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ARTICLE 1256: CINCO VS. C.A., G.R. NO. 151903

Petitioner Manuel Cinco obtained a loan in the amount 700,000.00 from respondent Maasin Traders
Lending Corporation (MTLC). The loan was evidenced by the promissory note, and secured by a real estate
mortgage over the spouses Cincos land and 4-storey building. To pay the loan in favor of MTLC, the spouses
Cinco applied for a loan with the Philippine National Bank (PNB), and offered the same properties they
previously mortgage to MTLC.
The PNB approved the loan application for 1.3 Million; the release was, however, conditioned on the
cancellation of the mortgage in favor of MTLC. Manuel went to Ester Servacio (Ester), MTLCs President to
inform her that there was money with PNB for Payment of his loan. Manuel executed a Special Power of
Attorney (SPA) authorizing Ester to collect the proceeds of the loan. Ester went to the PNB to inquire, the
second time around, about the proceeds. The bank officer confirmed the existence of such loan, but they
required Ester to first sign a deed of release/cancellation of the mortgage before they could release the
proceeds of the loan to her. Outraged, Ester refused the deed and did not collect the 1.3 Million. Ester
instituted foreclosure proceeding. To prevent the foreclosure, the spouses Cinco filed an action for specific
performance, damages, and preliminary injunction.

ISSUE: Whether the loan due the MTLC had been extinguished by the act of the spouses Cinco amounted to
payment.

HELD: No, While Esters refusal was unjustified and unreasonable, we cannot agree with Manuels position
that this refusal had the effect of payment that extinguished his obligation to MTLC. Article 1256 is clear and
unequivocal on this point when it provides that

ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.

In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the
consequent extinguishment of the obligation to pay, the law requires the companion acts of tender of payment
and consignation.

Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc., is the definitive
act of offering the creditor what is due him or her, together with the demand that the creditor accept the same.
When a creditor refuses the debtors tender of payment, the law allows the consignation of the thing or the sum
due. Tender and consignation have the effect of payment, as by consignation, the thing due is deposited and
placed at the disposal of the judicial authorities for the creditor to collect.

Nonetheless, the SPA stood as an authority to collect the proceeds of the already-approved PNB loan
that, upon receipt by Ester, would have constituted as payment of the MTLC loan. The Court agrees with
Manuel that Esters refusal of the payment was without basis. Under these circumstances, we hold that while
no completed tender of payment and consignation took place sufficient to constitute payment, the spouses Go
Cinco duly established that they have legitimately secured a means of paying off their loan with MTLC; they
were only prevented from doing so by the unjust refusal of Ester to accept the proceeds of the PNB loan
through her refusal to execute the release of the mortgage on the properties mortgaged to MTLC.

We also find that under the circumstances, the spouses Go Cinco have undertaken, at the very least,
the equivalent of a tender of payment that cannot but have legal effect. Since payment was available and was
unjustifiably refused, justice and equity demand that the spouses Go Cinco be freed from the obligation to pay
interest on the outstanding amount from the time the unjust refusal took place
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ARTICLE 256: Cacayorin v. Armed Forces and Police (AFPMBAI) GR 171298

FACTS: AFPMBAI is a mutual benefit association duly organized and existing under Philippine Laws and
engaged in the business of developing low-cost housing projects for personnel of the AFP, PNP, Bureau of Fire
Protection, Bureau of Jail Management and Penology, and Philippine Coast Guard. Petitioner Cacayorin is a
member of AFPMBAI.

Petitioner applied to purchase a piece of property which the respondent owned through a loan facility.
Sps Cacayorin (borrower) and the Rural Bank (lender) executed a Loan and Mortgage Agreement under the
auspices of Pag IBIG or HDMF. The Rural Bank granted the loan and in a letter of guaranty informed AFPMBAI
to release the proceeds upon the transfer of title in petitioners name, and after the registration and annotation
of petitioners mortgage agreement.

AFPMBAI executed in petitioners favor a DEED OF ABSOLUTE SALE, and a new title was issued in
their name, with the corresponding annotation of their mortgage agreement with Rural Bank. Unfortunately, the
Pag-IBIG loan facility did not push through and the Rural Bank closed and was placed under receivership by
the Philippine Deposit Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to take
possession of petitioners loan documents and TCT No. 37017, while petitioners were unable to pay the
loan/consideration for the property.

AFPMBAI made oral and written demands for petitioners to pay the loan/consideration for the
property. Petitioners filed a Complaint for consignation of loan payment, recovery of title and cancellation of
mortgage annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. Petitioners
alleged in their Complaint that as a result of the Rural Banks closure and PDICs claim that their loan papers
could not be located, they were left in a quandary as to where they should tender full payment of the loan and
how to secure cancellation of the mortgage annotation on TCT No. 37017.Petitioner- jurisdiction in RTC;
AFPMBAI- jurisdiction is in HLURB because of the seller-buyer relationship.

From the above allegations, it appears that the petitioners debt is outstanding; that the Rural Banks
receiver, PDIC, informed petitioners that it has no record of their loan even as it took over the affairs of the
Rural Bank, which on record is the petitioners creditor as per the July 4, 1994 Loan and Mortgage Agreement;
that one way or another, AFPMBAI came into possession of the loan documents as well as TCT No. 37017;
that petitioners are ready to pay the loan in full; however, under the circumstances, they do not know which of
the two the Rural Bank or AFPMBAI should receive full payment of the purchase price, or to whom tender
of payment must validly be made.

ISSUE: Whether or not this is a case of consignation.

RULING: Under Article 1256 of the Civil Code, the debtor shall be released from responsibility by the
consignation of the thing or sum due, without need of prior tender of payment, when the creditor is absent or
unknown, or when he is incapacitated to receive the payment at the time it is due, or when two or more
persons claim the same right to collect, or when the title to the obligation has been lost. Applying Article 1256
to the petitioners case as shaped by the allegations in their Complaint, the Court finds that a case for
consignation has been made out, as it now appears that there are two entities which petitioners must deal with
in order to fully secure their title to the property: 1) the Rural Bank (through PDIC), which is the apparent
creditor under the July 4, 1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which is currently in
possession of the loan documents and the certificate of title, and the one making demands upon petitioners to
pay.

Clearly, the allegations in the Complaint present a situation where the creditor is unknown, or that two or more
entities appear to possess the same right to collect from petitioners. Whatever transpired between the Rural
Bank or PDIC and AFPMBAI in respect of petitioners loan account, if any, such that AFPMBAI came into
possession of the loan documents and TCT No. 37017, it appears that petitioners were not informed thereof,
nor made privy thereto.
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Indeed, the instant case presents a unique situation where the buyer, through no fault of his own, was able to
obtain title to real property in his name even before he could pay the purchase price in full. There appears to
be no vitiated consent, nor is there any other impediment to the consummation of their agreement, just as it
appears that it would be to the best interests of all parties to the sale that it be once and for all completed and
terminated. For this reason, Civil Case No. 3812 should at this juncture be allowed to proceed.

Finally, the lack of prior tender of payment by the petitioners is not fatal to their consignation case. They filed
the case for the exact reason that they were at a loss as to which between the two the Rural Bank or
AFPMBAI was entitled to such a tender of payment.

On the question of jurisdiction, petitioners case should be tried in the Puerto Princesa RTC, and not the
HLURB. Consignation is necessarily judicial, as the Civil Code itself provides that consignation shall be made
by depositing the thing or things due at the disposal of judicial authority, thus: Art. 1258. Consignation shall be
made by depositing the things due at the disposal of judicial authority, before whom the tender of payment
shall be proved, in a proper case, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof. (Emphasis and
underscoring supplied)

The above provision clearly precludes consignation in venues other than the courts. Elsewhere, what may be
made is a valid tender of payment, but not consignation.

ARTICLE 1260: Banco Filipino Savings and Mortgage Bank v. Antonio and Elise Diaz

FACTS:
On March 8, 1979, spouses Diaz secured a loan from Banco Filipino Savings and Mortgage Bank in the
amount of P400,000.00 bearing an interest rate of 16% per annum. In November 1982, the said loan
was restructured or consolidated in the increased amount of P3,163,000.00 payable within a period of
20 years at an interest rate of 21% per annum. The obligation was to be paid in equal monthly
amortization of P56,227.00, and secured by a real estate mortgage over two commercial lots situated at
Bolton and Bonifacio Streets in Davao City. As additional collateral, the respondents assigned the
rentals on the mortgaged properties in favor of petitioner bank.

Despite repeated demands made on them, the respondents defaulted in the payment of their obligation
beginning October 1986.

The Diaz spouses tried to settle their account by tendering the sum of P1,034,600.00 as full payment
but bank refuses to accept it.

The spouses then deposited by way of consignation with the RTC of Makati City, a managers check
dated December 5, 1991, in the amount of P1,034,600.00 as full payment of their loan obligation.
Petitioner bank was duly informed of such consignation.

The CA relied on Article 1260 of the Civil Code which provides, in part, that [b]efore the creditor has
accepted the consignation, or before a judicial declaration that the consignation has been properly
made, the debtor may withdraw the thing or sum deposited, allowing the obligation to remain in force.

As a result, interest rate became more than 60% per annum, CA said it is excessive, iniquitous,
unconscionable and exorbitant

ISSUE: What is consignation? Can the consignation of Diaz be withdrawn?

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RULING:

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the
creditor cannot accept or refuses to accept payment and it generally requires a prior tender of payment.

YES the Diaz spouses have a right to withdraw the consignation made. The bank has not accepted the
deposit. (CA finding).

About right of spouses to withdraw amount deposited/consignated:

Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the
cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial confirmation that the consignation
has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation to
remain in force.

The Court ruled:

Before the consignation has been accepted by the creditor or judicially declared as properly made, the
debtor is still the owner of the thing or amount deposited, and, therefore, the other parties liable for the
obligation have no right to oppose his withdrawal of such thing or amount. The debtor merely uses his right,
and unless the law expressly limits that use of his right, it cannot be prevented by the objections of anyone.
Our law grants to the debtor the right to withdraw, without any limitation, and we should not read a non-existing
limitation into the law. Although the other parties liable for the obligation would have been benefited if the
consignation had been allowed to become effective, before that moment they have not acquired such an
interest as would give them a right to oppose the exercise of the right of the debtor to withdraw the
consignation.

Before the consignation has been judicially declared proper, the creditor may prevent the withdrawal by
the debtor, by accepting the consignation, even with reservations. Thus, when the amount consigned does not
cover the entire obligation, the creditor may accept it, reserving his right to the balance

The Gaisano brothers, as attorneys-in-fact of the spouses, paid in January 2009, P25,100,000.00 as
settlement of the obligation. To the Courts mind, the payment of the said sum already constituted substantial
compliance by the spouses of their obligation considering that their loan, as restructured or consolidated in
November 1982, amounted to only P3,163,000.00.

In addition, Article 1229 of the Civil Code specifically empowers the judge to reduce the civil penalty
equitably, when the principal obligation has been partly or irregularly complied with. Upon this premise, the
Court holds that the said surcharges should be equitably reduced such that the payment of P25,100,000.00
constituted substantial compliance by the respondents of their obligation to petitioner bank.
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ARTICLE 1263: Gaisano v Insurance G.R. No. 147839 June 8, 2006

FACTS: IMC and Levi Strauss (Phils.) Inc. (LSPI) separately obtained from respondent fire insurance policies
with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with
ready-made clothing materials which have been sold or delivered to various customers and dealers of the
Insured anywhere in the Philippines."

The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45
days after the time of the loss covered under this Policy." The policies also provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise
sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six
(6) months from the date of the covering invoice or actual delivery of the merchandise whichever shall
first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every
calendar month all amount shown in their books of accounts as unpaid and thus become receivable
item from their customers and dealers.

Gaisano is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items
lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

Insurance of America filed a complaint for damages against Gaisano. It alleges that IMC and LSPI were paid
for their claims and that the unpaid accounts of petitioner on the sale and delivery of ready-made clothing
materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00.

The RTC rendered its decision dismissing Insurance's complaint. It held that the fire was purely accidental; that
the cause of the fire was not attributable to the negligence of the petitioner. Also, it said that IMC and LSPI
retained ownership of the delivered goods and must bear the loss.

The CA rendered its decision and set aside the decision of the RTC. It ordered Gaisano to pay Insurance the
P 2 million and the P 500,000 the latter paid to IMC and Levi Strauss. Hence this petition.

ISSUES:
1. WON the CA erred in construing a fire insurance policy on book debts as one covering the
unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner
2. WON IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in
the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the
purchase price the above described merchandise remains the property of the vendor until the purchase
price thereof is fully paid."
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3. WON petitioner is liable for the unpaid accounts

4. WON it has been established that petitioner has outstanding accounts with IMC and LSPI.

HELD: No. Yes. Yes. Yes but account with LSPI unsubstantiated. Petition partly granted.

Ratio:

1. Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods
sold and delivered to the customers and dealers of the insured.

Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45
days after the loss through fire, and not the loss or destruction of the goods delivered.

2. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance
of the contract and the ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from
the time of such delivery

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne
by the buyer. Petitioner bears the risk of loss of the goods delivered.

IMC and LSPI had an insurable interest until full payment of the value of the delivered goods. Unlike the civil
law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in
property insurance, one's interest is not determined by concept of title, but whether insured has substantial
economic interest in the property.

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real
or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated
peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an
insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on
existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the
expectancy arises.

Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from
its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has
any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's
lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their
Books of Account 45 days after the time of the loss covered by the policies.

3. Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the
Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's
obligation is for the payment of money. As correctly stated by the CA, where the obligation consists in the
payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not
relieve him of his liability. The rationale for this is that the rule that an obligor should be held exempt from
liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery
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of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not
apply when the obligation is pecuniary in nature.

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction
of anything of the same kind does not extinguish the obligation." This rule is based on the principle that
the genus of a thing can never perish. An obligation to pay money is generic; therefore, it is not
excused by fortuitous loss of any specific property of the debtor.

4. With respect to IMC, the respondent has adequately established its claim. The P 3 m claim has been
proven. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as
insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of
subrogation accrues simply upon payment by the insurance company of the insurance claim Respondent's
action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. There was no
evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case for recovery of P535,613.00.

ARTICLE 1266: RAYMUNDO S. DE LEON vs. BENITA T. ONG

FACTS:
On March 10, 1993, Raymundo S. De Leon (petitioner) sold 3 parcels of land to Benita T. Ong (respondent).
The said properties were mortgaged to a financial institution; Real Savings & Loan Association Inc. (RSLAI).
The parties then executed a notarized deed of absolute sale with assumption of mortgage. As indicated in the
deed of mortgage, the parties stipulated that the petitioner (de Leon) shall execute a deed of assumption of
mortgage in favor of Ong (respondent) after full payment of the P415,000. They also agreed that the
respondent (Ong) shall assume the mortgage. The respondent then subsequently gave petitioner P415,000 as
partial payment.

On the other hand, de Leon handed the keys to Ong and de Leon wrote a letter to inform RSLAI that
the mortgage will be assumed by Ong. Thereafter, the respondent took repairs and made improvements in the
properties. Subsequently, respondent learned that the same properties were sold to a certain Viloria after
March 10, 1993 and changed the locks, rendering the keys given to her useless. Respondent proceeded to
RSLAI but she was informed that the mortgage has been fully paid and that the titles have been given to the
said person. Respondent then filed a complaint for specific performance and declaration of nullity of the
second sale and damages.

The petitioner contended that respondent does not have a cause of action against him because
the sale was subject to a condition which requires the approval of RSLAI of the mortgage. Petitioner reiterated
that they only entered into a contract to sell. The RTC dismissed the case. On appeal, the CA upheld the sale
to respondent and nullified the sale to Viloria. Petitioner moved for reconsideration to the SC.

ISSUE:
Whether the parties entered into a contract of sale or a contract to sell?

HELD:
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In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of
the contract. The non-payment of the price is a negative resolutory condition. Contract to sell is subject to
a positive suspensive condition. The buyer does not acquire ownership of the property until he fully pays the
purchase price. In the present case, the deed executed by the parties did not show that the owner intends to
reserve ownership of the properties. The terms and conditions affected only the manner of payment and not
the immediate transfer of ownership. It was clear that the owner intended a sale because he unqualifiedly
delivered and transferred ownership of the properties to the respondent