ERNESTO DEIPARINE, JR., petitioner, vs. THE HON.
COURT OF APPEALS, CESARIO CARUNGAY and
ENGR. NICANOR TRINIDAD, respondents. G.R. No.
96643. April 23, 1993.
Under the law on contracts, there are what are called
"rescissible contracts" which are enumerated in Article
1381 . . . There is also a right of rescission under the law
on obligations as granted in Article 1191.
FACTS: The spouses Cesario and Teresita Carungay
entered into an agreement with Ernesto Deiparine, Jr. on
August 13, 1982, for the construction of a three-story
dormitory in Cebu City. The Carungays agreed to pay
P970,000.00, inclusive of contractor's fee, and Deiparine
bound himself to erect the building "in strict accordance to
plans and specifications." Nicanor Trinidad, Jr., a civil
engineer, was designated as the representative of the
Carungay spouses, with powers of inspection and
coordination with the contractor. Deiparine started the
construction on September 1, 1982. On November 6,
1982, Trinidad sent him a document entitled General
Conditions and Specifications which inter alia prescribed
3,000 psi (pounds per square inch) as the minimum
acceptable compressive strength of the building.
In the course of the construction, Trinidad
reported to Cesario Carungay that Deiparine had been
deviating from the plans and specifications, thus impairing
the strength and safety of the building. On September 25,
1982, Carungay ordered Deiparine to first secure
approval from him before pouring cement. This order was
not heeded, prompting Carungay to send Deiparine
another memorandum complaining that the "construction
works are faulty and done haphazardly, mainly due to lax
supervision coupled with, inexperienced and unqualified
staff." This memorandum was also ignored.
After several conferences, the parties agreed to
conduct cylinder tests to ascertain if the structure thus far
built complied with safety standards. Carungay suggested
core testing. Deiparine was reluctant at first but in the end
agreed. He even promised that if the tests should show
total failure, or if the failure should exceed 10%, he would
shoulder all expenses; otherwise, the tests should be for
the account of Carungay. The core testing was conducted
on twenty-four core samples. On the basis of 3,000 psi
(pounds per square inch), all the samples failed; on the
basis of 2,500 psi, only three samples passed; and on the
basis of 2,000 psi, nineteen samples failed. This meant
that the building was structurally defective.
In view of this finding, the spouses Carungay filed
complaint with the Regional Trial Court of Cebu for the
rescission of the construction contract and for damages.
Deiparine moved to dismiss, alleging that the court had
no jurisdiction over construction contracts, which were
now cognizable by the Philippine Construction
Development Board pursuant to Presidential Decree No.
1746. The motion was denied. After trial on the merits, the
RTC Judge declared a.) the construction agreement
rescinded; b) condemned Deiparine to have forfeited his
expenses in the construction in the same of P244,253.70;
c) ordered Deiparine to reimburse to the spouses
Carungay the sum of P15,104.33 for the core testing; d)
ordered Deiparine to demolish and remove all the existing
structures and restore the premises to their former
condition before the construction began, being allowed at
the same time to take back with him all the construction
materials belonging to him; and e) ordered Deiparine to
pay the Carungay spouses attorney's fees in the amount
of P10,000.00 as well as the costs of the suit.
The CA affirmed the decision in toto. Hence, this petition.
Deiparine insisted that the construction agreement does
not specify any compressive strength for the structure nor
does it require that the same be subjected to any kind of
stress test. Therefore, since he did not breach any of his
covenants under the agreement, the court erred in
rescinding the contract. The petitioner challenges the
application by the lower court of Article 1191 of the Civil
Code in rescinding the construction agreement. His
position is that the applicable rules are Articles 1385 and
1725 of the Civil Code.
ISSUES: 1.) Whether the RTC has jurisdiction over the
case. 2.) Whether the rescission of the construction
contract was valid.
RULING: 1.) YES. The wording of P.D. 1746 is clear. The
adjudicatory powers of the Philippine Domestic
Construction Board are meant to apply only to public
construction contracts. Its power over private construction
contracts is limited to the formulation and
recommendation of rules and procedures for the
adjudication and settlement of disputes involving such
(private) contracts. It therefore has no jurisdiction over
cases like the one at bar which remain cognizable by the
regular courts of justice.
2.) YES. The record shows that Deiparine commenced
the construction soon after the signing of the contract,
even before Trinidad had submitted the contract
documents, including the General Conditions and
Specifications.
Article 1385 states that rescission creates the
obligation to return the things which were the object of the
contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be
obliged to restore.
Article 1725 provides that in a contract for a piece
of work:
The owner may withdraw at will from the construction of
the work, although it may have been commenced,
indemnifying the contractor for all the latter's expenses,
work, and the usefulness which the owner may obtain
therefrom, and damages.
Deiparine seems to be confused over the right
of rescission, which is used in two different contexts
in the Civil Code.
Under the law on contracts, there are what are
called "rescissible contracts" which are enumerated in
Article 1381 thus:
(1) Those which are entered into by guardians
whenever the wards who they represent suffer
lesion by more than one-fourth of the value of the
things which are the object thereof;
(2) Those agreed upon in representation of
absentees, if the latter suffer the lesion stated in
the preceding number:
(3) Those undertaken in fraud of creditors when
the later cannot in any other manner collect the
claims due them:
(4) Those which refer to things under litigation if
they have been entered into by the defendants
without the knowledge and approval of the litigants
or of competent judicial authority;
(5) All other contracts specially declared by law to
be subject to rescission.
 Article 1385, upon which Deiparine relies, deals
with the rescission of the contracts enumerated above,
which do not include the construction agreement in
question.
There is also a right of rescission under the law
on obligations as granted in Article 1191, providing as
follows:
"Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.”
This was the provision the trial court and the
respondent court correctly applied because it relates to
contracts involving reciprocal obligations like the subject
construction contract. The construction contract fails
squarely under the coverage of Article 1191 because it
imposes upon Deiparine the obligation to build the
structure and upon the Carungays the obligation to pay
for the project upon its completion.
Article 1191, unlike Article 1385, is not predicated
on economic prejudice to one of the, parties but on breach
of faith by one of them that violates the reciprocity
between them. The violation of reciprocity between
Deiparine and the Carungay spouses, to wit, the breach
caused by Deiparine's failure to follow the stipulated plans
and specifications, has given the Carungay spouses the
right to rescind or cancel the contract.
Article 1725 cannot support the petitioner's
position either, for this contemplates a voluntary
withdrawal by the owner without fault on the part of the
contractor, who is therefore entitled to indemnity, and
even damages, for the work he has already commenced.
there is no such voluntary withdrawal in the case at bar.
On the contrary, the Carungays have been constrained to
ask for judicial rescission because of the petitioner's
failure to comply with the terms and conditions of their
contract.
The other applicable provisions are:
Article 1714. If the contractor agrees to produce the work
from material furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the
thing. This contract shall be governed by the following
articles as well as by the pertinent provisions on warranty
of title and against hidden defects and the payment of
price in a contract of sale.
Article 1715. The contractor shall execute the work in
such a manner that it has the qualities agreed upon and
has no defects which destroy or lessen its value or fitness
for its ordinary or stipulated use. Should the work be not
of such quality, the employer may require that the
contractor remove the defect or execute another work. If
the contractor fails or refuses to comply with this
obligation, the employer may have the defect removed or
another work executed, at the contractor's cost.
Article 1727. The contractor is responsible for the work
done by persons employed by him.
While it is true that the stress test was not
required in any of the contract documents, conducting the
test was the only manner by which the owner could
determine if the contractor had been faithfully complying
with his presentations under their agreement.
Furthermore, both parties later agreed in writing that the
core test should be conducted. When the structure failed
under this test the Carungay spouses were left with no
other recourse than to rescind their contract.
It is a basic principle in human relations,
acknowledged in Article 19 of the Civil Code, that "every
person must, in the performance of his duties, act with
justice, give everyone his due, and observe honesty and
good faith." This admonition is reiterated in Article 1159,
which states that "obligations arising from contracts have
the force of law between the contracting parties and
should be complied with in good faith." The petitioner has
ignored these exhortations and is therefore not entitled to
the relief he seeks.
ROWENA R. SALONTE, Petitioner, vs. COMMISSION
ON AUDIT, CHAIRPERSON MA. GRACIA PULIDO-
TAN, COMMISSIONER JUANITO G. ESPINO, JR.,
COMMISSIONER HEIDI L. MENDOZA, and
FORTUNATA M. RUBICO, DIRECTOR IV, COA
COMMISSION SECRETARIAT, in their official
capacities, Respondents. G.R. No.
207348 August 19, 2014
Article 1193. Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only when
that day comes.
Obligations with a resolutory period take effect at once,
but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated
by the rules of the preceding Section. (emphasis supplied)
A plain reading of the Contract of Reclamation reveals
that the six (6)-year period provided for project
completion, or, with like effect, termination of the contract
was a mere estimate and cannot be considered a period
or a "day certain" in the context of the aforequoted Art.
1193. To be clear, par. 15 of the Contract of Reclamation
states: "[T]he project is estimated to be completed in six
(6) years." As such, the lapse of six (6) years from the
perfection of the contract did not, by itself, make the
obligation to finish the reclamation project demandable,
such as to put the obligor in a state of actionable delay for
its inability to finish. Thus, F.F. Cruz cannot be deemed to
be in delay.
FACTS: On April 26, 1989, the City of Mandaue and F.F.
Cruz and Co., Inc. (F.F. Cruz) entered into a Contract of
Reclamation4 in which F.F. Cruz, in consideration of a
defined land sharing formula thus stipulated, agreed to
undertake, at its own expense, the reclamation of 180
hectares, more or less, of foreshore and submerged lands
from the Cabahug Causeway in that city. The timetables,
i.e., commencement of the contract and project
completion, are provided in paragraphs 2 and 15 of the
Contract which state:
2. COMMENCEMENT. Work on the reclamation
shall commence not later than [July 1989], after this
contract shall be ratified by the Sanggunian
Panlungsod;
xxxx
15. CONTRACT DURATION. The project is
estimated to be completed in six (6) years: (3 years
for the dredge-filling and seawall construction and
3 years for the infrastructures completion).
However, if all the infrastructures within the
OWNERS’ share of the project are already
completed within the six (6) year period agreed
upon, any extension of time for works to be done
within the share of the DEVELOPERS, shall be at
the discretion of the DEVELOPERS, as a growing
city, changes in requirements of the lot buyers are
inevitable. xxx
Subsequently, the parties executed, in relation to
the above project, a Memorandum of Agreement (MOA)
dated October 24, 19895 whereby the City of Mandaue
allowed F.F. Cruz to put up structures on a portion of a
parcel of land owned by the city for the use of and to
house F.F. Cruz personnel assigned at the project site
and that upon completion of the Mandaue City
Reclamation Project, all improvements introduced by
[F.F. Cruz] to the portion of the parcel of land owned by
the [City of Mandaue] existing upon the completion of the
said Mandaue City Reclamation Project shall ipso facto
belong to the [City of Mandaue] in ownership as
compensation for the use of said parcel of land by [F.F.
Cruz] without any rental subject to terms particularly
provided in paragraphs 3, 4 and 5 of the MOA.
Pursuant to the MOA, F.F. Cruz proceeded to
construct the contemplated housing units and other
facilities which included a canteen and a septic tank.
Later developments saw the City of Mandaue
undertaking the Metro Cebu Development Project II
(MCDP II), part of which required the widening of the
Plaridel Extension Mandaue Causeway. However, the
structures and facilities built by F.F. Cruz subject of the
MOA stood in the direct path of the road widening project.
Thus, the Department of Public Works and Highways
(DPWH) and Samuel B. Darza, MCDP II project director,
entered into an Agreement to Demolish, Remove and
Reconstruct Improvement dated July 23, 19976 with
F.F. Cruz whereby the latter would demolish the
improvements outside of the boundary of the road
widening project and, in return, receive the total amount
of PhP 1,084,836.42 in compensation.
Accordingly, petitioner Solante, the Human
Resource Management Officer III, prepared and, with the
approval of Samuel B. Darza (Darza), then issued
Disbursement Voucher (DV) No. 102-07-88-97 for PhP
1,084,836.42 in favor of F.F. Cruz. In the voucher, Solante
certified that the expense covered by it was "necessary,
lawful and incurred under my direct supervision."
Thereafter, Darza addressed a letter-complaint to the
Office of the Ombudsman, inviting attention to several
irregularities regarding the implementation of MCDP II.
The letter was referred to the COA and it found that F.F.
Cruz and Company, Inc. was paid ₱1,084,836.42 for the
cost of the property affected by the widening of Plaridel
Extension, Mandaue Causeway. However, under Section
5 of its MOA with Mandaue City, the former was no longer
the lawful owner of the properties at the time the payment
was made. Based on the above findings, the COA
disallowed the payment of PhP 1,084,836.42 to F.F. Cruz
and naming that company, Darza and Solante liable for
the transaction. F.F. Cruz in time appealed to COA
Central.
The COA affirmed the disallowance of the payment to FF
Cruz and ruled that from the provision of the MOA, it is
clear that the improvements introduced by F.F. Cruz x x x
would be owned by the City upon completion of the
project which under the Contract of reclamation should
have been in 1995. However, the project was not
completed in 1995 and even in 1997 when MDCP paid for
these improvements. The fact that the reclamation project
had not yet been completed or turned over to the City of
Mandaue by F.F. Cruz in 1997 or two years after it should
have been completed, does not negate the right over such
improvements by the City x x x. Clearly, the intention of
the stipulation is for F.F. Cruz x x x to compensate the
government for the use of the land on which the office,
pavement, canteen, extension shed, house and septic
tank were erected. Thus, to make the government pay for
the cost of the demolished improvements will defeat the
intention of parties as regards compensation due from the
contractor for its use of [the] subject land. Under Article
1315 of the Civil Code, from the moment a contract is
perfected, the parties are bound to the fulfillment to what
has been expressly stipulated and all the consequences
which according to their nature, may be in keeping with
good faith, usage and law. Thus, even if the contractual
stipulations may turn out to be financially
disadvantageous to any party, such will not relieve any or
both parties from their contractual
obligations.12 (emphasis supplied). Hence, the instant
petition.
ISSUE: Who between the City of Mandaue and F.F. Cruz
owned during the period material the properties that were
demolished?
RULING: F.F. CRUZ owned the properties that were
demolished.
The COA and its audit team obviously misread
the relevant stipulations of the MOA in relation to the
provisions on project completion and termination of
contract of the Mandaue-F.F. Cruz reclamation contract.
Essentially, the COA is alleging that the Contract
of Reclamation establishes an obligation on the part of
F.F. Cruz to finish the project within the allotted period of
six (6) years from contract execution in August 1989.
Prescinding from this premise, the COA would conclude
that after the six (6)-year period, F.F. Cruz is automatically
deemed to be in delay, the contract considered as
completed, and the ownership of the structures built in
accordance with the MOA transferred to the City of
Mandaue. COA’s basic position and the arguments
holding it together is untenable.
On this point, the Civil Code provision on
obligations with a period is relevant. Article 1193 thereof
provides:
Article 1193. Obligations for whose fulfillment a day
certain has been fixed, shall be demandable only when
that day comes.
Obligations with a resolutory period take effect at once,
but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated
by the rules of the preceding Section. (emphasis supplied)
A plain reading of the Contract of Reclamation
reveals that the six (6)-year period provided for
project completion, or, with like effect, termination of
the contract was a mere estimate and cannot be
considered a period or a "day certain" in the context
of the aforequoted Art. 1193. To be clear, par. 15 of
the Contract of Reclamation states: "[T]he project is
estimated to be completed in six (6) years." As such,
the lapse of six (6) years from the perfection of the
contract did not, by itself, make the obligation to
finish the reclamation project demandable, such as to
put the obligor in a state of actionable delay for its
inability to finish. Thus, F.F. Cruz cannot be deemed to
be in delay.
Put a bit differently, the lapse of six (6) years from
the perfection of the subject reclamation contract, without
more, could not have automatically vested Mandaue City,
under the MOA, with ownership of the structures.
Moreover, even if we consider the allotted six (6)
years within which F.F. Cruz was supposed to complete
the reclamation project, the lapse thereof does not
automatically mean that F.F. Cruz was in delay. As may
be noted, the City of Mandaue never made a demand for
the fulfillment of its obligation under the Contract of
Reclamation. Article 1169 of the Civil Code on the
interaction of demand and delay and the exceptions to the
requirement of demand relevantly states:
Article 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declares; or
(2) When from the nature and the circumstances
of the obligation it appears that the designation of
the time when the thing is to be delivered or the
service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the
obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
Thus, in J Plus Asia Development Corporation v.
Utility Assurance Corporation,17 the Court has held:
In this jurisdiction, the following requisites must
be present in order that the debtor may be in default: (1)
that the obligation be demandable and already liquidated;
(2) that the debtor delays performance; and (3) that the
creditor requires the performance judicially or
extrajudicially. (emphasis supplied)
In the instant case, the records are bereft of any
document whence to deduce that the City of Mandaue
exacted from F.F. Cruz the fulfillment of its obligation
under the reclamation contract. And to be sure, not one of
the exceptions to the requisite demand under Art. 1169 is
established, let alone asserted. On the contrary, the then
city mayor of Mandaue, no less, absolved F.F. Cruz from
incurring under the premises in delay. In his affidavit
dated July 9, 2004,18 then Mayor Ouano stated:
That although x x x the reclamation was estimated to be
completed in six years ending in 1995, the said project
however, was not fully completed when the demolition of
the mentioned improvements of [F.F. Cruz] was made x x
x [and in fact] up to now the said Mandaue Reclamation
Project has not yet been fully completed and turned over
to the City of Mandaue.
x x x [S]ince at the time of the demolition the said
improvements actually belonged to [F.F. Cruz] and the
City of Mandaue has no claim whatsoever on the said
payment x x x for the demolished improvements.
(emphasis supplied)
As it were, the Mandaue-F.F.Cruz MOA states that the
structures built by F .F. Cruz on the property of the
city will belong to the latter only upon the completion
of the project. Clearly, the completion of the project
is a suspensive condition that has yet to be
fulfilled.1âwphi1 Until the condition arises,
ownership of the structures properly pertains to F .F.
Cruz.
To be clear, the MOA does not state that the
structures shall inure in ownership to the City of
Mandaue after the lapse of six ( 6) years from the
execution of the Contract of Reclamation. What the
MOA does provide is that ownership of the structures
shall vest upon, or ipso facto belong to, the City of
Mandaue when the Contract of Reclamation shall
have been completed. Logically, before such time, or
until the agreed reclamation project is actually
finished, F.F. Cruz owns the structures. The payment
of compensation for the demolition thereof is
justified. The disallowance of the payment is without
factual and legal basis. COA then gravely abused its
discretion when it decreed the disallowance.
MARIA LACHICA VS. GREGORIO ARANETA, INC.
47 OG 5699 August 19, 1949
A term is fixed and “it is presumed to have been
established for the benefit of the creditor as well as that of
the debtor, unless from its tenor or from other
circumstances it should appear that the terms as
established for the benefit of one or the other.”
FACTS: Gregorio Araneta, Inc. (through President Jose
Araneta) offered for sale a parcel of land with the
improvements thereon. This property was bought by
Investment Corporation through Maria Lachica, the wife
of the Esteban Sadang who was sales agent of defendant
Corporation.
The terms of the contract stated that the price
was P20,000, of which P8,000 was to be paid in cash and
the balance of P12,000 in installments of –

P 1,000 on or before December 31, 1943
P 1,000 on or before December 31, 1944
P 10,000 on or before December 31, 1945.
What the parties signed was a contract of exact
content as stated, which however omitted the words “or
before.” Thus, it would appear that the payment of the
installments would be “on” and not “on or before” the
dates as specified.
The contract further added that “this same
property will be mortgaged to us to guarantee the unpaid
balance, and the same will bear an interest of 8 percent
per annum; said interest to be paid monthly in advance.”
The terms were complied with, together with
some resolved differences, until on Sept. 5, 1944, plaintiff
Sadang went to see Araneta to pay the entire balance,
including the interest thereon and ask for the cancellation
of the mortgage, but Araneta refused to accept the tender
of payment. Araneta gave as his reason for his non-
acceptance that such payment was not in accordance
with the terms of the deed of sale with mortgage.
Plaintiff, through counsel, deposited the sum
(balance) supposed to be paid to Araneta with the CFI of
Manila by way of consignation, and at the same time
presented the complaint.
The defendant alleges that payment should be
on the date specified, not before; the plaintiffs claim that
such payment may be made on or before the date
specified.
ISSUE: Should Araneta be compelled to accept the
payment?
RULING: YES. The contract does not prohibit if it is done
before (p.5706, no. 2).
A term is fixed and “it is presumed to have been
established for the benefit of the creditor as well as that of
the debtor, unless from its tenor or from other
circumstances it should appear that the terms as
established for the benefit of one or the other.” (Art. 1127,
now 1196 Civil Code). And the contract specifically
provides that “these periods of payment have been
agreed for the benefit of the vendor and the vendee.”
Such mutual benefit has been interpreted to consist of the
time granted a debtor to find means to comply with his
obligation, and the fruits, such as interest, accruing to the
creditor.
From the SC decision in Villaseñor vs.
Javellana, the only impediment to a debtor making
payment before the term fixed, is the denial to the creditor
of the benefits, such as interests, accruing to the later by
reason of the fixed term. This, coupled with the fact that
the contract did not prohibit payment before the fixed
date, justifies the conclusion that under the terms signed,
plaintiffs could do so. To hold otherwise, would be virtually
compelling an obligor to assume an obligation later when
he offers to, and could very well, discharge it earlier. The
law should not be interpreted as to compel a debtor to
remain so, when he is in a position to release himself.
Further, the acceleration clause in the contract
signed by the parties state that “in the event of defaults in
payment of any amount due, either for capital or interest,
the whole balance shall automatically become due and
payable, and the vendor shall have the right to foreclose
the mortgage in its entirety.” While the clause is standard
one contained in most mortgage deeds where the
mortgage loan is payable in several installments, still we
cannot escape the conclusion, derived from the clause
itself, that payments may be made by the vendee before
the dates stated in the contract .
PONCE DE LEON VS SYJUCO INC. and PHILIPPINE
NATIONAL BANK
90 PHIL. 311 G.R. No. L-3316 October 31, 1951
A monetary obligation contracted with a period, the
presumption is that the same is deemed constituted in
favor of both the creditor and the debtor unless from its
tenor or from other circumstances it appears that the
period has been established for the benefit of either one
of them (Art. 1196). Here no such exception or
circumstance exists.
It may be argued that the creditor has nothing to lose but
everything to gain by the acceleration of payment of the
obligation because the debtor has offered to pay all the
interests up to the date it would become due, but this
argument loses force if we consider that the payment of
interests is not the only reason why a creditor cannot be
forced to accept payment contrary to the stipulation.
There are other reasons why this cannot be done. One of
them is that the creditor may want to keep his money
invested safely instead of having it in his hands. Another
reason is that the creditor by fixing a period protects
himself against sudden decline in the purchasing power
of the currency loaned specially at a time when there are
many factors that influence the fluctuation of the currency.
And all available authorities on the matter are agreed that,
unless the creditor consents, the debtor has no right to
accelerate the time of payment even if the premature
tender "included an offer to pay principal and interest in
full."
FACTS: The appellee, Philippine National Bank, was the
owner of two parcels of land in Negros Occidental. On
March 9, 1936, the Bank executed a contract to sell the
said properties to Jose Ponce de Leon for the total price
of P26,300.
Subsequently, Ponce de Leon obtained a loan
from Santiago Syjuco, Inc in the amount of P200,000 in
Japanese Military Notes, payable within one (1) year from
May 5, 1948. It was also provided that in the promissory
note that Ponce de Leon could not pay, and Syjuco could
not demand, the payment of said note except within the
aforementioned period. To secure the payment of said
obligation, Ponce de Leon mortgaged the parcels of land
which he agreed to purchase from the Bank. Using the
loan, Ponce de Leon was able to pay the Bank and a deed
of absolute sale was executed in his name.
The deed of sale executed by the Bank in favor
of Ponce de Leon and the deed of mortgage executed by
Ponce de Leon in favor of Syjuco were registered in the
Office of the Register of Deeds and, as a consequence of
such registration, the Transfer Certificates of Title in the
name of the Bank were cancelled and a new Transfer
Certificates of Title were issued in the name of Ponce de
Leon. The mortgage in favor of Syjuco was annotated on
the back of said certificates.
On July 31, 1944, Ponce de Leon obtained an
additional loan from Syjuco in the amount of P16,000 in
Japanese Military notes and executed in the latter's favor
of promissory note of the same tenor as the one had
previously executed.
 On several occasions in October, 1944, Ponce de
Leon tendered to Syjuco the amount of P254,880 in
Japanese military notes in full payment of his
indebtedness to Syjuco. The amount tendered included
not only the interest up to the time of the tender, but also
all the interest up to May 5, 1948. Ponce de Leon also
wrote to Syjuco a letter tendering the payment of his
indebtedness, including interests up to May 5, 1948,
Syjuco, however, refused to accept such repeated
tenders. During the trial, Ponce de Leon explained that he
wanted to settle his obligations because as a member of
the guerilla forces he was being hunted by the Japanese
and he was afraid of getting caught and killed.
In view of Syjuco's refusal to accept the payment
tendered by Ponce de Leon, the latter deposited with the
Clerk of Court, of First Instance of Manila the amount of
P254,880 and, on November 4, 1944, he filed a complaint
consigning the amount so deposited to Syjuco. To this
complaint Syjuco filed his answer.
On May 15, 1946, Ponce de Leon filed a petition
in the Court of First Instance of Negros Occidental for the
reconstitution of transfer Certificates of Titles in the name
of the Bank and, in an order dated June 4, 1946, the Court
ordered the reconstitution of said titles.
On August 16, 1946, Ponce de Leon obtained an
overdraft account from the Bank in an amount not
exceeding P135,000 and, on the same date, he executed
a mortgage of the two parcels of land covered by the
reconstituted Transfer Certificates of Title in favor of the
said Bank to secure the payment of any amount which he
may obtain from the Bank under aforementioned overdraft
account. The overdraft account was granted by the Bank
to Ponce de Leon in good faith, said Bank not being aware
of the mortgage which Ponce de Leon had executed in
favor of Syjuco during the Japanese occupation, and said
Bank believing that the said properties had no lien or
encumbrance appeared annotated on the reconstituted
certificates of Title in the name of Ponce de Leon.
On September 28, 1946, Syjuco filed a second
amended answer to Ponce de Leon's complaint and, in its
"Tercera Reconvention", it claimed that Ponce de Leon,
by reconstituting the titles in the name of the Bank, by
causing the Register of Deeds to have the said titles
transferred in his (Ponce de Leon's name, and by
subsequently mortgaging the said properties to the Bank
as a guaranty for his overdraft account, had violated the
conditions of the morgage which Ponce de Leon has
executed in its favor during the Japanese occupation.
Syjuco then prayed that the mortgage executed by Ponce
de Leon in favor of the Bank be declared null and void.
On June 24, 1949, the lower court rendered a
decision absolving Syjuco from Ponce de Leon's
complaint and condemning Ponce de Leon to pay Syjuco
the total amount of P23,130 with interest at the legal rate
from May 6, 1949, until fully paid. Both Ponce de Leon
and Syjuco file their appeal from this decision.
ISSUE : Is the consignation made by PONCE DE LEON
valid?
RULING: NO. In order that consignation may be effective,
the debtor must first comply with certain requirements
prescribed by law. The debtor must show (1) that there
was a debt due; (2) that the consignation of the obligation
had been made bacause the creditor to whom tender of
payment was made refused to accept it, or because he
was absent for incapacitated, or because several persons
claimed to be entitled to receive the amount due (Art.
1176); (3) that previous notice of the consignation have
been given to the person interested in the performance of
the obligation (Art. 1177); (4) that the amount due was
placed at the disposal of the court (Art 1178); and (5) that
after the consignation had been made the person
interested was notified thereof (Art. 1178).
In the instant case, while it is admitted a debt
existed, that the consignation was made because of the
refusal of the creditor to accept it, and the filing of the
complaint to compel its acceptance on the part of the
creditor can be considered sufficient notice of the
consignation to the creditor, nevertheless, it appears that
at least two of the above requirements have not been
complied with. Thus, it appears that plaintiff, before
making the consignation with the clerk of the court, failed
to give previous notice thereof to the person interested in
the performance of the obligation. It also appears that the
obligation was not yet due and demandable when the
money was consigned, because, as already stated, by the
very express provisions of the document evidencing the
same, the obligation was to be paid within one year after
May 5, 1948, and the consignation was made before this
period matured. The failure of these two requirements is
enough ground to render the consignation ineffective. And
it cannot be contended that plaintiff is justified in
accelerating the payment of the obligation because he
was willing to pay the interests due up to the date of its
maturity, because, under the law, in a monetary
obligation contracted with a period, the presumption
is that the same is deemed constituted in favor of
both the creditor and the debtor unless from its tenor
or from other circumstances it appears that the
period has been established for the benefit of either
one of them (Art. 1127). Here no such exception or
circumstance exists.
It may be argued that the creditor has nothing
to lose but everything to gain by the acceleration of
payment of the obligation because the debtor has
offered to pay all the interests up to the date it would
become due, but this argument loses force if we
consider that the payment of interests is not the only
reason why a creditor cannot be forced to accept
payment contrary to the stipulation. There are other
reasons why this cannot be done. One of them is that
the creditor may want to keep his money invested
safely instead of having it in his hands. Another
reason is that the creditor by fixing a period protects
himself against sudden decline in the purchasing
power of the currency loaned specially at a time when
there are many factors that influence the fluctuation
of the currency. And all available authorities on the
matter are agreed that, unless the creditor consents,
the debtor has no right to accelerate the time of
payment even if the premature tender "included an
offer to pay principal and interest in full."
Thus, the conclusion is inescapable that the
consignation made by the plaintiff is invalid and, therefore,
did not have the effect of relieving him of his obligation.