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Civil Law Review II 3rd Assignment

35. Land Bank v. Ong (2010) circumstances of the instant case show that the second
paragraph of Art. 1236 does not apply. As Alfredo made
Facts: the payment for his own interest and not on behalf of
the Spouses Sy, recourse is not against the latter. And
Spouses Johnson and Evangeline Sy obtained a
as Alfredo was not paying for another, he cannot
loan from Land Bank in the amount of P16 million
demand from the debtors, the Spouses Sy, what he has
secured by three residential lots, five cargo trucks and
paid.
a warehouse. They later found that the could no longer
pay for the loan, so they sold the three parcels of land The Supreme Court also disagreed with the CAs
to Angelina Gloria Ong, Evangelines mother, under a ruling that novation took place in this case. Art. 1293
Deed of Sale with Assumption of Mortgage. states that Novation which consists in substituting a
new debtor in the place of the original one, may be
Evangelines father, Alfredo Ong, went to Land
made even without the knowledge or against the will of
Bank to inquire about the transaction. He was told that
the latter, but not without the consent of the creditor.
there was nothing wrong with the agreement, and that
Payment by the new debtor gives him rights mentioned
he should pay part of the principal which was
in articles 1236 and 1237. We do not agree, then, with
computed at P750,000 as a requirement for the
the CA in holding that there was a novation in the
assumption of mortgage. Alfredo did what he was told,
contract between the parties. Not all the elements of
but his application for assumption of mortgage was not
novation were present. Novation must be expressly
approved, because the Ongs had a real estate
consented to. Moreover, the conflicting intention and
mortgage in the amount of P18,300,000 with another
acts of the parties underscore the absence of any
bank that was past due. Land Bank eventually
express disclosure or circumstances with which to
foreclosed the mortgages of the Spouses Sy.
deduce a clear and unequivocal intent by the parties to
Alfredo sued Land Bank for the collection of his novate the old agreement.
P750,000, claiming that he was lured into believing
Whether or not Alfredo Ong has an interest in the
that his payment would cause Land Bank to approve
obligation and payment was made with the knowledge
his assumption of the loan of the Spouses Sy. The RTC
or consent of Spouses Sy, he may still pay the
and CA ruled in favor of Alfredo. Land Bank contended
obligation for the reason that even before he paid the
that Art. 1236 of the Civil Code backs their claim that
amount of P750,000.00 on January 31, 1997, the
Alfredos recourse should be with the Spouses Sy
substitution of debtors was already perfected by and
instead of Land Bank.
between Spouses Sy and Spouses Ong as evidenced by
Issue: Whether or not Alfredos recourse should be a Deed of Sale with Assumption of Mortgage executed
with Spouses Sy. by them on December 9, 1996. And since the
substitution of debtors was made without the consent
Held: No. Art. 1236 provides: of Land Bank a requirement which is indispensable in
The creditor is not bound to accept payment or order to effect a novation of the obligation, it is
performance by a third person who has no interest in the therefore not bound to recognize the substitution of
fulfillment of the obligation, unless there is a stipulation debtors. Land Bank did not intervene in the contract
to the contrary. between Spouses Sy and Spouses Ong and did not
Whoever pays for another may demand from the expressly give its consent to this substitution.
debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can 36. Lo v. KJS Eco-Formwork System Phil (2003)
recover only insofar as the payment has been beneficial
to the debtor. Facts:

We agree with Land Bank on this point as to the Sonny Lo, doing business under the name Sans
first part of paragraph 1 of Art. 1236.Land Bank was Enterprises, ordered scaffolding equipment from KJS
not bound to accept Alfredos payment, since as far as worth P540,425.80. Lo paid a down payment of
the former was concerned, he did not have an interest P150,000 and the balance was to be paid in 10
in the payment of the loan of the Spouses Sy. However, monthly installments. KJS delivered the scaffoldings to
in the context of the second part of said paragraph, Lo, who paid the first two installments. However, his
Alfredo was not making payment to fulfill the obligation business encountered financial difficulties and he was
of the Spouses Sy. Alfredo made a conditional payment unable to settle his obligation despite oral and written
so that the properties subject of the Deed of Sale with demands.
Assumption of Mortgage would be titled in his name. It Lo and KJS executed a Deed of Assignment,
is clear from the records that Land Bank required whereby Lo assigned to KJS his receivables in the
Alfredo to make payment before his assumption of amount of P335,462.14 from Jomero Realty
mortgage would be approved. He was informed that Corporation. The agreement also stipulated: The
the certificate of title would be transferred accordingly. ASSIGNOR further agrees and stipulates as aforesaid
He, thus, made payment not as a debtor but as a that the said ASSIGNOR, his heirs, executors,
prospective mortgagor. administrators, or assigns, shall and will at times
Alfredo, as a third person, did not, therefore, have hereafter, at the request of said ASSIGNEE, its
an interest in the fulfillment of the obligation of the successors or assigns, at his cost and expense, execute
Spouses Sy, since his interest hinged on Land Banks and do all such further acts and deeds as shall be
approval of his application, which was denied. The reasonably necessary to effectually enable said
ASSIGNEE to recover whatever collectibles said
Civil Law Review II 3rd Assignment

ASSIGNOR has in accordance with the true intent and Arroyo acted as TCCs surety. When the goods arrived
meaning of these presents. in the Philippines, TCC executed a trust receipt
agreement with the bank, but it later on failed to pay
When KJS tried to collect the said credit from the bank. Thus, PNB repossessed the machinery and
Jomero, it refused to honor the Deed of Assignment equipment. Spouses Arroyo also failed to settled their
because it claimed that Lo was also indebted to it. KJS obligations, so the La Vista Property was foreclosed
sent a letter to Lo demanding payment but he refused with PNB winning the bid. However, when said property
claiming that his obligation had been extinguished was about to be awarded to PNB, the representative of
when they executed the Deed of Assignment. the mortgagor-spouses objected and demanded from
KJS sued Lo for collection. the PNB the difference between the bid price of
P1,000,001.00 and the indebtedness of P499,060.25 of
Issue: Whether or not the Deed of Assignment the Arroyo spouses on their personal account. It was
extinguished Los obligation. the contention of the spouses Arroyo's representative
Held: No. In dacion en pago as a special mode of that the foreclosure proceedings referred only to the
payment, the debtor offers another thing to the personal account of the mortgagor spouses without
creditor who accepts it as equivalent of payment of an reference to the account of TCC. To remedy the
outstanding debt. The undertaking really partakes in situation, PNB filed a supplemental petition on August
one sense of the nature of sale the creditor is really 13, 1975 requesting the Sheriff's Office to proceed with
buying the thing or property of the debtor, payment for the sale of the subject real properties to satisfy not
which is to be charged against the debtors debt. only the amount of P499,060.25 owed by the spouses
Arroyos on their personal account but also the amount
The assignment of credit, which is in the nature of of P35,019,901.49 exclusive of interest, commission
a sale of personal property, produced the effects of a charges and other expenses owed by said spouses as
dation in payment, which may extinguish the sureties of TCC.
obligation. However, as in any other contract of sale,
the vendor or assignor is bound by certain warranties. TCC filed a complaint against PNB, seeking the
Paragraph 1 of Article 1628 of the Civil Code provides: issuance of a writ of preliminary injunction to restrain
The vendor in good faith shall be responsible for the the foreclosure of the mortgages over the real
existence and legality of the credit at the time of the properties as well as a declaration that its obligation
sale, unless it should have been sold as doubtful; but with PNB had been fully paid by reason of the latters
not for the solvency of the debtor, unless it has been repossession of the imported machinery and
so expressly stipulated or unless the insolvency was equipment.
prior to the sale and of common knowledge. Issue: Whether or not TCCs liability has been
Lo, as assignor, is bound to warrant the existence extinguished by the repossession of PNB of the
and legality of the credit at the time of the sale or machinery and equipment.
assignment. When Jomero claimed that it was no Held: No. The banks repossession of the goods
longer indebted to Lo since the latter also had an subject of a trust receipt does not extinguish the
unpaid obligation to it, it essentially meant that its entrustees obligation. Neither can said repossession
obligation to Lo has been extinguished by amount to dacion en pago. Dation in payment takes
compensation. As a result, KJS alleged the non- place when property is alienated to the creditor in
existence of the credit and asserted its claim to Los satisfaction of a debt in money and the same is
warranty under the assignment. Lo was therefore governed by sales. Dation in payment is the delivery
required to make good its warranty and pay the and transmission of ownership of a thing by the debtor
obligation. to the creditor as an accepted equivalent of the
Furthermore, Lo breached his obligation under the performance of the obligation. As aforesaid, the
Deed of Assignment as he did not execute and do all repossession of the machinery and equipment in
such further acts and deeds as shall be reasonably question was merely to secure the payment of TCC's
necessary to effectually enable said ASSIGNEE to loan obligation and not for the purpose of transferring
recover whatever collectibles said ASSIGNOR has in ownership thereof to PNB in satisfaction of said loan.
accordance with the true intent and meaning of these Thus, no dacion en pago was ever accomplished.
presents. By warranting the existence of the credit, Lo Proceeding from this finding, PNB has the right to
should have ensured its performance in case it is found foreclose the mortgages executed by the spouses
to be inexistent. He should be held liable to pay to KJS Arroyo as sureties of TCC. A surety is considered in law
the amount of his indebtedness. as being the same party as the debtor in relation to
whatever is adjudged touching the obligation of the
37. PNB v. Pineda (1991)
latter, and their liabilities are interwoven as to be
Facts: inseparable. As sureties, the Arroyo spouses are
primarily liable as original promissors and are bound
Spouses Ignacio and Tuason Arroyo obtained a loan immediately to pay the creditor the amount
of P580,000 secured by La Vista, a parcel of land, in outstanding.
order to acquire the controlling interest of Tayabas
Cement Company, Inc. (TCC). Thereafter, TCC applied Under Presidential Decree No. 385 which took
for the opening of L/C in the amount of $7 million in effect on January 31, 1974, government financial
favor of Toyo Menka Kaisha to cover the importation of institutions like herein petitioner PNB are required to
a cement plant machinery and equipment. Spouses foreclose on the collaterals and/or securities for any
Civil Law Review II 3rd Assignment

loan, credit or accommodation whenever the Ruling:


arrearages on such account amount to at least twenty
1 No. We uphold the appellate court on this
percent (20%) of the total outstanding obligations,
issue.
including interests and charges, as appearing in the
books of account of the financial institution concerned. This case concerns a joint obligation, which is
It is further provided therein that "no restraining order, defined as an obligation where there is a concurrence
temporary or permanent injunction shall be issued by of several creditors, or of several debtors, or of several
the court against any government financial institution debtors, or of several creditors and debtors, by virtue
in any action taken by such institution in compliance of which each of the creditors has a right to demand,
with the mandatory foreclosure provided in Section 1 and each of the debtors is bound to render, compliance
hereof, whether such restraining order, temporary or with his proportionate part of the prestation which
permanent injunction is sought by the borrower(s) or constitutes the object of the obligation. Article 1208 of
any third party or parties . . ." the Civil Code mandates the equal sharing of creditors
in the payment of debt in the absence of any law or
38. PCIB v. CA (2006) stipulation to the contrary.
Facts: PCIB is adamant in claiming that it only received
The petitioner PCIB and Manila Banking P6,819,766.10 as its share in the downpayment. To
Corporation (MBC) are owners of mining machineries prove its allegation, PCIB presented its own receipt
and equipment previously owned by Philippine Iron wherein it was clearly stated that PCIB received from
Mines, Inc. The said machineries and equipment was Atlas the amount of P6,819,766.10.
sold to respondent Atlas by PCIB and MBC. The It is beyond dispute that Atlas issued Hongkong
contract of sale freed Atlas of any liens and Shanghai Bank Check No. 003842 in the sum of
encumbrances that NAMAWU (National Mines Allied P12,000,000.00 with PCIB and MBC as joint payees as
Workers Union) might have against the said downpayment of the purchase price on 12 February
machineries. As an initial payment, Atlas paid Php 1979. The check was received by Porfirio Cabalu, Jr., a
12,000,000 of the total amount Php 29,000,000 value PCIB Vice-President. As admitted by the parties during
of the machineries. trial, the check was afterwards deposited in the
On the following day, PCIB and MBC wrote Atlas account of MBC. Therefore, it is reasonable to conclude
requesting that subsequent installment payments of that the amount received by PCIB, as evidenced by the
the balance be made in the following proportions: PCIB receipt, was given to it by MBC. The appellate court
63.1579% and MBC - 36.8421%. The request was arrived at the same conclusion, to wit:
expressed through a lettersigned by Ruben G. Asedillo Apparently, after the check was deposited in the
and Porfirio Q. Cabalu, Vice Presidents respectively of account of MBC, the latter issued its MBC Check No.
MBC and PCIB. The balance were paid in subsequent 1652661 in the amount of P6,819,766.10 to PCIB,
installments. properly receipted under Official Receipt No. 466652 of
During the period of payments, Atlas received a PCIB. In other words, what the appellee herein
final order of garnishment arising from the claim or lien receipted was the share given to it by Manilabank.
of NAMAWU with the machineries amount to Php 4M. It Undeniably, there was yet no agreement as of that
then paid the said amount and credited the same to date concerning the corresponding share of each
the balance of the purchase price it is supposed to pay creditor. It was only on 8 March 1979 when PCIB
with PCIB and MBC. communicated to Atlas the percentage of payments to
Atlas then claimed that it had already paid the be remitted to PCIB and MBC. Before said date, Atlas
whole obligation and even overpaid its obligation. With could be secure in the thought that the matter of
this, PCIB filed a collection case against Atlas. It sharing was best left to the creditors to decide.
claimed that it did not fully receive its 63% share in the Thus, we agree with the appellate courts
purchase price. conclusion that whatever deficiency PCIB is entitled
The trial court ruled in favor of PCIB and ordered from the P12,000,000.00 down payment had become
Atlas to pay the remaining balance that PCIB claims. an internal matter between it and MBC. The obligation
On appeal, the CA reversed the decision of the trial was deemed fulfilled to the extent of P12,000,000.00
court and ruled that Atlas had indeed made an on the part of Atlas when the check was received by a
overpayment. It ruled that the sharing between PCIB representative of PCIB and eventually deposited in the
and MBC (63-38% sharing) is an internal matter for account of MBC.
which Atlas is not a privy.
Issue: 2 Article 1236 of the Civil Code applies in this
1 Whether or not Atlas can be held liable for the instance. It provides that whoever pays for
remaining balance of the 63% share of PCIB in another may demand from the debtor what he
the purchase price. has paid, except that if he paid without the
knowledge or against the will of the debtor, he
2 Whether or not Atlas can credit the whole can recover only insofar as the payment has
amount of Php 4M against its obligation with been beneficial to the debtor.
PCIB.
Civil Law Review II 3rd Assignment

PCIB is the debtor in this case, it having purchased constituted, or his successor-in-interest, or any person
along with MBC legally garnished properties, while authorized to receive it. In this case, the payments
Atlas is the third person who paid the obligation of the were purportedly made to a supervisor of the private
debtor without the latters knowledge and consent. respondent, who was clad in an SMC uniform and drove
Since Atlas readily paid NAMAWU without the an SMC van. He appeared to be authorized to accept
knowledge and consent of PCIB, Atlas may only recover payments as he showed a list of customers
from PCIB or, more precisely charge to PCIB, only the accountabilities and even issued SMC liquidation
amount of payment which has benefited the latter. receipts which looked genuine. Unfortunately for
petitioner Francisco Culaba, he did not ascertain the
Generally, the third person who paid anothers identity and authority of the said supervisor, nor did he
debt is entitled to recover the full amount he had paid. ask to be shown any identification to prove that the
The law, however, limits his recovery to the amount by latter was, indeed, an SMC supervisor. The petitioners
which the debtor has been benefited, if the debtor has relied solely on the mans representation that he was
no knowledge of, or has expressed his opposition to collecting payments for SMC. Thus, the payments the
such payment. Where the defenses that could have petitioners claimed they made were not the payments
been set up by the debtor against the creditor were that discharged their obligation to the private
existing and perfected, a payment by a third person respondent. Negligence is the omission to do
without the knowledge of the debtor cannot obligate something which a reasonable man, guided by those
the debtor to such third person to an amount more considerations which ordinarily regulate the conduct of
than what he could have been compelled by the human affairs, would do, or the doing of something,
creditor to pay. Thus, if the debt has been remitted, which a prudent and reasonable man would not do.] In
paid, compensated or prescribed, a payment by a third the case at bar, the most prudent thing the petitioners
person would constitute a payment of what is not due; should have done was to ascertain the identity and
his remedy would be against the person who received authority of the person who collected their payments.
the payment under such conditions, and not against Failing this, the petitioners cannot claim that they
the debtor who did not benefit from the payment. acted in good faith when they made such payments.
The trial court correctly ruled that the overpayment Their claim therefor is negated by their negligence, and
amounting to P601,260.00 should be recovered from they are bound by its consequences. Being negligent in
NAMAWU. The remedy of Atlas in this case would be to this regard, the petitioners cannot seek relief on the
proceed, not against PCIB, but against NAMAWU who basis of a supposed agency.
was paid in excess, applying the principle that no
40. Towne & City Development Corporation v. CA
person can unjustly enrich himself at the expense of
(2004)
another.
Facts:
39. Culaba v. CA and SMC (2004)
Guillermo Voluntad and Towne & City Development
Facts: Corporation (Towne) entered into a contract for the
The spouses engaged in the sale and distribution of construction of buildings and repairs amounting to
San Miguel Corporations (SMC) beer products. SMC around P1 million. When the works were finished,
sold beer products on credit to the Culaba spouses. Guillermo demanded for his fees but was unpaid, so he
Thereafter, the Culaba spouses made a partial filed a collection suit against Towne.
payment, leaving an unpaid balance. As they failed to Towne, through its corporate secretary, contended
pay despite repeated demands, SMC filed an action for that cash or check payments to Guillermo were made,
collection of a sum of money against them . The adding that he acknowledged payments with his
defendant-spouses denied any liability, claiming that signatures on the vouchers.
they had already paid the plaintiff in full on four
separate occasions. To substantiate this claim, the Issue: Whether or not the vouchers proved that
defendants presented four (4) Temporary Charge Sales Guillermo was paid.
(TCS) Liquidation Receipts. According to the trial court,
Held: No. A voucher is not necessarily an evidence of
it was unusual that defendant Francisco Culaba forgot
payment. It is merely a way or method of recording or
the name of the collector to whom he made the
keeping track of payments made. A procedure adopted
payments and that he did not require the said collector
by companies for the orderly and proper accounting of
to print his name on the receipts. According to the
funds disbursed. Unless it is supported by an actual
petitioners, receiving receipts from the private
payment like the issuance of a check which is
respondents agents instead of its salesmen was a
subsequently encashed or negotiated, or an actual
usual occurrence, as they had been operating the store
payment of cash duly receipted for as is customary
since 1979.
among businessmen, a voucher remains a piece of
Issue Whether or not petitioners are liable to pay paper having no evidentiary weight.
again.
A receipt is a written and signed acknowledgment
Held: Yes, payment must be made to true creditor not that money has been or goods have been delivered,
on impostor; they were negligent. Payment is a mode while a voucher is documentary record of a business
of extinguishing an obligation.Article 1240 of the Civil transaction.
Code provides that payment shall be made to the
The references to alleged check payments in the
person in whose favor the obligation has been
vouchers presented by the petitioner do not vest them
Civil Law Review II 3rd Assignment

with the character of receipts. Under Article 1249 of money from respondent. In fact, petitioners total loan
the Civil Code, payment of debts in money has to be obligation to respondent has reached over millions of
made in legal tender and the delivery of mercantile pesos. Petitioner has transacted business with
documents, including checks, shall produce the effect respondent several times. Among others, they include
of payment only when they have been cashed, or when transactions involving a pacto de retro sale which is
through the fault of the creditor they have been the subject of another pending case between the
impaired. parties and loans amounting to P2M and P1M, secured
by deeds of real estate mortgage and chattel
From the text of the Civil Code provision, it is clear mortgage, respectively. As the lower court correctly
that there are two exceptions to the rule that payment pointed out, petitioner apparently knows how to take
by check does not extinguish the obligation. Neither care of her business dealings. Thus, on October 21,
exception is present in this case. Concerning the first, 1992 and February 22, 1993, she caused the execution
petitioner failed to produce the originals of the checks of two documents entitled Discharge of Real Estate
after their supposed encashment and even the bank Mortgage and Discharge of Chattel Mortgage,
statements although the supposed payments by check respectively, when she paid respondent the full
were effected only about 5 years before the filing of consideration of the promissory notes of P2M and P1M,
the collection suit. Anent the second exception, the wherein the mortgages served as security for the
doctrine is that it does not apply to instruments payment of said notes. Similarly, petitioner, upon
executed by the debtor himself and delivered to the payment of P1M to respondent on November 13, 1992,
creditor. Indubitably, that is not the situation in this retrieved the Metrobank Check No. 114675 dated
case. August 20, 1992 which she issued as security to
41. Coronel v. Capati (2005) respondent. Interestingly, in the case of the two checks
subject matter of this litigation, petitioner did not even
Facts: demand their return from respondent, notwithstanding
her claim that she has paid in full her loan obligation.
Noemi Coronel obtained two loans evidenced by All she presented was a letter ordering Metrobank
two handwritten instruments from Encarnacion Capati. Guagua to stop payment of the checks without proof
The first amounted to P121,000 and the other that it has been received by, nor actually sent to
P363,000. Coronel issued two check which both Metrobank Guagua.
bounced.
42. Sps. Bonrostro v. Sps. Luna (2013)
Capati sued Coronel for sum of money.
Coronel denied the existence of the loan, claiming Facts:
that the checks she issued were actually for payment Constancia Luna, as buyer, entered into a Contract
of a previous loan amounting to P1.01 million which to Sell with Bliss Development Corporation over a
had long been paid. She added that Capati still house and lot. Later on, Constancia, this time as seller,
deposited the two checks despite full payment, entered into another Contract to Sell with Lourdes
because of a dispute they had over interest rates. As Bonrostro over the same property for P1,250,000.
for the two handwritten instruments evidencing the Except for the down payment, Lourdes failed to pay
loans, Coronel claimed that those were formerly blank any of the stipulated subsequent amortization
sheets of paper which Capati made her to sign. payments.
The RTC and the CA ruled in favor of Capati. Spouses Luna filed a complaint for rescission
Issue: Whether or not Coronels defense is against Spouses Bonrostro.
meritorious. The RTC ruled that the delay was not a substantial
Held: No. When the existence of a debt is fully breach and denied rescission, while the CA held that
established by the evidence contained in the record, since the contract was a Contract to Sell, rescission is
the burden of proving that it has been extinguished by not the proper remedy. The CA, however, ruled that
payment devolves upon the debtor who offers such Lourdes should pay interests for being in delay.
defense to the claim of the creditor. Even where Spouses Bonrostro that they have sent a letter
respondent-creditor who was plaintiff in the lower signifying their willingness to pay, which, according to
court, alleges non-payment, the general rule is that the them, was tantamount to a valid tender of payment.
onus rests on the petitioner-debtor who was defendant Hence, they cannot be made to pay interest
in the lower court, to prove payment, rather than on subsequent to the date of the letter. Neither should
the plaintiff-creditor to prove nonpayment. The debtor they be ordered to pay interest on the amount of
has the burden of showing with legal certainty that the P214,492.62 which covers the amortizations paid by
obligation has been discharged by payment. This, the spouses Luna to Bliss. They point out that it was
Coronel failed to do. Constancia who prevented them from fulfilling their
Time and again, we have held that one who is of obligation to pay the amortizations when she
age and a businesswise is presumed to have acted instructed Bliss not to accept payment from them.
with due care and to have signed the documents in Issue: Whether or not there was valid tender of
question with full knowledge of its contents and payment.
consequences. Petitioner is not one ignorant, illiterate
person who could be easily duped into signing blank Held: No. Tender of payment "is the manifestation by
sheets of papers. She has borrowed large sums of the debtor of a desire to comply with or pay an
Civil Law Review II 3rd Assignment

obligation. If refused without just cause, the tender of of the condition or the mere placing of ineffective
payment will discharge the debtor of the obligation to obstacles to its compliance, without actually
pay but only after a valid consignation of the sum due preventing fulfillment is not sufficient for the
shall have been made with the proper court." application of Art. 1186. Two requisites must concur for
"Consignation is the deposit of the proper amount with its application, to wit: (1) intent to prevent fulfillment of
a judicial authority in accordance with rules prescribed the condition; and, (2) actual prevention of compliance.
by law, after the tender of payment has been refused
In this case, while it is undisputed that Constancia
or because of circumstances which render direct
indeed instructed Bliss on March 4, 1994 not to accept
payment to the creditor impossible or inadvisable."
payment from anyone but her, there is nothing on
Tender of payment, without more, produces no record to show that Bliss heeded the instruction of
effect." "To have the effect of payment and the Constancia as to actually prevent the spouses
consequent extinguishment of the obligation to pay, Bonrostro from making payments to Bliss. There is no
the law requires the companion acts of tender of showing that subsequent to the said letter, the spouses
payment and consignation. Bonrostro attempted to make payment to and was
refused by Bliss. Neither was there a witness presented
According to Sen. Arturo Tolentino: When a tender to prove that Bliss indeed gave effect to the instruction
of payment is made in such a form that the creditor contained in Constancias letter. While Bliss Project
could have immediately realized payment if he had Development Officer, Mr. Ariel Cordero, testified during
accepted the tender, followed by a prompt attempt of trial, nothing could be gathered from his testimony
the debtor to deposit the means of payment in court by regarding this except for the fact that Bliss received
way of consignation, the accrual of interest on the the said letter. In view of these, the spouses Luna could
obligation will be suspended from the date of such not be said to have placed an effective obstacle as to
tender. But when the tender of payment is not actually prevent the spouses Bonrostro from making
accompanied by the means of payment, and the amortization payments to Bliss.
debtor did not take any immediate step to make a
consignation, then interest is not suspended from the 43. Peoples Industrial Com. Corp. v. CA
time of such tender.
Facts:
Here, the subject letter merely states Lourdes
willingness and readiness to pay but it was not Marick Investment Corporation (Marick), as seller,
accompanied by payment. She claimed that she made entered into a Contract to Sell with Peoples Industrial
numerous telephone calls to Atty. Carbon reminding and Commercial Corporation (Peoples) over six
the latter to collect her payment, but, neither said subdivision lots in Cainta. After a lapse of 10 years,
lawyer nor Constancia came to collect the payment. Peoples still had not fully paid for the lots. Later on, the
After that, the spouses Bonrostro took no further steps parties agreed to cancel the previous contract and
to effect payment. They did not resort to consignation enter into a new Contract to Sell involving seven lots.
of the payment with the proper court despite The new contract was not signed by either party.
knowledge that under the contract, non-payment of Thereafter, Peoples issued five checks which were
the installments on the agreed date would make them received but not encashed by Marick.
liable for interest thereon. The spouses Bonrostro Marick filed a complaint for accion publiciana
erroneously assumed that their notice to pay would against Peoples.
excuse them from paying interest. Their claimed tender
of payment did not produce any effect whatsoever The RTC and the CA both held that the parties did
because it was not accompanied by actual payment or not enter into a new contract in accordance with Art.
followed by consignation. Hence, it did not suspend the 1403(2) of the Civil Code as the parties did not sign the
running of interest. The spouses Bonrostro are new contract. Receipt by Marick of the five checks
therefore liable for interest on the subject installments could not amount to perfection of the contract,
from the date of default until full payment of the sums because it never encashed and benefited from those
of P300,000.00 and P330,000.00. checks.
The spouses Bonrostro are likewise liable for People argued for the validity of the subsequent
interest on the amount paid by the spouses Luna to Contract to Sell, pointing out the checks it issued to
Bliss as amortization. The spouses Bonrostro want to Marick.
be relieved from paying interest on the amount of
Issue: Whether or not the subsequent Contract to Sell
P214,492.62 which the spouses Luna paid to Bliss as
was validly perfected.
amortizations by asserting that they were prevented by
the latter from fulfilling such obligation. They invoke Held: No. The number of lots to be sold is a material
Art. 1186 of the Civil Code which provides that "the component of the contract to sell. Without an
condition shall be deemed fulfilled when the obligor agreement on the matter, the parties may not in any
voluntarily prevents its fulfillment." However, the Court way be considered as having arrived at a contract
finds Art. 1186 inapplicable to this case. The said under the law. The parties failure to agree on a
provision explicitly speaks of a situation where it is the fundamental provision of the contract was aggravated
obligor who voluntarily prevents fulfillment of the by petitioners failure to deposit the installments agreed
condition. Here, Constancia is not the obligor but the upon. Neither did it attempt to make a consignation of
obligee. Moreover, even if this significant detail is to be installments.
ignored, the mere intention to prevent the happening
Civil Law Review II 3rd Assignment

The mere sending of a letter by the vendee Issue: Whether or not Eternal Gardens was justified in
expressing the intention to pay, without the withholding payment.
accompanying payment, is not considered a valid
Held: No. EGMPC under the agreement had the
tender of payment. Besides, a mere tender of payment
obligation to remit monthly to NPUM forty percent
is not sufficient to compel private respondents to
(40%) of its net gross collection from the development
deliver the property and execute the deed of absolute
of a memorial park on property owned by NPUM. The
sale. It is consignation which is essential in order to
same agreement provided for the designation of a
extinguish petitioners obligation to pay the balance of
depository/trustee bank to act as the
the purchase price. The rule is different in case of an
depository/trustee for all funds collected by EGMPC.
option contract or in legal redemption or in a sale with
There was no obstacle, legal or otherwise, to the
right to repurchase, wherein consignation is not
compliance by EGMPC of this provision in the contract,
necessary because this cases involves an exercise of a
even on the affectation that it did not know to whom
right privilege (to buy, redeem, or repurchase) rather
payment was to be made. Even disregarding the
than the discharge of the obligation, hence tender of
agreement, EGMPC cannot suspend payment on the
payment would be sufficient to preserve the right or
pretext that it did not know who among the subject
privilege.This is because the provision on consignation
propertys claimants was the rightful owner. It had a
are not applicable when there is no obligation to pay. A
remedy under the New Civil Code of the Philippines - to
contract to sell, as in the case before us, involves the
give in consignation the amounts due, as these fell
performance of an obligation, not merely the exercise
due. Consignation produces the effect of payment.
of the privilege or a right. Consequently, performance
or payment may be effected not by tender of payment The rationale for consignation is to avoid the
alone but by both tender and consignation. performance of an obligation becoming more onerous
to the debtor by reason of causes not imputable to
As earlier noted, petitioner did not lift a finger
him. For its failure to consign the amounts due, Eternal
towards the performance of the contract other than the
Gardens obligation to NPUM necessarily became more
tender of down payment. There is no record that it
onerous as it became liable for interest on the amounts
even bothered to tender payment of the installments
it failed to remit. Notably, EGMPC filed an interpleader
or to amend the contract to reflect the true intention of
action, the essence of which, aside from the disavowal
the parties as regards the number of lots to be sold.
of interest in the property in litigation on the part of the
Indeed, by petitioners inaction, private respondents
petitioner, is the deposit of the property or funds in
may not be judicially enjoined to validate a contract
controversy with the court. Yet from the outset, EGMPC
that the former appeared to have taken for granted. As
had assailed any court ruling ordering the deposit with
in the earlier agreements, petitioner ignored
a reputable bank of the amounts due from it under the
opportunities to resuscitate a contract to sell that was
Land Development Agreement.
rendered moribund and inoperative by its inaction.
45. Naga Telephone Co., Inc. v. CA (1994)
44. Eternal Gardens Memorial Park Corporation
v. CA (1997) Facts:
Facts: Naga Telephone Co. Inc. (Natelco) and Camarines
Sur II Electronic Cooperative, Inc. (Casureco) entered
Eternal Gardens and North Philippine Union Mission
into a contract whereby Natelco would use Casurecos
of the Seventh Day Adventists (NPUM) entered into a
10 electric light posts in the operation of the formers
Land Development Agreement under which Eternal
telephone service.
Gardens was to develop a parcel of land owned by
NPUM into a memorial park. They stipulated that NPUM Ten year later, Casureco filed an Action for
was to receive 40% of Eternal Gardenss net gross Reformation of Contract against Natelco, alleging that:
collection from the development of a memorial park on (1) The contract was too one-sided in favor of Natelco,
the property owned by NPUM. But later on, Maysilo that the contract was not in conformity with the
Estate and the heirs of a certain Vicente Singson guidelines of the National Electrification Administration,
Encarnacion also claimed the land over which the that the telephone cables strung by them on the posts
memorial park was to be built. Thus, Eternal Gardens have become much heavier with the increase in the
filed an Action for Interpleader against Maysilo Estate volume of their subscribers, worsened by the fact that
and NPUM. Eternal Gardens refused to comply with the their linemen bore holes through the posts at which
courts order to deposit whatever amounts are due points those posts were broken during typhoons, and
from it with a reputable bank. that a post now costs much more than it used to
before; and (2) Natelco had been using 319 other posts
When the case reached the CA, it upheld the
which were not part of the contract.
validity of NPUMs title and ordered Eternal Gardens to
pay NPUM the amounts of P167,065,195.00 as principal The RTC ruled in favor of Casureco. The CA
and P167,235,451.00 in interest. affirmed, citing Art. 1267 of the Civil Code which
provides: When the service has become so difficult as
One of Eternal Gardenss contention was that it
to be manifestly beyond the contemplation of the
was not liable for interest as it was justified in
parties, the obligor may also be released therefrom, in
withholding payment, because there was still the
whole or in part.
unresolved issue of ownership over the property
subject of the Land Development Agreement.
Civil Law Review II 3rd Assignment

Natelco contended that Art. 1267 does not apply and 2) private respondent to pay petitioner the
because its contract with Casureco did not really monthly dues of all its telephones at the same rate
involve rendition of service. being paid by the public beginning January, 1989. The
peculiar circumstances of the present case, as
Issue: Whether or not Art. 1267 applies. distinguished further from the Occea case,
Held: Yes. Article 1267 speaks of "service" which has necessitates exercise of our equity jurisdiction.
become so difficult. Taking into consideration the The Supreme Court quoted the CAs decision: In
rationale behind this provision, the term "service" affirming said ruling, we are not making a new contract
should be understood as referring to the "performance" for the parties herein, but we find it necessary to do so
of the obligation. In the present case, the obligation of in order not to disrupt the basic and essential services
private respondent consists in allowing petitioners to being rendered by both parties herein to the public and
use its posts in Naga City, which is the service to avoid unjust enrichment by appellant at the expense
contemplated in said article. Furthermore, a bare of plaintiff.
reading of this article reveals that it is not a
requirement thereunder that the contract be for future 46. Lepanto Ceramics, Inc. v. Lepanto Ceramics
service with future unusual change. According to Employees Association (2010)
Senator Arturo M. Tolentino, Article 1267 states in our
law the doctrine of unforseen events. This is said to be Facts:
based on the discredited theory of rebus sic stantibus Respondent Lepanto Ceramics Employees
in public international law; under this theory, the Association (respondent Association) is a legitimate
parties stipulate in the light of certain prevailing labor organization duly registered with the Department
conditions, and once these conditions cease to exist of Labor and Employment. It is the sole and exclusive
the contract also ceases to exist. Considering practical bargaining agent in the establishment of petitioner. In
needs and the demands of equity and good faith, the December 1998, petitioner gave a P3,000.00 bonus to
disappearance of the basis of a contract gives rise to a its employees, members of the respondent Association.
right to relief in favor of the party prejudiced. Subsequently,in September 1999, petitioner and
The Supreme Court discussed the Occena case respondent Association entered into a Collective
where it did not apply Art. 1267 because the party Bargaining Agreement (CBA) which provides for,
invoking it was not seeking a release from its contract; among others, the grant of a Christmas gift
rather, it was asking the court to modify the contract: package/bonus to the members of the respondent
The cited article (Article 1267) does not grant the Association.
courts (the) authority to remake, modify or revise the The Christmas bonus was one of the enumerated
contract or to fix the division of shares between the existing benefit, practice of traditional rights which
parties as contractually stipulated with the force of law shall remain in full force and effect. In the succeeding
between the parties, so as to substitute its own terms years, 1999, 2000 and 2001, the bonus was not in
for those covenanted by the parties themselves. cash.Instead, petitioner gave each of the members of
Respondent's complaint for modification of contract respondent Association Tile Redemption Certificates
manifestly has no basis in law and therefore states no equivalent to P3,000.00.The bonus for the year 2002 is
cause of action. Under the particular allegations of the root of the present dispute.Petitioner gave a year-
respondent's complaint and the circumstances therein end cash benefit of Six Hundred Pesos (P600.00) and
averred, the courts cannot even in equity grant the offered a cash advance to interested employees
relief sought. equivalent to one (1) month salary payable in one
The ruling in the Occea case is not applicable year.The respondent Association objected to the
because we agree with respondent court that the P600.00 cash benefit and argued that this was in
allegations in private respondent's complaint and the violation of the CBA it executed with the petitioner. The
evidence it has presented sufficiently made out a parties failed to amicably settle the dispute.The
cause of action under Article 1267. We, therefore, respondent Association filed a Notice of Strike with the
release the parties from their correlative obligations National Conciliation Mediation Board.The efforts to
under the contract. However, our disposition of the conciliate failed.
present controversy does not end here. We have to The case was then referred to the Voluntary
take into account the possible consequences of merely Arbitrator for resolution where the Complaint was
releasing the parties therefrom: petitioners will remove docketed as Case No. LAG-PM-12-095-02.The Voluntary
the telephone wires/cables in the posts of private Arbitrator rendered a Decision declaring that petitioner
respondent, resulting in disruption of their service to is bound to grant each of its workers a Christmas
the public; while private respondent, in consonance bonus of P3,000.00 for the reason that the bonus was
with the contract will return all the telephone units to given prior to the effectivity of the CBA between the
petitioners, causing prejudice to its business. We shall parties and that the financial losses of the company is
not allow such eventuality. Rather, we require, as not a sufficient reason to exempt it from granting the
ordered by the trial court: 1) petitioners to pay private same.It stressed that the CBA is a binding contract and
respondent for the use of its posts in Naga City and in constitutes the law between the parties.The Voluntary
the towns of Milaor, Canaman, Magarao and Pili, Arbitrator further expounded that since the employees
Camarines Sur and in other places where petitioners had already been given P600.00 cash bonus, the same
use private respondent's posts, the sum of ten (P10.00) should be deducted from the claimed amount of
pesos per post, per month, beginning January, 1989; P3,000.00, thus leaving a balance of P2,400.00.
Civil Law Review II 3rd Assignment

Petitioner elevated the case to the Court of Appeals 47. Trans. Pacific Ind. V. CA (1994)
which affirmed toto the decision of the Voluntary
Arbitrator Facts:

Issue: Whether or not petitioner is still bound to give Petitioner Trans-Pacific obtained several loans from
its employees the P3,000 Christmas bonuses. respondent Associated Bank evidenced by four
promissory notes, a real estate mortgage and a chattel
Held: Yes. By definition, a bonus is a gratuity or act of mortgage over shares of stocks. As Trans-Pacific was
liberality of the giver. It is something given in addition not able to pay in full, Associated Bank granted a
to what is ordinarily received by or strictly due the restructuring of the remaining indebtedness for which
recipient. A bonus is granted and paid to an employee three new promissory notes were executed. The
for his industry and loyalty which contributed to the mortgaged parcels of land were substituted by another
success of the employer's business and made possible mortgage covering two other parcels of land and a
the realization of profits.A bonus is also granted by an chattel mortgage on petitioner's stock inventory. The
enlightened employer to spur the employee to greater released parcels of land were then sold and the
efforts for the success of the business and realization proceeds amounting to P1,386,614.20, according to
of bigger profits.Generally, a bonus is not a petitioner, were turned over to the bank and applied to
demandable and enforceable obligation. For a bonus to Trans-Pacific's restructured loan. Subsequently,
be enforceable, it must have been promised by the respondent bank returned the duplicate original copies
employer and expressly agreed upon by the parties. of the three promissory notes to Trans-Pacific with the
Given that the bonus in this case is integrated in the word "PAID" stamped thereon. Despite the return of the
CBA, the same partakes the nature of a demandable notes, or on December 12, 1985, Associated Bank
obligation.Verily, by virtue of its incorporation in the demanded from Trans-Pacific payment of the amount of
CBA, the Christmas bonus due to respondent P492,100.00 representing accrued interest on PN No.
Association has become more than just an act of TL-9077-82. According to the bank, the promissory
generosity on the part of the petitioner but a notes were erroneously released.
contractual obligation it has undertaken.
Petitioner filed an action for specific performance
A CBA refers to a negotiated contract between a before the RTC, praying that the mortgage over the two
legitimate labor organization and the employer, parcels of land be released and its stock inventory be
concerning wages, hours of work and all other terms lifted and that its obligation to the bank be declared as
and conditions of employment in a bargaining unit. As fully paid. The RTC ruled in favor of petitioner, but the
in all other contracts, the parties to a CBA may CA reversed.
establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided Applying the legal presumption provided by Art.
these are not contrary to law, morals, good customs, 1271 of the Civil Code, the trial court ruled that
public order or public policy. It is a familiar and petitioner has fully discharged its obligation by virtue
fundamental doctrine in labor law that the CBA is the of its possession of the documents (stamped "PAID")
law between the parties and they are obliged to evidencing its indebtedness. Respondent court
comply with its provisions. This principle stands strong disagreed and held, among others, that the documents
and true in the case at bar. A reading of the provision found in possession of Trans-Pacific are mere duplicates
of the CBA reveals that the same provides for the and cannot be the basis of petitioner's claim that its
giving of a Christmas gift package/bonus without obligation has been fully paid. Accordingly, since the
qualification. Terse and clear, the said provision did not promissory notes submitted by petitioner were
state that the Christmas package shall be made to duplicates and not the originals, the delivery thereof by
depend on the petitioner's financial standing. The respondent bank to the petitioner does not merit the
records are also bereft of any showing that the application of Article 1271 (1st par.) of the Civil Code
petitioner made it clear during CBA negotiations that which reads: The delivery of a private document
the bonus was dependent on any condition. Indeed, if evidencing a credit, made voluntarily by the creditor to
the petitioner and respondent Association intended the debtor, implies the renunciation of the action which
that the P3,000.00 bonus would be dependent on the the former had against the latter. Respondent court is
company's earnings, such intention should have been of the view that the above provision must be construed
expressed in the CBA. All given, business losses are a to mean the original copy of the document evidencing
feeble ground for petitioner to repudiate its obligation the credit and not its duplicate.
under the CBA. The rule is settled that any benefit and Issue: Whether or not petitioner has paid in full its
supplement being enjoyed by the employees cannot be obligation.
reduced, diminished, discontinued or eliminated by the
employer. The principle of non-diminution of benefits is Held: No. At the onset, the Supreme Court held that
founded on the constitutional mandate to protect the the CA erred in saying that the documents were
rights of workers and to promote their welfare and to inadmissible as in fact the documents presented were
afford labor full protection. Hence, absent any proof duplicate originals. Nevertheless, the Court held that
that petitioners consent was vitiated by fraud, mistake the presumption created by the Art. 1271 of the Civil
or duress, it is presumed that it entered into the CBA Code is not conclusive but merely prima facie. If there
voluntarily and had full knowledge of the contents be no evidence to the contrary, the presumption
thereof and was aware of its commitments under the stands. Conversely, the presumption loses its legal
contract. efficacy in the face of proof or evidence to the contrary.
In the case before us, we find sufficient justification to
Civil Law Review II 3rd Assignment

overthrow the presumption of payment generated by knowledge of the creditors and debtors. Article 1279
the delivery of the documents evidencing petitioners requires, among others, that in order that legal
indebtedness. It may not be amiss to add that Article compensation shall take place, "the two debts be due"
1271 of the Civil Code raises a presumption, not of and "they be liquidated and demandable."
payment, but of the renunciation of the credit where Compensation is not proper where the claim of the
more convincing evidence would be required than what person asserting the set-off against the other is not
normally would be called for to prove payment. The clear nor liquidated; compensation cannot extend to
rationale for allowing the presumption of renunciation unliquidated, disputed claim existing from breach of
in the delivery of a private instrument is that, unlike contract.
that of a public instrument, there could be just one
Undoubtedly, petitioner admits the validity of its
copy of the evidence of credit. Where several originals
outstanding accounts with private respondent in the
are made out of a private document, the intendment of
amount of P 22,213.75 as contained in its answer. But
the law would thus be to refer to the delivery only of
whether private respondent is liable to pay the
the original original rather than to the original
petitioner a 20% margin or commission on the subject
duplicate of which the debtor would normally retain a
sale to Dole Philippines, Inc. is vigorously disputed. This
copy. It would thus be absurd if Article 1271 were to be
circumstance prevents legal compensation from taking
applied differently.
place. The Court agrees with respondent appellate
In this case, the RTC relied solely on a disputable court that there is no evidence on record from which it
presumption and did not consider evidence presented can be inferred that there was any agreement between
showing that petitioner has in fact not fully settled its the petitioner and private respondent prohibiting the
obligations to respondent bank. Hence, petitioner must latter from selling directly to Dole Philippines,
still pay what it owes respondent bank. Incorporated. Definitely, it cannot be asserted that the
debit memo was a contract binding between the
48. Silahis v. IAC (2010) parties considering that the same, as correctly found
by the appellate court, was not signed by private
Facts:
respondent nor was there any mention therein of any
Gregorio de Leon, doing business under the name commitment by the latter to pay any commission to
of Mark Industrial Sales, was selling and delivering to the former involving the sale of sprockets to Dole
Silahis Marketing Corporation various merchandise Philippines, Inc. in the amount of P 111,000.00. Indeed,
covered by several invoices amounting to P22,213.75. such document can be taken as self-serving with no
But due to Silahis sailure to pay, Gregorio filed a probative value absent a showing or at the very least
collection suit. By way of affirmative defense and an inference, that the party sought to be bound
counterclaim, Silahis claimed that it was entitled to assented to its contents or showed conformity thereto.
P22,200 as commission for the sale of sprockets in the
amount of P111,000 made directly by Gregorio to Dole 49. Lao v. Special Pans, Inc. (2010)
Philippines without coursing the same through it. Facts:
The RTC ruled in favor of Silahis, but the CA The petitioners Selwyn Lao and Edgar Manansala,
reversed, finding no evidence of any agreement that together with Benjamin Jim, entered into a Contract of
Silahis was entitled to the commission it was claiming. Lease with respondent Special Plans Inc. (SPI) over a
Issue: Whether or not Silahis debt should be offset by building in Quezon Avenue to be used as premises for
the commission it claimed to be entitled to. their karaoke and restaurant business known as
Saporro Restaurant.
Held: No. It must be remembered that compensation
takes place when two persons, in their own right, are Later on, SPI sued petitioners for sum of money
creditors and debtors to each other. Article 1279 of the due to non-payment of rentals amounting to
Civil Code provides that: In order that compensation P118,000.00 (later found by the courts to be actually
may be proper, it is necessary: P95,000.00). In their defense, petitioners argued that
they are entitled to set off their debts for the expenses
1. that each one of the obligors be bound they incurred amounting to P545,000 for repairs and
principally, and that he be at the same time a P125,000 for structural repairs.
principal creditor of the other;
2. that both debts consist in a sum of money, or if The MeTC dismissed the complaint, but the RTC
the things due are consumable, they be of the and the CA both ruled in favor of SPI.
same kind, and also of the same quality if the Issue: Whether or not the amount petitioners
latter has been stated; supposedly spent for repairs should be compensated
3. that the two debts be due; against the unpaid rentals.
4. that they be liquidated and demandable;
5. that over neither of them there be any Held: No. The fourth requisite of legal compensation is
retention or controversy, commenced by third that the debts must be liquidated and demandable. A
persons and communicated in due time to the claim is liquidated when the amount and time of
debtor. payment is fixed. If acknowledged by the debtor,
although not in writing, the claim must be treated as
When all the requisites mentioned in Art. 1279 of liquidated. When the defendant, who has an
the Civil Code are present, compensation takes effect unliquidated claim, sets it up by way of counterclaim,
by operation of law, even without the consent or and a judgment is rendered liquidating such claim, it
Civil Law Review II 3rd Assignment

can be compensated against the plaintiffs claim from government. A person cannot refuse to pay a tax on
the moment it is liquidated by judgment. We have the ground that the government owes him an amount
restated this in Solinap v. Hon. Del Rosario where we equal to or greater than the tax being collected. The
held that compensation takes place only if both collection of a tax cannot await the results of a lawsuit
obligations are liquidated. against the government. Internal revenue taxes cannot
be the subject of compensation. The Government and
But in this case, petitioners did not present any the taxpayer are not mutually creditors and debtors of
convincing evidence of proof which could support their each other under Article 1278 of the Civil Code and a
allegation on structural defects and the subsequent claim of taxes is not such a debt, demand, contract or
repairs made on the leased premises, i.e. documentary judgment as is allowed to be set-off.
evidence (receipts of payments made to subcontractor
Tamayo for the repairs made on the building) except Moreover, the amount of P4,116 paid by the
for the self-serving testimony of petitioner Lao. They national government for the 125 square meter portion
(petitioners) merely submitted an estimated statement of his lot was deposited with the Philippine National
of account which did not show that there were actual Bank long before the sale at public auction of his
expenses made for the alleged structural remaining property. It would have been an easy matter
defects.Neither were they able to submit proofs of to withdraw P 2,400 from the deposit so that he could
actual expenses made on the alleged structural pay the tax obligation thus aborting the sale at public
defects. Besides, it is contrary to human experience auction. Thus, the petition for review is dismissed. The
that a lessee would continually renew the lease taxes assessed are the obligations of the taxpayer
contract if the subject property were not in good arising from law, while the money judgment against
condition free from structural defects. Further, the the government is an obligation arising from contract,
testimony of Tamayo, the alleged subcontractor who whether express or implied.
made the repairs on the leased premises did not
convince Us that there were repairs made thereat since 51. BPI (formerly FEBTC) v. CA (2006)
he failed to present any receipts of acknowledgments Facts:
of payments which was allegedly made to him.
Far East Bank and Trust Company (the bank)
The petitioners attempted to prove that they spent granted a total of eight loans in favor of Noahs Arc
for the repair of the roofing, ceiling and flooring, as well Merchandising. The loans were secured by a real estate
as for waterproofing. However, they failed to mortgage over a parcel of land registered in the name
appreciate that, as per their lease contract, only of Noahs Arc Merchandisings owner, Albert Looyuko,
structural repairs are for the account of the lessor, private respondent Jimmy Go and one Wilson Go. Later
herein respondent SPI. In which case, they overlooked on, Noahs Ark Merchandising defaulted in its
the need to establish that aforesaid repairs are obligations, so the bank extrajudicially foreclosed the
structural in nature, in the context of their earlier mortgage.
agreement. It would have been an altogether different
matter if the lessor was informed of the said structural In response, private respondent filed a complaint
repairs and he implicitly or expressly consented and for damages against the bank with prayer for issuance
agreed to take responsibility for the said expenses. of TRO seeking to enjoin the auction sale. One of
Such want of evidence on this respect is fatal to this private respondents contention was that by
appeal. Consequently, their claim remains unliquidated withholding the lease payments, the bank owed Noahs
and, legal compensation is inapplicable. Ark Merchandising for the space the bank was leasing
from Noahs Ark Merchandising, and applying said
50. Francia v. IAC (1988) amounts to the outstanding obligation of Noahs Ark
Merchandising, as expressed in a letter from the bank
Facts:
dated May 19, 1998, the has waived default, novated
Engracio Francia was the registered owner of a the contract of loan as embodied in the promissory
house and lot located in Pasay City. A portion (125 notes and is therefore estopped from foreclosing on the
square meters) of such property was expropriated by mortgaged property.
the Republic of the Philippines in 1977. It appeared
Issue: Whether or not the bank is estopped from
that Francia did not pay his real estate taxes from 1963
foreclosing the mortgaged property.
to 1977. Thus, his property was sold in a public auction
by the City Treasurer of Pasay City. Francia filed a Held: No. Applying Art. 1279 of the Civil Code, it is
complaint to annual the auction sale. The lower court clear from the facts that FEBTC and Noahs Ark are
dismissed the complaint and the Intermediate both principal obligors and creditors of each other.
Appellate Court affirmed the decision of the lower court Their debts to each other both consist in a sum of
in toto. Hence, this petition for review. Francia money. As discussed above, the eight promissory notes
contends that his tax delinquency of P 2,400 has been of Noahs Ark are all due; and the lease payments
extinguished by legal compensation. He claims that the owed by FEBTC become due each month. Noahs Arks
government owed him P 4,116 when a portion of his debt is liquidated and demandable; and FEBTCs lease
land was expropriated on October 15, 1977. payments are liquidated and are demandable every
month as they fall due. Lastly, there is no retention or
Issue: Whether or not legal compensation is proper.
controversy commenced by third persons over either of
Held: No. There can be no offsetting of taxes against the debts.
the claims that the taxpayer may have against the
Civil Law Review II 3rd Assignment

Novation did not occur as private respondent change does not come from and may even be made
argued. The Court has declared that a contract cannot without the knowledge of the debtor, since it
be novated in the absence of a new contract executed consists of a third persons assumption of the
between the parties. The legal compensation, which obligation. As such, it logically requires the consent of
was acknowledged by FEBTC in its May 19, 1998 letter, the third person and the creditor. In delegacion, the
occurred by operation of law, as discussed above. As a debtor offers, and the creditor accepts, a third person
consequence, it cannot be considered a new contract who consents to the substitution and assumes the
between the parties. Hence, the loan agreement, as obligation; thus, the consent of these three persons are
embodied in the promissory notes and the real estate necessary. Both modes of substitution by the debtor
mortgage, subsists. require the consent of the creditor.
Since the compensation between the parties Novation may also be extinctive or modificatory. It
occurred by operation of law, FEBTC did not waive is extinctive when an old obligation is terminated by
Noahs Arks default. As a result of the absence of the creation of a new one that takes the place of the
novation or waiver of default, FEBTC is therefore not former. It is merely modificatory when the old
estopped from proceeding with the foreclosure. obligation subsists to the extent that it remains
compatible with the amendatory agreement. Whether
52. Arco Pulp and Paper v. Lim (2014) extinctive or modificatory, novation is made either by
changing the object or the principal conditions,
Facts:
referred to as objective or real novation; or by
Dan Lim was engaged in the supplying of scrap substituting the person of the debtor or subrogating a
papers and other raw materials. He delivered scrap third person to the rights of the creditor, an act known
papers to Arco Pulp and Paper Company Inc. The as subjective or personal novation. For novation to take
parties agreed that Arco would either pay Lim the place, the following requisites must concur:
value of the raw materials or deliver to him its finished
1) There must be a previous valid obligation.
products of equivalent value. Arco, however, had not
2) The parties concerned must agree to a new
paid Lim. Meanwhile, Arco and a certain Eric Sy
contract.
executed a memorandum of agreement whereby Arco
3) The old contract must be extinguished.
bound themselves to deliver their finished products to
4) There must be a valid new contract.
Megapack Container Corporation, owned by Sy.
According to the memorandum, the raw materials Novation may also be express or implied. It is
would be supplied by Dan Lim. express when the new obligation declares in
unequivocal terms that the old obligation is
Later on, Lim filed a complaint for collection of sum
extinguished. It is implied when the new obligation is
of money against Arco.
incompatible with the old one on every point. The test
In its defense, Arco claimed that novation took of incompatibility is whether the two obligations can
place by virtue of its memorandum of agreement with stand together, each one with its own independent
Eric Sy, hence its obligation to Lim was extinguished. existence. Because novation requires that it be clear
and unequivocal, it is never presumed.
The RTC ruled in favor of Arco, but the CA reversed,
holding that no novation took place. There is nothing in the memorandum of agreement
that states that with its execution, the obligation of
Issue: Whether or not Arcos obligation to Lim was petitioner Arco Pulp and Paper to respondent would be
extinguished by novation. extinguished. It also does not state that Eric Sy
Held: No. In the first place, Arcos agreement with Sy somehow substituted petitioner Arco Pulp and Paper as
had little bearing, considering that the obligation respondents debtor. It merely shows that petitioner
between Arco and Lim was an alternative obligation, Arco Pulp and Paper opted to deliver the finished
meaning Arco had the choice whether to pay Lim or products to a third person instead.
deliver to him the finished products. The consent of the creditor must also be secured
There was also no novation. Art. 1293 of the Civil for the novation to be valid. Here, Lim was not privy to
Code provides: Novation which consists in substituting the memorandum of agreement, thus, his conformity
a new debtor in the place of the original one, may be to the contract need not be secured. Hence, there was
made even without the knowledge or against the will of no novation.
the latter, but not without the consent of the creditor.
53. Peoples Bank v. Syvels (1988)
Payment by the new debtor gives him the rights
mentioned in Articles 1236 and 1237. Novation Facts:
extinguishes an obligation between two parties when
there is a substitution of objects or debtors or when Peoples Bank and Trust Company granted a credit
there is subrogation of the creditor. It occurs only when commercial line in the amount of P900,000 in favor of
the new contract declares so in unequivocal terms Syvels Incorporated. It was secured by a chattel
or that the old and the new obligations be on every mortgaged executed over Syvels stocks of goods and
point incompatible with each other. other personal properties. Later on, Syvels defaulted,
prompting the bank to initiate foreclosure proceedings,
In general, there are two modes of substituting the but this did not push through due to the parties
person of the debtor: (1) expromision and (2) attempt to settle the matter. The bank, however, filed a
delegacion. In expromision, the initiative for the
Civil Law Review II 3rd Assignment

collection suit against Syvels with a prayer for premature because although the action had been filed
preliminary injunction. a month early, the question became moot and
academic when Young manifested his refusal to sell the
The representatives of Syvels were again able to building.
convince the bank to have the case settled amicably.
Antonio Syyap executed a real estate mortgage over Issue: Whether or not the first lease contract was
his property. In the deed of mortgage, Syyap admitted novated by the second one.
the indebtedness of Syvels to the bank. The bank was
Held: No. A careful examination of the text of the two
about to file a motion to dismiss the case without
contracts will show that the only change introduced in
prejudice, but Syvels did not want to agree if the
the second contract was the substitution by Antolin A.
dismissal would mean also the dismissal of their
Jariol of his wife Miguela as signatory for the estate of
counterclaim. Hence, trial proceeded.
Humiliano Rodriguez. There was no express declaration
The RTC ruled in favor the bank. in the second contract that it was novating the first.
Syvels argued that the lower court erred in not In order that there may be implied novation arising
holding that the obligation secured by the Chattel from incompatibility of the old and new obligations, the
Mortgage sought to be foreclosed in the above-entitled change must refer to the object, the cause, or the
case was novated by the subsequent execution principal conditions of the obligation. In other words,
between appellee and appellant Antonio V, Syyap of a there must be an essential change.
real estate mortgage as additional collateral to the
There was clearly no implied novation for lack of an
obligation secured by said chattel mortgage.
essential change in the object, cause, or principal
Issue: Whether or not there was novation. conditions of the obligation. At most, the substitution of
a signatory in the second contract can be considered
Held: No. There is nothing in the Real Estate Mortgage only an accidental modification which, according to
which supports appellants' submission. The contract on Tolentino, "does not extinguish an existing obligation.
its face does not show the existence of an explicit When the changes refer to secondary agreements, and
novation nor incompatibility on every point between not to the object or principal conditions of the contract,
the "old and the "new" agreements as the second there is no novation; such changes will produce
contract evidently indicates that the same was modifications of incidental facts, but will not extinguish
executed as new additional security to the chattel the original obligation."
mortgage previously entered into by the parties.
Moreover, records show that in the real estate We do not agree with the respondent court that
mortgage, appellants agreed that the chattel mortgage there was an extension of the period of lease in the
"shall remain in full force and shall not be impaired by second contract. As earlier explained, the only reason
this (real estate) mortgage. It is clear, therefore, that a for the execution of the second contract was to change
novation was not intended. The real estate mortgage the signatory. There is no clear showing from the
was evidently taken as additional security for the language of that contract that the parties intended to
performance of the contract. extend the lease for one month.

54. Young v. CA (1991) 55. Salazar v. JY Brothers marketing Corporation


(2010)
Facts:
Facts:
On November 7, 1961, the estates of Humiliano
Rodriguez and Timoteo Rodriguez leased to Victor Sales agent Anamer Salazar, accompanied by
Young a parcel of land in Cebu on which the latters Isagani Calleja and Jess Kallos, bought 300 cavans of
building known as Liza Theater (later renamed Nation rice from JY Brothers Marketing. As payment, Salazar
Theater) stood. The lease contract was for 21 years, negotiated and indorsed to JY Bros. a Prudential Bank
and at the 21st year the lessors have the option to check issued by a certain Nena Timario in the amount
purchase the Liza Theatre). On December 18, 1961, of P214,000.00. However, the check was dishonored
the same lease contract was executed by the parties, due to closed account. Later on, Salazar delivered
only this time, the estate of Humiliano was represented another check, a Solid Bank check again issued by
by another signatory. Timario for the same amount which also bounced.
On November 5, 1982, the heirs filed a complaint JY Bros filed a case for estafa against Salazar and
for specific performance against Victor Young to Timario. They were both acquitted, but the court
compel him to sell to them his theater-building for adjudged Salazar civilly liable for P214,000.00.
P135,000.00.
Salazar contends that the issuance of the Solid
Young argued that the heirs had no cause of action, Bank check and the acceptance thereof by the
because the complaint was premature. He pointed out respondent, in replacement of the dishonored
that the November 7, 1961 lease contract was novated Prudential Bank check, amounted to novation that
by the December 18, 1961 contract. discharged the latter check; that respondent's
acceptance of the Solid Bank check, notwithstanding
The RTC ruled in favor of the heirs. On appeal, the its eventual dishonor by the drawee bank, had the
CA agreed that there was no novation but the original effect of erasing whatever criminal responsibility,
period of the lease was extended by the second under Article 315 of the Revised Penal Code, the
contract. It did not find that the complaint was drawer or indorser of the Prudential Bank check would
Civil Law Review II 3rd Assignment

have incurred in the issuance thereof in the amount of pay, their loan was restructured. The spouses signed
P214,000.00; and that a check is a contract which is another promissory note for P1,550,000. Another real
susceptible to a novation just like any other contract. estate mortgage covering the same properties as
before was executed.
Issue: Whether or not there was novation.
Later on, Spouses Maalac and Spouses Galicia, with
Held: No. In this case, respondents acceptance of the the prior consent of the bank, entered into a Deed of
Solid Bank check, which replaced the dishonored Sale with Assumption of Mortgage involving three of
Prudential Bank check, did not result to novation as the mortgaged properties and another parcel of land.
there was no express agreement to establish that
petitioner was already discharged from his liability to Thereafter, the Galicias mortgaged the four parcels
pay respondent the amount of P214,000.00 as of land they just bought to secure a P2.6 million loan
payment for the 300 bags of rice. As we said, novation which they obtained from the bank. They later on
is never presumed, there must be an express intention obtained a second loan in the amount of P3.25 million
to novate. In fact, when the Solid Bank check was secured by another real estate mortgaged over the
delivered to respondent, the same was also indorsed same four parcels of land.
by petitioner which shows petitioners recognition of
Meanwhile, the Maalacs kept on defaulting on their
the existing obligation to respondent to pay
obligation, so the bank filed a petition for extrajudicial
P214,000.00 subject of the replaced Prudential Bank
foreclosure of their five remaining mortgage properties.
check.
Foreclosure proceeded, with the bank as the highest
Moreover, respondents acceptance of the Solid bidder.
Bank check did not result to any incompatibility, since
Later on, the Maalacs requested the bank for the
the two checks Prudential and Solid Bank checks
partial release of the mortgage covering the lands sold
were precisely for the purpose of paying the amount of
to the Galicias. The Maalacs and the Galicias issued a
P214,000.00, i.e., the credit obtained from the
check in the amount of P1.2 million. The bank applied
purchase of the 300 bags of rice from respondent.
P1 million to the loan account of the Galicias as
Indeed, there was no substantial change in the object
payment for the arrearages in interest and the
or principal condition of the obligation of petitioner as
remaining P200,000 was applied to the expenses
the indorser of the check to pay the amount of
relative to the account of Maalac.
P214,000.00. It would appear that respondent
accepted the Solid Bank check to give petitioner the The bank sold some of the properties it earlier
chance to pay her obligation. foreclosed prompting the Maalacs to sue it for
damages. The RTC, which was affirmed by the CA,
Petitioner also contends that the acceptance of the
annulled the sale made by the bank. The CA held that
Solid Bank check, a non-negotiable check being a
novation occurred when PSBank applied P1,000,000.00
crossed check, which replaced the dishonored
of the P1,200,000.00 PCIB Check No. 002133 tendered
Prudential Bank check, a negotiable check, is a new
by Maalac to the loan account of the Galicias and the
obligation in lieu of the old obligation arising from the
remaining P200,000.00 thereof to Maalacs account. It
issuance of the Prudential Bank check, since there was
held that when the bank applied the amount of the
an essential change in the circumstance of each check.
check in accordance with the instructions contained
Such argument deserves scant consideration. The
therein, there was novation of the previous mortgage
effect of crossing a check relates to the mode of
of the properties. It further observed that the bank was
payment, meaning that the drawer had intended the
fully aware that the issuance of the check was
check for deposit only by the rightful person, i.e., the
conditional hence, when it made the application
payee named therein. The change in the mode of
thereof, it agreed to be bound by the conditions
paying the obligation was not a change in any of the
imposed by Maalac.
objects or principal condition of the contract for
novation to take place. Issue: Whether or not there was novation.
Considering that when the Solid Bank check, which Held: No. The elements of novation are patently
replaced the Prudential Bank check, was presented for lacking in the instant case. Maalac tendered a check
payment, the same was again dishonored; thus, the for P1,200,000.00 to PSBank for the release of 4
obligation which was secured by the Prudential Bank parcels of land covered by TCT Nos. N-36192, 36193,
check was not extinguished and the Prudential Bank and 36194, under the loan account of the Galicias and
check was not discharged. Thus, we found no 417012 (now TCT No. 79996) under the loan account of
reversible error committed by the CA in holding Maalac. However, while the bank applied the tendered
petitioner liable as an accommodation indorser for the amount to the accounts as specified by Maalac, it
payment of the dishonored Prudential Bank check. nevertheless refused to release the subject properties.
Instead, it issued a receipt with a notation that the
56. Philippine Savings Bank v. Sps. Maalac acceptance of the check is not a commitment on the
(2005) part of the bank to release the 4 TCTs as requested by
Facts: Maalac.

Spouses Maalac obtained a P1.3 million loan from From the foregoing, it is obvious that there was no
PSBank covered by a promissory note and secured by a agreement to form a new contract by novating the
real estate mortgage over eight parcels of land which mortgage contracts of the Maalacs and the Galicias. In
the spouses owned. In view of the spouses invability to accepting the check, the bank only acceded to Maalacs
Civil Law Review II 3rd Assignment

instruction on whose loan accounts the proceeds shall effectively cancelled the mortgage contract between
be applied but rejected the other condition that the 4 Maalac and the bank. Insofar as TCT No. 417012 is
parcels of land be released from mortgage. Clearly, concerned, there is no more existing mortgage to
there is no mutual consent to replace the old mortgage speak of. As the absolute owner of the foreclosed
contract with a new obligation. The conflicting intention property, the petitioner has the discretion to reject or
and acts of the parties underscore the absence of any accept any offer to repurchase. Granting arguendo that
express disclosure or circumstances with which to a new obligation was established with the acceptance
deduce a clear and unequivocal intent by the parties to by the bank of the PCIB Check and its application to
novate the old agreement. the loan account of Maalac on the condition that TCT
No. 417012 would be released, this new obligation
A fortiori, 3 of the 4 properties sought to be however could not supplant the October 13, 1977 real
released from mortgage, namely, TCT Nos. N-36192, N- estate mortgage executed by Maalac, which, by all
36193, and N-36194, have already been sold by intents and purposes, is now a defunct and non-
Maalac to Galicia and are now registered in the name existent contract. As mentioned earlier, novation
of the latter who thereafter mortgaged the same as cannot be presumed.
security to a separate loan they obtained from the
bank. Thus, without the consent of PSBank as the 57. Astro Electronics Corp. v. Philippine Export
mortgagee bank, Maalac, not being a party to the and Foreign Loan Guarantee Corporation (2003)
mortgage contract between the Galicias and the bank,
cannot demand much less impose upon the bank the Facts:
release of the subject properties. Unless there is a Astro was granted several loans by the Philippine
stipulation to the contrary, the release of the Trust Company (Philtrust) amounting to P3,000,000.00
mortgaged property can only be made upon the full with interest and secured by three promissory notes. In
satisfaction of the loan obligation upon which the each of these promissory notes, it appears that
mortgage attaches. Unfortunately, Maalac has not petitioner Roxas signed twice, as President of Astro and
shown that the P1,000,000.00 was sufficient to cover in his personal capacity. Roxas also signed a Continuing
not only the accrued interests but also the entire Surety ship Agreement in favor of Philtrust Bank, as
indebtedness of the Galicias to the bank. President of Astro and as surety.
Neither can Maalac be deemed substitute debtor Thereafter, Philguarantee, with the consent of
within the contemplation of Article 1293 of the Civil Astro, guaranteed in favor of Philtrust the payment of
Code, which states that: Novation which consists in 70% of Astros loan, subject to the condition that upon
substituting a new debtor in the place of the original payment by Philguanrantee of said amount, it shall be
one, may be made without the knowledge or against proportionally subrogated to the rights of Philtrust
the will of the latter, but not without the consent of the against Astro. As a result of Astros failure to pay its
creditor. Payment by the new debtor gives him the loan obligations, despite demands, Philguarantee paid
rights mentioned in articles 1236 and 1237. 70% of the guaranteed loan to Philtrust. Subsequently,
In order to change the person of the debtor, the old Philguarantee filed against Astro and Roxas a
one must be expressly released from the obligation, complaint for sum of money with the RTC of Makati.
and the third person or new debtor must assume the Roxas disclaims any liability on the instruments,
formers place in the relation. Novation is never alleging, inter alia, that he merely signed the same in
presumed. Consequently, that which arises from a blank and the phrases in his personal capacity and
purported change in the person of the debtor must be in his official capacity were fraudulently inserted
clear and express. It is thus incumbent on Maalac to without his knowledge. The trial court ruled in favor of
show clearly and unequivocally that novation has Philguarantee, stating that if Roxas really intended to
indeed taken place. In Magdalena Estates Inc. v. sign the instruments merely in his capacity as
Rodriguez, we held that the mere fact that the creditor President of Astro, then he should have signed only
receives a guaranty or accepts payments from a third once in the promissory note. On appeal, the Court of
person who has agreed to assume the obligation, when Appeals affirmed the RTC decision.
there is no agreement that the first debtor shall be
released from responsibility, does not constitute a Issue: Whether or not Roxas should be solidarily liable
novation, and the creditor can still enforce the with Astro for the sum awarded by the RTC.
obligation against the original debtor. Maalac has not
Held: Yes. In signing his name aside from being the
shown by competent evidence that they were
President of Astro, Roxas became a co-maker of the
expressly taking the place of Galicia as debtor, or that
promissory notes and cannot escape any liability
the latter were being released from their solidary
arising from it. Under the Negotiable Instruments Law,
obligation. Nor was it shown that the obligation of the
persons who write their names on the face of
Galicias was being extinguished and replaced by a new
promissory notes are makers. Thus, even without the
one. The existence of novation must be shown in clear
phrase personal capacity, Roxas will still be primarily
and unmistakable terms.
liable as a joint and several debtor under the notes
Likewise, we hold that Maalac cannot demand to considering that his intention to be liable as such is
repurchase the foreclosed piece of land covered by TCT manifested by the fact that he affixed his signature on
No. 417012 (now TCT No. 79996) from the bank. Its each of the promissory notes twice which necessarily
foreclosure and the consolidation of ownership in favor would imply that he is undertaking the obligation in
of the bank and the resultant cancellation of mortgage two different capacities, official and personal.
Civil Law Review II 3rd Assignment

Moreover, an instrument which begins with I, The Central Bank released several credit advices in
We, or Either of us promise to pay, when signed by Metrobanks favor and accordingly credited
two or more persons, makes them solidary liable Metrobanks demand deposit account for the account
(Republic Planters Bank vs. Court of Appeals, G.R. No. of RBGs. The amounts credited to RBGs special
93073, December 21, 1992). Having signed under such savings account represented the approved loan
terms, Roxas assumed the solidary liability of a debtor applications of farmer-borrowers.
and Philtrust Bank may choose to enforce the notes
A little over a month after RBG had made
against him alone or jointly with Astro.
withdrawals from its account with Metrobank, the
It devolves upon one to overcome the Central Bank issued debit advices, reversing all the
presumptions that private transactions are presumed approved IBRD loans. The Central Bank implemented
to be fair and regular and that a person takes ordinary the reversal by debiting from Metrobanks demand
care of his concerns (Mendoza vs. Court of Appeals, deposit account the amount corresponding to all three
G.R. No. 116710). Bare allegations, when IBRD loans. Metrobank, in turn, debited the following
unsubstantiated by evidence, documentary or amounts from RBGs special savings account:
otherwise, are not equivalent to proof under our Rules P189,052.00, P115,000.00, and P8,000.41. Metrobank,
of Court (Coronel vs. Constantino, G.R. No. 121069, however, claimed that these amounts were insufficient
February 7, 2003). Since Roxas failed to prove the truth to cover all the credit advices that were reversed by
of his allegations that the phrases in his personal the Central Bank.
capacity and in his official capacity were inserted on
Metrobank filed a complaint for collection of sum of
the notes without his knowledge, said presumptions
money against RBG.
shall prevail over his claims.
The RTC ruled in favor of Metrobank, holding that
Lastly, Philguarantee has all the right to proceed
legal subrogation has ensued. The CA said that there
against petitioner, it is subrogated to the rights of
was no subrogation but Metrobank still had a right to
Philtrust to demand for and collect payment from both
be reimbursed.
Roxas and Astro since it already paid the value of 70%
of roxas and Astro Electronics Corp.s loan obligation. In Issue: Whether or not there is legal subrogation.
compliance with its contract of Guarantee in favor of
Philtrust. Held: Yes. Under Art. 1302 of the Civil Code, it is
presumed that there is legal subrogation:
Subrogation is the transfer of all the rights of the
creditor to a third person, who substitutes him in all his 1. When a creditor pays another creditor who is
rights.[19] It may either be legal or conventional. Legal preferred, even without the debtors knowledge;
subrogation is that which takes place without 2. When a third person, not interested in the
agreement but by operation of law because of certain obligation, pays with the express or tacit
acts. Instances of legal subrogation are those provided approval of the debtor; and
in Article 1302 of the Civil Code. Conventional 3. When, even without the knowledge of the
subrogation, on the other hand, is that which takes debtor, a person interested in the fulfillment of
place by agreement of the parties. the obligation pays, without prejudice to the
effects of confusion as to the latters share.
Roxas acquiescence is not necessary for
subrogation to take place because the instant case is As discussed, Metrobank was a third party to the
one of the legal subrogation that occurs by operation of Central Bank-RBG agreement, had no interest except
law, and without need of the debtors knowledge. as a conduit, and was not legally answerable for the
Further, Philguarantee, as guarantor, became the IBRD loans. Despite this, it was Metrobanks demand
transferee of all the rights of Philtrust as against Roxas deposit account, instead of RBGs, which the Central
and Astro because the guarantor who pays is Bank proceeded against, on the assumption perhaps
subrogated by virtue thereof to all the rights which the that this was the most convenient means of recovering
creditor had against the debtor. the cancelled loans. That Metrobanks payment was
involuntarily made does not change the reality that it
58. Metrobank v. Rural Bank of Gerona (2010) was Metrobank which effectively answered for RBGs
obligations.
Facts:
Was there express or tacit approval by RBG of the
Rural Bank of Gerona (RBG) was tasked by the payment enforced against Metrobank? After Metrobank
Central Bank to facilitate loan applications of farmers- received the Central Banks debit advices in November
borrowers under the Central Bank-International Bank 1978, it (Metrobank) accordingly debited the amounts
for Reconstruction and Developments (IBRDs). Thus, it could from RBGs special savings account without any
RBG opened a special savings account with Metrobank objection from RBG. RBGs President and Manager, Dr.
wherein the IBRD loan proceeds shall be deposited. As Aquiles Abellar, even wrote Metrobank, on August 14,
the depository bank of RBG, Metrobank was designated 1979, with proposals regarding possible means of
to receive the credit advice released by the Central settling the amounts debited by Central Bank from
Bank representing the proceeds of the IBRD loan of the Metrobanks demand deposit account. These instances
farmers-borrowers; Metrobank, in turn, credited the are all indicative of RBGs approval of Metrobanks
proceeds to RBGs special savings account for the payment of the IBRD loans. That RBGs tacit approval
latters release to the farmers-borrowers. came after payment had been made does not
Civil Law Review II 3rd Assignment

completely negate the legal subrogation that had taken presence is necessary in order x x x to shed light on
place. the matter of reversals made by it concerning the loan
applications of the end users and to have a complete
Article 1303 of the Civil Code states that determination or settlement of the claim. In so far as
subrogation transfers to the person subrogated the Metrobank is concerned, however, the Central Banks
credit with all the rights thereto appertaining, either presence and the reasons for its reversals of the IBRD
against the debtor or against third persons.As the loans are immaterial after subrogation has taken place;
entity against which the collection was enforced, Metrobanks interest is simply to collect the amounts it
Metrobank was subrogated to the rights of Central paid the Central Bank. Whatever cause of action RBG
Bank and has a cause of action to recover from RBG may have against the Central Bank for the unexplained
the amounts it paid to the Central Bank, plus 14% per reversals and any undue deductions is for RBG to
annum interest. ventilate as a third-party claim; if it has not done so at
Under this situation, impleading the Central Bank this point, then the matter should be dealt with in a
as a party is completely unnecessary.We note that the separate case that should not in any way further delay
CA erroneously believed that the Central Banks the disposition of the present case that had been
pending before the courts since 1980.

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