case was pending, she also
filed a criminal action for estafa against Santos. Santos was acquitted on reasonable doubt. 4 In
the civil action, however, where she also pleaded that the contracts between her and Hahn
were not of agency but of sale, Santos did not fare as well.
The trial court ordered her to return the two rings or pay the plaintiff their value, which was
increased to P65,000.00, with legal interest, plus P10,000 moral damages, P5,000 exemplary
damages, and P6,000.00 attorney's fees. 5 The increase on the original value of the rings was
based on Article 1250 of the Civil Code calling for an adjustment of the payment due in case
of extraordinary inflation or deflation. The moral and exemplary damages were imposed
because of the defendant's "seeming lack of scruples and conscientiousness."
ISSUE: WON Santos can compel Hahn to receive a different ring.
HELD

Issue: WON the loan due to MTLC had been extinguished.


Held: No, While Esters refusal was unjustified and unreasonable, we cannot agree with
Manuels position that this refusal had the effect of payment that extinguished his obligation to
MTLC. Article 1256 is clear and unequivocal on this point when it provides that
ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the consignation of the
thing or sum due.
In short, a refusal without just cause is not equivalent to payment; to have the effect of
payment and the consequent extinguishment of the obligation to pay, the law requires the
companion acts of tender of payment and consignation.
Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc., is the
definitive act of offering the creditor what is due him or her, together with the demand that the
creditor accept the same. When a creditor refuses the debtors tender of payment, the law
allows the consignation of the thing or the sum due. Tender and consignation have the effect
of payment, as by consignation, the thing due is deposited and placed at the disposal of the
judicial authorities for the creditor to collect. Nonetheless, the SPA stood as an authority to
collect the proceeds of the already-approved PNB loan that, upon receipt by Ester, would have
constituted as payment of the MTLC loan. The Court agrees with Manuel that Esters refusal
of the payment was without basis. Under these circumstances, we hold that while no
completed tender of payment and consignation took place.

No. From the moment demand was made upon Santos and she did not or could not comply,
she has already incurred in delay. The meaning of the receipts is unmistakable. Her contention
that it was the private respondent who had prevented her from fulfilling her obligation is
simply untenable and unacceptable.
There is no doubt that the petitioner could validly reject the private respondent's offer to pay
for the rings on installment because Hahn was entitled to payment in full. If such payment
could not be made, Santos was obligated to return both of the rings and not one or the other
only at her option "upon demand," under the separate receipts she had signed. According to
Article 1233 of the Civil Code, "a debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been completely delivered or rendered as
the case may be."
As for the private respondent's offer to return the solitaire ring, which was also refused, the
pertinent rule is Article 1244, providing that "the debtor of a thing cannot compel the creditor
to receive a different one, although the latter may be of the same value as, or more valuable
than that which is due." More so then in the case at bar if, as averred by the petitioner, the ring
offered was less valuable than the one that was due.

Intestate of Presbitero vs CA Leandro Canoso (Art. 1234, Substantial


Performance in goodfaith)

within a stipulated period of 120 days. In failing to comply with the said stipulation,
the private respondent acquired no right to be compensated.

Facts:

Issue: W/N that CAOSO is entitled for compensation

On 19 August 1981, Ricardo Presbitero, Sr. entered into two (2) written contracts
with private respondent Leonardo Caoso. In the first, entitled "Conformity of
Agreement," 3 Presbitero retained the services of the later to negotiate with the Land
Bank of the Philippines (LBP) and the Ministry of Agrarian Reform (MAR) in
Cotabato City for the sale, under a voluntary offer arrangement, of Hacienda Maria
which comprises some 270 hectares of land located at Balogo, Pigcawayan, North
Cotabato and which is owned by the former. The hacienda had been placed under
Operation Land Transfer pursuant to Presidential Decree No. 27. The private
respondent bound himself "to finish the processing and submission of documents
with in (sic) the period of One hundred (sic) Twenty Days (120 days) to Manila, by
the Land Bank of the Philippines and Ministry of Agrarian Reform Cotabato City
and shall be subjected to the delay of the approval of the DBP additional loan
negotiated by RICARDO P. PRESBITERO in Bacolod City . . . ." In the second
contract, denominated as a "Contract of Service," 4 Presbitero bound himself to
compensate the private respondent "for his efforts, services and other related
expenses in making the necessary follow up (sic) of the preparation, production of
pertinent documents required," and "to effect the recovery of the proceed (sic) of the
land transfer payment from the Land Bank of the Philippines," in an amount
equivalent to "Twenty Five per cent (25%) of the gross total sales of my properties
described above which is (sic) subject of Operation Land Transfer."

Ruling:

When his claim was finally approved, Presbitero sent two (2) letters to the LBP
concerning the release of a part of the proceeds to the private respondent. The first
letter, dated 16 May 1983 and addressed to the LBP President, 5requested that the
"amount equivalent to Seventeen and One Half (17 1/2%) per cent be released in the
name of Leonardo Caoso, proportionate to (sic) cash and Land Bank Bonds, on
every releases (sic) until the final release of the claim." The second, dated 14 June
1983, 6 made reference to the LBP's letter of 6 June 1983 and requested that he
(Presbitero) be notified in writing upon receipt; the latter also informed the LBP that
he will "personally release the cash and bonds to Mr. Caoso due to advances made
by him during the processing of the documents." However, when a part of the
proceeds was released, the private respondent was not given his share as agreed
upon. Hence, the latter filed a complaint against Presbitero before the RTC of
Cotabato City which was docketed as Civil Case No. 68 and assigned to Branch 15
of the said court.
Petitioner contends that the respondent Court erred in declaring that the terms and
conditions of the contract were complied with. As provided thereunder, the private
respondent was to submit all requirements needed by the DAR and the LBP for the
land transfer to effect the payment thereof from the LBP. This was to be completed

In the interpretation of contracts, it is the general rule that if the terms thereof are
clear as to the intention of the contracting parties, the literal meaning of the
stipulations shall control. 36 Furthermore, subsequent or contemporaneous acts of the
contracting parties shall be considered in judging their intention. 37 In this case, it
was clearly agreed upon by the contracting parties that the private respondent would
undertake, among others, the processing, negotiation and follow-up of Presbitero's
claim with the LBP within a stipulated period of 120 days. The collection of the
proceeds from the LBP was not among the matters contemplated by the parties in the
said agreement. All they had in mind was that the preparation, processing and filing
of the necessary documents were needed to effect the recovery of proceeds from the
LBP.
And even if We are to assume that the private respondent breached the agreement by
not fully accomplishing his obligation within the stipulated period, said breach was
not of a nature which would justify a rescission of the contract. We ruled in the case
of Bacolod-Murcia
Milling
Co.,
Inc.
vs.
Court
of
Appeals 38 that rescission of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental breach as would defeat the
very object of the parties in making the agreement; the question of whether a breach
of contract is substantial depends upon the attending circumstances. 39 In the case at
bar, no substantial breach was committed by the private respondent sufficient enough
to warrant a rescission. From all indications, private respondent was able to perform
his obligation; this conclusion follows in the wake of the approval of the claim.
Under Article 1234 of the New Civil Code, if the obligation has been substantially
performed in good faith, the obligor (private respondent) may recover as though
there had been a strict and complete fulfillment, less damages suffered by the obligee
(Presbitero). Moreover, when the obligee accepts the performance, as what happened
in this case, knowing its incompleteness or irregularity, and without expressing a
protest
or
objection,
the
obligation is
deemed
fully complied
with. 40 Finally, to allow Presbitero to rescind the contract would not only violate the
well-settled rule on mutuality of contracts which provides that the validity or
compliance of a contract cannot be left to the will of one of the contracting
parties 41 but would also work an injustice to the rights of the private respondent
who has already performed his obligation pursuant to their agreement. Presbitero's
correlative obligation must perforce be also fulfilled. There is no evidence to indicate
that the private respondent was remise or negligent in the performance of his
obligation. Neither was there any evidence presented to show that it was through
Presbitero's own efforts that this claim with the LBP was approved.

Empire East Land Holdings v. Capitol Industrial


Facts:
* On February 12, 1997, petitioner Empire East Land Holdings, Inc. and respondent Capitol
Industrial Corporation Groups, Inc. entered into a Construction Agreement whereby the latter
bound itself to undertake the complete supply and installation of the building shell wet
construction of the formers building known as Gilmore Heights Phase I.
* Capitol Industrials scope of work are as follows: Masonry work, concrete works,
formworks, metal works, other concrete works, miscellaneous works, miscellaneous items,
roofing works and garbage chutes.
* Respondent further agreed that the construction work would be completed within 330
calendar days from Day 1, upon the Construction Managers confirmation. Petitioner
initially considered February 20, 1997 as Day 1 of the project. However, when respondent
entered the project site, it could not start work due to the on-going bulk excavation by another
contractor. Respondent thus asked petitioner to move Day 1 to a later date, when the bulk
excavation contractor would have completely turned over the site.
* After a series of correspondence between petitioner and respondent, February 25, 1997 was
proposed as Day 1. Accordingly, respondents completion date of the project was fixed on
January 21, 1998.
* Prior to and during the construction period, changes in circumstances arose, prompting the
parties to make adjustments in the initial terms of their contract. The following pertinent
changes were agreed upon by the parties:
-First, as the bulk excavation contractor refused to return to the project site, petitioner directed
respondent to continue the excavation work;
-Second, in addition to respondents scope of work, it was made to perform side trimmings.
-Third, petitioner directed respondent to reduce the monthly target accomplishment to P1
million worth of work and up to one (1) floor only.
-Fourth, the following were deleted from respondents scope of work: a) Masonry works and
all related items from 6th floor to roof deck; b) All exterior masonry works from 4th floor to
roof deck; and c) Garbage chute.
-Fifth, as a consequence of the deletion of the above works, the contract price was reduced to
P62,828,826.53.
-Sixth, the parties agreed: that the items of work or any part thereof not completed by the
respondent as of February 28, 1999 should be deleted from its contract, except demobilization;
the punch list items under respondents scope of responsibility not yet made good/corrected as
of the same period shall be done by others at a fixed cost to be agreed upon by all concerned;
and respondent should be compensated for the cost of utilities it installed but were still needed
by other contractors to complete their work.
-Lastly, they agreed that a joint quantification should be done to establish the bottom line
figures as to what were to be deleted from the respondents contract and the cost of completing
the punch list items which were deductible from respondents receivables.
* After the completion of the side trimmings and excavation of the buildings foundation,
respondent demanded the payment of P2,248,507.70 and P1,805,225.90, respectively. Instead
of paying the amount, petitioner agreed with the respondent on a negotiated amount of
P900,000.00 for side trimmings. However, respondents claim for foundation excavation was
not acted upon. During the construction period, petitioner granted, on separate occasions,
respondents requests for payroll and material accommodations.

* On March 13, 1999, respondent submitted its final billing, amounting to P4,442,430.90
representing its work accomplishment and retention, less all deductions. On March 23, 1999, a
punch list was drawn as a result of the joint inspection undertaken by the parties. Petitioner, on
the other hand, refused to issue a certificate of completion. It, instead, sent a letter to
respondent informing the latter that it was already in default.
* Capitol industrial then filed a case against Empire East for unpaid contract price and other
monetary claims. This was granted by both the CIAC and the CA.
* When the case reached the SC, Empire East prayed that there be cost against Capitol
industrial for unfinished work.
Issue: WON petitioners counterclaim for cost of unfinished work is tenable.
Ruling: During the construction period, the parties mutually agreed that some items of work
be deleted from respondents scope of work. Specifically, as claimed by respondent, the
following were deleted: a) masonry works and all related items from the 6th floor to the roof
deck; b) all exterior masonry works from the 4th floor to the roof deck; and c) the garbage
chute. This deletion was, however, denied by petitioner. It, instead, claimed that the only
modification it approved was the reduction by three floors of the total number of floors to be
constructed by respondent. After a thorough review of the documents presented by both
parties, both the CIAC and the CA concluded that the unfinished works, i.e., masonry works,
were actually recognized and accepted by petitioner. It thus agreed to take over, through its
new contractor, the balance of work. The only consequence of such acceptance was the
deduction of the value of the unfinished works from the total contract price. This was the
reason why the contract price was reduced from P84 million to P62,828,826.53. The deletion
was, likewise, confirmed by respondent in a letter dated August 21, 1998.
Applying Article 1235of the Civil Code, petitioners act exempted respondent from liability
for the unfinished works. A person entering into a contract has a right to insist on its
performance in all particulars, according to its meaning and spirit. But if he chooses to waive
any of the terms introduced for his own benefit, he may do so. 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 instant case, petitioner was aware of the unfinished work of respondent; yet, it did not
raise any objection or protest. It, instead, voluntarily hired another contractor to perform the
unfinished work, and opted to reduce the contract price. By removing from the contract price
the value of the works deleted, it is as if said items were not included in the original terms, in
the first place. Thus, as correctly concluded by the CIAC, and as affirmed by the CA,
petitioner is not entitled to reimbursement from respondent for the expenses it incurred to
complete the unfinished works.

Carandang v. De Guzman
Facts:
-Carandang and De Guzman are stockholders and corporate officers of MBS.
-Carandang has 46% of the stocks while De Guzman has 54%
-MBS increased its capital stock wherein Carandang was able to subscribe some.
-De Guzman claims that he paid the subscribed stocks of Carandang and wanted to collect P
336 375 as the total amount paid.
-Carandang on the other hand claims that during the pre-incorporation agreement provides that
De Guzman shall pay the stock subsricptions of Carandang without cost. It is in consideration
of Carandangs technical expertise, his newly purchased equipment and his skill in repairing
and upgrading radio/communication equipment. Therefore, Carandang claims that he is not
indebted to De Guzman.
ISSUE: W/N Carandang should pay the amount paid by De Guzman considering the alleged
pre-incorporation agreement.
Ruling:
-Carandang must pay. Carandang failed to prove the existence of such pre-incorporation
agreement.
-De Guzmans claim that the payment is a loan is meritorious since it was provided to
evidence.
-Carandang has the obligation to pay De Guzman for his debt. Carandang is indebeted to De
Guzman because there was no obligation to pay Carandangs subscription since there was no
such pre-incorporation agreement
-It appears that De Guzman agreed to the formation of the corporation principally because of a
directive of then President Marcos indicating the need to broaden the ownership of radio
broadcasting stations. The plaintiff owned the franchise, the radio transmitter, the antenna
tower, the building containing the radio transmitter and other equipment. Verily, he would be
placed in a great disadvantage if he would still have to personally pay for the shares of
defendant Arcadio M. Carandang.
The Spouses Carandang are mistaken upon saying that the loan was not proven. Since the rule
provides that whoever pays for another may demand from the creditor. De Guzman paid the
debt of Carandang (Subscription Payment). Hence, De Guzman shall be entitled to
reimbursement.
The spouses Carandang are mistaken. If indeed a Mr. "A" decides to pay for a Mr. "Bs"
obligation, the presumption is that Mr. "B" is indebted to Mr. "A" for such amount that has
been paid. This is pursuant to Articles 1236 and 1237 of the Civil Code, which provide:
Art. 1236. The creditor is not bound to accept payment or performance by a third person who
has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of
the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from
a mortgage, guarantee, or penalty.
Articles 1236 and 1237 are clear that, even in cases where the debtor has no knowledge of
payment by a third person, and even in cases where the third person paid against the will of
the debtor, such payment would produce a debt in favor of the paying third person. In fact, the
only consequences for the failure to inform or get the consent of the debtor are the following:
(1) the third person can recover only insofar as the payment has been beneficial to the debtor;
and (2) the third person is not subrogated to the rights of the creditor, such as those arising
from a mortgage, guarantee or penalty.

Maxwell Heavy Equipment Corp. v. Yu


Facts: On 3 April 2001 and 2 May 2001, Maxwell obtained loans from BPI, G. Araneta
Avenue Branch, in the total sum of P8,800,000.00 covered by two Promissory Notes and
secured by a real estate mortgage over two lots registered in Yus name. Promissory Note No.
1-6743742-001 for P800,000.00 was due on 26 March 20024 while Promissory Note No. 16743742-002 for P8,000,000.00 was due on 24 April 2002.5 Yu signed as Maxwells comaker in the Promissory Note covering the P8,000,000 loan. It appears that Yu did not sign as
co-maker in the Promissory Note for P800,000.
Maxwell defaulted in the payment of the loans, forcing Yu to pay BPI P8,888,932.33
representing the principal loan amounts with interest, through funds borrowed from his
mother, Mina Yu, to prevent the foreclosure of his real properties.
Thereafter, Yu demanded reimbursement from Maxwell of the entire amount paid to BPI.
However, Maxwell failed to reimburse Yu. Consequently, Yu filed with the trial court a
complaint for sum of money and damages.
Maxwell denied liability for Yus claimed amount. Maxwell countered that the transactions
with BPI were merely accommodation loans purely for Yus benefit. Maxwell likewise
pointed out that Yu, having signed as co-maker, is solidarily liable for the loans. Maxwell also
insisted that Yus mother is the real payor of the loans and thus, is the real party-in-interest to
institute the complaint.
ISSUE: Whether Yu is entitled to reimbursement from Maxwell for the loan payment made to
BPI.
HELD: In this case, the Court of Appeals affirmed the trial courts finding that it was Yu
who accommodated Maxwell by allowing the use of his real properties as collateral [for
Maxwells loans]. The appellate court concurred with the trial court that Maxwell is the
principal borrower since it was Maxwell which paid interest on the loans. Additionally,
various documents designated Maxwell as borrower and communications demanding payment
of the loans sent by BPI were addressed to Maxwell as the borrower, with Yu indicated only
as the owner of the real properties as loan collateral.
Furthermore, we affirm the finding that Maxwell gravely failed to substantiate its claim that
the loans were purely for Yus benefit. Maxwells evidence consisting of the testimony of
Caroline Yu, Yus spouse and then president of Maxwell, was uncorroborated.
On the other hand, Yus and his mothers testimonies were supported by various documents
establishing the real nature of the loan, and belying Maxwells allegations. Yu presented the
following: (1) Corporate Resolution to Borrow, dated 21 August 2000, where Maxwell
authorized Caroline Yu to loan from BPI on its behalf; (2) the two Promissory Notes, dated 3
April 2001 and 2 May 2001, signed by Caroline Yu as Maxwells representative; and (3) two
disclosure statements, dated 3 April 2001 and 2 May 2001, on loan/credit transaction signed
by Caroline Yu, designating Maxwell as the borrower. Based on the foregoing, it is clear that
Maxwell is the principal borrower solely liable for the payment of the loans.
While Maxwell is the real debtor, it was Yu who paid BPI the entire amount of Maxwells
loans. Hence, contrary to Maxwells view, Article 1236 of the Civil Code applies. This
provision reads:
The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he
paid without the knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor. The above provision grants the plaintiff (Yu) the
right to recovery and creates an obligation on the part of the defendant (Maxwell) to reimburse
the plaintiff. In this case, Yu paid BPIP8,888,932.33, representing the amount of the principal
loans with interest, thereby extinguishing Maxwells loan obligation with BPI. Pursuant to
Article 1236 of the Civil Code, Maxwell, which was indisputably benefited by Yus payment,
must reimburse Yu the same amount of P8,888,932.33.

Sps Dela Cruz v. Concepcion

Culaba v. CA

Facts:

Facts: Culaba sells SBC beer products. One day an SMB agent driving an SMB van
drops by to collect Culabas balance, issuing SMB receipts for the payment.
Subsequently, Culaba receives from SMB for not paying his balance. The agent
turned out to be a spurious agent and the receipts were lost receipts which had been
published in the papers as lost after the payment. Culaba invokes articles 1240 and
1242 in his defense. SMBs counsel invokes 1233, that the burden of proving proof
of payment is on the debtor and that Culaba failed to exercise due diligence when he
failed to question the irregular nature of the invoices as well as the authority of the
purported agent.

Sps Dela Cruz went into contract to sell with Concepcion involving a house for P 2 million.
They made stipulations on the payment including interests and monthly amortizations. The 2
million was successfully paid in 1 year and 4 months. The last payment had to be paid with a
different check because the previous one bounced. Concepcion said balance was 200,000 and
Sps agreed on that last payment to fulfill the obligation. The land was then transferred to the
name of the Concepcion. However, the Spouses later demanded from Concepcion the payment
of the balance amounting to a total of P487,384.15. Concepcion presented a receipt
purportedly indicating payment of the remaining balance of P200,000.00 to Adoracion
Losloso (Losloso) who allegedly received the same on behalf of Spouses.

ISSUE: WON Culaba was able to prove payment.


Issue:
Has the obligation to pay extinguished?
Ruling:
Concepcions obligation consists of payment of a sum of money. In order to extinguish said
obligation, payment should be made to the proper person as set forth in Article 1240 of the
Civil Code, to wit:
Article 1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.
In a letter, the spouses stated that considering the busy schedule, Concepcion can leave the
payment with their trusted helper who was Losloso. This was considered an expressed
authority given. The Court ruled that pursuant to the letter of authority, the obligation is
considered extinguished.
Notes:
Payment made by the debtor to the person of the creditor or to one authorized by him or by the
law to receive it extinguishes the obligation. When payment is made to the wrong party,
however, the obligation is not extinguished as to the creditor who is without fault or
negligence even if the debtor acted in utmost good faith and by mistake as to the person of the
creditor or through error induced by fraud of a third person.
In general, a payment in order to be effective to discharge an obligation, must be made to the
proper person. Thus, payment must be made to the obligee himself or to an agent having
authority, express or implied, to receive the particular payment. Payment made to one having
apparent authority to receive the money will, as a rule, be treated as though actual authority
had been given for its receipt. Likewise, if payment is made to one who by law is authorized to
act for the creditor, it will work a discharge. The receipt of money due on a judgment by an
officer authorized by law to accept it will, therefore, satisfy the debt.

HELD: Culaba failed to observe the die diligence required in parting with such a
valuable consideration. He should have verified the identity of the agEnt and his
authority to receive. He failed to do so, thus he was guilty of negligence, the effects
of which not even his claims of good faith can shield him. Culaba is liableto pay
SMB.

Philippine Lawin Bus Co. (Lawin) vs CA


RTC- Suit to claim for a sum of money against Lawin, case was dismissedCA- Reversed RTC
and ruled that Lawin has to pay ACCSC- Affirmed CAs decision and ordered
Facts:
Lawin initially loaned from Advance Capital Corp. (ACC) Php 8M payable w/in1 yr and
guaranteed by a chattel mortgage of Lawins 9 buses. Lawin was indefault in its payments and
was able to pay only Php 1.8M.
Lawin obtained its second loan of 2M payable in one month under apromissory note. Lawin
was in default again hence it asked ACC for arestructuring of the loan despite this Lawin was
still not able to pay. Thebuses for foreclosed and it was sold for 2M.
ACC sent Lawin demand letters to settle its indebtedness amounting to hp16,484,992.42 then
subsequently filed a suit for sum of money againstLawin. Lawin in its defense said that there
was already an arrangement tosettle the obligation
A. Sale of 9 buses and its proceeds will cover for the full payment; OR
B. ACC will shoulder the rehabilitation of the buses and the earnings of the operation will be
then applied to the loan
Issue: WON there was dacion en pago between the parties upon the surrender or transfer of the
mortgaged buses to the respondent.
HELD: NO. In dacion en pago, property is alienated to the creditor in satisfaction of a debt in
money.[16] It 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.[17] It 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."
Article 1245 of the Civil Code provides that the law on sales shall govern an agreement of
dacion en pago. A contract of sale is perfected at the moment there is a meeting of the minds
of the parties thereto upon the thing which is the object of the contract and upon the price.[19]
In Filinvest Credit Corporation v. Philippine Acetylene Co., Inc., we said:
x x x. In dacion en pago, as a special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding obligation. 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 debtors 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 novation, to have the effect of totally extinguishing the debt
or obligation.[20]
In this case, there was no meeting of the minds between the parties on whether the loan of the
petitioners would be extinguished by dacion en pago. The petitioners anchor their claim solely
on the testimony of Marciano Tan that he proposed to extinguish petitioners obligation by the
surrender of the nine buses to the respondent acceded to as shown by receipts its
representative made.[21] However, the receipts executed by respondents representative as

proof of an agreement of the parties that delivery of the buses to private respondent would
result in extinguishing petitioners obligation do not in any way reflect the intention of the
parties that ownership thereof by respondent would be complete and absolute. The receipts
show that the two buses were delivered to respondent in order that it would take custody for
the purpose of selling the same. The receipts themselves in fact show that petitioners deemed
respondent as their agent in the sale of the two vehicles whereby the proceeds thereof would
be applied in payment of petitioners indebtedness to respondent. Such an agreement negates
transfer of absolute ownership over the property to respondent, as in a sale. Thus, in Philippine
National Bank v. Pineda[22] we held that where machinery and equipment were repossessed
to secure the payment of a loan obligation and not for the purpose of transferring ownership
thereof to the creditor in satisfaction of said loan, no dacion en pago was ever accomplished.

PREMIERE DEVELOPMENT
INSURANCE COMPANY, INC.

BANK

VS

CENTRAL

SURETY

&

579 SCRA 359


FACTS: Respondent Central Surety & Insurance Company (Central Surety) acquired
an industrial loan worth six million pesos from petitioner Premiere Development
Bank, evidenced by Promissory Note. Should Central Surety fail to pay, it would be
liable to Premiere Bank for: (1) unpaid interest up to maturity date; (2) unpaid
penalties up to maturity date; and (3) unpaid balance of the principal. To Secure
Payment for the loan Central Surety executed a Deed of Assignment with Pledge in
favor of Premier Bank its proprietary share in Wack Wack and golf and country
Club.
Central Surety had another commercial loan with Premiere Bank worth
40,898,000.00 pesos, again by Promissory Note. To secure payment of the loan they
were secured a real estate mortgage over a Condominium Certificate. This was
availed through a renewal of Central Suretys prior loan. It was stipulated in the
contract that Premiere Bank as creditor would have the right to decide to which the
payment would be applied, and that there is no need for an express demand from the
creditor to make the obligations due and demandable. Central Surety issued a check
worth 6,000,000.00 pesos and payable to Premiere Bank. However, the latter
returned such check and sent a letter, as part of a normal bank procedure, demanding
payment and threatening foreclosure of Central Suretys securities, the pledge and
real estate mortgage, should it fail to pay within ten days from date of receipt. This
was alleged by the latter to be an act of waiving Premiere Banks right to apply
payments. Central Surety moves for the release of the Wack Wack Membership
pledge for their supposed paid loan.
The lower court ruled in favor of Premiere Bank, while the Court of Appeals
reversed the prior decision of the lower court.
ISSUE: (1) Whether or not Premiere Bank waived its right of application of
payments on the loans of Central Surety; (2) Whether the release of the Wack Wack
Membership pledge is in order.
HELD:
(1) No. Relevant to the case is the statutory provision on application of payments,
particularly Article 1252 of the Civil Code. He who has various debts of the same
kind in favor of one and the same creditor, may declare at the time of making the
payment, to which of them the same must be applied. xxx The debtors right to
apply paymentis only directory, and not mandatory, as manifested by the use of the
word may. Such right may be waived or even granted to the creditor if both parties
agree on such circumstance.

In the instant case, it was stipulated in the contract that the right to apply payments
would be enjoyed by the Premiere Bank. It cannot be understood that such granted
right was waived by Premiere Bank. As all debts were already due, the subsequent
demand made by Premiere Bank cannot be equated with a waiver of the right to
demand payment of all the matured obligations of Central Surety to Premiere Bank.
The Court also recognized the standard practice in commercial transactions to send
demand letters before default may set in. The demand cannot be considered a waiver
for a waiver must be positively demonstrated, and voluntary, made knowingly,
intelligently and with sufficient awareness of relevant circumstances and likely
consequences. Also any inference of a waiver made by Premiere Bank is denied by
the provision of the Promissory Note that no failure on the part of Premiere Bank to
exercise, and no delay in exercising any right hereunder, shall operate as a waiver
thereof.
When Central Surety issued a check as payment to Premiere Bank, it knew very well
that it had several loans which granted Premiere Bank the right to apply its payment.
(2) No. Considering that the parties are bound by a contract of adhesion, where
Central Surety imposed a readymade contract on Premiere Bank, the latter had
freedom to reject or adhere to the contract. Central Surety, being a well-established
personality, would also not be considered as a disadvantaged party. The contract
between the parties falls on the dragnet clause, which is one specifically phrased to
subsume all debts of past and future origins.
The security clause in the instant case is that of a continuing pledge, wherein the
Wack Wack Membership served as security for the standing obligation, also for
future advancements. Such security worth 15,000,000.00 pesos was clearly worth
more than the industrial loan worth 6,000,000.00 pesos, which was understood to
secure the ballooning debt of the Central Surety. As all demandable obligations are
yet to be fulfilled, the release of the Wack Wack membership as security cannot yet
to be done as prayed for by Central Surety. Wherefore, the instant petition is partially
granted. The decision of the Court of Appeals is set aside and the decision of the
Regional Trial Court of Makati is reinstated with modification.

PACULDO VS. REGALADO Case Digest


PACULDO VS. REGALADO
345 SCRA 134
FACTS: On December 27, 1990, petitioner Nereo Paculdo and respondent
Bonifacio Regalado entered into a contract of lease over a parcel of land with a wet
market building, located at Fairview Park, Quezon City. The contract was for twenty
five (25) years, commencing on January 1, 1991 and ending on December 27, 2015.
For the first five (5) years of the contract beginning December 27, 1990, Nereo
would pay a monthly rental of P450,000, payable within the first five (5) days of
each month with a 2% penalty for every month of late payment.
Aside from the above lease, petitioner leased eleven (11) other property from the
respondent, ten (10) of which were located within the Fairview compound, while the
eleventh was located along Quirino Highway Quezon City. Petitioner also purchased
from respondent eight (8) units of heavy equipment and vehicles in the aggregate
amount of Php 1, 020,000.
On account of petitioners failure to pay P361, 895.55 in rental for the month of
May, 1992, and the monthly rental of P450, 000.00 for the months of June and July
1992, the respondent sent two demand letters to petitioner demanding payment of the
back rentals, and if no payment was made within fifteen (15) days from the receipt of
the letter, it would cause the cancellation of the lease contract.
Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the
land subject of the lease contract, including the improvements which petitioner
introduced into the land amounting to P35, 000,000.00, to Monte de Piedad Savings
Bank, as a security for a loan.
On August 12, 1992, and the subsequent dates thereafter, respondent refused to
accept petitioners daily rental payments.
Subsequently, petitioner filed an action for injunction and damages seeking to enjoin
respondents from disturbing his possession of the property subject of the lease
contract. On the same day, respondent also filed a complaint for ejectment against
petitioner.
The lower court rendered a decision in favor of the respondent, which was affirmed
in toto by the Court of Appeals.
ISSUE: Whether or not the petitioner was truly in arrears in the payment of rentals
on the subject property at the time of the filing of the complaint for ejectment.
RULING: NO, the petitioner was not in arrears in the payment of rentals on the
subject property at the time of the filing of the complaint for ejectment.

As found by the lower court there was a letter sent by respondent to herein petitioner,
dated November 19, 1991, which states that petitioners security deposit for the
Quirino lot, be applied as partial payment for his account under the subject lot as
well as to the real estate taxes on the Quirino lot. Petitioner interposed no objection,
as evidenced by his signature signifying his conformity thereto.
Meanwhile, in an earlier letter, dated July 15, 1991, respondent informed petitioner
that the payment was to be applied not only to petitioners accounts under the subject
land and the Quirino lot but also to heavy equipment bought by the latter from
respondent. Unlike in the November letter, the July letter did not contain the
signature of petitioner.
Petitioner submits that his silence is not consent but is in fact a rejection.
As provided in Article 1252 of the Civil Code, the right to specify which among his
various obligations to the same creditor is to be satisfied first rest with the debtor.
In the case at bar, at the time petitioner made the payment, he made it clear to
respondent that they were to be applied to his rental obligations on the Fairview wet
market property. Though he entered into various contracts and obligations with
respondent, all the payments made, about P11,000,000.00 were to be applied to
rental and security deposit on the Fairview wet market property. However,
respondent applied a big portion of the amount paid by petitioner to the satisfaction
of an obligation which was not yet due and demandable- the payment of the eight
heavy equipments.
Under the law, if the debtor did not declare at the time he made the payment to
which of his debts with the creditor the payment is to be applied, the law provided
the guideline; i.e. no payment is to be applied to a debt which is not yet due and the
payment has to be applied first to the debt which is most onerous to the debtor.
The lease over the Fairview wet market is the most onerous to the petitioner in the
case at bar.
Consequently, the petition is granted.

ASJ CORPORATION VS. EVANGELISTA,

B.E. San Diego, Inc. vs. Alzul


524 SCRA 402

February 14, 2008


Facts:

FACTS
Private respondent Evangelista contracted petitioner ASJ Corporation for the
incubation and hatching of eggs and by products owned by Evangelista spouses. The
contract includes the scheduled payments of the service of ASJ Corporation that the
amount of installment shall be paid after the delivery of the chicks. However, the
ASJ Corporation detained the chicks because Evangelista spouses failed to pay the
installment on time.
ISSUE
Whether or not the detention of the alleged chicks valid and recognized under the
law?
HELD
No, because ASJ Corporation must give due to the Evangelista Spouses in paying the
installment, thus, it must not delay the delivery of the chicks. Thus, under the law,
they are obliged to pay damages with each other for the breach of the obligation.
Therefore, in a contract of service, each party must be in good faith in the
performance of their obligation, thus when the petitioner had detained the hatched
eggs of the respondent spouses, it is an implication of putting prejudice to the
business of the spouses due to the delay of paying installment to the petitioner.

On February 10, 1975, respondent Alzul purchased from petitioner B.E. San
Diego, Inc. four (4) subdivision lots installment under Contract to Sell. On July 25, 1977,
respondent signed a Conditional Deed of Assignment and Transfer of Rights in favour of
Wilson P. Yu her rights under the Contract to Sell. Petitioner was notified of the execution of
such deed. Later on, the Contract to Sell in respondents name was cancelled, and petitioner
issued a new one in favor of Yu. Thereafter, respondent informed petitioner about Yus failure
and refusal to pay the amounts due under the conditional deed. She also manifested that she
would be the one to pay the installments due to respondent on account of Yus default.
On August 25, 1980, respondent commenced an action for rescission of the conditional deed
of assignment against Yu before the RTC which subsequently caused the annotation of notices
of lis pendens on the titles covering the subject lots. On April 28, 1989, the subject lots were
sold to spouses Carlos and Sandra Ventura who were surprised to find the annotation of lis
pendens in their owners duplicate title.
On May 8, 1990, the Ventura spouses filed an
action for Quieting of Title with Prayer for Cancellation of Annotation and Damages before
the RTC. The trial court ruled in favor of the Ventura spouses. On appeal before the CA,
however, the decision was reversed.
In an attempt to comply with the SCs directive,
respondent tried to serve payment upon petitioner but the latter refused to accept payment.
Thinking that an action for consignation alone would not be sufficient, respondent decided to
file an action for consignation and specific performance against petitioner before the Housing
and Land Use Regulatory Board. Aggrieved by the unfavorable decision, respondent filed a
Petition for Review before the HLURBs First Division. On March 17, 2000, a decision was
rendered dismissing the petition for lack of merit. Respondent then filed an appeal to the
Office of the President. This was, however, dismissed on June 2, 2003 for having been filed
out of time. Respondent Alzul brought before the CA a petition for certiorari. On February 18,
2005, the CA rendered its assailed Decision reversing the HLURBs Resolution ordering
petitioner to accept payment from respondent and to issue the corresponding Deed of Sale.
Issues:
Whether or not respondent Alzul is still entitled to consignation despite the lapse of the period
Whether or not there was valid consignation
Ruling:

No. The Court ruled that the non-compliance with our June 17, 1996 Resolution is fatal to
respondent Alzuls action for consignation and specific performance. It is clear as day that
respondent did not attempt nor pursue consignation within the 30-day period given to her in
accordance with the prescribed legal procedure. The Court explained that a mere tender of
payment is not enough to extinguish an obligation. In Meat Packing Corporation of
the Philippines v. Sandiganbayan, it distinguished consignation from tender of payment and
reiterated the rule that both must be validly done in order to effect the extinguishment of the
obligation. There is no dispute that a valid tender of payment had been made by respondent.
Absent however a valid consignation, mere tender will not suffice to extinguish her obligation
and consummate the acquisition of the subject properties.
In St. Dominic
Corporation involving the payment of the installment balance for the purchase of a lot similar

to the case at bar, where a period has been judicially directed to effect the payment, the Court
held that a valid consignation is made when the amount is consigned with the court within the
required period or within a reasonable time thereafter.
No. The Court held that the respondent would not still be accorded relief assuming arguendo
that it complied with the 30 day period or with a reasonable time thereafter. Consignation is
the act of depositing the thing due with the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment and it generally requires a prior tender of payment.
It is of no moment if the refusal to accept payment be reasonable or not. Indeed, consignation
is the remedy for an unjust refusal to accept payment. Art. 1256 of the Civil Code also
provides that if the creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the consignation of the
thing or sum due of the consignation in other cases. Moreover, in order that consignation
may be effective, the debtor must show that: (1) there was a debt due; (2) the consignation of
the obligation had been made because the creditor to whom tender of payment was made
refused to accept it, or because s/he was absent or incapacitated, or because several persons
claimed to be entitled to receive the amount due or because the title to the obligation had been
lost; (3) previous notice of the consignation had been given to the person interested in the
performance of the obligation; (4) the amount due was placed at the disposal of the court; and
(5) after the consignation had been made, the person interested was notified of the action.
In the case at bar, respondent did not comply with the provisions of law particularly with the
fourth and fifth requirements specified above for a valid consignation. In her complaint for
consignation and specific performance, respondent only prayed that she be allowed to make
the consignation without placing or depositing the amount due at the disposal of the court of
origin. Verily, respondent made no valid consignation.

Dalton v. FGR Realty and Development Corporation


Applicable doctrine: Failure to comply strictly with any of the requisites will render the
consignation void. Substantial compliance is not enough. The giving of notice to the persons
interested in the performance of the obligation is mandatory. Failure to notify the persons
interested in the performance of the obligation will render the consignation void.
Facts:
* A parcel of land owned by respondent Flora Dayrit was leased to petitioners Dalton, et. Al.
Eventually, the land was sold to respondent FGR realty and Development Corporation. FGR
realty and Dayrit decided not to accept payment from Dalton, et. al. for the purpose of
terminating the lease agreements.
* Dalton, et.al. filed a complaint with the RTC and attached was a consignation of the rental
payments. However, they failed to notify the other party of such action. FGR Realty and
Dayrit withdrew the consigned amount with reservation to question the validity of the
consignation.
Issue: WON the consignation made by Dalton, et. al. is void.
Ruling:
Yes. The consignation is void. Compliance with requisites of a valid consignation is
mandatory. Failure to comply strictly with any of the requisites will render the consignation
void. Substantial compliance is not enough. The giving of notice to the persons interested in
the performance of the obligation is mandatory. Failure to notify the persons interested in the
performance of the obligation will render the consignation void.
Under Article. 1257 of the Civil Code, in order that consignation of the thing due may release
the obligor, it must first be announced to the persons interested in the fulfilment of the
obligation. The consignation shall be ineffectual if it is not made strictly in consonance with
the provisions which regulate payment. In said article 1258, it is further stated that the
consignation having been made, the interested party shall also be notified thereof.
We hold that the essential requisites of a valid consignation must be complied with fully and
strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That these Articles
must be accorded a mandatory construction is clearly evident and plain from the very language
of the codal provisions themselves which require absolute compliance with the essential
requisites therein provided. Substantial compliance is not enough for that would render only a
directory construction to the law. The use of the words shall and must which are
imperative, operating to impose a duty which may be enforced, positively indicate that all the
essential requisites of a valid consignation must be complied with.

Oscar vs AFPMBAI
FACTS:
-The Petitioner purchased a piece of property (subdivision lot) from the respondent
through a loan from Pagibig.
-The property was mortgaged to the Respondent.
-Unfortunately, the loan from pag-ibig did not push through.
-The respondent made written demands and foreclosed the property.
-The Petitoner consign the payment in court without tender of payment and asked for
the cancellation of the mortgage.
ISSUE: Is there a valid consignation considering that there was no previous tender of
payment and that the respondent holds the loan documents.
RULING:
-Yes. The consignation is valid. Article 1256 authorizes consignation alone, without
need of prior tender of payment, where the ground for consignation is that the
creditor is unknown.
- The petitioner is in doubt as to who is the real creditor. Is it the bank where
acquired loan (Rural bank through pagibig)? Or AFPMBAI who has the loan
documents and is the owner of the property? This necessarily implies that the
creditor is unknown.
-The consignation is also necessarily judicial. Hence, the jurisdiction is properly
vested in the RTC. Article 1258 of the Civil Code specifically provides that
consignation shall be made by depositing the thing or things due at the disposal of
judicial authority. The said provision clearly precludes consignation in venues other
than the courts.