Civil Law Review Cases

Civil Law Review II Atty.
Uribe
CASES FOR WEEK 6 - GABRONINO.LOPEZ.MARCO.MENDOZA.OPLE.VENTURA.SINGSON.TOLEDO

G.R. No. L-24968
April 27, 1972

SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.

Application for Industrial Loan
1. In July 1953, Saura, Inc. applied to the Rehabilitation Finance Corporation (RFC), before it was converted to
DBP, for an industrial loan of P500,000.00 for the construction of a factory building for the manufacture of jute
sacks, payment of the balance of the purchase price of the jute mill machinery and equipment, and for
additional working capital.
2. It must be noted that the jute mill machinery had already been purchased by Saura through a letter of credit
extended by the Prudential Bank and Trust Co., which arrived in Davao City in July 1953. To secure its release
without first paying the draft, Saura, Inc. executed a trust receipt in favor of the said bank.

Resolution No. 145
1. On January 7, 1954 RFC passed Resolution No. 145 approving the loan, to be secured by a first mortgage on the
factory building to be constructed, the land site thereof, and the machinery and equipment to be installed.
2. Among the other terms in the resolution was that Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto
Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly with Saura Inc.
3. Saura, Inc. was officially notified of the resolution on January 9, 1954.
4. The day before, however, evidently having otherwise been informed of its approval, Saura, Inc. wrote a letter to
RFC, requesting to modify of the terms: that in lieu of having China Engineers, Ltd. sign as co-maker, Saura, Inc.
would put up a bond for P123,500.00; and that Maria S. Roca would be substituted for Inocencia Arellano as
one of the other co-makers, having acquired the latter's shares in Saura, Inc.

Resolution No. 736
1. As such, RFC approved Resolution No. 736 on February 4, 1954,
2. It directs the members of its Board of Governors to reexamine all the aspects of the approved loan with special
reference as to the advisability of financing the project based on present conditions in the operations of jute
mills, and to submit findings thereon at the next meeting of the Board.
3. In the meantime, Saura, Inc. wrote RFC that China Engineers, Ltd. had again agreed to act as co-signer for the
loan, and asked that the necessary documents be prepared in accordance with the terms and conditions
specified in Resolution No. 145.
4. With respect to Resolution No. 736, the parties named their respective committees of engineers and technical
men to meet with each other and undertake the necessary studies.
5. In appointing its own committee Saura, Inc. clarified that it should not be taken as an acquiescence on its part
to novate, or accept new conditions to, the agreement already entered into, referring to its acceptance of the
terms in Resolution No. 145.

Resolution No, 3989
1. On April 13, 1954 the loan documents were executed: the promissory note, with F.R. Halling, representing
China Engineers, Ltd., as one of the co-signers; and the corresponding deed of mortgage, which was duly
registered on the following April 17.
2. However, despite this, the reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the
RFC Board at which Ramon Saura, President of Saura, Inc., was present, it was decided to reduce the loan from
P500,000.00 to P300,000.00.
3. Resolution No. 3989 was approved reducing the loan to P300,000.00.
4. Thereafter, F.R. Halling, who had signed the promissory note for China Engineers Ltd. was no longer interested
and therefore considered the same as cancelled as far as it was concerned. He also requested that registration
of the mortgage be withdrawn.
Civil Law Review II Atty. Uribe
5. In the meantime Saura, Inc. requested that the loan of P500,000.00 be granted. The request was denied by RFC.
6. Saura, Inc. thereafter informed RFC that China Engineers, Ltd. will at any time reinstate their signature as co-
signer of the note if RFC releases to us the P500,000.00 originally approved.

Resolution No. 9083
1. On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the original amount of
P500,000.00.
2. However, the said resolution contained new provisions: it requires certification from the Department of
Agriculture and Natural Resources (a) that the raw materials needed by the borrower-corporation to carry out
its operation are available in the immediate vicinity, and (b) that there is prospect of increased production
thereof to provide adequately for the requirements of the factory.
3. This is in view of observations made of the shortage and high cost of imported raw materials as determined by
the undertaking in Resolution No. 736.
4. This was communicated to Saura, Inc. wherein it was explained that the certification was required as the
intention of the original approval of the loan is to develop the manufacture of sacks on the basis of locally
available raw materials.
5. This fact is what moved RFC to approve the loan application in the first place, and to require, in its Resolution
No. 9083, a certification from the Department of Agriculture and Natural Resources as to the availability of
local raw materials to provide adequately for the requirements of the factory.

Cancellation of Mortgage
1. Hence, the negotiations came to a standstill. Saura, Inc. did not pursue the matter further.
2. It requested RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed the corresponding deed of
cancellation and delivered it to Ramon F. Saura himself as president of Saura, Inc.
3. It appears that the cancellation was requested to make way for the registration of a mortgage contract,
executed on August 6, 1954, over the same property in favor of the Prudential Bank and Trust Co., under which
contract Saura, Inc. had up to December 31 of the same year within which to pay its obligation on the trust
receipt heretofore mentioned.
4. For failure to pay the said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.

Action for Damages
1. Nine years after the mortgage in favor of RFC was cancelled at the request of Saura, Inc., the latter commenced
the present suit for damages.
2. Saura alleged that the failure of RFC (as predecessor of the defendant DBP) to comply with its obligation to
release the proceeds of the loan applied for and approved, prevented it from completing or paying contractual
commitments it had entered into, in connection with its jute mill project.
3. The trial court rendered judgment in favor of Saura, Inc.
4. It ruled that there was a perfected contract between the parties and that the defendant was guilty of breach
thereof.

WON (1) that the plaintiff's cause of action had prescribed, or that its claim had been waived or abandoned;
(2) that there was no perfected contract; and (3) that assuming there was, the plaintiff itself did not comply
with the terms thereof

1. We hold that there was a perfected consensual contract, pursuant to Article 1934 of the Civil Code: An accepted
promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract.
2. There was offer and acceptance in this case: the application of Saura, Inc. for a loan of P500,000.00 was
approved by resolution of the defendant, and the corresponding mortgage was executed and registered.
3. It should be noted that RFC entertained the loan application of Saura, Inc. on the assumption that the factory to
be constructed would utilize locally grown raw materials.
4. It was in line with such assumption that when RFC, by Resolution No. 9083 approved on December 17, 1954,
restored the loan to the original amount of P500,000.00. it imposed two conditions
5. The imposition of those conditions was by no means a deviation from the terms of the agreement, but rather a
step in its implementation.
6. There was nothing in said conditions that contradicted the terms laid down in RFC Resolution No. 145.
7. When RFC turned down the request, the negotiations which had been going on for the implementation of the
agreement reached an impasse.
8. Saura, Inc. obviously was in no position to comply with RFC's conditions. So instead of doing so and insisting
that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled, which was done on
June 15, 1955.
9. The action thus taken by both parties was in the nature cf mutual desistance what Manresa terms "mutuo
disenso" which is a mode of extinguishing obligations. It is a concept that derives from the principle that
since mutual agreement can create a contract, mutual disagreement by the parties can cause its
extinguishment.
10. The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest against any alleged breach of
contract by RFC, or even point out that the latter's stand was legally unjustified. Its request for cancellation of
the mortgage carried no reservation of whatever rights it believed it might have against RFC for the latter's
non-compliance.
11. In 1962 it even applied with DBP for another loan to finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan agreement had been cancelled at its own request,
that Saura, Inc. brought this action for damages.All these circumstances demonstrate beyond doubt that the
said agreement had been extinguished by mutual desistance and that on the initiative of the plaintiff-
appellee itself.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed, with costs against the plaintiff-
appellee.

G.R. No. 190755
November 24, 2010

LAND BANK OF THE PHILIPPINES, Petitioner,
vs.
ALFREDO ONG, Respondent.

Loan Application from Land Bank
1. On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City for 16
million.
2. The loan was secured by 3 residential lots, 5 cargo trucks, and a warehouse.
3. Under the loan agreement, 6 million of the loan would be short-term and would mature on February 28, 1997,
while the balance of 10 million would be payable in 7 years.
4. The Notice of Loan Approval dated February 22, 1996 contained an acceleration clause wherein any default in
payment of amortizations or other charges would accelerate the maturity of the loan.
5. Subsequently, however, the Spouses Sy found they could no longer pay their loan.

Deed of Sale with Assumption of Mortgage
1. On December 9, 1996, they sold 3 of their mortgaged land for 150,000 to Angelina Gloria Ong, Evangelines
mother, under a Deed of Sale with Assumption of Mortgage.
2. Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and assumption
of mortgage.
3. Atty. Edna Hingco, Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen that there was
nothing wrong with the agreement with the Spouses Sy but provided them with requirements for the
assumption of mortgage.
4. They were also told that Alfredo should pay part of the principal which was computed at 750,000 and to
update due or accrued interests on the promissory notes so that Atty. Hingco could easily approve the
assumption of mortgage.
5. Two weeks later, Alfredo issued a check for 750,000 and personally gave it to Atty. Hingco.
6. Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy would be transferred in his
name but this never materialized. No notice of transfer was sent to him.

Assumption of Mortgage Not Approved by Land Bank
1. Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank.
2. The bank learned from its credit investigation report that the Ongs had a real estate mortgage in the amount of
18,300,000 with another bank that was past due. Alfredo claimed that this was fully paid later on.
3. Nonetheless, Land Bank foreclosed the mortgage of the Spouses Sy after several months.
4. Alfredo only learned of the foreclosure when he saw the subject mortgage properties included in a Notice of
Foreclosure of Mortgage and Auction Sale at the RTC in Tabaco, Albay.
5. His other counsel, Atty. Madrilejos, subsequently talked to Land Banks lawyer and was told that the 750,000
he paid would be returned to him.

Action for Recovery of Sum of Money with Damages
1. Alfredo initiated an action for recovery of sum of money with damages against Land Bank as his payment was
not returned by Land Bank.
2. Alfredo maintained that Land Banks foreclosure without informing him of the denial of his assumption of the
mortgage was done in bad faith.
3. He argued that he was lured into believing that his payment would cause Land Bank to approve his assumption
of the loan of the Spouses Sy and the transfer of the mortgaged properties in his and his wifes name.
4. However, Atty. Hingco claimed that as branch manager she had no authority to approve loans and could not
assure anybody that their assumption of mortgage would be approved. Accordingly, the bank processes an
assumption of mortgage as a new loan, since the new borrower is considered a new client.

Ruling of the RTC
1. The RTC held that the contract approving the assumption of mortgage was not perfected as a result of the
credit investigation conducted on Alfredo.
2. It noted that Alfredo was not even informed of the disapproval of the assumption of mortgage but was just told
that the accounts of the spouses Sy had matured and gone unpaid.
3. Further, under the principle of equity and justice, the bank should return the amount Alfredo had paid with
interest at 12% per annum computed from the filing of the complaint.

Ruling of the CA
1. The CA affirmed the RTC Decision.
2. The payment of 750,000 was for the approval of his assumption of mortgage and not for payment of arrears
incurred by the Sy spouses.
3. As such, it ruled that it would be incorrect to consider Alfredo a third person with no interest in the fulfillment
of the obligation under Article 1236 of the Civil Code.
4. Although Land Bank was not bound by the Deed between Alfredo and the Spouses Sy, the CA found that Alfredo
and Land Banks active preparations for Alfredos assumption of mortgage essentially novated the agreement.

WON CA erred in holding that Art. 1236 of the Civil Code does not apply and in finding that there is novation

Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse
against the Spouses Sy instead of Land Bank.
1. We agree with Land Bank as to the first part of paragraph 1 of Art. 1236. Land Bank was not bound to accept
Alfredos payment, since as far as the former was concerned, he did not have an interest in the payment of the
loan of the Spouses Sy.
2. However, in the context of the second part of said paragraph, Alfredo was not making payment to fulfill the
obligation of the Spouses Sy.
3. Alfredo made a conditional payment so that the properties subject of the Deed of Sale with Assumption of
Mortgage would be titled in his name. It is clear from the records that Land Bank required Alfredo to make
payment before his assumption of mortgage would be approved. He was informed that the certificate of title
would be transferred accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor.
4. Alfredo, as a third person, did not have an interest in the fulfillment of the obligation of the Spouses Sy, since
his interest hinged on Land Banks approval of his application, which was denied. The circumstances of the
instant case show that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his
own interest and not on behalf of the Spouses Sy, recourse is not against the latter. And as Alfredo was not
paying for another, he cannot demand from the debtors, the Spouses Sy, what he has paid.

Land Bank also faults the CA for finding that novation applies to the instant case. It reasons that a substitution of
debtors was made without its consent; thus, it was not bound to recognize the substitution under the rules on
novation.
1. Novation, in its broad concept, may either be extinctive or modificatory.
2. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of
the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with
the amendatory agreement.
3. An extinctive novation results either by changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in the rights of the creditor (subjective or
personal).
4. Under this mode, novation would have dual functions one to extinguish an existing obligation, the other to
substitute a new one in its place requiring a conflux of four essential requisites: (1) a previous valid
obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old
obligation; and (4) the birth of a valid new obligation.
5. In order that an obligation may be 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. The test of incompatibility is whether or not the two obligations can stand together, each one
having its independent existence.
6. Furthermore, Art. 1293 of the Civil Code states: Novation which consists in substituting a new debtor in the
place of the original one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him rights mentioned in articles 1236
and 1237.
7. We do not agree, then, with the CA in holding that there was a novation in the contract between the parties. Not
all the elements of novation were present. Novation must be expressly consented to. Moreover, the conflicting
intention and acts of the parties underscore the absence of any express disclosure or circumstances with which
to deduce a clear and unequivocal intent by the parties to novate the old agreement.
8. Land Bank is thus correct when it argues that there was no novation since the substitution of debtors was
made without the consent of Land Bank a requirement which is indispensable in order to effect a novation of
the obligation, it is therefore not bound to recognize the substitution of debtors. Land Bank did not intervene in
the contract between Spouses Sy and Spouses Ong and did not expressly give its consent to this substitution.

Land Bank Liable to Return 750K
1. We rule that Land Bank is still liable for the return of the PhP 750,000 based on the principle of unjust
enrichment. Land Bank is correct in arguing that it has no obligation as creditor to recognize Alfredo as a
person with interest in the fulfillment of the obligation. But while Land Bank is not bound to accept the
substitution of debtors in the subject real estate mortgage, it is estopped by its action of accepting Alfredos
payment from arguing that it does not have to recognize Alfredo as the new debtor.
2. The principle applies to the parties in the instant case, as, Alfredo, having been deemed disqualified from
assuming the loan, had no duty to pay petitioner bank and the latter had no right to receive it.
3. The instant case would not have been litigated had Land Bank been more circumspect in dealing with Alfredo.
The bank chose to accept payment from Alfredo even before a credit investigation was underway, a procedure
worsened by the failure to even inform him of his credit standings impact on his assumption of mortgage. It
was, therefore, negligent to a certain degree in handling the transaction with Alfredo. It should be remembered
that the business of a bank is affected with public interest and it should observe a higher standard of diligence
when dealing with the public.

WHEREFORE, the appeal is DENIED. The CA Decision is AFFIRMED with MODIFICATION in that the amount of PhP
750,000 will earn interest at 6% per annum reckoned from December 12, 1997, and the total aggregate monetary
awards will in turn earn 12% per annum from the finality of this Decision until fully paid.

G.R. No. L-28569
February 27, 1970

J. M. TUASON & Co. INC., Plaintiff-Appellant,
vs.
LIGAYA JAVIER, Defendant-Appellee.

Contract to Sell
1. On September 7, 1954, a contract was entered into between the J.M. Tuason & Co. and Ligaya Javier whereby
the former agreed to sell, transfer and convey to the Javier a parcel of land known as Lot No. 28 of the Sta. Mesa
Heights Subdivision, for P3,691.20, with interest thereon at the rate 10 per centum a year, payable as follows:
P896.12 upon the execution of the contract and P43.92 every month thereafter, for a period of 10 years.
2. The sixth paragraph of said contract provided that:
a. In case the buyer fails to satisfy any monthly installments, or any other payments herein agreed upon,
he is granted a month of grace within which to make the retarded payment, together with the one
corresponding to the said month of grace.
b. It is understood, however, that should the month of grace herein granted to the buyer expire without
the payments corresponding to both months having been satisfied, an interest of 10% per annum will
be charged on the amount he should have paid it is understood further.
c. That should a period of 90 days elapse, to begin from the expiration of the month of grace herein
mentioned, and the buyer has not paid all the amounts he should have paid with the corresponding
interest up to that date, the seller has the right to declare this contract cancelled and of no effect, and as
consequence thereof, the seller may dispose of the parcel or parcels of land covered by this contract in
favor of other persons, as if this contract had never been entered into.
d. In case of such cancellation of this contract, all the amounts paid in accordance with this agreement
together with all the improvements made on the premises, shall be considered as rents paid for the use
and occupation of the above mentioned premises, and as payment for the damages suffered by failure
of the seller to fulfill his part of the agreement;
e. The seller hereby renounces all his right to demand or reclaim the return of the same and obliges
himself to peacefully vacate the premises and deliver the same to the buyer.

Default in Payment
1. Upon the execution of the contract and the payment of the first installment of P396.12, Javier was placed in
possession of the land.
2. Thereafter and until January 5, 1962, she paid the stipulated monthly.
3. Subsequently, however, she defaulted in the payment of said installments, in view of which, on May 22, 1964,
J.M. Tuason & Co. informed her by letter that their contract had been rescinded.

Action Filed before and Ruling of CFI Rizal
1. Javier having thereafter failed or refused to vacate said land, J.M. Tuason & Co. commenced the present action
against her in CFI Rizal.
2. J.M. Tuason & Co. prayed in its complaint that the contract be declared validly rescinded and that Javier and all
persons claiming under her be ordered to deliver to it the lot in question, with all the improvements, and to pay
a monthly rental of P40.00 until it shall have been surrendered.
3. Admitting that she had defaulted in the payment, Javier alleged that this fact was due to unforeseen
circumstances; that she is "willing to pay all arrears in installments under the contract" and had in fact offered
the same to the J.M. Tuason & Co.; and that said contract cannot be rescinded upon the unilateral act of J.M.
Tuason & Co.
4. Applying Art. 1592 of the Civil Code, CFI Rizal rendered its decision, declaring that the contract to sell has not
yet been rescinded, and ordering the Javier to pay to J.M. Tuason & Co. within sixty (60) days all the installment
payments in arrears together with interest thereon at 10% per annum from January 5, 1962, the date of
default. Upon payment of same, J.M. Tuason & Co. is ordered to execute in favor of Javier the necessary deed to
transfer to her the title to the parcel of land in question, free from all liens and encumbrances.

WON J.M. Tuason & Co. is correct in maintaining that Article 1592 governs contracts of sale, not contracts to
sell, such as the one entered into by the parties in this case, and by its erroneous application by CFI Rizal, it
was denied substantial justice

1. Article 1592: In the sale of immovable property, even though it may have been stipulated that upon the failure
to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term."
2. Regardless, however, of the propriety of applying said Art. 1592, we find that J.M. Tuason & Co.herein has not
been denied substantial justice, for, according to Art. 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."
3. In this connection, it should be noted:
a. That, apart from the initial installment of P396.12, paid upon the execution of the contract, on
September 7, 1954, Javier religiously satisfied the monthly installments accruing thereafter, for a
period of almost eight (8) years, or up to January 5, 1962;
b. That, although the principal obligation under the contract was P3,691.20, the total payments made by
Javier up to January 5, 1962, including stipulated interest, aggregated P4,134.08;
c. That she has offered to pay all of the installments overdue including the stipulated interest, apart from
reasonable attorneys fees and the costs; and that, accordingly, the trial court sentenced her to pay all
such installments, interest, fees and costs.
4. Thus, J.M. Tuason & Co. will thereby recover everything due thereto, pursuant to its contract with Javier,
including such damages as the former may have suffered in consequence of the latters default.
5. Under these circumstances, We feel that, in the interest of justice and equity, the decision appealed from may
be upheld upon the authority of Art. 1234 of the Civil Code.

WHEREFORE, said decision is hereby affirmed, with out special pronouncement as to costs in this instance. It is so
ordered.

G.R. No. L-26578
January 28, 1974

LEGARDA HERMANOS and JOSE LEGARDA, petitioners,
vs.
FELIPE SALDAA and COURT OF APPEALS (FIFTH DIVISION) * respondents.

Contracts to Sell
1. Private respondent had entered into two written contracts with petitioner Legarda Hermanos, a subdivision
owner.
2. Petitioner agreed to sell to him Lots Nos. 7 and 8 of the subdivision for the sum of P1,500.00 per lot, payable
over the span of ten years divided into 120 equal monthly installments of P19.83 with 10% interest per annum,
to commence on May 26, 1948, date of execution of the contracts.
3. Subsequently, petitioner Legarda Hermanos partitioned the subdivision among the brothers and sisters, and
the two lots were among those allotted to co-petitioner Jose Legarda.

Complaint for Delivery of Two Parcels of Land
1. Respondent faithfully paid for eight continuous years about 95 (of the stipulated 120) monthly installments
totalling P3,582.06 up to the month of February 1956.
2. After February 1956 up to the filing of respondent's complaint in the CFI Manila in 1961, respondent did not
make further payments.
3. The account thus shows that he owed petitioners the sum of P1,317.72 on account of the balance of the
purchase price (principal) of the two lots (in the total sum of P3,000.00), although he had paid more than the
stipulated purchase price of P1,500.00 for one lot.
4. Almost five years later, on February 2, 1961 just before the filing of the action, respondent wrote petitioners
stating that his desire to build a house on the lots was prevented by their failure to introduce improvements on
the subdivision as "there is still no road to these lots," and requesting information of the amount owing to
update his account as "I intend to continue paying the balance due on said lots."
5. Petitioners replied that as respondent had failed to complete total payment of the 120 installments by May,
1958 as stipulated in the contracts to sell, "pursuant to the provisions of both contracts all the amounts paid in
accordance with the agreement together with the improvements on the premises have been considered as
rents paid and as payment for damages suffered by your failure," and "Said cancellation being in order, is
hereby confirmed."

Ruling of CFI Manila and CA
1. CFI Manila sustained petitioners' cancellation of the contracts and dismissing respondent's complaint.
2. CA reversed the judgment and ordering petitioners to deliver to the plaintiff possession of one of the two lots,
at the choice of defendants, and to execute the corresponding deed of conveyance to the plaintiff for the said
lot. It rule that as regards the supposed cancellation of the contracts, respondent averred that no demand has
been made upon him regarding the unpaid installments, and for this reason he could not be declared in default
so as to entitle the defendants to cancel the said contracts.

WON petitioners may insist on their right of cancellation under the "plainly valid written agreements which
constitute the law between the parties" as against "the broad principles of equity and justice" applied by the
CA

1. The Court finds that the CAs judgment is fair and just and in accordance with law and equity.
2. As already stated, the monthly payments for eight years made by respondent were applied to his account
without specifying or distinguishing between the two lots subject of the two agreements under petitioners'
own statement of account.
3. Even considering respondent as having defaulted after February 1956, when he suspended payments after the
95th installment, he had as of the already paid by way of principal (P1,682.28) more than the full value of one
lot (P1,500.00).
4. The judgment recognizing this fact and ordering the conveyance to him of one lot of his choice while also
recognizing petitioners' right to retain the interests of P1,889.78 paid by him for eight years on both lots,
besides the cancellation of the contract for one lot which thus reverts to petitioners, cannot be deemed to deny
substantial justice to petitioners nor to defeat their rights under the letter and spirit of the contracts in
question.
5. The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs. Javier is fully applicable to the present
case, with the respondent at bar being granted lesser benefits, since no rescission of contract was therein
permitted.
6. There, where the therein buyer-appellee identically situated as herein respondent buyer had likewise
defaulted in completing the payments after having religiously paid the stipulated monthly installments for
almost eight years and notwithstanding that the seller-appellant had duly notified the buyer of the rescission of
the contract to sell, the Court upheld the lower court's judgment denying judicial confirmation of the rescission
and instead granting the buyer an additional grace period of sixty days from notice of judgment to pay all the
installment payments in arrears together with the stipulated 10% interest per annum from the date of default,
apart from reasonable attorney's fees and costs, which payments, the Court observed, would have the plaintiff-
seller "recover everything due thereto, pursuant to its contract with the defendant, including such damages as
the former may have suffered in consequence of the latter's default."
7. In affirming, the Court held that "Regardless, however, of the propriety of applying said Art. 1592 thereto, We
find that plaintiff herein has not been denied substantial justice, for, according to Art. 1234 of said Code: '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,'" and "that in the interest of justice and
equity, the decision appealed from may be upheld upon the authority of Article 1234 of the Civil Code."

ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed. Without pronouncement as to costs.

G.R. No. L-30597
June 30, 1987

GUILLERMO AZCONA and FE JALANDONI AZCONA, petitioners,
vs.
JOSE JAMANDRE, Administrator of the Intestate Estate of Cirilo Jamandre (Sp. Proc. 6921 of the Court of
First Instance of Negros Occidental), and the HONORABLE COURT OF APPEALS, respondents.

Contract of Lease
1. Petitioner Guillermo Azcona leased 80 hectares of his 150-hectare pro indiviso share in Hacienda Sta. Fe in
Escalante, Negros Occidental, to Cirilo Jamandre (represented here by the administrator of his intestate estate,
and hereinafter called the private respondent).
2. The agreed yearly rental was P7,200.00. The lease was for three agricultural years beginning 1960, extendible
at the lessee's option to two more agricultural years, up to 1965.
3. The first annual rental was due on or before March 30, 1960, but because the petitioner did not deliver
possession of the leased property to the respondent, he "waived" payment, as he put it, of that rental.
4. The respondent actually entered the premises only on October 26, 1960, after payment by him to the petitioner
of the sum of P7,000.00, which was acknowledged in the receipt.

Cancellation of the Contract of Lease
1. On April 6, 1961, the petitioner, through his lawyer, notified the respondent that the contract of lease was
deemed cancelled, terminated, and of no further effect," pursuant to its paragraph 8, for violation of the
conditions specified in the said agreement.
2. Earlier, in fact, the respondent had been ousted from the possession of 60 hectares of the leased premises and
left with only 20 hectares of the original area.
3. The specific reasons invoked by the petitioner for canceling the lease contract were the respondent's failure: 1)
to attach thereto the parcelary plan identifying the exact area subject of the agreement, as stipulated in the
contract; 2) to secure the approval by the Philippine National Bank of the said contract; and 3) to pay the
rentals.
4. The parcelary plan was provided for in the contract as follows: That the LESSOR by these presents do hereby
agree to lease in favor of the LESSEE a portion of the said lots above-described with an extension of EIGHTY
hectares, more or less, which portion is to be identified by the parcelary plan duly marked and to be initialed by
both LESSOR and LESSEE.
5. According to the petitioners, the parcelary plan was never agreed upon or annexed to the contract, which
thereby became null and void under Article 1318 of the Civil Code for lack of a subject matter. Moreover, the
failure of the parties to approve and annex the said parcelary plan had the effect of a breach of the contract that
justified its cancellation under its paragraph 8.
6. In effect, the petitioner is arguing that there was no contract because there was no object and at the same time
that there was a contract except that it was violated.

Actions Filed before and Rulings of RTC and CA
1. Respondent filed a complaint for damages against the petitioner, who retaliated with a counterclaim.
2. Both the complaint and the counterclaim were dismissed by the trial court on the finding that the parties were
in pari delicto.
3. On appeal, its decision was modified by the respondent court in favor of the respondent.

WON the absence of parcelary plan nullified the contract of lease
1. The correct view, as we see it, is that there was an agreed subject-matter, to wit, the 80 hectares of the
petitioner's share in the Sta. Fe hacienda, although it was not expressly defined because the parcelary plan was
not annexed and never approved by the parties.
2. It appears that the failure to attach the parcelary plan to the contract is imputable to the petitioner himself
because it was he who was supposed to cause the preparation of the said plan.
3. As he testified on direct examination, "Our agreement was to sign our agreement, then I will have the parcelary
plan prepared so that it will be a part of our contract." That this was never done is not the respondent's fault as
he had no control of the survey of the petitioner's land.
4. Apparently, the CA found that the parties impliedly decided to forego the annexing of the parcelary plan
because they had already agreed on the area and limits of the leased premises. The identification of the 80
hectares being leased rendered the parcelary plan unnecessary, and its absence did not nullify the agreement.

WON there was default in payment on the part of the respondent
1. Coming next to the alleged default in the payment of the stipulated rentals, we observe first that when the
petitioner declared that "I hereby waive payment for the rentals corresponding to the crop year 1960-61 and
which was due on March 30, 1960," there was really nothing to waive because, as he himself put it in the same
document, possession of the leased property "was not actually delivered" to the respondent.
2. The petitioner claims that such possession was not delivered because the approval by the PNB of the lease
contract had not "materialized" due to the respondent's neglect. Such approval, he submitted, was to have been
obtained by the respondents for it was the respondent who was negotiating the loan from the PNB. As the
respondent court saw it, however, "paragraph 6 (of the contract) does not state upon whom fell the obligation
to secure the approval" so that it was not clear that "the fault, if any, was due solely to one or the other."
3. At any rate, that issue and the omission of the parcelary plan became immaterial when the parties agreed on
the lease for the succeeding agricultural year 1961-62, the respondent paying and the petitioner receiving
therefrom the sum of P7,000.00, as acknowledged in the receipt.
4. Citing the stipulation in the lease contract for an annual rental of P7,200.00, the petitioner now submits that
there was default in the payment thereof by the respondent because he was P200.00 short of such rental. That
deficiency never having been repaired, the petitioner concludes, the contract should be deemed cancelled in
accordance with its paragraph 8.
5. For his part, the respondent argues that the receipt represented an express reduction of the stipulated rental in
consideration of his allowing the use of 16 hectares of the leased area by the petitioner as grazing land for his
cattle. Having unqualifiedly accepted the amount of P7,000.00 as rental for the agricultural year 1961-62, the
petitioner should not now be heard to argue that the payment was incomplete.

6. After a study of the receipt as signed by the petitioner and witnessed for the respondent, this Court has come to
the conclusion, and so holds, that the amount of P7,000.00 paid to by the respondent and received by the
petitioner represented payment in full of the rental for the agricultural year 1961-62.
7. The language is clear enough: "The amount of SEVEN THOUSAND PESOS (P7,000.00), Philippine Currency, as
payment for the rental corresponding to crop year 1961-62 ... to the rental due on or before January 30, 1961,
as per contract." The conclusion should be equally clear.
8. The words "as per contract" are especially significant as they suggest that the parties were aware of the
provisions of the agreement, which was described in detail elsewhere in the receipt. The rental stipulated
therein was P7,200.00. The payment being acknowledged in the receipt was P7,000.00 only. Yet no mention
was made in the receipt of the discrepancy and, on the contrary, the payment was acknowledged "as per
contract." We read this as meaning that the provisions of the contract were being maintained and respected
except only for the reduction of the agreed rental.

WON the respondents deficiency of P200 was condoned by petitioner
1. The respondent court held that the amount of P200.00 had been condoned, but we do not think so.
2. The petitioner is correct in arguing that the requisites of condonation under Article 1270 of the Civil Code are
not present.
3. What we see here instead is a mere reduction of the stipulated rental in consideration of the withdrawal from
the leased premises of the 16 hectares where the petitioner intended to graze his cattle.
4. The signing of the receipt by the petitioner and its acceptance by the respondent manifested their agreement
on the reduction, which modified the lease contract as to the agreed consideration while leaving the other
stipulations intact.
5. The petitioner says that having admittedly been drafted by lawyer Jose Jamandre, the respondent's son, the
receipt would have described the amount of P7,000.00 as "payment in full" of the rental if that were really the
case.
6. It seems to us that this meaning was adequately conveyed in the acknowledgment made by the petitioner that
this was "payment for the rental corresponding to crop year 1961-62" and "corresponds to the rentals due on
or before January 30, 1961, as per contract." On the other hand, if this was not the intention, the petitioner does
not explain why he did not specify in the receipt that there was still a balance of P200.00 and, to be complete,
the date when it was to be paid by the respondent.
7. It is noted that the receipt was meticulously worded, suggesting that the parties were taking great pains,
indeed, to provide against any possible misunderstanding, as if they were even then already apprehensive of
future litigation. Such a reservation-if there was one-would have been easily incorporated in the receipt, as
befitted the legal document it was intended to be.

WON the contract of lease should be annulled
1. In any event, the relative insignificance of the alleged balance seems to us a paltry justification for annulling the
contract for its supposed violation. If the petitioner is fussy enough to invoke it now, it stands to reason that he
would have fussed over it too in the receipt he willingly signed after accepting, without reservation and
apparently without protest, only P7,000.00.
2. Art. 1235: When the obligee accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied with.
3. The petitioner says that he could not demand payment of the balance of P200.00 on October 26, 1960, date of
the receipt because the rental for the crop year 1961-62 was due on or before January 30, 1961. 18 But this
would not have prevented him from reserving in the receipt his right to collect the balance when it fell due.
4. Moreover, there is no evidence in the record that when the due date arrived, he made any demand, written or
verbal, for the payment of that amount.

WHEREFORE, the decision of the respondent Court of Appeals is AFFIRMED in full, with costs against the petitioners.

ARAAS VS. TUTAAN
GR No. 52807, February 29, 1984

FACTS: On May 3, 1971 the lower court declared that Petitioner Luisa Quijencio (and by her spouse Jose
Araas)was the owner of 400 shares including the stock dividends that accrued to said shares, of respondent
Universal Textile Mills, Inc. (UTEX) as defendant and Gene Manuel and B. R. Castaeda as co-defendants, and
subsequently ordered UTEX to cancel said certificates and issue new ones in the name of Plaintiff and to deliver all
dividends appertaining to the same, whether in cash or in stocks. UTEX filed a motion for clarification whether the
phrase to deliver to her all dividends appertaining to the same, whether in cash or in stocks meant dividends
properly pertaining to plaintiffs after the courts declaration of plaintiff ownership of said 400 shares of stock.
Defendant UTEX has always maintained it would rightfully abide by whatever decision may be rendered since such
would be the logical consequence after the ruling in respect to the rightful ownership of said shares of stock. The
motion was granted which ruled against UTEX, ordering it to pay plaintiff the cash dividends, which accrued to the
stocks in question after rendition of its current decision excluding cash dividends already paid to Gene Manuel and
B. R. Castaeda which accrued before its decision. UTEX alleged that the cash dividends had already been paid
thereby absolving it from payment thereof.

ISSUE: Was the contention of UTEX, alleging that the cash dividends of stock had already been paid and thereby
absolving it from any further payment, valid?

RULING: No. The final and executory judgment against UTEX declared petitioners as the owners of the questioned
UTEX shares of stock against its co-defendants. It was further made clear in the motion for clarification that all
dividends accruing to the said shares after the rendition of the decision of Aug. 7, 1971 rightfully belonged to
petitioners. If UTEX nevertheless chose to pay the wrong parties, notwithstanding its full knowledge and
understanding of the final judgment, it was still liable to pay the petitioners as the lawful declared owners of the
questions shares of stocks. The burden of recovering the supposed payment of the cash dividends made by UTEX to
the wrong parties Castaeda and Manuel falls upon itself by its own action and cannot be passed by it to the
petitioner as the innocent parties. It is elementary that payment made by a judgment debtor to a wrong party
cannot extinguish the judgment obligation of such debtor to its creditor.

NEW PACIFIC TIMBER & SUPPLY CO. INC. VS. SENERIS
GR 41764, December 19, 1980

FACTS: Petitioner, New Pacific Timber & Supply Co. Inc. was the defendant in a complaint for collection of money
filed by private respondent, Ricardo A. Tong. In this complaint, respondent Judge rendered a compromise
judgment based on the amicable settlement entered by the parties wherein petitioner will pay to private
respondent P54,500.00 at 6% interest per annum and P6,000.00 as attorneys fee of which P5,000.00 has been
paid. Upon failure of the petitioner to pay the judgment obligation, a writ of execution worth P63,130.00 was
issued levied on the personal properties of the petitioner. Before the date of the auction sale, petitioner deposited
with the Clerk of Court in his capacity as the Ex-Officio Sheriff P50,000.00 in Cashiers Check of the Equitable
Banking Corporation and P13,130.00 in cash for a total of P63,130.00. Private respondent refused to accept the
check and the cash and requested for the auction sale to proceed. The properties were sold for P50,000.00 to the
highest bidder with a deficiency of P13,130.00.
Petitioner subsequently filed an ex-parte motion for issuance of certificate of satisfaction of judgment which was
denied by the respondent Judge. Hence this present petition, alleging that the respondent Judge capriciously and
whimsically abused his discretion in not granting the requested motion for the reason that the judgment obligation
was fully satisfied before the auction sale with the deposit made by the petitioner to the Ex-Officio Sheriff. In
upholding the refusal of the private respondent to accept the check, the respondent Judge cited Article 1249 of the
New Civil Code which provides that payments of debts shall be made in the currency which is the legal tender of
the Philippines and Section 63 of the Central Bank Act which provides that checks representing deposit money do
not have legal tender power. In sustaining the contention of the private respondent to refuse the acceptance of the
cash, the respondent Judge cited Article 1248 of the New Civil Code which provides that creditor cannot be
compelled to accept partial payment unless there is an express stipulation to the contrary.

ISSUE: Can the check be considered a valid payment of the judgment obligation?

RULING: Yes. It is to be emphasized that it is a well-known and accepted practice in the business sector that a
Cashiers Check is deemed cash. Moreover, since the check has been certified by the drawee bank, this certification
implies that the check is sufficiently funded in the drawee bank and the funds will be applied whenever the check is
presented for payment. The object of certifying a check is to enable the holder to use it as money. When the holder
procures the check to be certified, it operates as an assignment of a part of the funds to the creditors. Hence, the
exception provided in Section 63 of the Central Bank Act which states that checks which have been cleared
and credited to the account of the creditor shall be equivalent to a delivery to the creditor in cash the
amount equal to that which is credited to his account. The Cashiers Check and the cash are valid payment
of the obligation of the petitioner. The private respondent has no valid reason to refuse the acceptance of
the check and cash as full payment of the obligation

Applicable Law Provisions:
Section 63 of the Central Bank Act:
Sec. 63. Legal Character. - Checks representing deposit money do not have legal tender power and their
acceptance in payment of debts, both public and private, is at the option of the creditor, Provided, however, that a
check which has been cleared and credited to the account of the creditor shall be equivalent to a delivery to the
creditor in cash in an amount equal to the amount credited to his account.

New Civil Code:
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.
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.

Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive
the presentations in which the obligation consists. Neither may the debtor be required to make partial payment.

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.

KALALO VS. LUZ
GR L-27782, 31 JULY 1970

FACTS: On 17 November 1959, Octavio Kalalo entered into an agreement with Alfredo Luz where he was to render
engineering design services for a fee. On 11 December 1961, Kalalo sent Luz a statement of account where the
balance due for services rendered was P59,505. On 18 May 1962, Luz sent Kalalo a resume of fees due to the latter,
and a check for P10,861.08. Kalalo refused to accept the check as full payment of the balance of the fees due him.
On 10 August 1962, Kalalo filed a complaint containing 4 causes of action, i.e. $28,000 (representing 20% of the
amount paid to Luz in the International Research Institute project) and the balance of P30, 881.25 as fees;
P17,0000 as consequential and moral damages; P55,000 as moral damages, attorneys fees and litigation expenses;
and P25,000 as actual damages, attorneys fees and litigation expenses). The trial court ruled in favor of Kalalo. Luz
filed an appeal directly with the Supreme Court raising only questions of law.

ISSUE: Whether the rate of exchange of dollar to peso are those at the time of the payment of the judgment or at
the time when the research institute project became due and demandable.

HELD: Luz obligation to pay Kalalo the sum of US$28,000 accrued on 25 August 1961, or after the enactment of RA
529 (16 June 1950). Thus, the provision of the statute which requires payment at the prevailing rate of exchange
when the obligation was incurred cannot be applied. RA 529 does not provide for the rate of exchange for the
payment of obligation incurred after the enactment of the Act, and thus the rate of exchange should be that
prevailing at the time of payment. The view finds support in the ruling of the Court in Engel vs. Velasco & Co. The
trial court did not err in holding the rate of exchange is that at the time of payment.


Republic Act 529 which was enacted on June 16, 1950:

SECTION 1. Every provision contained in, or made with respect to, any obligation which provision purports to give
the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public
policy, and null, void and of no effect, and no such provision shall be contained in, or made with respect to, any
obligation hereafter incurred. Every obligation heretofore or here after incurred, whether or not any such
provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in
any coin or currency which at the time of payment is legal tender for public and private debts: Provided, That,

( a) if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of
coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the
prevailing rate of exchange at the time the obligation was incurred,
(b) except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case
the rate of exchange prevailing at the time of the stipulated date of payment shall prevail.

All coin and currency, including Central Bank notes, heretofore or hereafter issued and declared by the
Government of the Philippines shall be legal tender for all debts, public and private.

New Civil Code:
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to

have been impaired.

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

PONCE VS. CA
GR L-49444, 31 MAY 1979

FACTS: On 3 June 1969, Jesus Afable, together with Feliza Mendoza and Ma. Aurora Dino executed a promissory
note in favor of Nelia Ponce in the sum of P814,868.42 payable without interest on or before 31 July 1969, subject
to an interest of 12% per annum if not paid at maturity, and an additional sum equivalent to 10% of total amount
due as attorneys fees in case it is necessary to bring suit, and the execution of a first mortgage on their properties
or the Carmen Planas Memorial Inc. in the event of failure to pay the indebtedness in accordance with the terms.
Upon failure of the debtors to pay, a complaint was filed against them for the recovery of the principal sum, plus
interest and damages. The trial court rendered judgment in favor of Ponce. The Court of Appeals affirmed the
decision of the trial court. On the second motion for reconsideration, however, the appellate court reversed the
judgment and opined that the intent of the parties was that the note was payable in US dollars which is illegal, with
neither party entitled to recover under the in pari delicto rule.

ISSUE: Whether an agreement to pay in dollars defeat a creditors claim for payment.

HELD: If there is an agreement to pay an obligation in a currency other than Philippine legal tender, the same is
illegal / null and void as contrary to public policy, pursuant to RA 529, and the most that can be demanded is to pay
the said obligation in Philippine currency. It does not defeat a creditor's claim for payment, as it specifically
provides that "every other domestic obligation ... whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency
which at the time of payment is legal tender for public and private debts." A contrary rule would allow a
person to profit or enrich himself inequitably at another's expense. What RA 529 prohibits is the payment of
an obligation in dollars. A creditor cannot oblige the debtor to pay in dollars, even if the loan was given in said
currency. In such case, the indemnity is expressed in Philippine currency on the basis of the current rate of
exchange at the time of payment.


Republic Act 529 which was enacted on June 16, 1950:

SECTION 1. Every provision contained in, or made with respect to, any obligation which provision purports to give
the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public
policy, and null, void and of no effect, and no such provision shall be contained in, or made with respect to, any
obligation hereafter incurred. Every obligation heretofore or here after incurred, whether or not any such
provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in
any coin or currency which at the time of payment is legal tender for public and private debts: Provided, That,

( a) if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of
coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the
prevailing rate of exchange at the time the obligation was incurred,
(b) except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case
the rate of exchange prevailing at the time of the stipulated date of payment shall prevail.

All coin and currency, including Central Bank notes, heretofore or hereafter issued and declared by the
Government of the Philippines shall be legal tender for all debts, public and private.

New Civil Code:
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to

have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance.
ROMAN CATHOLIC BISHOP OF MALOLOS, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, and
ROBES-FRANCISCO REALTY AND DEVELOPMENT CORPORATION, respondents.
G.R. No. 72110. November 16, 1990. SARMIENTO, J.:
FACTS: On July 7, 1971, the subject contract over the land in question was executed between the petitioner as
vendor and the private respondent through its then president, Mr. Carlos F. Robes, as vendee, stipulating for a
down payment of P23,930.00 and the balance of P100,000.00 plus 12% interest per annum to be paid within four
(4) years from execution of the contract, that is, on or before July 7, 1975. The contract likewise provides for
cancellation, forfeiture of previous payments, and reconveyance of the land in question in case the private
respondent would fail to complete payment within the said period.
On March 12, 1973, the private respondent, through its new president, Atty. Adalia Francisco, addressed a letter6
to Father Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting to be furnished with a copy of the
subject contract and the supporting documents.
On July 17, 1975, admittedly after the expiration of the stipulated period for payment, the same Atty. Francisco
wrote the petitioner a formal request7 that her company be allowed to pay the principal amount of P100,000.00 in
three (3) equal installments of six (6) months each with the first installment and the accrued interest of P24,000.00
to be paid immediately upon approval of the said request. On July 29, 1975, the petitioner, through its counsel,
Atty. Carmelo Fernandez, formally denied the said request of the private respondent, but granted the latter a grace
period of five (5) days from the receipt of the denial8 to pay the total balance of P124,000.00, otherwise, the
provisions of the contract regarding cancellation, forfeiture, and reconveyance would be implemented.
Consequently, Atty. Francisco, the private respondents president, wrote a letter dated August 22, 1975, directly
addressed to the petitioner, protesting the alleged refusal of the latter to accept tender of payment purportedly
made by the former on August 5, 1975, the last day of the grace period. In the same letter of August 22, 1975,
received on the following day by the petitioner, the private respondent demanded the execution of a deed of
absolute sale over the land in question and after which it would pay its account in full, otherwise, judicial action
would be resorted to.
On August 27, 1975, the petitioners counsel, Atty. Fernandez, wrote a reply to the private respondent stating the
refusal of his client to execute the deed of absolute sale due to its (private respondents) failure to pay its full
obligation. Moreover, the petitioner denied that the private respondent had made any tender of payment
whatsoever within the grace period. In view of this alleged breach of contract, the petitioner cancelled the contract
and considered all previous payments forfeited and the land as ipso facto reconveyed.
A complaint was filed by the private respondent against the petitioner in the Court of First Instance for specific
performance with damages, based on a contract executed on July 7, 1971.The trial court rendered a decision in
favor of the petitioner. Not satisfied with the said decision, the private respondent appealed to the respondent
Intermediate Appellate Court (now Court of Appeals). IAC reversed the decision of the trial court.
ISSUES:
A. Is a finding that private respondent had sufficient available funds on or before the grace period for the payment
of its obligation proof that it (private respondent) did tender of (sic) payment for its said obligation within said
period?
B. Is it the legal obligation of the petitioner (as vendor) to execute a deed of absolute sale in favor of the private
respondent (as vendee) before the latter has actually paid the complete consideration of the salewhere the
contract between and executed by the parties stipulates that the Deed of Absolute Sale shall be executed only upon
complete payment of the agreed consideration.
HELD: With respect to the first issue, we agree with the petitioner that a finding that the private respondent had
sufficient available funds on or before the grace period for the payment of its obligation does not constitute proof
of tender of payment by the latter for its obligation within the said period. Tender of payment involves a positive
and unconditional act by the obligor of offering legal tender currency as payment to the obligee for the formers
obligation and demanding that the latter accept the same. Thus, tender of payment cannot be presumed by a mere
inference from surrounding circumstances. At most, sufficiency of available funds is only affirmative of the capacity
or ability of the obligor to fulfill his part of the bargain. But whether or not the obligor avails himself of such funds
to settle his outstanding account remains to be proven by independent and credible evidence. Tender of payment
presupposes not only that the obligor is able, ready, and willing, but more so, in the act of performing his
obligation. Ab posse ad actu non vale illatio. A proof that an act could have been done is no proof that it was
actually done.
Apropos the second issue raised, although admittedly the documents for the deed of absolute sale had not been
prepared, the subject contract clearly provides that the full payment by the private respondent is an a priori
condition for the execution of the said documents by the petitioner. The private respondent is therefore in estoppel
to claim otherwise as the latter did in the testimony in cross-examination of its president, Atty. Francisco.
Art. 1159 of the Civil Code of the Philippines provides that obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith. And unless the
stipulations in said contract are contrary to law, morals, good customs, public order, or public policy, the
same are binding as between the parties.
What the private respondent should have done if it was indeed desirous of complying with its obligations would
have been to pay the petitioner within the grace period and obtain a receipt of such payment duly issued by the
latter. Thereafter, or, allowing a reasonable time, the private respondent could have demanded from the petitioner
the execution of the necessary documents. In case the petitioner refused, the private respondent could have had
always resorted to judicial action for the legitimate enforcement of its right. For the failure of the private
respondent to undertake this more judicious course of action, it alone shall suffer the consequences.
In view of the foregoing, the petitioner in the legitimate exercise of its rights pursuant to the subject contract, did
validly order therefore the cancellation of the said contract, the forfeiture of the previous payment, and the
reconveyance ipso facto of the land in question.
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, petitioners, vs. THE HONORABLE COURT OF APPEALS and
EDEN TAN, respondents.
G.R. No. 100290. June 4, 1993 PADILLA, J.:
FACTS: Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia spouses. A
writ of attachment was issued by the trial court on 17 August 1987 and on 17 September 1987, the Deputy Sheriff
filed a return stating that a deposit made by the Tibajia spouses in the Regional Trial Court of Kalookan City in the
amount of Four Hundred Forty Two Thousand Seven Hundred and Fifty Pesos (P442,750.00) in another case, had
been garnished by him. On 10 March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered
its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the Tibajia spouses to pay her an
amount in excess of Three Hundred Thousand Pesos (P300,000.00). On appeal, the Court of Appeals modified the
decision by reducing the award of moral and exemplary damages. The decision having become final, Eden Tan filed
the corresponding motion for execution and thereafter, the garnished funds which by then were on deposit with
the cashier of the Regional Trial Court of Pasig, Metro Manila, were levied upon.
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total money judgment
in the amount of P398,483.70. Private respondent, Eden Tan, refused to accept the payment made by the Tibajia
spouses and instead insisted that the garnished funds deposited with the cashier of the Regional Trial Court of
Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991, defendant spouses
(petitioners) filed a motion to lift the writ of execution on the ground that the judgment debt had already been
paid. On 29 January 1991, the motion was denied by the trial court on the ground that payment in cashier's check
is not payment in legal tender and that payment was made by a third party other than the defendant. A motion for
reconsideration was denied on 8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari,
prohibition and injunction in the Court of Appeals. The appellate court dismissed the petition on 24 April 1991
holding that payment by cashier's check is not payment in legal tender as required by Republic Act No. 529. The
motion for reconsideration was denied on 27 May 1991.
ISSUE: Whether or not payment by means of check (even by cashier's check) is considered payment in legal tender
as required by the Civil Code, Republic Act No. 529, and the Central Bank Act.
HELD: The provisions of law applicable to the case at bar are the following:
a. Article 1249 of the Civil Code which provides:
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.
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.;
b. Section 1 of Republic Act No. 529, as amended, which provides:
Sec. 1. Every provision contained in, or made with respect to, any obligation which purports to give the
obligee the right to require payment in gold or in any particular kind of coin or currency other than
Philippine currency or in an amount of money of the Philippines measured thereby, shall be as it is hereby
declared against public policy null and void, and of no effect, and no such provision shall be contained in, or
made with respect to, any obligation thereafter incurred. Every obligation heretofore and hereafter
incurred, whether or not any such provision as to payment is contained therein or made with respect
thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal
tender for public and private debts.
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which provides:
Sec. 63. Legal character Checks representing deposit money do not have legal tender power and their
acceptance in the payment of debts, both public and private, is at the option of the creditor: Provided,
however, that a check which has been cleared and credited to the account of the creditor shall be
equivalent to a delivery to the creditor of cash in an amount equal to the amount credited to his account.
From the aforequoted provisions of law, it is clear that this petition must fail. In the recent cases of Philippine
Airlines, Inc. vs. Court of Appeals 4 and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate Appellate Court, 5
this Court held that A check, whether a manager's check or ordinary check, is not legal tender, and an offer of a
check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor.
PEDRO J. VELASCO, plaintiff-appellant, vs. MANILA ELECTRIC CO., WILLIAM SNYDER, its President; JOHN
COTTON and HERMENEGILDO B. REYES, its Vice-Presidents; and ANASTACIO A. AGAN, City Engineer of
Quezon City, defendants-appellees.
(2 cases with same GR number; related cases so I digested both for clarity of the facts), REYES, J.B.L., J.:
FACTS: In 1948, appellant Velasco bought from the People's Homesite and Housing Corporation three (3)
adjoining lots situated at the corner of South D and South 6 Streets, Diliman, Quezon City. These lots are within an
area zoned out as a "first residence" district by the City Council of Quezon City. Subsequently, the appellant sold
two (2) lots to the Meralco, but retained the third lot, which was farthest from the street-corner, whereon he built
his house.
In September, 1953, the appellee company started the construction of the sub-station in question and finished it
the following November, without prior building permit or authority from the Public Service Commission (Meralco
vs. Public Service Commission, 109 Phil. 603). It was constructed at a distance of 10 to 20 meters from the
appellant's house (T.s.n., 16 July 1956, page 62; 19 December 1956, page 343; 1 June 1959, page 29). The company
built a stone and cement wall at the sides along the streets but along the side adjoining the appellant's property it
put up a sawale wall but later changed it to an interlink wire fence. It is undisputed that a sound unceasingly
emanates from the substation.
Plaintiff-appellant Velasco contends that the sound constitutes an actionable nuisance under Article 694 of the Civil
Code of the Philippines, reading as follows:
A nuisance is any act, omission, establishment, business condition of property or anything else which:
(1) Injuries or endangers the health or safety of others; or
(2) Annoys or offends the senses;
xxx xxx xxx
Because subjection to the sound since 1954 had disturbed the concentration and sleep of said appellant, and
impaired his health and lowered the value of his property. Wherefore, he sought a judicial decree for the
abatement of the nuisance and asked that he be declared entitled to recover compensatory, moral and other
damages under Article 2202 of the Civil Code.
ART. 2202.In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural
and probable consequences of the act or omission complained of. It is not necessary that such damages
have been foreseen or could have reasonably been foreseen by the defendant.
After trial, as already observed, the court below dismissed the claim of the plaintiff, finding that the sound of
substation was unavoidable and did not constitute nuisance; that it could not have caused the diseases of anxiety
neurosis, pyelonephritis, ureteritis, lumbago and anemia; and that the items of damage claimed by plaintiff were
not adequate proved. Plaintiff then appealed to this Court.
ISSUE: Whether the sound constitutes an actionable nuisance or not is the principal issue in this case.
HELD:
The general rule is that everyone is bound to bear the habitual or customary inconveniences that result from the
proximity of others, and so long as this level is not surpassed, he may not complain against them. But if the
prejudice exceeds the inconveniences that such proximity habitually brings, the neighbor who causes such
disturbance is held responsible for the resulting damage, being guilty of causing nuisance.
While no previous adjudications on the specific issue have been made in the Philippines, our law of nuisances is of
American origin, and a review of authorities clearly indicates the rule to be that the causing or maintenance of
disturbing noise or sound may constitute an actionable nuisance (V. Ed. Note, 23 ALR, 2d 1289).
Technical charts submitted in evidence show the following intensity levels in decibels of some familiar sounds:
average residence: 40; average office: 55; average automobile, 15 feet: 70; noisiest spot at Niagara Falls: 92
(Exhibit "11- B"); average dwelling: 35; quiet office: 40; average office: 50; conversation: 60; pneumatic rock drill:
130 (Exhibit "12"); quiet home average living room: 40; home ventilation fan, outside sound of good home
airconditioner or automobile at 50 feet: 70 (Exhibit "15-A").
The conclusion must be that, contrary to the finding of the trial court, the noise continuously emitted, day and
night, constitutes an actionable nuisance for which the appellant is entitled to relief, by requiring the appellee
company to adopt the necessary measures to deaden or reduce the sound at the plaintiff's house, by replacing the
interlink wire fence with a partition made of sound absorbent material, since the relocation of the substation is
manifestly impracticable and would be prejudicial to the customers of the Electric Company who are being
serviced from the substation.
As to the damages caused by the noise, appellant Velasco, himself a physician, claimed that the noise, as a
precipitating factor, has caused him anxiety neurosis, which, in turn, predisposed him to, or is concomitant with,
the other ailments which he was suffering at the time of the trial, namely, pyelonephritis, ureteritis and others; that
these resulted in the loss of his professional income and reduced his life expectancy.
Regarding the amount of damages claimed by appellant, it is plain that the same are exaggerated. To begin with,
the alleged loss of earnings at the rate of P19,000 per annum is predicated on the Internal Revenue assessment,
Exhibit "QQ-1", wherein appellant was found to have undeclared income of P8,338.20 in additional to his declared
gross income of P10,975.00 for 1954. There is no competent showing, however, that the source of such undeclared
income was appellant's profession. In fact, the inference would be to the contrary, for his gross income from the
previous years 1951 to 1953 [Exhibits "QQ-1 (d)" to "QQ-1 (f)"] was only P8,085.00, P5,860.00 and P7,120.00,
respectively, an average of P7,000.00 per annum. Moreover, while his 1947 and 1948 income was larger
(P9,995.00 and P11,900.00), it appears that P5,000 thereof was the appellant's annual salary from the Quezon
Memorial Foundation, which was not really connected with the usual earnings derived from practice as a
physician. Considering, therefore, his actual earnings, the claimed moral damages of P100,000.00 are utterly
disproportionate. The alleged losses for shortening of appellant's, life expectancy are not only inflated but
speculative.
As to the demand for exemplary or punitive damages, there appears no adequate basis for their award. While the
appellee Manila Electric Company was convicted for erecting the substation in question without permit from the
Public Service Commission, We find reasonable its explanation that its officials and counsel had originally deemed
that such permit was not required as the installation was authorized by the terms of its franchise (as amended by
Republic Act No. 150) requiring it to spend within 5 years not less than forty million pesos for maintenance and
additions to its electric system, including needed power plants and substations. Neither the absence of such permit
from the Public Service Commission nor the lack of permit from the Quezon City authorities (a permit that was
subsequently granted) is incompatible with the Company's good faith, until the courts finally ruled that its
interpretation of the franchise was incorrect.
The other factor militating against full recovery by the petitioner Velasco in his passivity in the face of the damage
caused to him by the noise of the substation. Realizing as a physician that the latter was disturbing or depriving
him of sleep and affecting both his physical and mental well being, he did not take any steps to bring action to abate
the nuisance or remove himself from the affected area as soon as the deleterious effects became noticeable. To
evade them appellant did not even have to sell his house; he could have leased it and rented other premises for
sleeping and maintaining his office and thus preserve his health as ordinary prudence demanded. Instead he
obstinately stayed until his health became gravely affected, apparently hoping that he would thereby saddle
appellee with large damages.
Despite the wide gap between what was claimed and what was proved, the plaintiff is entitled to damages for the
annoyance and adverse effects suffered by him since the substation started functioning in January, 1954.
Considering all the circumstances disclosed by the record, as well as appellant's failure to minimize the deleterious
influences from the substation, this Court is of the opinion that an award in the amount of P20,000.00, by way of
moderate and moral damages up to the present, is reasonable. Recovery of attorney's fees and litigation expenses
in the sum of P5,000.00 is also justified the factual and legal issues were intricate (the transcript of the
stenographic notes is about 5,000 pages, side from an impressive number of exhibits), and raised for the first time
in this jurisdiction.
RESOLUTION (re MR with same GR Number)
FACTS: The thrust of this motion is that the decision has incorrectly assessed appellant's damages and
unreasonably reduced their amount. It is first argued that the decision erred in not taking into account, in
computing appellant's loss of income, the appellant's undeclared income of P8,338.20, assessed by the Bureau of
Internal Revenue for the year 1954, in addition to his declared income for that year (P10,975), it being argued that
appellant never claim any other source of income besides his professional earnings.
ISSUE: Whether the award in unreasonably low.
HELD: Several circumstances of record disprove this claim. (1) That the amount of P8,338.20 was kept apart from
ordinary earnings of appellant for the year 1954 (P10,975), and not declared with it, is in itself circumstantial
evidence that it was not of comparable character. (2) If it was part of his ordinary professional income, appellant
was guilty of fraud in not declaring it and he should not be allowed to derive advantage from his own wrongdoing.
(3) The decision pointed out that by including the undeclared amount in appellant's disclosed professional earning
for 1954, to a grand total of P19,313.20, the income for said year becomes abnormally high (in fact, more that
double), as compared to appellant's earnings for the preceding years, 1951-1953, that averaged not more that
P7,000 per annum. Such abnormality justifies the Court's refusal to consider the undisclosed P8,338.20 as part of
appellant's regular income for the purpose of computing the reduction in his earnings as a result of the complained
acts of appellee. (4) Finally, the true source of the undeclared amount lay in appellant's own knowledge, but he
chose not to disclose it; neither did he call upon the assessing revenue officer to reveal its character.
Appellant Velasco urges that the damages awarded him are inadequate considering the present high cost of living,
and calls attention to Article 1250 of the present Civil Code, and to the doctrines laid down in People vs. Pantoja
G.R. No. L-18793, 11 October 1968, 25 SCRA 468. We do not deem the rules invoked to be applicable. Article 1250
of the Civil Code is to the effect that:
ART. 1250. 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.
It can be seen from the employment of the words "extraordinary inflation or deflation of the currency stipulated"
that the legal rule envisages contractual obligations where a specific currency is selected by the parties as the
medium of payment; hence it is inapplicable to obligations arising from tort and not from contract, as in the case at
bar, besides there being no showing that the factual assumption of the article has come into existence. As to the
Pantoja ruling, the regard paid to the decreasing purchase of the peso was considered a factor in estimating the
indemnity due for loss of life, which in itself is not susceptible of accurate estimation. It should not be forgotten
that the damages awarded to herein appellant were by no means full compensatory damages, since the decision
makes clear that appellant, by his failure to minimize his damages by means easily within his reach, was declared
entitled only to a reduced award for the nuisance sued upon (Steel vs. Rail & River Coal Co., 43 Ohio App. 228,182
N.E. 552); and the amount granted him had already taken into account the changed economic circumstances.
Nor is the fact that appellant lost a chance to sell his house for P95,000 to Jose Valencia constitute a ground for an
award of damages in that amount. As remarked in the main decision, there is no adequate proof of loss, since there
is no evidence of the depreciation in the market value of the house in question caused by the acts of defendant
Meralco The house, after all, has remained with appellant and he admits in his motion for reconsideration (page
48) that properties have increased in value by 200% since then.
For the foregoing reasons, the motion for reconsideration is denied.
COMMISSIONER OF PUBLIC HlGHWAYS, petitioner, vs.HON. FRANCISCO P. BURGOS, in his capacity as Judge
of the Court of First Instance of Cebu City, Branch 11, and Victoria Amigable, respondents.
G.R. No. L-36706 March 31, 1980., DE CASTRO, J.:
FACTS: Victoria Amigable is the owner of parcel of land situated in Cebu City with an area of 6,167 square meters.
Sometime in 1924, the Government took this land for road-right-of-way purpose. The land had since become
streets known as Mango Avenue and Gorordo Avenue in Cebu City.
On February 6, 1959, Victoria Amigable filed in the Court of First Instance of Cebu a complaint, which was later
amended on April 17, 1959 to recover ownership and possession of the land, and for damages in the sum of
P50,000.00 for the alleged illegal occupation of the land by the Government, moral damages in the sum of
P25,000.00, and attorney's fees in the sum of P5,000.00, plus costs of suit. The complaint was docketed as Civil
Case No. R-5977 of the Court of First Instance of Cebu, entitled "Victoria Amigable vs. Nicolas Cuenca, in his
capacity as Commissioner of Public Highway and Republic of the Philippines.
In its answer, the Republic alleged, among others, that the land was either donated or sold by its owners to the
province of Cebu to enhance its value, and that in any case, the right of the owner, if any, to recover the value of
said property was already barred by estoppel and the statute of limitations, defendants also invoking the non-
suability of the Government.
In the hearing held, the Government proved the value of the property at the time of the taking thereof in
1924 with certified copies, issued by the Bureau of Records Management, of deeds of conveyance executed in 1924
or thereabouts, of several parcels of land in the Banilad Friar Lands in which the property in question is located,
showing the price to be at P2.37 per square meter. For her part, Victoria Amigable presented newspaper clippings
of the Manila Times showing the value of the peso to the dollar obtaining about the middle of 1972, which was
P6.775 to a dollar.
Upon consideration of the evidence presented by both parties, the court which is now the public respondent in the
instant petition, rendered judgment on January 9, 1973 directing the Republic of the Philippines to pay Victoria
Amigable the sum of P49,459.34 as the value of the property taken, plus P145,410.44 representing interest at 6%
on the principal amount of P49,459.34 from the year 1924 up to the date of the decision, plus attorney's fees of
10% of the total amount due to Victoria Amigable, or a grand total of P214,356.75.
ISSUE: Whether or not the provision of Article 1250 of the New Civil Code is applicable in determining the amount
of compensation to be paid to respondent Victoria Amigable for the property taken.
HELD: It is to be noted that respondent judge did consider the value of the property at the time of the taking, which
as proven by the petitioner was P2.37 per square meter in 1924. However, applying Article 1250 of the New Civil
Code, and considering that the value of the peso to the dollar during the hearing in 1972 was P6.775 to a dollar, as
proven by the evidence of the private respondent Victoria Amigable the Court fixed the value of the property at the
deflated value of the peso in relation, to the dollar, and came up with the sum of P49,459.34 as the just
compensation to be paid by the Government. To this action of the respondent judge, the Solicitor General has taken
exception.
Article 1250 of the New Civil Code seems to be the only provision in our statutes which provides for
payment of an obligation in an amount different from what has been agreed upon by the parties because of
the supervention of extra-ordinary inflation or deflation. It is clear that the foregoing provision applies
only to cases where a contract or agreement is involved. It does not apply where the obligation to pay
arises from law, independent of contract. The taking of private property by the Government in the exercise
of its power of eminent domain does not give rise to a contractual obligation.
Moreover, the law as quoted, clearly provides that the value of the currency at the time of the establishment of the
obligation shall be the basis of payment which, in cases of expropriation, would be the value of the peso at the time
of the taking of the property when the obligation of the Government to pay arises. 12 It is only when there is an
"agreement to the contrary" that the extraordinary inflation will make the value of the currency at the time of
payment, not at the time of the establishment of the obligation, the basis for payment. In other words, an
agreement is needed for the effects of an extraordinary inflation to be taken into account to alter the value of the
currency at the time of the establishment of the obligation which, as a rule, is always the determinative element, to
be varied by agreement that would find reason only in the supervention of extraordinary inflation or deflation.
In the present case, the unusually long delay of private respondent in bringing the present action-period of almost
25 years which a stricter application of the law on estoppel and the statute of limitations and prescription may
have divested her of the rights she seeks on this action over the property in question, is an added circumstance
militating against payment to her of an amount bigger-may three-fold more than the value of the property as
should have been paid at the time of the taking.
WHEREFORE, the judgment appealed from is hereby reversed as to the basis in the determination of the price of
the land taken as just compensation for its expropriation, which should be the value of the land at the time of the
taking, in 1924. Accordingly, the same is hereby fixed at P14,615.79 at P2.37 per square meter, with interest
thereon at 6% per annum, from the taking of the property in 1924, to be also paid by Government to private
respondent, Victoria Amigable, until the amount due is fully paid, plus attorney's fees of P5,000.00.
FILIPINO PIPE AND FOUNDRY CORPORATION, plaintiff-appellant, vs. NATIONAL WATERWORKS AND
SEWERAGE AUTHORITY, defendant-appellee.
G.R. No. L-43446. May 3, 1988. GRIO-AQUINO, J.:
FACTS: The plaintiff Filipino Pipe and Foundry Corporation (hereinafter referred to as "FPFC" for brevity)
appealed the dismissal of its complaint against defendant National Waterworks and Sewerage Authority
(NAWASA) by the Court of First Instance of Manila on September 5, 1973. The appeal was originally brought to the
Court of Appeals. However, finding that the principal purpose of the action was to secure a judicial declaration that
there exists 'extraordinary inflation' within the meaning of Article 1250 of the New Civil Code to warrant the
application of that provision, the Court of Appeals, pursuant to Section 3, Rule 50 of the Rules of Court, certified the
case to this Court for proper disposition.
On June 12,1961, the NAWASA entered into a contract with the plaintiff FPFC for the latter to supply it with 4" and
6" diameter centrifugally cast iron pressure pipes worth P270,187.50 to be used in the construction of the Anonoy
Waterworks in Masbate and the Barrio San Andres-Villareal Waterworks in Samar. Defendant NAWASA paid in
installments on various dates, a total of One Hundred Thirty-Four Thousand and Six Hundred Eighty Pesos
(P134,680.00) leaving a balance of One Hundred Thirty-Five Thousand, Five Hundred Seven Pesos and Fifty
centavos (P135,507.50) excluding interest. Having completed the delivery of the pipes, the plaintiff demanded
payment from the defendant of the unpaid balance of the price with interest in accordance with the terms of their
contract. When the NAWASA failed to pay the balance of its account, the plaintiff filed a collection suit on March 16,
1967 which was docketed as Civil Case No. 66784 in the Court of First Instance of Manila.
On November 23, 1967, the trial court rendered judgment in Civil Case No. 66784 ordering the defendant to pay
the unpaid balance of P135,507.50 in NAWASA negotiable bonds, redeemable after ten years from their issuance
with interest at 6% per annum, P40,944.73 as interest up to March 15, 1966 and the interest accruing thereafter to
the issuance of the bonds at 6% per annum and the costs. Defendant, however, failed to satisfy the decision. It did
not deliver the bonds to the judgment creditor. On February 18, 1971, the plaintiff FPFC filed another complaint
which was docketed as Civil Case No. 82296, seeking an adjustment of the unpaid balance in accordance with the
value of the Philippine peso when the decision in Civil Case No. 66784 was rendered on November 23, 1967. On
May 3, 1971, the defendant filed a motion to dismiss the complaint on the ground that it is barred by the 1967
decision in Civil Case No. 66784.
The trial court, in its order dated May 26, 1971, denied the motion to dismiss on the ground that the bar by prior
judgment did not apply to the case because the causes of action in the two cases are different: the first action being
for collection of the defendant's indebtedness for the pipes, while the second case is for adjustment of the value of
said judgment due to alleged supervening extraordinary inflation of the Philippine peso which has reduced the
value of the bonds paid to the plaintiff.
ISSUE: Whether, on the basis of the continuously spiraling price index indisputably shown by the plaintiff, there
exists an extraordinary inflation of the currency justifying an adjustment of defendant appellee's unpaid judgment
obligation the plaintiff-appellant.
HELD: Extraordinary inflation exists "when there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuation in the value said currency, and
such decrease or increase could not have reasonably foreseen or was manifestly beyond contemplation the
the parties at the time of the establishment of the obligation. (Tolentino Commentaries and Jurisprudence on
the Civil Code Vol. IV, p. 284.)
While appellant's voluminous records and statistics proved that there has been a decline in the purchasing power
of the Philippine peso, this downward fall of the currency cannot be considered "extraordinary." It is simply a
universal trend that has not spared our country.
WHEREFORE, finding no reversible error in the appealed decision of the trial court, We affirm it in toto. No costs.
DEL ROSARIO VS SHELL
Facts: On September 20, 1960 the parties entered into a Lease Agreement whereby Del Rosario- leased a parcel of
land located at Ligao, Albay to Shell Company at a monthly rental of Two Hundred Fifty Pesos P250.00. Paragraph
14 of said contract of lease provides that in the event of an official devaluation or appreciation of the Philippine
currency the rental specified herein shall be adjusted in accordance with the provisions of any law or decree
declaring such devaluation or appreciation as may specifically apply to rentals. In 1965, President Diosdado
Macapagal promulgated EO no. 195 changing the Par Value of the Peso from US$0.50 to US$0.2564103. By reason
of this, Del Rosario demanded from Shell Company increase in the monthly rentals from P250.00 a month to
P487.50 a month. Shell failed to pay the increased monthly rentals. Del Rosario filed a complaint with the CFI of
Manila, Branch XVII praying that Shell Company be ordered to pay the monthly rentals as increased by reason of
Executive Order 195. The trial court dismiss the case stating that said Executive Order No. 195, contrary to the
contention of the plaintiff, has not officially devalued the Philippine peso but merely modified the par value of the
peso from US$.50 to US$0.2564103. CA reverse the trial courts decision, hence this petition.
Issue: Whether or not Executive Order No. 195 in effect decreased the worth or value of our currency, there has
taken place a "devaluation" or "depreciation" which would justify the proportionate increase of rent.
Held: Yes, the resultant decrease in the par value of the currency (effected by Executive Order No. 195) is
precisely the situation or event contemplated by the parties in their contract. It will be noted that
devaluation (economics term) is an official act of the government and refers to a reduction in metallic
content while depreciation can take place with or without official act, and does not depend on metallic
content. In the case at bar, while no express reference has been made to metallic content, there nonetheless is a
reduction in par value or in the purchasing power of Philippine currency. Even assuming there has been no official
devaluation as the term is technically understood, the fact is that there has been a diminution or lessening in the
purchasing power of the peso, thus, there has been "depreciation" (opposite of "appreciation"). Moreover, when
laymen unskilled in the semantics of economics use the terms "devaluation" or "depreciation" they certainly mean
them in their ordinary signification decrease in value. Hence as contemplated by the parties herein in their l ease
agreement, the term "devaluation" may be regarded as synonymous with "depreciation," for certainly both refer to
a decrease in the value of the currency. The rentals should therefore by their agreement be proportionately
increased.
FILINVEST VS PHILIPPINE ACETYLENE
Facts: Philippine Acetylene purchased from one Alexander Lim, as evidenced by a Deed of a motor vehicle
described as Chevrolet 1969 model with Serial No. 136699Z303652 for P55,247.80 with a down payment of
P20,000.00 and the balance of P35,247.80 payable, under the terms and conditions of the promissory note at a
monthly installment of P1,036.70 for thirty-four (34) months, due and payable on the first day of each month
starting December 1971 through and inclusive September 1, 1974 with 12 % interest per annum on each unpaid
installment, and attorney's fees in the amount equivalent to 25% of the total of the outstanding unpaid amount. As
security for the payment of said promissory note, Phil Acetylene executed a chattel mortgage over the same motor
vehicle in favor of Lim. Subsequently, Lim assigned to Filinvest Finance Corporation all his rights, title, and
interests in the promissory note and chattel mortgage by virtue of a Deed of Assignment. Thereafter, Filinvest
Finance Coporation , as a consequence of its merger with the Credit and Development Corporation assigned to the
new corporation, the Filinvest Credit Corporation, all its rights, title, and interests on the aforesaid promissory note
and chattel mortgage which, in effect, the payment of the unpaid balance owed by Phil Acetylene to Alexander Lim
was financed by Filinvest Creditt Corporation such that Lim became fully paid. Acetylene failed to comply with the
terms and conditions set forth in the promissory note and chattel mortgage since it had defaulted in the payment of
nine successive installments. Filinvest then sent a demand letter. Accordingly, the mortgaged vehicle was returned
to Filinvest together with the document "Voluntary Surrender with Special Power of Attorney To Sell" executed by
Acetylene.
Filinvest wrote a letter to Acetylene informing the latter that they cannot sell the motor vehicle as there were
unpaid taxes on the said vehicle in the sum of P70,122.00. On the last portion of the said letter, Filinvest requested
Acetylene to update its account by paying the installments in arrears and accruing interest in the amount of
P4,232.21. On May 8, 1973, Filinvest offered to deliver back the motor vehicle to the Acetylene but the latter
refused to accept it, so Filinvest instituted an action for collection of a sum of money with damages in the CFI of
Manila. In its answer Acetylene avers that Filinvest has no cause of action against them since their obligation was
extinguished when in compliance with demand letter sent by Filinevest, it returning the mortgaged property to
Filinvest, and that assuming arguendo that the return of the property did not extinguish its obligation, it was
nonetheless justified in refusing payment since Filinvest is not entitled to recover the same due to the breach of
warranty committed by the original vendor-assignor Alexander Lim. CFI ruled in favor of Filinvest.
Issue: Whether or not the return of the mortgaged motor vehicle by virtue of voluntary surrender by Acetylene
totally extinguished and/or cancelled the obligation to Filinvest.
Held: No, the obligation is not extinguished . Acetylene maintains that when it opted to return the mortgaged
motor vehicle to the Filinvest said return necessarily had the effect of extinguishing the obligation for the unpaid
price, construing the return to and acceptance by Filinvest of the mortgaged motor vehicle as a mode of payment,
specifically, dation in payment or dacion en pago which according to Acetylene , virtually made Filinvest the owner
of the mortgaged motor vehicle by the mere delivery thereof, citing Articles 1232, 1245, and 1497 of the Civil Code,
to wit:
Article 1232. Payment means not only the delivery of money but also the performance, in any manner, of
an obligation.
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales.
Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee.
The mere return of the mortgaged motor vehicle by the mortgagor, Acetylene, to the mortgagee, Filinvest, does not
constitute dation in payment or dacion en pago in the absence, express or implied of the true intention of the
parties. Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of obligation. In dacion en pago, as a special mode of
payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the
thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such, the essential
elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its
modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the
thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the
contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential
prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or obligation. The evidence
on the record fails to show that the mortgagee, the herein appellee, consented, or at least intended, that the mere
delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more
specifically dation in payment or dacion en pago. A more solid basis of the true intention of the parties is furnished
by the document executed by appellant captioned "Voluntary Surrender with Special Power of Attorney To Sell".
An examination of the language of the document reveals that the possession of the mortgaged motor vehicle was
voluntarily surrendered by the appellant to the appellee authorizing the latter to look for a buyer and sell the
vehicle in behalf of the appellant who retains ownership thereof, and to apply the proceeds of the sale to the
mortgage indebtedness, with the undertaking of the appellant to pay the difference, if any, between the selling
price and the mortgage obligation.

CITIZENS SURETY COMPANY VS. CA
Facts: On December 4, 1959, the Citizens Surety issued two surety bonds to guarantee compliance by the principal
Pascual M. Perez Enterprises of its obligation under a Contract of Sale of Goods entered into with the Singer Sewing
Machine Co. In consideration of the issuance of the aforesaid bonds, Perez, in his personal capacity and as attorney-
in-fact of his wife, Nicasia Sarmiento and in behalf of the Enterprises executed on the same date two indemnity
agreements wherein he obligated himself and the Enterprises to indemnify the petitioner jointly and severally,
whatever payments advances and damage it may suffer or pay as a result of the issuance of the surety bonds. In
addition to the two indemnity agreements, Enterprises was also required to put up a collateral security to further
insure reimbursement to the Company of whatever losses or liabilities it may be made to pay under the surety
bonds. Perez therefore executed a deed of assignment on the same day of his stock of lumber with a total value of
P400,000.00. On April 12, 1960, a second real estate mortgage was further executed in favor of the Company to
guarantee the fulfillment of said obligation. Enterprises failed to comply with its obligation under the contract of
sale of goods with Singer Sewing Machine Co., Ltd. Consequently, the Company was compelled to pay, as it did pay,
the fair value of the two surety bonds in the total amount of P144,000.00. Except for partial payments in the total
sum of P55,600.00 and notwithstanding several demands, Enterprises failed to reimburse the petitioner for the
losses it sustained under the said surety bonds. The Company filed a claim for sum of money against the estate of
the late Nicasia Sarmiento which was being administered by Perez. In opposing the money claim, Perez asserts that
the surety bonds and the indemnity agreements had been extinguished by the execution of the deed of assignment.
CFI ruled that the estate of the late Nicasia Sarmiento is jointly and severally liable to the Citizens' Surety and
Insurance Co., Inc., for the amount the latter had paid the Singer Sewing Machine Company, Ltd., the court hereby
orders the administrator Pascual M. Perez to pay the claimant the sum of P144,000.00, with interest at the rate of
ten (10%) per cent per annum from the date this claim was filed, until fully paid, minus the payments already made
in the amount of P55,600.00. CA reversed and set aside the decision rendered by the CFI and dismiss the claim
against the estate of Sarmiento. Hence this petition.
Issue: Whether or not there was a dation in payment by virtue of the execution of deed of assignment.
Held: No, The transaction could not be dation in payment. As pointed out in the concurring and dissenting opinion
of Justice Edgardo L. Paras and the dissenting opinion of Justice Mariano Serrano when the deed of assignment was
executed on December 4, 1959, the obligation of the assignor to refund the assignee had not yet arisen. In other
words, there was no obligation yet on the part of the petitioner, Citizens' Surety and Insurance Company, to pay
Singer Sewing Machine Co. There was nothing to be extinguished on that date, hence, there could not have been a
dation in payment. The deed of assignment cannot be regarded as an absolute conveyance whereby the
obligation under the surety bonds was automatically extinguished. The subsequent acts of the private
respondent bolster the fact that the deed of assignment was intended merely as a security for the issuance
of the two bonds. If indeed the deed of assignment extinguished the obligation, there was no reason for a
second mortgage to still have to be executed. The deed of assignment was therefore intended merely as
another collateral security for the issuance of the two surety bonds.
SOCO VS MILITANTE
Facts: Soledad Soco and Regino Francisco entered into a contract of lease whereby Soco leased her commercial
building and lot to Francisco for a monthly rental of P 800.00 for a period of 10 years renewable for another 10
years at the option of the lessee. The terms of the contract are embodied in the Contract of Lease. It can readily be
discerned that in the copy of Soco, paragraphs 10 and 11 appear to have been cancelled while in the copy of
Francisco of the contract, only paragraph 10 has been cancelled. Claiming that paragraph 11 of the Contract of
Lease was in fact not part of the contract because it was cancelled. Soco filed Civil Court of First Instance of Cebu
seeking the annulment and/or reformation of the Contract of Lease.
Sometime before the filing of Civil Case, Francisco noticed that Soco did not anymore send her collector for the
payment of rentals and at times there were payments made but no receipts were issued. This situation prompted
Francisco to write Soco the letter. After writing this letter, Francisco sent his payment for rentals by checks issued
by the Commercial Bank and Trust Company. Soco learned that Francisco sub-leased a portion of the building to
NACIDA, at a monthly rental of more than P3,000.00 which is definitely very much higher than what Francisco was
paying to Soco under the Contract of Lease. In view of this alleged non-payment of rental of the leased premises
beginning May, 1977, Soco through her lawyer sent a letter to Francisco serving notice to the latter 'to vacate the
premises leased.' In answer to this letter, Francisco through his lawyer informed Soco and her lawyer that all
payments of rental due her were in fact paid by Commercial Bank and Trust Company through the Clerk of Court of
the City Court of Cebu. The Court holds that there was in fact a tender of payment of the rentals made by Francisco
to Soco through Comtrust and since these payments were not accepted by Soco evidently because of her intention
to evict Francisco, by all means, culminating in the filing of Civil Case, Francisco was impelled to deposit the rentals
with the Clerk of Court of the City Court of Cebu. Soco was notified of this deposit by virtue of the letter of Atty.
Pampio Abarientos . She was further notified of these payments by consignation in the letter of Atty. Menchavez .
There was therefore substantial compliance of the requisites of consignation, hence his payments were valid and
effective. Consequently, Francisco cannot be ejected from the leased premises for non-payment of rentals.
The City Court ruled that the consignation was not valid. The Court of First Instance, on the other hand, held that
there was substantial compliance with the requisites of the law on consignation.
Issue: Whether or not there must be a fully, strictly and mandatory compliance in requirements of consignation
Held: Yes, We hold that the essential requisites of a valid consignation must be complied with fully and
strictly in accordance with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be
accorded a mandatory construction is clearly evident and plain from the very language of the codal provisions
themselves which require absolute compliance with the essential requisites therein provided. Substantial
compliance is not enough for that would render only a directory construction to the law. The use of the words
"shall" and "must" which are imperative, operating to impose a duty which may be enforced, positively indicate
that all the essential requisites of a valid consignation must be complied with. The Civil Code Articles expressly and
explicitly direct what must be essentially done in order that consignation shall be valid and effectual.
According to Article 1256, New Civil Code, if the creditor to whom tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from responsibility by the consignation of the thing or
sum due. Consignation alone shall produce the same effect in the following cases: (1) When the creditor is absent
or unknown, or does not appear at the place of payment; (2) When he is incapacitated to receive the payment at
the time it is due; (3) When, without just cause, he refuses to give a receipt; (4) When two or more persons claim
the same right to collect; (5) When the title of the obligation has been lost.
Consignation is the act of depositing the thing due with the court or judicial authorities whenever the
creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment. In
order that consignation may be effective, the debtor must first comply with certain requirements
prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the
obligation had been made because the creditor to whom tender of payment was made refused to accept it,
or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the
amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation had been given to the
person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was
placed at the disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation had been
made the person interested was notified thereof (Art. 1178, Civil Code). Failure in any of these
requirements is enough ground to render a consignation ineffective.
IMMACULATA VS NAVARRO (JUDGE OF CFI OF RIZAL)
Facts: On or about December, 1969 or sometime prior thereto, Juanito Victoria with the cooperation Juanita Naval
succeeded in causing plaintiff Lauro Immaculata, to execute a Deed of Absolute Sale in favor of Juanito Victoria, by
unduly taking advantage of the mental illness and/or weakness of petitioner and thru deceit and fraudulent means,
purportedly disposed of by way of absolute sale, a 5,000-square meter parcel of land covered by Transfer
Certificate for the sum of P 58,000.00, which Immaculata supposedly received, but in truth and in fact did not. An
action for specific performance was filed by Juanito Victoria, during his lifetime, against Immaculata before the
Court on August 6, 1970 for the purpose of compelling Immaculata to execute a document registerable with the
Register of Deeds of Rizal in order that Juanito Victoria may be able to obtain title over the property. There was no
proper and valid service of summons was ever made upon Immaculata, and thus he was declared in default and
judgment by default was rendered. The said judgment by default was null and void, having been rendered against
a person who is/was admittedly insane, notwithstanding, Juanito Victoria, thru counsel, succeeded in securing the
issuance of a writ of execution to enforce the judgment by default rendered by the respondent Court. Juanito
Victoria, prayed before the Court that the Sheriff be directed to execute the necessary deed of conveyance in favor
of him covering the property subject matter of the complaint and, accordingly, the Court directed the Sheriff to
execute the deed of conveyance prayed for by Juanito Victoria. A new Transfer Certificate was issued in favor of
Juanito Victoria. The court declared that the new Transfer Certificate is null and void having been based on void
proceedings. Juanita appealed the decision and the same was granted by the court. In the alternative, Immaculata
filed a complaint and prays that he be allowed to repurchase the property within five (5) years from the time
judgment is rendered by the respondent court upholding the validity of the proceedings and the sale since the land
in question was originally covered by a Free Patent title. Juanito filed a motion to dismiss, and the court granted
his motion and dismisses the case on the ground of re judicata.
Issue: Whether or not offer to redeem was insincere in the absence of consignation of such amount in court.
Held: We hereby grant said alternative cause of action or prayer. While the sale was originally executed sometime
in December, 1969, it was only on February 3, 1974 when, as prayed for 1 by private respondent, and as ordered
by the court a quo, a "deed of conveyance" was formally executed. Since offer to redeem was made on March 24,
1975, this was clearly within the five-year period of legal redemption allowed by the Public Land Act. The
allegation that the offer to redeem was not sincere, because there was no consignation of the amount in Court is
devoid of merit. The right to redeem is a RIGHT, not an obligation, therefore, there is no consignation required to
preserve the right to redeem.
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, vs. NATIVIDAD FRANKLIN, accused, ASIAN SURETY &
INSURANCE COMPANY, INC.,bondsman-appellant.
Office of the Solicitor General Arturo A. Alafriz, Acting Solicitor General Isidro C. Borromeo and Solicitor Antonio M.
Consing for plaintiff-appellee.
Advincula, Astraquillo, Villa & Ramos for bondsman-appellant. DIZON, J.:
Facts: Natividad Franklin was charged with estafa. Upon a bail bond posted by the Asian Surety & Insurance
Company, Inc. in the amount of P2,000.00, she was released from custody. The Court of First Instance set her
arraignment on July 14, 1962, on which date she failed to appear, but the court postponed the arraignment to July
28 of the same year upon motion of counsel for the surety company. The accused failed to appear again, for which
reason the court ordered her arrest and required the surety company to show cause why the bail bond posted by it
should not be forfeited. The court granted the surety company a period of thirty days within which to produce and
surrender the accused, with the warning that upon its failure to do so the bail bond posted by it would be forfeited.
The surety company filed a motion praying for an extension of thirty days within which to produce the body of the
accused and to show cause why its bail bond should not be forfeited. As not withstanding the extension granted the
surety company failed to produce the accused again, the court had no other alternative but to render the judgment
of forfeiture. The surety company filed a motion for a reduction of bail alleging that the reason for its inability to
produce and surrender the accused to the court was the fact that the Philippine Government had allowed her to
leave the country and proceed to the United States.
The lower court denied the surety companys motion for reconsideration. Appellant now contends that the lower
court should have released it from all liability under the bail bond posted by it because its failure to produce and
surrender the accused was due to the negligence of the Philippine Government itself in issuing a passport to said
accused, thereby enabling her to leave the country. In support of this contention the provisions of Article 1266 of
the New Civil Code are invoked.
Issue: Whether or not the surety company should be released from its liability under the bail bond.
Held: No. Appellant's contention is untenable. The abovementioned legal provision does not apply to its case,
because the same speaks of the relation between a debtor and a creditor, which does not exist in the case of
a surety upon a bail bond, on the one hand, and the State, on the other.
In U.S. vs. Bonoan, it was held that:
The rights and liabilities of sureties on a recognizance or bail bond are, in many respects, different
from those of sureties on ordinary bonds or commercial contracts. The former can discharge
themselves from liability by surrendering their principal; the latter, as a general rule, can only be
released by payment of the debt or performance of the act stipulated.
It is clear that in the eyes of the law a surety becomes the legal custodian and jailer of the accused, thereby
assuming the obligation to keep the latter at all times under his surveillance, and to produce and surrender him to
the court upon the latter's demand.
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners, vs. HON. RAMON V. JABSON, Presiding Judge of the
Court Of First Instance of Rizal, Branch XXVI; COURT OF APPEALS and TROPICAL HOMES, INC., respondents.
Occena Law Office for petitioners. Serrano, Diokno & Serrano for respondents.
TEEHANKEE, J.:
Facts: Tropical Homes, Inc. filed a complaint for modification of the terms and conditions of its subdivision
contract with petitioners (landowners of a 55,330 square meter parcel of land in Davao City), making the following
allegations: That due to the increase in price of oil and its derivatives and the concomitant worldwide spiraling of
prices, which are not within the control of plaintiff, of all commodities including basis raw materials required for
such development work, the cost of development has risen to levels which are unanticipated, unimagined and not
within the remotest contemplation of the parties at the time said agreement was entered into and to such a degree
that the conditions and factors which formed the original basis of said contract have been totally changed; 'That
further performance by the plaintiff under the contract will result in situation where defendants would be unjustly
enriched at the expense of the plaintiff; will cause an iniquitous distribution of proceeds from the sales of
subdivided lots in manifest actually result in the unjust and intolerable exposure of plaintiff to implacable losses,
all such situations resulting in an unconscionable, unjust and immoral situation contrary to and in violation of the
primordial concepts of good faith, fairness and equity which should pervade all human relations. Under the
subdivision contract, respondent guaranteed (petitioners as landowners) as the latter's fixed and sole share and
participation an amount equivalent to forty (40%) percent of all cash receipts from the sale of the subdivision lots.
Petitioners moved to dismiss the complaint principally for lack of cause of action which the respondent court
dismissed under the ground of Article 1267 of the Civil Code which provides that: When the service has become so
difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released there from, in
whole or in part.
Issue: Whether or not the worldwide increase in prices cited by respondent Tropical Homes Inc. does constitute a
sufficient cause of action for modification of the subdivision contract.
Held: The petition must be granted. While respondent court correctly cited in its decision the Code Commission's
report giving the rationale for Article 1267 of the Civil Code, to wit;
The general rule is that impossibility of performance releases the obligor. However, it is submitted
that when the service has become so difficult as to be manifestly beyond the contemplation of the
parties, the court should be authorized to release the obligor in whole or in part. The intention of
the parties should govern and if it appears that the service turns out to be so difficult as have been
beyond their contemplation, it would be doing violence to that intention to hold the obligor still
responsible. ...
It misapplied the same to respondent's complaint. If respondent's complaint were to be released from having to
comply with the subdivision contract, assuming it could show at the trial that the service undertaken contractually
by it had "become so difficult as to be manifestly beyond the contemplation of the parties", then respondent court's
upholding of respondents complaint and dismissal of the petition would be justifiable under the cited codal article.
Without said article, respondent would remain bound by its contract under the theretofore prevailing doctrine that
performance therewith is ot excused "by the fact that the contract turns out to be hard and improvident,
unprofitable, or unexpectedly burdensome", since in case a party desires to be excuse from performance in the
event of such contingencies arising, it is his duty to provide therefore in the contract.
But respondent's complaint seeks not release from the subdivision contract but that the court "render judgment I
modifying the terms and Conditions of the Contract by fixing the proper shares that should pertain to the herein
parties out of the gross proceed, from the sales of subdivided lots of subject subdivision". The cited article does not
grant the courts this authority to remake, modify or revise the contract or to fix the division of shares between the
parties as contractually stipulated with the force of law between the parties, so as to substitute its own terms for
those covenanted by the parties themselves. Respondent's complaint for modification of contract manifestly has no
basis in law and therefore states no cause of action. Under the particular allegations of respondent's complaint and
the circumstances therein averred, the courts cannot even in equity grant the relief sought
BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents
AZCUNA, J.:
Facts: A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against
BPI which was later amended by substituting the name of Annabelle A. Salazar as the real party in interest in place
of A.A. Salazar Construction and Engineering Services. Salazar prayed for the recovery of the amount of
P267,707.70 debited by petitioner BPI from her account. BPI, in its answer, alleged that on August 31, 1991, Julio
R. Templonuevo demanded from the former payment of the amount of P267,692.50 representing the aggregate
value of 3 checks, which were allegedly payable to him, but which were deposited with the petitioner bank to
private respondent Salazars account without his knowledge and corresponding endorsement. Accepting that
Templonuevos claim was a valid one, BPI froze the account of A.A. Salazar and Construction and Engineering
Services, instead of the account where the checks were deposited, since this account was already closed by Salazar
or had an insufficient balance.
Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it
appeared that Salazar was not entitled to the funds represented by the checks which were deposited and accepted
for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her and the sum of P267,692.50 was
paid to Templonuevo by means of a cashiers check. The difference between the value of the checks (P267,692.50)
and the amount actually debited from her account (P267,707.70) represented bank charges in connection with the
issuance of a cashiers check to Templonuevo. Templonuevo admitted the payment to him of P267,692.50 and
argued that said payment was to correct the malicious deposit made by private respondent Salazar to her private
account, and that petitioner banks negligence and tolerance regarding the matter was violative of the primary and
ordinary rules of banking. He likewise contended that the debiting or taking of the reimbursed amount from the
account of private respondent Salazar by petitioner BPI was a matter exclusively between said parties and may be
pursuant to banking rules and regulations, but did not in any way affect him. The debiting from another account of
private respondent Salazar, considering that her other account was effectively closed, was not his concern.
Issue: Whether or not the deductions made by petitioner from private respondent Salazars account is proper.
Held: The petitioner, as the collecting bank, had the right to debit Salazars account for the value of the checks it
previously credited in her favor. It is of no moment that the account debited by petitioner was different from the
original account to which the proceeds of the check were credited because both admittedly belonged to Salazar, the
former being the account of the sole proprietorship which had no separate and distinct personality from her, and
the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan: A bank generally has a right of set-off over the deposits
therein for the payment of any withdrawals on the part of a depositor. The right of a collecting bank to debit a
client's account for the value of a dishonored check that has previously been credited has fairly been established by
jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and current deposits of
money in banks and similar institutions shall be governed by the provisions concerning simple loan."
Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal
compensation under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article
1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
GAN TION, petitioner, vs. HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of the Court
of First Instance of Manila, ONG WAN SIENG and THE SHERIFF OF MANILA, respondents.
Burgos and Sarte for petitioner.
Roxas, Roxas, Roxas and Associates for respondents.
MAKALINTAL, J.:
Facts: Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961, Gan Tion filed an ejectment
case against Wan Sieng, alleging non-payment of rents for August and September of that year, at P180 a month, or
P360 altogether. The defendant denied the allegation and said that the agreed monthly rental was only P160,
which he had offered to but was refused by the plaintiff. The plaintiff obtained a favorable judgment in the
municipal court (of Manila), but upon appeal the Court of First Instance reversed the judgment and dismissed the
complaint, and ordered the plaintiff to pay the defendant the sum of P500 as attorney's fees.
On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month,
effective November 1st, and at the same time demanded the rents in arrears at the old rate in the aggregate
amount of P4,320.00, corresponding to a period from August 1961 to October 1963. In the meantime, over Gan
Tion's opposition, Ong Wan Sieng was able to obtain a writ of execution of the judgment for attorney's fees in his
favor. Gan Tion pleaded legal compensation, claiming that Ong Wan Sieng was indebted to him in the sum of
P4,320 for unpaid rents. The appellate court accepted the petition but eventually decided for the respondent,
holding that although "respondent Ong is indebted to the petitioner for unpaid rentals in an amount of more than
P4,000.00," the sum of P500 could not be the subject of legal compensation, it being a "trust fund for the benefit of
the lawyer, which would have to be turned over by the client to his counsel." In the opinion of said court, the
requisites of legal compensation, namely, that the parties must be creditors and debtors of each other in their own
right (Art. 1278, Civil Code) and that each one of them must be bound principally and at the same time be a
principal creditor of the other (Art. 1279), are not present in the instant case, since the real creditor with respect to
the sum of P500 was the defendant's counsel.
Issue: Whether or not there has been legal compensation between petitioner Gan Tion and respondent Ong Wan
Sieng.
Held: Yes. It is not an accurate statement of the nature of an award for attorney's fee's. The award is made in favor
of the litigant, not of his counsel, and is justified by way of indemnity for damages recoverable by the former in the
cases enumerated in Article 2208 of the Civil Code. It is the litigant, not his counsel, who is the judgment creditor
and who may enforce the judgment by execution. Such credit, therefore, may properly be the subject of legal
compensation. Quite obviously it would be unjust to compel petitioner to pay his debt for P500 when admittedly
his creditor is indebted to him for more than P4,000.
PNB vs. DE ONG ACERO
FACTS: Isabela Wood Construction & Development Corporation, opened with the Philippine National Bank on
March 9, 1979 in the amount of P2 million is the subject of two (2) conflicting claims. One claim is asserted by the
ACEROS Gloria G. Vda. de Ong Acero, Arnolfo Ong Acero and Soledad Ong Acero-Chua, judgment creditors of the
depositor (hereafter simply referred to as ISABELA) who seek to enforce against said savings account the final
and executory judgment rendered in their favor by the Court of First Instance of Rizal QC. The other claim has been
put forth by the Philippine National Bank (hereafter, simply PNB) which claims that since ISABELA was at some
point in time both its debtor and creditor-ISABELA's deposit being deemed a loan to it (PNB)-there had occurred a
mutual set-off between them, which effectively precluded the ACEROS' recourse to that deposit. The controversy
was decided by the Intermediate Appellate Court adversely to the PNB. On the other hand, PNB's claim to the two-
million-peso deposit in question is made to rest on an agreement between it and ISABELA in virtue of which,
according to PNB: (1) the deposit was made by ISABELA as "collateral" in connection with its indebtedness to PNB
as to which it (ISABELA) had assumed certain contractual undertakings; and (2) in the event of ISABELA's failure
to fulfill those undertakings, PNB was empowered to apply the deposit to the payment of that indebtedness.
Its theory thereon based on a mutual set-off, or compensation, between it and ISABELA in accordance with
Articles 1278 et al. of the Civil Code that PNB intervened in the action between the ACEROS and ISABELA on or
about February 28, 1980 and moved for reconsideration of the Order of February 15, 1980 but its motion met with
no success and a motion for the reconsideration of that Order was also denied. Due to PNB's persistence, the court
set aside the orders and set for hearing the latter's motion for reconsideration and few months after, the Order of
February 15, 1980 was also struck down. The lower court opining that under the circumstances, there had been a
valid assignment by ISABELA to PNB of the amount deposited, which effectively placed that amount beyond the
reach of Aceros.
It was the ACEROS' turn to move for reconsideration, which they did as regards this Order of October 1, 1982; but
by Order promulgated on December 14, 1982, the Court declined to modify its resolution. The ACEROS then
appealed to the Intermediate Appellate Court which, after due proceedings, sustained them. When ISABELA itself
subsequently came to be indebted to it on account of ISABELA's breach of the terms of the Credit Agreement of
October 13, 1977, and therefore ISABELA and PNB became at the same time creditors and debtors of each other,
compensation automatically took place between them, in accordance with Article 1278 of the Civil Code. The
amounts due from each other were, in its view, applied by operation of law to satisfy and extinguish their
respective credits.

ISSUE: Whether or not PNB and ISABELA had extinguished their obligation by way of compensation.
HELD: There being no indebtedness to PNB on ISABELA's part, there is in consequence no occasion to speak of any
mutual set-off, or compensation, whether it be legal, i.e., which automatically occurs by operation of law, or
voluntary, i.e., which can only take place by agreement of the parties.
Even if it be assumed that such an assignment had indeed been made, and PNB had been really authorized to apply
the P2M deposit to the satisfaction of ISABELA's indebtedness to it, nevertheless, since the record reveals that the
application was attempted to be made by PNB only on February 26, 1980, that essayed application was ineffectual
and futile because at that time, the deposit was already in custodia legis, notice of garnishment thereof having been
served on PNB on January 9, 1980.
On the assumption that the P 2M deposit was in truth assigned as some sort of "collateral" to PNB although as
PNB insists, it was not in the form of a pledge the agreement postulated by PNB that it had been authorized to
assume ownership of the fund upon the coming into being of ISABELA's indebtedness is void ab initio, it being in
the nature of a pactum commisoruim proscribed as contrary to public policy.
ENGRACIO FRANCIA vs. IAC
FACTS: Engracio Francia was the owner of a 328 square meter land in Pasay City. In October 1977, a portion of his
land (125 square meter) was expropriated by the government for P4,116.00. The expropriation was made to give
way to the expansion of a nearby road.

It also appears that Francia failed to pay his real estate taxes since 1963 amounting to P2,400.00. So in December
1977, the remaining 203 square meters of his land was sold at a public auction (after due notice was given him).
The highest bidder was a certain Ho Fernandez who paid the purchase price of P2,400.00 (which was lesser than
the price of the portion of his land that was expropriated).
Later, Francia filed a complaint to annul the auction sale on the ground that the selling price was grossly
inadequate. He further argued that his land should have never been auctioned because the P2,400.00 he owed the
government in taxes should have been set-off by the debt the government owed him (legal compensation). He
alleged that he was not paid by the government for the expropriated portion of his land because though he knew
that the payment therefore was deposited in the Philippine National Bank, he never withdrew it.

ISSUE: Whether or not the tax owed by Francia should be set-off by the debt owed him by the government.

HELD: No. As a rule, set-off of taxes is not allowed. There is no legal basis for the contention. By legal
compensation, obligations of persons, who in their own right are reciprocally debtors and creditors of each other,
are extinguished (Art. 1278, Civil Code). This is not applicable in taxes. There can be no off-setting of taxes against
the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground
that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax
cannot await the results of a lawsuit against the government.

The Supreme Court emphasized: A claim for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the
remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or
municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract
or transaction sued on.

Further, the government already Francia. All he has to do was to withdraw the money. Had he done that, he could
have paid his tax obligations even before the auction sale or could have exercised his right to redeem which he
did not do.

Anent the issue that the selling price of P2,400.00 was grossly inadequate, the same is not tenable. The Supreme
Court said: alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to
effect redemption. If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of
taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. Where land is sold
for taxes, the inadequacy of the price given is not a valid objection to the sale. This rule arises from necessity, for, if
a fair price for the land were essential to the sale, it would be useless to offer the property. Indeed, it is notorious
that the prices habitually paid by purchasers at tax sales are grossly out of proportion to the value of the land.

REPUBLIC VS DE LOS ANGELES

Facts: Spouses Farin obtained a loan from Marcelo Steel Corporation, and as a security, said spouses constituted in
favor of the said corporation, a mortgage upon their parcel of land. On July 24, 1965, the mortgagee wrote the
sheriff or Quezon City requesting the extrajudicial foreclosure of the aforesaid mortgage. Mortgagors filed a
petition for prohibition with injunction and damages against the sheriff and Marcelo Steel Corporation.
Respondent Judge de los Angeles issued an order commanding the respondent sheriff and the corporation to desist
from proceeding with the public auction sale of the property. While the case was pending, Farin leased portions of
the Doa Petra Building to Rice and Corn Administration (RCA). On December 9, 1967, Marcelo Steel Corporation
filed a motion praying that an order be issued directing and/or authorizing RCA and all other lessees of the Doa
Petra Building to pay directly to it the rents for the use of the building. Respondent judge ordered lessees to pay
directly to Marcelo Steel Corporation the rents due them. RCA filed a motion for reconsideration alleging that Farin
has an outstanding obligation with the RCA for rice shortages incurred by her as a bonded warehouseman under
the contract with RCA, which should be compensated with the rents due and may be due. Farin also filed a motion
for reconsideration. The trial court denied both motions. RCA then filed a second motion for reconsideration
insisting that the claim of Marcelo Steel Corporation has no legal basis and that no rents are due Farin because she
has an outstanding accountability with the RCA, which should be compensated with the rents due. Respondent
judge ordered RCA to pay rentals to Marcelo Steel Corporation. RCA filed a motion to vacate such order,
emphasizing that compensation took place by operation of law pursuant to Art. 1286 of the Civil Code without the
need of filing a case against Farin. Said motion was denied.
Issue: Whether or not the rents due RCA are compensated because Farin has an outstanding accountability for the
rice shortages
Held: Yes. The records do not show any proof that the plaintiff is indebted to RCA. Records further do not show
that a case has been filed against her, or a decision has been rendered against her for payment of such obligation.
Proof of the liquidation of the claim, in order that there may be compensation of debts, is proper if such claim is
disputed. But, if claim is undisputed, as in the case at bar, the statement is sufficient and no other proof may be
required. Although Farin was furnished with a copy of RCA's motion stating that the former has an outstanding
obligation to the RCA, she did not dispute nor deny such claim. Neither did the Marcelo Steel Corporation dispute
such claim of compensation in its opposition to the motion for the reconsideration of RCA. The silence of Farin,
although the declaration is such as naturally one to call for action or comment if not true, could be taken as an
admission of the existence and validity of such claim. Therefore, since the claim of the RCA is undisputed, proof of
its liquidation is not necessary.
SOLINAP vs. DEL ROSARIO
FACTS: The spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda Tambal, leased the said
hacienda to petitioner Loreto Solinap for 10 years for the stipulated rental of P50,000.00 a year. It was further
agreed in the lease contract that P25,000.00 from the rental should be paid by Solinap to the PNB to amortize the
indebtedness of the spouses Lutero. When Tiburcio Lutero died, his heirs instituted the testate estate proceedings.
On the basis of an order, respondents Juanito Lutero [grandson and heir of the late Tiburcio] and his wife Hardivi
R. Lutero paid the PNB the sum of P25,000.00 as partial settlement of the deceased's obligations. Spouses Lutero
filed a motion seeking reimbursement from the petitioner. They argued that the said amount should have been
paid by petitioner to the PNB, as stipulated in the lease contract. Before the motion could be resolved, petitioner a
separate action against the spouses for collection of P71,000.00 they borrowed from the petitioner. The spouses
answered and pleaded a counterclaim against petitioner for P125,000.00 representing unpaid rentals on Hacienda
Tambal and that petitioners purchased one-half of Hacienda Tambal. The respondent judge issued an order
granting the spouses motion for reimbursement from petitioner of the sum of P25,000.00, plus interest. Petitioner
filed a petition for certiorari before this Court, assailing the above order. Acting on the petition, the P25,000.00 to
be paid by the petitioner to the private respondent Luteros may well be taken up in the final liquidation of the
account between petitioner as lessee and the subject estate as lessor. Thereafter the respondent Luteros filed with
the respondent court a motion raising that the amount payable to private respondents should be compensated
against the latter's indebtedness to him amounting to P7 1,000.00. This motion was denied by respondent judge on
the ground that "the claim of Loreto Solinap against spouses was yet to be liquidated and determined, such that the
requirement in Article 1279 of the New Civil Code that both debts are liquidated for compensation to take place
has not been established by the oppositor Loreto Solinap. Petitioner filed a motion for reconsideration of this
order, but the same was denied. Hence, this petition.
ISSUE: Whether or not the obligation of petitioner to private respondents may be compensated or set-off against
the amount sought to be recovered in an action for a sum of money filed by the former against the latter.
HELD: The petition is devoid of merit. In the case at bar, the petitioner's claim against the spouses was still pending
determination by the court. Petitioners claim in the case could not be categorized as liquidated credit which may
properly be set-off against his obligation. As this Court ruled in Mialhe vs. Halili "compensation cannot take place
where one's claim against the other is still the subject of court litigation. It is a requirement, for compensation to
take place, that the amount involved be certain and liquidated." The petition was dismissed.
SYCIP vs. CA
Facts: Jose K. Lapuz received from Albert Smith in Manila 2,000 shares of stock of the Republic Flour Mills, Inc. in
the name of Dwight Dill who had left for Honolulu. Jose K. Lapuz was supposed to sell his shares at present market
value out of which he was supposed to get certain commission. According to Jose K. Lapuz, the accused-appellant
approached him and told him that he had good connections in the Stock Exchange, assuring him that he could sell
them at a good price. Before accepting the offer of the accused-appellant to sell the shares of stock, Jose K. Lapuz
made it clear to him that the shares of stock did not belong to him and were shortly entrusted to him for sale. He
then gave the shares of stock to the accused-appellant who put them in the market. Thereafter, Jose K. Lapuz
received a letter from the accused-appellant informing him that 1,758 shares has been sold for a net amount of
P29,000.00, but that the transaction could not be concluded until they received the Power of Attorney duly
executed by Dwight Dill, appointing a person to endorse the certificate of stock, and a resolution from the
Biochemical Research Laboratory, Inc., authorizing the transfer of the certificate.
Jose K. Lapuz was able to secure a power of attorney of Dr. Dwight Dill, and gave it to the accused-appellant. The
power of attorney authorized the sale of 1,758 shares only; the difference of 242 shares were given back to
Biochemical Research Laboratory, Inc. Of the 1,758 shares of stock, the accused-appellant sold 758 shares for
P12,128.00 at P16.00 a share, for which Jose K. Lapuz issued a receipt. Jose K. Lapuz turned over to Albert Smith
the sum of P9,981.40 in payment of 758 shares of P14.00 a share.
Jose K. Lapuz wrote a letter to the accused-appellant authorizing him to sell 1,000 shares of Republic Flour Mills.
Later, the accused-appellant wrote a letter to Jose K. Lapuz confirming that 500 shares out of the 1,000 shares of
the Republic Flour has been sold. The accused-appellant sold and paid for the other 500 shares of stock, for the
payment of which Jose K. Lapuz issued in his favor a receipt.
The draft for P8,000.00, the full value of the 500 shares mentioned in the letter of the accused-appellant, was
dishonored by the bank, for lack of funds. When Lapuz found the accused-appellant, the latter gave him a check in
the amount of P5,000.00, which was also dishonored by the bank for lack of sufficient funds to cover it. Hence,
Lapuz filed an estafa case. Sycip contends that the provisions on compensation should apply since Lapuz still owed
him an amount of more than P5,000.00.
ISSUE: Whether or not the provisions on compensation should apply.
HELD: No. Compensation cannot take place in this case since the evidence shows that Jose K. Lapuz is only an agent
of Albert Smith and/or Dr. Dwight Dill. Compensation takes place only when two persons in their own right are
creditors and debtors of each other, and that each one of the obligors is bound principally and is at the same time a
principal creditor of the other. Moreover, as correctly pointed out by the trial court, Lapuz did not consent to the
off-setting of his obligation with petitioner's obligation to pay for the 500 shares.
COMPAIA MARITIMA, petitioner, vs. COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents.
G.R. No. L-51438 April 9, 1985 - 135 SCRA 593
1
st
Division: MELENCIO-HERRERA, J.: 6 JJ., concur.
FACTS: A charter contract was entered into between Pan Oriental Shipping Co., and the Shipping Administration
(REPUBLIC) owner of the vessel with the former given the option to purchase the vessel. Pan Oriental Shipping Co.,
shall cause the repair of the vessel, advancing the cost of labor and drydocking thereof, and the Shipping
Administration to furnish the necessary spare parts. The vessel was later judicially adjudicated to Froilan and its
successor Maritima and Pan Oriental Shipping Co., was divested of possession. the Shipping Administration and
Froilan and its successor Maritima were declared solidarily liable to Pan Oriental Shipping Co for reimbursement
of the useful and necessary expenses incurred on the vessel amounting to P40,797.54 with legal interest thereon
computed from the date of Pan Oriental Shipping Co.s dispossession on February 3, 1951 until fully paid but the
unpaid rentals amounting to P59,500.00 due O were deductible from the amount payable to Pan Oriental Shipping
Co., the Shipping Administration claimed compensation took place on February 3, 1951.
REPUBLICs allegation that PAN-ORIENTALs claim in the amount of P40,797.54 was extinguished by
compensation since the rentals payable by PAN-ORIENTAL amount to P59,500.00 while the expenses reach only
P40,797.54. Deducting the latter amount from the former, REPUBLIC claims that P18,702.46 would still be owing
by PANORIENTAL to REPUBLIC.
ISSUE: Did compensation take place between the Shipping Administration and Pan Oriental Shipping Co., as of
February 3, 1951, the date the latter was dispossessed of the vessel?
HELD: No. The Supreme Court, in disallowing compensation because the amount is not liquidated, said
More, the legal interest payable from February 3, 1951 on the sum of P40,797.54, representing useful expenses
incurred by PAN-ORIENTAL, is also still unliquidated since interest does not stop accruing until the expenses are
fully paid. That argument loses sight of the fact that to the sum of P40,797.54 will still have to be added the legal
rate of interest from February 3, 1951 until fully paid.
DOCTRINE: They be liquidated and demandable. The debt must be determined and certain. Thus compensation
cannot take place where one of the debts is not liquidated as when there is a running interest still to be paid
thereon.
THE INTERNATIONAL CORPORATE BANK INC., petitioner, vs.
THE IMMEDIATE APPELLATE COURT, et. al and NATIVIDAD M. FAJARDO, , respondents.
G.R. No. L-69560 June 30, 1988
163 SCRA 296
2
nd
Division: PARAS, J.: 3 JJ., concur.
FACTS: Private respondent secured from petitioner's predecessors-in-interest, the then Investment and
Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan in the amount of P50,000,000.00. To secure
this loan, private respondent mortgaged her real properties in Quiapo, Manila and in San Rafael, Bulacan, which
she claimed have a total market value of P110,000,000.00. Of this loan, only the amount of P20,000,000.00 was
approved for release. The same amount was applied to pay her other obligations to petitioner, bank charges and
fees. Thus, private respondent's claim that she did not receive anything from the approved loan.
On September 11, 1980, private respondent made a money market placement with ATRIUM in the amount of
P1,046,253.77 at 17% interest per annum for a period of 32 days or until October 13, 1980, its maturity date.
Meanwhile, private respondent allegedly failed to pay her mortgaged indebtedness to the bank so that the latter
refused to pay the proceeds of the money market placement on maturity but applied the amount instead to the
deficiency in the proceeds of the auction sale of the mortgaged properties. With Atrium being the only bidder, said
properties were sold in its favor for only P20,000,000.00. Petitioner claims that after deducting this amount,
private respondent is still indebted in the amount of P6.81 million.
Petitioner contends that after foreclosing the mortgage, there is still due from private respondent as deficiency the
amount of P6.81 million against which it has the right to apply or set off private respondent's money market claim
of P1,062,063.83.
The validity of the extra-judicial foreclosure sale and Bs claim for deficiency are still pending consideration in the
Regional Trial Court in the case for annulment of the sheriffs filed by P.
ISSUE: Whether or not there can be legal compensation in the case at bar?
HELD: No. As correctly pointed out by the respondent Court of Appeals Compensation shall take place when two
persons, in their own right, are creditors and debtors of each other. (Art. 1278, Civil Code). "When all the requisites
mentioned in Art. 1279 of the Civil Code are present, compensation takes effect by operation of law, even without
the consent or knowledge of the debtors." (Art. 1290, Civil Code). Article 1279 of the Civil Code requires among
others, that in order that legal compensation shall take place, "the two debts be due" and "they be liquidated and
demandable." Compensation is not proper where the claim of the person asserting the set-off against the other is
not clear nor liquidated; compensation cannot extend to unliquidated, disputed claim arising from breach of
contract. (Compaia General de Tabacos vs. French and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17 Phil.
29).
There can be no doubt that petitioner is indebted to private respondent in the amount of P1,062,063.83
representing the proceeds of her money market investment. This is admitted. But whether private respondent is
indebted to petitioner in the amount of P6.81 million representing the deficiency balance after the foreclosure of
the mortgage executed to secure the loan extended to her, is vigorously disputed. This circumstance prevents legal
compensation from taking place.
It must be noted that Civil Case No. 83-19717 is still pending consideration at the RTC Manila, for annulment of
Sheriffs sale on extra-judicial foreclosure of private respondent's property from which the alleged deficiency arose.
Therefore, the validity of the extrajudicial foreclosure sale and petitioner's claim for deficiency are still in question,
so much so that it is evident, that the requirement of Article 1279 that the debts must be liquidated and
demandable has not yet been met. For this reason, legal compensation cannot take place under Article 1290 of the
Civil Code.
MINDANAO PORTLAND CEMENT CORPORATION, petitioner,vs. COURT OF APPEALS, PACWELD STEEL CORPORATION
and ATTY. CASIANO P. LAQUIHON respondents. G.R. No. L-62169 February 28, 1983 - 120 SCRA 930
1
st
Division: TEEHANKEE, J.: 5, JJ., concur.
FACTS: On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld Steel Corporation
(Pacweld for short) as the latter's attorney, filed a pleading addressed to the defendant & Third-Party Plaintiff Mindanao
Portland Cement Corporation (MPCC) for short), herein appellant, entitled 'motion to direct payment of attorney's fee to
counsel' (himself ), invoking in his motion the fact that in the decision of the court of Sept. 14, 1976, MPCC was adjudged
to pay Pacweld the sum of P10,000.00 as attorney's fees
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion, stating, as grounds therefor, that said amount
is set-off by a like sum of P10,000.00 which it MPCC has collectible in its favor from Pacweld also by way of attorney's
fees which MPCC recovered from the same Court of First Instance of Manila (Branch XX) in Civil Case No. 68346, entitled
Pacweld Steel Corporation, et al. writ of execution to this effect having been issued by said court
On June 26, 1978 the court issued the order appealed from and despite MPCCs motion for reconsideration of said order,
citing the law applicable and Supreme Court decisions denied the same in its order of August 28, 1978 also subject
matter of this appeal.
ISSUE: Whether there is compensation?
HELD: Yes. The Supreme Court said there was compensation, thus: It is clear from the record that both corporations,
petitioner Mindanao Portland Cement Corporation (appellant) and respondent Pacweld Steel Corporation (appellee),
were creditors and debtors of each other, their debts to each other consisting in final and executory judgments of the
Court of First Instancein two (2) separate cases, ordering the payment to each other of the sum of P10,000.00 by way of
attorneys fees. The two (2) obligations, therefore respectively offset each other, compensation having taken effect by
operation of law and extinguished both debts to the concurrent amount of P10,000.00 pursuant to the provisions of
Arts. 1278, 1279 and 1290 of the Civil Code, since all the requisites provided in Article 1279 of the Code for automatic
compensation even though the creditors and debtors are not aware of the compensation were duly present.

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