ACE-AGRO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS and COSMOS BOTTLING CORPORATION, respondents.

Facts:

Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling Corporation are corporations duly organized and existing
under Philippine laws. Private respondent Cosmos Bottling Corp. is engaged in the manufacture of soft drinks. Since 1979 petitioner Ace-Agro
Development Corp. (Ace-Agro) had been cleaning soft drink bottles and repairing wooden shells for Cosmos, rendering its services within the
company premises in San Fernando, Pampanga. The parties entered into service contracts which they renewed every year. On January 18, 1990,
they signed a contract covering the period January 1, 1990 to December 31, 1990. Private respondent had earlier contracted the services of Aren
Enterprises in view of the fact that petitioner could handle only from 2,000 to 2,500 cases a day and could not cope with private respondent's daily
production of 8,000 cases. Unlike petitioner, Aren Enterprises rendered service outside private respondent's plant.

On April 25, 1990, fire broke out in private respondent's plant, destroying, among other places, the area where petitioner did its work. As a result,
petitioner's work was stopped.

On May 15, 1990, petitioner asked private respondent to allow it to resume its service, but petitioner was advised that on account of the fire,
which had "practically burned all . . . old soft drink bottles and wooden shells," private respondent was terminating their contract.

Petitioner expressed surprise at the termination of the contract and requested private respondent, on June 13, 1990, to reconsider its decision and
allow petitioner to resume its work in order to "cushion the sudden impact of the unemployment of many of [its] workers." As it received no reply
from private respondent, petitioner, on June 20, 1990, informed its employees of the termination of their employment.

This led the employees to file a complaint for illegal dismissal before the Labor Arbiter against petitioner and private respondent.

On July 17, 1990, petitioner sent another letter to private respondent, reiterating its request for reconsideration.

In response, private respondent advised petitioner on August 28, 1990 that the latter could resume the repair of wooden shells under terms similar
to those contained in its contract but work had to be done outside the company premises.

Petitioner refused the offer, claiming that to do its work outside the company's premises would make it (petitioner) incur additional costs for
transportation which "will eat up the meager profits that [it] realizes from its original contract with Cosmos." In subsequent meetings with Danilo
M. de Castro, Butch Ceña and Norman Uy of Cosmos, petitioner's manager, Antonio I. Arquiza, asked for an extension of the term of the contract in
view of the suspension of work. But its request was apparently turned down.

On November 7, 1990, private respondent advised petitioner that the latter could then resume its work inside the plant in accordance with its
original contract with Cosmos.

On November 17, 1990, petitioner rejected private respondent's offer, this time, citing the fact that there was a pending labor case.

Ruling

Petitioner claims that the appellate court erred "in ruling that respondent was justified in unilaterally terminating the contract on account of a
force majeure." Quite possibly it did not understand the appellate court's decision, or it would not be contending that there was no valid cause for
the termination of the contract but only for its suspension. The following is what the appellate court said: 6

Article 1231 of the New Civil Code on extinguishment of obligations does not specifically mention unilateral termination as a mode of
extinguishment of obligation but, according to Tolentino, "there are other causes of extinguishment of obligations which are not expressly provided
for in this chapter" (Tolentino, Civil Code of the Phils., Vol. IV, 1986 ed., p. 273). He further said:

But in some contracts, either because of its indeterminate duration or because of the nature of the prestation which is its object, one of the parties
may free himself from the contractual tie by his own will (unilateral extinguishment); . . . (p. 274-275, Ibid)

And that was just what defendant-appellant did when it unilaterally terminated the agreement it had with plaintiff-appellee by sending the May
23, 1990 letter. As per its letter, the reason given by defendant-appellant for unilaterally terminating the agreement was because the April 25,
1990 fire practically burned all of the softdrink bottles and wooden shells which plaintiff-appellee was working on under the agreement. What
defendant-appellant was trying to say was that the prestation or the object of their agreement had been lost and destroyed in the above-described
fire. Apparently, the defendant-appellant would like this situation to fall within what — according to Tolentino — would be:

. . . (O)bligations may be extinguished by the happening of unforeseen events, under whose influence the obligation would never have been
contracted, because in such cases, the very basis upon which the existence of the obligation is founded would be wanting.

Both parties admitted that the April 25, 1990 fire was a force majeure or unforeseen event and that the same even burned practically all the
softdrink bottles and wooden shells — which are the objects of the agreement. But the story did not end there.

It is true that defendant-appellant still had other bottles that needed cleaning and wooden shells that needed repairing (pp. 110-111, orig. rec.);
therefore, the suspension of the work of the plaintiff-appellee brought about by the fire is, at best, temporary as found by the trial court. Hence,
plaintiff-appellee's letters of reconsideration of the termination of the agreement addressed to defendant-appellant dated June 13, 1990 and July
17, 1990.

It is obvious that what petitioner thought was the appellate court's ruling is merely its summary of private respondent's allegations. Precisely the
appellate court, does not agree with private respondent, that is why, in the last paragraph of the above excerpt, the court says that there was no
cause for terminating the contract but at most a "temporary suspension of work." The court thus rejects private respondent's claim that, as a result
of the fire, the obligation of contract must be deemed to have been extinguished.

Nonetheless, the Court of Appeals found that private respondent had reconsidered its decision to terminate the contract and tried to
accommodate the request of petitioner, first, by notifying petitioner on August 28, 1990 that it could resume work provided that this was done
outside the premises and, later, on November 7, 1990, by notifying petitioner that it could then work in its premises, under the terms of their
contract. However, petitioner unjustifiably refused the offer because it wanted an extension of the contract to make up for the period of inactivity.

1|Page
Thereafter, appellant sent its November 7, 1990 letter to appellee, this time specifically stating that plaintiff-appellee can now resume work in
accordance with their existing agreement. This time, it could not be denied that by the tenor of the letter, appellant was willing to honor its
agreement with appellee, that it had finally made a reconsideration of appellee's plea to resume work under the contract. But again, plaintiff-
appellee refused this offer to resume work.

Why did the appellee refuse to resume work? Its November 17, 1990 letter stated that it had something to do with the settlement of the NLRC case
filed against it by its employees. But that was not the real reason. In his cross-examination, the witness for appellee stated that its real reason for
refusing to resume work with the appellant was — as in its previous refusal — because it wanted an extension of the period or duration of the
contract beyond December 31, 1991, to cover the period within which it was unable to work.

The agreement between the appellee and the appellant is with a resolutory period, beginning from January 1, 1990 and ending on December 31,
1990. When the fire broke out on April 25, 1990, there resulted a suspension of the appellee's work as per agreement. But this suspension of work
due to force majeure did not merit an automatic extension of the period of the agreement between them. According to Tolentino:

The stipulation that in the event of a fortuitous event or force majeure the contract shall be deemed suspended during the said period does not
mean that the happening of any of those events stops the running of the period the contract has been agreed upon to run. It only relieves the
parties from the fulfillment of their respective obligations during that time. If during six of the thirty years fixed as the duration of a contract, one of
the parties is prevented by force majeure to perform his obligation during those years, he cannot after the expiration of the thirty-year period, be
compelled to perform his obligation for six more years to make up for what he failed to perform during the said six years, because it would in effect
be an extension of the term of the contract. The contract is stipulated to run for thirty years, and the period expires on the thirtieth year; the
period of six years during which performance by one of the parties is prevented by force majeure cannot be deducted from the period stipulated.

In fine, the appellant withdrew its unilateral termination of its agreement with appellee in its letter dated November 7, 1990. But the appellee's
refusal to resume work was, in effect, a unilateral termination of the parties' agreement — an act that was without basis. When the appellee asked
for an extension of the period of the contract beyond December 31, 1990 it was, in effect, asking for a new contract which needed the consent of
defendant-appellant. The appellee might be forgiven for its first refusal (pertaining to defendant-appellant's August 28, 1990 letter), but the
second refusal must be construed as a breach of contract by plaintiff-appellee. . . .

The Court of Appeals was right that petitioner had no basis for refusing private respondent's offer unless petitioner was allowed to carry out its
work in the company premises. That petitioner would incur additional cost for transportation was not a good reason for its refusal. Petitioner has
not shown that on August 28, 1990, when it was notified of the private respondent's offer, the latter's premises had so far been restored so as to
permit petitioner to resume work there. In fact, even when petitioner was finally allowed to resume work within the plant, it was not in the former
work place but in a new one, which shows that private respondent's reason for not granting petitioner's request was not just a pretext.

Nor was petitioner justified in refusing to resume work on November 7 when it was again notified by petitioner to work. Although it cited the
pending labor case as reason for turning down private respondent's offer, it would appear that the real reason for petitioner's refusal was the fact
that the term of the contract was expiring in two months and its request for an extension was not granted. But, as the appellate court correctly
ruled, the suspension of work under the contract was brought about by force majeure. Therefore, the period during which work was suspended did
not justify an extension of the term of the contract. 8 For the fact is that the contract was subject to a resolutory period which relieved the parties
of their respective obligations but did not stop the running of the period of their contract.

The truth of the matter is that while private respondent had made efforts towards accommodation, petitioner was unwilling to make adjustments
as it insisted that it "cannot profitably resume operation under the same terms and conditions [of] the terminated contract but with an outside
work venue [as] transportation costs alone will eat up the meager profit that Ace-Agro realizes from its original contract." 9 While this so-called
"job-out" offer of private respondent had the effect of varying the terms of the contract in the sense that it could increase its cost, what petitioner
did not seem to realize was that the change was brought about by circumstances not of private respondent's making.

Again when private respondent finally advised petitioner on November 7, 1990 to work under the strict terms of its contract and inside the plant,
petitioner thought only of its interest by insisting that the contract be extended. Petitioner's manager, Antonio I. Arquiza, testified that he tried to
secure a term extension for his company but his request was turned down because the management of private respondent wanted a new contract
after the expiration of the contract on December 31, 1990.

Petitioner slams the Court of Appeals for ruling that "it was [petitioner's] unjustified refusal which finally terminated the contract between the
parties." This contention is likewise without merit. Petitioner may not be responsible for the termination of the contract, but neither is private
respondent, since the question in this case is whether private respondent is guilty of breach of contract. The trial court held that private
respondent committed a breach of contract because, even as its August 28, 1990 letter allowed petitioner to resume work, private respondent's
offer was limited to the repairs of wooden shells and this had to be done outside the company's premises. On the other hand, the final offer made
on November 7, 1990, while allowing the "repair of wooden shells [to be done] inside the plant according to your contract with the company," was
still limited to the repair of the wooden shells, when the fact was that the parties' contract was both for the repair of wooden crates and for the
cleaning of soft drink bottles.

But this was not the petitioner's complaint. There was never an issue whether the company's offer included the cleaning of bottles. Both parties
understood private respondent's offer as including the cleaning of empty soft drink bottles and the repair of the wooden crates. Rather, the
discussions between petitioner and private respondent's representatives focused first, on the insistence of petitioner that it be allowed to work
inside the company plant and, later, on its request for the extension of the life of the contract.

Petitioner claims that private respondent had a reason to want to terminate the contract and that was to give the business to Aren Enterprises, as
the latter offered its services at a much lower rate than petitioner. Aren Enterprises' rate was P2.50 per shell while petitioner's rates were P4.00
and P6.00 per shell for ordinary and super sized bottles, respectively. 11

The contention has no basis in fact. The contract between private respondent and Aren Enterprises had been made on March 29, 1990 — before
the fire broke out. The contract between petitioner and private respondent did not prohibit the hiring by private respondent of another service
contractor. With private respondent hitting production at 8,000 bottles of soft drinks per day, petitioner could clearly not handle the business,
since it could clean only 2,500 bottles a day. 12 These facts show that although Aren Enterprises' rate was lower than petitioner's, they did not
affect private respondent's business relation with petitioner. Despite private respondent's contract with Aren Enterprises, private respondent
continued doing business with petitioner and would probably have done so were it not for the fire. On the other hand, Aren Enterprises could not
be begrudged for being allowed to continue rendering service even after the fire because it was doing its work outside private respondent's plant.

2|Page
For that matter, after the fire, private respondent on August 28, 1990 offered to let petitioner resume its service provided this was done outside
the plant.

Petitioner may not be to blame for the failure to resume work after the fire, but neither is private respondent. Since the question is whether
private respondent is guilty of breach of contract, the fact that private respondent is blameless can only lead to the conclusion that the appealed
decision is correct.

WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED. SO ORDERED.

DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents.

Facts:

"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against defendant Dominion Insurance
Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of
defendant to satisfy certain claims filed by defendant’s clients.

"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing premiums that plaintiff
allegedly failed to remit.

"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional
Manager for Central Luzon area.

"In due time, third-party defendant Austria filed his answer.

"Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991,
January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held.
The record shows that except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of
defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties.

"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite due notice, defendant and
counsel did not appear, although a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by defendant’s counsel
which instructed him to request for postponement. Plaintiff’s counsel objected to the desired postponement and moved to have defendant
declared as in default. This was granted by the trial court in the following order:

"ORDER

"When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared. When shown a note dated
May 21, 1992 addressed to a certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any postponement
on the ground that the note is but a mere scrap of paper and moved that the defendant corporation be declared as in default for its failure to
appear in court despite due notice.

"Finding the verbal motion of plaintiff’s counsel to be meritorious and considering that the pre-trial conference has been repeatedly postponed on
motion of the defendant Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to
present his evidence on June 16, 1992 at 9:00 o’clock in the morning.

"The plaintiff and his counsel are notified of this order in open court.

"SO ORDERED.

"Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on July 8 and a supplemental offer
of additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992.

"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF DEFAULT.’ It alleged therein that the failure of counsel to attend the
pre-trial conference was ‘due to an unavoidable circumstance’ and that counsel had sent his representative on that date to inform the trial court of
his inability to appear. The Motion was vehemently opposed by plaintiff.

"On August 25, 1992 the trial court denied defendant’s motion for reasons, among others, that it was neither verified nor supported by an affidavit
of merit and that it further failed to allege or specify the facts constituting his meritorious defense.

"On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel revealed to the trial court that the
reason for his nonappearance at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President purporting
to explain its meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said
Motion.

"On November 18, 1992, the court a quo rendered judgment as follows:

"WHEREFORE, premises considered, judgment is hereby rendered ordering:

"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in
the payment of the claims of defendant’s clients;

"2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s fees;

"3. The dismissal of the counter-claim of the defendant and the third-party complaint;

"4. The defendant to pay the costs of suit."4

On December 14, 1992, Dominion appealed the decision to the Court of Appeals.5

3|Page
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court.6 On September 3, 1996, Dominion filed with the
Court of Appeals a motion for reconsideration.7 On July 16, 1997, the Court of Appeals denied the motion.

Ruling:

The petition is without merit.

By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter.10 The basis for agency is representation.11 On the part of the principal, there must be an actual intention to
appoint12 or an intention naturally inferrable from his words or actions;13 and on the part of the agent, there must be an intention to accept the
appointment and act on it,14 and in the absence of such intent, there is generally no agency.15

A perusal of the Special Power of Attorney16 would show that petitioner (represented by third-party defendant Austria) and respondent Guevarra
intended to enter into a principal-agent relationship. Despite the word "special" in the title of the document, the contents reveal that what was
constituted was actually a general agency. The terms of the agreement read:

"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,17 a corporation duly organized and existing under and by virtue of the laws of the
Republic of the Philippines, xxx represented by the undersigned as Regional Manager, xxx do hereby appoint RSG Guevarra Insurance Services
represented by Mr. Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place and stead, to do and perform the following acts and
things:

"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE,
MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents.

"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf.

"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give effectual receipts and discharge for all
money to which the FIRST CONTINENTAL ASSURANCE COMPANY, INC.,18 may hereafter become due, owing payable or transferable to said
Corporation by reason of or in connection with the above-mentioned appointment.

"4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with
actions and all legal proceedings against the said Corporation."19 [Emphasis supplied]

The agency comprises all the business of the principal,20 but, couched in general terms, it is limited only to acts of administration.21

A general power permits the agent to do all acts for which the law does not require a special power.22 Thus, the acts enumerated in or similar to
those enumerated in the Special Power of Attorney do not require a special power of attorney.

Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The pertinent portion that applies to this case
provides that:

"Article 1878. Special powers of attorney are necessary in the following cases:

"(1) To make such payments as are not usually considered as acts of administration;

"x x x xxx xxx

"(15) Any other act of strict dominion."

The payment of claims is not an act of administration. The settlement of claims is not included among the acts enumerated in the Special Power of
Attorney, neither is it of a character similar to the acts enumerated therein. A special power of attorney is required before respondent Guevarra
could settle the insurance claims of the insured.

Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of Management Agreement23 dated February 18, 1987 which
enumerates the scope of respondent Guevarra’s duties and responsibilities as agency manager for San Fernando, Pampanga, as follows:

"x x x xxx xxx

"1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional
Office.

"2. Full authority is given you on TPPI claims settlement.

"xxx xxx x x x "24

In settling the claims mentioned above, respondent Guevarra’s authority is further limited by the written standard authority to pay,25 which states
that the payment shall come from respondent Guevarra’s revolving fund or collection. The authority to pay is worded as follows:

"This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________ (P ) representing the
payment on the _________________ claim of assured _______________ under Policy No. ______ in that accident of ___________ at
____________.

"It is further expected, release papers will be signed and authorized by the concerned and attached to the corresponding claim folder after
effecting payment of the claim.

"(sgd.) FERNANDO C. AUSTRIA

Regional Manager"2

[Emphasis supplied]

4|Page
The instruction of petitioner as the principal could not be any clearer.1âwphi1 Respondent Guevarra was authorized to pay the claim of the
insured, but the payment shall come from the revolving fund or collection in his possession.

Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the
insured may not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that:

"The principal is not liable for the expenses incurred by the agent in the following cases:

"(1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail himself of the benefits derived from the
contract;

"xxx xxx xxx"

However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under
the general law on obligations and contracts.

Article 1236, second paragraph, Civil Code, provides:

"Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the
debtor, he can recover only insofar as the payment has been beneficial to the debtor."

In this case, when the risk insured against occurred, petitioner’s liability as insurer arose.1âwphi1 This obligation was extinguished when
respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his
principal. To rule otherwise would result in unjust enrichment of petitioner.

The extent to which petitioner was benefited by the settlement of the insurance claims could best be proven by the Release of Claim Loss and
Subrogation Receipts27 which were attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of
P116,276.95.

However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of
account dated July 11, 1990 would be deducted from the above amount.

The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84. Deducting this from
P116,276.95, we get P112,672.11. This is the amount that may be reimbursed to respondent Guevarra.

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court of Appeals28 and that of the Regional Trial Court, Branch
44, San Fernando, Pampanga,29 in that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11 representing the total
amount advanced by the latter in the payment of the claims of petitioner’s clients.

No costs in this instance. SO ORDERED.

PHILIPPINE AIRLINES, INC., petitioner, vs. HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court of First Instance of Manila, Branch
XIII, JAIME K. DEL ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and AMELIA TAN, respondents.

Facts

This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No. 07695 entitled "Philippine Airlines, Inc. v. Hon. Judge
Ricardo D. Galano, et al.", dismissing the petition for certiorari against the order of the Court of First Instance of Manila which issued an alias writ of
execution against the petitioner.

The petition involving the alias writ of execution had its beginnings on November 8, 1967, when respondent Amelia Tan, under the name and style
of Able Printing Press commenced a complaint for damages before the Court of First Instance of Manila. The case was docketed as Civil Case No.
71307, entitled Amelia Tan, et al. v. Philippine Airlines, Inc.

After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge Jesus P. Morfe rendered judgment on June 29,
1972, in favor of private respondent Amelia Tan and against petitioner Philippine Airlines, Inc. (PAL) as follows:

WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine Air Lines:

1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual damages, with legal interest thereon from
plaintiffs extra-judicial demand made by the letter of July 20, 1967;

2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing the unrealized profit of 10% included in the
contract price of P200,000.00 plus legal interest thereon from July 20,1967;

3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for moral damages, with legal interest thereon
from July 20, 1 967;

4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and for attorney's fee.

Plaintiffs second and fifth causes of action, and defendant's counterclaim, are dismissed.

With costs against the defendant. (CA Rollo, p. 18)

On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was docketed as CA-G.R. No. 51079-R.

On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which reads:

5|Page
IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff the sum of P25,000.00 as damages and P5,000.00 as attorney's
fee, judgment is affirmed, with costs. (CA Rollo, p. 29)

Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent thereto, a motion for reconsideration was filed by
respondent Amelia Tan, duly opposed by petitioner PAL.

On May 23,1977, the Court of Appeals rendered its resolution denying the respondent's motion for reconsideration for lack of merit.

No further appeal having been taken by the parties, the judgment became final and executory and on May 31, 1977, judgment was
correspondingly entered in the case.

The case was remanded to the trial court for execution and on September 2,1977, respondent Amelia Tan filed a motion praying for the issuance of
a writ of execution of the judgment rendered by the Court of Appeals. On October 11, 1977, the trial court, presided over by Judge Galano, issued
its order of execution with the corresponding writ in favor of the respondent. The writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch
13 of the Court of First Instance of Manila for enforcement.

Four months later, on February 11, 1978, respondent 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 Court of Appeals, remained unsatisfied.

On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias writ of execution stating that it had already fully paid
its obligation to plaintiff through the deputy sheriff of the respondent court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed and
receipted by said Emilio Z. Reyes.

On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being premature, ordering the executing sheriff Emilio Z. Reyes to
appear with his return and explain the reason for his failure to surrender the amounts paid to him by petitioner PAL. However, the order could not
be served upon Deputy Sheriff Reyes who had absconded or disappeared.

On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by respondent Amelia Tan.

On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ of Execution" with Substitute Motion for Alias
Writ of Execution. On May 1, 1978, the respondent Judge issued an order which reads:

As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for Partial Alias Writ of Execution with Substitute Motion for Alias Writ
of Execution is hereby granted, and the motion for partial alias writ of execution is considered withdrawn.

Let an Alias Writ of Execution issue against the defendant for the fall satisfaction of the judgment rendered. Deputy Sheriff Jaime K. del Rosario is
hereby appointed Special Sheriff for the enforcement thereof. (CA Rollo, p. 34)

On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the same day directing Special Sheriff Jaime K. del
Rosario to levy on execution in the sum of P25,000.00 with legal interest thereon from July 20,1967 when respondent Amelia Tan made an extra-
judicial demand through a letter. Levy was also ordered for the further sum of P5,000.00 awarded as attorney's fees.

On May 23, 1978, the petitioner 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 Emilio Z. Reyes and that the judgment debt had already been fully satisfied by the petitioner as evidenced by the cash vouchers
signed and receipted by the server of the writ of execution, Deputy Sheriff Emilio Z. Reyes.

On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment on the depository bank of petitioner, Far East Bank and Trust
Company, Rosario Branch, Binondo, Manila, through its manager and garnished the petitioner's deposit in the said bank in the total amount of
P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by the Philippine Airlines, Inc., on the grounds that:

AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.

II

PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE WRIT OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.

III

INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE PAYMENT THEREOF.

IV

SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY
JUDGMENT.

Ruling:

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 shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to
receive it. (Emphasis supplied)

Thus, payment must be made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment (Ulen v.
Knecttle 50 Wyo 94, 58 [2d] 446, 111 ALR 65). Payment made to one having apparent authority to receive the money will, as a rule, be treated as
though actual authority had been given for its receipt. Likewise, if payment is made to one who by law is authorized to act for the creditor, it will
work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34 LRA 283). The receipt of money due on ajudgment by an officer authorized by law to
accept it will, therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).

6|Page
The theory is where payment is made to a person authorized and recognized by the creditor, the payment to such a person so authorized is
deemed payment to the creditor. Under ordinary circumstances, payment by the judgment debtor in the case at bar, to the sheriff should be valid
payment to extinguish the judgment debt.

There are circumstances in this case, however, which compel a different conclusion.

The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but in checks. The checks were not payable to Amelia
Tan or Able Printing Press but to the absconding sheriff.

Did such payments extinguish the judgment debt?

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.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only
when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in abeyance.

In the absence of an agreement, either express or implied, payment means the discharge of a debt or obligation in money (US v. Robertson, 5 Pet.
[US] 641, 8 L. ed. 257) and unless the parties so agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as
medium of payment of his debt (Anderson v. Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402). Consequently, 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 petitioner's checks, in the case at bar, does not, per se, operate as
a discharge of the judgment debt.

Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as
payment (See. 189, Act 2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil. 44;
21 R.C.L. 60, 61). A check, whether a manager's check or ordinary cheek, is not legal tender, and an offer of a check in payment of a debt is not a
valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249,
Civil Code, par. 3).

If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's, there would have been no payment. After dishonor of the
checks, Ms. Tan could have run after other properties of PAL. The theory is that she has received no value for what had been awarded her. Because
the checks were drawn in the name of Emilio Z. Reyes, neither has she received anything. The same rule should apply.

It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full legal contemplation. The reasoning is logical but is it
valid and proper? Logic has its limits in decision making. We should not follow rulings to their logical extremes if in doing so we arrive at unjust or
absurd results.

In the first place, PAL did not pay in cash. It paid in cheeks.

And second, payment in cash always carries with it certain cautions. Nobody hands over big amounts of cash in a careless and inane manner.
Mature thought is given to the possibility of the cash being lost, of the bearer being waylaid or running off with what he is carrying for another.
Payment in checks is precisely intended to avoid the possibility of the money going to the wrong party. The situation is entirely different where a
Sheriff seizes a car, a tractor, or a piece of land. Logic often has to give way to experience and to reality. Having paid with checks, PAL should have
done so properly.

Payment in money or cash to the implementing officer may be deemed absolute payment of the 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 sheriffs and other
executing officers. Payment in cash would result in damage or interminable litigations each time a sheriff with huge amounts of cash in his hands
decides to abscond.

As a protective measure, therefore, the courts encourage the practice of payments by cheek provided adequate controls are instituted to prevent
wrongful payment and illegal withdrawal or disbursement of funds. If particularly big amounts are involved, escrow arrangements with a bank and
carefully supervised by the court would be the safer procedure. Actual transfer of funds takes place within the safety of bank premises. These
practices are perfectly legal. The object is always the safe and incorrupt execution of the judgment.

It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the name of another. Making the checks payable to the
judgment creditor would have prevented the encashment or the taking of undue advantage by the sheriff, or any person into whose hands the
checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the checks in the name of the sheriff clearly made possible
the misappropriation of the funds that were withdrawn.

As explained and held by the respondent court:

... [K]nowing as it does that the intended payment was for the private party respondent Amelia Tan, the petitioner corporation, utilizing the
services of its personnel who are or should be knowledgeable about the accepted procedures 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 personal benefit. For the prejudice that resulted, the petitioner
himself must bear the fault. The judicial guideline which we take note of states as follows:

As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of
confidence must bear the loss. (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935, 61 Phil. 625)

7|Page
Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act made possible the loss had but itself to blame.

The attention of this Court has been called to the bad practice of a number of executing officers, of requiring checks in satisfaction of judgment
debts to be made out in their own names. If a sheriff directs a judgment debtor to issue the checks in the sheriff's name, claiming he must get his
commission or fees, the debtor must report the sheriff immediately to the court which ordered the execution or to the Supreme Court for
appropriate disciplinary action. Fees, commissions, and salaries are paid through regular channels. This improper procedure also allows such
officers, who have sixty (60) days within which to make a return, to treat the moneys as their personal finds and to deposit the same in their
private accounts to earn sixty (60) days interest, before said finds are turned over to the court or judgment creditor (See Balgos v. Velasco, 108
SCRA 525 [1981]). Quite as easily, such officers could put up the defense that said checks had been issued to them in their private or personal
capacity. Without a receipt evidencing payment of the judgment debt, the misappropriation of finds by such officers becomes clean and complete.
The practice is ingenious but evil as it unjustly enriches court personnel at the expense of litigants and the proper administration of justice. The
temptation could be far greater, as proved to be in this case of the absconding sheriff. The correct and prudent thing for the petitioner was to have
issued the checks in the intended payee's name.

The pernicious effects of issuing checks in the name of a person other than the intended payee, without the latter's agreement or consent, are as
many as the ways that an artful mind could concoct to get around the safeguards provided by the law on negotiable instruments. An angry litigant
who loses a case, as a rule, would not want the winning party to get what he won in the judgment. He would think of ways to delay the winning
party's getting what has been adjudged in his favor. We cannot condone that practice especially in cases where the courts and their officers are
involved. We rule against the petitioner.

Anent the applicability of Section 15, Rule 39, as follows:

Section 15. Execution of money judgments. — The officer must enforce an execution of a money judgment by levying on all the property, real and
personal of every name and nature whatsoever, and which may be disposed of for value, of the judgment debtor not exempt from execution, or on
a sufficient amount of such property, if they be sufficient, and selling the same, and paying to the judgment creditor, or his attorney, so much of
the proceeds as will satisfy the judgment. ...

the respondent court held:

We are obliged to rule that the judgment debt cannot be considered satisfied and therefore the orders of the respondent judge granting the alias
writ of execution may not be pronounced as a nullity.

xxx xxx xxx

It is clear and manifest that after levy or garnishment, for a judgment to be executed there is the requisite of payment by the officer to the
judgment creditor, or his attorney, so much of the proceeds as will satisfy the judgment and none such payment had been concededly made yet by
the absconding Sheriff to the private respondent Amelia Tan. The ultimate and essential step to complete the execution of the judgment not
having been performed by the City Sheriff, the judgment debt legally and factually remains unsatisfied.

Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual circumstances as those obtaining in this petition, the
distinction comes out clearly.

Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360, 363; Miller v. London,
294 Mass 300, 1 NE 2d 198, 200; Black's Law Dictionary), whereas the satisfaction of a judgment is the payment of the amount of the writ, or a
lawful tender thereof, or the conversion by sale of the debtor's property into an amount equal to that due, and, it may be done otherwise than
upon an execution (Section 47, Rule 39). Levy and delivery by an execution officer are not prerequisites to the satisfaction of a judgment when the
same has already been realized in fact (Section 47, Rule 39). Execution is for the sheriff to accomplish while satisfaction of the judgment is for the
creditor to achieve. Section 15, Rule 39 merely provides the sheriff with his duties as executing officer including delivery of the proceeds of his levy
on the debtor's property to satisfy the judgment debt. It is but to stress that the implementing officer's duty should not stop at his receipt of
payments but must continue until payment is delivered to the obligor or creditor.

Finally, we find no error in the respondent court's pronouncement on the inclusion of interests to be recovered under the alias writ of execution.
This logically follows from our ruling that PAL is liable for both the lost checks and interest. The respondent court's decision in CA-G.R. No. 51079-R
does not totally supersede the trial court's judgment in Civil Case No. 71307. It merely modified the same as to the principal amount awarded as
actual damages.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The judgment of the respondent Court of Appeals is AFFIRMED and
the trial court's issuance of the alias writ of execution against the petitioner is upheld without prejudice to any action it should take against the
errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to follow up the actions taken against Emilio Z. Reyes. SO ORDERED.

JOSE BARITUA and EDGAR BITANCOR, petitioners, vs. HONORABLE COURT OF APPEALS, NICOLAS NACARIO and VICTORIA RONDA NACARIO,
respondents.

Facts:In the evening of November 7, 1979, the tricycle then being driven by Bienvenido Nacario along the national highway at Barangay San
Cayetano, in Baao, Camarines Sur, figured in an accident with JB Bus No. 80 driven by petitioner Edgar Bitancor and owned and operated by
petitioner Jose Baritua. 3 As a result of that accident Bienvenido and his passenger died 4 and the tricycle was damaged. 5 No criminal case arising
from the incident was ever instituted. 6

Subsequently, on March 27, 1980, as a consequence of the extra-judicial settlement of the matter negotiated by the petitioners and the bus insurer
— Philippine First Insurance Company, Incorporated (PFICI for brevity) — Bienvenido Nacario's widow, Alicia Baracena Vda. de Nacario, received
P18,500.00. In consideration of the amount she received, Alicia executed on March 27, 1980 a "Release of Claim" in favor of the petitioners and
PFICI, releasing and forever discharging them from all actions, claims, and demands arising from the accident which resulted in her husband's death
and the damage to the tricycle which the deceased was then driving. Alicia likewise executed an affidavit of desistance in which she formally
manifested her lack of interest in instituting any case, either civil or criminal, against the petitioners. 7

On September 2, 1981, or about one year and ten months from the date of the accident on November 7, 1979, the private respondents, who are
the parents of Bienvenido Nacario, filed a complaint for damages against the petitioners with the then Court of First Instance of Camarines Sur. 8 In

8|Page
their complaint, the private respondents alleged that during the vigil for their deceased son, the petitioners through their representatives promised
them (the private respondents) that as extra-judicial settlement, they shall be indemnified for the death of their son, for the funeral expenses
incurred by reason thereof, and for the damage for the tricycle the purchase price of which they (the private respondents) only loaned to the
victim. The petitioners, however, reneged on their promise and instead negotiated and settled their obligations with the long-estranged wife of
their late son. The Nacario spouses prayed that the defendants, petitioners herein, be ordered to indemnify them in the amount of P25,000.00 for
the death of their son Bienvenido, P10,000.00 for the damaged tricycle, P25,000.00 for compensatory and exemplary damages, P5,000.00 for
attorney's fees, and for moral damages. 9

After trial, the court a quo dismissed the complaint, holding that the payment by the defendants (herein petitioners) to the widow and her child,
who are the preferred heirs and successors-in-interest of the deceased Bienvenido to the exclusion of his parents, the plaintiffs (herein private
respondents), extinguished any claim against the defendants (petitioners). 10

The parents appealed to the Court of Appeals which reversed the judgment of the trial court. The appellate court ruled that the release executed
by Alicia Baracena Vda. de Nacario did not discharge the liability of the petitioners because the case was instituted by the private respondents in
their own capacity and not as "heirs, representatives, successors, and assigns" of Alicia; and Alicia could not have validly waived the damages being
prayed for (by the private respondents) since she was not the one who suffered these damages arising from the death of their son. Furthermore,
the appellate court said that the petitioners "failed to rebut the testimony of the appellants (private respondents) that they were the ones who
bought the tricycle that was damaged in the incident. Appellants had the burden of proof of such fact, and they did establish such fact in their
testimony . . . 11 Anent the funeral expenses, "(T)he expenses for the funeral were likewise shouldered by the appellants (the private respondents).
This was never contradicted by the appellees (petitioners). . . . Payment (for these) were made by the appellants, therefore, the reimbursement
must accrue in their favor. 12

Consequently, the respondent appellate court ordered the petitioners to pay the private respondents P10,000.00 for the damage of the tricycle,
P5,000.00 for "complete" funeral services, P450.00 for cemetery lot, P55.00 for oracion adulto, and P5,000.00 for attorney's fees. 13 The
petitioners moved for a reconsideration of the appellate court's decision 14 but their motion was denied.

Ruling

The petition is meritorious.

Obligations are extinguished by various modes among them being by payment. Article 1231 of the Civil Code of the Philippines provides:

Art. 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;

(6) By novation.

(Emphasis ours.)

There is no denying that the petitioners had paid their obligation petition arising from the accident that occurred on November 7, 1979. The only
question now is whether or not Alicia, the spouse and the one who received the petitioners' payment, is entitled to it.

Article 1240 of the Civil Code of the Philippines enumerates the persons to whom payment to extinguish an obligation should be made.

Art 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person
authorized to receive it.

Certainly there can be no question that Alicia and her son with the deceased are the successors in interest referred to in law as the persons
authorized to receive payment. The Civil Code states:

Article 887. The following are compulsory heirs:

1. Legitimate children and descendants, with respect to their legitimate parents and ascendants;

2. In default of the foregoing, legitimate parents and ascendants with respect to their legitimate children and decendants;

3. The widow or widower;

4. Acknowledged natural children and natural children by legal fiction;

5. Other illegitimate children referred to in Article 287.

Compulsory heirs mentioned in Nos. 3, 4 and 5 are not excluded by those in Nos. 1 and 2. Neither do they exclude one another. (Emphasis ours.)

Article 985. In default of legitimate children and descendants of the deceased, his parents and ascendants shall inherit from him, to the
exclusion of collateral relatives.

(Emphasis ours.)

It is patently clear that the parents of the deceased succeed only when the latter dies without a legitimate descendant. On the other hand, the
surviving spouse concurs with all classes of heirs. As it has been established that Bienvenido was married to Alicia and that they begot a child, the

9|Page
private respondents are not successors-in-interest of Bienvenido; they are not compulsory heirs. The petitioners therefore acted correctly in
settling their obligation with Alicia as the widow of Bienvenido and as the natural guardian of their lone child. This is so even if Alicia had been
estranged from Bienvenido. Mere estrangement is not a legal ground for the disqualification of a surviving spouse as an heir of the deceased
spouse.

Neither could the private respondents, as alleged creditors of Bienvenido, seek relief and compensation from the petitioners. While it may be true
that the private respondents loaned to Bienvenido the purchase price of the damaged tricycle and shouldered the expenses for his funeral, the said
purchase price and expenses are but money claims against the estate of their deceased son. 16 These money claims are not the liabilities of the
petitioners who, as we have said, had been released by the agreement of the extra-judicial settlement they concluded with Alicia Baracena Vda. de
Nacario, the victim's widow and heir, as well as the natural guardian of their child, her co-heir. As a matter of fact, she executed a "Release Of
Claim" in favor of the petitioners.

WHEREFORE, the petition is GRANTED; the decision of the Court of Appeals is REVERSED and SET ASIDE and the decision of the Regional Trial Court
is hereby REINSTATED. Costs against the private respondents.

SO ORDERED.

FRANCISCO CULABA and DEMETRIA CULABA, doing business under the name and style "Culaba Store", petitioners, vs. COURT OF APPEALS and
SAN MIGUEL CORPORATION, respondents.

Facts:

The spouses Francisco and Demetria Culaba were the owners and proprietors of the Culaba Store and were engaged in the sale and distribution of
San Miguel Corporation’s (SMC) beer products. SMC sold beer products on credit to the Culaba spouses in the amount of P28,650.00, as evidenced
by Temporary Credit Invoice No. 42943.4 Thereafter, the Culaba spouses made a partial payment of P3,740.00, leaving an unpaid balance of
P24,910.00. As they failed to pay despite repeated demands, SMC filed an action for collection of a sum of money against them before the RTC of
Makati, Branch 138.

The defendant-spouses denied any liability, claiming that they had already paid the plaintiff in full on four separate occasions. To substantiate this
claim, the defendants presented four (4) Temporary Charge Sales (TCS) Liquidation Receipts, as follows:

April 19, 1983 Receipt No. 27331 for P8,0005

April 22, 1983 Receipt No. 27318 for P9,0006

April 27, 1983 Receipt No. 27339 for P4,5007

April 30, 1983 Receipt No. 27346 for P3,4108

Defendant Francisco Culaba testified that he made the foregoing payments to an SMC supervisor who came in an SMC van. He was then showed a
list of customers’ accountabilities which included his account. The defendant, in good faith, then paid to the said supervisor, and he was, in turn,
issued genuine SMC liquidation receipts.

For its part, SMC submitted a publisher’s affidavit9 to prove that the entire booklet of TCSL Receipts bearing Nos. 27301-27350 were reported lost
by it, and that it caused the publication of the notice of loss in the July 9, 1983 issue of the Daily Express, as follows:

NOTICE OF LOSS

OUR CUSTOMERS ARE HEREBY INFORMED THAT TEMPORARY CHARGE SALES LIQUIDATION RECEIPTS WITH SERIAL NOS. 27301-27350 HAVE BEEN
LOST.

ANY TRANSACTION, THEREFORE, ENTERED INTO WITH THE USE OF THE ABOVE RECEIPTS WILL NOT BE HONORED.

SAN MIGUEL CORPORATION

BEER DIVISION

Makati Beer Region

Ruling

A careful study of the records of the case reveal that the appellate court affirmed the trial court’s factual findings as follows:

First. Receipts Nos. 27331, 27318, 27339 and 27346 were included in the private respondent’s lost booklet, which loss was duly advertised in a
newspaper of general circulation; thus, the private respondent could not have officially issued them to the petitioners to cover the alleged
payments on the dates appearing thereon.

Second. There was something amiss in the way the receipts were issued to the petitioners, as one receipt bearing a higher serial number was
issued ahead of another receipt bearing a lower serial number, supposedly covering a later payment. The petitioners failed to explain the apparent
mix-up in these receipts, and no attempt was made in this regard.

Third. The fact that the salesman’s name was invariably left blank in the four receipts and that the petitioners could not even remember the name
of the supposed impostor who received the said payments strongly argue against the veracity of the petitioners’ claim.

10 | P a g e
We find no cogent reason to reverse the said findings.

The dismissal of the petition is inevitable even upon close perusal of the merits of the case.

Payment is a mode of extinguishing an obligation.20 Article 1240 of the Civil Code provides that payment shall be made to the person in whose
favor the obligation has been constituted, or his successor-in-interest, or any person authorized to receive it.21 In this case, the payments were
purportedly made to a "supervisor" of the private respondent, who was clad in an SMC uniform and drove an SMC van. He appeared to be
authorized to accept payments as he showed a list of customers’ accountabilities and even issued SMC liquidation receipts which looked genuine.
Unfortunately for petitioner Francisco Culaba, he did not ascertain the identity and authority of the said supervisor, nor did he ask to be shown any
identification to prove that the latter was, indeed, an SMC supervisor. The petitioners relied solely on the man’s representation that he was
collecting payments for SMC. Thus, the payments the petitioners claimed they made were not the payments that discharged their obligation to the
private respondent.

The basis of agency is representation.22 A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the
agent.23 In the instant case, the petitioners’ loss could have been avoided if they had simply exercised due diligence in ascertaining the identity of
the person to whom they allegedly made the payments. The fact that they were parting with valuable consideration should have made them more
circumspect in handling their business transactions. Persons dealing with an assumed agent are bound at their peril to ascertain not only the fact of
agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it.24 The
petitioners in this case failed to discharge this burden, considering that the private respondent vehemently denied that the payments were
accepted by it and were made to its authorized representative.

Negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of
human affairs, would do, or the doing of something, which a prudent and reasonable man would not do.25 In the case at bar, the most prudent
thing the petitioners should have done was to ascertain the identity and authority of the person who collected their payments. Failing this, the
petitioners cannot claim that they acted in good faith when they made such payments. Their claim therefor is negated by their negligence, and
they are bound by its consequences. Being negligent in this regard, the petitioners cannot seek relief on the basis of a supposed agency.26

WHEREFORE, the instant petition is hereby DENIED. The assailed Decision dated April 16, 1996, and the Resolution dated July 19, 1996 of the Court
of Appeals are AFFIRMED. Costs against the petitioners. SO ORDERED.

REPUBLIC OF THE PHILIPPINES, represented by the Chief of the Philippine National Police, Petitioner, vs. THI THU THUY T. DE GUZMAN,
Respondent.

Facts:

Respondent is the proprietress of Montaguz General Merchandise (MGM),4 a contractor accredited by the PNP for the supply of office and
construction materials and equipment, and for the delivery of various services such as printing and rental, repair of various equipment, and
renovation of buildings, facilities, vehicles, tires, and spare parts.5

On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue Voucher6 for the acquisition of various building
materials amounting to Two Million Two Hundred Eighty-Eight Thousand Five Hundred Sixty-Two Pesos and Sixty Centavos (P2,288,562.60) for the
construction of a four-storey condominium building with roof deck at Camp Crame, Quezon City.7

Respondent averred that on December 11, 1995, MGM and petitioner, represented by the PNP, through its chief, executed a Contract of
Agreement8 (the Contract) wherein MGM, for the price of P2,288,562.60, undertook to procure and deliver to the PNP the construction materials
itemized in the purchase order9 attached to the Contract. Respondent claimed that after the PNP Chief approved the Contract and purchase
order,10 MGM, on March 1, 1996, proceeded with the delivery of the construction materials, as evidenced by Delivery Receipt Nos. 151-153,11
Sales Invoice Nos. 038 and 041,12 and the "Report of Public Property Purchase"13 issued by the PNP’s Receiving and Accounting Officers to their
Internal Auditor Chief. Respondent asseverated that following the PNP’s inspection of the delivered materials on March 4, 1996,14 the PNP issued
two Disbursement Vouchers; one in the amount of P2,226,147.26 in favor of MGM,15 and the other, 16 in the amount of P62,415.34, representing
the three percent (3%) withholding tax, in favor of the Bureau of Internal Revenue (BIR).17

On November 5, 1997, the respondent, through counsel, sent a letter dated October 20, 199718 to the PNP, demanding the payment of
P2,288,562.60 for the construction materials MGM procured for the PNP under their December 1995 Contract.

On November 17, 1997, the PNP, through its Officer-in-Charge, replied19 to respondent’s counsel, informing her of the payment made to MGM via
Land Bank of the Philippines (LBP) Check No. 0000530631, 20 as evidenced by Receipt No. 001, 21 issued by the respondent to the PNP on April 23,
1996.22

On November 26, 1997, respondent, through counsel, responded by reiterating her demand23 and denying having ever received the LBP check,
personally or through an authorized person. She also claimed that Receipt No. 001, a copy of which was attached to the PNP’s November 17, 1997
letter, could not support the PNP’s claim of payment as the aforesaid receipt belonged to Montaguz Builders, her other company, which was also
doing business with the PNP, and not to MGM, with which the contract was made.

Ruling:

The RTC and the Court of Appeals correctly ruled that the petitioner’s obligation has not been extinguished. The petitioner’s obligation consists of
payment of a sum of money. In order for petitioner’s payment to be effective in extinguishing its obligation, it must be made to the proper person.
Article 1240 of the Civil Code states:

Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person
authorized to receive it.

In Cembrano v. City of Butuan,75 this Court elucidated on how payment will effectively extinguish an obligation, to wit:

11 | P a g e
Payment made by the debtor to the person of the creditor or to one authorized by him or by the law to receive it extinguishes the obligation. When
payment is made to the wrong party, however, the obligation is not extinguished as to the creditor who is without fault or negligence even if the
debtor acted in utmost good faith and by mistake as to the person of the creditor or through error induced by fraud of a third person.

In general, a payment in order to be effective to discharge an obligation, must be made to the proper person. Thus, payment must be made to the
obligee himself or to an agent having authority, express or implied, to receive the particular payment. Payment made to one having apparent
authority to receive the money will, as a rule, be treated as though actual authority had been given for its receipt. Likewise, if payment is made to
one who by law is authorized to act for the creditor, it will work a discharge. The receipt of money due on a judgment by an officer authorized by
law to accept it will, therefore, satisfy the debt.76

The respondent was able to establish that the LBP check was not received by her or by her authorized personnel. The PNP’s own records show that
it was claimed and signed for by Cruz, who is openly known as being connected to Highland Enterprises, another contractor. Hence, absent any
showing that the respondent agreed to the payment of the contract price to another person, or that she authorized Cruz to claim the check on her
behalf, the payment, to be effective must be made to her.77

The petitioner also challenged the RTC’s findings, on the ground that it "overlooked material fact and circumstance of significant weight and
substance."78 Invoking the doctrine of adoptive admission, the petitioner pointed out that the respondent’s inaction towards Cruz, whom she has
known to have claimed her check as early as 1996, should be taken against her. Finally, the petitioner contends that Cruz’s testimony should be
taken against respondent as well, under Rule 130, Sec. 32 of the Revised Rules on Evidence, since she has not presented any "controverting
evidence x x x notwithstanding that she personally heard it."79

The respondent has explained her inaction towards Cruz and Highland Enterprises. Both the RTC and the Court of Appeals have found her
explanation sufficient and this Court finds no cogent reason to overturn the assessment by the trial court and the Court of Appeals of the
respondent’s testimony. It may be recalled that the respondent argued that since it was the PNP who owed her money, her actions should be
directed towards the PNP and not Cruz or Highland Enterprises, against whom she has no adequate proof.80 Respondent has also adequately
explained her delay in filing an action against the petitioner, particularly that she did not want to prejudice her other pending transactions with the
PNP.81

The petitioner claims that the RTC "overlooked material fact and circumstance of significant weight and substance,"82 but it ignores all the
documentary evidence, and even its own admissions, which are evidence of the greater weight and substance, that support the conclusions
reached by both the RTC and the Court of Appeals.

We agree with the Court of Appeals that the RTC erred in the interest rate and other monetary sums awarded to respondent as baseless. However,
we must further modify the interest rate imposed by the Court of Appeals pursuant to the rule laid down in Eastern Shipping Lines, Inc. v. Court of
Appeals83:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should
be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.84

Since the obligation herein is for the payment of a sum of money, the legal interest rate to be imposed, under Article 2209 of the Civil Code is six
percent (6%) per annum:

Art. 2209. 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.

Following the guidelines above, the legal interest of 6% per annum is to be imposed from November 16, 1997, the date of the last demand, and
12% in lieu of 6% from the date this decision becomes final until fully paid.lawphi1

Petitioner’s allegations of sham dealings involving our own government agencies are potentially disturbing and alarming. If Cruz’s testimony were
true, this should be a lesson to the PNP not to dabble in spurious transactions. Obviously, if it can afford to give a 2% commission to other
contractors for the mere use of their business names, then the petitioner is disbursing more money than it normally would in a legitimate
transaction. It is recommended that the proper agency investigate this matter and hold the involved personnel accountable to avoid any similar
occurrence in the future.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in C.A. G.R. CV No. 80623 dated September 27, 2006 is
AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) per annum on the amount of P2,226,147.26, computed

12 | P a g e
from the date of the last demand or on November 16, 1997. A TWELVE PERCENT (12%) per annum interest in lieu of SIX PERCENT (6%) shall be
imposed on such amount upon finality of this decision until the payment thereof.

BARONS MARKETING CORP., petitioner, vs. COURT OF APPEALS and PHELPS DODGE PHILS., INC. respondents.

Facts:

On August 31, 1973, plaintiff [Phelps Dodge, Philippines, Inc. private respondent herein] appointed defendant [petitioner Barons Marketing,
Corporation] as one of its dealers of electrical wires and cables effective September 1, 1973 (Exh. A). As such dealer, defendant was given by
plaintiff 60 days credit for its purchases of plaintiff's electrical products. This credit term was to be reckoned from the date of delivery by plaintiff of
its products to defendant (Exh. 1).

During the period covering December 1986 to August 17, 1987, defendant purchased, on credit, from plaintiff various electrical wires and cables in
the total amount of P4,102,438.30 (Exh. B to K). These wires and cables were in turn sold, pursuant to previous arrangements, by defendant to
MERALCO, the former being the accredited supplier of the electrical requirements of the latter. Under the sales invoices issued by plaintiff to
defendant for the subject purchases, it is stipulated that interest at 12% on the amount due for attorney's fees and collection (Exh. BB). 1 On
September 7, 1987, defendant paid plaintiff the amount of P300,000.00 out of its total purchases as above-stated (Exh. S), thereby leaving an
unpaid account on the aforesaid deliveries of P3,802,478.20. On several occasions, plaintiff wrote defendant demanding payment of its
outstanding obligations due plaintiff (Exhs. L, M, N, and P). In response, defendant wrote plaintiff on October 5, 1987 requesting the latter if it
could pay its outstanding account in monthly installments of P500,000.00 plus 1% interest per month commencing on October 15, 1987 until full
payment (Exh. O and O-4). Plaintiff, however, rejected defendant's offer and accordingly reiterated its demand for the full payment of defendant's
account (Exh. P). 2

On 29 October 1987, private respondent Phelps Dodge Phils., Inc. filed a complaint before the Pasig Regional Trial Court against petitioner Barons
Marketing Corporation for the recovery of P3,802,478.20 representing the value of the wires and cables the former had delivered to the latter,
including interest. Phelps Dodge likewise prayed that it be awarded attorney's fees at the rate of 25% of the amount demanded, exemplary
damages amounting to at least P100,000.00, the expenses of litigation and the costs of suit.

Petitioner, in its answer, admitted purchasing the wires and cables from private respondent but disputed the amount claimed by the latter.
Petitioner likewise interposed a counterclaim against private respondent, alleging that it suffered injury to its reputation due to Phelps Dodge's
acts. Such acts were purportedly calculated to humiliate petitioner and constituted an abuse of rights.

Ruling

Petitioner does not deny private respondent's rights to institute an action for collection and to claim full payment. Indeed, petitioner's right to file
an action for collection is beyond cavil. 5 Likewise, private respondent's right to reject petitioner's offer to pay in installments is guaranteed by
Article 1248 of the Civil Code which states:

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the prestations in which the
obligation consists. Neither

However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the payment of the
former without waiting for the liquidation of the latter.

Under this provision, the prestation, i.e., the object of the obligation, must be performed in one act, not in parts.

Tolentino concedes that the right has its limitations:

Partial Prestations. — Since the creditor cannot be compelled to accept partial performance, unless otherwise stipulated, the creditor who refuses
to accept partial prestations does not incur in delay or mora accipiendi, except when there is abuse of right or if good faith requires acceptance. 6

Indeed, the law, as set forth in Article 19 of the Civil Code, prescribes a "primordial limitation on all rights" by setting certain standards that must
be observed in the exercise thereof. 7 Thus:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.

Petitioner now invokes Article 19 and Article 21 8 of the Civil Code, claiming that private respondent abused its rights when it rejected petitioner's
offer of settlement and subsequently filed the action for collection considering:

. . . that the relationship between the parties started in 1973 spanning more than 13 years before the complaint was filed, that the petitioner had
been a good and reliable dealer enjoying a good credit standing during the period before it became delinquent in 1987, that the relationship
between the parties had been a fruitful one especially for the private respondent, that the petitioner exerted its outmost efforts to settle its
obligations and avoid a suit, that the petitioner did not evade in the payment of its obligation to the private respondent, and that the petitioner
was just asking a small concession that it be allowed to liquidate its obligation to eight (8) monthly installments of P500,000.00 plus 1% interest per
month on the balance which proposal was supported by post-dated checks. 9

Expounding on its theory, petitioner states:

In the ordinary course of events, a suit for collection of a sum of money filed in court is done for the primary purpose of collecting a debt or
obligation. If there is an offer by the debtor to pay its debt or obligation supported by post-dated checks and with provision for interests, the
normal response of a creditor would be to accept the offer of compromise and not file the suit for collection. It is of common knowledge that
proceedings in our courts would normally take years before an action is finally settled. It is always wiser and more prudent to accept an offer of
payment in installment rather than file an action in court to compel the debtor to settle his obligation in full in a single payment.

xxx xxx xxx

13 | P a g e
. . . Why then did private respondent elect to file a suit for collection rather than accept petitioner's offer of settlement, supported by post-dated
checks, by paying monthly installments of P500,000.00 plus 1% per month commencing on October 15, 1987 until full payment? The answer is
obvious. The action of private respondent in filling a suit for collection was an abuse of right and exercised for the sole purpose of prejudicing and
injuring the petitioner. 10

Petitioner prays that the Court order private respondent to pay petitioner moral and exemplary damages, attorney's fees, as well as the costs of
suit. It likewise asks that it be allowed to liquidate its obligation to private respondent, without interests, in eight equal monthly installments.

Petitioner's theory is untenable.

Both parties agree that to constitute an abuse of rights under Article 19 the defendant must act with bad faith or intent to prejudice the plaintiff.
They cite the following comments of Tolentino as their authority:

Test of Abuse of Right. — Modern jurisprudence does not permit acts which, although not unlawful, are anti-social. There is undoubtedly an abuse
of right when it is exercised for the only purpose of prejudicing or injuring another. When the objective of the actor is illegitimate, the illicit act
cannot be concealed under the guise of exercising a right. The principle does not permit acts which, without utility or legitimate purpose cause
damage to another, because they violate the concept of social solidarity which considers law as rational and just. Hence, every abnormal exercise
of a right, contrary to its socio-economic purpose, is an abuse that will give rise to liability. The exercise of a right must be in accordance with the
purpose for which it was established, and must not be excessive or unduly harsh; there must be no intention to injure another. Ultimately,
however, and in practice, courts, in the sound exercise of their discretion, will have to determine all the facts and circumstances when the exercise
of a right is unjust, or when there has been an abuse of right. 11

The question, therefore, is whether private respondent intended to prejudice or injure petitioner when it rejected petitioner's offer and filed the
action for collection.

We hold in the negative. It is an elementary rule in this jurisdiction that good faith is presumed and that the burden of proving bad faith rests upon
the party alleging the same. 12 In the case at bar, petitioner has failed to prove bad faith on the part of private respondent. Petitioner's allegation
that private respondent was motivated by a desire to terminate its agency relationship with petitioner so that private respondent itself may deal
directly with Meralco is simply not supported by the evidence. At most, such supposition is merely speculative.

Moreover, we find that private respondent was driven by very legitimate reasons for rejecting petitioner's offer and instituting the action for
collection before the trial court. As pointed out by private respondent, the corporation had its own "cash position to protect in order for it to pay
its own obligations." This is not such "a lame and poor rationalization" as petitioner purports it to be. For if private respondent were to be required
to accept petitioner's offer, there would be no reason for the latter to reject similar offers from its other debtors. Clearly, this would be inimical to
the interests of any enterprise, especially a profit-oriented one like private respondent. It is plain to see that what we have here is a mere exercise
of rights, not an abuse thereof Under these circumstances, we do not deem private respondent to have acted in a manner contrary to morals, good
customs or public policy as to violate the provisions of Article 21 of the Civil Code.

Consequently, petitioner's prayer for moral and exemplary damages must thus be rejected. Petitioner's claim for moral damages is anchored on
Article 2219 (10) of the Civil Code which states:

Art. 2219. Moral damages may be recovered in the following and analogous cases:

xxx xxx xxx

(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

xxx xxx xxx

Having ruled that private respondent's acts did not transgress the provisions of Article 21, petitioner cannot be entitled to moral damages or, for
that matter, exemplary damages. While the amount of exemplary damages need not be proved, petitioner must show that he is entitled to moral,
temperate or compensatory damages before the court may consider the question of whether or not exemplary damages should be awarded. 13 As
we have observed above; petitioner has failed to discharge this burden.

It may not be amiss to state that petitioner's contract with private respondent has the force of law between them. 14 Petitioner is thus bound to
fulfill what has been expressly stipulated therein. 15 In the absence of any abuse of right, private respondent cannot be allowed to perform its
obligation under such contract in parts. Otherwise, private respondent's right under Article 1248 will be negated, the sanctity of its contract with
petitioner defiled. The principle of autonomy of contracts 16 must be respected.

WHEREFORE, the decision of the Court of Appeals is hereby MODIFIED in that the attorney's and collection fees are reduced to ten percent (10%)
of the principal but is AFFIRMED in all other respects. SO ORDERED.

PILAR PAGSIBIGAN, petitioner, vs. COURT OF APPEALS and PLANTERS DEVELOPMENT BANK, respondents.

Facts

"Stripped of non-essentials, it appears that on August 4, 1974, plaintiff-appellee, [petitioner, herein] through her daughter as attorney-in-fact,
obtained an agricultural loan from the Planters Development Bank (formerly Bulacan Development Bank), in the sum of P4,500.00 secured by a
mortgage over a parcel of land covered by Transfer Certificate of Title No. T-129603 (Exhibit "A"; "A-1"), which loan was later fully paid (Exhibits
"B"; "B-1" to "B-3". Another loan for the same amount was obtained from the bank on November 3, 1977 [year 1977 should read 1976 instead]
secured by the same parcel of land. The Promissory Note for the second loan (Exhibit "1") stipulated that for a first payment to be made on May 3,
1977 and payments every six months thereafter at P1,018.14 with 19% interest for unpaid amortizations. The said Promissory Note, containing an
acceleration clause (Exhibit "1-A"), was not denied by plaintiff-appellee [petitioner] (TSN, December 10, 1986, pp. 9-10).

Initial payment was made on July 6, 1978 [year 1978 should read 1977 instead] followed by several payments in the total amount of P11,900.00
(Exhibits "D"; "D-1" to "D-7"). However, only four of these payments were applied to the loan (TSN, March 16, 1987, pp. 14-16), while the rest were
"temporarily lodged to accounts payable since the account was already past due" (TSN, June 1, 1987, pp. 15-16). On the basis of a Petition for

14 | P a g e
Extrajudicial Foreclosure of Mortgage (Exhibit "6") and the statement of Account (Exhibit "12"), the property was foreclosed extrajudicially on May
7, 1984 for failure to pay an outstanding balance of P29,554.81 (Exhibit "13"). This resulted in the property being sold to the bank for P8,163.00,
and the bank thereafter claimed a deficiency of P21,391.81.

In the action for annulment of sale with damages and writ of preliminary injunction instituted by plaintiff-appellee, the lower court sustained
appellee's [petitioner] theory of overpayment (Decision, p. 3), as against the propriety of the foreclosure."

Ruling:

It is petitioner's contention that the bank has no right to foreclose the mortgage, there having been full payment of the principal obligation. As per
their computation 4 the payment which they have made totalling P11,900.00 more than sufficiently covered their total obligation with respect to
their loan, there having been, in fact, an overpayment of either P4,642.38 or P6,106.75 based on the interest rate used in the computation. Thus,
the principal obligation having been extinguished by payment, the accessory obligation of mortgage is necessarily extinguished, and the foreclosure
thereof is improper and not valid.

The respondent bank on the other hand countered that the computation relied upon by petitioner is not in consonance with the Promissory Note 5
which she signed because the Promissory Note contains an acceleration clause. Respondent bank also averred that upon petitioner's failure to pay
her first installment, the entire obligation became due and demandable and its right to foreclose the mortgage has accrued. Thus, when it
foreclosed the mortgage in 1984, with the outstanding obligation at P29,554.81, it was acting well within its rights.

We note at this point that the respondent bank does not dispute the fact that petitioner had made several payments in an amount totalling to
P11,900.00. It likewise admits that only part of the amount tendered was applied to the loan and the bulk of such payment was "temporarily
lodged to accounts payable since the account was already past due" 6 [Emphasis Ours]. Petitioner assails the respondent bank for not applying her
payment to the loan. Because of said act, the loan remained outstanding when it should have been extinguished and should have also extinguished
the accessory contract of real estate mortgage.

Petitioner wants Us to rule not only on the regularity or legality of the foreclosure but also on its propriety in the light of the attending
circumstances.

There is no question that the respondent bank has the right to foreclose the mortgage upon the first default of petitioner on May 3, 1977, but the
records show that it did not. When it received payment of petitioner on July 6, 1977, which had been 2 months and 3 days delayed, it applied
P154.80 to the principal, P210.00 to interest, and only P25.20 to penalty. From this act of receiving delayed payment, it is clear that the respondent
bank had waived its right under the acceleration clause so that instead of claiming penalty charges on the entire amount of P4,500.00, it only
computed the penalty based on the defaulted amortization payment which is P1,018.14. If it computed the penalty charge at 19% of the entire
amount of P4,500.00 which would have been due and demandable by virtue of the acceleration clause, the penalty charges would be much more
than P25.20.

This is similarly observed in payments which the respondent bank received on June 6, 1978 and August 26, 1978. We also noticed that in Exhibit "D-
3", the receipt which the respondent bank issued to petitioner for the August 26, 1978 partial payment, it waived its right under Article 1253 7 of
the Civil Code on Application of Payments when it applied the payment to the principal instead of the interest. Thus, on that date the outstanding
obligation of petitioner was already reduced to P3,558.21 after she had paid a total of P2,200.00 over a period of nine months from the time the
loan was obtained.

From this conduct of the respondent bank it is clear that it neither enforced its right under the acceleration clause nor its right to foreclose under
the mortgage contract, For more than four years, the respondent bank made petitioner believe that it was applying her payment on the loan and
interest just like before when the respondent bank accepted such payment and issued a receipt therefor. It is bound by estoppel to apply the same
as payment for petitioner's obligation as it did when it received previous payments on three occasions. Its act of applying said payments to
accounts payable is clearly prejudicial to petitioner. We cannot countenance this act of the bank.

We hold that the payment amounting to P8,650.00 for the balance of P3,558.20 as of August 26, 1978 8 plus the P1,000.00 it was asked to pay on
April 24, 1984 would at the very least constitute substantial performance.

Article 1234 of the Civil Code, provides:

"Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict
and complete fulfillment, less damages suffered by the obligee."

Petitioner in this case has the right to move for the cancellation of the mortgage and the release of the mortgaged property, upon payment of the
balance of the loan. Definitely, it would not be in the amount demanded by the respondent bank, which the trial court held to be P29,554.81.

This Court, in Angeles vs. Calasanz 9 held that:

"The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial
downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other words, in
only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation was only P3,920.00 excluding the 7
percent interests, the plaintiffs-appellees had already paid an aggregate amount of P4,533.38. To sanction the rescission made by the defendants-
appellants will work injustice to the plaintiffs-appellees. It would unjustly enrich the defendants-appellants.

Article 1234 of the Civil Code which provides that:

xxx xxx xxx

also militates against the unilateral act of the defendants-appellants in cancelling the contract."

Thus, aside from the fact that the respondent bank was estopped from enforcing its right to foreclose by virtue of its acceptance of the delayed
payments for a period of more than six years, the application of such payment to the interest and the principal during the first three payments
constitutes a virtual waiver of the acceleration clause provided in the contract. We cannot sustain the legality of the foreclosure under the peculiar
facts of this case, because there is substantial performance of the obligation on the part of petitioner. Under Article 1235 of the Civil Code, when

15 | P a g e
the creditor accepts performance, knowing its incompleteness and irregularity without protest or objection, the obligation is deemed complied
with.

This Court cannot ignore the fact that the respondent bank succeeded in taking advantage of the ignorance of petitioner in transactions such as the
one involved in the case at bar by lodging the bulk of petitioner's payment to account payable based on the flimsy reason that she had been in
default, and then considering the entire debt pursuant to an acceleration clause as earning interest and penalty charges at an exorbitant rate of
19% each from the date of first default up to the date of foreclosure, thus bringing the obligation to an astronomical amount of P29,554.81. This
indicates bad faith on the part of the respondent bank. For the mental anguish, sleepless nights and serious anxiety this has caused petitioner, the
respondent bank is liable for moral damages which this Court fixes at P50,000.00.

To serve as a deterrent for the respondent bank from repeating similar acts and to set an example and correction for the public good, this Court
likewise awards exemplary damages. In view of its nature, it should be imposed in such amount as to sufficiently and effectively deter similar acts
in the future 10 by the respondent bank and other banks, which amount this court fixes at P20,000.00 on top of the forfeiture of whatever balance
on the loan which the respondent may actually have in its favor.

This Court likewise orders the annulment of the foreclosure sale and the reconveyance of the property subject of the real estate mortgage
pursuant to the annotation of lis pendens in the certificate of title of the subject property.

Attorney's fees by way of damages is likewise awarded for the same reason that exemplary damages is awarded and this is fixed at P10,000.00.

WHEREFORE, the appealed decision is hereby SET ASIDE and a new one entered ordering the reconveyance of the foreclosed property and the
payment of moral damages, exemplary damages and attorney's fees as above specified, with costs against private respondent Planters
Development Bank. SO ORDERED.

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners, vs. COURT OF APPEALS and FRANCISCO ARTIGO, respondents.

Facts

On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued petitioners Constante A. De Castro ("Constante" for brevity) and
Corazon A. De Castro ("Corazon" for brevity) to collect the unpaid balance of his broker's commission from the De Castros.4 The Court of Appeals
summarized the facts in this wise:

"x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in Cubao, Quezon City. In a letter dated
January 24, 1984 (Exhibit "A-1, p. 144, Records), appellee6 was authorized by appellants to act as real estate broker in the sale of these properties
for the amount of P23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who first found Times
Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots only, specifically lots 14 and
15. Eventually, sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as
commission.

It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed because according to him, his total
commission should be P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants
for the two (2) lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to
the consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having received P48,893.76 in advance.

On the other hand, appellants completely traverse appellee's claims and essentially argue that appellee is selfishly asking for more than what he
truly deserved as commission to the prejudice of other agents who were more instrumental in the consummation of the sale. Although appellants
readily concede that it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real
estate agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed those of appellee's,
considering that the first negotiation for the sale where appellee took active participation failed and it was these other agents who successfully
brokered in the second negotiation. But despite this and out of appellants' "pure liberality, beneficence and magnanimity", appellee nevertheless
was given the largest cut in the commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to
less. So appellee should not have been heard to complain of getting only a pittance when he actually got the lion's share of the commission and
worse, he should not have been allowed to get the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as
appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission,
he would only be getting 5% of the P3.6 million, or P180,000.00."

Ruling:

Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or abandonment

The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given "his proportionate share and no longer entitled to any
balance." According to them, Artigo was just one of the agents involved in the sale and entitled to a "proportionate share" in the commission. They
assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even prepare the
documents for the transaction as an active real estate broker usually does.

The De Castros' arguments are flimsy.

A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a valid contract, and constitutes the law
between the parties.14 The contract of agency entered into by Constante with Artigo is the law between them and both are bound to comply with
its terms and conditions in good faith.

The mere fact that "other agents" intervened in the consummation of the sale and were paid their respective commissions cannot vary the terms
of the contract of agency granting Artigo a 5 percent commission based on the selling price. These "other agents" turned out to be employees of
Times Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe:

"The alleged `second group' of agents came into the picture only during the so-called `second negotiation' and it is amusing to note that these (sic)
second group, prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times Transit, the buyer of the

16 | P a g e
properties. And their efforts were limited to convincing Constante to 'part away' with the properties because the redemption period of the
foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991).

xxx

To accept Constante's version of the story is to open the floodgates of fraud and deceit. A seller could always pretend rejection of the offer and
wait for sometime for others to renew it who are much willing to accept a commission far less than the original broker. The immorality in the
instant case easily presents itself if one has to consider that the alleged `second group' are the employees of the buyer, Times Transit and they
have not bettered the offer secured by Mr. Artigo for P7 million.

It is to be noted also that while Constante was too particular about the unrenewed real estate broker's license of Mr. Artigo, he did not bother at
all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp. 39-40)."15 (Emphasis supplied)

In any event, we find that the 5 percent real estate broker's commission is reasonable and within the standard practice in the real estate industry
for transactions of this nature.

The De Castros also contend that Artigo's inaction as well as failure to protest estops him from recovering more than what was actually paid him.
The De Castros cite Article 1235 of the Civil Code which reads:

Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.

The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of partial payment of his commission neither amounts to
a waiver of the balance nor puts him in estoppel. This is the import of Article 1235 which was explained in this wise:

"The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree to an incomplete or irregular
performance. Hence, the mere receipt of a partial payment is not equivalent to the required acceptance of performance as would extinguish the
whole obligation."16 (Emphasis supplied)

There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely received the partial payment
without waiving the balance. Thus, there is no estoppel to speak of.

The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29, 1989, or almost four years
later. Hence, Artigo's claim for the balance of his commission is barred by laches.

Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or
should have been done earlier. It is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned it or declined to assert it.17

Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January 24, 1984. The two lots were finally sold in
June 1985. As found by the trial court, Artigo demanded in April and July of 1985 the payment of his commission by Constante on the basis of the
selling price of P7.05 million but there was no response from Constante.18 After it became clear that his demands for payment have fallen on deaf
ears, Artigo decided to sue on May 29, 1989.

Actions upon a written contract, such as a contract of agency, must be brought within ten years from the time the right of action accrues.19 The
right of action accrues from the moment the breach of right or duty occurs. From this moment, the creditor can institute the action even as the
ten-year prescriptive period begins to run.20

The De Castros admit that Artigo's claim was filed within the ten-year prescriptive period. The De Castros, however, still maintain that Artigo's
cause of action is barred by laches. Laches does not apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a
demand in July 1985 and filed the action in court on May 29, 1989, well within the ten-year prescriptive period. This does not constitute an
unreasonable delay in asserting one's right. The Court has ruled, "a delay within the prescriptive period is sanctioned by law and is not considered
to be a delay that would bar relief."21 In explaining that laches applies only in the absence of a statutory prescriptive period, the Court has stated -

"Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches, cannot, as a
rule, be used to abate a collection suit filed within the prescriptive period mandated by the Civil Code."22

Clearly, the De Castros' defense of laches finds no support in law, equity or jurisprudence.

ALFARO FORTUNADO, EDITH FORTUNADO, NESTOR FORTUNADO and RAMON A. GONZALES, Petitioners, v. COURT OF APPEALS, BASILISA
CAMPANO, as City Sheriff of Iligan City, REGISTER OF DEEDS, Iligan City, ANGEL L. BAUTISTA and NATIONAL STEEL CORPORATION, Respondents.

Ramon A. Gonzales and Manuel B. Imbong, for Petitioners.

Facts

On April 21, 1981, the Regional Trial Court of Quezon City 2 rendered judgment in Civil Case No. Q-22367, entitled "Alfaro Fortunado v. Angel
Bautista," ordering the defendant to pay damages to the plaintiff. Pursuant to the said judgment, respondent Basilisa Campano, City Sheriff of
Iligan City, levied upon two parcels of land registered in the name of Bautista located at Iligan City and covered by TCT Nos. T-7625 and T-14133.
The latter lot had already been purchased by respondent National Steel Corporation as of August 17, 1983, but had not yet been registered in its
name.

After due notice, these lots were sold at public auction to the petitioners as the only bidder on April 23, 1984. They were issued a certificate of sale
which was registered on April 25, 1984.

17 | P a g e
On January 10, 1985, NSC gave notice to the sheriff of its intention to redeem the lot covered by TCT No. T-14133. The sheriff suggested that as the
two lots had been sold together for the lump sum of P267,013.00, both of them should be redeemed by NSC.

On February 11, 1985, NSC filed with the trial court an urgent motion to redeem both lots. This was opposed by the petitioners on the ground that
the movant did not have the personality to intervene.

As the motion remained unresolved and the period of redemption would expire on April 18, 1985, NSC issued to the sheriff on March 20, 1985,
PNB Check No. 313551 in the amount of P296,384.43 as the redemption price for the lot covered by TCT No. T-14133. The sheriff acknowledged
receipt of the check on the same date.

On March 21, 1985, Bautista sent the sheriff a letter bearing NSC’s conformity in which he availed himself of NSC’s check, which was sufficient to
cover the full redemption price for both lots, to redeem the other lot covered by TCT No. T-7625. His letter contained the following reservation

This redemption is made solely for the purpose of effecting the execution and delivery to me of the necessary certificate of redemption and the
same shall not be taken to mean my acknowledgment of the validity of the aforesaid writ of execution and sale, both of which I shall continue to
contest, nor shall this be taken to mean as a waiver on my part of any of the legal rights and remedies available to me under the circumstances.

The sheriff acknowledged receipt of the check as redemption money for the two parcels of land on March 21, 1985, and on March 22, 1985, issued
a certificate of redemption in favor of NSC and Bautista.

On March 25, 1985, Bautista wrote the sheriff that he would no longer effect the redemption because there was nothing to redeem, the auction
sale being null and void.

In an Urgent Motion dated March 27, 1985, Bautista prayed that the sum of P296,384.43 covered by the PNB check be delivered to and kept by the
Clerk of Court of the Regional Trial Court of Quezon City until such time as all incidents relative to the validity of the auction sale conducted by the
sheriff were finally resolved.

On March 29, 1985, the sheriff wired the petitioners’ counsel, notifying him of the deposit of the PNB check. The said counsel told the sheriff that
he was rejecting the check because it was not legal tender and was not intended for payment but merely for deposit, as evidenced by Bautista’s
Urgent Motion of March 27, 1985.

On April 25, 1985, the petitioner requested the sheriff to issue a final deed of sale over the two lots and deliver the same to them on the ground
that no valid redemption had been effected within the 12-month period from the registration of the sale. When the request was not granted, the
petitioners filed with the respondent court a petition for mandamus.

According to the petitioners, NSC and Bautista failed to comply with the provisions of the Rules of Court in exercising their right of redemption.
They invoked Article 1249 of the Civil Code, which provides that "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." They argued that this provision was applicable
to redemption under Rule 39, Section 30, of the Rules of Court.

They also contended that the check issued by NSC, not being legal tender, could not be considered payment of the redemption price. Moreover,
the tender of the redemption price was not valid as the same was conditional under Bautista’s letter to the sheriff dated March 21, 1985. And even
granting the validity of the said tender, it was nevertheless withdrawn when on March 27, 1985, Bautista filed his Urgent Motion to deposit the
redemption money with the clerk of court.

The petitioners added that since there was no delivery to the creditor of the redemption price, there was no payment within the meaning of Article
1233 of the Civil Code. This provides that "a debt shall not be understood to have been paid, unless the thing or service in which the obligation
consists has been completely delivered or rendered, as the case may be.

Ruling

It is contended by the private respondents that Article 1249 of the New Civil Code is inapplicable as it "deals with a mode of extinction of debts" 5
while the "right to redeem is not an obligation, nor is it intended to discharge a pre-existing debt." 6

They rely on Javellana, where we held that "a redemption of property sold under execution is not rendered invalid by reason of the fact that the
payment to the sheriff for the purpose of redemption is effected by means of a check for the amount due."cralaw virtua1aw library

The petitioners, on the other hand, invoke Belisario v. Natividad, 7 where it was held that "even if the check had been good, the defendant was not
legally bound to accept it because such a check does not satisfy the requirements of a legal tender." They also cite Villanueva v. Santos, 8 Legarda
v. Miailhe, 9 New Pacific Timber and Supply Co., Inc. v. Seneris, 10 and Philippine Air Lines v. Court of Appeals, 11 all of which, they claim, have
overruled Javellana.

The Court does not agree with these conclusions. It would appear from a study of the jurisprudence invoked by the parties that the case applicable
to the present controversy is Javellana v. Mirasol.

The cases cited by the petitioners do not involve redemption by check. The check tendered in Belisario, was in the exercise of an option to
repurchase; in Villanueva in connection with a pacto de retire; in Legarda and New Pacific as payment of a mortgage indebtedness; and in the PAL
case in satisfaction of a judgment.

Toleration v. Court of Appeals, 12 besides citing Javellana, stresses the liberality of the courts in redemption cases. On the issue of the applicability
of Article 1249 of the Civil Code and the validity of the tender of payment through a crossed check, this Court held:

. . . the aforequoted Article should not be applied in the instant case . . .

To start with, the Tolentinos are not indebted to BPI their mortgage indebtedness having been extinguished with the foreclosure and sale of the
mortgaged properties. After said foreclosure and sale, what remains is the right vested by law in favor of the Tolentinos to redeem the properties

18 | P a g e
within the prescribed period. This right of redemption is an absolute privilege, the exercise of which is entirely dependent upon the will and
discretion of the redemptioners. There is, thus, no legal obligation to exercise the right of redemption. Said right, can in no sense, be considered an
obligation, for the Tolentinos are under no compulsion to exercise the same. Should they choose not to exercise it, nobody can compel them to do
so nor will such choice give rise to a cause of action in favor of the purchaser at the auction sale. In fact, the relationship between said purchaser
and the redemptioners is not even that of creditor and debtor.

On the other hand, if the redemptioners choose to exercise their right of redemption, it is the policy of the law to aid rather than to defeat the
right of redemption. It stands to reason therefore, that redemptions should be looked upon with favor and where no injury is to follow, a liberal
construction will be given to our redemption laws as well as to the exercise of the right of redemption. In the instant case, the ends of justice would
be better served by affording the Tolentinos the opportunity to redeem the properties in question other than the homestead land, in line with the
policy aforesaid. . . .

x x x

. . . And the redemption is not rendered invalid by the fact that the said officer accepted a check for the amount necessary to make the redemption
instead of requiring payment in money. It goes without saying that if he had seen fit to do so, the officer could have required payment to be made
in lawful money, and he undoubtedly, in accepting a check, placed himself in a position where he could be liable to the purchaser at the public
auction if any damage had been suffered by the latter as a result of the medium in which payment was made. But this cannot affect the validity of
the payment. The check as a medium of payment in commercial transactions is too firmly established by usage to permit of any doubt upon this
point at the present day. No importance may thus be attached to the circumstance that a stop-payment order was issued against check the day
following the deposit, for the same will not militate against the right of the Tolentinos to redeem, in the same manner that a withdrawal of the
redemption money being, deposited cannot be deemed to have forfeited the right to redeem, such redemption being optional and not
compulsory. Withal, it is not clearly shown that said stop-payment order was made in bad faith. . . .

Although the private respondents in the case at bar did not file a redemption case against petitioners, it should not be noted that private
respondents NSC filed an Urgent Motion for Redemption dated February 11, 1985, and Bautista filed an Urgent Motion (To Deposit Redemption
Money with Quezon City Clerk of Court) dated March 27, 1985. The motions were well within the redemption period.

In the United States, it has also been held and recognized that a payment by check or draft or bank bills or currency which is not legal tender is
effective if the officer accepts such payment. 13 If in good faith the redemptioner pays, and the officer receives before the expiration of the time of
redemption, an ordinary banker’s check, the payment is regarded as sufficient. 14

We find nothing wrong with Bautista’s letter of March 21, 1985, where he made his redemption of the lot covered by TCT No. T-7625 subject to the
reservation that "the same shall not be taken to mean my acknowledgment of the validity of the aforesaid writ of execution and sale . . . nor . . . as
waiver on my part of any of the legal rights and remedies available to me under the circumstances." Had he not done so, estoppel might have
operated against him. As we held in Cometa v. IAC, 15 "redemption is an implied admission of the regularity of the sale and would stop the
petitioner from later impugning its validity on that ground." In questioning the writ of execution and sale and at the same time redeeming his
property, Bautista was exercising alternative reliefs.

In Javellana, it was contended that the position of Luis Mirasol as a litigant in the prior appeal was inconsistent with his position as litigant in the
redemption case and that he was estopped from now claiming as redemptioner the property which he had earlier claimed as owner. The Court
held:chanrob1es virtual 1aw library

We are unable to see any force in the suggestions; as the positions occupied by this litigant are based upon alternative rather than upon opposed
pretension. No one can question the right of a litigant to claim property as owner and to seek in the same proceeding alternative relief founded
upon some secondary right. The right of redemption, for instance, is always considered compatible with ownership, and one who fails to obtain
relief in the sense of absolute owner may successfully assert the other right. That which a litigant may do in any one case can of course be done in
two different proceedings.

We reiterated that same view in Ybañez v. CA, 16 thus

Nor are the causes of action in the two (2) cases inconsistent with one another. As aptly pointed out by the respondent Appellate Court, there are
issues in the Reconveyance Case that are set apart from the question of the validity of the auction sale, which is the subject of inquiry in the
Annulment Suit. The latter case alleged irregularities in the conduct of the public auction sale. . . .

On the other hand, the issues raised in the Reconveyance Case call for a separate determination of such questions as whether respondent Go had,
in fact delivered the redemption money to one of the petitioners; whether or not such delivery, if there had been one, had been made on time,
and whether or not another money judgment against respondent Go had already been satisfied. In effect, the Reconveyance Case presented an
alternative cause of action.

Although Bautista repudiated his redemption in his letter of March 25, 1985, to the sheriff on the ground that the auction sale was illegal, he
backtracked in his Urgent Motion dated March 27, 1985, wherein he prayed that —

". . . Sheriff Basilisa Campano of Iligan City be directed and ordered to immediately transfer and deliver, upon his encashment of PNB Check No. A-
313551, the aforesaid sum of P296,384.43 deposited to her by the National Steel Corporation, through the authority of defendant, to the Clerk of
Court, Regional Trial Court of Quezon City, to remain thereat until the validity of the questioned orders and or decision in the above entitled case
are resolved with finality or until further orders from the Honorable Court.

It is further prayed that the aforesaid amount be considered as sufficient redemption price if it shall finally be adjudged that plaintiffs are entitled
thereto; otherwise, the said amount shall be returned and delivered back to herein defendant.

x x x

Finally, the petitioners pray that we rule on the validity of the certificate of sale assailed by Bautista on the ground that it covers more than one lot
and does not indicate the price paid for each parcel. They contend that Bautista has not shown that the parcel of land would have been sold for a
better price had they been offered separately and that he had not asked that they be sold by parcels. They also maintain that since we have the
main jurisdiction to determine the validity of the redemption, we likewise have ancillary jurisdiction to rule on the validity of the sale.

19 | P a g e
The facts surrounding the sale are not before us. In response to a query from this Court regarding the status of CC No. Q22367, the clerk of the trial
court replied that the records of that court were totally burned during the fire which razed the Quezon City Hall on June 11, 1988. Apart from the
circumstance that we are not a trier of facts, the facts we are asked to try are not at hand.

We are not, by this decision, sanctioning the use of a check for the payment of obligations over the objection of the creditor. What we are saying is
that a check may be used for the exercise of the right of redemption, the same being a right and not an obligation. The tender of a check is
sufficient to compel redemption but is not in itself a payment that relieves the redemptioner from his liability to pay the redemption price. In other
words, while we hold that the private respondents properly exercised their right or redemption, they remain liable of course, for the payment of
the redemption price.

WHEREFORE, the appealed decision is AFFIRMED, with the modification that the redemption made by Angel L. Bautista was also unconditional like
that of the National Steel Corporation. Accordingly, the petition is DENIED, with costs against the petitioners.

MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, petitioner, vs. A.U. VALENCIA and CO. INC., FELIX PEÑARROYO, SPS.
ARSENIO B. REYES & AMANDA SANTOS, and DELFIN JAO, respondents.

Facts

Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter referred to as respondent Valencia, for brevity) and
Felix Peñarroyo (hereinafter called respondent Peñarroyo), filed with the Regional Trial Court of Pasig, Branch 151, a complaint for specific
performance against herein petitioner Myron C. Papa, in his capacity as administrator of the Testate Estate of one Angela M. Butte.

The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact of Angela M. Butte, sold to respondent Peñarroyo,
through respondent Valencia, a parcel of land, consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma, Quezon
City, and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of Quezon City; that prior to the alleged sale, the said property,
together with several other parcels of land likewise owned by Angela M. Butte, had been mortgaged by her to the Associated Banking Corporation
(now Associated Citizens Bank); that after the alleged sale, but before the title to the subject property had been released, Angela M. Butte passed
away; that despite representations made by herein respondents to the bank to release the title to the property sold to respondent Peñarroyo, the
bank refused to release it unless and until all the mortgaged properties of the late Angela M. Butte were also redeemed; that in order to protect his
rights and interests over the property, respondent Peñarroyo caused the annotation on the title of an adverse claim as evidenced by Entry No. P.E.-
6118/T-28993, inscribed on 18 January 1997.

The complaint further alleged that it was only upon the release of the title to the property, sometime in April 1977, that respondents Valencia and
Peñarroyo discovered that the mortgage rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as special administrator of
the Estate of Ramon Papa, Jr., on 12 April 1977; that since then, herein petitioner had been collecting monthly rentals in the amount of P800.00
from the tenants of the property, knowing that said property had already been sold to private respondents on 15 June 1973; that despite repeated
demands from said respondents, petitioner refused and failed to deliver the title to the property. Thereupon, respondents Valencia and Peñarroyo
filed a complaint for specific performance, praying that petitioner be ordered to deliver to respondent Peñarroyo the title to the subject property
(TCT 28993); to turn over to the latter the sum of P72,000.00 as accrued rentals as of April 1982, and the monthly rental of P800.00 until the
property is delivered to respondent Peñarroyo; to pay respondents the sum of P20,000.00 as attorney's fees; and to pay the costs of the suit.

In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking Corporation (now Associated Citizens Bank). He
contended, however, that the complaint did not state a cause of action; that the real property in interest was the Testate Estate of Angela M.
Butte, which should have been joined as a party defendant; that the case amounted to a claim against the Estate of Angela M. Butte and should
have been filed in Special Proceedings No. A-17910 before the Probate Court in Quezon City; and that, if as alleged in the complaint, the property
had been assigned to Tomas L. Parpana, as special administrator of the Estate of Ramon Papa, Jr., said estate should be impleaded. Petitioner,
likewise, claimed that he could not recall in detail the transaction which allegedly occurred in 1973; that he did not have TCT No. 28993 in his
possession; that he could not be held personally liable as he signed the deed merely as attorney-in-fact of said Angela M. Butte. Finally, petitioner
asseverated that as a result of the filing of the case, he was compelled to hire the services of counsel for a fee of P20,000.00 for which respondents
should be held liable.

Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case. Making common cause with respondents Valencia and
Peñarroyo, respondent Jao alleged that the subject lot which had been sold to respondent Peñarroyo through respondent Valencia was in turn sold
to him on 20 August 1973 for the sum of P71,500.00, upon his paying earnest money in the amount of P5,000.00. He, therefore, prayed that
judgment be rendered in favor of respondents, the latter in turn be ordered to execute in his favor the appropriate deed of conveyance covering
the property in question and to turn over to him the rentals which aforesaid respondents sought to collect from petitioner Myron V. Papa.

Respondent Jao, likewise, averred that as a result of petitioner's refusal to deliver the title to the property to respondents Valencia and Peñarroyo,
who in turn failed to deliver the said title to him, he suffered mental anguish and serious anxiety for which he sought payment of moral damages;
and, additionally, the payment of attorney's fees and costs.

For his part, petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-party complaint against herein private respondents,
spouses Arsenio B. Reyes and Amanda Santos (respondent Reyes spouses, for short). He averred, among other's that the late Angela M. Butte was
the owner of the subject property; that due to non-payment of real estate tax said property was sold at public auction the City Treasurer of Quezon
City to the respondent Reyes spouses on 21 January 1980 for the sum of P14,000.00; that the one-year period of redemption had expired; that
respondents Valencia and Peñarroyo had sued petitioner Papa as administrator of the estate of Angela M. Butte, for the delivery of the title to the
property; that the same aforenamed respondents had acknowledged that the price paid by them was insufficient, and that they were willing to add
a reasonable amount or a minimum of P55,000.00 to the price upon delivery of the property, considering that the same was estimated to be worth
P143,000.00; that petitioner was willing to reimburse respondents Reyes spouses whatever amount they might have paid for taxes and other
charges, since the subject property was still registered in the name of the late Angela M. Butte; that it was inequitable to allow respondent Reyes
spouses to acquire property estimated to be worth P143,000.00, for a measly sum of P14,000.00. Petitioner prayed that judgment be rendered
canceling the tax sale to respondent Reyes spouses; restoring the subject property to him upon payment by him to said respondent Reyes spouses
of the amount of P14,000.00, plus legal interest; and, ordering respondents Valencia and Peñarroyo to pay him at least P55,000.00 plus everything
they might have to pay the Reyes spouses in recovering the property.

Respondent Reyes spouses in their Answer raised the defense of prescription of petitioner's right to redeem the property.

20 | P a g e
Ruling

We find no merit in petitioner's arguments.

It is an undisputed fact that respondents Valencia and Peñarroyo had given petitioner Myron C. Papa the amounts of Five Thousand Pesos
(P5,000.00) in cash on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the purchase price of the
subject lot. Petitioner himself admits having received said amounts, 9 and having issued receipts therefor. 10 Petitioner's assertion that he never
encashed the aforesaid check is not substantiated and is at odds with his statement in his answer that "he can no longer recall the transaction
which is supposed to have happened 10 years ago." After more than ten (10) years from the payment in party by cash and in part by check, the
presumption is that the check had been encashed. As already stated, he even waived the presentation of oral evidence.

Granting that petitioner had never encashed the check, his failure to do so for more than ten (10) years undoubtedly resulted in the impairment of
the check through his unreasonable and unexplained delay.

While it is true that the delivery of a check produces the effect of payment only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule
is otherwise if the debtor is prejudiced by the creditor's unreasonable delay in presentment. The 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 was given. 11 It has, likewise, been held that if no presentment is made at all, the drawer
cannot be held liable irrespective of loss or injury 12 unless presentment is otherwise excused. This is in harmony with Article 1249 of the Civil
Code under which payment by way of check or other negotiable instrument is conditioned on its being cashed, except when through the fault of
the creditor, the instrument is impaired. The payee of a check would be a creditor under this provision and if its no-payment is caused by his
negligence, payment will be deemed effected and the obligation for which the check was given as conditional payment will be discharged. 13

Considering that respondents Valencia and Peñarroyo had fulfilled their part of the contract of sale by delivering the payment of the purchase
price, said respondents, therefore, had the right to compel petitioner to deliver to them the owner's duplicate of TCT No. 28993 of Angela M. Butte
and the peaceful possession and enjoyment of the lot in question.

With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has found that the conditions under which said mortgage
rights of the bank were assigned are not clear. Indeed, a perusal of the original records of the case would show that there is nothing there that
could shed light on the transactions leading to the said assignment of rights; nor is there any evidence on record of the conditions under which said
mortgage rights were assigned. What is certain is that despite the said assignment of mortgage rights, the title to the subject property has
remained in the name of the late Angela M. Butte. 14 This much is admitted by petitioner himself in his answer to respondent's complaint as well
as in the third-party complaint that petitioner filed against respondent-spouses Arsenio B. Reyes and Amanda Santos. 15 Assuming arquendo that
the mortgage rights of the Associated Citizens Bank had been assigned to the estate of Ramon Papa, Jr., and granting that the assigned mortgage
rights validly exists and constitute a lien on the property, the estate may file the appropriate action to enforce such lien. The cause of action for
specific performance which respondents Valencia and Peñarroyo have against petitioner is different from the cause of action which the estate of
Ramon Papa, Jr. may have to enforce whatever rights or liens it has on the property by reason of its being an alleged assignee of the bank's rights
of mortgage.

Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of the Rules of Court, an executor or administrator
may sue or be sued without joining the party for whose benefit the action is presented or defended, thus:

Sec. 3. Representative parties. — A trustee of an express trust, a guardian, executor or administrator, or a party authorized by statute, may sue
or be sued without joining the party for whose benefit the action is presented or defended; but the court may, at any stage of the proceedings,
order such beneficiary to be made a party. An agent acting in his own name and for the benefit of an undisclosed principal may sue or be sued
without joining the principal except when the contract involves things belonging to the principal. 16

Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final determination of the action can be had. Whatever prior and
subsisting mortgage rights the estate of Ramon Papa, Jr. has over the property may still be enforced regardless of the change in ownership thereof.

WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of Appeals, dated 27 January 1992 is AFFIRMED.

UNION BANK OF THE PHILIPPINES, Petitioner, vs. SPOUSES RODOLFO T. TIU AND VICTORIA N. TIU, Respondents.

Facts

On November 21, 1995, petitioner Union Bank of the Philippines (Union Bank) and respondent spouses Rodolfo T. Tiu and Victoria N. Tiu (the
spouses Tiu) entered into a Credit Line Agreement (CLA) whereby Union Bank agreed to make available to the spouses Tiu credit facilities in such
amounts as may be approved.3 From September 22, 1997 to March 26, 1998, the spouses Tiu took out various loans pursuant to this CLA in the
total amount of three million six hundred thirty-two thousand dollars (US$3,632,000.00), as evidenced by promissory notes:

PN No. Amount in US$ Date Granted

87/98/111 72,000.00 02/16/98

87/98/108 84,000.00 02/13/98

87/98/152 320,000.00 03/02/98

87/98/075 150,000.00 01/30/98

87/98/211 32,000.00 03/26/98

87/98/071 110,000.000 1/29/98

87/98/107 135,000.00 02/13//98

87/98/100 75,000.00 02/12/98

21 | P a g e
87/98/197 195,000.00 03/19/98

87/97/761 60,000.00 09/26/97

87/97/768 30,000.00 09/29/97

87/97/767 180,000.00 09/29/97

87/97/970 110,000.00 12/29/97

87/97/747 50,000.00 09/22/97

87/96/944 605,000.00 12/19/97

87/98/191 470,000.00 03/16/98

87/98/198 505,000.00 03/19/98

87/98/090 449,000.00 02/09/98

US$3,632,000.004

risks, the loans shall be redenominated to their equivalent Philippine peso amount on July 15, 1998. On July 3, 1998, the spouses Tiu wrote to
Union Bank authorizing the latter to redenominate the loans at the rate of US$1=P41.406 with interest of 19% for one year.7

On December 21, 1999, Union Bank and the spouses Tiu entered into a Restructuring Agreement.8 The Restructuring Agreement contains a clause
wherein the spouses Tiu confirmed their debt and waived any action on account thereof. To quote said clause:

1. Confirmation of Debt – The BORROWER hereby confirms and accepts that as of December 8, 1999, its outstanding principal indebtedness to the
BANK under the Agreement and the Notes amount to ONE HUNDRED FIFTY[-]FIVE MILLION THREE HUNDRED SIXTY[-]FOUR THOUSAND EIGHT
HUNDRED PESOS (PHP 155,364,800.00) exclusive of interests, service and penalty charges (the "Indebtedness") and further confirms the
correctness, legality, collectability and enforceability of the Indebtedness. The BORROWER unconditionally waives any action, demand or claim that
they may otherwise have to dispute the amount of the Indebtedness as of the date specified in this Section, or the collectability and enforceability
thereof. It is the understanding of the parties that the BORROWER’s acknowledgment, affirmation, and waiver herein are material considerations
for the BANK’s agreeing to restructure the Indebtedness which would have already become due and payable as of the above date under the terms
of the Agreement and the Notes.9

The restructured amount (P155,364,800.00) is the sum of the following figures: (1) P150,364,800.00, which is the value of the US$3,632,000.00
loan as redenominated under the above-mentioned exchange rate of US$1=P41.40; and (2) P5,000,000.00, an additional loan given to the spouses
Tiu to update their interest payments.10

Under the same Restructuring Agreement, the parties declared that the loan obligation to be restructured (after deducting the dacion price of
properties ceded by the Tiu spouses and adding: [1] the taxes, registration fees and other expenses advanced by Union Bank in registering the
Deeds of Dation in Payment; and [2] other fees and charges incurred by the Indebtedness) is one hundred four million six hundred sixty-eight
thousand seven hundred forty-one pesos (P104,668,741.00) (total restructured amount).11 The Deeds of Dation in Payment referred to are the
following:

1. Dation of the Labangon properties – Deed executed by Juanita Tiu, the mother of respondent Rodolfo Tiu, involving ten parcels of land with
improvements located in Labangon, Cebu City and with a total land area of 3,344 square meters, for the amount of P25,130,000.00. The Deed
states that these properties shall be leased to the Tiu spouses at a monthly rate of P98,000.00 for a period of two years.12

2. Dation of the Mandaue property – Deed executed by the spouses Tiu involving one parcel of land with improvements located in A.S. Fortuna St.,
Mandaue City, covered by TCT No. T-31604 and with a land area of 2,960 square meters, for the amount of P36,080,000.00. The Deed states that
said property shall be leased to the Tiu spouses at a monthly rate of P150,000.00 for a period of two years.13

As likewise provided in the Restructuring Agreement, the spouses Tiu executed a Real Estate Mortgage in favor of Union Bank over their
"residential property inclusive of lot and improvements" located at P. Burgos St., Mandaue City, covered by TCT No. T-11951 with an area of 3,096
square meters.14

The spouses Tiu undertook to pay the total restructured amount (P104,668,741.00) via three loan facilities (payment schemes).

The spouses Tiu claim to have made the following payments: (1) P15,000,000.00 on August 3, 1999; and (2) another P13,197,546.79 as of May 8,
2001. Adding the amounts paid under the Deeds of Dation in Payment, the spouses Tiu postulate that their payments added up to
P89,407,546.79.15

Asserting that the spouses Tiu failed to comply with the payment schemes set up in the Restructuring Agreement, Union Bank initiated extrajudicial
foreclosure proceedings on the residential property of the spouses Tiu, covered by TCT No. T-11951. The property was to be sold at public auction
on July 18, 2002.

The spouses Tiu, together with Juanita T. Tiu, Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu, filed with the Regional Trial
Court (RTC) of Mandaue City a Complaint seeking to have the Extrajudicial Foreclosure declared null and void. The case was docketed as Civil Case
No. MAN-4363.16 Named as defendants were Union Bank and Sheriff IV Veronico C. Ouano (Sheriff Oano) of Branch 55, RTC, Mandaue City.
Complainants therein prayed for the following: (1) that the spouses Tiu be declared to have fully paid their obligation to Union Bank; (2) that
defendants be permanently enjoined from proceeding with the auction sale; (3) that Union Bank be ordered to return to the spouses Tiu their
properties as listed in the Complaint; (4) that Union Bank be ordered to pay the plaintiffs the sum of P10,000,000.00 as moral damages,
P2,000,000.00 as exemplary damages, P3,000,000.00 as attorney’s fees and P500,000.00 as expenses of litigation; and (5) a writ of preliminary
injunction or temporary restraining order be issued enjoining the public auction sale to be held on July 18, 2002.17

22 | P a g e
The spouses Tiu claim that from the beginning the loans were in pesos, not in dollars. Their office clerk, Lilia Gutierrez, testified that the spouses Tiu
merely received the peso equivalent of their US$3,632,000.00 loan at the rate of US$1=P26.00. The spouses Tiu further claim that they were
merely forced to sign the Restructuring Agreement and take up an additional loan of P5,000,000.00, the proceeds of which they never saw because
this amount was immediately applied by Union Bank to interest payments.18

The spouses Tiu allege that the foreclosure sale of the mortgaged properties was invalid, as the loans have already been fully paid. They also allege
that they are not the owners of the improvements constructed on the lot because the real owners thereof are their co-petitioners, Juanita T. Tiu,
Rosalinda T. King, Rufino T. Tiu, Rosalie T. Young and Rosenda T. Tiu.19

The spouses Tiu further claim that prior to the signing of the Restructuring Agreement, they entered into a Memorandum of Agreement with Union
Bank whereby the former deposited with the latter several certificates of shares of stock of various companies and four certificates of title of
various parcels of land located in Cebu. The spouses Tiu claim that these properties have not been subjected to any lien in favor of Union Bank, yet
the latter continues to hold on to these properties and has not returned the same to the former.20

On the other hand, Union Bank claims that the Restructuring Agreement was voluntarily and validly entered into by both parties. Presenting as
evidence the Warranties embodied in the Real Estate Mortgage, Union Bank contends that the foreclosure of the mortgage on the residential
property of the spouses Tiu was valid and that the improvements thereon were absolutely owned by them. Union Bank denies receiving certificates
of shares of stock of various companies or the four certificates of title of various parcels of land from the spouses Tiu. However, Union Bank also
alleges that even if said certificates were in its possession it is authorized under the Restructuring Agreement to retain any and all properties of the
debtor as security for the loan.

Ruling

As previously discussed, the Court of Appeals declared that the Restructuring Agreement is void on account of its being a failed novation of the
original loan agreements. The Court of Appeals explained that since there was no stipulation that the loans will be paid in dollars, and since no
dollars ever exchanged hands, the original loan transactions were in pesos.51 Proceeding from this premise, the Court of Appeals held that the
Restructuring Agreement, which was meant to convert the loans into pesos, was unwarranted. Thus, the Court of Appeals reasoned that:

Be that as it may, however, since the loans of the Tiu spouses from Union Bank were peso loans from the very beginning, there is no need for
conversion thereof. A Restructuring Agreement should merely confirm the loans, not add thereto. By making it appear in the Restructuring
Agreement that the loans were originally dollar loans, Union Bank overstepped its rights as a creditor and made unwarranted interpretations of the
original loan agreement. This Court is not bound by such interpretations made by Union Bank. When one party makes an interpretation of a
contract, he makes it at his own risk, subject to a subsequent challenge by the other party and a modification by the courts. In this case, that party
making the interpretation is not just any party, but a well entrenched and highly respected bank. The matter that was being interpreted was also a
financial matter that is within the profound expertise of the bank. A normal person who does not possess the same financial proficiency or acumen
as that of a bank will most likely defer to the latter’s esteemed opinion, representations and interpretations. It has been often stated in our
jurisprudence that banks have a fiduciary duty to their depositors. According to the case of Bank of the Philippine Islands vs. IAC (G.R. No. 69162,
February 21, 1992), "as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the
accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship." Such fiduciary relationship should
also extend to the bank’s borrowers who, more often than not, are also depositors of the bank. Banks are in the business of lending while most
borrowers hardly know the basics of such business. When transacting with a bank, most borrowers concede to the expertise of the bank and
consider their procedures, pronouncements and representations as unassailable, whether such be true or not. Therefore, when there is a doubtful
banking transaction, this Court will tip the scales in favor of the borrower.

Given the above ruling, the Restructuring Agreement, therefore, between the Tiu spouses and Union Bank does not operate to supersede all
previous loan documents, as claimed by Union Bank. But the said Restructuring Agreement, as it was crafted by Union Bank, does not merely
confirm the original loan of the Tiu spouses but attempts to create a novation of the said original loan that is not clearly authorized by the debtors
and that is not supported by any cause or consideration. According to Article 1292 of the New Civil Code, in order that an obligation may by
extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other. Such is not the case in this instance. No valid novation of the original obligation took
place. Even granting arguendo that there was a novation, the sudden change in the original amount of the loan to the new amount declared in the
Restructuring Agreement is not supported by any cause or consideration. Under Article 1352 of the Civil Code, contracts without cause, or with
unlawful cause, produce no effect whatever. A contract whose cause did not exist at the time of the transaction is void. Accordingly, Article 1297 of
the New Civil Code mandates that, if the new obligation is void, the original one shall subsist, unless the parties intended that the former relation
should be extinguished at any event. Since the Restructuring Agreement is void and since there was no intention to extinguish the original loan, the
original loan shall subsist.52

Union Bank does not dispute that the spouses Tiu received the loaned amount of US$3,632,000.00 in Philippine pesos, not dollars, at the prevailing
exchange rate of US$1=P26.53 However, Union Bank claims that this does not change the true nature of the loan as a foreign currency loan,54 and
proceeded to illustrate in its Memorandum that the spouses Tiu obtained favorable interest rates by opting to borrow in dollars (but receiving the
equivalent peso amount) as opposed to borrowing in pesos.55

We agree with Union Bank on this point. Although indeed, the spouses Tiu received peso equivalents of the borrowed amounts, the loan
documents presented as evidence, i.e., the promissory notes,56 expressed the amount of the loans in US dollars and not in any other currency. This
clearly indicates that the spouses Tiu were bound to pay Union Bank in dollars, the amount stipulated in said loan documents. Thus, before the
Restructuring Agreement, the spouses Tiu were bound to pay Union Bank the amount of US$3,632,000.00 plus the interest stipulated in the
promissory notes, without converting the same to pesos. The spouses Tiu, who are in the construction business and appear to be dealing primarily
in Philippine currency, should therefore purchase the necessary amount of dollars to pay Union Bank, who could have justly refused payment in
any currency other than that which was stipulated in the promissory notes.

We disagree with the finding of the Court of Appeals that the testimony of Lila Gutierrez, which merely attests to the fact that the spouses Tiu
received the peso equivalent of their dollar loan, proves the intention of the parties that such loans should be paid in pesos. If such had been the
intention of the parties, the promissory notes could have easily indicated the same.

Such stipulation of payment in dollars is not prohibited by any prevailing law or jurisprudence at the time the loans were taken. In this regard,
Article 1249 of the Civil Code provides:

23 | P a g e
Art. 1249. 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.

Although the Civil Code took effect on August 30, 1950, jurisprudence had upheld57 the continued effectivity of Republic Act No. 529, which took
effect earlier on June 16, 1950. Pursuant to Section 158 of Republic Act No. 529, any agreement to pay an obligation in a currency other than the
Philippine currency is void; the most that could be demanded is to pay said obligation in Philippine currency to be measured in the prevailing rate
of exchange at the time the obligation was incurred.59 On June 19, 1964, Republic Act No. 4100 took effect, modifying Republic Act No. 529 by
providing for several exceptions to the nullity of agreements to pay in foreign currency.60

On April 13, 1993, Central Bank Circular No. 138961 was issued, lifting foreign exchange restrictions and liberalizing trade in foreign currency. In
cases of foreign borrowings and foreign currency loans, however, prior Bangko Sentral approval was required. On July 5, 1996, Republic Act No.
8183 took effect,62 expressly repealing Republic Act No. 529 in Section 263 thereof. The same statute also explicitly provided that parties may
agree that the obligation or transaction shall be settled in a currency other than Philippine currency at the time of payment.64

Although the Credit Line Agreement between the spouses Tiu and Union Bank was entered into on November 21, 1995,65 when the agreement to
pay in foreign currency was still considered void under Republic Act No. 529, the actual loans,66 as shown in the promissory notes, were taken out
from September 22, 1997 to March 26, 1998, during which time Republic Act No. 8183 was already in effect. In United Coconut Planters Bank v.
Beluso,67 we held that:

[O]pening a credit line does not create a credit transaction of loan or mutuum, since the former is merely a preparatory contract to the contract of
loan or mutuum. Under such credit line, the bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts
not exceeding the limit provided. The credit transaction thus occurred not when the credit line was opened, but rather when the credit line was
availed of. x x x.68

Having established that Union Bank and the spouses Tiu validly entered into dollar loans, the conclusion of the Court of Appeals that there were no
dollar loans to novate into peso loans must necessarily fail.

Similarly, the Court of Appeals’ pronouncement that the novation was not supported by any cause or consideration is likewise incorrect. This
conclusion suggests that when the parties signed the Restructuring Agreement, Union Bank got something out of nothing or that the spouses Tiu
received no benefit from the restructuring of their existing loan and was merely taken advantage of by the bank. It is important to note at this
point that in the determination of the nullity of a contract based on the lack of consideration, the debtor has the burden to prove the same. Article
1354 of the Civil Code provides that "[a]though the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor
proves the contrary."

In the case at bar, the Restructuring Agreement was signed at the height of the financial crisis when the Philippine peso was rapidly depreciating.
Since the spouses Tiu were bound to pay their debt in dollars, the cost of purchasing the required currency was likewise swiftly increasing. If the
parties did not enter into the Restructuring Agreement in December 1999 and the peso continued to deteriorate, the ability of the spouses Tiu to
pay and the ability of Union Bank to collect would both have immensely suffered. As shown by the evidence presented by Union Bank, the peso
indeed continued to deteriorate, climbing to US$1=P50.01 on December 2000.69 Hence, in order to ensure the stability of the loan agreement,
Union Bank and the spouses Tiu agreed in the Restructuring Agreement to peg the principal loan at P150,364,800.00 and the unpaid interest at
P5,000,000.00.

Before this Court, the spouses Tiu belatedly argue that their consent to the Restructuring Agreement was vitiated by fraud and mistake, alleging
that (1) the Restructuring Agreement did not take into consideration their substantial payment in the amount of P40,447,185.60 before its
execution; and (2) the dollar loans had already been redenominated in 1997 at the rate of US$1=P26.34.70

We have painstakingly perused over the records of this case, but failed to find any documentary evidence of the alleged payment of
P40,447,185.60 before the execution of the Restructuring Agreement. In paragraph 16 of their Amended Complaint, the spouses Tiu alleged
payment of P40,447,185.60 for interests before the conversion of the dollar loan.71 This was specifically denied by Union Bank in paragraph 5 of its
Answer with Counterclaim.72 Respondent Rodolfo Tiu testified that they made "50 million plus" in cash payment plus "other monthly interest
payments,"73 and identified a computation of payments dated July 17, 2002 signed by himself.74 Such computation, however, was never formally
offered in evidence and was in any event, wholly self-serving.

Neither party presented any documentary evidence of the alleged redenomination in 1997. Respondent Rodolfo Tiu did not even mention it in his
testimony. Furthermore, Hojas was obviously uncertain in his statement that said redenomination was made in 1997.

As pointed out by the trial court, the Restructuring Agreement, being notarized, is a public document enjoying a prima facie presumption of
authenticity and due execution. Clear and convincing evidence must be presented to overcome such legal presumption.76 The spouses Tiu, who
attested before the notary public that the Restructuring Agreement "is their own free and voluntary act and deed,"77 failed to present sufficient
evidence to prove otherwise. It is difficult to believe that the spouses Tiu, veteran businessmen who operate a multi-million peso company, would
sign a very important document without fully understanding its contents and consequences.

This Court therefore rules that the Restructuring Agreement is valid and, as such, a valid and binding novation of loans of the spouses Tiu entered
into from September 22, 1997 to March 26, 1998 which had a total amount of US$3,632,000.00.

THE PHILIPPINE MANPOWER SERVICES, INC., ADAWLIAH UNIVERSAL ELECTRONICS and AFISCO INSURANCE CORPORATION, petitioners, vs.
NATIONAL LABOR RELATIONS COMMISSION and ARTHUR P. PANGAN, respondents.

Facts

The alleged dismissal without cause of private respondent Arthur F. Pangan by his employer Adawliah Union Electronics and Afisco Insurance
Corporation (Adawliah, for short) based in Alkhobar, Saudi Arabia, spawned the present controversy. Pangan filed with the POEA, a case for illegal
dismissal, underpayment of overtime pay, separation pay, actual damages representing his salaries for the unexpired portion of his contract of
employment, and exemplary damages of US$10,000.00 plus attorney's fees. His complaint alleged that he entered into a two-year contract of
employment with Adawliah, as a data entry clerk technician for US$550.00 a month, commencing on April 30, 1988. He complained that he
rendered overtime work of fourteen (14) hours last May 1988 and another twenty-four (24) hours in June 1988 without having received any
compensation therefor; worse, he has ordered to work as programmer in addition to his work as data entry clerk technician without any offer to

24 | P a g e
correspondingly increase his salary; that Pangan's demand for salary adjustment irked Mr. Ahmed Yosul, Administrative Manager of Adawliah, who
thus ordered Pangan's termination on grounds of incompetence. Pangan was consequently compelled to accept payment of only US389.00 dollars,
covering his services for July 1-21. All other claims were waived by him after he was threatened to be jailed.

Petitioner Philippine Manpower Services, Inc. (Philman) denied Pangan's allegations in his complaint. Philman justified Pangan's termination as a
valid exercise by his employer Adawliah, of its management prerogative to fire employees who proved to be incompetent while still under
probation. It thus prayed for the dismissal of the instant case.

The POEA, however, found Pangan's complaint meritorious. Though it recognized the management prerogative to select its employees, it
nevertheless ruled that the exercise thereof is not without any qualification. The POEA explained that probationary employees can only be
dismissed for just cause duly proved. In the case at bar, it found that there was no justified dismissal of complainant Pangan for failure of Adawliah
to substantiate its claim of his unsatisfactory performance. General averments on Pangan's incompetence do not constitute just cause to warrant
his termination.

Philman and Adawliah were thus ordered to pay in solidum, the equivalent in Philippine currency of US$11,550.00 representing Pangan's salary for
the unexpired portion of his contract and attorney's fees amounting to five percent (5%) of said award. The POEA further ruled that in paying the
above award in Philippine currency, the conversion rate to be used shall be that prevailing at the time of payment.

Philman and Adawliah sought a reversal of said POEA ruling by appealing before the National Labor Relations Commission (NLRC). As
aforementioned, the NLRC affirmed, with modification, the POEA ruling appealed from, in its Resolution of March 4, 1991.

Philman and Adawliah moved for reconsideration of the Resolution of March 4, 1991 but were denied by the NLRC for lack of merit.

Ruling

WHEREFORE, finding no grave abuse of discretion on the part of public respondents, the petition is DISMISSED. The decision of the POEA dated
August 10, 1991 is hereby AFFIRMED in toto and the Resolution of the NLRC dated March 4, 1991 is MODIFIED, insofar as the proper rate of
exchange to be applied in converting the award of US$11,550.00 in Philippine currency is that prevailing at the time of actual payment.

Separate opinion (CONCURRING)

I fully concur with the opinion so well presented and written, once again, by Mme. Justice Flerida Ruth P. Romero. I cannot, however, let the
opportunity pass without expressing my own views on the conversation rate that should be used in the payment of foreign exchange obligations
covered by the provisions of Republic Act No. 529, as amended by Republic Act No. 4100. Since the promulgation of the decision in Kalalo v. Luz on
31 July 1970, other cases were decided by the Court. Lately, in General Insurance & Surety Corporation v. Union Insurance Society of Canton, Ltd.
(G.R. Nos. 30475-76, elaborated in San Buenaventura v. Court of Appeals, 181 SCRA 197 [1990]), the Court, in sum held:

(a) If the obligation was incurred prior to the enactment of Republic Act No. 529 and required payment in a particular kind of coin or
currency other than the Philippine currency, the same should be discharged in Philippine currency at the prevailing rate of exchange at the time the
obligation was incurred, except in case of a loan made in a foreign currency in which event the rate of exchange prevailing at the stipulated date of
payment should prevail.

(b) If, however, the obligation is incurred after the enactment of Republic Act No. 529, the provision of the law which require payment at
the prevailing rate of exchange when the obligation is incurred cannot be applied. Republic Act No. 529 does not provide for the payment of
obligation after the enactment of the said Act. Logically, therefore, the rate of exchange shall be the prevailing at the time of payment rather than
on the date of incurrence.

Concededly, Republic Act No. 529 has left some gaps on its proper application. While it did fail to provide for the payment of obligations incurred
after its effectivity, it indeed seems logical to conclude that the law meant to apply the rate of exchange prevailing at the time of payment but I
believe, only to obligations incurred in, or based on, foreign currency. This view is just and fair in that it maintains and preserves the real value of
the foreign exchange-incurred obligation to the date of its payment. When, however, the obligation is incurred in Philippine currency, there should
be no need for the law to still make any reference to any rate of exchange or to a measure of value in foreign currency in its payment. The
obligation should instead be then understood to be payable in the same amount of Philippine conformably with Article 1250 of the Civil Code.
Under this provision, an adjustment in value can only be made in the event of an extraordinary inflation or deflation and only if the parties did not
stipulate against such adjustment. To assume otherwise would be to defeat the clear intendment of the law, for not only does Republic Act No. 529
prohibit a stipulation requiring payment in foreign currency or in gold but likewise a stipulation providing for payment in Philippine currency
measured in its value in gold or in foreign currency.

To exemplify the measures of payment of obligations incurred after the effectivity of the law under this view —

(1) If incurred in Philippine currency, no adjustment is to be made (hence, if P10,000.00 is borrowed, payable in foreign currency, the same
amount of P10,000.00 shall be due upon payment irrespective of any change in the rates of exchange prevailing at the time the obligation is
constituted and the time it is paid) except to the extent that Article 1250 of the Civil Code on extraordinary inflation or deflation can apply; and

(2) If incurred in foreign currency or in Philippine currency but based on foreign exchange values, the payment shall be made in Philippine
currency measured at the rate of exchange prevailing at the time of payment (hence, a $1—obligation, incurred at a time when the rate of
exchange was $1:P10.00 and when payable the rate became $1:P20.00, should be paid in Philippine Currency at P20.00).

Nevertheless, I consider it more important to preserve the stability of, rather than to disturb, the now settled rule heretofore expressed by this
Court in earlier cases. I, therefore, VOTE to concur in the opinion and to LEAVE the matter to congress whether it would wish to consider any
further need for remedial legislation.

LUCIA R. SINGSON, petitioner, vs. CALTEX (PHILIPPINES), INC. respondent.

Facts

25 | P a g e
Petitioner and respondent entered into a contract of lease on July 16, 1968 over a parcel of land in Cubao, Quezon City. The land, which had an
area of 1,400 square meters and was covered by Transfer Certificates of Title No. 43329 and 81636 issued by the Register of Deeds of Quezon City,
was to be used by respondent as a gasoline service station.

The contract of lease provides that the lease shall run for a period of twenty (20) years and shall abide by the following rental rates:

xxx xxx xxx

Rental. --- The LESSEE agrees to pay the following rental for said premises:

P2.50/sq.m. per month from the 1st to 10th years and P3.00/sq.m. per month from the 11th to 20th years, payable monthly in advance within the
1st 15 days of each month; provided that the rentals for the 1st 5 years less a discount of eleven (11) percent per annum computed on a monthly
diminishing balance, shall be paid to LESSOR upon compliance of the three (3) conditions provided in clause (2) above.

LESSEE also agrees to pay lessor, the sum of Six Thousand Pesos (P6,000.00) as demolition expenses, upon effectivity of this lease.

The rental herein provided for is in any event the maximum rental which LESSOR may collect during the term of this lease or any renewal or
extension thereof. LESSEE further agrees for thirty (30) days after written notice of such default has actually been delivered to the General
Manager of Caltex (Philippines), Inc. LESSOR shall then have the right to terminate this lease on thirty (30) days written notice to LESSEE. xxx xxx xxx
3

Thus, based on the foregoing provisions of the lease contract, the monthly rental was fixed at P3,500.00 for the first ten years, and at P4,200.00 for
the succeeding ten years of the lease.

On June 23, 1983, or five years before the expiration of the lease contract, petitioner asked respondent to adjust or increase the amount of rentals
citing that the country was experiencing extraordinary inflation. In a letter dated August 3, 1983, respondent refused petitioner's request and
declared that the terms of the lease contract are clear as to the rental amounts therein provided being "the maximum rental which the lessor may
collect during the term of the lease."4

On September 21, 1983, petitioner instituted a complaint before the RTC praying for, among other things, the payment by respondent of adjusted
rentals based on the value of the Philippine peso at the time the contract of lease was executed. The complaint invoked Article 1250 of the Civil
Code, stating that since the execution of the contract of lease in 1968 an extraordinary inflation had supervened resulting from the deterioration of
worldwide economic conditions, a circumstance that was not foreseen and could not have been reasonably foreseen by the parties at the time
they entered into contract.

To substantiate its allegation of extraordinary inflation, petitioner presented as witness Mr. Narciso Uy, Assistant Director of the Supervising and
Examining Sector of the Central Bank, who attested that the inflation rate increased abruptly during the period 1982 to 1985, caused mainly by the
devaluation of the peso.5 Petitioner also submitted into evidence a certification of the official inflation rates from 1966 to 1986 prepared by the
National Economic Development Authority ("NEDA") based on consumer price index, which reflected that at the time the parties entered into the
subject contract, the inflation rate was only 2.06%; then, it soared to 34.51% in 1974, and in 1984, reached a high of 50.34%.6

Ruling

The only issue crucial to the present appeal is whether there existed an extraordinary inflation during the period 1968 to 1983 that would call for
the application of Article 1250 of the Civil Code and justify an adjustment or increase of the rentals between the parties.

Article 1250 of the Civil Code states:

In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.

Article 1250 was inserted in the Civil Code of 1950 to abate the uncertainty and confusion that affected contracts entered into or payments made
during World War II, and to help provide a just solution to future cases.10 The Court has, in more than one occasion, been asked to interpret the
provisions of Article 1250, and to expound on the scope and limits of "extraordinary inflation".

We have held extraordinary inflation to exist when there is a decrease or increase in the purchasing power of the Philippine currency which is
unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could not have been reasonably foreseen
or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation.11

An example of extraordinary inflation, as cited by the Court in Filipino Pipe and Foundry Corporation vs. NAWASA, supra, is that which happened to
the deutschmark in 1920. Thus:

"More recently, in the 1920s, Germany experienced a case of hyperinflation. In early 1921, the value of the German mark was 4.2 to the U.S. dollar.
By May of the same year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion
to the U.S. dollar!" (Bernardo M. Villegas & Victor R. Abola, Economics, An Introduction [Third Edition]).

As reported, "prices were going up every week, then every day, then every hour.1âwphi1 Women were paid several times a day so that they could
rush out and exchange their money for something of value before what little purchasing power was left dissolved in their hands. Some workers
tried to beat the constantly rising prices by throwing their money out of the windows to their waiting wives, who would rush to unload the nearly
worthless paper. A postage stamp cost millions of marks and a loaf of bread, billions." (Sidney Rutberg, "The Money Balloon", New York: Simon and
Schuster, 1975, p. 19, cited in "Economics, An Introduction" by Villegas & Abola, 3rd Ed.)

The supervening of extraordinary inflation is never assumed.12 The party alleging it must lay down the factual basis for the application of Article
1250.

Thus, in the Filipino Pipe case, the Court acknowledged that the voluminous records and statistics submitted by plaintiff-appellant proved that
there has been a decline in the purchasing power of the Philippine peso, but this downward fall cannot be considered "extraordinary" but was
simply a universal trend that has not spared our country.13 Similarly, in Huibonhoa vs. Court of Appeals,14 the Court dismissed plaintiff-appellant's

26 | P a g e
unsubstantiated allegation that the Aquino assassination in 1983 caused building and construction costs to double during the period July 1983 to
February 1984. In Serra vs. Court of Appeals,15 the Court again did not consider the decline in the peso's purchasing power from 1983 to 1985 to
be so great as to result in an extraordinary inflation.

Like the Serra and Huibonhoa cases, the instant case also raises as basis for the application of Article 1250 the Philippine economic crisis in the
early 1980s --- when, based on petitioner's evidence, the inflation rate rose to 50.34% in 1984. We hold that there is no legal or factual basis to
support petitioner's allegation of the existence of extraordinary inflation during this period, or, for that matter, the entire time frame of 1968 to
1983, to merit the adjustment of the rentals in the lease contract dated July 16, 1968. Although by petitioner's evidence there was a decided
decline in the purchasing power of the Philippine peso throughout this period, we are hard put to treat this as an "extraordinary inflation" within
the meaning and intent of Article 1250. Rather, we adopt with approval the following observations of the Court of Appeals on petitioner's
evidence, especially the NEDA certification of inflation rates based on consumer price index:

xxx (a) from the period 1966 to 1986, the official inflation rate never exceeded 100% in any single year; (b) the highest official inflation rate
recorded was in 1984 which reached only 50.34%; (c) over a twenty one (21) year period, the Philippines experienced a single-digit inflation in ten
(10) years (i.e., 1966, 1967, 1968, 1969, 1975, 1976, 1977, 1978, 1983 and 1986); (d) in other years (i.e., 1970, 1971, 1972, 1973, 1974, 1979, 1980,
1981, 1982, 1984 and 1989) when the Philippines experienced double-digit inflation rates, the average of those rates was only 20.88%; (e) while
there was a decline in the purchasing power of the Philippine currency from the period 1966 to 1986, such cannot be considered as extraordinary;
rather, it is a normal erosion of the value of the Philippine peso which is a characteristic of most currencies.16

"Erosion" is indeed an accurate description of the trend of decline in the value of the peso in the past three to four decades. Unfortunate as this
trend may be, it is certainly distinct from the phenomenon contemplated by Article 1250.

Moreover, this Court has held that the effects of extraordinary inflation are not to be applied without an official declaration thereof by competent
authorities.17

Lastly, the provisions on rentals in the lease contract dated July 16, 1968 between petitioner and respondent are clear and categorical, and we
have no reason to suppose that such lease contract does not reflect or express their true intention and agreement. The contract is the law between
the parties and if there is indeed reason to adjust the rent, the parties could have by themselves negotiated the amendment of the contract.18

WHEREFORE, the petition seeking the reversal of the decision of the Court of Appeals in CA-G.R. CV No. 54115 is DENIED.

Sps. Tan vs. China Banking Corp.

Facts

Petitioner Lorenze Realty and Development Corporation (Lorenze Realty) is a domestic corporation duly authorized by Philippine laws to engage in
real estate business. It is represented in this action by petitioners Joel Tan and Eric Tan as substitutes for their deceased parents, Spouses Juan
Chuy Tan and Mary Tan (Spouses Tan)

Respondent China Banking Corporation (China Bank), on the other hand, is a universal banking corporation duly authorized by Bangko Sentral ng
Pilipinas (BSP) to engage in banking business.

On several occasions in 1997, Lorenze Realty obtained from China Bank various amounts of loans and credit accommodations in the following
amounts:

DATE PROMISSORY NOTE NOS. PRINCIPAL AMOUNT

27 June 1997 BDC-0345 Pl,600,000.00

30 July 1997 BDC-0408 1,000,000.00

13 August 1997 BDC-0422 1, 100,000.00

18 August 1997 BDC-0432 1,960.000.00

21 August 1997 BDC-0438 1,490.000.00

2 September 1997 BDC-0455 2,200,000.00

1 October 1997 BDC-0506 1, 700,000.00

20 November 1997 DLS-0316 2,800,000.00

18 June 1997 DLS-0324 5,500,000.00

18 June 1997 DLS-0325 2,675,000.00

04 July 1997 DLS-0360 7,000,000.00

24 July 1997 DLS-0403 4,000,000.00

28 August 1997 BDC-0449 1,550,000.00

20 November 1997 BDC-0340 1,550,000.00

8 September 1997 BDC-0466 1,262,500.00

31 September 1997 BDC-0479 662,500.00

10 July 1997 DLS 0379 33,000,000.00

27 | P a g e
TOTAL P71,050,000.00

It is expressly stipulated in the Promissory Notes that Lorenze Realty agreed to pay the additional amount of 1110 of 1 % per day of the total
amount of obligation due as penalty to be computed from the day that the default was incurred up to the time that the loan obligations are fully
paid. The debtor also undertook pay an additional 10% of the total amount due including interests, surcharges and penalties as attorney's fees.

As a security for the said obligations, Lorenze Realty executed Real Estate Mortgages (REM) over 11 parcels of land covered by Transfer Certificates
of Title (TCT) Nos. B-44428, B-44451, B-44452, V-44275, V-44276, V-44277, V-44278, V-44280, V-44281, V-44283 and V-44284 registered by the
Registry of Deeds of Valenzuela City.

Subsequently, Lorenze Realty incurred in default in the payment of its amortization prompting China Bank to cause the extra-judicial foreclosure of
the REM constituted on the securities after the latter failed to heed to its demand to settle the entire obligation.

After the notice and publication requirements were complied with, the mortgaged properties were sold at a public auction wherein China Bank
emerged as the highest bidder for the amount of P85,000,000.00 as evidenced by a certificate of sale.

As shown by the Statement of Account dated 10 August 1998, the indebtedness of Lorenze Realty already reached the amount Pl 14,258,179.81,
broken down as follows:

Principal Amount P7 l ,050,000.00

Interest .. 13,521,939.31

Penalties 19,763,257.50

Registration Expenses 9,542,013.00

Filing Fee 351,300.00

Publication Fee 25,970.00

Sheriffs Fee 2,000.00

Posting Fee 700.00

After deducting from the total amount of loan obligation the P85,000,000.00 proceeds of the public sale, there remains a balance in the amount of
P29,258,179.81. In its effort to collect the deficiency obligation, China Bank demanded from· Lorenze Realty for the payment of the remaining loan
but such demand just went to naught.

Consequently, China Bank initiated an action for the collection of sum of money against the Lorenze Realty and its officers, namely, Lawrence Ong,
Victoria Ong, Juan Chuy Tan and Mary Tan before the RTC ofMakati City, Branch 142. In its Complaint docketed as Civil Case No. 98-3069, China
Bank alleged that it is entitled to deficiency judgment because the purchase price of the securities pledged by the debtor is not sufficient to settle
the entire obligation incurred by the latter including the interest, penalties and surcharges that had accrued from the time of default. China Bank
thus prayed that defendants be ordered to pay the amount of P29,258,179.81, representing the deficiency in its obligation in accordance with the
express terms of the promissory notes.

While conceding that they have voluntarily signed the promissory notes, defendants, for their part, disclaim liability by alleging that the surety
agreements did not express the· true intention of the parties. The officers of the corporation who represented Lorenze Realty below claimed that
they just signed the surety contracts without reading the fine terms stipulated therein because they were made to believe by the bank manager
that the collaterals they offered to obtain the loans were already sufficient to cover the entire obligation should they incur in default. The
collection suit for the deficiency obligation came as a surprise to them after China Bank managed to successfully foreclose the securities of the
obligation and purchased for itself the mortgaged properties at the public sale. In addition, defendants averred that the penalty in the amount of
1/10 of 1 % per day of the total amount due is usurious and shocking to the conscience and should be nullified by the court. Finally, they prayed
that the RTC declare Lorenze Realty's obligation fully settled on account of the sale of the securities.

Ruling

In assailing the CA Decision, Lorenze Realty argues that it is no longer liable to pay the deficiency obligation because the proceeds of the sale of the
foreclosed properties in the amount of P85,000,000.00 is more than enough to cover the principal amount of the loan which is just P71,050,000.00.
In fact, it further asserted that after applying the proceeds of the public sale to the principal amount of loan, there remains a balance of
Pl3,950,000.00 which should more than enough to cover the penalties, interests and surcharges.

For its part, China Bank maintains that the obligation of Lorenze Realty is not extinguished by the foreclosure and sale of real properties constituted
as securities citing Article 1253 of the New Civil Code which explicitly states that "If the debt produces interest, payment of the principal shall not
be deemed to have been made until the interests have been covered." By first applying the proceeds of the sale to the interest, penalties and
expenses of the sale, there yields a balance in the principal obligation in the amount of P29,258,l 79.81.

We resolve to deny the petition.

Obligations are extinguished, among others, by payment or performance, the mode most relevant to the factual situation in the present case. 6
Under Article 1232 of the Civil Code, payment means not only the delivery of money but also the performance, in any other manner, of an
obligation. 7 Article 1233 of the Ci~il Code states that a debt shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be. 8 In contracts of loan, the debtor is expected to deliver the sum
of money due the creditor. 9 Thes~ provisions must be read in relation with the other rules on payment under the Civil Code, such as the
application of payment, to wit:

Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to
which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose
benefit the term has been constituted, application shall not be made as to debts which are not yet due.

28 | P a g e
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless
there is a cause for invalidating the contract.

In interpreting the foregoing provision of the statute, the Court in Premiere Development Bank v .. Central Surety & Insurance Company Inc. 10
held that the right of the debtor to apply payment is merely directory in nature and must be promptly exercised, lest, such right passes to the
creditor,

"The debtor[']s right to apply payment is not mandatory. This is clear from the use of the word [']may['] rather than the word [']shall['] in the
provision which reads: [']He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the
payment, to which of the same must be applied.[']

Indeed, the debtor[']s right to apply payment has been considered merely directory, and not mandatory, following this Court[']s earlier
pronouncement that [']the ordinary acceptation of the terms [']may['] and [']shall['] may be resorted to as guides in ascertaining the mandatory or
directory character of statutory provisions.[']

Indeed, the debtor[']s right to apply payment has been considered merely directory, and not mandatory, following this Court[']s earlier
pronouncement that [']the ordinary acceptation of the terms [']may['] and [']shall['] may be resorted to as guides in ascertaining the mandatory or
directory character of statutory provisions.[']

Rights may be waived, unless the waiver is contrary to law, public order, public policy, morals or good customs, or prejudicial to a third person with
a right recognized by law.

A debtor, in making a voluntary payment, may at the time of payment direct an application of it to whatever account he chooses, unless he has
assigned or waived that right. If the debtor does not do so, the right passes to the creditor, who may make such application as he chooses. But if
neither party has exercised its option, the court will apply the payment according to the justice and equity of the case, taking into consideration all
its circumstances." [Emphasis supplied, citations omitted.]

n the event that the debtor failed to exercise the right to elect, the creditor may choose to which among the debts the payment is applied as in the
case at bar. It is noteworthy that after the sale of the foreclosed properties at the public auction, Lorenze Realty failed to manifest its preference as
to which among the obligations that were all due the proceeds of the sale should be applied. Its silence can be construed as acquiescence to China
Bank's application of the payment first to the interest and penalties and the remainder to the principal which is sanctioned by Article 1253 of the
New Civil Code which provides that:.

Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.

That they assume that the obligation is fully satisfied by the sale of the securities does not hold any water. Nowhere in our statutes and
jurisprudence do they provide that the sale of the collaterals constituted as security of the obligation results in the extinguishment of the
obligation. The rights and obligations of parties are governed by the terms and conditions of the contract and not by assumptions and
presuppositions of the parties. The amount of their entire liability should be computed on the basis of the rate of interest as imposed by the CA
minus the proceeds of the sale of the foreclosed properties in public auction.

It is worth mentioning that the appellate court aptly reduced the interest rate to 12%' per annum which is in consonance to existing jurisprudence.
In Albos v. Embisan, 11 MCMP Construction Corp. v. Monark Equipment Corp., 12 Bognot v. RR! Lending Corporation, 13 and Menchavez v.
Bermudez, 14 the Court struck down the stipulated rates of interest for being excessive, iniquitous, unconscionable and exorbitant and uniformly
reduced the rates to 12°/o per annum.

Lorenze Realty's plea to further reduce the interest to 3% per annum has no leg to stand on and could not be adopted by this Court. On the other
hand, the appellate court, consistent with the ruling of this Court in a number of cases, correctly pegged the rate of interest at 1 % per month or l
2o/o per annum. We need not unsettle the principle we had affirmed in a plethora of cases that 12% per annum is the legal rate of interest
imposed by this Court on occasions that we nullified the rates stipulated by parties. While the Court has the power to nullify excessive interest
rates and impose new rates for the parties, such reduction, however, must always be guided by reason and equity.

WHEREFORE, premises considered, the petition is DENIED. The assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED.

PHILIPPINE LAWIN BUS, CO., MASTER TOURS & TRAVEL CORP., MARCIANO TAN, ISIDRO TAN, ESTEBAN TAN and HENRY TAN, petitioners, vs.
COURT OF APPEALS and ADVANCE CAPITAL CORPORATION, respondents.

Facts

"On 7 August 1990 plaintiff Advance Capital Corporation, a licensed lending investor, extended a loan to defendant Philippine Lawin Bus Company
(hereafter referred to as LAWIN), in the amount of P8,000,000.00 payable within a period of one (1) year, as evidenced by a Credit Agreement
(Exhibits "B" to "B-4-B"). The defendant, through Marciano Tan, its Executive Vice President, executed Promissory Note No. 003, for the amount of
P8,000,000.00 (Exhs. "C" to "C-1").

"To guarantee payment of the loan, defendant Lawin executed in favor of plaintiff the following documents: (1) A Deed of Chattel Mortgage
wherein 9 units of buses were constituted as collaterals (Exhibits "F" to "F-7"): (2) A joint and several UNDERTAKING of defendant Master Tours
and Travel Corporation dated 07 August 1990, signed by Isidro Tan and Marciano Tan (Exhs. "H" to "H-1): and (3) A joint and several UNDERTAKING
dated 21 August 1990, executed and signed by Esteban, Isidro, Marciano and Henry, all surnamed Tan (Exhs. "I" to "I-6").

"Out of the P8,000,000.00 loan, P1,800,000.00 was paid. Thus, on 02 November 1990, defendant Bus Company was able to avail an additional loan
of P2,000,000.00 for one (1) month under Promissory Note 00028 (Exhs. "J"-"J-1").

"Defendant LAWIN failed to pay the aforementioned promissory note and the same was renewed on 03 December 1990 to become due on or
before 01 February 1991, under Promissory Note 00037 (Exh. "K").

"On 15 May 1991 for failure to pay the two promissory notes, defendant LAWIN was granted a loan re-structuring for two (2) months to mature on
31 July 1991.

29 | P a g e
"Despite the restructuring, defendant LAWIN failed to pay. Thus, plaintiff foreclosed the mortgaged buses and as the sole bidder thereof, the
amount of P2,000,000.00 was accepted by the deputy sheriff conducting the sale and credited to the account of defendant LAWIN.

"Thereafter, on 27 May 1992, identical demand letters were sent to the defendants to pay their obligation (Exhs. "X" to "CC"). Despite repeated
demands, the defendants failed to pay their indebtedness which totaled of P16,484,992.42 as of 31 July 1992 (Exhs. "DD"-"DD-1").

"Thus, the suit for sum of money, wherein the plaintiff prays that defendants solidarily pay plaintiff as of July 31, 1992 the sum of (a)
P16,484,994.12 as principal obligation under the two promissory notes Nos. 003 and 00037, plus interests and penalties: (b) P300,000.00 for loss of
good will and good business reputation: (c) attorney’s fees amounting to P100,000.00 as acceptance fee and a sum equivalent to 10% of the
collectible amount, and P500.00 as appearance fee; (d) P200,000.00 as litigation expenses; (e) exemplary damages in an amount to be awarded at
the court’s discretion; and (f) the costs.

"On 04 September 1993, a writ of preliminary injunction was issued with respect to movable and immovable properties of the defendants.

"In answer to the complaint, defendants-appellees assert by way of special and affirmative defense, that there was already an arrangement as to
the full settlement of the loan obligation by way of:

"17.A. Sale of the nine (9) units passenger buses the proceeds of which will be credited against the loan amount as full payment thereof; or in the
alternative.

"17.B. Plaintiff will shoulder and bear the cost of rehabilitating the buses, with the amount thereof to be included in the total obligation of
defendant Lawin and the bus operated, with the earnings thereof to be applied to the loan obligation of defendant Lawin." (p. 4 Answer; p. 166,
rec.)

"Defendants further assert that the foreclosure sale was in violation of the aforequoted arrangement and prayed for the nullification of the same
and the dismissal of the complaint."4

On 28 June 1995, the trial court rendered a decision dismissing the complaint, as follows:

"WHEREFORE, judgment is rendered as follows:

"1. Dismissing the complaint for lack of merit;

"2. Declaring the foreclosure and auction sale null and void;

"3. Declaring the obligation or indebtedness of defendants EXTINGUISHED;

"4. Declaring the writ of attachment issued in this case null and void and, therefore, is hereby declared dissolved; and

"5. Ordering the Sheriff of this Branch or whoever is in possession, to return all the personal properties attached in this case to the owner/s thereof
within one (1) week from the finality of this decision;

"6. Dismissing defendant’s counterclaim for lack of sufficient merit.

"No pronouncement as to costs.

"SO ORDERED."5

In time, respondent Advance Capital Corporation appealed from the decision to the Court of Appeals.6

On 30 September 1997, the Court of Appeals promulgated a decision reversing that of the trial court, the dispositive portion of which is set out in
the opening paragraph of this decision.

Hence, this appeal

Ruling

We deny the petition, with modification.

The issue raised is factual. In an appeal via certiorari, we may not review the factual findings of the Court of Appeals.9 When supported by
substantial evidence, the findings of fact of the Court of Appeals are conclusive and binding on the parties and are not reviewable by this
Court,10 unless the case falls under any of the recognized exceptions to the rule.11

Petitioner failed to prove that the case falls within the exceptions.12 The Supreme Court is not a trier of facts.13 It is not our function to review,
examine and evaluate or weigh the probative value of the evidence presented.14 A question of fact would arise in such event.15

Nonetheless, we agree with the Court of Appeals that there was no dacion en pago that took place between the parties.

In dacion en pago, property is alienated to the creditor in satisfaction of a debt in money.16 It is "the delivery and transmission of ownership of a
thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation."17 It "extinguishes the obligation to the extent
of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied,
or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished."18

Article 1245 of the Civil Code provides that the law on sales shall govern an agreement of dacion en pago. A contract of sale is perfected at the
moment there is a meeting of the minds of the parties thereto upon the thing which is the object of the contract and upon the price.19 In Filinvest
Credit Corporation v. Philippine Acetylene Co., Inc., we said:

"x x x. In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of
an outstanding obligation. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or
property of the debtor, payment for which is to be charged against the debtor’s debt.1âwphi1 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

30 | P a g e
an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the
object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it
sale or novation, to have the effect of totally extinguishing the debt or obligation."20

In this case, there was no meeting of the minds between the parties on whether the loan of the petitioners would be extinguished by dacion en
pago. The petitioners anchor their claim solely on the testimony of Marciano Tan that he proposed to extinguish petitioners’ obligation by the
surrender of the nine buses to the respondent acceded to as shown by receipts its representative made.21 However, the receipts executed by
respondent’s representative as proof of an agreement of the parties that delivery of the buses to private respondent would result in extinguishing
petitioner’s obligation do not in any way reflect the intention of the parties that ownership thereof by respondent would be complete and
absolute. The receipts show that the two buses were delivered to respondent in order that it would take custody for the purpose of selling the
same. The receipts themselves in fact show that petitioners deemed respondent as their agent in the sale of the two vehicles whereby the
proceeds thereof would be applied in payment of petitioners’ indebtedness to respondent. Such an agreement negates transfer of absolute
ownership over the property to respondent, as in a sale. Thus, in Philippine National Bank v. Pineda22 we held that where machinery and
equipment were repossessed to secure the payment of a loan obligation and not for the purpose of transferring ownership thereof to the creditor
in satisfaction of said loan, no dacion en pago was ever accomplished.1âwphi1

The Fallo

IN VIEW WHEREOF, the Court DENIES the petition and AFFIRMS the decision of the Court of Appeals23 with MODIFICATION as follows:

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE. In lieu thereof, judgment is hereby rendered ordering defendants-
appellees to pay, jointly and severally, plaintiff-appellant Advance Capital Corp. the following amounts:

(1) P16,484,994.42, the principal obligation under the two promissory notes plus 12% per annum from the finality of this decision until fully paid;

(2) P50,000.00 as attorney’s fees;

(3) Costs of suit.

All other monetary awards are deleted.

PHILIPPINE NATIONAL BANK, Petitioner, vs. TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC., (now PRIME EAST PROPERTIES, INC.) and AFP-
RSBS, INC., Respondents.

Facts

Some time in July 1994, respondent Teresita Tan Dee (Dee) bought from respondent Prime East Properties Inc.5(PEPI) on an installment basis a
residential lot located in Binangonan, Rizal, with an area of 204 square meters6and covered by Transfer Certificate of Title (TCT) No. 619608.
Subsequently, PEPI assigned its rights over a 213,093-sq m property on August 1996 to respondent Armed Forces of the Philippines-Retirement and
Separation Benefits System, Inc. (AFP-RSBS), which included the property purchased by Dee.

Thereafter, or on September 10, 1996, PEPI obtained a P205,000,000.00 loan from petitioner Philippine National Bank (petitioner), secured by a
mortgage over several properties, including Dee’s property. The mortgage was cleared by the Housing and Land Use Regulatory Board (HLURB) on
September 18, 1996.7

After Dee’s full payment of the purchase price, a deed of sale was executed by respondents PEPI and AFP-RSBS on July 1998 in Dee’s favor.
Consequently, Dee sought from the petitioner the delivery of the owner’s duplicate title over the property, to no avail. Thus, she filed with the
HLURB a complaint for specific performance to compel delivery of TCT No. 619608 by the petitioner, PEPI and AFP-RSBS, among others. In its
Decision8 dated May 21, 2003, the HLURB ruled in favor of Dee and disposed as follows:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Directing [the petitioner] to cancel/release the mortgage on Lot 12, Block 21-A, Village East Executive Homes covered by Transfer Certificate of
Title No. -619608-(TCT No. -619608-), and accordingly, surrender/release the title thereof to [Dee];

2. Immediately upon receipt by [Dee] of the owner’s duplicate of Transfer Certificate of Title No. -619608- (TCT No. -619608-), respondents PEPI
and AFP-RSBS are hereby ordered to deliver the title of the subject lot in the name of [Dee] free from all liens and encumbrances;

3. Directing respondents PEPI and AFP-RSBS to pay [the petitioner] the redemption value of Lot 12, Block 21-A, Village East Executive Homes
covered by Transfer Certificate of Title No. -619608- (TCT No. -619608-) as agreed upon by them in their Real Estate Mortgage within six (6) months
from the time the owner’s duplicate of Transfer Certificate of Title No. -619608- (TCT No. -619608-) is actually surrendered and released by [the
petitioner] to [Dee];

4. In the alternative, in case of legal and physical impossibility on the part of [PEPI, AFP-RSBS, and the petitioner] to comply and perform their
respective obligation/s, as above-mentioned, respondents PEPI and AFP-RSBS are hereby ordered to jointly and severally pay to [Dee] the amount
of FIVE HUNDRED TWENTY THOUSAND PESOS ([P]520,000.00) plus twelve percent (12%) interest to be computed from the filing of complaint on
April 24, 2002 until fully paid; and

5. Ordering [PEPI, AFP-RSBS, and the petitioner] to pay jointly and severally [Dee] the following sums:

a) The amount of TWENTY FIVE THOUSAND PESOS ([P]25,000.00) as attorney’s fees;

b) The cost of litigation[;] and

c) An administrative fine of TEN THOUSAND PESOS ([P]10,000.00) payable to this Office fifteen (15) days upon receipt of this decision, for violation
of Section 18 in relation to Section 38 of PD 957.

SO ORDERED.9

31 | P a g e
The HLURB decision was affirmed by its Board of Commissioners per Decision dated March 15, 2004, with modification as to the rate of interest.10

On appeal, the Board of Commissioners’ decision was affirmed by the OP in its Decision dated August 4, 2004, with modification as to the monetary
award.

Ruling

The petition must be DENIED.

The petitioner is correct in arguing that it is not obliged to perform any of the undertaking of respondent PEPI and AFP-RSBS in its transactions with
Dee because it is not a privy thereto. The basic principle of relativity of contracts is that contracts can only bind the parties who entered into
it,23 and cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof.24 "Where there is no
privity of contract, there is likewise no obligation or liability to speak about."25

The petitioner, however, is not being tasked to undertake the obligations of PEPI and AFP-RSBS.1avvphi1 In this case, there are two phases
involved in the transactions between respondents PEPI and Dee – the first phase is the contract to sell, which eventually became the second phase,
the absolute sale, after Dee’s full payment of the purchase price. In a contract of sale, the parties’ obligations are plain and simple. The law obliges
the vendor to transfer the ownership of and to deliver the thing that is the object of sale.26 On the other hand, the principal obligation of a vendee
is to pay the full purchase price at the agreed time.27 Based on the final contract of sale between them, the obligation of PEPI, as owners and
vendors of Lot 12, Block 21-A, Village East Executive Homes, is to transfer the ownership of and to deliver Lot 12, Block 21-A to Dee, who, in turn,
shall pay, and has in fact paid, the full purchase price of the property. There is nothing in the decision of the HLURB, as affirmed by the OP and the
CA, which shows that the petitioner is being ordered to assume the obligation of any of the respondents. There is also nothing in the HLURB
decision, which validates the petitioner’s claim that the mortgage has been nullified. The order of cancellation/release of the mortgage is simply a
consequence of Dee’s full payment of the purchase price, as mandated by Section 25 of P.D. No. 957, to wit:

Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee,
except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a
mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage
or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and
delivered to the buyer in accordance herewith.

It must be stressed that the mortgage contract between PEPI and the petitioner is merely an accessory contract to the principal three-year loan
takeout from the petitioner by PEPI for its expansion project. It need not be belaboured that "[a] mortgage is an accessory undertaking to secure
the fulfillment of a principal obligation,"28 and it does not affect the ownership of the property as it is nothing more than a lien thereon serving as
security for a debt.29

Note that at the time PEPI mortgaged the property to the petitioner, the prevailing contract between respondents PEPI and Dee was still the
Contract to Sell, as Dee was yet to fully pay the purchase price of the property. On this point, PEPI was acting fully well within its right when it
mortgaged the property to the petitioner, for in a contract to sell, ownership is retained by the seller and is not to pass until full payment of the
purchase price.30 In other words, at the time of the mortgage, PEPI was still the owner of the property. Thus, in China Banking Corporation v.
Spouses Lozada,31 the Court affirmed the right of the owner/developer to mortgage the property subject of development, to wit: "[P.D.] No. 957
cannot totally prevent the owner or developer from mortgaging the subdivision lot or condominium unit when the title thereto still resides in the
owner or developer awaiting the full payment of the purchase price by the installment buyer."32 Moreover, the mortgage bore the clearance of the
HLURB, in compliance with Section 18 of P.D. No. 957, which provides that "[n]o mortgage on any unit or lot shall be made by the owner or
developer without prior written approval of the [HLURB]."

Nevertheless, despite the apparent validity of the mortgage between the petitioner and PEPI, the former is still bound to respect the transactions
between respondents PEPI and Dee. The petitioner was well aware that the properties mortgaged by PEPI were also the subject of existing
contracts to sell with other buyers. While it may be that the petitioner is protected by Act No. 3135, as amended, it cannot claim any superior right
as against the installment buyers. This is because the contract between the respondents is protected by P.D. No. 957, a social justice measure
enacted primarily to protect innocent lot buyers.33 Thus, in Luzon Development Bank v. Enriquez,34 the Court reiterated the rule that a bank dealing
with a property that is already subject of a contract to sell and is protected by the provisions of P.D. No. 957, is bound by the contract to sell. 35

However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquez’s rights thereunder. This is because the Contract to Sell,
involving a subdivision lot, is covered and protected by PD 957.

x x x.

xxxx

x x x Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already
covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the Court in another case involving a bank regarding a
subdivision lot that was already subject of a contract to sell with a third party:

"[The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable person,
particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained from the loan could
have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the property was already intended to
be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely
with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers x x x.
Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee. x x x"36 (Citation omitted)

More so in this case where the contract to sell has already ripened into a contract of absolute sale.1âwphi1

Moreover, PEPI brought to the attention of the Court the subsequent execution of a Memorandum of Agreement dated November 22, 2006 by
PEPI and the petitioner. Said agreement was executed pursuant to an Order dated February 23, 2004 by the Regional Trial Court (RTC) of Makati
City, Branch 142, in SP No. 02-1219, a petition for Rehabilitation under the Interim Rules of Procedure on Corporate Rehabilitation filed by PEPI.
The RTC order approved PEPI’s modified Rehabilitation Plan, which included the settlement of the latter’s unpaid obligations to its creditors by way
of dacion of real properties. In said order, the RTC also incorporated certain measures that were not included in PEPI’s plan, one of which is that
"[t]itles to the lots which have been fully paid shall be released to the purchasers within 90 days after the dacion to the secured creditors has been

32 | P a g e
completed."37 Consequently, the agreement stipulated that as partial settlement of PEPI’s obligation with the petitioner, the former absolutely and
irrevocably conveys by way of "dacion en pago" the properties listed therein,38 which included the lot purchased by Dee. The petitioner also
committed to –

[R]elease its mortgage lien on fully paid Mortgaged Properties upon issuance of the certificates of title over the Dacioned Properties in the name of
the [petitioner]. The request for release of a Mortgaged Property shall be accompanied with: (i) proof of full payment by the buyer, together with a
certificate of full payment issued by the Borrower x x x. The [petitioner] hereby undertakes to cause the transfer of the certificates of title over the
Dacioned Properties and the release of the Mortgaged Properties with reasonable dispatch.39

Dacion en pago or dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation.40 It is a mode of extinguishing an existing obligation41 and partakes the nature of sale as the
creditor is really buying the thing or property of the debtor, the payment for which is to be charged against the debtor’s debt.42 Dation in payment
extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the
parties by agreement – express or implied, or by their silence – consider the thing as equivalent to the obligation, in which case the obligation is
totally extinguished.43

There is nothing on record showing that the Memorandum of Agreement has been nullified or is the subject of pending litigation; hence, it carries
with it the presumption of validity.44 Consequently, the execution of the dation in payment effectively extinguished respondent PEPI’s loan
obligation to the petitioner insofar as it covers the value of the property purchased by Dee. This negates the petitioner’s claim that PEPI must first
redeem the property before it can cancel or release the mortgage. As it now stands, the petitioner already stepped into the shoes of PEPI and there
is no more reason for the petitioner to refuse the cancellation or release of the mortgage, for, as stated by the Court in Luzon Development Bank,
in accepting the assigned properties as payment of the obligation, "[the bank] has assumed the risk that some of the assigned properties are
covered by contracts to sell which must be honored under PD 957."45 Whatever claims the petitioner has against PEPI and AFP-RSBS, monetary or
otherwise, should not prejudice the rights and interests of Dee over the property, which she has already fully paid for.

As between these small lot buyers and the gigantic financial institutions which the developers deal with, it is obvious that the law—as an
instrument of social justice—must favor the weak.46 (Emphasis omitted)

Finally, the Court will not dwell on the arguments of AFP-RSBS given the finding of the OP that "[b]y its non-payment of the appeal fee, AFP-RSBS is
deemed to have abandoned its appeal and accepts the decision of the HLURB."47 As such, the HLURB decision had long been final and executory as
regards AFP-RSBS and can no longer be altered or modified.48

WHEREFORE, the petition for review is DENIED for lack of merit. Consequently, the Decision dated August 13, 2007 and Resolution dated March 13,
2008 of the Court of Appeals in CA-G.R. SP No. 86033 are AFFIRMED.

Petitioner Philippine National Bank and respondents Prime East Properties Inc. and Armed Forces of the Philippines-Retirement and Separation
Benefits System, Inc. are hereby ENJOINED to strictly comply with the Housing and Land Use Regulatory Board Decision dated May 21, 2003, as
modified by its Board of Commissioners Decision dated March 15, 2004 and Office of the President Decision dated August 4, 2004.

33 | P a g e