DEATH OF A DEBTOR

Stronghold Insurance v Republic Asahi

Facts: Republic Asahi Glass contracts with
JDS for the construction of roadways and
drainage systems in RAG's compound. JDS
does so and files the required compliance
bond with Stronghold Insurance acting as
surety. The contract is 5.3M the bond is
795k. JDS falls woefully behind schedule,
prompting RAG to rescind the contract and
demand the compliance bond. The owner of
JDS dies and JDS disappears. SHI refuses to
pay the bond claiming that the death of JDS
owner extinguishes the obligation. Is SHI
right?
Held: As a general rule, the death of either the
creditor or the debtor does not extinguish the
obligation. Obligations are transmissible to the
heirs, except when the transmission is prevented
by the law, the stipulations of the parties, or the
nature of the obligation. Only obligations that are
personal or are identified with the persons
themselves are extinguished by death.
Furthermore, the liability of petitioner is
contractual in nature, because it executed a
performance bond, as a surety, petitioner is
solidarily liable with Santos in accordance with
the Civil Code.
TO WHOM PAYMENT SHALL BE MADE
Art. 1233 of the Civil Code, a debt shall not
be understood to have been paid unless the
thing or service in which the obligation
consists has been completely delivered or
rendered, as the case may be.
Art. 1240 of the Code states that payment
shall be made to the person in whose favor
the obligation has been constituted, or his
successor in interest, or any person
authorized to receive it.
PNB vs Tan
The burden of proving payment lies with the
debtor.
Where payment has been made to an agent,
aside from proving the existence of a Special
Power of Attorney, it is also necessary for
evidence to be presented regarding the

nature and extent of the alleged powers and

authority granted to the agent.
Only the original document is the best
evidence of the fact as to whether the
creditor authorized a third person to receive
the check from the debtor, and in the
absence of such document, the debtors
arguments regarding due payment must fail.
Culaba vs CA
Facts: Culaba sells SMB. One day, an agent
from SMB driving an SMB van drops by to
collect Culaba's balance, issuing SMB
receipts for the payment. Subsequently,
Culaba receives demand letters from SMB for
not paying his balance. The agent turns out
to be a spurious agent, and the receipts lost
receipts which had been published in the
papers as lost after the payment. Culaba
invokes articles 1240 and 1242 in his
defense. SMB's counsel invokes 1233, that
the burden of proof of payment is on the
debtor and that Culaba failed to exercise due
diligence when he failed to question the
irregular nature of the invoices as well as the
authority of the purported agent. Was Culaba
excused by his mistaken payment?
Held: Culaba failed to observe the due
diligence required in parting with such a
valuable consideration. He should have
verified the identity of the agent and his
authority to receive. He did not, thus he was
guilty of negligence, the effects of which not
even his claims of good faith can shield him
from. Culaba is liable to pay SMB.
Allied Banking vs Lim Sio Wan
Payment made by the debtor to a wrong
party does not extinguish the obligation as to
the creditor, if there is no fault or negligence
which can be imputed to the latter.
Even when the debtor acted in utmost good
faith and by mistake as to the person of his
creditor, or through error induced by the
fraud of a third person, the payment to one
who is not in fact his creditor, or authorized
to receive such payment, is void, except as
provided in Article 1241. Such payment does
not prejudice the creditor, and accrual of
interest is not suspended by it.

DATION IN PAYMENT
Elements of Pactum Commissorum which
enables the mortgagee to acquire ownership
of the mortgaged property without the need
of any foreclosure proceedings are:
1. There should be a property mortgaged by
way of security for the payment of the
principal obligation.
2. There should be a stipulation for
automatic appropriation by the creditor of
the thing mortgaged in case of non-payment
of the principal obligation within
the stipulated period.
For dacion en pago to exist, the following
elements must concur:
(a) existence of a money obligation;
(b) the alienation to the creditor of a
property by the
debtor with the consent
of the former; and
(c) satisfaction of the money obligation of
the debtor.
Estanislao vs East West Banking
Facts: On July 24, 1997, petitioner obtained a
loan from the respondent in the amount of
P3,925,000 evidenced by a promissory note
and secured by two deeds of chattel
mortgage covering two dump trucks and a
bull dozer . Petitioner defaulted entire
obligation became due and demandable. A
deed of assignment was drafted by the
respondent on October 6, 2000 and March 8,
2001 respectively. Petitioners completed the
delivery of heavy equipment mentioned in
the deed of assignment to respondent which
accepted the same without protest or
objection. Respondent manifested to admit
an amended complaint for the seizure and
delivery of two more heavy equipment which
are covered under the second deed of the
chattel mortgage. RTC ruled that the deed of
assignment and the petitioners delivery of
the
heavy
equipment
effectively
extinguished the petitioners obligation and
respondent as stopped. CA reversed the
decision
ordering
the
petitioner
the
outstanding debt of P4,275,919.69 plus
interests.

Issue: Did the Deed of Assignment operate to

extinguish
petitioners
debt
to
the
respondent such that the replevin suit could
no longer prosper?
Held: The deed of assignment was a
perfected agreement which extinguished
petitioners total outstanding obligation to
the
respondent.
The
nature
of
the
assignment was a dacion en pago whereby
property is alienated to the creditor in the
satisfaction of a debt in money. Since the
agreement was consummated by the
delivery of the last unit of heavy equipment
under the deed, petitioners are deemed to
have been released from all their obligations
from the respondents.
Ong vs Roban Lending
Facts: Petitioner spouses obtained several
loans from respondentsin the total amount of
P4M. These loans were secured by a real
estate mortgage.
The parties executed an Amendment to
Amended Real Estate Mortgage consolidating
their loans inclusive of charges thereon
which totaled to P5.9M.
The parties executed a Dacion in Payment
Agreement wherein petitioners assigned the
properties to respondent in settlement of
their total obligation.
Petitioners filed a complaint before RTC
Tarlac for the declaration of mortgage
contract as abandoned, accounting and
damages alleging that the MOA
and the Dacion in Payment executed are void
for being pactum commissorium.
Petitioners alleged that the loans extended
to them were founded on several P/N which
provided for 3.5% monthly interest rates, 5%
penalty per month on the
total amount due and demandable and 25%
attorney's fees. Petitioners decried these
additional
charges
as
illegal
and
unconscionable" as they hardly allow any
borrower any chance of survival in case of
default.
The respondent maintained the legality of its
transactions with petitioner stating the
Dacion is lawful and valid as it is recognized
under the Civil Code and that the
accumulated interest and other charges

computed for
reasonable
consideration
principal loan

more than 2 years would stand

and
valid
taking
into
that the
is P4M.

RTC: no pactum commissorium.

Complaint dismissed
CA: upheld RTC
Held: SC held that the challenged Court of
Appeals
Decisionis REVERSED and SETASIDE. The
Memorandum of Agreement and the
Dacion in Payment executed by petitionerspouses Wilfredo N. Ong and Edna Sheila
Paguio-Ong and respondent Roban Lending
Corporation
on February
12,
2001 are
declared NULL AND VOID for being pactum
commissorium. The monthly interest rate of
3.5% or 42% per annum unconscionable.
Ocampo vs Landbank
Facts: In 1991, Ocampo and her daughter,
Tan obtained from the Landbank a PhP10M
quedan loan upon issuance of promissory
notes guaranteed to pay Landbank their loan
but only up to 80% of the outstanding loan
plus interests at the time of maturity.
Pursuant thereto, Ocampo and Tan delivered
to Landbank quedans and executed a Deed
of Assignment covering 41,690cavans of
palay (equivalent to PhP9.996M
100% of the loan in favor of Quedancor.
Ocampo and Tan constituted a Real Estate
Mortgage
(REM)
over
2
parcels
of
unregistered land owned by Ocampo to
secure
the
remaining
20%. Such
encumbrance was annotated in the land title
when
Ocampo
filed
for
the
lands
registration.
When Ocampo failed to pay the 3 remaining
PNs on Oct. 2,1991, Landbank filed the
following:
Claim
for
guarantee
payment
with
Quedancor;
Criminal case of estafa against Ocampo for
disposing stocks of palay covered by the
quedans;
Extrajudicial foreclosure of REM (re: 20% of
loan)
The Ex-Officio Provincial Sheriff
a notice
of
Extrajudicial
Sale

issued
(Public

Auction).RTC issued TRO on the public

auction and favored Ocampo and Tan when
they filed a Complaint for Declaration of
Nullity and Damages with Application of a
Writ of Preliminary Injunction against
Landbank and the Sheriff on the basis on
forgery regarding the REM on the 20% of the
loan.
Upon Landbanks appeal, the CA granted its
petition and reversed the RTCs decision.
Issues:
WON
extinguished?

the

loan

was

already

Held: NO. The loan was not yet extinguished.

Ocampo claimed that she already paid the
quedan loan when she executed the Deed of
Assignment in favor of Quedancor. The loan
was between Ocampo and Landbank. Yet,
she did not include Landbank as party to
theDeedof Assignment.
Ocampo
hastily
executed the Deed of Assignment and
conveyed some of her properties to
Quedancor without prior notice to Landbank.
Dacion en pago is the delivery and
transmission of ownership of a thing by the
debtor to the creditor as an accepted
equivalent
of
the
performanceofanobligation. As properly ruled
by the CA, the required consent is absent in
this case. Landbank had no participation
much
less
consented
to
the
executionoftheDeedof Assignment. Hence, n
o extinguishment of loan can behad. Even if
the Deed of Assignment has the effect of
valid payment, the extinguishment is only up
to the extent of 80% of the quedan
loan. Thus, it leaves a balance of 20%which
can be fully satisfied by the foreclosure of
the REM. Petition denied.
Rockville vs Culla
In determining the nature of a contract,
courts are not bound by the title or name
given by the partiesthe decisive factor in
evaluating an agreement is the intention of
the parties, as shown, not necessarily by the
terminology used in the contract but, by their
conduct, words, actions and deeds prior to,
during and immediately after executing the
agreement.
If the parties had truly intended a dacion en
pago transaction to extinguish the Sps.
Cullas P2,000,000.00 loan and Oligario had

sold the property in payment for this debt, it

made no sense for him to continue to ask for
extensions of the time to pay the loan. More
importantly, Rockville would not have
granted the requested extensions to Oligario
if payment through a dacion en pago had
taken place. That Rockville granted the
extensions simply belied its contention that
they had intended a dacion en pago. No
agreement of sale was perfected between
Rockville and the Sps. Culla. On the contrary,
what they denominated as a Deed of
Absolute Sale was in fact an equitable
mortgage.
An equitable mortgage has been defined as
one which although lacking in some
formality, or form or words, or other
requisites
demanded
by
a
statute,
nevertheless reveals the intention of the
parties to charge real property as security for
a debt, there being no impossibility nor
anything contrary to law in this intent.
Typingco vs Lim
Facts: Respondents-spouses Lina Wong Lim
(Lina) and Johnson Sychingho (Johnson)
borrowed from petitioner Joseph Typingco
(Typingco) the sum of US$600,000 which was later
restructured, payable on or before December 31,
1997, under a promissory note executed by the
spouses and co-signed by their children-corespondents as sureties. Following their
default in payment, Lina, Jerry, and Jackson
conveyed on January 29, 1998 to Typingco
via dacion en pago their house and lot in
Greenhills, San Juan, covered by TCT No.
6259-R, after first paying respondent Far East
Bank and Trust Company (FEBTC) the
balance of a promissory note to clear the
title of a Real Estate Mortgage annotated
thereon in favor of FEBTC. However, FEBTC
refused to hand over the title, contending
that
the respondent-Sychinghos
had
unsettled obligations as sureties.
Issue: Whether or not respondent Sychinghos
had the right to sell or convey title to the
subject property at the time of the dacion en
pago
Held: Sychinghos had the right to convey
title. As there was no previous foreclosure of
the mortgage on the subject property,

Sychinghos
ownership
thereof remained
intact. Indeed, a mortgage does not affect
the ownership of the property as it is nothing
more than a lien thereon serving as security
for a debt. The mortgagee does not acquire
title thereto. Whatever obligation the
Sychinghos may still owe BPI (then FEBTC),
this is not a concern of petitioner as he is not
a party to the loan documents covering
it. Since petitioner agreed to the full
extinguishment of respondent-spouses then
outstanding obligation in view of the unconditional
conveyance to him of the subject property, there
is a perfected and enforceable dacion en
pago .
. He should thus enjoy full entitlement to the
subject property. However, surrender of the
certificate of title will not impair any existing
mortgage on the subject property. It is an
elementary principle in civil law that a real
estate mortgage subsists notwithstanding
changes in ownership, and all subsequent
purchasers of the property must respect the
mortgage.
Tan Shuy vs Maulawin
There is dation in payment when property is
alienated to the creditor in satisfaction of a
debt in money. Here, the debtor delivers and
transmits to the creditor the formers
ownership over a thing as an accepted
equivalent of the payment or performance of
an outstanding debt. In such cases, Article
1245 provides that the law on sales shall
apply, since the undertaking really partakes
in one senseof the nature of sale; that is,
the creditor is really buying the thing or
property of the debtor, the payment for
which is to be charged against the debtors
obligation. Dation in payment extinguishes
the obligation to the extent of the value of
the thing delivered, either as agreed upon by
the parties or as may be proved, unless the
parties by agreementexpress or implied, or
by their silenceconsider the thing as
equivalent to the obligation, in which case
the obligation is totally extinguished.
Dation in payment exists when there was
partial payment every time Guillermo
delivered copra to petitioner, chose not to
collect the net proceeds of his copra
deliveries, and instead applied the collectible
as installment payments for his loan from
Tan Shuy.The subsequent arrangement

between Tan Shuy and Guillermo can thus be

considered as one in the nature of dation in
payment. There was partial payment every
time Guillermo delivered copra to petitioner,
chose not to collect the net proceeds of his
copra deliveries, and instead applied the
collectible as installment payments for his
loan from Tan Shuy. We therefore uphold the
findings of the trial court, as affirmed by the
CA, that the net proceeds from Guillermos
copra deliveries amounted to P378,952.43.
With this partial payment, respondent
remains liable for the balance totaling
P1,047.57.
In case of doubt as to whether a transaction
is one of pledge or dacion en pago, the
presumption is that it is a pledge as this
involves a lesser transmission of rights and
interests. (Union Bank of the Philippines vs.
Juniat, 655 SCRA 19 [2011]).
EXTRAORDINARY INFLATION/ DEFLATION
Equitable PCI vs Ng Sheung Ngor
Facts: On October 7, 2001, respondents Ngor
and Go filed an action for amendment and/or
reformation of documents and contracts
against Equitable and its employees. They
claimed that they were induced by the bank
to avail of its peso and dollar credit facilities
by offering low interests so they accepted
and signed Equitables proposal. They
alleged that they were unaware that the
documents contained escalation clauses
granting Equitable authority to increase
interest without their consent. These were
rebutted by the bank. RTC ordered the use of
the 1996 dollar exchange rate in computing
respondents dollar-denominated loans. CA
granted the Banks application for injunction
but the properties were sold to public
auction.
Issue: Whether or not
extraordinary deflation

there

was

an

Held: Extraordinary inflation exists when

there is an unusual decrease in the
purchasing power of currency and such
decrease could not be reasonably foreseen
or was beyond the contemplation of the
parties at the time of the obligation.
Deflation is an inverse situation.

Despite the devaluation of the peso, BSP

never declared a situation of extraordinary
inflation. Respondents should pay their dollar
denominated loans at the exchange rate
fixed by the BSP on the date of maturity.
Decision of lower courts are reversed and set
aside.
Almeda vs Bathala Marketing
Facts: In May 1997, Bathala Marketng,
renewed its Contract of Lease with Ponciano
Almeda. Under the contract, Ponciano agreed
to lease a portion of Almeda Compound for a
monthly rental of P1,107,348.69 for four
years. On January 26, 1998, petitioner
informed respondent that its monthly rental
be increased by 73% pursuant to the
condition No. 7 of the contract and Article
1250. Respondent refused the demand and
insisted that there was no extraordinary
inflation to warrant such application.
Respondent refused to pay the VAT and
adjusted rentals as demanded by the
petitioners
but
continually
paid
the
stipulated amount. RTC ruled in favor of the
respondent and declared that plaintiff is not
liable for the payment of VAT and the
adjustment
rental,
there
being
no
extraordinary inflation or devaluation. CA
affirmed the decision deleting the amounts
representing
10%
VAT
and
rental
adjustment.
Issue: Whether the amount of rentals due the
petitioners should be adjusted by reason of
extraordinary inflation or devaluation
Held: Petitioners are stopped from shifting to
respondent the burden of paying the VAT. 6th
Condition states that respondent can only be
held liable for new taxes imposed after the
effectivity of the contract of lease, after
1977, VAT cannot be considered a new tax.
Neither can petitioners legitimately demand
rental adjustment because of extraordinary
inflation or devaluation. Absent an official
pronouncement or declaration by competent
authorities of its existence, its effects are not
to be applied. Petition is denied. CA decision
is affirmed.
APPLICATION OF PAYMENTS

Premiere Development Bank vs Central

Surety
The debtors right to apply payment is not
mandatory. Indeed, the debtors right to
apply payment has been considered merely
directory, and not mandatory, following this
Courts earlier pronouncement that the
ordinary acceptation of the terms may and
shall may be resorted to as guides in
ascertaining the mandatory or directory
character of statutory provisions.
It is the directory nature of the debtors right
to choose which obligations to apply a
particular payment and the subsidiary right
of the creditor to apply payments when the
debtor does not elect to do so that make this
right, like any other right, waivablerights
may be waived, unless the waiver is contrary
to law, public order, public policy, morals or
good customs, or prejudicial to a third person
with a right recognized by law.Article 1252
gives the right to the debtor to choose to
which of several obligations to apply a
particular payment that he tenders to the
creditor. But likewise granted in the same
provision is the right of the creditor to apply
such payment in case the debtor fails to
direct its application. This is obvious in Art.
1252, par. 2, viz.: If the debtor accepts from
the creditor a receipt in which an application
of payment is made, the former cannot
complain of the same. It is the directory
nature of this right and the subsidiary right
of the creditor to apply payments when the
debtor does not elect to do so that make this
right, like any other right, waivable. Rights
may be waived, unless the waiver is contrary
to law, public order, public policy, morals or
good customs, or prejudicial to a third person
with a right recognized by law.
If neither party has exercised its option, to
apply the payment, the court will apply the
payment according to the justice and equity
of the case, taking into consideration all its
circumstances.A debtor, in making a
voluntary payment, may at the time of
payment direct an application of it to
whatever account he chooses, unless he has
assigned or waived that right. If the debtor
does not do so, the right passes to the
creditor, who may make such application as
he chooses. But if neither party has
exercised its option, the court will apply the

payment according to the justice and equity

of the case, taking into consideration all its
circumstances.

TENDER OF PAYMENT AND

CONSIGNATION

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.- Requisites of an effective
consignation:
(1) there was a debt due;
(2) the consignation of the obligation had
been made because the creditor to whom
tender of payment was made refused to
accept it, or because he was absent or
incapacitated, or because several persons
claimed to be entitled to receive the amount
due or because the title to the obligation has
been lost;
(3) previous notice of the consignation
had been given to the person interested in
the performance of the obligation;
(4) the amount due was placed at the
disposal of the court; and
(5) after the consignation had been made the
person interested was notified thereof.

Pabugais vs Sahijwani
Facts: Pursuant to an "Agreement And
Undertaking", petitioner Teddy G. Pabugais,
in consideration of the amount of Fifteen
Million Four Hundred Eighty Seven Thousand
Five
Hundred
Pesos
(P15,487,500.00),
agreed to sell to respondent Dave
P.Sahijwani a lot containing 1,239 square
meters located at Jacaranda Street, North
Forbes
Park,
Makati,
Metro
Manila.
Respondent paid petitioner the amount of
P600,000.00 as option/reservation fee and
the balance of P14,887,500.00 to be paid
within 60 days from the execution of the
contract, simultaneous with delivery of the
owner's duplicate Transfer Certificate of Title
in respondent's name the Deed of Absolute

Sale; the Certificate of Non-Tax Delinquency

on real estate taxes and Clearance on
Payment of Association Dues. The parties
further agreed that failure on the part of
respondent to pay the balance of the
purchase price entitles petitioner to forfeit
the P600,000.00 option/reservation fee;
while non-delivery by the latter of the
necessary documents obliges him to return
to respondent the said option/reservation fee
with interest at 18% per annum.- Petitioner
failed to deliver the required documents. In
compliance with their agreement, he
returned
to
respondent
the
latter's
P600,000.00 option/reservation fee by way of
Far East Bank & Trust Company which was,
however, dishonored.
Petitioner's Claims
- He twice tendered to respondent, through
his
counsel,
the
amount
of
P672,900.00(representing the P600,000.00
option/reservation fee plus 18% interest per
annum computed from December 3, 1993 to
August 3, 1994) in the form of a check but
said counsel refused to accept the same (1stvia messenger; 2nd-via DHL) Because of
these refusals, he wrote a letter saying
saying that he is consigning the amount
tendered with the RTC Makati City.
Respondent's Claims
- Admitted that his office
received
petitioner's letter but claimed that no check
was appended thereto. He averred that there
was no valid tender of payment because no
check was tendered and the computation of
the amount to be tendered was insufficient,
because petitioner verbally promised to pay
3% monthly interest and25% attorney's fees
as penalty for default, in addition to the
interest of 18% per annum on the
P600,000.00 option/reservation fee
Issues:
1. WON there was a valid
consignation
2. WON the petitioner can withdraw
the amount consigned as a matter of
right
Held: 1. YES- If there is a valid tender of
payment in an amount sufficient to
extinguish the obligation, the consignation is
valid.
a. The amount tendered is sufficient since it
appears that only the interest of 18%per

annum
on
the
P600,000.00
option/reservation fee stated in the default
clause of the "Agreement And Undertaking"
was agreed upon by the parties.
b. petitioner's tender of payment in the form
of manager's check is valid even though it is
not a legal tender since he did not object to
the form.
2. NO- Withdrawal of the money consigned
would
enrich
petitioner
and
unjustly
prejudice respondent.
a. Article 1260 is not applicable here. It
provides that Once the consignation has
been duly made, the debtor may ask the
judge to order the cancellation of the
obligation
b. Respondent's prayer in his answer that the
amount consigned be awarded to him is
equivalent to an acceptance of the
consignation, which has the effect of
extinguishing petitioner's obligation.
c. Petitioner failed to manifest his intention
to comply with the "Agreement And
Undertaking" by delivering the necessary
documents and the lot subject of the sale to
respondent in exchange for the amount
deposited.
Disposition
The instant petition for review is DENIED and
the petitioner's obligation to respondent
under paragraph 5 of the "Agreement And
Undertaking" as having been extinguished, is
AFFIRMED
Llobrera vs Fernandez
Consignation based on Article 1256 of the
Civil Code indispensably requires a creditordebtor relationship between the parties, in
the absence of which, the legal effects
thereof cannot be availed of.The judgment
favoring the ejectment of petitioners being
consistent with law and jurisprudence can
only be affirmed. The alleged consignation of
the P20.00 monthly rental to a bank account
in respondents name cannot save the day
for the petitioners simply because of the
absence of any contractual basis for their
claim to rightful possession of the subject
property. Consignation based on Article 1256
of the Civil Code indispensably requires a
creditor-debtor relationship between the
parties, in the absence of which, the legal
effects thereof cannot be availed of.

Where the possession of the property by

certain persons is by mere tolerance of the
owner, the latter has no obligation to receive
any payment from them.Unless there is an
unjust refusal by a creditor to accept
payment from a debtor, Article 1256 cannot
apply. In the present case, the possession of
the property by the petitioners being by
mere tolerance as they failed to establish
through competent evidence the existence of
any contractual relations between them and
the respondent, the latter has no obligation
to receive any payment from them. Since
respondent is not a creditor to petitioners as
far as the alleged P20.00 monthly rental
payment is concerned, respondent cannot be
compelled to receive such payment even
through consignation under Article 1256. The
bank deposit made by the petitioners
intended as consignation has no legal effect
insofar as the respondent is concerned.
B.E. San Diego vs Alzul
A mere tender of payment is not enough to
extinguish an obligationabsent a valid
consignation, mere tender will not suffice to
extinguish an obligation; 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; Tender is the antecedent of
consignation, that is, an act preparatory to
the consignation, which is the principal, and
from which are derived the immediate
consequences which the debtor desires or
seeks to obtain.
Tender is the antecedent of consignation,
that is, an act preparatory to the
consignation, which is the principal, and from
which
are
derived
the
immediate
consequences which the debtor desires or
seeks to obtain. Tender of payment may be
extrajudicial,
while
consignation
is
necessarily judicial, and the priority of the
first is the attempt to make a private
settlement
before
proceeding
to
the
solemnities of consignation. Tender and
consignation, where validly made, produces
the effect of payment and extinguishes the
obligation. (Emphasis supplied.) There is no
dispute that a valid tender of payment had
been made by respondent. Absent however a

valid consignation, mere tender will not

suffice to extinguish her obligation and
consummate the acquisition of the subject
properties.
Solid Homes vs Laserna
If the creditor refuses the tender of payment
without just cause, the debtors are
discharged from the obligation by the
consignation of the sum dueconsignation is
made by depositing the proper amount with
the judicial authority, before whom the
tender of payment and the announcement of
the consignation shall be proved.Based on
the records of this case, respondents have
tendered payment in the amount of
P11,584.41, representing the balance of the
purchase price of the subject property, as
determined in the 10 August 1994 Decision
of the HLURB Board of Commissioners, and
affirmed by both the Office of the President
and the Court of Appeals. However, the
petitioner, without any justifiable reason,
refused to accept the same. In Ramos v.
Sarao, this Court held that tender of
payment is the manifestation by debtors of
their desire to comply with or to pay their
obligation. If the creditor refuses the tender
of payment without just cause, the debtors
are discharged from the obligation by the
consignation of the sum due. Consignation is
made by depositing the proper amount with
the judicial authority, before whom the
tender of payment and the announcement of
the consignation shall be proved. All
interested parties are to be notified of the
consignation.
Compliance
with
these
requisites is mandatory. In the case at bar,
after the petitioner refused to accept the
tender of payment made by the respondents,
the latter failed to make any consignation of
the sum due. Consequently, there was no
valid tender of payment and the respondents
are not yet discharged from the obligation to
pay the outstanding balance of the purchase
price of the subject property.
DOCTRINE OF UNFORESEEN EVENTS
Phil. Natl Construction vs CA
Article 1266 of the Civil Code is an exception
to the principle of the obligatory force of

contracts.It is a fundamental rule that

contracts, once perfected, bind both
contracting parties, and obligations arising
there from have the force of law between the
parties and should be complied with in good
faith. But the law recognizes exceptions to
the principle of the obligatory force of
contracts. One exception is laid down in
Article 1266 of the Civil Code, which reads:
The debtor in obligations to do shall also be
released when the prestation becomes
legally or physically impossible without the
fault of the obligor.
Said article is applicable only to obligations
to do and not to obligations to give.
Petitioner cannot, however, successfully take
refuge in the said article, since it is
applicable only to obligations to do, and
not obligations to give. An obligation to
do includes all kinds of work or service;
while an obligation to give is a prestation
which consists in the delivery of a movable
or an immovable thing in order to create a
real right, or for the use of the recipient, or
for its s imple possession, or in order to
return it to its owner.
The obligation to pay rentals or deliver the
thing in a contract of lease falls within the
prestation to give; hence, it is not covered
within the scope of Article 1266.The
obligation to pay rentals or deliver the thing
in a contract of lease falls within the
prestation to give; hence, it is not covered
within the s cope of Article 1266. At any rate,
the unforeseen event and causes mentioned
by petitioner are not the legal or physical
impossibilities contemplated in the said
article. Besides, petitioner failed to state
specifically the circumstances brought about
by the abrupt change in the political climate
in the country except the alleged prevailing
uncertainties in government policies on
infrastructure projects.
Under the theory of rebus sic stantibus, the
parties stipulate in the light of certain
prevailing conditions and once these
conditions cease to exist, the contract also
ceases to exist.The principle of rebus sic
stantibus neither fits in with the facts of the
case. Under this theory, the parties stipulate
in the light of certain prevailing conditions,
and once these conditions cease to exist, the
contract also ceases to exist. This theory is

said to be the basis of Article 1267 of the

Civil Code, which provides: ART. 1267. When
the service has become so difficult as to be
manifestly beyond the contemplation of the
parties, the obligor may also be released
there from, in whole or in part.
Mere pecuniary inability to fulfill an
engagement
does
not
discharge
a
contractual obligation, nor does it constitute
a defense to an action for specific
performance.Anent petitioners alleged
poor financial condition, the same will
neither release petitioner from the binding
effect of the contract of lease. As held in
Central Bank v. Court of Appeals, cited by
private respondents, mere pecuniary inability
to fulfill an engagement does not discharge a
contractual obligation, nor does it constitute
a defense to an action for specific
performance.
The motive or particular purpose of a party in
entering into a contract does not affect the
validity nor existence of the contract, except
when the realization of such motive or
particular purpose has been m ade a
condition upon which the contract is made to
depend.With
regard
to
the
nonmaterialization of petitioners particular
purpose in entering into the contract of
lease, i.e., to use the leased premises as a
site of a rock crushing plant, the same will
not invalidate the contract. The cause or
essential purpose in a contract of lease is the
use or enjoyment of a thing. As a general
principle, the motive or particular purpose of
a party in entering into a contract does not
affect the validity nor existence of the
contract; an exception is when the realization
of such motive or particular purpose has
been made a condition upon which the
contract is made to depend. The exception
does not apply here.

So vs Food Fest Land

The parties to the contract must be
presumed to have assumed the risks of
unfavorable developments.As for Food
Fests invocation of the principle of rebus sic
stantibus as enunciated in Article 1267 of the
Civil Code to render the lease contract
functus officio, and consequently release it

from responsibility to pay rentals, the Court

is not persuaded.
Article 1267 provides: When the service has
become so difficult as to be manifestly
beyond the contemplation of the parties, the
obligor may also be released therefrom, in
whole or in part. This article, which
enunciates the doctrine of unforeseen
events, is not, however, an absolute
application of the principle of rebus sic
stantibus, which would endanger the security
of contractual relations. The parties to the
contract must be presumed to have assumed
the risks of unfavorable developments. It is,
therefore, only in absolutely exceptional
changes of circumstances that equity
demands assistance for the debtor.
Contracts, once perfected, are binding
between the contracting partiesobligations
arising therefrom have the force of law and
should be complied with in good faith.
Contracts, once perfected, are binding
between the contracting parties. Obligations
arising therefrom have the force of law and
should be complied with in good faith. Food
Fest cannot renege from the obligations it
has freely assumed when it signed the lease
contract.

It is clear from the facts that FEBTC and

Noahs Ark are both principal obligors and
creditors of each other. Their debts to each
other both consist in a sum of money. As
discussed above, the eight promissory notes
of Noahs Ark are all due; and the lease
payments owed by FEBTC become due each
month. Noahs Arks debt is liquidated and
demandable; and FEBTCs lease payments
are liquidated and are demandable every
month as they fall due. Lastly, there is no
retention or controversy commenced by third
persons over either of the debts.
Novation did not occur as private respondent
argued. The Court has declared that a
contract cannot be novated in the absence of
a new contract executed between the
parties. The legal compensation, which was
acknowledged by FEBTC in its May 19, 1998
letter, occurred by operation of law, as
discussed above. As a consequence, it
cannot be considered a new contract
between the parties. Hence, the loan
agreement, as embodied in the promissory
notes and the real estate mortgage, subsists.
Since the compensation between the parties
occurred by operation of law, FEBTC did not
waive Noahs Arks default.

COMPENSATION
BPI vs CA
Art. 1278. Compensation shall take place
when two persons, in their own right, are
creditors and debtors of each other.
Art. 1279. In order that compensation may
be proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time
a principal creditor of the other;
(2) That both debts consist in a sum of
money, or if the things due are consumable,
they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by
third persons and communicated in due time
to the debtor.
BPI vs CA

Legal compensation operates even against

the will of the interested parties and even
without
the
consent
of
them.More
importantly, the respondent court erred
when it failed to rule that legal compensation
is proper. Compensation shall take place
when two persons, in their own right, are
creditors and debtors of each other. Article
1290 of the Civil Code provides that when
all the requisites mentioned in Article 1279
are present, compensation takes effect by
operation of law, and extinguishes both
debts to the concurrent amount, even
though the creditors and debtors are not
aware
of
the
compensation.
Legal
compensation operates even against the will
of the interested parties and even without
the
consent
of
them.
Since
this
compensation takes place ipso jure, its
effects arise on the very day on which all its
requisites concur. When used as a defense, it

retroacts to the date when its requisites are

fulfilled.
Elements of legal compensation are all
present in the case at bar.The elements of
legal compensation are all present in the
case at bar. The obligors bound principally
are at the same time creditors of each other.
Petitioner bank stands as a debtor of the
private respondent, a depositor. At the same
time, said bank is the creditor of the private
respondent with respect to the dishonored
U.S. Treasury Warrant which the latter
illegally transferred to his joint account. The
debts involved consist of a sum of money.
They are due, liquidated, and demandable.
They are not claimed by a third person.
The rule as to mutuality is strictly applied at
law but not in equity.To frustrate the
application of legal compensation on the
ground that the parties are not all mutually
obligated would result in unjust enrichment
on the part of the private respondent and his
wife who herself out of honesty has not
objected to the debit. The rule as to
mutuality is strictly applied at law. But not in
equity, where to allow the same would
defeat a clear right or permit irremediable
injustice.

PNB vs CA
In view of the foregoing, the Court is of the
opinion that the parties are not both
principally bound with respect to the
$2,627.11 from Jeddah; neither are they at
the same time principal creditor of the other.
Therefore, as matters stand, the parties
obligations are not subject to compensation
or set off under Art. 1279 of the Civil Code,
for the reason that the defendant is not a
principal debtor nor is the plaintiff a principal
creditor insofar as the amount of $2,627.11
is concerned. They are debtor and creditor
only with respect to the double payments;
but are trustee-beneficiary as to the fund
transfer of $2,627.11.
Only the plaintiff is principally bound as a
debtor of the defendant to the extent of the
double credits. On the other hand, the
defendant was an implied trustee, who was
obliged to deliver to the Citibank for the
benefit of the plaintiff the sum of $2,627.11.

Thus while it may be concluded that the

plaintiff owes the defendant the equivalent
of the sums of $5,179.23 and $5,885.38
erroneously doubly credited to his account,
the defendants actuation in intercepting the
amount of $2,627.11 supposed to be
remitted to another bank is not only
improper; it will also erode the trust and
confidence of the international banking
community in the banking system of the
country, something we can ill afford at this
time when we need to attract and invite
deposits of foreign currencies.
EGV Realty vs CA
Facts: Petitioner E.G.V. Realty Development
Corporation is the owner/developer of a
seven-storey condominium building known
as
Cristina
Condominium.
Cristina
Condominium Corporation holds title to all
common areas of Cristina Condominium and
is in charge of managing, maintaining and
administering the condominiums common
areas and providing for the buildings
security. Respondent Unisphere International,
Inc. (hereinafter referred to as Unisphere) is
the owner/occupant of Unit 301 of said
condominium. On November 28, 1981,
respondent Unispheres Unit 301 was
allegedly robbed of various items valued at
P6,165.00. The incident was reported to
petitioner CCC. On July 25, 1982, another
robbery allegedly occurred at Unit 301 where
the items carted away were valued at
P6,130.00, bringing the total value of items
lost to P12,295.00. This incident was likewise
reported to petitioner CCC. On October 5,
1982, respondent Unisphere demanded
compensation and reimbursement from
petitioner CCC for the losses incurred as a
result of the robbery. On January 28, 1987,
petitioners E.G.V. Realty and CCC jointly filed
a petition with the Securities and Exchange
Commission (SEC) for the collection of the
unpaid monthly dues in the amount of
P13,142.67 against respondent Unisphere.
Issue:
Whether
or
not
set-off
or
compensation has taken place in the instant
case.
Held: Compensation or offset under the New
Civil Code takes place only when two persons

or entities in their own rights, are creditors

and debtors of each other. (Art. 1278).
A distinction must be made between a debt
and a mere claim. A debt is an amount
actually ascertained. It is a claim which has
been formally passed upon by the courts or
quasi-judicial bodies to which it can in law be
submitted and has been declared to be a
debt. A claim, on the other hand, is a debt in
embryo. It is mere evidence of a debt and
must pass thru the process prescribed by law
before it develops into what is properly
called a debt. Absent, however, any such
categorical admission by an obligor or final
adjudication, no compensation or off-set can
take place. Unless admitted by a debtor
himself, the conclusion that he is in truth
indebted to another cannot be definitely and
finally pronounced, no matter how convinced
he may be from the examination of the
pertinent records of the validity of that
conclusion the indebtedness must be one
that is admitted by the alleged debtor or
pronounced by final judgment of a
competent court or in this case by the
Commission.
There can be no doubt that Unisphere is
indebted to the Corporation for its unpaid
monthly dues in the amount of P13,142.67.
This is admitted.
Trinidad vs Acapulco
Compensation takes effect by operation of
law even without the consent or knowledge
of the parties concerned when all the
requisites mentioned in Article 1279 of the
Civil Code are present.
Article 1290. When all the requisites
mentioned in article 1279 are present,
compensation takes effect by operation of
law, and extinguishes both debts to the
concurrent amount, even though the
creditors and debtors are not aware of the
compensation.
Since compensation takes place ipso jure,
when used as a defense, it retroacts to the
date when all its requisites are fulfilled.
Bank of the Philippine Islands v. Court of
Appeals also held that compensation shall
take place when two persons, in their own

right, are creditors and debtors of each

other; legal compensation takes place by
operation of law and may be taken up even
though it is not raised in the pleadings or
during trial; it is the duty of courts to grant
the relief to which the parties are entitled as
shown by the allegations and the facts
proven at the trial; here, while petitioner
claimed dation in payment, there was more
than enough testimony and admissions to
prove elements of legal compensation;
failure to pay the agreed purchase price does
not make the contract of sale fictitious and
null and void.
Indeed, the doctrine that higher courts are
precluded from entertaining matters neither
alleged in the pleadings nor raised during the
proceedings below but ventilated for the first
time only in a motion for reconsideration or
on appeal, is subject to exceptions, such as
when:
(a) grounds not assigned as errors but
affecting jurisdiction over the subject matter;
(b) matters not assigned as errors on appeal
but are evidently plain or clerical errors
within contemplation of law;
(c) matters not assigned as errors on appeal
but consideration of which is necessary in
arriving at a just decision and complete
resolution of the case or to serve the
interests of justice or to avoid dispensing
piecemeal justice;
(d) matters not specifically assigned as
errors on appeal but raised in the trial court
and are matters of record having some
bearing on the issue submitted which the
parties failed to raise or which the lower
court ignored;
(e) matters not assigned as errors on appeal
but closely related to an error assigned; and
(f) matters not assigned as errors on appeal
but upon which the determination of a
question properly assigned, is dependent.
Phil Commercial
Balmaceda

Bank

Intl

Bank vs

A bank does not have a unilateral right to

freeze the account of a depositor based on
its mere suspicion that the funds therein
were proceeds of some shady transactions;
For legal compensation to take place, two
persons, in their own right, must first be
creditors and debtors of each other.We also

find that PCIB acted illegally in freezing and

debiting Ramos bank account. We see no
legal merit in PCIBs claim that legal
compensation took place between it and
Ramos, thereby warranting the automatic
deduction from Ramos bank account. For
legal compensation to take place, two
persons, in their own right, must first be
creditors and debtors of each other. While
PCIB, as the depositary bank, is Ramos
debtor in the amount of his deposits, Ramos
is not PCIBs debtor under the evidence the
PCIB adduced. PCIB thus had no basis, in fact
or in law, to automatically debit from Ramos
bank account.