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FLORENCIO DEUDOR, ET AL vs. J.M.

TUASON &CO., INC. ET AL
PONENTE: JUSTICE FERNANDEZ
FACTS:
Plaintiff claimed a parcel of land of about 50
"quiones", or 225 hectares, located in Tatalon,
Quezon City, over which J. M. Tuason& Co., Inc.,
asserted ownership under the Land
Registration Act, by virtue of an original
certificate of title. The Deudors acknowledged
therein the title of J. M. Tuason& Co., Inc. and in
consideration thereof, J. M. Tuason& Co., Inc.
undertook to pay them, to be paid in the
manner and under the conditions set forth in
the Compromise Agreement (April 10, 1953).
Under the Compromise Agreement, and subject
to its other terms and conditions, the Deudors
are obligated to deliver the clear and peaceful
possession of the entire 50 quiones to the
owners. The first payment shall be
P100,000.00 and shall be made within sixty
(60) days from the date the decision rendered
approving the Compromise Agreement
becomes final; Provided, that within said period
the Deudors shall have effected the delivery to
the OWNERS of at least 20 quiones. The
portion of 20 "quiones" was not delivered by
the Deudors until January 14, 1956, and this
was made possible only because the appellees
had agreed to and did advance certain in sums
to defray the expenses necessary therefor. On
April 27, 1956, the appellees filed
supplemental motion and "manifestation"
praying that payment of balance of P79,800.00
to the Deudors "be withheld until after the
additional 129 illegal constructions the 30
'quiones' area shall have been removed". On
February 28, 1957, the Court, therefore, hereby
sets a period of 4 months within which the
'Deudors' shall deliver possession of the entire
30 quiones to the owners. Failure of the
Deudors to do so will have the effect of freeing

the J.M. Tuason& Co., Inc. and the Gregorio

Araneta, Inc. from all its obligations under the
Compromise Agreement and judgment. The
Deudors had not delivered the aforementioned
portion of 30 "Quiones", despite the
expiration of the period of 4 months and that,
owing to the failure of the Deudors to make
said delivery, the construction of houses by
squatters within said area had continued so
unabated that, as of August 12, 1957, there
were 341 constructions therein. Appellants
maintain that the orders are erroneous.
ISSUE:
Whether or not the orders issued by the Court
to the appellants are erroneous.
HELD:
With respect to the period fixed by the lower
court for the delivery of said 30 "quiones" and
the effect of the failure to deliver the same
within said period, it is urged that the order of
February 28, 1957, amounted to an
amendment of the Compromise Agreement,
without the consent of the parties therein, and
of the decision of April 10, 1953, long after the
same had become final and executory. There is
no merit in this pretense. Indeed, considering
that the appellees had a Torrens title, they had
no reason to agree on paying the Deudors,
except upon the expectation of delivery of said
area without unreasonable delay. Accordingly,
said agreement is subject to the principle set
forth in Article 1197 of the Civil Code of the
Philippines that If the obligation does not fix a
period, but from its nature and the
circumstances it can be inferred that a period
was intended the courts may fix the duration
thereof. Hence, whenever a period is fixed
pursuant to said Article, the court merely
enforces or carries out an implied stipulation in
the contract. It will be noted that under the
agreement, the Deudors are supposed to make

delivery of the areas unconditionally. In fact,

the registered owners of the and made it clear
that they were agreeing to the settlement only
because they wanted to obtain early
possession of the whole property. There is no
excuse, therefore, for the failure of the Deudors
to deliver the remaining 30 quiones 4 years
and 8 months after the execution and approval
of the compromise agreement. The failure to
deliver and the continued mushrooming of
houses in the area, despite the compromise,
justify the release of J.M. Tuason& Co., Inc. and
Gregorio Araneta, Inc. from further obligation
under the agreement of March 16, 1953.
Lastly, appellants say that they have as much
right as appellees herein to the execution of
the decision herein, and yet the lower court
granted the letter's motion for a writ of
execution thereof and denied a motion of the
former to the same effect. It is not true,
however, that the two (2) motions were
identical. It was proper for the lower court to
grant appellees' motion. It would have been
improper for the lower court to grant
appellants' squatters, who are neither parties
in this proceeding nor bound by the
aforementioned decision, and, hence, are
beyond the jurisdiction of the court in this case.
Therefore, the orders appealed from are
affirmed by the Court, with costs against the
appellants.
Inchausti& Co. vs. Yulo 34 Phil. 978
PONENTE: CHIEF JUSTICE ARELLANO
Facts: TeodoroYulo, property owner of Iloilo,
has been borrowing money from the firm of
Inchausti& Company under specific conditions.
This money has been used to cultivate his
haciendas in Negros Occidental. TeodoroYulo
died testate and left his wife whom have died
later and other legitimate children including

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the defendant as administrators of his estates.

There remaining of the marriage the following
legitimate children: Pedro, Francisco, Teodoro,
Manuel, Gregorio, Mariano, Carmen,
Concepcion, and Jose Yulo y Regalado. Of
these children Concepcion and Jose were
minors, while Teodoro was mentally
incompetent. They held the property in
common and have continued their current
account with the plaintiff under the name Hijos
de T. Yulo. On August 12, 1909, the defendant
in representation of his brothers including his
brother Manuel, and their own behalf Pedro,
Francisco, Carmen and Concepcion, the latter
being of age, ratified an instrument on their
indebtedness towards plaintiff all the
documents executed by them before. In this
document, they have severally and jointly
acknowledged and admitted their indebtedness
to the plaintiff at the amount of P253,445.42
with an interest of ten percent per annum and
payable within five installments. Payment
begins on June 30, 19 and ends on June 30,
1914. Also part of the stipulation that the
abovementioned instrument shall be ratified by
their brother Mariano Yuko Regalado but failed
to do so. Moreover, the brothers and sisters did
not pay the first installment of the obligation.
Hence, plaintiff instituted an action at CFI Iloilo
against defendant for the payment of
P253,445.42 plus interest. On May 12, 1911,
Francisco, Manuel, and Carmen Yulo y Regalado
executed in favor of plaintiff another
instrument of indebtedness whereby the debt
is reduce to P225,000 with an interest of 6 per
centum per annum payable by eight
installments starting on June 30, 1911 and
ends at June 30, 1919. The trial court ruled in
favor of defendant without prejudice to the
plaintiff's bringing within the proper time
another suit for his proportional part of the
joint debt. Hence plaintiff appealed decision;
one of the averments is that the court erred in

considering the contract of May 12, 1911, as

constituting a novation of that of August 12,
1909.
Issue: a) Whether or not plaintiff can sue
defendant alone and by doing that it lost its
right by the second agreement executed; and,
b) Whether or not the contract with the three
aforesaid obligors constitutes novation of the
first notarial instrument executed by 6 debtors
being the subject matter of litigation.
Held: As to the first issue, the law provides
that obligations in solidum or in conjoint or
solidary obligations, the creditor can bring an
action against any solidary debtors to fulfill the
obligation. And even so the plaintiff stipulated
various installments and conditions as it did
with the second instrument of May 12, 1911,
the solidarity stipulated in the instrument of
August 12, 1909 is not broken. Solidarity may
exist even though the debtors are not bound in
the same manner and for the same periods and
under the same conditions (Art. 1140).
With respect to the third issue, the contract of
May 12, 1911, does not constitute a novation
of the former one. In order that an obligation
may be extinguished by another which
substitutes it, it is necessary that it should be
so expressly declared or that the old and the
new be incompatible in all points (Civil Code,
article 1204). The contract of May 12, 1911
does not expressly provide for the substitution
of the first. There also exist no incompatibility
between the old and the new obligation. As
provided for in the previous cases, the legal
doctrine that an obligation to pay a sum of
money is not novated in a new instrument
wherein the old is ratified, by changing only the
term of payment and adding other obligations
not incompatible with the old one.

Although, the contract of May 12, 1911 did not

novate that of August 12, 1909, it has affected
the case filed by plaintiff with respect to the
payment for the sum of P253,445.42. Hence
by virtue of remission, plaintiff can only recover
the amount stated in the second contract
granted to the granted to the three of the
solidary debtors. As regards to the payment, he
can pay only P112,500 of which is due or
already matured. Hence, defendant cannot
allege the prematurity of debt since when the
lawsuit is instituted, the obligation for the first
installment of the contract if August 12, 1909
has already matured and due to the solidarity
of the obligation he is liable to pay the whole
obligation. An exception would be the shares of
Francisco, Manuel, and Carmen Yulo, none of
the installments payable under their obligation,
contracted later had yet matured. The
personal defense of Francisco, Manuel, and
Carmen Yulo "as to the part of the debt for
which they were responsible" can be used by
Gregorio Yulo as a defense for paying the whole
obligation. The part of the debt for which these
three are responsible is three-sixths of
P225,000 or P112,500, which is not yet
demandable due to the execution of the
second contract. Hence, defendant can only
pay the half portion of the obligation that is
demandable at that time. This is in consonance
with Art. 1448 which states that, The solidary
debtor may utilize against the claims of the
creditor of the defenses arising from the nature
of the obligation and those which are personal
to him. Those personally pertaining to the
others may be employed by him only with
regard to the share of the debt for which the
latter may be liable.
Therefore, defendant cannot be made to pay
the whole obligation because he has been
benefited by remission made by the plaintiff to

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three of his co debtors. The judgment appealed

has been reversed.
INCIONG V CA
257 SCRA 578
Romero J; June 26, 1996
FACTS:
-Petitioner's liability resulted from the
promissory note in the amount of P50,000.00
which he signed with Rene C. Naybe and
Gregorio D. Pantanosas on February 3, 1983,
holding themselves jointly and severally liable
to private respondent Philippine Bank of
Communications (PBC), Cagayan de Oro City
branch. The promissory note was due on May
5, 1983
-Due date came and obligation was left
unfulfilled. PBC sent telegrams to Inciong
demanding payment. It also sent a letter to
Nayde. Both obligors did not respond. Thus PBC
filed a suit for the collection of 50,000.

the business and would contribute a chainsaw

to the venture. Campos then persuaded
petitioner to act as a "co-maker" in the said
loan.

can be, between the parties and their

successors-in-interest, no evidence of such
terms other than the contents of the written
agreement."

Petitioner allegedly acceded but with the

understanding that he would only be a comaker for the loan of P5,000.00.

- The rule does not specify that the

written agreement be a public document.
What is required is that agreement be in
writing as the rule is in fact founded on "long
experience that written evidence is so much
more certain and accurate than that which
rests in fleeting memory only, that it would be
unsafe, when parties have expressed the terms
of their contract in writing, to admit weaker
evidence to control and vary the stronger and
to show that the parties intended a different
contract from that expressed in the writing
signed by them. Thus, for the parol evidence
rule to apply, a written contract need not be in
any particular form, or be signed by both
parties. As a general rule, bills, notes and other
instruments of a similar nature are not subject
to be varied or contradicted by parol or
extrinsic evidence.

-Petitioner alleged further that five (5) copies of

a blank promissory note were brought to him
by Campos at his office. He affixed his
signature thereto but in one copy, he indicated
that he bound himself only for the amount of
P5, 000.00. Thus, it was by trickery, fraud
and misrepresentation that he was made
liable for the amount of P50, 000.00.
-TC and CA ordered Inciong to pay amount.
Inciong appealed.
ISSUE: WON Inciong is liable for the payment
of promissory note

HELD: Yes
- Case was initially dismissed for failure of
plaintiff to prosecute the case. However, the
lower court reconsidered the dismissal order
and required the sheriff to serve the
summonses. Lower court also dismissed the
case against defendant Pantanosas as prayed
for by the private respondent herein.
Meanwhile, only the summons addressed to
petitioner was served as the sheriff learned
that defendant Naybe had gone to Saudi
Arabia.
-Inciong on his part stated that: he was
approached by his friend Campos who claimed
that he was a partner of the branch manager of
PBC, in the falcata logs operation. Campos also
told him that Rene C. Naybe was interested in

*RULING ON PAROL EVIDENCE

-Inciong claimed that since the promissory note
"is not a public deed with the formalities
prescribed by law but a mere commercial
paper which does not bear the signature of
attesting witnesses," parol evidence may
"overcome" the contents of the promissory
note.
The first paragraph of the parol evidence rule
states:
"When the terms of an agreement have been
reduced to writing, it is considered as
containing all the terms agreed upon and there

-By alleging fraud in his answer, petitioner was

actually in the right direction towards proving
that he and his co-makers agreed to a loan of
P5,000.00 only, considering that, where aparol
contemporaneous agreement was the inducing
and moving cause of the written contract, it
may be shown by parol evidence. However,
fraud must be established by clear and
convincing evidence, mere preponderance of
evidence, not even being adequate. Petitioner's
attempt to prove fraud must, therefore, fail as
it was evidenced only by his own
uncorroborated and, expectedly, self-serving
testimony.
*other contentions

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-Inciong claimed that since the complaint was

dropped against Naybe, his co-debtor and
Pantonasa the guarantor, he should also be
released from liability citing Art 2080 of CC.
however contention is invalid.
-the promissory note involved in this case
expressly states that the three signatories
therein are jointly and severally liable, any one,
some or all of them may be proceeded against
for the entire obligation. The choice is left to
the solidary creditor to determine against
whom he will enforce collection. Consequently,
the dismissal of the case against Judge
Pontanosas may not be deemed as having
discharged petitioner from liability as well. As
regards Naybe, suffice it to say that the court
never acquired jurisdiction over him.
Petitioner, therefore, may only have recourse
against his co-makers, as provided by law.
RCBC VS CA
PONENTE: JUSTICE MELENCIO- HERRERA
FACTS: ASOn 4 May 1979, Alfredo Ching
signed a 'Comprehensive Surety Agreement'
with Rizal Commercial Banking Corporation
(RCBC), binding himself to jointly and
severally guarantee the prompt payment of all
PBM obligations owing RCBC in the aggregate
sum of Forty Million (P40,000,000.00) Pesos.
Between 8 September to 30 October 1980,
PBM filed several applications for letters of
credit with RCBC. Through said applications,
PBM obligated itself, among other things, to
pay on demand for all draft(s) drawn under or
purporting to be drawn under the credits.
Everything being in order, RCBC opened the
corresponding letters of credit and imported
various goods for PBM's account. In due time
the imported goods arrived and were released,

in trust, to PBM who acknowledged receipt

thereof through various trust receipts. All in all,
PBM's obligations stood at P7,982,649.08.
Less than a year later, or on 7 August 1981,
RCBC filed a Complaint for collection of said
sum against respondents PBM and Alfredo
Ching with the then Court of First Instance of
Pasig, docketed as CV-42333. Upon filing of a
bond satisfactory to the Court, a Writ of
Preliminary Attachment was issued against the
assets and properties of respondents PBM and
Ching on the same day. By way of special and
affirmative defenses they alleged that
"although the trust receipts stipulate due
dates, the true intent and agreement of the
parties was that the maturity dates of the trust
receipts were to be extended at the end of the
stipulated dates, as had been the customary
practice of RCBC with PBM."
On 23 September 1981, PBM and Ching moved
to discharge the attachment, which RCBC
opposed. On 4 December 1981 the Court
issued an Order lifting the attachment upon
their filing of a satisfactory counter-bond.
Meanwhile, on 1 April 1982, PBM filed a Petition
for Suspension of Payments with the Securities
and Exchange Commission, docketed as SEC
Case No. 2250, seeking at the same time its
rehabilitation.
In an injunctive Order, dated 6 July 1982, all
actions for claims against PBM pending before
any Court or tribunal, in whatever stage the
same may have been, were ordered suspended
by the SEC in order to give the Commission the
opportunity to pass upon the feasibility of any
rehabilitation plans. And on 26 April 1988, SEC
approved the revised rehabilitation plan and
ordered its implementation.

On 14 October 1982, RCBC pursued its claims

with the Trial Court and filed, unopposed, a
Motion for Summary Judgment in CV-42333, a
motion for extension to file said opposition
having been earlier withdrawn. RCBC
contended that respondents PBM and Ching
had not denied their indebtedness to RCBC
and, therefore, no genuine issue was raised in
the pleadings.
On 25 November 1982, the CFI rendered such
summary judgment** in RCBC's favor.
On appeal, respondent Court of
Appeals,*** ruling that it was precipitate and
improper for the lower Court to have continued
with the proceedings despite the SEC Order of
suspension, set aside the lower Court Decision
and ordered it to hold in abeyance the
determination of the merits invoked in CV42333 pending the outcome of SEC Case No.
2250. On 6 October 1988, the Appellate Court
denied RCBC's Motion for Reconsideration.
ISSUE: Will a Securities and Exchange
Commission (SEC) Order suspending,
during the pendency of a rehabilitation
proceeding, payment of all claims against
the principal debtor bar or preclude the
creditor from recovering from the surety?
RULING: ASHence, this Petition for Review, to
which we gave due course on 31 May 1989,
and required the filing of Memoranda by the
parties, the last of which was submitted on 27
July 1989.
RCBC takes the position that the SEC injunctive
Order pertains and affects only PBM, the
corporation under rehabilitation, and that its
right, as creditor, to proceed against
respondent Ching, as Surety, is not affected by
said Order. In fine, RCBC avers that to hold the
injunctive Order applicable to both respondents

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PBM and Ching is to deprive RCBC of its right to

proceed against the Surety based on the
latter's separate and independent undertaking.
PBM and Ching counter that the liabilities
incurred by PBM were corporate in character
and, hence, as a corporate officer, Alfredo
Ching cannot be held liable therefor; that the
pendency of SEC Case No. 2250 and the
rendition of an Order therein on 26 April 1988
implementing respondent PBM's rehabilitation
plan must necessarily benefit the Surety,
inasmuch as payment of PBM obligations must
be made pursuant to that plan; and that the
liability of the Surety can not be more than
what would remain after payment of all the
obligations of the principal. Moreover, they
continue, it is usual for majority stockholders to
act as co-signors with their respective
corporations where promissory notes,
collaterals or guaranty or security agreements
are involved. Respondent Ching's action may, it
is claimed, be classified as a corporate act.
Under the attendant facts and circumstances,
we answer the question earlier posed in the
negative.
Where an obligation expressly states a solidary
liability, the concurrence of two or more
creditors or two or more debtors in one and the
same obligation implies that each one of the
former has a right to demand, or that each one
of the latter is bound to render, entire
compliance with the prestation (Article 1207,
Civil Code). The creditor may proceed against
any one of the solidary debtors or some or all
of them simultaneously (Article 1216, Civil
Code).
That there exists a Comprehensive Surety
Agreement between RCBC and respondent
Ching is admitted. There is no escaping the

attendant liability that binds respondent Ching,

as Surety. He is charged as an original
promissor by virtue of his primary obligation
under the Suretyship Agreement. That
Agreement is bare of words imputing to
respondent Ching any liability other than that
of a Surety who binds himself to insure a debt
in his personal capacity, lacking consideration
therefor notwithstanding (p. 94, Original
Record). That respondent Ching acted for and
on behalf of respondent PBM as part of its
usual corporate procedure is not supported by
the evidence nor the pleadings on record, nor
the Agreement itself .We can not give any
additional meaning to the plain language of the
subject agreement. It is basic that the parties
are bound by the terms of their contract, which
is the law between them. As held in Zenith
Insurance Corporation vs. Court of Appeals (No.
L-57957, 29 December 1982,119 SCRA 485),
the extent of a surety's liability is determined
only by the clause of the contract of suretyship.
It cannot be extended by implication, beyond
the terms of the contract. Conversely, liability
therefor may not be restricted unless expressly
so stated.
Neither can respondent Ching seek refuge
behind the SEC injunctive Order. Under Section
3 of P.D. 902-A, as amended by P.D. 1758, the
Commission is given absolute jurisdiction,
supervision and control only over corporations
or associations, which are grantees of a
primary franchise and/or a license or permit
issued by the government to operate in the
Philippines. The SEC injunctive Order can not
effect a suspension of payment of respondent
Surety's due and demandable obligation, it
being clear therefrom that the rehabilitation
receivers were limited "to tak(ing) custody and
control over all the existing assets and property
of PBM." Nothing in said Order puts respondent
Ching within its scope.

To further avoid payment of their obligation,

PBM and Ching allege a customary extension
given by petitioner in PBM's favor, which, it is
averred, must necessarily benefit the Surety.
Suffice it to say that the summary judgment
made by the lower Court offers an acceptable
explanation finding respondents' obligation as
matured and demandable. Thus:
The trust receipts from No. 2042 to 2100 in the
schedule (pages 2 and 3, complaint) shows
that the maturity dates thereof vary from May
12, 1981 at the latest and February 19, 1981 at
the earliest. The alleged agreement to extend,
granting its existence, obviously would have
had a much earlier date than the maturity
dates of the trust receipts and considering that
the instant case was brought on August 7,
1981, there should have been, to say the least,
representation made prior to the maturity
dates or at least on the dates of maturity
thereof. But it has not even been alleged by
defendants that such representations were
made by defendants. It is too far fetched to
rule that the Court will grant an extension of
time to pay, when no such extension has ever
been requested by defendants. The obligation,
therefore, is covered by Article 1193 of the Civil
Code and hence, demandable when the day
comes (pp. 199-200, Original Record).
The lower Court correctly found the case to be
without any genuine issue of fact and ripe for
summary judgment. Respondents' bare
allegation of customary extensions is not
corroborated by any documentary evidence but
remains plain self-serving assertions.
In fine, the SEC injunctive Order is of no effect
as far as the respondent Surety, Alfredo Ching,
is concerned. He can be sued separately to
enforce his liability as Surety for PBM (Traders

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Royal Bank vs. Court of Appeals, et al. G.R. No.

78412, September 26, 1989).
WHEREFORE, the Decision of the Court of
Appeals, dated 30 June 1988, and its
Resolution denying reconsideration thereof,
dated 6 October 1988, are SET ASIDE. The
judgment of the lower Court is hereby
REINSTATED and made executory as far as
respondent, Alfredo Ching, is concerned.
Costs against private respondents, Philippine
Blooming Mills and Alfredo Ching.

Lafarge Cement Philippines, Inc. v.

Continental Cement Corporation

Continental filed a case against Lafarge stating

that petitioners be directed to pay the APT
Retained Amount referred in Clause 2 (c) of
the SPA. Petitioners moved to dismiss the
complaint on the ground of forum shopping.
RTC denied the Motion to Dismiss, Lafarge
elevated the matter to CA. Lafarge filed their
Answer and Compulsory Counterclaims and
prayed by way of compulsory counterclaims
against Respondent Continental, its majority
stockholder and president Lim, and corporate
secretary Mariano -- for the sums of
(a) P2,700,000 each as actual damages,
(b) P100,000,000 each as exemplary damages,
(c) P100,000,000 each as moral damages, and
(d) P5,000,000 each as attorneys fees plus
costs of suit.

obligations may be used interchangeably with

joint and several. Thus, petitioners use of
the term joint and solidary is confusing and
ambiguous.

On May 22, 2002, the Regional Trial Court of

Quezon City (Branch 80) dismissed petitioners
counterclaims for several reasons, among
which were the following: a) the counterclaims
against Respondents Lim and Mariano were not
compulsory; b) the ruling in Sapugay was not
applicable; and c) petitioners Answer with
Counterclaims violated procedural rules on the
proper joinder of causes of action. In an
amended order dated September 3, 2002.

General Rule: joint tort feasors are all the

persons who command, instigate, promote,
encourage, advise, countenance, cooperate in,
aid or abet the commission of a tort, or who
approve of it after it is done, if done for their
benefit. They are each liable as principals, to
the same extent and in the same manner as if
they had performed the wrongful act
themselves. x xx

443 SCRA 522 (November 23, 2004)

PONENTE: JUSTICE PANGANIBAN

Facts:
Lafarge agreed to purchase Continental. On
October 21, 1998, both parties entered into a
sale of Purchase and Agreement (SPA) and
were well aware that Continental had a case
pending with the Supreme Court.The parties,
under Clause 2 (c) of the SPA, allegedly agreed
to retain from the purchase price a portion of
the contract price to be deposited for payment
to APT.
However, petitioners allegedly refused to apply
the sum to the payment to APT, despite the
subsequent finality of the Decision in GR No.
119712 in favor of the latter and the repeated
instructions of Respondent Continental.

Issue: Whether Continental has no personality

to move to dismiss petitioners compulsory
counterclaims on Respondents Lim and
Marianos behalf.

Held/Ruling: YES
Obligations may be classified as either
joint or solidary. Joint or jointly or conjoint
means mancumor mancomunadaor pro rata
obligation; on the other hand, solidary

The ambiguity in petitioners counterclaims

notwithstanding, respondents liability, if
proven, is solidary. This characterization finds
basis in Article 1207 of the Civil Code, which
provides that obligations are generally
considered joint, except when otherwise
expressly stated or when the law or the nature
of the obligation requires solidarity. However,
obligations arising from tort are, by their
nature, always solidary. We have assiduously
maintained this legal principle as early as 1912
in Worcester v. Ocampo, in which we held:

Joint tort feasors are jointly and severally liable

for the tort which they commit. The persons
injured may sue all of them or any number less
than all. Each is liable for the whole damages
caused by all, and all together are jointly liable
for the whole damage. It is no defense for one
sued alone, that the others who participated in
the wrongful act are not joined with him as
defendants; nor is it any excuse for him that
his participation in the tort was insignificant as
compared to that of the others. x xx
Joint tort feasors are not liable pro rata. The
damages can not be apportioned among them,

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except among themselves. They cannot insist

upon an apportionment, for the purpose of
each paying an aliquot part. They are jointly
and severally liable for the whole amount. x xx
In a joint obligation, each obligor answers
only for a part of the whole liability; in a
solidary or joint and several obligation, the
relationship between the active and the
passive subjects is so close that each of them
must comply with or demand the fulfillment of
the whole obligation. The fact that the liability
sought against the Continental is for specific
performance and tort, while that sought
against the individual respondents is based
solely on tort does not negate the solidary
nature of their liability of tortuous acts alleged
in the counterclaims. Article 1211 of the Civil
Code is explicit to this point: Solidarity may
exist although the creditors and the debtors
may not be bound in the same manner and by
the same periods and conditions.
*Petition is GRANTED and the assailed
Orders REVERSED. The court of origin is
hereby ORDERED to take cognizance of
the counterclaims pleaded in petitioners
Answer with Compulsory Counterclaims
and to cause the service of summons on
Respondents Lim and Mariano. No costs.

G.R. No. L-11307

October 5, 1918

ROMAN JAUCIAN v. FRANCISCO QUEROL,

administrator of the intestate estate of
the deceased Hermenegildo Rogero,
STREET, J. :
Facts: Surety Rogero is solidarily liable with
principal Dayadante because she bound herself
as jointly and severally liable for his debt.

October 1908: Private Writing by Lino

Dayadante and Hermenegilda Rogero
(supposedly as surety) acknowledging their
indebtedness, jointly and severally, to Roman
Jaucian worth P13,332.3

simultaneously. The claims instituted against

one shall not be an obstacle for those that may
be later presented against the others, as long
as it does not appear that the debt has been
collected in full.

November 1909: Action for cancellation of

document by Rogero, alleging fraud because
she was made to sign believing that she was
only a surety > Counterclaim for payment of
the sum which had become demandable >
Granted Rogero that the claim against her was
invalid > Appeal by Jaucian > Rogero died > SC
Granted validity of claim

*Art. 1830: The surety can not be compelled to

pay a creditor until application has been
previously made of all the property of the
debtor.

September 3, 1912: committee on the estate

proceedings of Rogero made its report to pass
upon claims against the estate > March 24,
1914: Jaucian filed a claim against the estate of
Rogero for payment due to insolvency of
Dayadante

ISSUE: WON Rogeros liability is absolute

HELD: YES. As surety, Rogeros liability is
absolute > NOT SUBSIDIARY where Jaucian
should first exhaust the remedy against
principal Dayadante before impugning Rogero
for Dayadantes deficiency > SHE BOUND
HERSELF JOINTLY WITH principal
*Art. 1822: By security a person binds himself
to pay or perform for a third person in case the
latter should fail to do so.
If the surety binds himself jointly with the
principal debtor, the provisions of section
fourth, chapter third, title first, of this book
shall be observed.

*Art. 1831: This application can not take place

(1) . . . (2) If he has jointly bound himself

with the debtor
OBLIGATION ABSOLUTE WHERE SURETY BOUND
JOINTLY AND SEVERALLY WITH PRINCIPAL.
Where a guarantor or surety is jointly and
severally bound with the principal debtor, the
obligation of the guarantor or surety, equally
with that of the principal debtor, is absolute
and not contingent within the meaning of
section 746 of the Code of Civil Procedure.
CONTRACTS; APPORTIONABLE JOINT
OBLIGATIONS AND SOLIDARY JOINT
OBLIGATIONS. The opinion contains an
exposition of the difference between the
juridical conceptions of liability incident to
multiple obligations, as embodied in the civil
law and common law respectively; and the civil
law distinction is noted between the
apportionable joint obligation and the solidary
joint obligation. At common law each of the
debtors in a multiple obligation is liable in
solidum for the whole, the obligation not being
apportionable among the debtors.
G.R. No. L-7185

August 31, 1955

Art. 1144: A creditor may sue any of the joint

and several (solidarios) debtors or all of them

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REHABILITATION FINANCE CORPORATION

v. COURT OF APPEALS and REALTY
INVESTMENTS, INC.
REYES, A., J.:

Facts: RFC solely liable for the purchase price

due to seller even if it is not the principal
debtor because it had assumed the obligation
upon fulfilment of the condition that the title be
made in favour of principal free of liens and
encumbrances and mortgage registered
thereon.
June 17, 1948: Contract of Sale > Delfin
Dominguez and Realty Investments, Inc. where
former would purchase property of the latter
for dp of P39.98 and balance in 119 monthly
instalments > Loan from Rehabilitation Finance
Corporation worth P10k to shoulder house
expenses IN EXCHANGE FOR mortgage of the
house and lot > Payment/assumption by RFC of
the purchase price to RII upon TCT in favour of
Dominguez and registration of mortgage (title
to the lot be first conveyed to Dominguez and
RFC's mortgage lien thereon registered)
> September 20, 1948: TCT to Dominguez and
registration of mortgage in registry of deeds >
Relase of P6,500 from loan but remainder not
released ~ due to default of Dominguez for
payment of what he had already received >
Foreclosure of the mortgage by RFC > Suit for
payment of the purchase price by RII against
RFC when latter refused
ISSUE: WON the liability of RFC is absolute>
YES
HELD: Liability of RFC > Absolute and
Exclusive > Why exclude Dominguez:
obligation was assumed by RFC upon the

condition that the title to the lot be first

conveyed to Dominguez and RFC's mortgage
lien thereon registered > already fulfilled >
Dominguez was induced to part with his title to
a piece of real property upon RFC's assurance
that it would itself pay the balance of the
purchase price due from the purchaser after its
mortgage lien thereon had been registered

> Contention of Sps: that Biscocho was an

indispensable party and should have been
included as co-plaintiff
> Appeal by Quiombing that as a solidary
creditor he could act by himself alone in the
enforcement of his claim against the private
respondents
ISSUE: WON Quiombing that as a solidary
creditor he could act by himself alone

G.R. No. 93010 August 30, 1990

HELD: Yes.
NICENCIO TAN QUIOMBING v. COURT OF
APPEALS, and Sps. FRANCISCO and
MANUELITA A. SALIGO
CRUZ, J.:

Facts: Solidary creditor Quiombing can exercise

action for payment against debtor even
without the other solidary creditor because
either one can mutually represent the other to
whom the debtor are both liable
> August 30, 1983: Construction and Service
Agreement where Nicencio Tan Quiombing and
Dante Biscocho jointly and severally bound
themselves to construct a house of Sps.
Francisco and Manuelita Saligo for
P137,940.00,
> October 10, 1984: Agreement where sps.
acknowledged house completion and
undertook to pay the balance
> November 19, 1984: Promissory note by
Saligo for P125,363.50
> October 9, 1986: Action for recovery of
amount by Quiombing due to failure of sps. to
pay the balance

> SOLIDARITY BETWEEN Quiombing and

Biscocho > authority of each creditor to claim
and enforce the rights of all, with the resulting
obligation of paying every one what belongs to
him > no merger, much less a renunciation of
rights, but only mutual representation >
Immaterial who sued the sps. who were liable
to either of the 2 creditors > full satisfaction of
a judgment obtained against them by
Quiombing would discharge their obligation to
Biscocho, and vice versa > not necessary for
both Quiombing and Biscocho to file the
complaint > either one is indispensable
> Sps. to pay and be concerned only with
Quiombing > Art. 1214 that "the debtor may
pay any of the solidary creditors; but if any
demand, judicial or extrajudicial, has been
made by any one of them, payment should be
made to him" > Biscocho may later claim his
share from Quiombing but that decision is for
him alone to make > as far as the debtors are
concerned, payment of the judgment debt to
the complainant will be considered payment to
the other solidary creditor even if the latter
was not a party to the suit
*A joint obligation is one in which each of the
debtors is liable only for a proportionate part of
the debt, and each creditor is entitled only to a

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OBLICON2

proportionate part of the credit. A solidary

obligation is one in which each debtor is liable
for the entire obligation, and each creditor is
entitled to demand the whole obligation.
Hence, in the former, each creditor can recover
only his share of the obligation, and each
debtor can be made to pay only his part;
whereas, in the latter, each creditor may
enforce the entire obligation, and each debtor
may be obliged to pay it in full.
*Art. 1212: Each one of the solidary creditors
may do whatever may be useful to the others,
but not anything which may be prejudice to the
latter.
*Indispensable parties are those with such an
interest in the controversy that a final decree
would necessarily affect their rights, so that
the court cannot proceed without their
presence. Necessary parties are those whose
presence is necessary to adjudicate the whole
controversy, but whose interests are so far
separable that a final decree can be made in
their absence without affecting them.

G.R. No. 134100

2000

September 29,

PURITA ALIPIO v. COURT OF APPEALS and

ROMEO G. JARING
MENDOZA, J.:
Facts: Death of a sublessor spouse
> June 19, 1987Contract of Sublease over a
Fishpond among Romeo Jaring and Sps. Placido
and Purita Alipio and Bienvenido and Remedios
Manuel ~ bound themselves as spouses >
Over a 5-year-leased fishpond of Jaring > Valid
until September 12, 1990 or the remaining

period of his lease > Rent: P485,600.00 (P300k

upon signing PAID; P185,600 on June 30,
1989 PARTIALLY PAID WITH BALANCE OF
P50,600 > Demand but Failure to Pay
> October 13, 1989: Suit by Jaring against Sps.
for collection or rescission
> RTC (February 26, 1991) and CA favoured
Jaring and ordered Sps. Manuel and Mrs. Alipio
to pay the balance, at the exclusion of Mr.
Alipio who had died
ISSUE: WON the sps. Alipio Should be solidary
liable
HELD: No
SC UPHELD: Dismissal due to death of her
Husband on December 1, 1988 > that the
obligation is chargeable against the Sps. and
not the individual (NCC 161(1)) > must be held
against the conjugal partnership which is
primarily bound for its repayment through an
action for settlement of estate ~ conjugal
partnership was automatically dissolved and
debts chargeable against it are to be paid in
the settlement of estate proceedings > hence,
she cannot be sued as an independent party in
an action for collection
> Calma v. Taedo: after the death of either of
the spouses, no complaint for the collection of
indebtedness chargeable against the conjugal
partnership can be brought against the
surviving spouse > powers of administration of
the surviving spouse ceases and is passed to
the administrator > surviving spouse is not
even a de facto administrator > Sps. are being
impleaded in their capacity as representatives
of the conjugal partnership and not as
independent debtors

> REMEDY OF JARING AGAINST ALIPIO

SPOUSES:
> Sec. 6, Rule 78 of the Revised Rules of Court:
Creditor may (1) file a claim against the Alipios
in the proceeding for the settlement of the
estate of petitioner's husband; (2) apply in
court for letters of administration in his
capacity as a principal creditor; (3) the
allowance of will, depending on whether
petitioner's husband died intestate or testate.

> LIABILITY OF SPOUSES AND WIDOW > JOINT

not solidary > RTC ordered payment of the
P50,600 balance without specifying whether it
is joint or solidarity (NCC 1207) > P50,600
divided between spouses ~ P25,300 each
couple > Solidary only if sublessees refuse to
vacate the leased property after the expiration
of the lease period and despite due demands
by the lessor ~ not from contract but as
tortfeasors
> ONLY APPLIES TO dismissals of collection
suits because of the death of the defendant
during the pendency of the case and the
subsequent procedure to be undertaken
> Rule 3, 21 of the 1964 Rules of Court which
then provided that "when the action is for
recovery of money, debt or interest thereon,
and the defendant dies before final judgment in
the Court of First Instance, it shall be dismissed
to be prosecuted in the manner especially
provided in these rules."
> Rule 3, 20 of the 1997 Rules of Civil
Procedure: When the action is for the recovery
of money arising from contract, express or
implied, and the defendant dies before entry of
final judgment in the court in which the action
was pending at the time of such death, it shall

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OBLICON2

not be dismissed but shall instead be allowed

to continue until entry of final judgment. A
favorable judgment obtained by the plaintiff
therein shall be enforced in the manner
especially provided in these Rules for
prosecuting claims against the estate of a
deceased person.
G.R. No. L-21780

June 30, 1967

MAKATI DEVELOPMENT CORPORATION v.

EMPIRE INSURANCE CO. and RODOLFO P.
ANDAL
CASTRO, J.:
Facts: Forfeiture of the P12k surety bond in
favour of MDC (vendor) upon failure of vendee
to construct 50% of the house on the
purchased lot, as a special condition to sale of
lot, is a PENAL CLAUSE that is meant to compel
the conditions performance. Failure of the
vendee to comply grants vendor the operation
of such penalty as a substitute for damages
and interest. But the Court can mitigate the
liability and because second vendee has
constructed 50% of the house just a month
after the expiration, the bond was validly
reduced.
> Deed of Sale (March 31, 1959) > by Makati
Development Corporation to Rodolfo P. Andal
over a lot in Urdaneta Village, Makati >
SPECIAL CONDITION: VENDEE/S shall
commence the construction and complete at
least 50% of his/her/their/its residence on the
property within 2y from March 31, 1959 to the
satisfaction of the VENDOR and, in the event of
his/her/their/its failure to do so, the bond which
the VENDEE/S has delivered to the VENDOR in
the sum of P11,123.00 and evidenced by a
cash bond receipt dated April 10, 1959 will be
forfeited in favor of the VENDOR by the mere
fact of failure of the VENDEE/S to comply with

this special condition > Surety bond worth

P12k (April 10, 1959) by Andal as principal with
Empire Insurance Company as surety, jointly or
severally > Andal did not build house and sold
lot to Juan Carlos (January 18, 1960) > Notice
of Claim (April 3, 1961) by MDC to Empire re:
Andals failure > Refusal of Empire to pay >
Suit for Collection against Empire (May 22,
1961) > Third party complaint against Andal >
RTC Held Empire liable (March 28, 1963) to pay
MDC P1,500, with interest at the rate of 12%
from the time of the filing of the complaint until
the amount was fully paid > Once paid by
Empire, Andal should in turn pay [Empire] the
sum of P1,500 with interest at 12% from the
time of the filing of the complaint to the time of
payment > Appeal by MDC > Reduction of
Andals liability from P12k to P1,500

HELD: Special Condition is a PENAL CLAUSE

but not for indemnity for damages that might
result from a breach of contract but for
COMPULSION OF PERFORMANCE (Resolutory
Obligation)

> GENERAL RULE FOR OBLIGATIONS WITH

PENAL CLAUSES > penalty takes the place of
damages and the payment of interest in case
of non-compliance > obligee is entitled to
recover upon the breach of the obligation
without the need of proving damages BUT
Court can mitigate liability (NCC 1229 ~ The
judge shall equitably reduce the penalty when
the principal obligation has been partly or
irregularly complied with by the debtor. Even if
there has been no performance, the penalty
may also be reduced by the courts if it is
iniquitous or unconscionable) > Partial
Performance by Carlos > that where there has

been partial or irregular compliance with the

provisions in a contract for special
indemnification in the event of failure to
comply with its terms, courts will rigidly apply
the doctrine of strict construction against the
enforcement in its entirety of the
indemnification, where it is clear from the
contract that the amount or character of the
indemnity is fixed without regard to the
probable damages which might be anticipated
as a result of a breach of the terms of the
contract, or, in other words, where the
indemnity provided for is essentially a mere
penalty having for its object the enforcement of
compliance with the contract

> Reduction of Andals liability from P12k to

P1,500 due to little delay in fulfilment of
obligations ~ that area has been fenced,
building materials has been stocked in the
premises > Juan Carlos was able to construct
50% of the house by the end of April 1961 ~
just a month after expiration

> LIABILITY of Andal cannot be construed as a

personal obligation > not to limit Andal's right
to dispose of the lot where there is nothing in
the deed of sale restricting Andal's right to sell
> Carloss construction as Andals construction

Option of penalty in lieu of performance is with

creditor
If it is indemnity for damages ~ tied to losses
suffered by creditor, penalty cannot be reduced
> but if intended to insure performance of
obligation ~ court can reduce >

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Antonio Tan vs. Court of Appeals & CCP

GR No. 116285 October 19, 2001

Facts:

On May 14, 1978 and July 6, 1978, petitioner

Antonio Tan obtained 2 loans, P2,000,000.00 in
each loans, or a total of P4,000,000.00 from
respondent Cultural Center of the Philippines
with promissory notes and maturity dates after
a year. Petitioner defaulted but after a few
partial payments he had the loans restructured
by respondent CCP, and petitioner accordingly
executed a promissory note that P3,411,421.32
is payable in five (5) installments. Petitioner
Tan failed to pay any installment on the said
restructured loan.

In a letter, TAN requested and proposed to

respondent CCP a mode of paying the
restructured loan (a) 20% of the principal
amount of the loan upon the respondent giving
its conformity to his proposal (b)Balance on the
principal obligation payable 36 monthly
installments until fully paid.
TAN also
requested for a moratorium on his loan
obligation until the following year allegedly due
to a substantial deduction in the volume of his
business and on account of the peso
devaluation. However, theres no favorable
response to the said letters. CCP demanded full
payment, within ten (10) days from receipt of
said letter P6,088,735.03.
CCP then filed a COMPLAINT to collect the
money. TAN interposed the defense that he

accommodated a friend who asked for help to

obtain a loan from CCP but he claimed that the
friend cannot find. TAN filed a Manifestation
wherein he proposed to settle his indebtedness
to CCP but they didnt reach an amicable
settlement.
TRIAL COURT ORDERED TAN TO PAY CCP
P7,996,314.67,
representing
defendants
outstanding account as of August 28, 1986,
with the corresponding stipulated interest and
charges thereof, until fully paid, plus attorneys
fees in an amount equivalent to 25% of said
outstanding account, plus P50,000.00, as
exemplary damages, plus costs. This is
because the reason of loan for accommodation
of friend was not credible. Assuming, arguendo,
that TAN did not personally benefit from loan,
he should have filed a 3rd-party complaint
against Wilson Lucmen. Also, petitioner offered
to settle his loan obligation with CCP thrice and
yet failed to do so. TAN may not avoid his
liability to pay his obligation under the
promissory note which he must comply with in
good faith. He is also estopped from denying
his liability or loan obligation to the private
respondent.
Hence, this appeal for reduction of penalties
and charges on his loan obligation.

Held:

Article 1226 of the New Civil Code provides

that:
In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and
the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid
if the obligor refuses to pay the penalty or is
guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions
of this Code.
In the case at bar, the promissory note
expressly provides for the imposition of both
interest and penalties in case of default on the
part of the petitioner in the payment of the
subject restructured loan. Promissory note
imposing interest and penalties provides that:
For value received, I/We jointly and severally
promise to pay to the CULTURAL CENTER OF
THE PHILIPPINES at its office in Manila, the
sum of THREE MILLION FOUR HUNDRED
ELEVEN THOUSAND FOUR HUNDRED + PESOS
(P3,411,421.32) Philippine Currency,
xxx.

Issue:

Whether or not there are contractual and legal

bases for the imposition of the penalty, interest
on the penalty and attorneys fees.

With interest at the rate of FOURTEEN per cent

(14%) per annum from the date hereof until
paid. PLUS THREE PERCENT (3%) SERVICE
CHARGE.
In case of non-payment of this note at
maturity/on demand or upon default of
payment of any portion of it when due, I/We
jointly and severally agree to pay additional
penalty charges at the rate of TWO per cent
(2%) per month on the total amount due until
paid, payable and computed monthly. Default
of payment of this note or any portion thereof

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OBLICON2

when due shall render all other installments

and all existing promissory notes made by us in
favor of the CULTURAL CENTER OF THE
PHILIPPINES immediately due and demandable.
(Underscoring supplied)
xxx

xxx

xxx

The stipulated fourteen percent (14%) per

annum interest charge until full payment of the
loan constitutes the monetary interest on the
note and is allowed under Article 1956 of the
New Civil Code. On the other hand, the
stipulated two percent (2%) per month penalty
is in the form of penalty charge which is
separate and distinct from the monetary
interest on the principal of the loan.
Penalty on delinquent loans may take different
forms. In Government Service Insurance
System v. Court of Appeals, this Court has
ruled that the New Civil Code permits an
agreement upon a penalty apart from the
monetary interest. If the parties stipulate this
kind of agreement, the penalty does not
include the monetary interest, and as such the
two are different and distinct from each other
and may be demanded separately. Quoting
Equitable Banking Corp. v. Liwanag, the GSIS
case went on to state that such a stipulation
about payment of an additional interest rate
partakes of the nature of a penalty clause
which is sanctioned by law, more particularly
under Article 2209 of the New Civil Code which
provides that:

is also called penalty or compensatory interest.

Having clarified the same, the next issue to be
resolved is whether interest may accrue on the
penalty or compensatory interest without
violating the provisions of Article 1959 of the
New Civil Code, which provides that:
Without prejudice to the provisions of Article
2212, interest due and unpaid shall not earn
interest. However, the contracting parties may
by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn
new interest.
According to the petitioner, there is no legal
basis for the imposition of interest on the
penalty charge for the reason that the law only
allows imposition of interest on monetary
interest but not the charging of interest on
penalty. He claims that since there is no law
that allows imposition of interest on penalties,
the penalties should not earn interest. But as
we have already explained, penalty clauses
can be in the form of penalty or compensatory
interest. Thus, the compounding of the penalty
or compensatory interest is sanctioned by and
allowed pursuant to the above-quoted
provision of Article 1959 of the New Civil Code
considering that:

If the obligation consists in the payment of a

sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no
stipulation to the contrary, shall be the
payment of the interest agreed upon, and in
the absence of stipulation, the legal interest,
which is six per cent per annum.

First, there is an express stipulation in the

promissory note (Exhibit A) permitting the
compounding of interest. The fifth paragraph
of the said promissory note provides that: Any
interest which may be due if not paid shall be
added to the total amount when due and shall
become part thereof, the whole amount to bear
interest at the maximum rate allowed by law.
Therefore, any penalty interest not paid, when
due, shall earn the legal interest of twelve
percent (12%) per annum, in the absence of
express stipulation on the specific rate of
interest, as in the case at bar.

The penalty charge of two percent (2%) per

month in the case at bar began to accrue from
the time of default by the petitioner. There is
no doubt that the petitioner is liable for both
the stipulated monetary interest and the
stipulated penalty charge. The penalty charge

Second, Article 2212 of the New Civil Code

provides that Interest due shall earn legal
interest from the time it is judicially demanded,
although the obligation may be silent upon this
point. In the instant case, interest likewise
began to run on the penalty interest upon the

filing of the complaint in court by respondent

CCP on August 29, 1984. Hence, the courts a
quo did not err in ruling that the petitioner is
bound to pay the interest on the total amount
of the principal, the monetary interest and the
penalty interest.

Country Bankers Insurance Corporation &

Enrique Sy, vs.
CA & Oscar Ventanilla Enterprises Corporation

G.R. No. 85161 September 9, 1991

Facts:

Respondent Oscar Ventanilla Enterprises

Corporation (OVEC), as lessor, and the
petitioner Enrique F. Sy, as lessee, entered into
a lease agreement over the Avenue, Broadway
and Capitol Theaters and the land on which
they are situated in Cabanatuan City, including
their air-conditioning systems, projectors and
accessories needed for showing the films. The
term of the lease was for six (6) years
commencing from June 13, 1977 and ending
June 12,1983. After more than two (2) years of
operation of the Theater, respondent made
demands for the repossession of the leased
properties in view of the Sy's arrears in
monthly rentals and non-payment of
amusement taxes. On August 8,1979, OVEC
and Sy had a conference and by reason of Sy's
request for reconsideration of OVECs demand
for repossession of the three (3) theaters, the
former was allowed to continue operating the
leased premises upon his conformity to certain

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OBLICON2

conditions imposed by the latter in a

supplemental agreement dated August 13,
1979.
In pursuance of their latter agreement, Sy's
arrears in rental in the amount of P125,455.76
(as of July 31, 1979) was reduced to
P71,028.91 as of December 31, 1979.
However, the accrued amusement tax liability
of the three (3) theaters to the City
Government of Cabanatuan City had
accumulated to P84,000.00 despite the fact
that Sy had been deducting the amount of
P4,000.00 from his monthly rental with the
obligation to remit the said deductions to the
city government. Hence, letters of demand
dated January 7, 1980 and February 3, 1980
were sent to Sy demanding payment of the
arrears in rentals and amusement tax
delinquency. The latter demand was with
warning that OVEC will re-enter and repossess
the Avenue, Broadway and Capital Theaters on
February 11, 1980 in pursuance of the
pertinent provisions of their lease contract of
June 11, 1977 and their supplemental letteragreement of August 13, 1979. But
notwithstanding the said demands and
warnings SY failed to pay the above-mentioned
amounts in full Consequently, OVEC padlocked
the gates of the three theaters under lease and
took possession thereof in the morning of
February 11, 1980 by posting its men around
the premises of the Id movie houses and
preventing the lessee's employees from
entering the same.
Sy, through his counsel, filed the present action
for reformation of the lease agreement,
damages and injunction late in the afternoon of
the same day.
The trial court held that Sy is not entitled to the
reformation of the lease agreement; that the
repossession of the leased premises by OVEC
after the cancellation and termination of the
lease was in accordance with the stipulation of
the parties in the said agreement and the law
applicable thereto and that the consequent

forfeiture of Sy's cash deposit in favor of OVEC

was clearly agreed upon by them in the lease
agreement. The trial court further concluded
that Sy was not entitled to the writ of
preliminary injunction issued in his favor after
the commencement of the action and that the
injunction bond filed by Sy is liable for
whatever damages OVEC may have suffered by
reason of the injunction.
Hence this appeal.

Issue:
Whether or not private respondent will be
unjustly enriched
Held:

We find no merit in petitioners' argument that

the forfeiture clause stipulated in the lease
agreement would unjustly enrich the
respondent OVEC at the expense of Sy and
CBISCO contrary to law, morals, good
customs, public order or public policy. A
provision which calls for the forfeiture of the
remaining deposit still in the possession of the
lessor, without prejudice to any other
obligation still owing, in the event of the
termination or cancellation of the agreement
by reason of the lessee's violation of any of the
terms and conditions of the agreement is a
penal clause that may be validly entered into.
A penal clause is an accessory obligation which
the parties attach to a principal obligation for
the purpose of insuring the performance
thereof by imposing on the debtor a special
presentation (generally consisting in the
payment of a sum of money) in case the
obligation is not fulfilled or is irregularly or
inadequately fulfilled. As a general rule, in
obligations with a penal clause, the penalty
shall substitute the indemnity for damages and
the payment of interests in case of noncompliance. This is specifically provided for in
Article 1226, par. 1, New Civil Code. In such

case, proof of actual damages suffered by the

creditor is not necessary in order that the
penalty may be demanded (Article 1228, New
Civil Code). However, there are exceptions to
the rule that the penalty shall substitute the
indemnity for damages and the payment of
interests in case of non-compliance with the
principal obligation. They are first, when there
is a stipulation to the contrary; second, when
the obligor is sued for refusal to pay the agreed
penalty; and third, when the obligor is guilty of
fraud (Article 1226, par. 1, New Civil Code). It is
evident that in all said cases, the purpose of
the penalty is to punish the obligor. Therefore,
the obligee can recover from the obligor not
only the penalty but also the damages
resulting from the non-fulfillment or defective
performance of the principal obligation.
In the case at bar, inasmuch as the forfeiture
clause provides that the deposit shall be
deemed forfeited, without prejudice to any
other obligation still owing by the lessee to the
lessor, the penalty cannot substitute for the
P100,000.00 supposed damage resulting from
the issuance of the injunction against the
P290,000.00 remaining cash deposit. This
supposed damage suffered by OVEC was the
alleged P10,000.00 a month increase in rental
from P50,000.00 to P60,000,00), which OVEC
failed to realize for ten months from February
to November, 1980 in the total sum of
P100,000.00. This opportunity cost which was
duly proven before the trial court, was correctly
made chargeable by the said court against the
injunction bond posted by CBISCO. The
undertaking assumed by CBISCO under subject
injunction refers to "all such damages as such
party may sustain by reason of the injunction if
the Court should finally decide that the Plaintiff
was/were not entitled thereto." (Rollo, p. 101)
Thus, the respondent Court correctly sustained
the trial court in holding that the bond shall
and may answer only for damages which OVEC
may suffer as a result of the injunction. The
arrears in rental, the unmeritted amounts of
the amusement tax delinquency, the amount of
P100,000.00 (P10,000.00 portions of each
monthly rental which were not deducted from

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plaintiffs cash deposit from February to

November, 1980 after the forfeiture of said
cash deposit on February 11, 1980) and
attorney's fees which were all charged against
Sy were correctly considered by the respondent
Court as damages which OVEC sustained not
as a result of the injunction.

OCTAVIO A. KALALO vs. ALFREDO J. LUZ

G.R. No. L-27782 July 31, 1970

to said agreement, appellee rendered

engineering services to appellant in the
following projects:
(a) Fil-American Life
Insurance Building at Legaspi
City;
(b) Fil-American Life
Insurance Building at Iloilo
City;
(c) General Milling
Corporation Flour Mill at
Opon Cebu;

Facts:
On November 17, 1959, plaintiff-appellee
Octavio A. Kalalo hereinafter referred to as
appellee), a licensed civil engineer doing
business under the firm name of O. A. Kalalo
and Associates, entered into an agreement
with defendant-appellant Alfredo J . Luz
(hereinafter referred to as appellant), 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, structural engineering, 12-%;
electrical engineering, 2-%. The agreement
was subsequently supplemented by a
"clarification to letter-proposal" which
provided , that "the schedule of engineering
fees in this agreement does not cover the
following: ... D. Foundation soil exploration,
testing and evaluation; E. Projects that are
principally engineering works such as industrial
plants, ..." and "O. A. Kalalo and Associates
reserve the right to increase fees on projects
,which cost less than P100,000 ...." 2 Pursuant

(d) Menzi Building at Ayala

Blvd., Makati, Rizal;
(e) International Rice
Research Institute, Research
center Los Baos, Laguna;
(f) Aurelia's Building at
Mabini, Ermita, Manila;
(g) Far East Bank's Office at
Fil-American Life Insurance
Building at Isaac Peral
Ermita, Manila;
(h) Arthur Young's residence
at Forbes Park, Makati, Rizal;
(i) L & S Building at Dewey
Blvd., Manila; and
(j) Stanvac Refinery Service
Building at Limay, Bataan.
Appellee sent to appellant a statement of
account to which was attached an itemized
statement of defendant-appellant's account,
according to which the total engineering fee

asked by appellee for services rendered

amounted to P116,565.00 from which sum was
to be deducted the previous payments made in
the amount of P57,000.00, thus leaving a
balance due in the amount of P59,565.00.
On May 18, 1962 appellant sent appellee a
resume of fees due to the latter. Said fees,
according to appellant. amounted to
P10,861.08 instead of the amount claimed by
the appellee. On June 14, 1962 appellant sent
appellee a check for said amount, which
appellee refused to accept as full payment of
the balance of the fees due him.
On August 10, 1962, appellee filed a complaint
against appellant.
In his answer, appellant admitted that appellee
rendered engineering services, as alleged in
the first cause of action, but averred that some
of appellee's services were not in accordance
with the agreement and appellee's claims were
not justified by the services actually rendered,
and that the aggregate amount actually due to
appellee was only P80,336.29, of which
P69,475.21 had already been paid, thus
leaving a balance of only P10,861.08. Appellant
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 of P10,000.00.

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Inasmuch as the pleadings showed that the

appellee's right to certain fees for services
rendered was not denied, the only question
being the assessment of the proper fees and
the balance due to appellee after deducting the
admitted payments made by appellant, the
trial court, upon agreement of the parties,
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 $28,000.00 (U.S.)
as his fee in the International Research
Institute Project which was twenty percent
(20%) of the $140,000.00 that was paid to
appellant, 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.
At the hearing on the Report of the
Commissioner, judgment is rendered in favor of
plaintiff. Hence, this appeal.

Issue:
Whether or not the lower court erred in
awarding attorney's fees in the sum of
P8,000.00, despite the commissioner's finding,
which plaintiff-appellee has accepted and has
not questioned, that said fee be only P5,000.00
Held:

In his fourth assignment of error, appellant

questions the award by the lower court of
P8,000.00 for attorney's fees. Appellant argues
that the Commissioner, in his report, fixed the
sum of P5,000.00 as "just and reasonable"
attorney's fees, to which amount appellee did
not interpose any objection, and by not so
objecting he is bound by said finding; and that,
moreover, the lower court gave no reason in its
decision for increasing the amount to
P8,000.00.

Appellee contends that while the parties had

not objected to the findings of the
Commissioner, the assessment of attorney's
fees is always subject to the court's appraisal,
and in increasing the recommended fees from
P5,000.00 to P8,000.00 the trial court must
have taken into consideration certain
circumstances which warrant the award of
P8,000.00 for attorney's fees.
We believe that the trial court committed no
error in this connection. Section 12 of Rule 33
of the Rules of Court, on which the fourth
assignment of error is presumably based,
provides that when the parties stipulate that a
commissioner's findings of fact shall be final,
only questions of law arising from the facts
mentioned in the report shall thereafter be
considered. Consequently, an agreement by
the parties to abide by the findings of fact of
the commissioner is equivalent to an
agreement of facts binding upon them which
the court cannot disregard. The question,
therefore, is whether or not the estimate of the
reasonable fees stated in the report of the
Commissioner is a finding of fact.
The report of the Commissioner on this matter
reads as follows:
As regards attorney's fees, under the
provisions of Art 2208, par (11), the same may
be awarded, and considering the number of
hearings held in this case, the nature of the
case (taking into account the technical nature
of the case and the voluminous exhibits offered
in evidence), as well as the way the case was
handled by counsel, it is believed, subject to
the Court's appraisal of the matter, that the
sum of P5,000.00 is just and reasonable as
attorney's fees." 2 8
It is thus seen that the estimate made by the
Commissioner was an expression of belief, or
an opinion. An opinion is different from a fact.
The generally recognized distinction between a
statement of "fact" and an expression of
"opinion" is that whatever is susceptible of

exact knowledge is a matter of fact, while that

not susceptible of exact knowledge is generally
regarded as an expression of opinion. 2 9 It has
also been said that the word "fact," as
employed in the legal sense includes "those
conclusions reached by the trior from shifting
testimony, weighing evidence, and passing on
the credit of the witnesses, and it does not
denote those inferences drawn by the trial
court from the facts ascertained and settled by
it. 3 0 In the case at bar, the estimate made by
the Commissioner of the attorney's fees was an
inference from the facts ascertained by him,
and is, therefore, not a finding of facts. The
trial court was, consequently, not bound by
that estimate, in spite of the manifestation of
the parties that they had no objection to the
findings of facts of the Commissioner in his
report. Moreover, under Section 11 of Rule 33
of the Rules of Court, the court may adopt,
modify, or reject the report of the
commissioner, in whole or in part, and hence, it
was within the trial court's authority to increase
the recommended attorney's fees of P5,000.00
to P8,000.00. It is a settled rule that the
amount of attorney's fees is addressed to the
sound discretion of the court. 3 1
It is true, as appellant contends, that the trial
court did not state in the decision the reasons
for increasing the attorney's fees. The trial
court, however, had adopted the report of the
Commissioner, and in adopting the report the
trial court is deemed to have adopted the
reasons given by the Commissioner in
awarding attorney's fees, as stated in the
above-quoted portion of the report. Based on
the reasons stated in the report, the trial court
must have considered that the reasonable
attorney's fees should be P8,000.00.
Considering that the judgment against the
appellant would amount to more than
P100,000.00, We believe that the award of
P8,000.00 for attorney's fees is reasonable.

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St. Paul Fire & Marine Insurance Co. vs.

Macondray& Co., IncG.R. No. L
27796March 25, 1976
Winthrop Products, Inc. of New York
ShipperSS Tai Ping owned and operated by
Wilhelm WilhemsenWinthrop Stearns, Inc.
Manila ConsigneeBarber Steamship Lines, Inc.
agent of Wilhelm WilhelmsenSt. Paul Fire &
Marine Insurance Company InsurerManila Port
Service arrastre contractorMacondray& Co.,
Inc. carrier
FACTS:
Winthrop Products, Inc. of New York shipped
aboard the SS TaiPing, 218 cartons and drums
of drugs and medicine which wereconsigned to
Winthrop Stearns, Inc. Manila Philippines
Barber Steamship Lines, Inc. issued a Bill of
Lading in the name of Winthrop Products, Inc.
as shipper, with arrival notice in Manila
toconsignee Wintrhop Stearns, Inc. Manila
The shipment was insured by the shipper
against loos and/ordamage with St. Paul Fire
and Marine Insurance Company
SS Tai Ping arrived at the Port of Manila and
discharged theshipment into the custody of
Manila Port Service
The shipment was discharged complete and
in good order with the exception of 1 drum and
several cartons which were in bad
ordercondition
The consignee filed a claim in the amount of
P1,109.47representing the C.I.F value of the
damaged drum andcartons of medine with the
carrier and Manila Port Service
Both the carrier and Manila Port Service
refused to pay such claim
The consignee then filed its claim with the
insurer. On the basis of such claim,
the insurance company paid to the consignee
theinsured value of the lost and damaged
goods, includingother expenses in connection
therewith in the total amountof $1,134.46

As subrogee of the rights of the shipper

and/or cosignee, theinsurer instituted with the
CFI an action against the defendants forthe
recovery of the amount of $1,134.46
Contention of defendant Manila Port Service:
The whole cargo was delivered to the
consignee in thesame condition in which it was
received from the carryingvessel
Their liability is limited to the invoice
value of the goods,but in no case
more than P500 per package pursuant
totheir Management Contract
Contention of defendants Macondray& Co.,
Inc, Barber SteamshipLines, Inc. and Wilhelm
Wilhelmsen:
The carriers liability for the shipment
ceased upondischarge thereof from the ships
tackle
If any damage was sustained by the
shipment while it wasunder the
control of the vessel, such damage
was causedby insufficinecy of
packaging, force majeure and/or
perilsof the sea
Lower Court Ruling:
Defendants Macondray& Co, Barber Steamship
Lines IncandWilhelWilhelmsen to pay plaintiff,
jointly and severally P300 Defendant Manila
Port Service to pay plaintiff P809.67 (Total
P1109.67)
Contention of St. Paul Fire & Marine Insurance
Co.:
As subrogee of the consignee, it should be
entitled torecover from defendants the amount
of$1,134.46whichit actually paid to
theconsignee and which represents thevalue of
the lost and damaged shipment as well as
other legitimate expenses
Contention of Defendants:
Their liability is limited to the C.I.F. value of the
goods,pursuant to contract of sea carriage
embodied in the bill of lading that the
consignees claim against the carrier and

arrastreoperators was only for the sum of

P1,109.67
ISSUES:
1.Whether or not, in case of loss or damage,
the liability of thecarrier to the consignee is
limited to the C.I.F value of the goodswhich
were lost or damaged
HELD:
1.Yes. The liabilities of the defendants with
respect to thelost or damaged shipments are
expressly limited tothe C.I.F. value of the
goodsas per contract of sea carriage embodied
in the bill of lading It reads:
The limitation of liability xxx shall inure not
only tothe benefit of the carrier xxx but also to
the benefitof any independent contractor
performing servicesxxx
The shipper and consignee are, therefore,
bound by suchstipulations

It is for this reason that the consignee filed its

claimagainst the defendant on the basis of the
C.I.F. value of the lost or damaged goods in the
aggregate amount of P1,109.67
PAPA VS AU VALENCIA
Facts: Myron Papa, acting as attorney-in-fact of
Angela Butte, allegedly sold a parcel of land in
La Loma, Quezon City to Felix Penarroyo.
However, prior to the alleged sale, the land
was mortgaged by Butte to Associated Banking
Corporation along with other properties and
after the alleged sale but prior to the
propertys release by delivery, Butte died. The
Bank refused to release the property despite
Penarroyos unless and until the other
mortgaged properties by Butte have been
redeemed and because of this Penarroyo
settled to having the title of the property
annotated.
It was later discovered that the mortgage
rights of the Bank were transferred to one
Tomas Parpana, administrator of the estate of
Ramon Papa Jr. and his since then been

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collecting rents. Despite repeated demands of

Penarroyo and Valencia, Papa refused to deliver
the property which led to a suit for specific
performance. The trial court ruled in favor of
Penarroyo and Valencia.
On appeal to the CA, and ultimately in relation
to negotiable instruments, Papa averred that
the sale of the property was not consummated
since the PCIB check issued by Penarroyo for
payment worth 40000 pesos was not encashed
by him. However, the CA saw the contrary and
that Papa in fact encashed the check by means
of a receipt.
Finally on appeal to the SC, Papa cited that
according to Art 1249 of the Civil Code,
payment of checks only produce effect once
they have been encashed and he insists that
he never encashed the check. He further
alleged that if check was encashed, it should
have been stamped as such or at least a
microfilm copy. It must be noted that the check
was in possession of Papa for ten (10) years
from the time payment was made to him.
Issue: Whether or not the check was encashed
and can be considered effective as payment
Held: YES. The Court held that acceptance of a
check implies an undertaking of due diligence
in presenting it for payment, and if he from
whom it is received sustains loss by want of
such diligence, it will be held to operate as
actual payment of the debt or obligation for
which it is given. In this case, granting that
check was never encashed, Papas failure to do
so for more than ten (10) years undoubtedly
resulted in the impairment of the check
through his unreasonable and unexplained
delay.
After more than ten (10) years from the
payment in part by cash and in part by check,
the presumption is that the check had been
encashed.
PHILIPPINES AIRLINES VS CA
THE FACTS:

Amelia Tan commenced a complaint for

damages before the Court of First Instance
against Philippine Airlines, Inc. (PAL). The Court
rendered a judgment in favor of the former and
against the latter.
PAL filed its appeal with the Court of Appeals
(CA), and the appellate court affirmed the
judgment of the lower court with the
modification that PAL is condemned to pay the
latter the sum of P25, 000.00 as damages and
P5, 000.00 as attorneys fee.
Judgment became final and executory and was
correspondingly entered in the case, which was
remanded to the trial court for execution. The
trial court upon the motion of Amelia Tan
issued an order of execution with the
corresponding writ in favor of the respondent.
Said writ was duly referred to Deputy Sheriff
Reyes for enforcement.
Four months later, Amelia Tan moved for the
issuance of an alias writ of execution, stating
that the judgment rendered by the lower court,
and affirmed with modification by the CA,
remained unsatisfied. PAL opposed the motion,
stating that it had already fully paid its
obligation to plaintiff through the issuance of
checks payable to the deputy sheriff who later
did not appear with his return and instead
absconded.
The CA denied the issuance of the alias writ for
being premature. After two months the CA
granted her an alias writ of execution for the
full satisfaction of the judgment rendered,
when she filed another motion. Deputy Sheriff
del Rosario is appointed special sheriff for
enforcement thereof.
PAL filed an urgent motion to quash the alias
writ of execution stating that no return of the
writ had as yet been made by Deputy Sheriff
Reyes and that judgment debt had already
been fully satisfied by the former as evidenced
by the cash vouchers signed and received by
the executing sheriff.

Deputy Sheriff del Rosario served a notice of

garnishment on the depository bank of PAL,
through its manager and garnished the latters
deposit. Hence, PAL brought the case to the
Supreme Court and filed a petition for
certiorari.
THE ISSUES:
WON an alias writ of execution can be issued
without prior return of the original writ by the
implementing officer.
WON payment of judgment to the
implementing officer as directed in the writ of
execution constitutes satisfaction of judgment.
WON payment made in checks to the sheriff
and under his name is a valid payment to
extinguish judgment of debt.
THE RULING:
1. Affirmative. Technicality cannot be
countenanced to defeat the execution of a
judgment for execution is the fruit and end of
the suit and is very aptly called the life of the
law. A judgment cannot be rendered nugatory
by unreasonable application of a strict rule of
procedure. Vested right were never intended to
rest on the requirement of a return. So long as
judgment is not satisfied, a plaintiff is entitled
to other writs of execution.
2. Negative. In general, a payment, in order to
be effective to discharge an obligation, must be
made to the proper person. Article 1240 of the
Civil Code provides:
Payment made to the person in whose favor
the obligation has been constituted, or his
successor in interest, or any person authorized
to receive it.
Under ordinary circumstances, payment by the
judgment debtor in the case at bar, to the
sheriff should be valid payment to extinguish
judgment of debt.
However, under the peculiar circumstances of
this case, the payment to the absconding
sheriff by check in his name did not operate as
a satisfaction of the judgment debt.

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3. Negative. Article 1249 of the Civil Code

provides:
The payment of debts in money shall be made
in the currency stipulated, and if it is not
possible to deliver such currency, then in the
currency which is legal tender in the
Philippines.
Unless authorized to do so by law or by
consent of the obligee, a public officer has no
authority to accept anything other than money
in payment of an obligation under a judgment
being executed. Strictly speaking, the
acceptance by the sheriff of the petitioners
checks does not, per se, operate as a discharge
of the judgment of debt.
A check, whether managers check or ordinary
check, is not legal tender, and an offer of a
check in payment of a debt is not a valid
tender or payment and may be refused receipt
by the oblige or creditor. Hence, the obligation
is not extinguished.
THE TWIST: Payment in cash is logical, but it
was not proper.
Payment in cash to the implementing officer
may be deemed absolute payment of judgment
debt but the Court has never, in the least bit,
suggested that judgment debtors should settle
their obligations by turning over huge amounts
of cash or legal tender to the executing
officers. Payment in cash would result in
damage or endless litigations each time a
sheriff with huge amounts of cash in his hands
decides to abscond.
As a protective measure, the courts encourage
the practice of payment of check provided
adequate controls are instituted to prevent
wrongful payment and illegal withdrawal or
disbursement of funds.
However, in the case at bar, it is out of the
ordinary that checks intended for a particular
payee are made out in the name of another.
The issuance of the checks in the name of the

sheriff clearly made possible the

misappropriation of the funds that were
withdrawn.
The Court of Appeals explained:
Knowing as it does that the intended payment
was for the respondent Amelia Tan, the
petitioner corporation, utilizing the services of
its personnel who are or should be
knowledgeable about the accepted procedure
and resulting consequences of the checks
drawn, nevertheless, in this instance, without
prudence, departed from what is generally
observed and done, and placed as payee in the
checks the name of the errant Sheriff and not
the name of the rightful payee. Petitioner
thereby created a situation which permitted
the said Sheriff to personally encash said
checks and misappropriate the proceeds
thereof to his exclusive benefit. For the
prejudice that resulted, the petitioner himself
must bear the fault
Having failed to employ the proper safeguards
to protect itself, the judgment debtor whose
act made possible the loss had but itself to
blame.
PACULDO VS. REGALADO
345 SCRA 134
FACTS:
On December 27, 1990, petitioner Paculdo and
respondent Regalado entered into a contract
oflease over a parcel of land with a wet market
building. The contract was for twenty five (25)
years,beginning on January 1, 1991 and ending
on December 27, 2015. For the first five (5)
years of thecontract beginning December 27,
1990, Paculdo would pay a monthly rental of
P450,000, payablewithin 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 locatedalong Quirino Highway
Quezon City. Petitioner also purchased from
respondent eight (8) units ofheavy equipment
and vehicles in the cumulative amount of Php
1, 020,000. The respondent sent two demand
letters to petitioner demanding payment of the
back rentals,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, and if no
payment wasmade within fifteen (15) days
from the receipt of the letter, it would cause
the cancellation of thelease contract.
Without the knowledge of petitioner, on August
3, 1992, respondent mortgaged the land
subjectof the lease contract, including the
improvements which petitioner introduced into
the landamounting 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 acceptpetitioners daily rental
payments.
Subsequently, petitioner filed an action for
injunction and damages seeking to enjoin
respondentsfrom disturbing his possession of
the property subject of the lease contract. On
the same day,respondent also filed a complaint
for ejectment against petitioner.
ISSUE:
Was the petitioner truly in arrears in the
payment of rentals on the subject property at
the time of thefiling 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 thefiling of the complaint for
ejectment.As found by the lower court there
was a letter sent by respondent to herein
petitioner, dated November19, 1991, which
states that petitioners security deposit for the
Quirino lot, be applied as partial paymentfor

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his account under the subject lot as well as to

the real estate taxes on the Quirino lot.
Petitionerinterposed 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 paymentwas to be applied not only to
petitioners accounts under the subject land
and the Quirino lot but also toheavy equipment
bought by the latter from respondent. Unlike in
the November letter, the July letter didnot
contain the signature of petitioner.Petitioner
submits that his silence is not consent but is
in fact a rejection.Rationale:As provided in
Article 1252 of the Civil Code, the right to
specify which among his various obligations
tothe 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 theywere to be applied to
his rental obligations on the Fairview wet
market property . Though he entered
intovarious contracts and obligations with
respondent, all the payments made, about
P11,000,000.00 wereto be applied to rental
and security deposit on the Fairview wet
market property. However, respondentapplied a
big portion of the amount paid by petitioner to
the satisfaction of an obligation which was
notyet due and demandable- the payment of
the eight heavy equipment.Under the law, if
the debtor did not declare at the time he made
the payment to which of his debts withthe
creditor the payment is to be applied, the law
provided the guideline; i.e. no payment is to
be appliedto a debt which is not yet due and
the payment has to be applied first to the debt
which is most onerousto the debtor.The lease
over the Fairview wet market is the most
onerous to the petitioner in the case at bar.

DBP vs CA Gr No. 118342 1.5.98 Davide,

JR., J,:

Rescission of Deed of Conditional Sale, Cuba

promised to make certain payments;
Lydia P. Cuba is a grantee of a Fishpond Lease
Agreement No. 2083 dated May 13, 1974 from
the Government; Subject is a 44 hectare
fishpond located in Bolinao Pangasinan.
She obtained several loans of P109,000.00;
P109,000.00; and P98,700.00 from the
Development Bank of the under the terms
stated in the Promissory Notes; As security for
said loans, Cuba executed two Deeds of
Assignment of her Leasehold Rights;
Cuba failed to pay her loan on the scheduled
dates thereof in accordance with the terms of
the Promissory Notes; without foreclosure
proceedings, whether judicial or extra-judicial,
DBP appropriated the Leasehold Rights of Cuba
over the fishpond in question;
After DBP has appropriated the Leasehold
Rights of Cuba over the fishpond in question,
DBP, in turn, executed a Deed of Conditional
Sale of the Leasehold Rights in favor of Cuba
over the same fishpond in question;
In the negotiation for repurchase, Cuba
addressed two letters to the Manager DBP,
Dagupan City. DBP thereafter accepted the
offer to repurchase in a letter addressed to
Cuba;
After the Deed of Conditional Sale was
executed in favor of Cuba , a new Fishpond
Lease Agreement was issued by the Ministry of
Agriculture and Food in favor of Cuba only,
excluding her husband;
Cuba failed to pay the amortizations stipulated
in the Deed of Conditional Sale; After Cuba
failed to pay the amortization as stated in Deed
of Conditional Sale, she entered with the DBP a
temporary arrangement whereby in
consideration for the deferment of the Notarial

DBP thereafter sent a Notice of Rescission thru

Notarial Act, and which was received by Cuba;
After the Notice of Rescission, DBP took
possession of the Leasehold Rights of the
fishpond in question;
That after DBP took possession of the
Leasehold Rights over the fishpond in question,
through the SUNDAY PUNCH advertised public
bidding DBP thereafter executed a Deed of
Conditional Sale in favor of defendant
Agripina Caperal through a public sale;
Thereafter, Caperal was awarded Fishpond
Lease Agreement.
The principal issue presented was whether the
act of DBP in appropriating to itself CUBA's
leasehold rights over the fishpond in question
without foreclosure proceedings was contrary
to Article 2088 of the Civil Code and, therefore,
invalid. CUBA insisted on an affirmative
resolution. DBP stressed that it merely
exercised its contractual right under the
Assignments of Leasehold Rights, which was
not a contract of mortgage. Defendant Caperal
sided with DBP.
ISSUE: WON the assignment constitute dation
in payment under article 1245 of the civil code.
HELD: No. The assignment did not constitute
dation in payment under Article 1245 of the
civil Code, which reads: "Dation in payment,
whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be
governed by the law on sales." It bears
stressing that the assignment, being in its
essence a mortgage, was but a security and
not a satisfaction of indebtedness.

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In view, however, of DBP's act of appropriating

CUBA's leasehold rights which was contrary to
law and public policy, as well as its false
representation to the then Ministry of
Agriculture and Natural Resources that it had
"foreclosed the mortgage," an award of moral
damages in the amount of P50,000 is in order
conformably with Article 2219(10), in relation
to Article 21, of the Civil Code. Exemplary or
corrective damages in the amount of P25,000
should likewise be awarded by way of example
or correction for the public good. 20 There being
an award of exemplary damages, attorney's
fees are also recoverable.

Filinvest vs Philippine Acetylene Co. Gr L50449; De Castro J

Facts: On October 30, 1971, the Philippine

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

mortgage over the same motor vehicle in favor

of said Alexander Lim. Lim assigned to Filinvest
Finance Corp his interests in the PN and Chattel
Mortgage. After defauling in 9 installments,
Filinvest sent a demand letter to PAC, to pay
and return the vehicle. PAC returned the car
but Filinvest cannot sell the car due to unpaid
taxes theron incurred by PAC. Filinvest offered
to deliver back the car to PAC, the latter
refused. Filinvest thus filed a complaint for
collection of money with damages in CFI
Manila. PAC Averred that Filinvest has no cause
of action vs "PAC becuase the car was returned
after the demand letter, the obligation was
thus extinguished.
Issue: WON when appellant opted to return, as
in fact it did return, the mortgaged motor
vehicle to the appellee, said return necessarily
had the effect of extinguishing appellant's
obligation for the unpaid price to the appellee,
construing the return to and acceptance by the
appellee of the mortgaged motor vehicle as a
mode of payment, specifically, dation in
payment or dacion en pago which according to
appellant, virtually made appellee the owner of
the mortgaged motor vehicle by the mere
delivery thereof?
Held: No. We find appellant's contention
devoid of persuasive force. The mere return of
the mortgaged motor vehicle by the
mortgagor, the herein appellant, to the
mortgagee, the herein appellee, does not
constitute dation in payment or dacion en pago
in the absence, express or implied of the true
intention of the parties. Dacion en pago,
according to Manresa, is the transmission of
the ownership of a thing by the debtor to the
creditor as an accepted equivalent of the
performance of obligation. In dacion en pago,
as a special mode of payment, the debtor
offers another thing to the creditor who

accepts it as equivalent of payment of an

outstanding debt. The undertaking really
partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or
property of the debtor, payment for which is to
be charged against the debtor's debt. As such,
the essential elements of a contract of sale,
namely, consent, object certain, and cause or
consideration must be present. In its modern
concept, what actually takes place in dacion en
pago is an objective novation of the obligation
where the thing offered as an accepted
equivalent of the performance of an obligation
is considered as the object of the contract of
sale, while the debt is considered as the
purchase price. 5 In any case, common consent
is an essential prerequisite, be it sale or
innovation to have the effect of totally
extinguishing the debt or obligation.
The evidence on the record fails to show that
the mortgagee, the herein appellee, consented,
or at least intended, that the mere delivery to,
and acceptance by him, of the mortgaged
motor vehicle be construed as actual payment,
more specifically dation in payment or dacion
en pago. The fact that the mortgaged motor
vehicle was delivered to him does not
necessarily mean that ownership thereof, as
juridically contemplated by dacion en pago,
was transferred from appellant to appellee. In
the absence of clear consent of appellee to the
proferred special mode of payment, there can
be no transfer of ownership of the mortgaged
motor vehicle from appellant to appellee. If at
all, only transfer of possession of the
mortgaged motor vehicle took place, for it is
quite possible that appellee, as mortgagee,
merely wanted to secure possession to forestall
the loss, destruction, fraudulent transfer of the
vehicle to third persons, or its being rendered
valueless if left in the hands of the appellant.

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A more solid basis of the true intention of the

parties is furnished by the document executed
by appellant captioned "Voluntary Surrender
with Special Power of Attorney To Sell" dated
March 12, 1973, attached as Annex "C" of the
appellant's answer to the complaint.
Had appellee intended to completely release
appellant of its mortgage obligation, there
would be no necessity of executing the
document captioned "Voluntary Surrender with
Special Power of Attorney To Sell." Nowhere in
the said document can We find that the mere
surrender of the mortgaged motor vehicle to
the appellee extinguished appellant's
obligation for the unpaid price.

PILAR DE GUZMAN, ROLANDO GESTUVO,

and MINERVA GESTUVO, petitioners,
vs.
CA, THE HON. JUDGE PEDRO JL. BAUTISTA,
Presiding Judge of the Court of First
Instance of Rizal, Branch III, Pasay City,
and LEONIDA P. SINGH, respondents. GR
L-52733 July 23, 1985
FACTS: On February 17, 1971, the De Guzman,
as SELLER, and the private respondent, as
BUYER, executed a Contract to Sell covering 2
parcels of land owned by the petitioners
located at Cementina Street, Pasay City. It
was stipulated therein that the private
respondent should pay the balance of the
purchase price of P133,640.00 on or before
February 17, 1975. Two days before the said
date, or on February 15, 1975, the petitioners
denied the request of the respondent to furnish
her with a statement of account of the balance
due; copies of the certificates of title covering
the two parcels of land subject of the sale; and

a copy of the power of attorney executed by

Rolando Gestuvo in favor of Pilar de Guzman.
As a result, the private respondent filed a
complaint for specific performance with
damages against the petitioners before the CFI
of Rizal. The case was dismissed for failure to
prosecute. The private respondent
subsequently refiled the case. In her complaint,
the private respondent charged that the
petitioners, by refusing to furnish her with
copies of the documents requested,
deliberately intended not to comply with their
obligations under the contract to sell, as a
result of which the said petitioners committed
a breach of contract, and had also acted
unfairly and in manifest bad faith for which
they should be held liable for damages.
Petitioners claimed that the complaint failed to
state a cause of action; that the balance due
was already pre-determined in the contract;
that the petitioners have no obligation to
furnish the private respondent with copies of
the documents requested; and that the private
respondent's failure to pay the balance of the
purchase price on the date specified had
caused the contract to expire and become
ineffective without necessity of notice or of any
judicial declaration to that effect.
Trial court rendered a decision approving
compromise agreement between the parties.
Private respondent went to the sala of Judge
Bautista on the appointed day to make
payment, as agreed upon in their compromise
agreement. But, the petitioners were not there
to receive it. Only the petitioners' counsel
appeared later, but, he informed the private
respondent that he had no authority to receive
and accept payment. Instead, he invited the
private respondent and her companions to the
house of the petitioners to effect payment. But,

the petitioners were not there either. They

were informed that the petitioner Pilar de
Guzman would arrive late in the afternoon,
possibly at around 4:00 o'clock. The private
respondent was assured, however, that she
would be informed as soon as the petitioners
arrived. The private respondent, in her
eagerness to settle her obligation, consented
and waited for the call which did not come and
unwittingly let the period lapse. The next day,
January 28, 1978, the private respondent went
to the office of the Clerk of the Court of First
Instance of Rizal, Pasay City Branch, to deposit
the balance of the purchase price. But, it being
a Saturday, the cashier was not there to
receive it. So, on the next working day,
Monday, January 30, 1978, the private
respondent deposited the amount of
P30,000.00 with the cashier of the Office of the
Clerk of the Court of First Instance of Rizal,
Pasay City Branch, to complete the payment of
the purchase price of P250,000.00.
On January 28, 1978, the petitioners filed a
motion for the issuance of a writ of execution,
claiming that the private respondent had failed
to abide by the terms of the compromise
agreement. The private respondent opposed
saying that she had complied with the terms
and conditions of the compromise agreement
and asked the court to direct the petitioners to
comply with the court's decision and execute
the necessary documents to effect the transfer
of ownership of the two parcels of land in
question to her.
Acting upon the motions, the respondent judge
issued an order on March 27, 1978, denying
the petitioners' motion for execution, and
instead, directed the petitioners to immediately
execute the necessary documents, transferring
to private respondent the title to the
properties. He also ordered the Clerk of Court

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to release to the petitioners the amount of

P250,000.00, which had been deposited by the
private respondent, upon proper receipt
therefor.

make a consignation of the monthly rentals as

it was "at a loss as to who is lawfully and
rightfully entitled to receive payments of the
monthly" rentals.

ISSUE: WON Respondent breached the

compromise agreement when she failed to
deliver the full payment to De Guzman.

As a consequence of the admission of the

"Complaint In Intervention", petitioner
deposited with the Clerk of Court of the Court
of First Instance of Rizal, the following sums by
way of rentals: .

HELD: SC agreed with the findings of the trial

court that the private respondent had
substantially complied with the terms and
conditions of the compromise agreement. Her
failure to deliver to the petitioners the full
amount on January 27, 1978 was not her fault.
The blame lies with the petitioners.
Since the deposit of the balance of the
purchase price was made in good faith and that
the failure of the private respondent to deposit
the purchase price on the date specified was
due to the petitioners who also make no claim
that they had sustained damages because of
the two days delay, there was substantial
compliance with the terms and conditions of
the compromise agreement.

TLG INTERNATIONAL CONTINENTAL

ENTERPRISING, INC., petitioner,
vs.
HON. DELFIN B. FLORES, Presiding Judge,
Court of First Instance of Rizal, Branch XI,
respondent.
October 5, 1971 The case was an action for
declaratory relief involving the rights of
Bearcon Trading Co., Inc. as lessee of the
premises of the aforesaid defendants. TLG
intervened as sub-lessee of Bearcon over the
property, and the purpose of its intervention
was to protect its rights as such sub-lessee and
to enable it, during pendency of the case, to

October 27, 1971 P900.00

November 29, 1971 600.00
January 19, 1972 750.00
March 8, 1972 1,500.00
or a total of P3,750.00, which deposits are
properly covered by official receipts.
On October 20, 1971, defendants in Civil Case
No. 14880, filed with said Court, an "Omnibus
Motion" in which they prayed that the
complaint, as well as the Complaint In
Intervention, be dismissed on the ground that
the subject matter thereof could be better
ventilated in the ejectment case filed by Juan
Fabella against Bearcon Trading Co., Inc. (Civil
Case No. 3979) then pending before the
municipal court of Mandaluyong Rizal.
The court issued an "Omnibus Order",
dismissing both the complaint and the
complaint in intervention.
On May 27, 1972, petitioner filed its Motion to
withdraw the sums it deposited, as "the order
dismissing the case as well as the complaint in
intervention without a resolution having been
made as to the right of the plaintiff or the
defendants to the rentals deposited by the
intervenor, left the intervenor without any
recourse but to apply for authority to withdraw
the amount and turn over the same to the
defendants in accordance with the

understanding arrived at between the parties

hereto". This was denied by Respondent in its
order of June 23, 1972. The motion for
reconsideration of petitioner was likewise
denied by Respondent on July 15, 1972.
Hence this petition for certiorari.
ISSUE: Whether or not Respondent could
authorize the withdrawal of the deposits
considering that according to Respondent, the
Court "has not ordered the intervenor to make
any deposit in connection" with the case.
HELD: There is no question that in cases of
consignation, the debtor is entitled as a matter
of right to withdraw the deposit made with the
court, before the consignation is accepted by
the creditor or prior to the judicial approval of
such consignation. This is explicit from the
second paragraph of Article 1260 of the new
Civil Code which states that: "Before the
creditor has accepted the consignation, or
before a judicial declaration that the
consignation has been properly made, the
debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in
force".
In the case at bar, the case was dismissed
before the amount deposited was either
accepted by the creditor or a declaration made
by the Court approving such consignation.
Such dismissal rendered the consignation
ineffectual. Under such circumstances it was
incumbent upon Respondent to have allowed
the withdrawal by petitioner of the sums of
money deposited by it with the Court.
Respondent nevertheless insists that the Court
had no authority to authorize its withdrawal
since it "has not ordered intervenor to make"
the deposit. This contention ignores the fact
that the deposit was made by petitioner as a

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consequence of the admission by the Court of

its "Complaint In Intervention". It must be
noted that the aforesaid deposit was made
with and officially receipted by the Clerk of
Court. The deposit was made pursuant to
Article 1258 of the new Civil Code which states
that: "Consignation shall be made by
depositing the things due at the disposal of
judicial authority, before whom the tender of
payment shall be proved, in a proper case, ...".
It was therefore money received by the Clerk of
Court pursuant to Section 6 of the Judiciary Act.
(Rep. Act 296 as Amended). From the moment
the deposit was made by petitioner, "the
money remained under the control and
jurisdiction of the court and the former could
not recover it without an express order of
restitution. In the light of the aforecited
statutory provisions and jurisprudence the SC
finds no justification for Respondent's
intransigent posture.

LUISA F. MCLAUGHLIN V. C.A. & RAMON

FLORES G.R. No. L-57552 October 10,
1986 FERIA, Actg. C.J.
FACTS: Petitioner Luisa F. McLaughlin and
private respondent Ramon Flores entered into
a contract of conditional sale of real property.
The deed of conditional sale fixed the total
purchase price of P140k payable as follows: a)
P26k upon the execution of the deed; and b)
the balance of P113k to be paid not later than
May 1977. The parties also agreed that the
balance shall bear interest at the rate of
1% per month to commence from December
1976, until the full purchase price was paid.
In 1979, petitioner filed a complaint for the
rescission of the deed of conditional sale due
to the failure of private respondent to pay the

balance due on May 31, 1977. Later, the

parties submitted a Compromise Agreement on
the basis of which the court rendered a
decision. In said compromise
agreement, private respondent acknowledged
his indebtedness to petitioner under the deed
of conditional sale in the amount of P119k, and
the parties agreed that said amount would be
payable as follows: a) P50k upon signing of the
agreement; and b) the balance of P69k in two
equal installments on June 1980 and
December 1980. As agreed upon, private
respondent paid P50k upon the signing of the
agreement and in addition he also paid an
"escalation cost" of P25k.
In October 1980, petitioner wrote to private
respondent demanding that the latter pay the
balance of P69k.
Private respondent then sent a letter
to petitioner signifying his willingness and
intention to pay the full balance of P69k, and at
the same time demanding to see the certificate
of title of the property and the tax payment
receipts.
Private respondent holds that on the first
working day of said month, he tendered
payment to petitioner but this was refused
acceptance by petitioner. Petitioner filed a
Motion for Writ of Execution alleging that
private respondent failed to pay the installment
due on June 1980 and that since June 1980 he
had failed to pay the monthly rental of P1k.

rescinding the deed of conditional sale

of real property.
ISSUE: WON the tender made by Flores was
valid
HELD: YES. It is significant to note that on
November 17, 1980, or just 17 days after
October 31,1980, the deadline set
by McLaughlin, Flores tendered the certified
manager's check. Considering that Flores had
already paid P101,550.00 under the contract
to sell, excluding the monthly rentals paid,
certainly it would be the height of inequity to
have this amount forfeited in favor McLaughlin.
Under the questioned orders, McLaughlin would
get back the property and still keep
P101,550.00. Moreover, section 4 of Republic
Act No. 6552 (Maceda Law) provides as follows:
In case where less than two years
of installments were paid, the seller shall give
the buyer a grace period of not less than sixty
days from the date the installment became
due. If the buyer fails to pay the installments
due at the expiration of the grace period, the
seller may cancel the contract after thirty days
from receipt by the buyer of the notice of the
cancellation or the demand for rescission of the
contract by a notarial act.
Section 7 of said law provides as follows: Any
stipulation in any contract hereafter entered
into contrary to the provisions of Sections 3, 4,
5 and 6, shall be null and void.

RTC granted the motion for writ of execution. It

denied the motion for reconsideration in an
order dated November 21, 1980and issued the
writ of execution on November 25, 1980. In an
order dated November 27, 1980, the trial court
granted petitioner's ex-parte motion for
clarification of the order of execution

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Considering petitioner's motion for execution

filed on November 7, 1980 as a notice of
cancellation, petitioner could cancel the
contract of conditional sale after thirty days
from receipt by private respondent of said
motion. The tender made by private
respondent of a certified bank manager's
check payable to petitioner was a valid
tender of payment.
Moreover, Section 49, Rule 130 of the
Revised Rules of Court provides that: An
offer in writing to pay a particular sum of
money or to deliver a written instrument
or specific property is, if rejected,
equivalent to the actual production and
tender of the money, instrument, or
property.
However, although private respondent had
made a valid tender of payment which
preserved his rights as avendee in the contract
of conditional sale of real property, he did not
follow it with a consignation or deposit of
the sum due with the court. In one case, it
was held: True that consignation of the
redemption price is not necessary in order that
the vendor may compel the vendee to allow
the repurchase within the time provided by law
or by contract.
We have held that in such cases a mere tender
of payment is enough, if made on time, as a
basis for action against the vendee to compel
him to resell. But that tender does not in
itself relieve the vendor from his
obligation to pay the price when
redemption is allowed by the court. In
other words, tender of payment is sufficient to
compel redemption but is not in itself
a payment that relieves the vendor from
his liability to pay the redemption price."In
compliance with a resolution issued by the

lower court, both parties submitted their

respective manifestations which confirm that
the Manager's Check in question was
subsequently withdrawn and replaced by cash,
but the cash was not deposited with the court.

SOLEDAD SOCO vs. HON. FRANCIS MILITANTE,

Incumbent Presiding Judge of the CFI of Cebu,
Branch XII, Cebu City and REGINO FRANCISCO,
JR.
Ponente: GUERRERO, J.:
Place: Cebu City

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. It can readily
be discerned from Exhibit A (from SOCO) that
paragraphs 10 and 11 appear to have been
cancelled
while
in
Exhibit
2
(from
FRANCISCO) only paragraph 10 has been
cancelled. Claiming that paragraph 11 of the
Contract of Lease was in fact not part of the
contract because it was cancelled, Soco filed
Civil Case No. R-16261 in the Court of First
Instance of Cebu seeking the annulment and/or
reformation of the Contract of Lease.
Sometime before the filing of Civil Case No. R16261 Francisco noticed that Soco did not
anymore send her collector for the payment of
rentals and at times there were payments
made but no receipts were issued. This
situation prompted Francisco to write Soco the
letter dated February 7, 1975 which the latter

received. After writing this letter, Francisco

sent his payment for rentals by checks issued
by the Commercial Bank and Trust Company.
The factual background setting of this case
clearly indicates that soon after Soco learned
that Francisco sub-leased a portion of the
building to NACIDA, at a monthly rental of more
than P3,000.00 which is definitely very much
higher than what Francisco was paying to Soco
under the Contract of Lease, the latter felt that
she was on the losing end of the lease
agreement so she tried to look for ways and
means to terminate the contract.
In view of this alleged non-payment of rental of
the leased premises beginning May, 1977,
Soco through her lawyer sent a letter dated
November 23, 1978 to Francisco serving notice
to the latter to vacate the premises leased. In
answer to this letter, Francisco through his
lawyer informed Soco and her lawyer that all
payments of rental due her were in fact paid by
Commercial Bank and Trust Company through
the Clerk of Court of the City Court of Cebu.
Despite this explanation, Soco filed this instant
case of Illegal Detainer.
MTC and RTC have conflicting findings. The
former found that the consignation was valid.
RTC reversed and ordered the eviction of the
Francisco.
ISSUE: WON there was a valid consignation of
payment of the rentals.
HELD: 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,

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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. (parangwalanaman tong mga to sa
1176, 1177 and 1178?)
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. Second,
respondent lessee also failed to prove the first
notice to the lessor prior to consignation,
Evidently, from this arrangement, it was the
lessees duty to send someone to get the
cashiers check from the bank and logically, the
lessee has the obligation to make and tender
the check to the lessor. This the lessee failed to
do,
which
is
fatal
to
his
defense.
Third, respondent lessee likewise failed to
prove the second notice, that is after
consignation has been made, to the lessor. And
the fourth requisite that respondent lessee
failed to prove is the actual deposit or
consignation of the monthly rentals except the
two cashiers checks referred to in Exhibit 12.
As indicated earlier, not a single copy of the
official receipts issued by the Clerk of Court
was presented at the trial of the case to prove
the actual deposit or consignation.
We, therefore, find and rule that the lessee has
failed to prove tender of payment except that
in Exh. 10; he has failed to prove the first

notice to the lessor prior to consignation

except that given in Exh. 10; he has failed to
prove the second notice after consignation
except the two made in Exh. 12; and he has
failed to pay the rentals for the months of July
and August, 1977 as of the time the complaint
was filed for the eviction of the lessee. We hold
that the evidence is clear, competent and
convincing showing that the lessee has
violated the terms of the lease contract and he
may, therefore, be judicially ejected.
CRISTINA SOTTO, plaintiff-appellee,
vs.
HERNANI MIJARES, ET AL., defendantsappellants.
MAKALINTAL, J.:
FACTS:
This is an appeal taken by herein defendants
from that portion of the order of the Court of
First Instance of Negros Occidental dated
March 20, 1963 in its Civil Case No. 6796 which
requires them to deposit with the Clerk of Court
the amount of P5,106.00 within ten (10) days
from receipt of said order. Originally appealed
to the Court of Appeals, this case was
subsequently certified to this Court, the only
issue being one of law.
In the aforesaid Civil case[[1]] plaintiff filed a
"Motion for Deposit" on November 13, 1962,
the pertinent portions of which read:
2. That in accordance with the contract
including the allied transactions as evidenced
by other documents, the balance indebtedness
of the defendants in favor of the plaintiff is the
amount
of
P5,106.00
only,
Philippine
Currency ...;

3. That according to the answer of the

defendants, the said claim of P5,106.00 is
admitted ..., with the defendants further
alleging that they have offered the said
amount to the plaintiff who refused to receive
the said amount;
4. That in view of the admission of the
defendants of the same and in order to limit
the other controversial issue ... it is fitting and
proper that the said amount of P5,106.00 be
deposited in the Office of the Clerk of Court of
this province or to deliver the same to the
plaintiff and/or her counsel.
Defendants, in their "Opposition" dated
November 23, 1962, signified their willingness
to deposit the requested amount provided that
the complaint be dismissed and that they be
absolved of all other liabilities, expenses and
costs.
On November 26, 1962 the lower court issued
the following order:
It appearing that the defendants have admitted
the claim of the plaintiff in the sum of
P5,106.00, as prayed for by the counsel for the
plaintiff the said defendants are hereby
ordered to deposit said amount to the Clerk of
Court pending the final termination of this
case.
On November 28, 1962 plaintiff this time
represented by new counsel filed a motion
for partial judgment on the pleadings with
respect to the amount of P5,106.00, modifying
their previous request for judicial deposit,
which had already been granted. On the other
hand, defendants moved to reconsider the
order of November 26, explaining that through
oversight they failed to allege in their
"Opposition" that the sum of P5,106.00 was
actually secured by a real estate mortgage.

25 | P a g e

OBLICON2

They would thus premise their willingness to

deposit said amount upon the condition "...
that the plaintiff will cancel the mortgage
abovementioned and that the plaintiff be
ordered to return to the defendants Transfer
Certificate of Title No. 29326 covering Lot No.
327 of Pontevedra and Transfer Certificate of
Title No. 29327 covering Lot No. 882 of
HinigaranCadastre, Negros Occidental."
On March 20, 1963 the lower court resolved
both motions, in effect denying them and
reiterating its previous order, as follows:
WHEREFORE, the motion for partial judgment
on the pleadings dated November 28, 1962 is
hereby denied but in its stead the defendants
are hereby ordered to deposit with the Clerk of
Court the amount of P5,106.00 within ten (10)
days from receipt of this order subject to
further disposition thereof in accordance with
the decision to be rendered after trial.
HELD:
It is the foregoing order from which the present
appeal has been taken. Since this case was
submitted upon the filing of the briefs, there
has been no showing as to the outcome of the
main case below for foreclosure of mortgage.
The decision therein, if one has been rendered,
since no injunction was sought in or granted by
this Court, must have rendered this appeal
moot and academic, considering that the
defendants admit their indebtedness to the
plaintiff but object merely to their being
compelled to deposit the amount thereof in
court during the pendency of the foreclosure
case. However, no manifestation having been
received on the matter, we shall proceed to the
issues raised by the parties.
The first of said issue is procedural, and has
been set up by the appellee as a roadblock to

this
appeal.
She
maintains
that
the
controverted order is interlocutory, since it
does not dispose of the case with finality but
leaves something still to be done, and hence is
unappealable. The remedy, it is pointed out,
should have been by petition for certiorari. The
point, strictly speaking, is well taken; but this
Court sees fit to disregard technicalities and
treat this appeal as such a petition and
consider it on the merits, limiting the issue,
necessarily, to whether or not the court below
exceeded its jurisdiction or committed a grave
abuse of discretion in issuing the order
complained of.

court declares that it has been properly made,

in either of which events the obligation is
ordered cancelled. Indeed, the law says that
"before the creditor has accepted the
consignation or before a judicial declaration
that the consignation has been properly made,
the debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in
force."[[2]] If the debtor has such right of
withdrawal, he surely has the right to refuse to
make the deposit in the first place. For the
court to compel him to do so was a grave
abuse of discretion amounting to excess of
jurisdiction.

The defendants admit their indebtedness to

the plaintiff, but only in the sum of P5,106.00.
It seems that the controversy refers to the
plaintiff's
additional
claim
for
interest,
attorney's fees and costs.

The order appealed from is set aside, without

pronouncement as to costs.

The defendants expressed their willingness to

deposit the said amount in court, subject to the
condition that the mortgage they had executed
as security be cancelled. The question, then, is:
Did the court act with authority and in the
judicious exercise of its discretion in ordering
the defendants to make the deposit but without
the condition they had stated? Whether or not
to deposit at all the amount of an admitted
indebtedness, or to do so under certain
conditions, is a right which belongs to the
debtor exclusively. If he refuses he may not be
compelled to do so, and the creditor must fall
back on the proper coercive processes
provided by law to secure or satisfy his credit,
as by attachment, judgment and execution.
From the viewpoint of the debtor a deposit
such as the one involved here is in the nature
of consignation, and consignation is a
facultative remedy which he may or may not
avail himself of. If made by the debtor, the
creditor merely accepts it, if he wishes; or the

G.R. No. 90359 June 9, 1992

JOHANNES RIESENBECK, petitioner, vs. THE
HON. COURT OF APPEALS, and JUERGEN
MAILE, respondents.
GRIO-AQUINO, J.:
FACTS:
This is a petition for review on certiorari to
annul the decision dated April 21, 1989 of the
Court of Appeals which dismissed for lack of
merit the petition for certiorari against two (2)
orders of Regional Trial Court Judge Teodoro K.
Risos.
On July 25, 1988, petitioner Riesenbeck filed in
the Regional Trial Court of Cebu, Branch 27, a
complaint for consignation and damages
against respondent JuergenMaile. On July 27,
1988, petitioner consigned and deposited with
the Clerk of Court of the Regional Trial Court of
Cebu the sum of P113,750. The private
respondent subsequently filed a Manifestation
Accepting Consignation and Motion to Dismiss

26 | P a g e

OBLICON2

dated August 1, 1988, wherein he stated, inter

alia, that "without necessarily admitting the
correctness of obligation of plaintiff to
defendant, the latter hereby manifests to
accept the said amount of P113,750 which is
consigned by plaintiff, provided that the
present complaint be dismissed outright with
cost against plaintiff." (p. 14, CA Rollo.) The
petitioner
opposed
the
manifestation,
respondent Maile filed an Answer with Special
Defenses and Counterclaim. On August 23,
1988,
petitioner
filed
his
Answer
to
Counterclaim. Private respondent filed a
rejoinder/reply to the petitioner's opposition.
Thereafter,
on
September
28,
1988,
respondent Judge issued the first questioned
order reading in part as follows:
After a thorough evaluation of the issues
involved in the manifestation and the
opposition thereto, the Court is of the opinion
that there was a valid consignation, and
defendant could legally accept the payment by
consignation
with
reservation
to
prove
damages and other claims as held by the
Supreme Court in the case of Sing Juco vs.
Cuaycong, 46 Phil. 81.
WHEREFORE the Clerk of Court of this Court is
hereby ordered to deliver to defendant
JuergenMaile
the
sum
of
P113,750.00
immediately, but the motion to dismiss is
hereby in the meantime DENIED. (p.31,
CA, Rollo.)
On November 11. 1988, Judge Risos denied
petitioner's motion for reconsideration.
On November 18, 1988, petitioner filed a
petition for certiorari in the Court of Appeals to
annul and set aside the two orders of Judge
Risos.

In a decision dated April 21, 1989, the Court of

Appeals dismissed the petition for certiorari.
Petitioner's motion for reconsideration was
denied by the Court of Appeals in a Resolution
dated August 29, 1989.
In this petition for review, the petitioner raises
the following issue: What is the effect on the
petitioner's
obligation
to
the
private
respondent of the latter's acceptance with
reservation of the amount consigned by the
petitioner?
HELD:
Private respondent's acceptance of the amount
consigned by the petitioner-debtor with a
reservation or qualification as to the
correctness of the petitioner's obligation, is
legally permissible. There is authority for the
view that before a consignation can be
judicially declared proper, the creditor may
prevent the withdrawal of the amount
consigned by the debtor, by accepting the
consignation, even with reservations (Tolentino,
Civil Code of the Phil., Vol. IV, 1973 Ed., p.
317, citing 3 Llerena 263).
In ruling that there was a valid consignation
and that the respondent creditor could accept
the same with a reservation of his damages
and other claims, the Court of Appeals relied
on the 1924 case of Sing Juco vs. Cuaycong, 46
Phil. 81. In that case, the defendants consigned
in court the amount which they had received
from the plaintiff as the price of sugar, the sale
of which did not materialize. The defendants
were given the alternative of delivering the
sugar or returning the price per stipulation in
the contract. We ruled that plaintiff's
acceptance
of
the
money
consigned,
unconditionally and without reservation, was a
waiver of his other claims under the contract.

A
sensucontrario,
when
the
creditor's
acceptance of the money consigned is
conditional and with reservations, he is not
deemed to have waived the claims he reserved
against his debtor. Thus, when the amount
consigned does not cover the entire obligation,
the creditor may accept it, reserving his right
to the balance (Tolentino, Civil Code of the
Phil., Vol. IV, 1973 Ed., p. 317, citing 3 Llerena
263). The same factual milieu obtains here
because the respondent creditor accepted with
reservation the amount consigned in court by
the petitioner-debtor. Therefore, the creditor is
not barred from raising his other claims, as he
did in his answer with special defenses and
counterclaim against the petitioner-debtor.
As respondent-creditor's acceptance of the
amount consigned was with reservations, it did
not
completely
extinguish
the
entire
indebtedness of the petitioner-debtor. It is
apposite to note here that consignation is
completed at the time the creditor accepts the
same without objections, or, if he objects, at
the time the court declares that it has been
validly made in accordance with law. (Tolentino,
Civil Code of the Phil., Vol. IV, 1973 Ed., p.
315.)
Since the lower court in this case declared on
September 28, 1988 that there was a valid
consignation by the petitioner, the latter
cannot tenably argue that he is still the owner
of the amount consigned and that he can still
withdraw it.
The consignation has retroactive effect. The
payment is deemed to have been made at the
time of the deposit of the money in court, or
when it was placed at the disposal of the
judicial authority, supra. In this case, payment
is considered made on July 27, 1988 when
petitioner consigned and deposited with the

27 | P a g e

OBLICON2

respondent court the sum of P113,750. instant

petition is hereby DISMISSED for lack of merit.
G.R. No. L-32116 April 2l, 1981
RURAL BANK OF CALOOCAN, INC. and JOSE O.
DESIDERIO, JR., petitioners,
vs.
THE COURT OF APPEALS and MAXIMA CASTRO,
respondents.

FACTS:
Maxima Castro, accompanied by Severino
Valencia, went to the Rural Bank of Caloocan to
apply for a loan. Valencia arranged everything
about the loan with the bank. He supplied to
the latter the personal data required for
Castro's loan application. After the bank
approved the loan for the amount of P3,000.00,
Castro, accompanied by the Valencia spouses,
signed a promissory note corresponding to her
loan in favor of the bank. On the same day, the
Valencia spouses obtained from the bank an
equal amount of loan for P3,000.00. They
signed another promissory note (Exhibit "2")
corresponding to their loan in favor of the bank
and had Castro affixed thereon her signature as
co-maker.
Both loans were secured by a real-estate
mortgage on Castro's house and lot. Later, the
sheriff of Manila sent a notice to Castro, saying
that her property would be sold at public
auction to satisfy the obligation covering the
two promissory notes plus interest and
attorney's fees. Upon request by Castro and
the Valencias and with conformity of the bank,
the auction sale was postponed, but was
nevertheless auctioned at a later date.

Castro claimed that she is a 70-year old widow

who cannot read and write in English.
According to her, she has only finished second
grade. She needed money in the amount of
P3,000.00 to invest in the business of the
defendant spouses Valencia, who accompanied
her to the bank to secure a loan of P3,000.00.
While at the bank, an employee handed to her
several forms already prepared which she was
asked to sign, with no one explaining to her the
nature and contents of the documents. She
also alleged that it was only when she received
the letter from the sheriff that she learned that
the mortgage contract which was an
encumbrance on her property was for
P6.000.00 and not for P3,000.00 and that she
was made to sign as co-maker of the
promissory note without her being informed.

Whether or not respondent court correctly

affirmed the lower court in declaring the
promissory note (Exhibit 2) invalid insofar as
they affect respondent Castro vis-a-vis
petitioner bank, and the mortgage contract
(Exhibit 6) valid up to the amount of P3,000.00
only.
HELD:
Yes.
RATIO:

Castro filed a suit against petitioners

contending that thru mistake on her part or
fraud on the part of Valencias she was induced
to sign as co-maker of a promissory note and
to constitute a mortgage on her house and lot
to secure the questioned note. At the time of
filing her complaint, respondent Castro
deposited the amount of P3,383.00 with the
court a quo in full payment of her personal loan
plus interest.

While the Valencias defrauded Castro by

making her sign the promissory note and the
mortgage contract, they also misrepresented
to the bank Castro's personal qualifications in
order to secure its consent to the loan. Thus, as
a result of the fraud upon Castro and the
misrepresentation to the bank inflicted by the
Valencias both Castro and the bank committed
mistake in giving their consents to the
contracts. In other words, substantial mistake
vitiated their consents given. For if Castro had
been aware of what she signed and the bank of
the true qualifications of the loan applicants, it
is evident that they would not have given their
consents to the contracts.

Castro prayed for:

Article 1342 of the Civil Code which provides:

the annulment as far as she is concerned of the

promissory note (Exhibit "2") and mortgage
(Exhibit "6") insofar as it exceeds P3,000.00;
and

Art. 1342. Misrepresentation by a third person

does not vitiate consent, unless such
misrepresentation has created substantial
mistake and the same is mutual.

for the discharge of her personal obligation

with the bank by reason of a deposit of
P3,383.00 with the court a quo upon the filing
of her complaint.

We cannot declare the promissory note valid

between the bank and Castro and the
mortgage contract binding on Castro beyond
the amount of P3,000.00, for while the
contracts may not be invalidated insofar as
they affect the bank and Castro on the ground
of fraud because the bank was not a

ISSUE:

28 | P a g e

OBLICON2

participant thereto, such may however be

invalidated on the ground of substantial
mistake mutually committed by them as a
consequence
of
the
fraud
and
misrepresentation inflicted by the Valencias.
Thus, in the case of Hill vs. Veloso, this Court
declared that a contract may be annulled on
the ground of vitiated consent if deceit by a
third person, even without connivance or
complicity with one of the contracting parties,
resulted in mutual error on the part of the
parties to the contract.
The fraud particularly averred in the complaint,
having been proven, is deemed sufficient basis
for the declaration of the promissory note
invalid insofar as it affects Castro vis-a-vis the
bank, and the mortgage contract valid only up
to the amount of P3,000.00.
G.R. No. L-59805 July 21, 1989
LEONILA J. LICUANAN, petitioner, vs. HON.
RICARDO D. DIAZ, Judge, Branch XXVII Court of
First Instance of Manila, and AIDA
PINEDA,respondents.

(Pl80.00) to be paid within the first five (5)

days of every month.
On April 4, 1978, the law office of Amado E.
Salalongos and Associates sent private
respondent a letter, the body of which, reads:
Upon
arrival
of
your
lessor,
Mrs.
LeonilaLicuanan from the United States, she
found out that you have occupied her garage
situated at 3415 F. Aguilar, Bo. Obrero, Tondo,
Manila, which portion is not included in your
lease contract, and that despite her request
that you remove the aparador and other things
which you have placed there as your stockpile,
you have failed and refused to do so, and
instead showed arrogance by telling her that it
will need a court order before she removes the
same and restores possession to you, in
violation of the terms of your contract.
In view thereof, we are giving you five (5) days
from receipt hereof within which to vacate the
premises at 3415 F. Aguilar, otherwise, we shall
be constrained to file an ejectment suit against
you.

FACTS:

Private respondent, reacting to the said letter,

on April 12, 1979, wrote the Civil Relations
Service, AFP, Camp Aguinaldo, Quezon City, for
help. A portion of her letter, reads:

This is a petition for review on certiorari of the

October 15, 1981 Decision of the then Court of
First Instance of Manila affirming the August 8,
1979 Decision of the City Court of Manila.

May I have the honor to solicit the help of your

good office with regard to the letter I received
from the law office of Amado C. Sagalongos&
Associates attached herein.

Herein petitioner is the owner of an apartment

situated at 3415 F. Aguilar St., Bo. Obrero,
Tondo, Manila, being rented by herein private
respondent since March, 1973. On January 22,
1974, they executed a lease contract, and
stipulated therein, among others, that the
monthly rental is One Hundred Eighty Pesos

The accusations implied therein are not true

and for your information, Sir, I have faithfully
paid my monthly rentals from the time we
occupied our apartment on March, 1973 up to
March, 1978.

PARAS, J.:

On April 24, 1978, both petitioner and private

respondent appeared before Lt. Col. Antonio
Penala, Hearing Officer of the Civil Relations
Service, but since the parties failed to reach
any agreement, Lt. Col. Penala placed the
notation "HOLD" on the pertinent document;
and as precautionary measure, instructed
private respondent to deposit the amount of
rental due for that month so that she could not
be charged with non-payment, which directive
private respondent readily complied with and
she was issued the corresponding receipt.
On August 30,1978, private respondent
received a letter from Atty. Manuel Melo,
counsel for petitioner, demanding payment of
the April to August, 1978 rentals amounting to
P900.00.
On September 13, 1978, petitioner filed Civil
Case No. 037226-V with the City Court of
Manila, Branch VII, presided over by Hon.
Priscilla C. Mijares against private respondent
for unlawful detainer with damages (Rollo, pp.
11-13). In the same, petitioner alleged, among
others, that private respondent had failed to
pay her monthly rentals from April to
September, 1978, amounting to Pl,080.00; that
a demand letter dated August 23, 1978, was
sent and received by private respondent on
August 30, 1978, wherein it is demanded that
she pay her rentals in arrears and to vacate the
premises; and that despite repeated demands,
written and verbal, she refuses to pay her
rentals in arrears and to vacate the premises.
On September 27,1978, private respondent
filed her answer (Ibid., pp. 14-17). In the same,
private respondent, among others, denies that
she failed in paying her monthly rentals,
claiming that petitioner has refused the rental
being tendered and that upon advice of the
Office of the Civil Relations, AFP, she deposited

29 | P a g e

OBLICON2

her monthly rentals with that office for the

months of April to September, 1978, inclusive
at P80.00 a month; and that she admits having
received the letter of demand dated August 23,
1978, and claims that upon receipt of the said
letter, she called up by telephone petitioner's
counsel, Atty. Manuel Melo, informing him that
the rentals due for the months of April to
August, 1978 have been deposited with the
Office of Civil Relations, AFP, and that
petitioner can withdraw the said amount due
from the said office.
The trial court, in a Decision dated August 8,
1979, ruled in favor of private respondent
(Ibid., pp. 37-42). The dispositive portion of the
said decision reads:
In view thereof, the complaint for unlawful
detainer with damages is hereby dismissed for
lack of merit. The petition for consignation
having been rendered moot and academic, said
petition is also hereby dismissed.
Petitioner appealed the decision, but the then
Court of First Instance of Manila, presided over
by herein respondent judge, in a Decision
dated October 15, 1981, affirmed the appealed
judgment
A Motion for Reconsideration was filed (Ibid.,
pp. 75-77), but the same was denied in an
Order dated February 18, 1982 (Ibid., pp. 9293). Hence, the instant petition.
ISSUE: whether or not private respondent's
deposit of the rentals due to petitioner with
Civil Relations Service, now Office for Civil
Relations, AFP, is a valid consignation.
HELD:
The instant petition is impressed with merit.

This issue was already answered in the

negative by this Court in the case of Landicho
v. Tensuan (150 SCRA 410, 415 [1987]) wherein
it statedTheir protestation that they deposited the
rentals due though belatedly in the Office of
then Presidential Assistant Ronaldo Zamora
does not help their cause at all. The law
prescribes that such consignation or deposit of
rentals should be made with the Court and/or
under Batas PambansaBlg. 25 in the bank and
not elsewhere.
In addition, it must be stated that in the case of
Soco v. Militante (123 SCRA 160, 166-167
[1983]), this Court ruled that the codal
provision of the Civil Code dealing with
consignation (Articles 1252-1261) should be
accorded a mandatory constructionWe do not agree with the questioned decision.
We hold that the essential requisites of a valid
consignation must be complied with fully and
strictly in accordance with the law. Articles
1256 to 1261, New Civil Code. That these
Articles must be accorded a mandatory
construction is clearly evident and plain from
the very language of the codal provisions
themselves which require absolute compliance
with the essential requisites therein provided.
Substantial compliance is not enough for that
would render only 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
indicated that all the essential requisites of a
valid consignation must be complied with. The
Civil Code Articles expressly and explicitly
direct what must be essentially done in order
that consignation shall be valid and effectual ...

Likewise, in the said Soco case, this Court

enumerated the requirements prescribed by
law for a valid consignation (p. 173). One of the
given requirements is that after consignation
had been made, the person interested was
notified thereof (Art. 1178, Civil Code). The
reason for such a requirement was given by
this Court. lt statedThe reason for the notification to the persons
interested in the fulfillment of the obligation
after consignation had been made, which is
separate and distinct from the notification
which is made prior to the consignation, is
stated in Cabanas v. Calo, G.R. No. L-10927,
October 30, 1958, 104 Phil. 1058, thus: 'There
should be notice to the creditor prior and after
consignation as required by the Civil Code. The
reason for this is obvious, namely, to enable
the creditor to withdraw the goods or money
deposited. Indeed, it would be unjust to make
him suffer the risk for any deterioration,
depreciation or loss of such goods or money by
reason of lack of knowledge of the
consignation. (P. 181)
In the instant case, perusal of the records will
readily show that private respondent failed to
comply with this requirement. Even granting
that petitioner was present when the hearing
officer of the Office for Civil Relations, AFP,
instructed private respondent to deposit the
April rental, it will be noted that petitioner
thereafter was never notified that a deposit
was made in the said office; and in the
succeeding monthly rentals, no tender of
payment was made to petitioner, nor was she
given any notice that consignation will be
made or that consignation had been made.
PREMISES CONSIDERED, the October 15,1981,
Decision of the then Court of First Instance of
Manila is REVERSED and SET ASIDE, and the

30 | P a g e

OBLICON2

respondent is ordered to vacate the premises

and to pay all accrued rentals.
CHAN VS CA (1994)
PONENTE: JUSTICE DAVIDE JR.
SETTING: URBISTONDO MANILA
FACTS:
SIt appears from the records that on February
1, 1983, Felisa Chan and Grace Cu entered into
a contract of lease whereby the latter will
occupy for residential purposes Room 401 and
the roof top of Room 442 of a building owned
by the former located at Elcano corner
Urbistondo, Manila. The term of the lease is
one year or up to February 1, 1984 at a
monthly rental of P2,400.00. Said contract of
lease was renewed every year for two
successive years or up to February 1, 1986. In
the contracts, it was agreed that the premises
shall be used as a learning center. After
February 1, 1986, there was no written
contract of lease executed by the parties, but
Grace has continuously occupied the premises
as a learning center.
The monthly rental was raised every year. In
January, 1989, it was increased to P3,484.80.
Sometime in November, 1989, Felisa padlock
the way to the roof top. Thereafter, there was
an exchange of communications between the
parties. Grace insisted that she should be
allowed to use the roof top of Room 442, while
Felisa maintained that only Room 401 was
leased and that the use of the roof top which,
according to her poses danger to the students,
was merely tolerated. Eventually, Felisa
terminated the lease, giving Grace until
January 1, 1990 to vacate the premises.

Because of the dispute between the parties,

Felisa did not collect the rental for December,
1989. Whereupon, Grace tendered to Felisa a
check amounting to P3,310.56. The latter
refused to accept the check. So Grace's lawyer
tendered the payment in cash in the same
amount of P3,310.56, with notice to Felisa that
if she will not accept the payment, the same
will be deposited in court by way of
consignation. At this juncture, Felisa allowed
Grace to hold classes only up the March, 1990.
On January 15, 1990, Grace filed Civil Case No.
131203 for consignation with the Metropolitan
Trial Court of Manila, Branch 15, alleging in her
complaint that Felisa refused to accept, without
justifiable cause, the rentals for the premises in
question. Felisa interposed in her answer a
counterclaim for ejectment, contending that
the lease, being month to month, had expired
but that despite demand, Grace refused to
vacate the premises. 4
On 18 December 1990, the MTC rendered its
decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered as
follows:
1. The court declares that the roof top of the
building at 442 Elcano corner Urbistondo
Street, Manila is included in the lease;
2. The court fixes the term of the lease over
the subject premises until June 30, 1992 upon
the expiration of which, petitioner [Grace Cu] is
ordered to vacate the said premises;
3. The court declares the consignation of
rentals made by the petitioner to be valid and
legal and hereby release[s] the petitioner from
the obligation of paying the said rentals;

4. All the respective claims of the parties

against each other for damages and attorney's
fees are hereby dismissed.
SO ORDERED. 5
Both parties appealed to the RTC of Manila.
Grace Cu maintained that the MTC should have
fixed a longer period, while Felisa Chan
contended that the MTC erred in extending the
term of the lease and in upholding the validity
of the consignation. In its Decision of 27 March
1992, the RTC affirmed the decision of the MTC.
Cu then went to the Court of Appeals on a
petition for review 6 alleging therein that the
RTC erred "in not fixing a longer period of
extension of the lease" and "in extending the
duration of the lease to 30 June 1992 but
subverting its factual findings in justification of
the extension as it concluded that the period
was intended by the parties for a longer
duration." In its challenged Decision of 20
January 1993, the Court of Appeals reversed
and set aside the decisions of the MTC and the
RTC and dismissed the complaint for
consignation for lack of merit. It likewise said
that the MTC and the RTC erred in passing upon
the issue of ejectment raised in Chan's
counterclaim since an action for ejectment can
only be initiated through a verified complaint,
not a counterclaim.
In dismissing the complaint for consignation,
the Court of Appeals ruled that under Article
1256 of the Civil Code, consignation may only
be resorted to by a debtor if the creditor to
whom tender of payment has been made
refuses without just cause to accept it. The
court of Appeals held that Chan's refusal to
accept the rental was justified. It said:
Thus, the respondent [Chan] allowed the
petitioner [Cu] to hold classes in the premises

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only until March, 1981. 7 Obviously, from

respondent landlord's point of view, beyond
March, 1989, 8 (1) the petitioner may no longer
be considered as lessee or debtor who may
relieve herself of liability by tendering payment
of the rentals and if refused, by consigning
them in court; and that (2) the petitioner is a
squatter or trespasser who has occupied the
premises not only without any agreement with
the respondent but against her will. So, as far
as the respondent is concerned, this
consignation may not come under the
provisions of Article 1256 of the Civil Code
cited above. Simply put, respondent's refusal
to accept petitioner['s] rental payments was
with just cause and that, therefore, the
respondent may not be compelled to accept
such rental payments. 9
On the issue of ejectment, the Court of Appeals
made the following observations:
Now, for a digression, We cannot see our way
clear why the MTC and the RTC passed upon
the issue of ejectment raised in respondent's
counterclaim and fixed the term of the lease up
to June 10, 1992. Under Section 1, Rule 70 of
the Revised Rules of Court, an action for
ejectment can only be initiated through a
verified complaint, not counterclaim. This is
basic. Thus, the said courts should not have
fixed the terms of the lease. This issue can only
be decided in a case of ejectment filed
pursuant to the said rule. The supreme Court,
in ChingPue vs. Gonzales [87 Phil. 81] held:
Consignation in court under article 1176 of the
Civil Code, is not the proper proceedings to
determine the relation between landlord and
tenant, the period or life of the lease or
tenancy, the reasonableness of the rental, the
right of the tenant to keep the premises
against the will of landlord, etc. These

questions should be decided in a case of

ejectment or detainer like those two cases
brought by Gonzales against two of the
petitioners under the provisions of Rule 72 of
the Rules of Court. In a case of ejectment, the
landlord claims either that the lease has ended
or been terminated or that the lessee has
forfeited his right as such because of his failure
to pay the rents as agreed upon or because he
failed or refused to pay the new rentals fixed
and demanded by the lessor. The lessee in his
turn may put up the defense that according to
law, the rental demanded of him is
unreasonable, exorbitant and illegal, or that
the period of the lease has not yet expired, or
that if the rental law is applicable, and that the
premises are destined solely for dwelling, he
may not be ousted therefrom because the
owner does not need them for his own use,
etc. We repeat that all these questions should
be submitted and decided in a case of
ejectment and cannot be decided in a case of
consignation. 10

ISSUE: Whether or not an action for ejectment

may be raised in a counter
claim in a consignation case.
RULING:
Yes. Section 8 Rule 6 of RC provides that
the answer may contain any counter claim
which a party may have against opposing
party provided the court has jurisdiction to
entertain the claim and can if the presence of
third parties is essential for its adjudication
acquire jurisdiction of such parties. Under
Section 4 Rule 9, a counterclaim not set up
shall be barred if it arises out of or is
necessarily connected with the transaction
occurrence that is the subject matter of the
opposing party's claim and does not require for

its adjudication the presence of third parties of

whom the court cannot acquire jurisdiction
as counterclaim may be compulsory or
permissive.
Chan's counterclaim is a compulsory
counterclaim because it is necessarily
connected with the transaction or occurrence
which is the subject matter of Cu's complaint
the lease of contract between
them. Consequently, the CA erred when it
held that Chan's cause of action in
ejectment could not be set up in a counter
claim.
FROM WHOLE CASE
SA counterclaim is any claim for money or
other relief which a defending party may have
against an opposing party. It need not diminish
or defeat the recovery sought by the opposing
party, but may claim relief exceeding in
amount or different in kind from that sought by
the opposing party's claim. 24 Counterclaims
are designed to enable the disposition of a
whole controversy of interested parties'
conflicting claims, at one time and in one
action, provided all the parties can be brought
before the court and the matter decided
without prejudicing the rights of any party. 25 A
counterclaim "is in itself a distinct and
independent cause of action, so that when
properly stated as such, the defendant
becomes, in respect to the matter stated by
him, an actor, and there are two simultaneous
actions pending between the same parties,
wherein each is at the same time both a
plaintiff and a defendant . . . A counterclaim
stands on the same footing and is to be tested
by the same rules, as if it were an independent
action." 26 In short, the defendant is a plaintiff
with respect to his counterclaim.

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Section 8, Rule 6 of the Rules of Court provides

that the answer may contain any counterclaim
which a party may have against the opposing
party provided that the court has jurisdiction to
entertain the claim and can, if the presence of
third parties is essential for its adjudication,
acquire jurisdiction of such parties. Under
Section 4 of Rule 9, a counterclaim not set up
shall be barred if it arises out of or is
necessarily connected with the transaction or
occurrence that is the subject matter of the
opposing party's claim and does not require for
its adjudication the presence of third parties of
whom the court cannot acquire jurisdiction. A
counterclaim may be compulsary or
permissive. The former is that covered by
Section 4 of Rule 9.
Chan's counterclaim for ejectment is a
compulsary counterclaim because it is
necessarily connected with the transaction or
occurrence which is the subject matter of Cu's
complaint, viz., the lease contract between
them. Consequently, the Court of Appeals erred
when it held that Chan's cause of action for
ejectment should not be set up in a
counterclaim.
We agreed with Chan that ChingPue
vs. Gonzales is inapplicable because
in ChingPue the consignation cases were filed
with the Court of First Instance which did not
have jurisdiction over ejectment cases;
necessarily, no counterclaim for ejectment
could have been interposed therein. The ratio
decidendi of the said case is that consignation
is not proper where the refusal of the creditor
to accept tender of payment is with just cause.
One will search therein in vain even for
an obiter dictum which suggests that an action
for ejection cannot be set up in a counterclaim.
In the instant case, the ejectment was set up
as a counterclaim in the MTC which has

jurisdiction over it and Cu joined that issue and

the incidents thereto by her answer to the
counterclaim and the counterclaim to the
counterclaim.
The Court of Appeals therefore should have
confined itself to the principal error raised in
Cu's petition in CA-G.R. SP No. 28870, viz., the
duration of the extended term of the lease
fixed in the decision of the MTC and affirmed by
the RTC. As fixed, the term of the lease was
extended to 30 June 1992. That period had
expired six months before the Court of Appeals
promulgated its challenged decision.
Considering that Chan did not file any petition
for the review of the RTC decision and was,
therefore, deemed to have agreed to the
extension; and considering further that Cu, as
petitioner in CA-G.R. SP No. 28870 , did not
come to us on a petition for review to seek
reversal of the decision therein and should thus
be considered to have agreed to the dismissal
of her consignation case, the parties must be
deemed bound by the extended term, which
has, nevertheless, already lapsed.
MEAT PACKING CORP VS CA (2001)
PONENTE: JUSTICE YNARES SANTIAGO
FACTS:
aPetitioner Meat Packing Corporation of the
Philippines (hereinafter, MPCP), is a corporation
wholly owned by the Government Service
Insurance System (GSIS). It is the owner of
three (3) parcels of land situated in Barrio
Ugong, Pasig City, as well as the meat
processing and packing plant thereon. On
November 3, 1975, MPCP and the Philippine
Integrated Meat Corporation (hereinafter,
PIMECO) entered into an Agreement[1] whereby
MPCP leased to PIMECO, under a leasepurchase arrangement, its aforesaid property

at an annual rental rate of P1,375,563.92,

payable over a period of twenty-eight years
commencing on the date of execution of the
Agreement, or for a total consideration of
P38,515,789.87. The Agreement contained
rescission clauses, to wit:
5. If for any reason whatsoever the LESSEEVENDEE should fail or default in the payment of
rentals equivalent to the cumulative sum total
of three (3) annual installments, this
Agreement shall be deemed automatically
cancelled and forfeited without need of judicial
intervention, and LESSOR-VENDOR shall have
the complete and absolute power, authority,
and discretion, and without reservation by the
LESSEE-VENDEE, to dispose of, sell, transfer,
convey, lease, assign, or encumber the project
to any person or persons, natural or juridical, in
the same manner as if this lease-purchase
arrangement was never entered into. In the
event of such cancellation or forfeiture, the
LESSEE-VENDEE unconditionally agrees that all
forms of money paid or due from the LESSEEVENDEE shall be considered as rentals for the
use and occupancy of the project, and the
LESSEE-VENDEE hereby waives and forfeits all
rights to ask for and demand the return or
reimbursement thereof.[2]
16. Violation of any of the terms and
conditions of this Agreement shall be sufficient
ground for the LESSOR-VENDOR to rescind
and/or consider null and void this Agreement
without need of judicial intervention by giving
the LESSEE-VENDEE one hundred eighty (180)
days written notice to that effect, which shall
be final and binding on the LESSEE-VENDEE,
and the LESSEE-VENDEE shall thereupon leave
and vacate the project, provided that if LESSEEVENDEE has subleased portions of the project,
LESSEE-VENDEE shall relinquish all its rights
and/or interests over the sublease contracts in

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favor of the LESSOR-VENDOR. LESSEE-VENDEE

shall leave all improvements, whether finished
or unfinished, in good and serviceable
condition immediately after the corresponding
notice in writing has been received by the
LESSEE-VENDEE, and all said improvements
shall automatically belong to and become the
property of the LESSOR-VENDOR without
liability or obligation on the part of the LESSORVENDOR to pay for the value thereof. LESSEEVENDEE further holds the LESSOR-VENDOR free
and harmless from any and all liabilities arising
from and/or connected with such sublease
contracts.[3]
Subsequently, on November 3, 1975, MPCP and
PIMECO entered into a Supplementary and
Loan Agreement,[4] whereby, in consideration of
the additional expenditures incurred by MPCP
for rehabilitating and refurbishing the meat
processing and packing plant, the total
contract price of the lease-purchase agreement
was increased to P93,695,552.59, payable over
a period of twenty-eight years commencing on
January 1, 1981, at the annual rental rate of
P3,346,269.70.
On March 17, 1986, the PCGG, in a letter
signed by then Commissioner Ramon A. Diaz,
sequestered all the assets, properties and
records of PIMECO.[5] The sequestration
included the meat packing plant and the leasepurchase agreement.
MPCP wrote a letter on November 17, 1986 to
PIMECO,[6] giving notice of the rescission of the
lease-purchase agreement on the ground,
among others, of non-payment of rentals of
more than P2,000,000.00 for the year 1986.
GSIS asked the PCGG to exclude the meat
packing plant from the sequestered assets of
PIMECO, inasmuch as the same is owned by

MPCP. However, PCGG denied the

request. Likewise, MPCP sought the turnover
to it of the meat packing plant on the ground
that the lease-purchase agreement had already
been rescinded. Acceding to this, PCGG
passed on January 24, 1989 a resolution stating
thus:
WHEREAS, the Presidential Commission on
Good Government at its session en banc on
September 20, 1988 ordered the transfer of
subject property, consisting of a meat packing
complex including the land located at Barrio
Ugong, Pasig, Metro Manila, to the GSIS under
the condition then that the PCGG management
team might continue its operations for the
purpose of completing the outstanding orders
up to December 1988;
WHEREAS, the Government Service Insurance
System has shown, to the satisfaction of the
Commission, that it owns the said plant
complex; that it has the legal and equitable
right to regain possession and control thereof;
that whatever claim PIMECO had to the
complex under its so-called agreement to
lease/purchase with GSIS/MPCP has been
validly rescinded by the GSIS; and that the
projected turn-over to the GSIS will not
adversely affect the ill-gotten wealth case
pending against crony Peter Sabido before
the Sandiganbayan;
WHEREFORE, the turn-over to the GSIS of the
said property should be done forthwith upon
compliance with these conditions, to be
implemented by the Operations and Legal
Departments: (a) joint PCGG-COA audit; (b)
approval by the Sandiganbayan; and (c)
execution of a Memorandum of Agreement to
contain these stipulations, among others: (a)
that the shares of Peter Sabido in PIMECO are
subject to the Sandiganbayan case; (b) that

any disposition or transfer by the GSIS of said

property or any part thereof shall be with the
conformity of the PCGG; and (c) that this
Memorandum be annotated on the title of the
property.[7]
Meanwhile, PCGG instituted with the
Sandiganbayan on July 29, 1987 a complaint
for reconveyance, reversion, accounting,
restitution and damages, docketed as Civil
Case No. 0024, entitled, Republic of the
Philippines, Plaintiff versus Peter Sabido, et al.,
Defendants.[8] The complaint alleged, in
pertinent part, that Peter Sabido obtained,
under favored and very liberal terms, huge
loans from the GSIS in favor of PIMECO, among
other corporations, which was beneficially held
and controlled by defendants Peter Sabido,
Roberto S. Benedicto and Luis D. Yulo; and that
PIMECO was granted the monopoly to supply
meat products in the Greater Manila Area.
The Sandiganbayan, in a Resolution dated May
4, 1989,[11] ordered the PCGG to submit its
comment as to the veracity of the alleged
turnover of the management, control and
possession of PIMECO to the GSIS or MPCP, and
if true, to furnish movant Sabido a copy of the
PCGG resolution approving the same.
Meanwhile, on May 20, 1989, Sabido filed an
Urgent Manifestation and Motion,[12] alleging
that, according to newspaper accounts, PCGG
had in fact already turned over the
management and operation of PIMECO to the
GSIS/MPCP. Thus, he prayed that the transfer
of the management, control and possession of
PIMECO to GSIS be declared null and void ab
initio for having been done without the
approval of the Sandiganbayan.
Sometime thereafter, the Sandiganbayan
received a letter[13] from members of the

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OBLICON2

PIMECO Labor Union, praying for the

maintenance of the status quo to enable
PIMECO to continue its business operations and
to ensure their continuity of work and security
of tenure. Thus, on June 2, 1989, the
Sandiganbayan issued a Resolution, the
dispositive portion of which reads:
On June 22, 1989, Sabido filed with the
Sandiganbayan a Motion for the Issuance of a
Writ of Preliminary Injunction, alleging that the
PCGG, in an Order dated May 11, 1989, had
ordered that the status quo as regards the
management and operations of PIMECO be
maintained pending submission of inventory
and financial audit. However, at the hearings
of this incident, it was sufficiently shown that
the transfer of PIMECO to MPCP will result in
the dissipation of assets which will cause
irreparable injury to Sabidos rights and
interests in the company in the event that the
Sandiganbayan shall ultimately rule that the
same was not ill-gotten.
PCGG filed a Motion for Reconsideration of the
Resolution of June 22, 1989. On August 3,
1989, the Sandiganbayan issued its
Resolution, viz:
WHEREFORE, finding the verified application
for issuance of a writ of preliminary injunction
to be sufficient in form and substance and that
after due hearing, it appears that great and
irreparable injury will be caused not only to
defendant-applicant but also to PIMECO should
the acts sought to be enjoined be allowed to be
done or performed, accordingly, upon
defendant-applicants posting of a bond of
P50,000.00, let the corresponding writ of
preliminary injunction issue commanding the
Presidential Commission on Good Government,
its officers, representatives, nominees or
agents from proceeding or consummating the

projected turnover of PIMECO to the GSIS-MPCP

until further orders of this Court and from
replacing, dismissing, demoting, reassigning,
grounding, or otherwise prejudicing the present
members of the PCGG management team in
PIMECO, except for valid and serious reasons
not attributable to or arising from their
objection or opposition to or activities of
statements against the said turnover.
ISSUES:
A(1) That the PCGG gravely abused its
discretion when it passed the resolutions dated
September 20, 1988, and January 24, 1989,
turning over the meat packing complex
including the land located at Barrio Ugong,
Pasig, Metro Manila, to the GSIS/MPCP (Exh.
E).
(2) That the PCGG commissioner concerned
exceeded his authority when he executed the
Memorandum of Agreement with MPCP on April
28, 1989, transferring the management and
operation of PIMECO to the GSIS/MPCP (Record,
pp. 1828-1832).
(3) That, accordingly, the said turnovers or
transfers are declared null and void ab initio,
and
(4) That the PCGG, its commissioners, officers,
representatives, and agents are permanently
enjoined from implementing the same
turnovers or transfers.
RULING:
AOn August 30, 1990, PIMECO filed with the
Sandiganbayan a petition, docketed as Civil
Case No. 0108, entitled, Philippine Integrated
Meat Corporation (PIMECO), Petitioner versus
Meat Packing Corporation of the Philippines
(MPCP) and Presidential Commission on Good

Government (PCGG), Respondents, captioned

as for Declaratory Relief and Other Similar
Remedies (Related to PCGG Case No. 25 and
Civil Case No. 0024).[19]
In its petition, PIMECO alleged that from 1981
to 1985, PIMECO has been regularly paying the
annual rentals in the amount of P3,346,269.70;
and that prior to its sequestration in January
1986, PIMECO was able to pay MPCP the
amount of P846,269.70. However, after its
sequestration, the PCGG Management Team
that took over the plant became erratic and
irregular in its payments of the annual rentals
to MPCP, thus presenting the danger that
PIMECO may be declared in default in the
payment of rentals equivalent to three (3)
annual installments and causing the
cancellation of the lease-purchase
agreement. Hence, PIMECO prayed for a
declaration that it is no longer bound by the
provisions of the above-quoted paragraph 5 of
the lease-purchase agreement.
In the meantime, PCGG tendered to MPCP two
checks in the amounts of P3,000,000.00 and
P2,000,000.00, or a total of P5,000,000.00,
representing partial payment of accrued
rentals on the meat packing plant, which MPCP
refused to accept on the theory that the leasepurchase agreement had been
rescinded. Thus, the PCGG filed an Urgent
Motion[20] praying that the Sandiganbayan
order MPCP to accept the tendered amount of
P5,000,000.00.
The Sandiganbayan set the aforesaid Urgent
Motion for hearing. On April 3, 1991, MPCP, by
special appearance, filed its Comment,
[21]
alleging that the Sandiganbayan had no
jurisdiction over MPCP since it was not a party
in Civil Case No. 0024; that its lease-purchase
agreement with PIMECO has been rescinded as

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OBLICON2

early as November 19, 1986; and that PIMECO

was in arrears in the payment of rentals in the
amount of P12,378,171.06, which is more than
the equivalent of three cumulative rentals at
the annual rate of P3,346,269.70.
On July 2, 1991, the Sandiganbayan issued the
first assailed Resolution, as follows:
WHEREFORE, the Court declares that the
tender of payment and consignation of
P5,000,000.00 in the form of two checks,
namely: China Banking Corporation Check No.
LIB M 003697 for P3,000,000.00 and Far East
Bank and Trust Company Check No. 29A A
021341 for P2,000,000.00, both dated January
30, 1991, and payable to GSIS-MPCP, have
been validly made in accordance with law and,
accordingly, orders Meat Packing Corporation
of the Philippines to accept the payment and
issue the corresponding receipt.
SO ORDERED.[22]
MPCP, still under a special appearance, filed a
Motion for Reconsideration of the above
Resolution.[23] On November 29, 1991, the
Sandiganbayan issued the second assailed
Resolution,[24] denying MPCPs Motion for
Reconsideration. Said the Sandiganbayan:
When the PCGG sequestered the assets and
records of PIMECO, including the leasepurchase agreement over MPCPs meat
packing plant, it assumed the duty to preserve
and conserve those assets and documents
while they remained in its possession and
control. That duty did not disappear when the
writ was deemed ipso facto lifted. On the
contrary, it continued until the sequestered
assets and records where returned to
PIMECO. And in the performance of that duty
in order to prevent the cancellation of the
lease-purchase agreement by reason of the

failure to pay three accumulated yearly rentalsinstallments, the PCGG made the timely tender
of payment and consignation which the
Resolution sought to be reconsidered
sustained. To rule otherwise would be unfair
and unjust to PIMECO considering that during
the time the PCGG had possession and control
of the sequestered assets and records, PIMECO
was not in the position to take steps necessary
for the preservation and conservation of those
assets and records.[25]
Meanwhile, on December 2, 1991, the
Sandiganbayan dismissed Civil Case No.
0108, i.e., the petition for declaratory relief, it
appearing that while the unpaid rentals as of
January 27, 1991 have reached P7,530,036.21,
PCGGs tender of payment and consignation of
the amount of P5,000,000.00, which was
upheld by the Sandiganbayan in Civil Case No.
0024, averted the accumulation of the unpaid
rentals to three yearly rentalsinstallments. Consequently, the petition for
declaratory relief has become moot and
academic.[26]
Hence, MPCP brought this petition for
certiorari, mandamus and prohibition, arguing
in fine that the Sandiganbayan did not have
jurisdiction over its person since it was not a
party to Civil Case No. 0024; that the
Sandiganbayan likewise did not acquire
jurisdiction over the person of PIMECO since it
has not been served summons; and that the
PCGG is in estoppel because it has already
admitted in its en banc resolutions that the
lease-purchase agreement between MPCP and
PIMECO has been rescinded. MPCP prays for
injunctive relief and for judgment setting aside
the assailed Resolutions of the Sandiganbayan;
ordering the Sandiganbayan to deny the
PCGGs motion for consignation and to compel
MPCP to accept the tendered amount of

P5,000,000.00; and prohibiting the

Sandiganbayan from accepting any papers or
pleadings from PCGG or PIMECO against MPCP
in Civil Case No. 0024.
Counsel for Peter Sabido filed his Comment,
[27]
with the qualification that the same was
being filed only on behalf of Sabido, a
stockholder of PIMECO, and not on behalf of
the corporation. He argued that the
Sandiganbayan correctly held that the MPCP
voluntarily submitted itself to the courts
jurisdiction; that there was a valid consignation
made by PCGG; and that the Sandiganbayan
did not commit grave abuse of discretion in
issuing the assailed resolutions.
PCGG filed its Comment,[28] also contending
that MPCP voluntarily submitted itself to the
jurisdiction of the Sandiganbayan; and that the
consignation was validly made.
Copies of this Courts resolutions were
furnished PIMECO at its principal office at 117
E. Rodriguez, Sr. Ave., Barrio Ugong, Pasig
City. However, all of these were returned
unserved with the notation, RTS
Closed.[29]Thus, on June 19, 1995, this Court
resolved to dispense with the comment of
PIMECO.[30]
The petition, being one for certiorari,
mandamus and prohibition, is mainly anchored
on the alleged grave abuse of discretion
amounting to want of jurisdiction on the part of
the Sandiganbayan.
Grave abuse of discretion implies a capricious
and whimsical exercise of judgment as is
equivalent to lack of jurisdiction, or, when the
power is exercised in an arbitrary or despotic
manner by reason of passion or personal
hostility, and it must be so patent and gross as
to amount to an evasion of positive duty

36 | P a g e

OBLICON2

enjoined or to act at all in contemplation of law.

[31]
It is not sufficient that a tribunal, in the
exercise of its power, abused its discretion;
such abuse must be grave.[32]
In the assailed resolutions, the Sandiganbayan
approved the consignation by PCGG of the
amount of P5,000,000.00 as payment for back
rentals or accrued amortizations on the meat
packing plant, after the MPCP refused the
tender of payment of the same.
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.[33] It should be
distinguished from tender of payment. 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.[34]Tender and consignation, where
validly made, produces the effect of payment
and extinguishes the obligation.
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.[35]
In the case at bar, there was prior tender by
PCGG of the amount of P5,000,000.00 for
payment of the rentals in arrears. MPCPs
refusal to accept the same, on the ground
merely that its lease-purchase agreement with
PIMECO had been rescinded, was
unjustified. As found by the Sandiganbayan,
from January 29, 1986 to January 30, 1990,
PIMECO paid, and GSIS/MPCP received, several
amounts due under the lease-purchase
agreement, such as annual amortizations or
rentals, advances, insurance, and taxes, in
total sum of P15,921,205.83.[36] Surely, the
acceptance by MPCP and GSIS of such
payments for rentals and amortizations
negates any rescission of the lease-purchase
agreement. Parenthetically, the factual
findings of the Sandiganbayan are conclusive
upon this Court, subject to certain exceptions.
[37]
The aforesaid factual findings, moreover,
have not been disputed by petitioner.
In support of its contention that the leasepurchase agreement has been rescinded, MPCP
makes reference to the resolutions of the PCGG
turning over to the GSIS the meat packing
complex and the land on which it is
situated. MPCP argues that PCGG was estopped
from taking a contrary position. A closer
perusal of the resolutions, however, readily
shows that the turn-over was explicitly made
dependent on certain conditions precedent,

among which was the approval by the

Sandiganbayan and the execution of a
Memorandum of Agreement between PCGG
and MPCP.[38] A Memorandum of Agreement
was in fact executed on April 28, 1989,
although the same suffers from formal and
substantial infirmities. However, no approval
was sought from the Sandiganbayan. On the
contrary, the Sandiganbayan, in its Resolution
declaring the turn-over null and void, refused
to honor the PCGG resolutions, reasoning thus:
First, what was approved by the PCGG in its
resolutions of September 20, 1988, and
January 24, 1989, is the transfer of the meat
packing complex including the land located at
Barrio Ugong, Pasig, Metro Manila, and not
the management and operation of PIMECO. It
is, however, the latter that the Memorandum of
Agreement, executed on April 28, 1989,
pursuant to the said resolutions, transferred to
the GSIS.
Second, the second resolution made the
turnover of the meat packing complex
including the land located at Barrio Ugong,
Pasig Metro Manila, upon compliance with
these conditions, to be implemented by the
[PCGG] Operations and Legal Departments: . . .
(b) approval by the Sandiganbayan . . . Until
now, however, no motion has been presented
to secure that approval, and none can be
expected because the same Memorandum of
Agreement changed the requirement of
approval to (t)he Sandiganbayanshall be
advised of this Agreement. Even the advice
stipulated has never been given by the PCGG.
Since the Memorandum of Agreement was
executed by one PCGG commissioner only, the
same cannot validly amend the resolutions
passed by the PCGG itself. Consequently, the
turnover of the management and operation of

37 | P a g e

OBLICON2

PIMECO, which, of course, include the meat

packing complex and the land of which it
stands, stipulated in the Memorandum of
Agreement, cannot be legally
enforced. Needless to say, the commissioners
should be the first to abide by the PCGGs
resolutions.[39]
Under the terms of the lease-purchase
agreement, the amount of arrears in rentals or
amortizations must be equivalent to the
cumulative sum of three annual installments, in
order to warrant the rescission of the
contract. Therefore, it must be shown that
PIMECO failed to pay the aggregate amount of
at least P10,038,809.10 before the leasepurchase agreement can be deemed
automatically cancelled. Assuming in the
extreme that, as alleged by MPCP, the arrears
at the time of tender on January 30, 1991
amounted to P12,578,171.00,[40] the tender and
consignation of the sum of P5,000,000.00,
which had the effect of payment, reduced the
back rentals to only P7,578,171.00, an amount
less than the equivalent of three annual
installments. Thus, with the Sandiganbayans
approval of the consignation and directive for
MPCP to accept the tendered payment, the
lease-purchase agreement could not be said to
have been rescinded.
MPCPs chief complaint in its present petition is
that it was not a party in Civil Case No.
0024. As such, it alleges that the
Sandiganbayan had no jurisdiction over its
person and may not direct it to accept the
consigned amount of P5,000,000.00. In
rejecting this argument, the Sandiganbayan
held that Civil Case No. 0024, i.e., the
sequestration case, on the one hand, and Civil
Case No. 0108, i.e., the petition for declaratory
relief in which it was the named respondent, on
the other hand, were interrelated since they

both involved the sequestered assets of

PIMECO. Thus, the titles of both cases appear
on the caption of the assailed Resolutions
dated July 2, 1991. On this point, the
Sandiganbayan further ruled:
While MPCP is not a named party in Civil Case
No. 0024, it is in Civil Case No. 0108. These
two civil actions are interrelated in the sense
that they both involve the sequestered and
taken-over assets of PIMECO, principal of which
are the lease-purchase agreement, the rights
thereunder of PIMECO, and, since these rights
can not be exercised without possession of the
meat processing plant, the plant itself. It is for
this reason that the caption of the present
Urgent Motion expressly indicates that Civil
Case No. 0024 is Related to Civil Case No.
0108. In view of these circumstances, the
Court considers the Urgent Motion as also filed
in Case No. 0108.
Moreover, when the propriety of the turn-over
of the management and control of PIMECO,
including the meat packing plant, to MPCP was
in issue in Civil Case No. 0024, MPCP, through
its officers, appeared in all the proceedings and
actively coordinated with PCGG. To justify the
turn-over, the Office of the Solicitor General
echoed the stand of MPCP that the leasepurchase agreement had already been
rescinded. And in the present Urgent Motion,
MPCP again appeared. In fact, it appeared in
Case No. 0024 even if the matter at hand was
not the said motion. Although MPCPs lawyer
entered a special appearance in the present
incident, he did not confine himself to assailing
the jurisdiction of this Court over MPCP, but
went to the extent of participating in the oral
argument on the merits of the motion,. Indeed,
his Comment devoted only one page on the
issue of jurisdiction and seven pages to the
alleged untenability of the motion. Although

MPCP did not expressly pray for the denial of

the urgent motion, not even for lack of
jurisdiction over it, by setting forth therein
arguments not only on the jurisdictional issue,
but more extensively on the alleged lack of
merit of the motion, it thereby impliedly prayed
for affirmative relief in its favor. Under these
circumstances, MPCP voluntarily submitted
itself to the jurisdiction of the Court.[41]
Jurisdiction over the person of the defendant in
civil cases is acquired either by his voluntary
appearance in court and his submission to its
authority or by service of summons.
[42]
Furthermore, the active participation of a
party in the proceedings is tantamount to an
invocation of the courts jurisdiction and a
willingness to abide by the resolution of the
case, and will bar said party from later on
impugning the court or bodys jurisdiction.[43] In
this case, petitioner MPCP is precluded from
questioning the jurisdiction of the
Sandiganbayan over its person in Civil Case No.
0024, considering that, as shown by the
records, it actively participated in the
discussion of the merits of the said case, even
going to the extent of seeking affirmative
relief. The Sandiganbayan did not commit
grave abuse of discretion in saying so.
OCCENA VS JABSON (1976)
PONENTE: JUSTICE TEEHANKEE
SETTING: DAVAO CITY
FACTS:AThe Court reverses the Court of
Appeals appealed resolution. The Civil Code
authorizes the release of an obligor when the
service has become so difficult as to be
manifestly beyond the contemplation of the
parties but does not authorize the courts to
modify or revise the subdivision contract
between the parties or fix a different sharing

38 | P a g e

OBLICON2

ratio from that contractually stipulated with the

force of law between the parties. Private
respondent's complaint for modification of the
contract manifestly has no basis in law and
must therefore be dismissed for failure to state
a cause of action. On February 25, 1975 private
respondent Tropical Homes, Inc. filed a
complaint for modification of the terms and
conditions of its subdivision contract with
petitioners (landowners of a 55,330 square
meter parcel of land in Davao City), making the
following allegations:
"That due to the increase in price of oil and its
derivatives and the concomitant worldwide
spiralling of prices, which are not within the
control of plaintiff, of all commodities including
basis raw materials required for such
development work, the cost of development
has risen to levels which are unanticipated,
unimagined and not within the remotest
contemplation of the parties at the time said
agreement was entered into and to such a
degree that the conditions and factors which
formed the original basis of said contract,
Annex 'A', have been totally changed;
'That further performance by the plaintiff under
the contract.
That further performance by the plaintiff under
the contract,Annex 'S', will result in situation
where defendants would be unustly enriched at
the expense of the plaintiff; will cause an
inequitous distribution of proceeds from the
sales of subdivided lots in manifest actually
result in the unjust and intolerable exposure of
plaintiff to implacable losses, all such situations
resulting in an unconscionable, unjust and
immoral situation contrary to and in violation of
the primordial concepts of good faith, fairness
and equity which should pervade all human
relations.

Under the subdivision contract, respondent

"guaranteed (petitioners as landowners) as the
latter's fixed and sole share and participation
an amount equivalent to forty (40%) percent of
all cash receifptsfromthe sale of the subdivision
lots"

casue of action for modification of the

subdivision contrct. After receipt of
respondent's comment, the Court in its
Resolution of September 13, 1976 resolved to
treat the petition as special civil actionand
declared the case submitted for decision.

Respondent pray of the Rizal court of first

instance that "after due trial, this Honorable
Court render judgment modifying the terms
and conditions of the contract ... by fixing the
proer shares that shouls pertain to the herein
parties out of the gross proceeds from the
sales of subdivided lots of subjects
subdivision".

RULING:A he petition must be granted.

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.
Respondent court in its questioned resolution
of June 28, 1976 set aside the preliminary
injunction previously issued by it and dimissed
petition on the ground that under Article 1267
of the Civil Code which provides that
ART. 1267. When the service has become so
difficult as to be manifestly beyond the
contemplation of the parties, the obligor may
also be released therefrom, in whole or in part.
1
... a positive right is created in favor of the
obligor to be released from the performance of
an obligation in full or in part when its
performance 'has become so difficult as to be
manifestly beyond the contemplation of the
parties.
ISSUE: the petition at abar wherein petitioners
insist that the worldwide increase inprices cited
by respondent does not constitute a sufficient

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,

39 | P a g e

OBLICON2

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.
A final procedural note. Respondent cites the
general rule that an erroneous order denying a
motion to dismiss is interlocutory and should
not be corrected by certiorari but by appeal in
due course. This case however manifestly falls
within the recognized exception that certiorari
will lie when appeal would not prove to be a
speedy and adequate remedy.' Where the
remedy of appeal would not, as in this case,
promptly relieve petitioners from the injurious
effects of the patently erroneous order
maintaining respondent's baseless action and
compelling petitioners needlessly to go through
a protracted trial and clogging the court
dockets by one more futile case, certiorari will

issue as the plain, speedy and adequate

remedy of an aggrieved party.
NAGA TELEPHONE VS CA(1994)

iii.
Poor servicing- damage not less than
P100,000.
3.

PONENTE: JUSTICE NOCON

SETTING: CAMARINES SUR
1.

ANATELCO: telephone company

rendering local and long distance
services in Naga.
1.

Entered into contract with

Camarines Sur II Electric
Cooperative (electrice power
service):

i.
For the use in operation of its
telephone service, electric light posts of
CASURECO II.

1.

2.

CASURECO after 10 years: filed for

reformation of contract with damages,
not conforming to guidelines of
National Electrification Administration
(NEA)- reasonable compensation for
use of posts.

i.
Compensation is P10/posts but
consumption of telephone cables costs P2630.
ii.
NATELCO used 319 posts without any
contract at P10.00; refused to pay.

Compensation:

i.
No cause of action for reformation of
contract.
ii.
Barred by prescription (10 years
execution of contract)
iii.

Barred by estoppel.

iv.
Utilization could not have cause
deterioration because already used for 11
years. v.
Value of expenses been equal to
use of telephone lines.
4.

TRIAL COURT
1.

ii.
In return, free use of 10 telephone
connections.
iii.
Period: as long as NATELCO needs
electric light posts, CASURECO understands
that contract will terminate when they are
forced to stop, abandon operation and remove
lightposts.

NATELCO

ORDERED REFORMATION OF
AGREEMENT:

i.
NATELCO to
pay for electric polls sum of P10/pole from
January 1989.
1. Contract eventually became unfair due to
increase in volume of subscribers without
increase of telephone connections which are
free of charge to CASURECO.
2. REFORMATION OF CONTACT: cannot make
another contract but abolish inequities.
3. Contract does not mention use of posts
outside Naga City. Contract should be reformed
including provision that for the use posts
outside Naga.
5.

CA: agreed to TRIAL COURT but for

different reasons:

40 | P a g e

OBLICON2

1.

Article 1267 applicable

2.

Contract POTESTATIVE
CONDITION, THUS VOID

contract. It follows that

whether the contract is
disadvantageous or not is
irrelevant to reformation and
therefore, cannot be an
element in the determination
of the period for prescription
of the action to reform.

ISSUE:
Is Article 1267 applicable? YES
Has the filing of reformation of contract
prescribed? NO.

2.

Is the period of contract, as long as the party

of the first part has need for electrive light
posts potestative? YES.
HELD:
1.

ARTICLE 1267, EVEN THOUGH NEVER

RAISED BEFORE, IS APPLICABLE.
1.

2.

3.

2.

ARTICLE 1267: Art. 1267.

When the service has
become so difficult as to
be manifestly beyond the
contemplation of the
parties, the obligor may
also be released
therefrom, in whole or in
part.
PRESTATION: payment of
money; a toll or duty; also,
the rendering of a service.
Contract was one-sided
unfair, and disadvantageous
to plaintiff.

PRESCRIPTION HAS NOT YET LAPSED.

1.

What is reformed is not the

contract itself, but the
instrument embodying the

Article 1144: Action upon a

written contract must be
brought within 10 years from
the time the right of action
accrues.

i.
From the time the right of action
accrues not necessarily the date of execution
of the contract.
ii.
As correctly ruled by respondent court,
private respondent's right of action arose
"sometime during the latter part of 1982 or in
1983 when according to Atty. Luis General,
Jr. . . ., he was asked by (private respondent's)
Board of Directors to study said contract as it
already appeared disadvantageous to (private
respondent) in 1989.
iii.

10 years had not yet elapsed.

3. PERIOD OF CONTRACT IS POTESTATIVE,

THUS INVALID.
a. Leaves the continued effectivity of the
aforesaid agreement to the latter's sole and
exclusive will as long as plaintiff is in operation
b. Leaves leaves the effectivity and
enjoyment of leasehold rights to the sole and
exclusive will of the lessee.

FACTS: On 18 November 1985, private

respondents and petitioner entered into a
contract of lease of a parcel of land owned by
the former. The terms and conditions of said
contract of lease are as follows: a) the lease
shall be for a period of five (5) years which
begins upon the issuance of permit by the
Ministry of Human Settlement and renewable
at the option of the lessee under the terms and
conditions, b) the monthly rent is P20, 000.00
which shall be increased yearly by 5% based
on the monthly rate, c) the rent shall be paid
yearly in advance, and d) the property shall be
used as premises of a rock crushing plan.
On January 7, 1986, petitioner obtained permit
from the Ministry which was to be valid for two
(2) years unless revoked by the Ministry. Later,
respondent requested the payment of the first
annual rental. But petitioner alleged that the
payment of rental should commence on the
date of the issuance of the industrial clearance
not on the date of signing of the contract. It
then expressed its intention to terminate the
contract and decided to cancel the project due
to financial and technical difficulties. However,
petitioner refused to accede to respondents
request and reiterated their demand for the
payment of the first annual rental. But the
petitioner argued that it was only obligated to
pay P20, 000.00 as rental for one month
prompting private respondent to file an action
against the petitioner for specific performance
with damages before the RTC of Pasig. The trial
court rendered decision in favor of private
respondent. Petitioner then appealed the
decision of the trial court to the Court of
Appeals but the later affirmed the decision of
the trial court and denied the motion for
reconsideration.

PNCC VS CA (1997)
PONENTE: JUSTICE DAVIDE JR.

41 | P a g e

OBLICON2

ISSUE: Whether or not petitioner can avail of

the benefit of Article 1267 of the New Civil
Code.
RULING: NO. The petitioner cannot take refuge
of the said article. Article 1267 of the New Civil
Code provides that when the service has
become so difficult as to manifestly beyond the
contemplation of the parties, the obligor may
also be released therefrom, in whole or in part.
This article, which enunciates the doctrine of
unforeseen events, is not, however an absolute
application of the principle of rebus sic
stantibus, which would endanger the security
of contractual relations. The parties to the
contract must be presumed to have assumed
the risks of unfavorable developments. It is
therefore only in absolutely exceptional
chances of circumstances that equity demands
assistance for the debtor. The principle of rebus
sic stantibus neither fits in with the facts of the
case. Under this theory, the parties stipulate in
the light of certain prevailing conditions, and
once these conditions cease to exist, the
contract also ceases to exist.
In this case, petitioner averred that three (3)
abrupt change in the political climate of the
country after the EDSA Revolution and its poor
financial condition rendered the performance of
the lease contract impractical and inimical to
the corporate survival of the petitioner.
However, as held in Central Bank v. CA, mere
pecuniary inability to fulfill an engagement
does not discharge a contractual obligation,
nor does it constitute a defense of an action for
specific performance.

Gan Tion vs. Court of Appeals, 28 SCRA

235 No. L-22490, May 21, 1969
Gan Tion vs. CA, 28 SCRA 235, G.R. No. L22490 May 21, 1969

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.
Burgos and Sarte for petitioner.
Roxas, Roxas, Roxas and Associates
respondents.

for

MAKALINTAL, J.:
The sole issue here is whether or
not there has been legal compensation
between
petitioner
Gan
Tion
and
respondent Ong Wan Sieng.
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 in
the municipal court (of Manila), but upon
appeal the Court of First Instance, on July 2,
1962, reversed the judgment and dismissed
the complaint, and ordered the plaintiff to pay
the defendant the sum 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 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.lwphi1.et
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 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.
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.1 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.

BPI VS. CA 255 SCRA 571

DECISION
PUNO, J.:

42 | P a g e

OBLICON2

Petitioners seek a review of the Decision1

of respondent Court of Appeals in CA-G.R.
CV No. 41543 reversing the Decision2 of
the Regional Trial Court of Quezon City,
Branch 79, and ordering petitioners to
credit private respondents Savings

Manila conditionally cleared the check.4

The check was then sent to the United
States for further clearing.5

with

Two months after or on March 8, 1990,

private
respondent
closed
Savings
Account
No.
3
185-0128-82
and
transferred its funds amounting to
P13,112.91 to Savings Account No. 3 1850172-56, the joint account with his wife.

The facts reveal that on September 25,

1985, private respondent Edvin F. Reyes
opened Savings Account No. 3 185-017256 at petitioner Bank of the Philippine
Islands (BPI) Cubao, Shopping Center
Branch. It is a joint AND/OR account
with his wife, Sonia S. Reyes.

On January 16, 1991, U.S. Treasury

Warrant No. 21667302 was dishonored as
it was discovered that Fernandez died
three (3) days prior to its issuance. The
U.S. Department of Treasury requested
petitioner bank for a refund.6 For the first
time petitioner bank came to know of the
death of Fernandez.

Account
No.
3185-0172-56
P10,556.00 plus interest.

Private respondent also held a joint

AND/OR Savings Account No. 31850128-82 with his grandmother, Emeteria
M. Fernandez, opened3 on February 11,
1986 at the same BPI branch. He regularly
deposited in this account the U.S.
Treasury Warrants payable to the order of
Emeteria M. Fernandez as her monthly
pension.
Emeteria M. Fernandez died on December
28, 1989 without the knowledge of the
U.S. Treasury Department. She was still
sent U.S. Treasury Warrant No. 21667302
dated January 1, 1990 in the amount of
U.S. $377.003 or P10,556.00. On January
4, 1990, private respondent deposited the
said U.S. treasury check of Fernandez in
Savings Account No. 3 185-0128-82. The
U.S. Veterans Administration Office in

On February 19, 1991, private respondent

received a PT & T urgent telegram from
petitioner bank requesting him to contact
Manager Grace S. Romero or Assistant
Manager Carmen Bernardo.
When he
called up the bank, he was informed that
the treasury check was the subject of a
claim by Citibank NA, correspondent of
petitioner bank. He assured petitioners
that he would drop by the bank to look
into the matter.
He also verbally
authorized them to debit from his other
joint account the amount stated in the
dishonored U.S. Treasury Warrant.7 On
the same day, petitioner bank debited the
amount of P10,556.00 from private
respondents Savings Account No. 31850172-56.

On February 21, 1991, private respondent

with his lawyer Humphrey Tumaneng
visited the petitioner bank and the refund
documents
were
shown
to
them.
Surprisingly,
private
respondent
demanded
from
petitioner
bank
restitution of the debited amount. He
claimed that because of the debit, he
failed to withdraw his money when he
needed them. He then filed a suit for
Damages8 against petitioners before the
Regional Trial Court of Quezon City,
Branch 79.
Petitioners contested the complaint and
counter-claimed for moral and exemplary
damages.
By way of Special and
Affirmative Defense, they averred that
private respondent gave them his express
verbal
authorization
to
debit
the
questioned amount. They claimed that
private respondent later refused to
execute a written authority.9
In a Decision dated January 20, 1993, the
trial court dismissed the complaint of
private respondent for lack of cause of
action.10
Private respondent appealed to the
respondent Court of Appeals. On August
16, 1994, the Sixteenth Division of
respondent court in AC-G.R. CV No. 41543
reversed the impugned decision, viz:
WHEREFORE, the judgment appealed
from is set aside, and another one
entered ordering defendant (petitioner)
to credit plaintiffs (private respondents)
S.A. No. 3 185-0172-56 with P10,556.00
plus interest at the applicable rates for
express teller savings accounts from
February
19,1991,
until
compliance

43 | P a g e

OBLICON2

herewith. The claim and counterclaim for

damages are dismissed for lack of merit.
ISSUE:
Whether
or
not,
private
respondent
verbally authorized petitioner bank to debit
his joint account with his wife for the amount of
the returned U.S. Treasury Warrant. We find
that petitioners were able to prove this
verbal authority by preponderance of
evidence.
HELD:
We are not disposed to believe private
respondents allegation that he did not give
any verbal authorization. His testimony
is uncorroborated. Nor does he inspire
credence. His past and fraudulent conduct is an
evidence against him.15 He concealed from
petitioner bank the death of Fernandez
on December 28, 1989.16 As of that date, he
knew that Fernandez was no longer entitled to
receive any pension. Nonetheless, he still
received the U.S. Treasury Warrant of
Fernandez, and on January 4, 1990 deposited
the same in Savings Account No. 3185-012882. To pre-empt a refund, private respondent
closed his joint account with Fernandez
(Savings
Account
No.
31-850128-82)
on March 8,
1990 and transferred its
balance to his joint account with his wife
(Savings Account No. 3 185-0172-56). Worse,
private respondent declared under the
penalties of perjury in the withdrawal
slip17 dated March
8,
1990 that
his
codepositor, Fernandez, is still living. By his acts,
private respondent has stripped himself of
credibility.

erred

compensation is proper. Compensation shall

take place when two persons, in their own
right, are creditors and debtors of each
other.18 Article 1290 of the Civil Code provides
that when all the requisites mentioned
in Article 1279 are present, compensation
takes effect by operation of law, and
extinguishes both debts to the concurrent
amount, even though the creditors and
debtors
are
not
aware
of
the
compensation. Legal
compensation
operates even against the will of the interested
parties and even without the consent of
them.19 Since
this
compensation
takes
place ipso jure, its effects arise on the very day
on which all its requisites concur. 20When used
as a defense, it retroacts to the date when its
requisites are fulfilled.21
Article 1279 states that in order that
compensation may be proper, it is necessary:
(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;

The elements of legal compensation are

all present in the case at bar. The obligors
bound principally are at the same time
creditors of each other. Petitioner bank stands
as a debtor of the private respondent, a
depositor. At the same time, said bank is the
creditor of the private respondent with respect
to the dishonored U.S. Treasury Warrant which
the latter illegally transferred to his joint
account. The debts involved consist of a sum
of money. They are due, liquidated, and
demandable. They are not claimed by a third
person.
It is true that the joint account of private
respondent and his wife was debited in the
case at bar. We hold that the presence of
private respondents wife does not negate the
element of mutuality of parties, i.e., that they
must be creditors and debtors of each other in
their own right. The wife of private respondent
is not a party in the case at bar. She never
asserted any right to the debited U.S. Treasury
Warrant. Indeed, the right of the petitioner
bank to make the debit is clear and cannot be
doubted. To frustrate the application of legal
compensation on the ground that the parties
are not all mutually obligated would result in
unjust enrichment on the part of the private
respondent and his wife who herself out of
honesty has not objected to the debit.
The rule as to mutuality is strictly
applied at law. But not in equity, where
to allow the same would defeat a clear
right or permit irremediable injustice.22

(5) That over neither of them there be any

retention or controversy, commenced by third
persons and communicated in due time to the
debtor.

More importantly, the respondent court

when it failed to rule that legal

44 | P a g e

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IN
VIEW
HEREOF, the
Decision
of respondent Court of Appeals in CA-G.R. CV
No. 41543 dated August 16,1994 is ANNULLED
and SET ASIDE and the Decision of the trial
court in Civil Case No. Q-91-8451 dated January
20, 1993 is REINSTATED. Costs against private
respondent.
SO ORDERED.
259 SCRA 174 PNB
PHILIPPINE NATIONAL BANK, petitioner,
vs. THE COURT OF APPEALS and
RAMON LAPEZ,[1] doing business
under
the
name
and
style
SAPPHIRE
SHIPPING,
respondents.
DECISION
PANGANIBAN, J.:
Does a local bank, while acting as local
correspondent bank, have the right to intercept
funds being coursed through it by its foreign
counterpart for transmittal and deposit to the
account of an individual with another local
bank, and apply the said funds to certain
obligations owed to it by the said individual?
Assailed in this petition is the Decision of
respondent Court of Appeals [2] in CA-G.R. CV
No.
27926
rendered
on
June
16,
1992 affirming the decision of the Regional Trial
Court, Branch 107 of Quezon City, the
dispositive portion of which read:[3]
"WHEREFORE, judgment is hereby rendered:

1) In the main complaint, ordering the

defendant (herein petitioner PNB) to pay the
plaintiff (private respondent herein) the sum of
US$2,627.11 or its equivalent in Philippine
currency with interest at the legal rate from
January 13, 1987, the date of judicial demand;
2) The plaintiff's supplemental complaint is
hereby dfismissed (sic);
3) The defendant's counterclaims are likewise
dismissed.
The Facts
The factual antecedents as quoted by the
respondent Court are reproduced hereinbelow,
the same being undisputed by the parties:[4]

(c) The plaintiff made a written demand upon

the defendant for remittance of the equivalent
of P2,627.11 by means of a letter dated
December 4, 1986 (Exh. D). This was
answered by the defendant on December 22,
1986 (Exh. 13), inviting the plaintiff to come for
a conference;
"'(d) There were indeed two instances in the
past, one in November 1980 and the other in
January 1981 when the plaintiff's account No.
830-2410 was doubly credited with the
equivalents of $5,679.23 and $5,885.38,
respectively, which amounted to an aggregate
amount
of
P87,380.44. The
defendant's
evidence on this point (Exhs. 1 thru 11, 14 and
15; see also Annexes C and E to defendant's
Answer), were never refuted nor impugned by
the
plaintiff. He
claims,
however,
that
plaintiffs claim has prescribed.

"The body of the decision reads:

"'After a close scrutiny and analysis of the
pleadings as well as the evidence of both
parties, the Court makes the following
conclusions:
"'(a) The defendant applied/appropriated the
amounts of $2,627.11 and P34,340.38 from
remittances of the plaintiff's principals (sic)
abroad. These
were
admitted
by
the
defendant, subject to the affirmative defenses
of compensation for what is owing to it on the
principle of solution (sic) indebiti;
"'(b) The first remittance was made by the NCB
of Jeddah for the benefit of the plaintiff, to be
credited to his account at Citibank, Greenhills
Branch; the second was from Libya, and was
intended to be deposited at the plaintiff's
account with the defendant, No. 830-2410;

"'(e) Defendant PNB made a demand upon the

plaintiff for refund of the double or duplicated
credits erroneously made on plaintiff's account,
by means of a letter (Exh. 12) dated October
23, 1986 or 5 years and 11 months from
November 1980, and 5 years and 9 months
from January 1981. Such letter was answered
by the plaintiff on December 2, 1986 (Annex C,
Complaint). This plaintiff's letter was likewise
replied to by the defendant through Exh. 13;
"'(f) The deduction of P34,340.38 was made by
the defendant not without the knowledge and
consent of the plaintiff, who was issued a
receipt No. 857576 dated February 18, 1987
(Exh. E) by the defendant.
"'There is no question that the two erroneous
double payments made to plaintiff's accounts
in 1980 and 1981 created an extra-contractual
obligation on the part of the plaintiff in favor of

45 | P a g e

OBLICON2

the defendant, under the principle of solutio

indebiti, as follows:

(4) That they be liquidated and

demandable;

"'If something is received when there is no

right to demand it, and it was unduly delivered
throughg (sic) mistake, the obligation to return
it arises."' (Article 2154, Civil Code of the Phil.)

(5) That over neither of them there

by any retention or controversy,
commenced by third persons
and communicated in due time
to the debtor."'

Two issues were raised before the trial

court,
namely, first, whether
the
herein
petitioner was legally justified in making the
compensation or set-off against the two
remittances coursed through it in favor of
private respondent to recover on the double
credits it erroneously made in 1980 and 1981,
based on the principle of solutio indebiti, and
second, whether or not petitioner's claim is
barred by the statute of limitations. The trial
court's ratiocination, as quoted by the
appellate Court, follows:[5]
"'Article 1279 of the Civil Code provides:
"'In order that compensation may prosper, it is
necessary:
(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 consists 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;

"'In the case of the $2,627.11, requisites Nos. 2

through 5 are apparently present, for both
debts consist in a sum of money, are both due,
liquidated and demandable, and over neither of
them is there a retention or controversy
commenced
by
third
persons
and
communicated in due time to the debtor. The
question, however, is, where both of the
obligors bound principally, and was each one of
them a debtor and creditor of the other at the
same time?
"'Analyzing now the relationship between the
parties, it appears that:
"'(a) With respect to the plaintiff's being a
depositor of the defendant bank, they are
creditor and debtor respectively (Guingona, et
al. vs. City Fiscal, et al., 128 SCRA 577);
"'(b) As to the relationship created by the
telexed fund transfers from abroad: A contract
between a foreign bank and local bank asking
the latter to pay an amount to a beneficiary is
a stipulation pour autrui. (Bank of America NT
& SA vs. IAC, 145 SCRA 419).
"'A stipulation pour autrui is a stipulation in
favor of a third person (Florentino vs.
Encarnacion,
79
SCRA
193;
Bonifacio
Brothers vs. Mora,
20
SCRA
261;
Uy
Tam vs. Leonard, 30 Phils. 475).

"'Thus between the defendant bank (as the

local correspondent of the National Commercial
Bank of Jeddah) and the plaintiff as beneficiary,
there is created an implied trust pursuant to
Art. 1453 of the Civil Code, quoted as follows:
"'When the property is conveyed to a person in
reliance upon his declared intention to hold it
for, or transfer it to another or the grantor,
there is an implied trust in favor of the person
whose benefit is contemplated (sic).
"'c) By the principle of solutio indebiti (Art.
2154, Civil Code), the plaintiff who unduly
received something (sic) by mistake (i.e., the 2
double credits, although he had no right to
demand it), became obligated to the defendant
to return what he unduly received. Thus, there
was created between them a relationship of
obligor and obligee, or of debtor and creditor
under a quasi-contract.
"In view of the foregoing, the Court is of the
opinion that the parties are not both principally
bound with respect to the $2,627.11 from
Jeddah neither are they at the same time
principal creditor of the other. Therefore, as
matters stand, the parties' obligations are not
subject to compensation or set off under Art.
1279 of the Civil Code, for the reason that the
defendant is not a principal debtor nor is the
plaintiff a principal creditor insofar as the
amount of $2,627.11 is concerned. They are
debtor and creditor only with respect to the
double payments; but are trustee-beneficiary
as to the fund transfer of $2,627.11.
"'Only the plaintiff is principally bound as a
debtor of the defendant to the extent of the
double credits. On the other hand, the
defendant was an implied trustee, who was

46 | P a g e

OBLICON2

obliged to deliver to the Citibank for the benefit

of the plaintiff the sum of $2,627.11.
"'Thus while it may be concluded that the
plaintiff owes the defendant the equivalent of
the sums of $5,179.23 and $5,885.38
erroneously doubly credited to his account, the
defendant's actuation in intercepting the
amount of $2,627.11 supposed to be remitted
to another bank is not only improper; it will
also erode the trust and confidence of the
international banking community in the
banking system of the country, something we
can ill afford at this time when we need to
attract and invite deposits of foreign
currencies."'
"It would have been different has the telex
advice from NCB of Jeddah been for deposit of
$2,627.11 to plaintiffs account No. 830-2410
with the defendant bank. However, the
defendant alleged this for the first time in its
Memorandum (Pls. see par. 16, p. 6 of
defendant's Memorandum). There was neither
any allegation thereof in its pleadings, nor was
there any evidence to prove such fact. On the
contrary, the defendant admitted that the telex
advice was for credit of the amount of
$2,627.11 to plaintiffs account with Citibank,
Greenhills, San Juan, MetroManila (Pls. see par.
of defendant's Answer with Compulsory
Counterclaim,
in
relation
to
plaintiff's
Complaint). Hence, it is submitted that the setoff or compensation of $2,627.11 against the
double payments to plaintiff's account is not in
accordance with law.
"'On this point, the Court finds the plaintiff's
theory of agency to be untenable. For one
thing, there was no express contract of
agency. On the other hand, were we to infer
that there was an implied agency, the same

would not be between the plaintiff and

defendant, but rather, between the National
Commercial Bank of Jeddah as principal on the
one hand, and the defendant as agent on the
other. Thus, in case of violation of the agency,
the cause of action would accrue to the NCB
and not to the plaintiff.

deduction from the amount of $28,392.38 from

Libya.

"'The P34,340.38 subject of the supplemental

complaint is quite another thing. The plaintiff's
Exh. "E", which is a receipt issued to the
plaintiff by the defendant for the amount of
P34,340.00 in "full settlement of accounts
receivables
with
RICB
Fund
Transfer
Department, PNB-Escolta base on Legal
Department Memo dated February 28, 1987"
seems to uphold the defendant's theory that
the said amount was voluntarily delivered by
the plaintiff to the defendant as alleged in the
last
paragraph
of
defendant's
memorandum. The same is in accordance with
the defendant's answer, as follows:

"'At any rate, the plaintiff in his Memorandum,

stated that the subsequent fund transfer from
Brega Petroleum Marketing Company of Libya
(from where the P34,340.38 was deducted)
was intended for credit and deposit in plaintiff's
account at the defendant's Bank CA No. 8302410 (per par. 1, page 2, Memorandum for the
plaintiff). Such being the case, the Court
believes that insofar as the amount of
P34,340.38 is concerned, all the requirements
of Art. 1279 of the Civil Code are present, and
the said amount may properly be the subject of
compensation or set-off. And since all the
requisites of Art. 1279 of the Civil Code are
present (insofar as the amount of P34,392.38 is
concerned), compensation takes place by
operation of law (Art. 1286, Ibid.), albeit only
partial with respect to plaintiff's indebtedness
of P7,380.44.

"The retention and application of the amount of

P34,340.38 was done in a manner consonant
with basic due process considering that
plaintiff was not only furnished documented pr
oof of the cause but wasalso given the opportu
nity to con(tro)vert such Proof.

"Now, on the question of prescription, the

Court believes that Art. 1149 as cited by the
plaintiff is not applicable in this case. Rather,
the applicable law is Art. 1145, which fixes the
prescriptive period for actions upon a quasicontract (such as solutio indebiti) at six years.

"Moreover, plaintiff, through counsel, communi

cated his unequivocal and unconditional conse
nt to the retention and application of the amou
nt in question." (Pls. see paragraphs 8-9,
defendant's
Answer
with
Compulsory
Counterclaim
to
Plaintiff's
Supplemental
Complaint)."

In the dispositive portion of its decision,

the trial court ruled that the herein petitioner
was obligated to pay private respondent the
amount of US$2,627.11 or its peso equivalent,
with interest at the legal rate. The court
dismissed all other claims and counterclaims.

This conclusion is borne by the fact that the

receipt is in the hands of the plaintiff,
indicating that such receipt was handed over to
the plaintiff when he "paid" or allowed the

On appeal to the respondent Court,

petitioner bank continued to insist that it
validly retained the US$2,627.11 in payment of
the private respondent's indebtedness by way

47 | P a g e

OBLICON2

of compensation or set-off, as provided under

Art. 1279 of the Civil Code.
The respondent Court of Appeals rejected
such argument, saying:
"The telegraphic money transfer was sent by
the IBN, plaintiff's principal in Jeddah, Saudi
Arabia, thru the National Commercial Bank of
Jeddah, Saudi Arabia (NCB, for short), for the
credit/account of Plaintiff with the Citibank,
Greenhills Branch, San Juan, Metro Manila,
coursed thru the PNB's head office, the NCB's
corresponden(t) bank in the Philippines.
"The credit account, or simply account means
that the amount stated in the telegraphic mone
y transfer is to be credited in the account of pla
intiff with the Citibank, and, in that sense, pres
upposes a creditor-debtor relationship between
the plaintiff, as creditor and the Citibank, as de
btor. Withal the telegraphic money transfer, no
such creditor-debtor relationship could have be
en created between the plaintiff anddefendant.
"The telegraphic money transfer, or simply
telegraphic transfer(,) was purchased by the
IBN from the NCB in Saudi Arabia, and since
the PNB is the NCB's corresponden(t) bank in
the Philippines, there is created between the
two banks a sort of communication exchange
for the corresponden(t) bank to transmit and/or
remit and/or pay the value of the telegraphic
transfer in accordance with the dictate of the
correspondence
exchange. Some
such
responsibility of the corresponden(t) bank is
akin to Section 7 of the Rules and Regulations
Implementing E.O. 857, as amended by E.O.
925, "x x x to take charge of the prompt
payment" of the telegraphic transfer, that is,
by transmitting the telegraphic money transfer
to the Citibank so that the amount can be prom

ptly credited to the account of the plaintiff with

the saidbank. That is all that the PNB can do u
nder the remittance arrangement that it has wi
th the NCB. With its responsibility as defined
as well as by the nature of its banking business
and the responsibility attached to it, and
through which the industry, trade and
commerce of all countries and communities are
carried
on,
the
PNB's
liability
as
corresponden(t) bank continues until it has
completgely (sic) performed and discharged
it(s) obligation thereunder." (underscoring ours)
Hence, the respondent Court affirmed the
trial court's holding in toto.
Dissatisfied, petitioner bank comes before
this Court seeking a review of the assailed
Decision.

The Issue : Petitioner's arguments revolve

around one single issue:[6]
"WHILE THE RESPONDENT COURT CORRECTLY
FOUND PRIVATE RESPONDENT LEGALLY BOUND
(UNDER THE PRINCIPLE OF SOLUTIO INDEBITI)
TO RETURN TO PNB THE SUM OF US$2,627.11,
IT ERRED IN NOT RULING THAT LEGAL
COMPENSATION HAS TAKEN PLACE WHEN PNB
WAS ORDERED BY THE TRIAL COURT TO
RETURN TO PRIVATE RESPONDENT THE SAME
AMOUNT. SUCH COURSE OF ACTION IS IN
CONSONANCE WITH SPEEDY AND SUBSTANTIAL
JUSTICE,
AND
WOULD
PREVENT
THE
UNNECESSARY FILING OF A SUBSEQUENT SUIT
BY PNB FOR THE COLLECTION OF THE SAME
AMOUNT FROM PRIVATE RESPONDENT."
The Court's Ruling

We note that in framing the issue in the

manner aforecited, the petitioner implicitly
admits the correctness of the respondent
Court's affirmance of the trial court's ruling
finding herein petitioner liable to private
respondent for the sum of US$2,627.11 or its
peso equivalent. And it could not have done
otherwise. After a careful scrutiny of both the
decision of the trial court and that of the
appellate court, we find no reversible error
whatsoever in either ruling, and see no need to
add to the extensive discussions already made
regarding the non-existence of all the
requisites for legal compensation to take place.
But petitioner has adopted a novel theory,
contending that since respondent Court found
that private respondent is "an obligor of PNB
and the latter, as aforesaid, has become an
obligor of private respondent (resulting in legal
compensation), the (h)onorable respondent
court should have ordered private respondent
to pay PNB what the latter is bound by the trial
court's decision to return the former.[7]
By this simplistic approach, petitioner in
effect seeks to render nugatory the decisions
of the trial court and the appellate Court, and
have this Court validate its original misdeed,
thereby making a mockery of the entire judicial
process of this country. What the petitioner
bank is effectively saying is that since the
respondent Court of Appeals ruled that
petitioner bank could not do a shortcut and
simply intercept funds being coursed through
it, for transmittal to another bank, and
eventuall owe some amount of money to the
petitioner, and because respondent Court
ordered petitioner bank to return the
intercepted amount to said individual, who in
turn was found by the appellate Court to be
indebted to petitioner bank, THEREFORE, there
must now be legal compensation of the

48 | P a g e

OBLICON2

amounts each owes the other, and hence,

there is no need for petitioner bank toactually
return the amount, and finally, that petitioner
bank ends up in exactly the same position as
when it first took the improper and
unwarranted shortcut by intercepting the said
money transfer, notwithstanding the assailed
Decision saying that this could not be done!
We see in this petition a clever ploy to use
this Court to validate or legalize an improper
act of the petitioner bank, with the not
impossible intention of using this case as a
precedent for similar acts of interception in the
future. This piratical attitude of the nation's
premier bank deserves a warning that it should
not abuse the justice system in its collection
efforts, particularly since we are aware that if
the petitioner bank had been in good faith, it
could have easily disposed of this controversy
in ten minutes flat by means of an exchange of
checks with private respondent for the same
amount. The litigation could have ended there,
but
it
did
not. Instead,
this
plainly
unmeritorious case had to clog our docket and
take up the valuable time of this Court.
WHEREFORE, the instant petition is
herewith
DENIED
for
being
plainly
unmeritorious, and the assailed Decision is
AFFIRMED in toto. Costs against petitioner.
SO ORDERED.
CKH 272 SCRA

MIRASOL VS CA [351
No.128448; 1 Feb 2001]

SCRA

44;

G.R.

Friday, January 30, 2009 Posted by

Coffeeholic WritesLabels: Case Digests
Facts:
The Mirasols are sugarland owners and planter
s.Philippine National Bank (PNB) financed the M
irasols' sugar production venture FROM 19731975 under a crop loan financingscheme. The
Mirasols signed Credit Agreements, a Chattel
Mortgageon Standing Crops, and a Real Estate
Mortgage in favor of PNB. TheChattel Mortgage
empowered PNB to negotiate and sell the
latter'ssugar and to apply the proceeds to the
payment of their obligations toit.President
Marcos
issued
PD 579 in November,
1974 authorizingPhilippine Exchange Co., Inc.
(PHILEX) to purchase sugar allocatedfor export
and authorized PNB to finance PHILEX's
purchases. Thedecree directed that whatever
profit PHILEX might realize was to beremitted
to the government. Believing that the proceeds
were morethan enough to pay their obligations,
petitioners asked PNB for anaccounting of the
proceeds
which
it
ignored.
Petitioners
continued toavail of other loans from PNB and
to make unfunded withdrawalsfrom their
accounts with said bank. PNB asked petitioners
to settletheir due and demandable accounts.
As a result, petitioners, conveyedto PNB real
properties by way of dacion en pago still
leaving
anunpaid amount. PNB
proceeded
to extrajudicially foreclose
themortgaged properties. PNB still had a defici
ency claim.Petitioners continued to ask PNB to
account for the proceeds,insisting that said
proceeds, if properly liquidated, could offset
their outstanding obligations. PNB remained
adamant in its stance thatunder P.D. No. 579,
there was nothing to account since under

saidlaw, all earnings from the export sales of

sugar
pertained
to
the National Government.On August 9, 1979,
the Mirasols filed a suit for accounting,
specific performance, and damages against PN
B.
Issues:
(1)
Whether
or
not
the
Trial
Court
has jurisdiction
to
declare
a
statuteunconstitutional without notice to the
Solicitor General where the parties have
agreed to submit such issue for the resolution
of
the
TrialCourt.
(2) Whether PD 579 and subsequent issuances
thereof areunconstitutional.(3) Whether or not
said PD is subject to judicial review.
Held:
It is settled that Regional Trial Courts have the
authorityand jurisdiction to consider the constit
utionality of a statute, presidential decree, or e
xecutive order. The Constitution vests the powe
r of judicial review or the power to declare a la
w, treaty,international or executive agreement,
presidential decree, order,instruction,
ordinance, or regulation not only in this Court,
but in allRegional Trial Courts.The purpose of
the mandatory notice in Rule 64, Section 3 is
toenable the Solicitor General to decide
whether or not his interventionin the action
assailing the validity of a law or treaty is
necessary.
Todeny the Solicitor General such notice would
be tantamount todepriving him of his day in
court. We must stress
that,
contrary
to petitioners' stand, the mandatory notice
requirement is not limited toactions involving
declaratory relief and similar remedies. The
ruleitself provides that such notice is required
in "any action" and not justactions involving

49 | P a g e

OBLICON2

declaratory relief. Where there is no ambiguity

inthe words used in the rule, there is no room
for construction. 15 In allactions assailing the
validity of a statute, treaty, presidential
decree,order, or proclamation, notice to the
Solicitor General is mandatory.Petitioners
contend that P.D. No. 579 and its implementing
issuancesare void for violating the due process
clause
and
the
prohibitionagainst the
taking of private property without just
compensation.Petitioners now ask
this Court to exercise its
power of judicialreview.Jurisprudence has laid

down the following requisites for the exerciseof

this power: First, there must be before the
Court an actual casecalling for the exercise
of judicial
review.
Second,
the question before the Court must be ripe for
adjudication. Third, the personchallenging the
validity of the act must have standing to
challenge.Fourth,
the
question
of
constitutionality must have been raised at
theearliest opportunity, and lastly, the issue of
constitutionality must bethe very lis mota of
the case

y to be deposited to the account of an

individual who happens to

50 | P a g e