Philippine National Construction Corporation v.

CA Raymundo

Nature of Contract: Contract of Lease between PNCC and private

respondents for a period of five years;

Commencing on the date of issuance of the industrial clearance by

the Ministry of Human Settlements; rate: 1st year: 20,000/month, 2nd
year: 21,000/month, 3rd yr…5th yr, to be paid yearly in advance.

The first annual rent in the amount of 240,000 shall be due and
payable upon execution of Agreement

The site shall be used for a rock crushing plant and field office,
sleeping quarters and canteen/mess hall.

Petitioner expressed its intention to terminate the contract due to

financial, as well as technical, difficulties. Petitioner further
contends, invoking Art 1266 and the principle of rebus sic stantibus,
the it should be released from the obligatory force of the contract of
lease because the purpose of the contract did not materialize due to
unforeseen events and causes beyond its control (abrupt change in
political climate after the EDSA Revolution and financial difficulties.

Held: Petitioners cannot take refuge under Article 1266 since it is

applicable only to obligations “to do,” and not obligations “to give.”
The obligation to pay rentals falls within the prestation “to give”;
hence it is not covered within the scope of Art 1266. At any rate, the
unforeseen event and causes mentioned by petitioner are not the
legal or physical impossibilities contemplated in the said article.
Besides, it failed to state specifically the circumstances brought
about by the abrupt change in the political climate in the country
except the alleged prevailing uncertainties in government policies
on infrastructure projects.

Likewise, the principle of rebus sic stantibus does not fit with
the facts of the case. It is of judicial notice that after the
assassination of Sen. Ninoy on Aug. 21 1983, the country has
experienced political upheavals, turmoil’s, almost daily mass
demonstrations, etc. On November 3, 1985, Pres. Marcos
announced that there would be a snap election on Feb 7, 1986. On
November 18, 1985, notwithstanding the above, petitioner PNCC
entered into the contract of lease with private respondents with
open eyes to the deteriorating conditions of the country.

Anent its alleged poor financial condition, the case of Central

Bank v. CA, held that mere pecuniary inability to fulfill an
engagement does not discharge a contractual obligation nor does it
constitute a defense to an action for specific performance.

The non-materialization of the petitioner’s purpose for the

contract neither invalidates the latter. The motive or particular
purpose of a party in entering into a contract does not affect the
validity nor existence of the contract; an exception is when the
realization of such has been made a condition upon which the
contract is made to depend.

Llobrera v. Fernandez

Respondent filed a complaint for ejectment against petitioners for

refusal to vacate the premises of the former’s land within fifteen
days from notice.

Petitioners allege that they have been occupying respondents’ land

beginning 1945 onwards when their predecessors-in-interest with
the permission of Gualberto de Venecia, developed and occupied
the same on condition that they will pay their monthly rental of 20
pesos each. They have been paying these monthly rentals duly
acknowledged with receipts until June 1996 when the representative
of Gualberto de Venecia refused to accept their rentals, prompting
them to consign the same to Banco San Juan, which bank deposit
they continued to maintain and update with their monthly rental
payments.

Issue: whether petitioners’ possession of the subject property is

founded on contract or not. Whether or not there was proper
consignation to release petitioners from their corresponding
obligations with respect to possession of the subject property.

Held: Petitioners failed to present any written memorandum of the

alleged lease arrangements, the receipts were not presented on the
excuse that the March 19, 1996 fire burned the same. From the
absence of proof of any contractual basis for petitioners’ possession
of the subject premises, the only legal explanation regarding their
possession thereof is by mere tolerance. A person who occupies the
land of another at the latter’s tolerance, without any contract
between them, is necessarily bound by an implied promise that he
will vacate upon demand.

The alleged consignation of the Php 20.00 monthly rental to a bank

account in respondent’s name cannot save the day for petitioners
simply because of the absence of any contractual basis for their
claim to rightful possession of the subject property. Consignation
indispensably requires a creditor-debtor relationship between the
parties, in the absence of which, the legal effects thereof cannot be
availed of. Since respondent is not a creditor to petitioners as far as
the alleged Php 20.00 monthly rental payment is concerned,
respondent cannot be compelled to receive such payment even
through consignation. The bank deposit has no legal effect insofar
as the respondent is concerned.

BPI v. CA Reyes

Respondent Edvin F. Reyes, opened a joint AND/OR savings account

with his wife and also held a similar savings account with his
grandmother, Emeteria Fernandez where US Treasury Warrants
payable to the order of Emeteria were regularly deposited as her
monthly pension. Emeteria died without the knowledge of the US
Treasury Department, however, she was still sent a US Treasury
Warrant dated Jan 1, 1990 in the amount of $377 or P10,556.
Private respondent subsequently deposited this amount to the
savings account of Fernandez. Two months after, private
respondent closed said savings account and transferred its funds to
the savings account with his wife. On Jan 16, 1991, the subject US
Treasury Warrant was dishonored as it was found out that
Fernandez died 3 days prior to its issuance. The US Department of
Treasury requested petitioner bank for a refund. Upon notice,
petitioner correspondingly gave a verbal authorization to the bank
to debit said amount from his other joint account. This the bank did
so. However, on Feb 21, 1991, private respondent demanded
restitution of the debit alleging that because of such, he failed to
withdraw his money when he needed them.
Issue: W/N petitioner bank had the legal right to apply the deposit of
the respondent to his outstanding obligation to petitioner bank
brought about by the return of the US treasury warrant he earlier
deposited under the principle of legal compensation.

Held: Yes. Compensation shall take place when two persons, in their
own right, are creditors and debtors of each other. Legal
compensation operates even against the will of the interested
parties and even without the consent of them. Since this
compensation takes place ispo jure, its effects arise on the very day
on which all its requisites concur. When used as a defense, it
retroacts to the date when its requisites are fulfilled. Article 1279
states the requisites…

The elements of legal compensation are all present in the case at

bar. The obligors bound principally are at the same time debtors 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 US
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.

Pabugais v. Sahijwani

Contract: Agreement and Undertaking wherein petitioner Teddy

Pabugais agreed to sell to respondent Dave Sahijwani a lot
containing 1239 sq m in consideration of the amount of 15,487,500.
Respondent paid petitioner the amount of 600,000 as
option/reservation fee and the balance of 14,887,500 to be paid
within 60 days from the execution of the contract, simultaneous
delivery of the owner’s duplicate TCT in respondent’s name, the
Deed of Absolute Sale, the Certificate of Non-Tax Delinquency on
real estate taxes and Clearance on Payment of Association Dues.
Failure on the part of respondent ot pay the balance of the purchase
price entitles petitioner to forfeit the said option/reservation fee;
while non-delivery by the latter of the necessary documents obliges
him to return to respondent said option/reservation fee with interest
at 18% per annum.

Petitioner failed to deliver the required documents and returned the

subject fee by way of check, which was dishonored. Petitioner then
twice tendered to respondent the amount of 672,900 dated August
3, 1994 but respondent’s counsel refused to accept it. The second
tender was on August 8, 1994, when he sent the manager’s check
attached to a letter dated August 5, 1994. On August 11, 1994,
petitioner wrote a letter to respondent saying that he is consigning
the amount tendered with the RTC of Makati, and on August 15,
petitioner filed a complaint for consignation. Respondent’s counsel
justified such refusal claiming that no check was appended to the
letter dated August 5, 1994. He averred that there was no valid
tender of payment because no check was tendered and the
computation of the amount to be tendered was insufficient because
petitioner promised to pay 3% monthly interest and 25% attorney’s
fees in addition to what has been stipulated.

Issue: W/N there was valid tender of payment and consignation. W/N
petitioner has the right to withdraw the amount consigned.

Held: Yes, there was valid tender of payment and consignation. It is

obvious that the reason for respondent’s non-acceptance of the
tender of payment was the alleged insufficiency thereof – and not
because the said check was not tendered to respondent, or because
it was in the form of a manager’s check. While it is true that in
general, a manager’s check is not legal tender, the creditor has the
option of refusing or accepting it. Payment in check by the debtor
may be acceptable as valid, if no prompt objection to said payment
is made. Consequently, petitioner’s tender of payment in the form
of manager’s check is valid.

Moreover, it appears that only the interest of 18% per annum was
agreed upon by the parties. The manager’s check in the amount of
672,900 was enough to satisfy the obligation. There being a valid
tender of payment in an amount sufficient to extinguish the
obligation, the consignation is valid.

The amount consigned with the trial court can no longer be

withdrawn by petitioner because respondent’s prayer in his answer
that the amount consigned be awarded to him is equivalent to an
acceptance of the consignation, which has the effect of
extinguishing petitioner’s obligation.

Metropolitan Bank and Trust Company v. Tonda

Spouses Joaquin G. Tonda and Ma. Cristina Tonda applied for and
were granted commercial letters of credit by Metrobank for a period
of 8 months in connection with the importation of raw textile
materials to be used in the manufacturing of garments. The Tondas
acting both in their capacity as officers of Honey Tree Apparel
Corporation and in their personal capacities, executed eleven trust
receipts to secure the release of the raw materials to HTAC. The
Tondas failed to comply with their obligations stated in the trust
receipts agreements despite repeated demands thereof (to account
to Metrobank the goods and/or proceeds of sale of the merchandise,
subject of the trust receipts. Consequently, private respondents
were charged with violation of PD 115 (Trust Receipts Law) and
estafa. Respondent Joaquin together with a certain Wang Tien En
subsequently entered into a loan restructuring agreement with
Metrobank, however the parties were unable to arrive at a mutually
agreeable loan restructured agreement. Subsequently, respondent
Joaquin and wang deposited 2.8M to an account to pay the entire
principal of the outstanding trust receipts account to be “applied
anytime to the payment of the TR/LC Account upon the
implementation by the parties of the terms of the restructuring.”

Issue: W/N Metrobank can validly apply the amount deposited by

the petitioners as payment of the principal obligation under the
trust receipts agreement inspite of the failure of the parties to agree
upon a restructurin agreement.

Held: The acts of the respondents constitute the crime of estafa as

contemplated in PD 115 and the RPC because they failed to return
the goods covered by the trust receipts or return the proceeds of
the sale of the said goods.

The handwritten note by the Metrobank officer acknowledging

receipt of the checks made no reference to the Tondas’ trust receipt
obligations, and it cannot be presumed that it was anything more
than an ordinary bank deposit. The CA ruled that in making the
deposit, the Tondas are entitled to set off by way of compensatin
their obligations to MetroBank. However, Art 1288 of the Civil Code
provides that compensation shall not be proper when one of the
debts consists in civil liability arising from a penal offense as in the
case at bar. If one of the debts consists in civil liability arising from a
penal offense, compensation would be improper and inadvisable
because the satisfaction of such obligation is imperative.

PNB v. CA Lapez/Sapphire Shipping

PNB applied/appropriated the amounts of $2,627.11 and

Php34,340.38 from remittances of the plaintiff’s principals abroad
subject to the affirmative defenses of compensation for what is
owing to it on the principle of solutio indebiti. It was shown that PNB
erroneously doubly credited respondent’s account with the
equivalents of $5,679.23 and $5,885.38, which amounted to an
aggregate amount of P87,380.44. The first appropriated remittance
of $2,627.11 was made by the NCB of Jedah for the benefit of the
respondent, to be credited to his account at Citibank, Greenhills
Branch; the second was from Libya, and was intended to be
deposited at the respondent’s account with the petitioner bank.
Respondent made a written demand upon the petitioner bank for
remittance of the equivalent of $2,627.11 by means of a letter. This
was answered by petitioner bank inviting the plaintiff to come for a
conference.

Issue: Whether or not the petitioner bank 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 solution indebiti.

Held: The parties’ obligations are not subject to compensation or set

off under Art 1279 of the Civil Code, for the reason that PNB is not a
principal debtor nor is the respondent 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. Only the respondent is
principally bound as a debtor of PNB to the extent of the double
credits. On the other hand, PNB was an implied trustee, who was
obliged to deliver to Citibank for the benefit of the plaintiff the
subject sum. The credit account means that the amount stated in
the telegraphic money transfer is to be credited in the account of
respondent with Citibank, and, in that sense, presupposes a
creditor-debtor relationship between respondent as creditor and
Citibank as debtor. Anent the telegraphic money transfer, no such
relationship could have been created between the plaintiff and
defendant.

The 34,340.38 subject of the supplemental complaint is another

thing. Said fund transfer from Libya was intended for credit and
deposit in respondent’s account at PNB. Such being the case, all the
requirements of Art 1279 are present and the said amount may
properly be the subject of compensation or set-off.

Magat, Jr. v. CA Guerrero

Private respondent Guerrero was President and Chairman of

Guerrero Transport Services, which won a bid for the operation of a
fleet of taxicabs within the Subic Naval Base in Olongapo. He was to
provide radio-controlled taxi service within the US Naval Base.
Guerrero executed a letter-contract with Victorino Magat, petitioner
herein, for the purchase of transceivers at a quoted price of US$
77,620.59. Such were to be delivered within 60 to 90 days after
receiving notice from Guerrero the assigned radio frequency, taking
note of Government Regulations. The contract was signed and
Victorino contacted his Japanese supplier, Koide & Co. Ltd., and
placed an order for the transreceivers. When the frequency number
assigned by Subic Naval Base authorities was known, Victorino was
advised to proceed with the order upon receipt of letter of credit. No
letter of credit being given, Victorino informed Guerrero that the
order with the supplier has not been cancelled. Should the contract
be cancelled, the Japanese firm would forfeit 30% of the deposit and
charge a cancellation fee in an amount not yet known, Guerrero to
bear the loss. Further, should the contract be canceled, Victorino
would demand an additional amount equivalent to 10% of the
contract price. However, Guerrero was not able to get such letter of
credit from the Central Bank due to the refusal of the Philippine
government to issue a permit to import the transreceivers in
accordance with AC # 4, suspending the acceptance and processing
of applications for radio station construction permits and for permits
to own and/or possess radio transmitters or transreceivers. Guerrero
commenced operation of the taxi cabs within Subic Naval Base
using radio units borrowed from the US government, thus prompting
Victorino to cancel his order with his Japanese supplier and file a
complaint for damages against Guerrero.

Issue: W/N the contract was valid.

W/N the breach of contract was imputable to Guerrero.

Held: Yes, the contract was valid. There was no express ban on the
importation of transreceivers. The A.C. # 4 merely ordered the
Radio Control Office to suspend the acceptance and processing of
applications for permits to possess, own, transfer…radio
transmitters and transreceivers. Possession and importation of such
was legal provided one had the necessary license for it. Such items
were not prohibited but merely regulated and did not go outside the
commerce of man. They were valid objects of the contract.

No. The facts show that a permit to import the transreceivers from
Japan was denied by the Radio Control Board, which subsequently
prevented Guerrero from securing a letter of credit from the Central
Bank. The law provides that “when the service has become so
manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom in whole or in part.” Here, Guerrero’s
inability to secure a letter of credit and to comply with his obligation
was a direct consequence of the denial of the permit to import. For
this, he cannot be faulted.

Banco Filipino v. Diaz

This case involves a loan secured by the respondents Diaz from

Banco Filipino amounting to 400,000 and was restructured to
3,163,000 pesos. Failing to fully comply with the obligation, the
petitioner bank demanded payment from them for the remaining
balance of said amount, since they were able to previously pay
2,356,910. As such, the remaining balance would only be 1,034,600
exclusive of the interests agreed upon at 21% per annum.
Respondents tendered said sum of 1,034,600 as full settlement of
their loan obligation, however this was not accepted by petitioner
bank because the respondents’ obligation at that time already
amounted to 10,160,649. Respondents then deposited this amount
by way of consignation with the RTC of Makati as full payment of
their obligation. Unfortunately, such consignation was subsequently
declared invalid by the CA because the amount did not include all
interests due. For a valid consignation to exist, the tender of the
principal must be accompanied with the tender of interests which
had accrued. Upon finality of such decision, respondents sought to
withdraw said amount from the court since their outstanding
obligation was already settled by the Gaisano brothers, as their
attorney-in-fact, in the amount of 25,100,000. Petitioner bank
opposed such withdrawal alleging that at that time, respondents’
outstanding obligation amounted to 28,810,330, and such was
settled deducting from said amount 1,462,901 representing the
payments made by respondents from 1990 to 1991, and 1,034,600
representing the amount of consignation. Petitioner bank alleges
that their was proper acceptance on their part with respect to the
consigned amount, therefore the respondents can no longer validly
withdraw said amount.

Issue: Whether or not petitioner bank had already accepted the

deposit in question so as to prevent the respondents from
exercising their right to withdraw the same.

Held: No. To prove such claim, petitioner bank relies of the

statement of account prepared by its employees purportedly
showing that the deposit in question was deducted from the
respondents’ outstanding obligation. However, this statement of
account is self-serving and has no probative value. Moreover, the
persons who prepared such document were not presented in court.
Thus, other than its bare allegation, petitioner bank has failed to
establish by convincing evidence that it had made such acceptance
of the deposit in question prior to the respondents’ filing of their
motion to withdraw deposit.

Nor could it be successfully argued with any modicum of persuasion,

x x x, that the bank had performed any prior unmistakable and
deliberate act denominating a preemptive acceptance of the deposit
in partial settlement of the loan obligation. Otherwise, it would not
have waited until the petitioners [the respondents herein] filed their
motion to withdraw more than a year after this Court's aforecited
decision. The claimed "acceptance" was obviously an afterthought,
and proffered for the sole purpose of opposing the deposit
withdrawal.

The Court also considered the outstanding obligation of respondents

as fully settled by reducing equitably such obligation to 25,100,000
in accordance with Article 1229 which empowers the judge to
reduce the civil penalty equitably when the principal obligation has
been partly or irregularly complied with.

Benos v. Lawilao

Petitioner spouses Benos executed a Pacto de Retro sale with

respondent spouses Lawilao for a monetary consideration of
300,000, one half of which would be paid to the petitioners and the
other half to be paid to the outstanding loan of petitioners to the
bank. The amount of 150,000 pesos was then paid to the Benos
spouses, however instead of paying the loan to the bank, Janice
Lawilao restructured it twice. Eventually, the loan became due and
demandable. As such, Zaldy Benos, the son of petitioners, paid
159,000 pesos to said bank in fulfillment of the loan obligation plus
interest. On the same day, the Lawilao spouses offered to pay the
loan, but the bank refused to accept such payment. The
respondents then filed with the MCTC a petition for consignation
against the bank and simultaneously deposited the amount of
159,000. Such petitions was dismissed for lack of cause of action.
Subsequently, the Lawilao spouses filed a complaint for
consolidation of ownership, which was opposed by petitioners due to
lack of cause of action.

The Benos spouses argue that consolidation is not proper because

the Lawilao spouses violated the terms of the contract by not paying
the bank loan. The Lawilao spouses countered that they complied
with their obligation when they offered to pay the loan to the bank
and filed a petition for consignation

Issue: Whether or not respondent spouses have the right to

consolidation of ownership upon consignation of the amount of the
obligation.

Held: No. The evidence show that the Lawilao spouses did not make
a valid tender of payment and consignation of the balance of the
contract price. The amount of 159,000 deposited with the MCTC is in
relation to Civil Case 310 (bank’s refusal) and not to the instant
action. Although the Lawilao spouses had repeatedly alleged in their
pleading that the amount was still with the trial court which the
Benos spouses could withdraw anytime, they never made any step
to withdraw the amount and thereafter consign it. Moreover, it is
required that all interested parties are to be notified of the
consignation. In the instant case, records show that the Lawilao
spouses filed the petition for consignation against the bank (Civil
Case 310) without notifying the Benos spouses. Hence, the Lawilao
spouses failed to prove their offer to pay the balance of the
purchase price and consignation, as the petition was dismissed. As
far as the Benos are concerned, there was no full payment of the
contract price, which gives them the right to rescind the contract.
Bank of the Philippine Islands v. CA Go

Petitioner, Far East Bank and Trust Company, granted a total of

eight (8) loans to Noah’s Ark. The said loans were evidenced by
identical Promissory Notes all signed by Albert T. Looyuko, private
respondent Jimmy T. Go and one Wilson Go. Likewise, all loans were
secured by real estate mortgage constituted over a parcel of land
registered in the names of Mr. Looyuko and herein private
respondent. Petitioner, claiming that Noah’s Ark defaulted in its
obligations, extrajudicially foreclosed the mortgage. The auction
sale was set on 14 April 1998 but on 8 April 1998 private
respondent filed a complaint for damages with prayer [for] issuance
of TRO and/or writ of preliminary injunction seeking [to] enjoin the
auction sale.

Issue: W/N private respondent was entitled to the relief of injunction

against the extrajudicial foreclosure and auction sale, and W/N
petitioner was estopped from proceeding with foreclosure.
Held: No, the extrajudicial foreclosure and auction sale are not
violative of private respondent’s rights.

Private respondent claimed that demand was not made upon him, in
spite of the fact that he co-signed the promissory notes. He also
argues that only four of the eight promissory notes secured by the
mortgage had become due. A reading of the promissory notes
discloses that as co-signor, private respondent waived demand.
Furthermore, the promissory notes contain an acceleration clause.

Private respondent argues that by withholding the lease payments

FEBTC owed Noah’s Ark for the space FEBTC was leasing from
Noah’s Ark and applying said amounts to the outstanding obligation
of Noah’s Ark, as expressed in a letter from FEBTC, FEBTC has
waived default, novated the contract of loan as embodied in the
promissory notes and is therefore estopped from foreclosing on the
mortgaged property.

FEBTC’s act of withholding the lease payments and applying them

to the outstanding obligation of Noah’s Ark is merely an
acknowledgement of the legal compensation that occurred by
operation of law between the parties. It is clear from the facts that
FEBTC and Noah’s Ark are both principal obligors and creditors of
each other. Their debts to each other both consist in a sum of
money. As discussed above, the eight promissory notes of Noah’s
Ark are all due; and the lease payments owed by FEBTC become
due each month. Noah’s Ark’s debt is liquidated and demandable;
and FEBTC’s lease payments are liquidated and are demandable
every month as they fall due. Lastly, there is no retention or
controversy commenced by third persons over either of the debts.

Novation did not occur because a contract cannot be novated in the

absence of a new contract. Compensation occurred by operation of
law, as such it cannot be considered a new contract between the
parties. Since the compensation occurred by operation of law,
FEBTC did not waive Noah’s Ark default.

Solid Homes v. Laserna

Evelina Laserna and Gloria Cajipe, entered into a Contract to Sell

with petitioner Solid Homes, Inc. involving a parcel of land with a
total area of 600 sq m. The total contract price agreed upon by the
parties for the said parcel of land was P172,260.00, to be paid in the
following manner: (1) the P33,060.00 down payment should be paid
upon the signing of the contract; and (2) the remaining balance of
P166,421.88 was payable for a period of three years at a monthly
installment of P4,622.83 beginning 1 April 1977. The respondents
made the down payment and several monthly installments. When
the respondents had allegedly paid 90% of the purchase price, they
demanded the execution and delivery of the Deed of Sale and the
Transfer Certificate of Title (TCT) of the subject property upon the
final payment of the balance. But the petitioner did not comply with
the demands of the respondents.

The respondents filed against the petitioner a Complaint for Delivery

of Title and Execution of Deed of Sale with Damages. Respondents
allege that as their outstanding balance was only P5,928.18, they
were already demanding the execution and delivery of the Deed of
Sale and the TCT of the subject property upon final payment of the
said amount. Petitioner asserts that the respondents have no cause
of action against it because the respondents failed to show that they
had complied with their obligations under the Contract to Sell, since
the respondents had not yet paid in full the total purchase price of
the subject property. In view of the said non-payment, the petitioner
considered the Contract to Sell abandoned by the respondents and
rescinded in accordance with the provisions of the same contract.
The CA ordered respondent to pay petitioner Php 11,584.41
representing the balance of the purchase price, however the
petitioner refused to accept the same. No consignation was made in
court.

Issue: W/N the obligation was deemed extinguished upon tender of

payment, and W/N petitioner properly rescinded the contract.

Held: No. In the case at bar, after the petitioner refused to accept
the tender of payment made by the respondents, the latter failed to
make any consignation of the sum due. Consequently, there was no
valid tender of payment and the respondents are not yet discharged
from the obligation to pay the outstanding balance of the purchase
price of the subject property.

No. Since petitioner did not rescind the Contract to Sell it executed
with the respondents by a notarial act, the said Contract still stands.
Both parties must comply with their obligations under the said
Contract. As ruled by the HLURB Board of Commissioners, and
affirmed by the Office of the President and the Court of Appeals, the
respondents must first pay the balance of the purchase price of the
subject property, after which, the petitioner must execute and
deliver the necessary Deed of Sale and TCT of said property.

United Planters Sugar Milling Co., Inc v. CA, PNB, Asset Privatizaton
Trust

On February 27, 1987, PNB assigned to APT its “take-off loans” to

UPSUMCO as of June 30, 1986, including the mortgages on these
loans. PNB did not assign any “operating loans” of UPSUMCO. The
total indebtedness of UPSUMCO on the take-off loans was
P2,137,076,433 as of June 30 1987.

On August 27, 1987, APT foreclosed the mortgages on the take-off

loans. The foreclosure price was P450,000,000 leaving a deficiency
of P1,687,076,433.
On September 3, 1987, in consideration of UPSUMCO’s assignment
to APT of its right to redeem the foreclosed assets, APT condoned
“any deficiency amount of UPSUMCO after the foreclosure.

From August 27 to September 3, 1987 and even thereafter, PNB set-

off a total of P97,973,991.63 and remitted this amount to APT to pay
what PNB alleges was APT’s “deficiency claim”.

Issue: W/N PNB has the right to set-off the UPSUMCO funds as
compensation either for APT’s deficiency claim or UPSUMCO’s
operating loans to PNB.

Held: Such set-offs were not proper for the following reasons:

1.) APT had condoned UPSUMCO’s deficiency claim, thus

UPSUMCO had no more obligation to APT for which PNB could
set-off UPSUMCO funds;

2.) PNB set-off UPSUMCO funds not for itself but as APT’s
collecting agent. However, it is settled that legal
compensation under Article 1279 of the Civil Code cannot take
place between an agent of the principal creditor on one hand,
and the principal debtor on the other, where the agent holds
funds of the principal debtor. Compensation can take place
only if both parties are principal creditors and principal
debtors of each other; and

3.) Even if PNB did set-off the funds for itself, such would also
violate Article 1279 of the Civil Code since PNB failed to prove
the UPSUMCO’s alleged debt arising from the operational
loans is due, liquidated and demandable, as required under
Article 1279.